[Senate Hearing 110-]
[From the U.S. Government Publishing Office]



 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2008

                              ----------                              


                      WEDNESDAY, FEBRUARY 28, 2007

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:33 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Lautenberg, Bond, Specter, and 
Allard.

                                 AMTRAK

STATEMENT OF ALEXANDER KUMMANT, PRESIDENT AND CHIEF 
            EXECUTIVE OFFICER

               OPENING STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. This subcommittee will come to order. This 
morning, the subcommittee is going to hear testimony on the 
Nation's intercity passenger railroad Amtrak. This past year, 
like the year before it, Amtrak posted a new record ridership, 
24.3 million passengers. The reasons behind Amtrak's recent 
success go right to the heart of the debate over whether we 
need a national intercity railroad.
    People boarded Amtrak in record numbers because gas prices 
were too high, because highways were too congested, because 
runways were too congested, because weather eliminated other 
travel options, and because airlines abandoned air service to 
rural communities. Amtrak certainly isn't the perfect solution 
to all these problems, but it certainly is part of the 
solution.
    Many of my congressional colleagues have sited Amtrak's 
service problems and subsidy needs and have called for dramatic 
reforms. I agree that there are opportunities for reform at 
Amtrak, but we would all do well to remember some things about 
Amtrak's history before we launch into wholesale reforms with 
unknown outcomes.
    Amtrak was created several years ago by combining the 
money-losing passenger operations of several different 
railroads. The Government didn't have the luxury of designing a 
national passenger railroad from scratch. To the contrary, with 
several railroads heading rapidly into bankruptcy, Amtrak was 
created to take over these financial liabilities and link 
together all these money-losing passenger lines. Today, Amtrak 
as we know it is still a hodgepodge. Amtrak owns its track in 
one region of the country, but not in other regions. Some 
States, like mine, pay for both the operating costs and some 
capital costs of their trains. Some States pay just a portion 
of the operating costs, and still other States pay absolutely 
nothing for their Amtrak service. Some Amtrak services run with 
equipment that is just a few years old. Some services run with 
equipment that is several decades old. Even today some of 
Amtrak's equipment dates back from before the railroad was 
founded. Some of it even dates back to before World War II.
    When you are dealing with a hodgepodge system, you need to 
be very suspicious of reforms where one size is expected to fit 
all. I believe that reforms are needed at Amtrak, but I also 
believe these reforms should not just be about cutting 
employees, cutting wages, and cutting communities off the 
national rail map.
    When it comes to cutting employees, Amtrak has already 
dropped its employee head count by almost 6,250. That is a cut 
of more than 25 percent in the last 6 years. When it comes to 
wages, most Amtrak employees haven't seen a real wage increase 
in almost 8 years. Last year, in the name of reform, Amtrak's 
Board of Directors proposed to send some Amtrak jobs overseas. 
That's right, a company that receives over $1 billion in 
taxpayer money each year would be using those tax dollars to 
send jobs overseas. Senator Byrd and I included an amendment on 
last year's appropriations bill to prohibit that. As a result, 
the Amtrak board abandoned its plan. But my point here is not 
everything that is proposed in the name of reform makes sense 
for the American people, or the taxpayers, or for Amtrak's 
passengers.
    I can think of a number of reforms at Amtrak that do make 
sense and are long overdue. They include reforming the way the 
Nation's freight railroads dispatch Amtrak trains so that the 
passengers have a fighting chance to arrive on time. Reforming 
the way Amtrak compensates its employees so they can attract 
and retain the skilled personnel they need. Reforming the way 
the Bush administration budgets for Amtrak's needs so that the 
administration and Congress can focus together on truly 
modernizing the railroad rather than battling annually over 
whether the railroad will be allowed to limp into next year.
    When you look at the recent record, Amtrak has been able to 
increase riders and revenue, not just on the Northeast 
Corridor, but on its State-supported and long-distance trains 
as well. That fact is all the more impressive when you look at 
the abysmal on-time performance on some of these trains outside 
the Northeast Corridor. Outside the corridor, Amtrak travels 
over track that is owned, maintained, and dispatched by freight 
railroads. But as a matter of Federal law, those freight 
railroads are required to give Amtrak trains preference over 
freight traffic when dispatching traffic over their rails. When 
you look at the on-time performance of many of these Amtrak 
trains you have to question whether the law is being ignored.
    There is no question we need our freight railroads to move 
cargo. Freight mobility is an essential part of our economy, 
especially in an agricultural and trade State like mine. It is 
simply not realistic to expect our freight railroads to put 
every coal and container train on a siding so passenger trains 
can breeze through. But right now, more than half of Amtrak's 
long-distance trains arrive late--many of them extremely late. 
When you review the data as to why these trains are late, 
there's one factor that outweighs all the others: interference 
with freight trains.
    More than 76 percent of the delay time that these trains 
endure is associated with problems at the host freight 
railroad. It is either interference with freight traffic, slow 
orders due to deferred maintenance, signal delays, or other 
problems. When you look at some of the Amtrak trains that are 
supported by State subsidies, the record is not much better.
    Let me just talk about two examples of States that get a 
lot of attention by this subcommittee, Washington State and 
Missouri.
    My home State does not only finance the operating losses of 
the Cascade Trains, it has even purchased some of the railcars 
for that service. But last year these trains still arrived late 
almost half the time. In Missouri, the State puts up millions 
of dollars to operate twice daily trains between Kansas City 
and Saint Louis, but last year those trains were allowed to 
arrive on time less than one-third of the time. The on-time 
performance of these trains in December was no better. It is a 
deplorable record. Given that record, it is amazing, indeed, 
that Amtrak can sell any tickets on this train. Yet here too, 
ridership has increased because people want to use the service.
    When you look at the Bush administration's budget for 
Amtrak and the separate budget request submitted by Amtrak's 
Board of Directors, there is one notable area where they are in 
agreement. Both budgets want this subcommittee to set aside 
$100 million in matching funds, for the States to launch new 
passenger corridors. When both Amtrak and the Bush 
administration agree on a budget proposal, you have to take 
notice.
    But given the problem with the on-time performance of these 
State-supported trains, I am left here asking, ``What is the 
point in providing additional funds for new State-supported 
rail services if those trains are just going to suffer the same 
congestion and dispatching problems that befall Amtrak's 
current trains?'' If we're going to put Federal tax dollars 
into capital improvements over privately-owned freight track, 
shouldn't we be focusing those on improving the current 
services, before we start paying for new services? Why should 
States like mine--States that already make substantial cash 
contributions for Amtrak service--have to put up even more 
State dollars just so that their existing trains don't arrive 
consistently late?
    That was his bell for being late.
    So, one Amtrak reform this subcommittee must look at, is 
how we can better ensure that Amtrak trains have a fighting 
chance of arriving on time. No one should expect Amtrak to 
dramatically improve their ridership and financial performance 
of the Northeast Corridor when it is more likely than not that 
those trains won't arrive on time.
    Another Amtrak reform we should look at is seeing to it 
that Amtrak has the resources that it needs to recruit and 
retain the employees they need. Amtrak and its labor unions 
have not been able to reach agreements on a new contract for 7 
years. It's time for that impasse to end. Many crafts have not 
experienced a meaningful pay increase in all of that time. The 
result has not just depressed employee morale. Amtrak is now 
facing serious shortages in a number of skill areas, because 
trained and experienced employees are taking better paying jobs 
with commuter railroads, freight railroads, or outside the 
railroad industry. Amtrak will not be able to improve its 
efficiency, safety, and service quality if it's lowest paying--
if it is the lowest-paying competitor in the industry.
    Finally, it is my hope that we can start having a 
meaningful, fact-based dialogue with the Bush administration 
about Amtrak's real financial needs. President Bush's Federal 
Railroad Administrator will testify to us today that if we cut 
overall funding for Amtrak by almost 40 percent, Amtrak can 
stay out of bankruptcy next year. I'm not sure that any other 
witness here is going to agree with that observation.
    The DOT Inspector General has performed a valuable service 
for this subcommittee, by being an impartial monitor of 
Amtrak's financial condition. Today's witness from the 
Inspector General's office will testify that what Amtrak really 
needs is to be reauthorized. I totally agree that Amtrak 
desperately needs comprehensive legislation that addresses each 
of the challenges I have cited and many others. I sincerely 
hope this legislation is signed into law this year. This 
subcommittee's practice of providing incremental reforms 
through appropriations legislation each year is not the ideal 
way to do business. But absent the enactment of a comprehensive 
Amtrak reform bill, we will continue to do what needs to be 
done to address these areas and keep Amtrak alive for the 
steadily growing number of citizens that demand the service.
    Senator Murray. Senator Bond.

            OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

    Senator Bond. Thank you, Madame Chair. And I join with you 
in welcoming our witnesses today, and look forward to hearing 
the differing views on each of you on the current needs of 
Amtrak and how best to meet the growing challenges that face 
intercity passenger rail. I have many concerns about Amtrak and 
look forward to an opportunity to discuss these.
    I might say, for the record, that I was for Amtrak when it 
was first cool. About a third of a century ago as Governor of 
Missouri, I recommended and signed into law the appropriations 
to provide roughly $1 million a day for Amtrak. And I enjoyed 
the service, but I have a lot of questions about the economic 
feasibility.
    Now, the good news is that my Representatives and Senators 
and Governor of Missouri have been putting about, I believe, $6 
million a year into subsidizing it. So, they see the need. But 
the question is, ``How do we make this viable for the long 
term?'' Our highways continue to become more and more 
congested, and our airports are full of passengers--snowstorms, 
they stay there in the airports and I've done that--and people 
look for alternative modes of transport.
    On the Northeast Corridor, I would love to be able to hop 
on the train to head to New York for the weekend versus trying 
to fight the traffic. But as I understand that while the 
highway traffic has increased markedly on 95, the ridership on 
Amtrak has been relatively stable. And obviously one of the 
reasons is because of the capacity constraints. So, I think 
that needs to be addressed for the Northeast Corridor.
    But again, we need also to look at the economics of east 
coast to west coast service, and how that's going to be paid 
for. We are caught in a spiral where the costs are increasing 
significantly, while overall ridership on Amtrak has gone up. 
In other areas it does not--it is not coming close to paying 
for the service.
    I, too, look forward to comprehensive legislation, but the 
measures that I've seen require significant infusions of 
additional Federal money. Given the budget constraints under 
which this committee operates, I don't see that money being 
available. So I look in the comprehensive legislation for what 
is proposed to pay for the additional costs that this 
legislation would incur.
    Now, to talk about the specific budget, while I have 
questions, I do believe that the budget provided by the 
administration did not provide the funding needed to meet 
Amtrak's anticipated expenses for fiscal year 2008. As we know, 
for this coming fiscal year, the administration recommended 
$900 million for Amtrak, $800 million directly, and $100 
million dedicated to issuing capital matching grants to States 
for intercity passenger rail projects.
    Of the $800 million provided directly to Amtrak, $300 
million is required for Amtrak's new management team to make 
the necessary decisions to act on its mandate and reshape the 
company. I expect Mr. Kummant, with Amtrak, to explain where we 
are today, where we're going, and how much it's going to cost.
    Amtrak must be able to account for its expenditures with 
long-term plans for individual capital improvement similar to 
State TIPs or Transportation Improvement Plans. If the detailed 
Transportation Improvement Plans were provided by Amtrak, we'd 
be better able to understand what unmet needs are out there. 
And we could then decide whether or not we agree with providing 
additional funding for passenger rail service.
    Currently, labor costs require 82 percent of the revenue 
generated for Amtrak, and Amtrak estimates that healthcare 
costs will total $238 million for this 2007 calendar year, 
approximately 22 percent of the total payroll. No business is 
sustainable at this level of operations, regardless of the 
amount of money put in to the efficiency incentive grant 
program.
    Amtrak estimates that the savings they could achieve with 
labor changes is between $82 million and $100 million annually. 
But, unless all options are on the table to achieve savings--as 
highlighted by Amtrak's board--we're going to be unable to 
preserve Amtrak and passenger rail service for the long term. 
As you know, Amtrak spends $2 for every $1 of revenue collected 
on food and beverage service. If you factor out the cost for 
food and beverage, every dollar of revenue equals the labor 
cost to deliver it. We have yet to see results of how Amtrak is 
dealing with this.
    I'm concerned that the budget submission we received for 
Amtrak does not include any funds for debt service payments. 
These payments are necessary, and will be paid whether they are 
a line item for debt service added by this subcommittee, or 
from the $500 million provided for capital costs. We can not 
ignore the fact that debt is there, and that there is an 
immediate and legal obligation to repay it.
    To be blunt, we need a dynamic plan and commitment that 
will transform Amtrak into a viable transportation option. We 
can not afford to tread water year after year where all funding 
basically supports the status quo, while labor costs and 
infrastructure needs continue to explode faster than the 
ridership.
    Thank you, Madame Chair.
    Senator Murray. Thank you Senator Bond.
    Senator Lautenberg, you have an opening statement?

                STATEMENT OF SENATOR FRANK R. LAUTENBERG

    Senator Lautenberg. Thanks very much, Madame Chairman, for 
holding this hearing. I had the opportunity yesterday in the 
committee--subcommittee in commerce--we had a chance to hear 
from Mr. Kummant and Mr. Boardman, and we're pleased to have a 
chance to talk to them as well as the other witnesses today.
    In New Jersey we have enormous traffic problems, but we're 
not unique. Traffic problems across--all we have to do is look 
into Washington, DC and see how long it takes to cover routes 
that used to be 10 minute rides, like to my house--or 12 
minutes--are now a half an hour, if you're lucky. And that's 
the way it is throughout the country. It's very hard to get 
into any area that has any development associated with it, 
where the traffic doesn't overwhelm the efficiency.
    So, in New Jersey, for example, the average New Jerseyan 
spends 300 hours commuting by car each year, and 15 percent of 
that time is wasted in traffic. And, it's not simply the late 
arrivals. When you look at the problem with importing oil 
that's required to maintain those engines as they idle along, 
and the pollution that's created. Last year was the worst year 
for flight delays since 2000. One in four planes was late, and 
we expect nearly 5,000 new light jets to go into service over 
the next 10 years. The sky, we learn now, is finite, it just, 
you don't have room to put everything up there that you'd like 
to.
    With this in mind, Amtrak requested what it needed to keep 
trains running safely and reliably. And then President Bush 
went ahead and requested half as much. And yesterday, when I 
chaired that subcommittee, we discussed the bipartisan bill 
being done by Senator Lott and myself, to fully fund Amtrak and 
expand its service into more cities, because it's critical in 
the traffic movement that is required in this country.
    Last year the Senate approved our plan by a vote of 93 to 
6, because America's travelers need another choice. Now, I look 
forward to getting the same kind of response and support this 
year. In the meantime, we can not continue to let Amtrak 
deteriorate, which is what the President's budget would do.
    Now, when we look at what is spent in other countries to 
achieve first-class rail service, it dwarfs everything we do. 
Germany spent more in a year than we spend in a half a dozen 
years to get their service going. It's excellent. And you've 
got to pay for what you want. And we can not do it on skinny 
budgets that--many of which were designed to bankrupt Amtrak. 
And so I'm working with the Budget Committee to ensure that 
Amtrak gets the Federal resources it needs to provide services 
and options to our citizens.
    And in my new assignment, in this committee, I'm happy to 
work with the Chair and the ranking member to ensure that 
Amtrak is a priority.
    I heard, Madame Chairman, as you were making your 
statement, some of the equipment was as old as World War II. I 
think some of things that, during World War II, still have the 
viability as we go along, and I'm of that vintage. Thank you 
very much.
    Senator Murray. Thank you, Senator Lautenberg.
    Senator Allard.

                   STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Madame Chairman, thank you for holding this 
hearing. I followed Amtrak carefully, on the authorizing side 
for a number of years, so I appreciate the opportunity to be 
more involved on the budget side.
    While passenger rail has a role in efficient modern 
transportation infrastructure, I'm concerned about how Amtrak 
has performed in providing that service. As my colleagues may 
know, I'm a strong proponent of results and outcomes. Amtrak 
and other Government-funded entities should not be judged based 
upon how much they receive in Federal funding, but by the 
results that can be demonstrated by those taxpayer dollars.
    In the case of Amtrak, I'm afraid those results are not 
very impressive. In the administration's PART Assessment--
that's their tool for evaluating the effectiveness of 
programs--Amtrak was rated as ineffective. I'm afraid that 
Amtrak's history before this Congress is plagued with 
unfulfilled promises over the years, stories of inefficiencies 
and a waste of taxpayer dollars. In fact, it was the only 
program in the entire Department of Transportation to receive 
an ineffective rating.
    I want to be clear on what this really means. From the 
administration's description, ineffective means ``programs 
receiving this rating are not using taxpayer dollars 
effectively.'' That seems pretty clear to me, and I'm pleased 
to see that the budget contains a proposal to incentivize more 
State participation.
    Nearly every other area of transportation, including 
highways, mass transit, and aviation, is a partnership between 
the Federal and State or local governments. Passenger rail 
should follow the same model. It should not be considered the 
sole jurisdiction or responsibility of the Federal Government.
    States and localities are also in a position to better 
understand the transportation needs of their citizens. Not only 
does the budget ask them to prioritize their needs, it does so 
in a meaningful way by asking them to share joint funding 
responsibilities. This will help ensure that the highest needs 
are met, rather than producing a wish list of wants.
    I am concerned however, that this change may not be enough. 
I'm unconvinced that Amtrak has completely turned the corner 
and is solidly on the path of financial soundness. I look 
forward to the opportunity to hear from the witnesses about 
this budget request and how it fits into Amtrak's future. Their 
testimony will be helpful as we move forward with the 
appropriation process.
    Thank you Madame Chairman.
    Senator Murray. Thank you, Senator Allard.
    We have five witnesses before our committee today. Mr. 
Kummant, President and CEO of Amtrak, Mr. Boardman, 
Administrator of the Federal Railroad Administration, Mr. 
Tornquist who's the Assistant Inspector General for Competition 
and Economic Analysis, Mr. Wytkind, President of Transportation 
Trades Department, and Mr. Serlin, President of Railroad 
Infrastructure Management.
    You each will be allocated 5 minutes and I ask you to keep 
your remarks within those 5 minutes, so we can get to committee 
member questions.
    And Mr. Kummant, we will begin with you.

                     STATEMENT OF ALEXANDER KUMMANT

    Mr. Kummant. Madame Chairwoman, and members of the 
subcommittee, thank you for the opportunity to testify before 
you today.
    While my testimony will primarily focus on the fiscal year 
2008 budget request, I'd like to take a few minutes to update 
you on how the company is doing. With that, I'll reiterate a 
number of the points you made in the opening comment as well.

                          AMTRAK STATUS UPDATE

    As you know, we finished the fiscal year 2006 by 
establishing new ridership and revenue records. Through 
January, we're continuing to outpace the previous with 
ridership and revenue ahead by 4 percent and 10 percent, 
respectively. The ridership increases are reflected across all 
services, and outside the Northeast Corridor ridership is up 
about 5 percent nationwide, though some corridors have seen 
double-digit growth.
    Overall, the big driver right now is, of course, the 
Northeast Corridor, and particularly the Acela service, where 
ridership is up about 19 percent over the same period last 
year. This is the result of a number of improvements to the 
onboard experience, better reliability and much better on-time 
performance. We've consistently been hovering around 90 percent 
on-time for Acela, and that's the result of having 
significantly reduced the backlog of state of good repair work, 
leaving the Northeast Corridor in the best shape it's been in 
for years.
    Our safety numbers--another key indicator--are also lower 
than last year's final numbers, and we finished this January at 
a 40 percent run-rate improvement over last year. Finally, we 
continue to pay down our debt, and have not assumed any new 
debt for 4 years in a row.
    Within the next few months, we expect to send to Congress 
an update of our multi-year strategic plan, which will 
underscore, again, the need for a fiscal year 2008 funding 
request and provide a vision of where we hope the company will 
be within the next few years.
    In summary, our vision for Amtrak is one of growth, 
particularly in corridor services, product excellence as we're 
demonstrating with Acela, and overall sound management. Looking 
forward, much of the success of passenger rail service will lie 
in the establishment of clear multi-year Federal policy, 
including a Federal-State matching program to fund corridor 
development. The other major initiative we'll have to undertake 
soon is procurement of new equipment as was also alluded to 
earlier. We have an aging fleet with little excess equipment, 
and as corridor service grows, it will be exhausted.

                    FISCAL YEAR 2008 FUNDING REQUEST

    Let me turn to the fiscal year 2008 request. On February 
15, we submitted to Congress our Grant and Legislative Request, 
which I would ask be enclosed for the record. This document 
contains both the specific request and details to explain the 
need for this funding. In short, Amtrak is requesting $1.53 
billion, which is less than last year's request of $1.598 
billion and an increase over the fiscal year 2007 enacted 
amount of $1.3 billion. The budget request breaks down as 
follows: for operating support, $485 million; capital, $760 
million; and mandatory debt service, $285 million.
    We've also suggested that Congress fund $100 million for a 
State corridor match program and an additional $50 million for 
ADA Station accessibility needs. It is worth noting that the 
administration's fiscal year 2008 budget request for Amtrak 
also recommended $100 million for State corridor match program, 
as was referenced earlier.
    With regard to our operating request, the $485 million 
continues a downward slope of operating needs over the last 10 
years. For comparison sake, in fiscal year 1996, operating 
support represented 23 percent of our total budget request. In 
fiscal year 2008, the amount now represents about 19 percent.
    This reduced operating need is accomplished in the face of 
rising costs, particularly in the areas of health and benefits, 
insurance, and fuel. Keep in mind, the absence of new labor 
agreements has certainly helped to keep the operating costs 
relatively constant.
    For our capital needs, Amtrak has requested $760 million, 
which would be used to continue state of good repair 
initiatives, including modernization of our fleet. As I said 
earlier, Amtrak has completed a substantial investment of the 
Northeast Corridor infrastructure, which we own and maintain. 
The on-time performance numbers for all users of the corridor 
reflect the benefit of these investments. For instance, on-time 
performance for New Jersey Transit, a major user of the 
Northeast Corridor, was 94 percent in fiscal year 2006.
    Finally, we continue to invest in our fleet, and expect by 
the end of fiscal year 2009 to bring the entire fleet to state 
of good repair. During the short time that I've been with 
Amtrak, I have been struck by the enthusiasm and support that 
exists for passenger rail services, particularly at the State 
and local levels. And parenthetically, too, I must say the 
energy and drive of our frontline folks, as you alluded to--in 
the face of a long time without labor settlements--is also 
impressive. I believe that we're on the verge of significant 
growth and development of our Nation's rail infrastructure, and 
the steps we're taking today are essential to meet the need for 
the eventual expansion of passenger rail service.

                           PREPARED STATEMENT

    Thank you again for the opportunity to testify today, and I 
look forward to working with you--with each of you in the 
coming months. I'd be happy to answer any question. Thank you.
    [The statement follows:]

                Prepared Statement of Alexander Kummant

    Madame Chairwoman and members of the subcommittee, thank you for 
the opportunity to testify before the subcommittee today. While my 
testimony will primarily focus on the fiscal year 2008 budget request, 
I would like to take a few minutes to update you on how the company is 
doing.
    As you know, we finished fiscal year 2006 by establishing new 
ridership and revenue records. Through January we are continuing to 
outpace the previous year with ridership and revenue ahead by 4 percent 
and 10 percent respectively. The ridership increases are reflected 
across all services, and outside the Northeast, corridor ridership is 
up about 5 percent nationwide though some corridors have seen double 
digit growth. Overall, the big driver right now is the Northeast 
Corridor (NEC) and particularly the Acela service where ridership is up 
about 19 percent over the same period last year. This is the result of 
a number of improvements both to the onboard experience, better 
reliability and much better on time performance (OTP). We have been 
consistently hovering around 90 percent OTP for Acela, and that is the 
result of having significantly reduced the backlog of state-of-good 
repair work, leaving the NEC in the best shape it has been for years. 
Our safety numbers, another key indicator, are also lower than last 
year's final numbers and we finished this January at a 40 percent run 
rate improvement over last year. Finally, we continue to pay down our 
debt and have not assumed any new debt for 4 years in a row.
    Within the next few months we expect to send to Congress an update 
of our multi-year strategic plan which will underscore again the need 
for our fiscal year 2008 funding request and provide a vision of where 
we hope the company will be within the next few years. But, in summary, 
our vision for Amtrak is one of growth (particularly in corridor 
services), product excellence (as we are demonstrating with Acela), and 
sound management overall. Looking forward, much of the success of 
passenger rail service will lie in the establishment of clear multi-
year Federal policy, including a Federal-State matching program to fund 
corridor development. The other major initiative we will have to 
undertake soon is procurement of new equipment. We have an aging fleet 
with little excess equipment, and as corridor service grows, it will be 
exhausted.
    Let me turn to fiscal year 2008 request. On February 15 we 
submitted to Congress our fiscal year 2008 Grant and Legislative 
request which I would ask to be enclosed for the record. This document 
contains both the specific request and details to explain the need for 
this funding. In short, Amtrak has requested $1.53 billion which is 
less than last year's request of $1.598 billion, and a slight increase 
over the fiscal year 2007 enacted amount of $1.3 billion.
    The budget request breaks down as follows:
  --Operating, $485 million;
  --Capital, $760 million; and,
  --Mandatory debt service, $285 million.
    We have also suggested that Congress fund $100 million for a State 
corridor match program and an additional $50 million for ADA station 
accessibility needs. It is worth noting that the administration's 
fiscal year 2008 budget request for Amtrak also recommended $100 
million for a State corridor match program.
    With regard to our operating request, the $485 million continues a 
downward slope of operating needs over the past 10 years. For 
comparison sake, in fiscal year 1996, operating support represented 23 
percent of our total budget request. The fiscal year 2008 amount now 
represents about 19 percent. This reduced operating need is 
accomplished in the face of rising costs particularly in the areas of 
health and benefits, insurance and fuel. Keep in mind, the absence of 
new labor agreements has helped to keep operating costs relatively 
constant.
    For our capital needs, Amtrak has requested $760 million which 
would be used to continue state of good repair initiatives including 
modernization of our fleet. As I said earlier, Amtrak has completed a 
substantial investment of the NEC infrastructure which we own and 
maintain. The on time performance numbers for all users of the corridor 
reflect the benefit of these investments to the NEC plant and 
structures. For instance, on time performance for New Jersey Transit, a 
major user of the Northeast Corridor, was 94 percent for fiscal year 
2006. Finally, we continue to invest in our fleet and expect by the end 
of fiscal year 2009 to bring the entire fleet to a state-of-good-
repair.
    During the short time that I have been with Amtrak I have been 
struck by the enthusiasm and support that exists for passenger rail 
service, particularly at the State and local levels. I believe that we 
are on the verge of significant growth and development of our Nation's 
rail infrastructure and the steps we are taking today are essential to 
meet the need for the eventual expansion of passenger rail service. 
Thank you again for the opportunity to testify before the subcommittee 
today and I look forward to working with each of you in the coming 
months. I would be happy to answer your questions.

    Senator Murray. Thank you.
    Mr. Boardman.

                      DEPARTMENT OF TRANSPORTATION


                    Federal Railroad Administration

STATEMENT OF HON. JOSEPH H. BOARDMAN, ADMINISTRATOR
    Mr. Boardman. Chairwoman Murray, ranking member Bond, 
Senators Lautenberg and Allard, thank you for having me here 
today. I'm here on behalf of Secretary Peters and the Bush 
administration to talk about the budget proposal for 2008.

            ADMINISTRATION FISCAL YEAR 2008 BUDGET PROPOSAL

    As you've already noted, the administration requests $800 
million in direct subsidies to Amtrak, and $100 million to fund 
a program of matching grants to the State under the capital 
investment projects for passenger rail services that the State 
believes are important.
    The request includes that $500 million in direct Federal 
subsidies for Amtrak's capital costs, and in addition--I'll 
discuss in a moment--the $100 million, 50 percent Federal match 
program with the States. With this amount, Amtrak and its State 
partners could carry out a capital improvement program that, 
when combined with other collections from Amtrak, can address 
the most pressing investment needs, and given the system today, 
is an amount that they can reasonably manage in 2008. The 
administration also requests $300 million for transitional 
operating costs. The Government Accountability Office, the DOT 
IG, the Amtrak IG, and others have recently presented options 
for achieving the savings necessary for that number.

                        STATE MATCHING PROPOSAL

    Most publicly-supported transportation in the United States 
is undertaken through a partnership between the Federal 
Government and the United States--and the States, excuse me. 
This model--which has worked well for generations for highway, 
transit, and airports--places the States--and in certain cases 
their subdivisions--in the forefront of planning and 
decisionmaking.
    States are uniquely qualified to understand their mobility 
needs and connectivity requirements through state wide and 
metropolitan area inter-modal and multi-modal transportation 
planning, funded in part by the U.S. DOT. While intercity 
passenger rail has historically been an exception to this 
application of the model, in recent years some States have 
taken an active role in their rail transportation services. 
Several States have chosen to invest in intercity passenger 
rail provided by Amtrak as part of strategies to meet their 
passenger mobility needs. And over the past 10 years, ridership 
on intercity passenger rail routes that benefit from State 
support has grown by 73 percent--over that same period, 
ridership on Amtrak routes not supported by States, only by 7 
percent.
    State involvement and planning and decisionmaking for 
intercity passenger rail identifies where mobility needs 
justify public investment. An excellent example, you've already 
identified this morning--in Washington State, which has 
invested in intercity passenger rail from Portland, Oregon 
through Seattle, to Vancouver to make this service a viable 
alternative to highway travel on the congested I-5 Corridor.
    Illinois provides another example where its recent 
investments have doubled the number of intrastate trains 
operated by Amtrak. Additionally, State involvement in planning 
and decision making helps ensure that the infrastructure such 
as stations and connectivity to other forms of transportation, 
support inter-modalism within the State. There's no better 
example for that than North Carolina.
    State involvement in funding intercity passenger rail 
service also provides an added discipline on Amtrak to 
continually seek ways to provide the highest quality of 
service. An example of that can be found in Vermont where the 
State--when presented with prospects of higher State operating 
subsidies for its current service--is working with Amtrak to 
restructure this service, which will not only drive down 
operating costs, but will also increase the frequency of 
service.
    Amtrak's own strategic reform initiative seeks to build on 
Amtrak's experience with the States. Amtrak is seeking to 
create a stronger role with the States in designing and 
supporting the services the States believe are important. The 
administration supports this aspect of Amtrak's internal 
reform.
    In discussions with interested States, the U.S. DOT has 
found that the single greatest impediment to implementing this 
initiative is the lack of Federal-State partnership, similar to 
that which exists for highways and transit. For investing in 
the capital needs of intercity passenger rail, such a 
partnership is one of the five principles of intercity 
passenger rail reform laid out by former Secretary Mineta in 
2002, and was a central element of the administration's 
Passenger Rail Reinvestment Reform legislative proposal.

                           PREPARED STATEMENT

    Therefore, the administration is proposing a capital grant 
program that will encourage State participation in its 
passenger rail service. Under the new program, a State, or 
States, would apply to FRA for a grant up to 50 percent of the 
cost of investment. Priority would be given to infrastructure 
improvements, and projects that improve the safety, 
reliability, and schedule of intercity passenger trains, reduce 
congestion on the host freight railroads where the freight 
railroads commit to an enforceable on-time performance of 
passenger trains of 80 percent or greater. Additionally, the 
specific project would have to be on the State Transportation 
Improvement Program at the time of the application.
    Thank you for the opportunity to speak.
    [The statement follows:]

             Prepared Statement of Hon. Joseph H. Boardman

    Chairman Murray, Ranking Member Bond, I appreciate the opportunity 
to appear before you today on behalf of Secretary of Transportation 
Mary Peters and the Bush administration to discuss the President's 
budget proposal for fiscal year 2008 as it relates to the Federal 
Railroad Administration and Amtrak.
    The administration remains committed to improving the manner by 
which intercity passenger rail services are provided. This, of 
necessity, also includes improvements to how Amtrak provides this 
service and laying the groundwork for the States to have a stronger 
role in determining the important characteristics of services that 
States support financially and for the participation of other entities 
in the provision of intercity passenger rail service under contract to 
the States and/or Amtrak.
    Since 2002, the administration has drawn a distinction between 
intercity passenger rail service, a form of transportation, and Amtrak, 
the company that provides the service. The administration supports the 
form of transportation as a component of our national transportation 
system but recognizes there are shortcomings with the service provider. 
The administration's advocacy for change is beginning to see results as 
Amtrak, through its Board of Directors, has acknowledged the urgent 
need for reform and issued a Strategic Reform Initiative plan that 
mirrors major elements of the administration's plan, such as 
introducing competition; empowering States to participate in 
infrastructure decisions; reducing operating subsidies; and enabling 
management to separate Amtrak's train operations from its 
infrastructure management. There is also a new management team being 
put in place with a mandate to overhaul the company. Congress similarly 
has taken steps to encourage cost efficiency and accountability. 
Nevertheless, much more is required to resolve Amtrak's well-documented 
problems.
    For fiscal year 2008, the administration requests $800 million in 
direct subsidies to Amtrak and $100 million to fund a program of 
matching grants to the States to undertake capital investment projects 
for passenger rail services that the States believe important. This 
amount would support continued intercity passenger rail service and 
would enable Amtrak's new management team to act on its mandate to 
reshape the company. However, it would also require that Amtrak 
undertake meaningful reforms and control spending. The fiscal year 2008 
budget request marks part of a multiyear effort to reduce, and 
eventually eliminate, operating subsidies for Amtrak. Overall, this 
level of subsidy is appropriate because it will provide Amtrak 
continuing incentive to grapple with costs, rationalize its services, 
and pursue innovations. It would also expand State support for 
intercity passenger rail, thus putting more of the decisions on what 
should be operated with public subsidies in the hands of those who know 
best what intercity passenger needs exist and how best to meet those 
needs.
    Consistent with fiscal year 2006 appropriations account 
restructuring, the fiscal year 2008 budget seeks Amtrak funds through 
the Capital Grants and Efficiency Incentive Grant accounts. The 
administration agrees that using distinct budget accounts for Amtrak 
makes Federal spending more transparent. The budget also contains many 
of the stipulations included in the fiscal year 2006 appropriations 
language.

                             CAPITAL GRANTS

    The request includes $500 million in direct Federal subsidies for 
Amtrak capital costs. In addition, the budget, as discussed below, 
includes $100 million to fund a program of grants to States, requiring 
a 50 percent match, to fund capital costs associated with intercity 
passenger rail services that the States deem important. With this 
amount, Amtrak and its State partners could carry out a capital 
improvement program that, when combined with other collections from 
Amtrak partners, can address the most pressing investment needs on the 
Northeast Corridor infrastructure as well as essential equipment 
investments. The request represents close to the maximum capital budget 
that Amtrak could reasonably manage in fiscal year 2008, given that it 
can complete only a certain amount of work annually.

                   AMTRAK OPERATING EFFICIENCY GRANTS

    The administration requests $300 million for transitional operating 
costs. The request for operating subsidies is sufficient to avoid a 
bankruptcy, provided Amtrak acts to cut its costs by focusing on core 
services. To ensure this occurs, the administration proposes DOT be 
able to target funding based on Amtrak's progress in implementing cost-
cutting measures. For example, the Secretary of Transportation could 
review and approve grant requests for individual train routes, or 
require Secretarial approval for the use of funds for specific 
operating expenses, such as subsidies of food and beverage service 
which, in fiscal year 2006, accounted for more than 10 percent of the 
total Federal subsidy of Amtrak. Amtrak must also improve its operating 
performance through revenue gains, debt service reductions, or other 
means. Ultimately, the $300 million request should lead to a more 
efficiently run railroad by causing Amtrak's management to explore 
opportunities for savings and for revenue gains. The Government 
Accountability Office, DOT Inspector General (IG), Amtrak IG, and 
others have all recently presented options for achieving savings.

                 INTERCITY PASSENGER RAIL GRANT PROGRAM

    Most publicly supported transportation in the United States is 
undertaken through a partnership between the Federal Government and the 
States. This model, which has worked well for generations for highways, 
transit and airports places the States, and in certain cases their 
subdivisions, at the forefront of planning and decisionmaking. States 
are uniquely qualified to understand their mobility needs and 
connectivity requirements through Statewide and metropolitan area 
intermodal and multimodal transportation planning funded, in part, by 
the U.S. Department of Transportation.
    While intercity passenger rail has historically been an exception 
to the application of this successful model, in recent years some 
States have taken an active role in their rail transportation services. 
Several States have chosen to invest in intercity passenger rail 
service provided by Amtrak as part of strategies to meet their 
passenger mobility needs. Over the past 10 years, ridership on 
intercity passenger rail routes that benefit from State support has 
grown by 73 percent. Over that same time period, ridership on Amtrak 
routes not supported by States has increased by only 7 percent.
    State involvement in planning and decisionmaking for intercity 
passenger rail service identifies where mobility needs justify public 
investment. An excellent example can be found in Washington State, 
which has invested in intercity passenger rail from Portland, Oregon 
through Seattle to Vancouver, British Columbia, to make this service a 
viable alternative to highway travel on the congested I-5 corridor. 
Illinois provides another example, where its recent investments have 
doubled the number of intrastate trains operated by Amtrak.
    Additionally, State involvement in planning and decisionmaking 
helps assure that the infrastructure, such as stations, and 
connectivity to other forms of transportation support intermodalism 
within the State. No better example of this exists than in North 
Carolina where the State has undertaken the redevelopment of its 
intercity passenger rail stations and transformed them into multimodal 
transportation centers serving the mobility needs of the communities in 
which they are located.
    State involvement in funding intercity passenger rail service also 
provides an added discipline on Amtrak to continually seek ways to 
provide the highest quality of service. An example can be found in 
Vermont where the State, when presented with the prospects of higher 
State operating subsidies for its current service, is working with 
Amtrak to restructure the service that will not only drive down 
operating costs, but will increase the frequency of service.
    Amtrak's own strategic reform initiative seeks to build on Amtrak's 
recent experience with the States. Amtrak is seeking to create a 
stronger role for the States in designing and supporting the services 
the States believe important. The administration supports this aspect 
of Amtrak's internal reform. In discussions with interested States, the 
U.S. Department of Transportation has found that the greatest single 
impediment to implementing this initiative is the lack of a Federal/
State partnership, similar to that which exists for highways and 
transit, for investing in the capital needs of intercity passenger 
rail. Such a partnership is one of the five principles of intercity 
passenger rail reform laid out by former Secretary Mineta in 2002 and 
was a central element of the administration's passenger rail investment 
reform legislative proposal.
    Therefore, the administration is proposing a Capital Grant Program 
that will encourage State participation in its passenger rail service. 
Under this new program, a State or States would apply to FRA for grants 
of up to 50 percent of the cost of capital investments necessary to 
support improved intercity passenger rail service that either requires 
no operating subsidy or for which the State or States agree to provide 
any needed operating subsidy. Priority would be given to infrastructure 
improvement projects that improve the safety, reliability and schedule 
of intercity passenger trains; reduce congestion on the host freight 
railroads where the freight railroads commit to an enforceable on-time 
performance of passenger trains of 80 percent or greater; commit States 
to contribute other additional financial resources to improve the 
safety of highway/rail grade crossings over which the passenger service 
operates; and protect and enhance the environment, promote energy 
conservation, and improve quality of life. To qualify for funding, 
States would have to include intercity passenger rail service as an 
integral part of Statewide transportation planning as required under 23 
U.S.C. 135. Additionally, the specific project would have to be on the 
Statewide Transportation Improvement Plan at the time of application.
    I appreciate your attention and would be happy to answer questions 
that you might have.

    Senator Murray. Thank you, Mr. Boardman.
    Mr. Tornquist.

                    Office of the Inspector General

STATEMENT OF DAVID TORNQUIST, ASSISTANT INSPECTOR 
            GENERAL FOR COMPETITION AND ECONOMIC 
            ANALYSIS
    Mr. Tornquist. Thank you, Chairman Murray and members of 
the subcommittee. I appreciate the opportunity to present our 
views on Amtrak's fiscal year 2008 financial needs.

             DOT IG FISCAL YEAR 2008 AMTRAK BUDGET PROPOSAL

    Let me begin by providing some context for our 2008 funding 
recommendation for Amtrak. The fact that Amtrak set records in 
both ridership and ticket revenue in fiscal year 2006, ended 
the year with over $200 million in the bank, and achieved $61 
million in savings from operational reforms might lead one to 
think that Amtrak has turned the corner. However, to the 
contrary, we believe that Amtrak remains in a precarious 
financial condition.
    Amtrak deserves credit for the recent progress it has made 
in providing improved service and achieving cost savings. 
However, systemwide on-time performance declined again last 
year, operating losses remained unsustainably high, the 
infrastructure still shows a toll of years of underinvestment, 
and debt service continues to significantly cut into available 
funds. While much has been done to improve Amtrak, much more 
work remains.
    Given this context, we believe Amtrak would need in fiscal 
year 2008, $465 million for cash operating losses, $600 million 
for capital spending, and $285 million for debt service to 
operate a nationwide system, while maintaining modest progress 
towards achieving a state of good repair.
    Not all of this $1.35 billion needs to come from direct 
appropriations. Some could come from Amtrak's cash balances, 
depending on its projected year-end cash position later in the 
year. The $465 million operating subsidy would enable Amtrak to 
provide nationwide passenger rail service, while focusing its 
attention on needed reform and operational improvements. We 
also recommend that Amtrak's operating subsidy be appropriated 
separately from capital and debt service, just as Congress did 
in fiscal year 2006. This would prevent the deferral of capital 
projects, in order to avoid the more difficult work of 
improving Amtrak's operating efficiency. The capital amount 
would allow modest progress for a state of good repair, and the 
debt service amount we're recommending is Amtrak's estimate of 
its fixed cost for principal and interest.
    In addition, we support--with caveats--the State capital 
matching grant program, as included in the President's fiscal 
year 2008 budget, and in S. 294, the Passenger Rail Investment 
and Improvement Act, as a means to stimulate rail corridor 
development. Rail corridors hold the greatest potential for 
future ridership growth, and steps need to be taken to begin to 
address the expected demand for these routes.

               OIG CONCERNS WITH STATE MATCHING PROPOSAL

    Our concerns with the proposed program are as follows. 
First, we believe it must be designed to ensure the Federal 
investment leverages new State investments, and does not simply 
supplant investments the States otherwise would have made.
    Second, Amtrak must finalize and gain acceptance for its 
route restructuring, cost recovery for State services, and 
labor reforms to improve the efficiencies of its core 
operations, before turning its attention to expanding those 
operations. Put simply, Amtrak needs to get its own house in 
order before investing in another property down the street.
    And third, we recommend an 80/20 match rate similar to that 
for the Federal Highway Program--rather than the 50/50 match 
rate proposed by the administration--to put State investment in 
rail on equal footing with other transportation modes.

                         AMTRAK REFORM EFFORTS

    Increased investment in intercity passenger rail must go 
hand to hand with improved operating efficiencies. Mr. Kummant 
and his senior management team have come onboard at a critical 
time. In the ongoing efforts to instill fiscal discipline at 
Amtrak. The board and current management seem committed to 
reform. However, the real test of that commitment will come 
soon as Amtrak moves from implementing relatively easier 
reforms, to implementing the more challenging ones. As Amtrak 
stated just 1 year ago, ``The test of its reform efforts will 
be its ability to implement substantial sustainable change that 
will deliver not only ongoing financial improvement, but a new 
environment for passenger rail that moves us beyond the 
stalemate of the last 35 years.''
    Amtrak's initial set of operating reforms saved $61 million 
last year. Amtrak reduced the cost of its food and beverage 
service, improved the productivity of its train operations, 
reduced corporate overhead, and increased revenues through 
variable fares in the Northeast Corridor, and enhanced services 
on the Empire Builder. This is a commendable start. Amtrak has 
committed to saving an additional $61 million in fiscal year 
2007 and $82 million in fiscal year 2008.
    We do have some concerns regarding Amtrak's reform efforts. 
These include a concern that Amtrak may miss its reform target 
in fiscal year 2007, because some planned reforms are on hold 
while their potential to generate actual savings is being 
reevaluated. We're concerned that Amtrak has limited details on 
its planned 2008 reforms, it has only high-level long-term 
implementation plans for its planned reforms--where it has any 
long-term plans at all--and that it may be overemphasizing 
revenue enhancements instead of cost reductions.
    Over the long term, reauthorization holds the key to 
Amtrak's future. As we testified previously, our long-term 
proposal for financing intercity passenger rail would focus on 
three key goals: continuing improvement in cost effectiveness 
of services provided; devolution of power to determine those 
services to States, and adequate and stable sources of Federal 
and State funding. Absent a fundamental restructuring of the 
company through reauthorization, it will again fall to the 
Appropriations Committee to maintain fiscal discipline at 
Amtrak, specifically by limiting the funds available to 
subsidize operating losses, fencing those funds to prevent the 
shifting from capital to operating expenses, and then making 
Federal support conditional upon further operating 
restructuring.

                           PREPARED STATEMENT

    Madame Chairman, that concludes my statement. I'd be happy 
to answer any questions you might have.
    [The statement follows:]

                 Prepared Statement of David Tornquist

    Chairman Murray, Ranking Member Bond and members of the 
subcommittee, I appreciate the opportunity to present the views of the 
Office of Inspector General on Amtrak's fiscal year 2008 financial 
needs, its recent efforts to improve its financial condition, and 
alternatives for financing intercity passenger rail. My statement today 
will draw upon the Quarterly Reports on Amtrak's Savings from 
Operational Reforms your committee and your House counterparts have 
requested of our office, as well as other work we have undertaken on 
Amtrak's financial and operating performance.
    Amtrak's Condition Remains Precarious.--Amtrak set records in both 
ridership and ticket revenue in fiscal year 2006, ended the year with 
over $200 million in the bank, and achieved $61 million in savings from 
operational reforms. Does this mean Amtrak has turned the corner 
operationally and financially? No, unfortunately, it doesn't. While 
improvements have been made, we believe Amtrak's condition remains 
precarious.
    Amtrak deserves credit for the recent progress it has made in 
providing improved service and achieving cost savings. The result of 
this progress is evident in Amtrak's improved ridership and revenue. 
Nevertheless, Amtrak has a long way to go before it can reach, let 
alone turn, the proverbial corner. Systemwide, on-time performance 
declined for the fifth consecutive year, operating losses remain 
unsustainably high, the infrastructure still shows the toll of years of 
underinvestment, and debt service continues to significantly cut into 
available funds. Much has been done to improve Amtrak, but much more 
work remains.
    Amtrak Requires More in Capital and Less in Operating Subsidy in 
Fiscal Year 2008.--Based on the information available today, Amtrak 
would need $465 million available to it in fiscal year 2008 for cash 
operating losses, $600 million for capital spending, and $285 million 
for debt service to operate a nationwide system while maintaining 
modest progress towards achieving a state of good repair. As Amtrak 
revises its revenue and expense estimates during the year, our estimate 
also may change. Not all these funds need come from direct 
appropriations, some could come from Amtrak's cash balances, depending 
on its projected year-end cash position later in the year.
    A $465 million operating subsidy in fiscal year 2008 would enable 
Amtrak to provide nationwide passenger rail service, while focusing its 
attention on needed reform and operational improvements. As Congress 
did in fiscal year 2006, appropriating the operating subsidy separately 
from the capital and debt service would prevent the deferral of capital 
projects in order to avoid the more difficult work of improving 
Amtrak's operating efficiency. The capital amount will allow modest 
progress toward a state-of-good repair and the debt service amount is 
Amtrak's estimate of its fixed cost for principal and interest.
    We have testified previously that we support a State capital 
matching grant program as a means to stimulate corridor development. 
With caveats, we support the $100 million capital matching grant 
program included in the President's fiscal year 2008 budget and in S. 
294, the Passenger Rail Investment and Improvement Act. We believe this 
program must be designed to ensure the Federal investment leverages new 
State investments and does not simply supplant investments that States 
otherwise would have made. Further, Amtrak must finalize and gain 
acceptance for its route restructuring, cost recovery for State 
services, and labor reforms to improve the efficiency of its core 
operations before turning its attention to expanding those operations. 
Finally, we would support an 80/20 match rate, similar to that for 
highways, rather than the 50/50 match rate proposed by the 
administration, to put State investment in rail on an equal footing as 
other transportation modes.
    Increased Investment in Intercity Passenger Rail Must Go Hand in 
Hand With Improved Operating Efficiencies.--Amtrak's new CEO and his 
senior management came aboard at a critical time in the ongoing efforts 
to instill fiscal discipline at the corporation through operational 
reforms. Since the development of the current Strategic Reform 
Initiatives, Amtrak is on its second CEO and its Board has three new 
members. The Board and current management seem committed to reform. 
However, the real test of that commitment will come shortly as Amtrak 
moves from implementing relatively easy reforms to more challenging 
ones.
    In fiscal year 2006 Amtrak realized $61.3 million in savings from 
operating reforms by reducing the cost of its food and beverage 
service, improving the productivity of its train operations, reducing 
corporate overhead, and increasing revenues through variable fares on 
the Northeast Corridor (NEC) and enhanced service on the Empire 
Builder. Amtrak has committed to saving an additional $61 million in 
fiscal year 2007 and $82 million in fiscal year 2008 from reforms.
    Regarding Amtrak's continuing efforts to improve its financial 
condition, we are concerned that Amtrak: (1) may miss its reform 
savings target in fiscal year 2007 because some planned reforms are on 
hold while their potential to generate actual savings is being 
reevaluated; (2) has limited detail on its planned fiscal year 2008 
reforms; (3) has only high-level long-term implementation plans for its 
planned reforms, where it has any long-term plans at all; and (4) may 
be overemphasizing revenue enhancements instead of cost reductions. 
Management's goal of ``instilling a culture of continuous improvement 
throughout the organization'' is the right one. Achieving it should be 
a necessary precondition for significant new State or Federal 
investment in intercity passenger rail service.
    More work needs to be done to eliminate the losses on food and 
beverage and, in particular, first class sleeper service. Any subsidy 
of first-class passengers remains unacceptable. In July 2005, we 
reported that Amtrak could save between $75 million and $158 million in 
annual operating costs by eliminating sleeper car service, outsourcing 
food and beverage service, and eliminating other amenities on long 
distance trains. In fiscal year 2006, the operating loss on long-
distance trains was almost $600 million with a per passenger operating 
subsidy of over $200 on three of the routes. A significant amount of 
work needs to be done to finalize and implement Amtrak's proposed route 
restructuring, state services, and labor reform initiatives, all three 
of which are critical components of Amtrak's long-term financial plan.
    Reauthorization Holds the Key to Amtrak's Long-Term Outlook.--As we 
testified previously, our proposal for financing intercity passenger 
rail service would focus on three key goals: (1) continuous 
improvements in the cost-effectiveness of services provided, (2) 
devolution of the power to determine those services to the States, and 
(3) adequate and stable sources of Federal and State funding. Our 
proposal requires a reauthorization for Amtrak.
    These goals can be achieved through six programmatic changes: 
formula grants to States for capital and operating costs of intercity 
passenger services, restoration of the forward-going system to a state-
of-good repair, capital matching grants to States for corridor 
development, establishment of adequate Federal and State funding, 
resolution of the legacy debt issues, and resolution of NEC ownership 
and control.
    Other alternatives for financing intercity passenger rail service 
include: (1) permitting States to issue tax exempt bonds for rail 
infrastructure development and (2) turning the NEC over to private 
investors with the support of a Federal loan. Permitting States to 
issue tax exempt bonds for rail infrastructure would address a goal we 
support of providing States with greater access to capital funds. 
Regarding whether tax exempt bonds is the preferred way to make these 
capital funds available, I would note that the Congressional Budget 
Office has concluded that when tax credit bonds are used in lieu of 
Federal appropriations, the cost to the Federal Government is greater 
than it would be through conventional financing through the Department 
of the Treasury. However, carefully designed tax credit bonds could 
cost the Federal Government less per dollar of assistance provided to 
State and local governments than the Federal tax exemption accorded 
``municipal'' bonds issued by those governments.
    Turning the NEC over to private investors has some attractive 
features, particularly adding private investment through rail-dependent 
development and proposed service improvements. However, we raised in 
the past concerns regarding proposals to separate the NEC 
infrastructure management and operations into two independent 
companies. In addition, we would have to see a more detailed financing 
proposal to determine its soundness.
    Absent a fundamental restructuring of the company through 
reauthorization, it will again fall to the Appropriations committees to 
maintain fiscal discipline at Amtrak, specifically by limiting the 
funds made available to subsidize operating losses and by making 
Federal support conditional upon further operational restructuring.
    I will now discuss these issues in greater detail.
 despite improvements, amtrak's financial condition remains precarious
    The current model for providing intercity passenger service 
continues to produce financial instability and poor service quality. We 
have seen some improvement in Amtrak's financial and operating 
performance recently, but there are limits as to how much can be done 
within the current framework.
    Operating Losses.--Amtrak continues to incur substantial operating 
losses. It ended fiscal year 2006 with a net operating loss of $1.1 
billion. On the positive side, Amtrak's net operating loss was $65 
million less than last year and its cash operating loss, excluding 
interest and depreciation, was $17 million less than the same period 
last year. Operating losses on long-distance trains, excluding interest 
and depreciation, were $440 million in fiscal year 2006. Over the last 
5 years, annual cash losses, excluding interest and depreciation, have 
fallen only modestly--a little more than 3 percent a year. 


    Debt Burden.--Amtrak continues to carry a large debt burden. Its 
total debt peaked at $4.8 billion in fiscal year 2002 and has declined 
to $4.2 billion in fiscal year 2006. For the foreseeable future, 
Amtrak's annual debt service will approach $300 million, eating into 
the amount of funds potentially available for critical capital 
investments.


    Revenue and Ridership.--Passenger revenues increased to a peak 
level of $1.426 billion in fiscal year 2006, primarily as a result of 
Amtrak's systemwide general fare increases and revenue management of 
the NEC Regional and Acela Express services (Amtrak's premier service). 
Despite the fare increases, ridership increased to 24.3 million in 
fiscal year 2006. For the first 3 months of fiscal year 2007, passenger 
revenues were $36 million higher than the same period in fiscal year 
2006, mainly due to fare increases. Ridership growth during this period 
rose 3.9 percent.


    On-Time Performance.--Systemwide, on-time performance has been 
declining steadily since fiscal year 2002, from 77 percent to 68 
percent in fiscal year 2006. While Amtrak's Acela Express service 
achieved on-time performance of nearly 85 percent, long-distance trains 
averaged 30 percent last year. The poorest performing train, the Coast 
Starlight had an on-time performance of only 3.9 percent. Systemwide, 
on-time performance in the first quarter of fiscal year 2007 increased 
to 69.1 percent, compared to 65.3 percent for the first quarter of 
fiscal year 2006.


 THE APPROPRIATIONS PROCESS CAN PROVIDE NEEDED FISCAL DISCIPLINE OVER 
 AMTRAK'S OPERATING LOSSES WHILE AMTRAK CONTINUES TO ADDRESS CRITICAL 
                             CAPITAL NEEDS

    The delivery of intercity passenger rail service needs to be 
fundamentally restructured through a reauthorization. However, as we 
have seen in the past year, meaningful, but incremental, operational 
reforms are still possible in the absence of a reauthorization. The 
process established by the Appropriations Committee in fiscal year 
2006, which specifically directed Amtrak to achieve savings through 
operating efficiencies, achieved $61 million in savings in the first 
year. This process is not a substitute for reauthorization, but it is 
of considerable value nonetheless, and we strongly encourage Congress 
to continue it in fiscal year 2008. As we stated in our March 16, 2006 
testimony, a critical component is funding Amtrak at a level that 
maintains the impetus for reform. This would require that the operating 
subsidy be appropriated separately from the capital and debt service 
appropriations.
    Our recommendation of an operating grant of $465 million in fiscal 
year 2008 reflects the need to keep the process of continual 
improvement at Amtrak moving forward. It also takes into consideration 
Amtrak's better-than-expected fiscal year 2006 headcount, lower fiscal 
year 2006 expenses, and our concerns regarding the methodology Amtrak 
uses in developing its budget estimates, which we previously reported 
on. These factors led us to conclude in our January 2007 Quarterly 
Report on Amtrak's Savings from Operational Reforms that Amtrak needed 
a fiscal year 2007 operating subsidy of $470 million. (This recommended 
fiscal year 2007 operating subsidy was an increase of $37 million above 
Amtrak's actual cash operating loss in fiscal year 2006 of $433 
million.) Our lower starting point for fiscal year 2007, recent 
increases in revenue, and lower personnel costs lead us to our 
recommendation of a $465 million fiscal year 2008 operating subsidy.
    A significant unknown at this point is whether there will be labor 
settlements this year and, if they occur, what the associated costs and 
possible work rule changes may be. Agreement labor costs, including 
benefits, account for more than half of Amtrak's current cost 
structure. The net effect of a final settlement would need to be 
reflected in our recommended fiscal year 2008 operating subsidy 
recommendation.
    Amtrak estimates a backlog of approximately $5 billion in capital 
projects. Our recommendation to provide an increase in fiscal year 2008 
for capital to $600 million reflects a need to address this backlog to 
continue progress towards achieving a state-of-good repair balanced 
with practical considerations regarding how many additional capital 
projects Amtrak can take on in 1 year.

 INCREASED INVESTMENT IN INTERCITY PASSENGER RAIL MUST GO HAND-IN-HAND 
                  WITH IMPROVED OPERATING EFFICIENCIES

    Amtrak achieved $61.3 million in savings from operational reforms 
in fiscal year 2006, exceeding its original savings estimate by $37.7 
million or more than 60 percent. Well over half these savings came from 
reforms that increased revenues, not reduced costs. Amtrak saved $14 
million from food and beverage service reforms, $7.6 million from 
improved train operations, $5.6 million from reduced corporate 
overhead, $5.2 million from enhanced revenue generated on long-distance 
trains, and $28.9 million from revenue enhancements and operating 
efficiencies on the NEC. This is a good start, but, in part, reflects 
reforms that were easier to implement.
    Amtrak has also taken steps to improve its oversight and management 
of reform initiatives. This includes developing a standardized project 
management approach in an effort to provide a more reliable measurement 
of cost savings, better internal oversight, and enhanced tracking and 
reporting capabilities. In addition, Amtrak is working to develop the 
appropriate links between its planning and financial systems for more 
reliable estimating and reporting of cost savings and better 
integration of these savings into the budget process.
    In fiscal year 2007 and beyond, Amtrak plans to implement 
operational reforms in eight areas: (1) improving service quality on 
long-distance trains and reducing the cost of providing food and 
beverage service; (2) improving the efficiency of Amtrak's major ticket 
sales, distribution channels, and related pricing enhancements; (3) 
improving the reliability and efficiency of Amtrak's Mechanical 
Department and materials management; (4) increasing business 
efficiencies through the development of improved Management Information 
Systems and the reduction of overhead costs; (5) improving the cost-
effectiveness of train operations; (6) network restructuring, corridor 
development, and improved fleet and infrastructure utilization; (7) 
improved cost recovery from States for corridor services and from 
commuters on the NEC; and (8) reducing unit costs and increasing job 
flexibility by negotiating new labor agreements that will eliminate 
certain work rule and outsourcing restrictions.
    Amtrak estimates that these initiatives will save at least $320 
million in fiscal year 2012. Almost three-quarters of these savings are 
expected to come from three initiatives: food and beverage reform and 
service quality improvements, mechanical service efficiencies, and 
network restructuring and asset utilization improvement.
    There is considerable uncertainty as to whether these savings will 
be achieved. First, the savings estimates that do exist are preliminary 
and the proposals lack detailed annual program plans. Projected fiscal 
year 2012 savings have not yet been developed for the State payments 
and labor reform initiatives.
    Second, the lack of detail makes it impossible for us to assess the 
accuracy of these cost estimates. As we have seen recently with the 
sleeper car initiative, once substance is added to the proposal, the 
savings can evaporate. This proposal was originally targeted to save 
almost $20 million in fiscal year 2007. However, it is currently on 
hold as Amtrak reevaluates whether the costs saved by removing some 
sleeper cars outweighs the associated foregone revenue. It is unlikely 
that any savings will be derived from this reform in fiscal year 2007, 
if any savings are derived from it at all.
    Third, reliance on revenue enhancements to achieve savings raises 
concerns regarding their reliability over the long run. Several 
initiatives are aimed to increase ridership and ticket revenues, 
including service quality improvement, on-time performance, enhanced 
long-distance service, and market-based pricing initiatives. While we 
believe Amtrak should pursue initiatives to increase revenues, the 
long-term sustainability is subject to factors beyond their control, 
such as changing market demand, the relative cost of different travel 
modes, and competition from new air service. As such, it is more 
difficult for Amtrak to count on these savings in the long run.
    Amtrak needs to define the reform initiatives it plans to implement 
in fiscal year 2008 to achieve its stated goal of $82 million in 
savings. In addition, it needs to settle on which initiatives it is 
willing to commit to over the long run, develop detailed implementation 
plans for those initiatives, and incorporate them into its upcoming 
multi-year strategic plan.

CRITICAL DECISIONS ARE NEEDED BEFORE IMPLEMENTING A STATE CAPITAL GRANT 
                                PROGRAM

    Amtrak's vision for the future is based on passenger rail growth 
through State-led corridor service development, supported by a Federal 
program of State capital matching grants. We have long believed that 
corridor service, that is, routes of between 100 and 500 miles, 
represent the greatest potential for ridership growth. An obstacle to 
realizing this potential has been the significant capital investment 
needed to improve the freight-owned infrastructure to accommodate this 
expanded service. The administration's proposed $100 million State 
capital matching grant program would be an important start to new 
corridor development. A robust program that would support a reasonable 
level of new service in the long run could ultimately require this 
program to be funded at annual levels of $1.3 billion to $1.6 billion.
    Several critical issues need to be addressed before this program is 
implemented. First, the purpose of this new Federal investment must be 
to leverage an increase in total investment in rail service and 
infrastructure. There is little point to this new program if it simply 
results in supplanting existing State investments.
    Second, this program is premised on States assuming funding 
responsibility for any new service that does not cover its costs. If a 
significant Federal capital investment is going to be made to initiate 
a new service, consideration must be given to a State's commitment and 
capacity to support the operation of this service over the long run.
    Third, we believe an 80/20 matching rate, instead of the 
administration's proposed 50/50 matching rate, would provide an 
incentive for a State to take an ``ownership'' role in developing rail 
corridors on a more comparable basis with other transportation modes 
(historically, highways have used an 80/20 match). A higher match rate 
for rail infrastructure would require a State to invest more of its own 
money to obtain the same amount of Federal funds in return. As such, 
this may cause States to favor highways over rail to maximize the 
``return'' on their State investments.

 REAUTHORIZATION IS A BETTER COURSE FOR REFORMING INTERCITY PASSENGER 
                              RAIL SERVICE

    Incremental operating savings over the next 5 or 6 years will not 
be sufficient to fund the significant increases in capital investment 
required to return the system to a state-of-good-repair and promote 
corridor development. This mismatch of funding sources and needs 
requires a long-term solution that can be achieved only by changing the 
model for intercity passenger rail.
    To create a new model for intercity passenger rail, a comprehensive 
reauthorization that provides new direction and adequate funding is 
needed. The problem with the current model extends beyond funding--
there are inadequate incentives for Amtrak to provide cost-effective 
service; state-of-good-repair needs are not being adequately addressed; 
and States have insufficient leverage in determining service delivery 
options, in part because Amtrak receives Federal rail funds, not the 
States.
    Reauthorization should establish meaningful reforms that ensure 
greater cost-effectiveness, responsiveness, and reliability in the 
delivery of passenger rail transportation. Three central themes will 
drive successful reform:
  --Improvements in Cost-Effectiveness.--Amtrak, as the sole provider 
        of intercity passenger rail service has few incentives, other 
        than the threat of budget cuts or elimination, for cost control 
        or delivery of services in a cost-effective way. Amtrak has not 
        achieved significant costs savings since its last 
        reauthorization.
  --States Need a Larger Voice in Determining Service Requirements.--
        The current model for providing intercity passenger service 
        does not put 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 what amenities should be 
        provided. Those decisions are made by Amtrak, and the choices 
        Amtrak makes are not always the same as the ones the States 
        would make. Intercity passenger rail would be better served 
        with State-led initiatives as to where and how intercity 
        passenger rail service is developed. States are best able to 
        determine the level of passenger rail service required to meet 
        their strategic transportation needs and State sponsorship will 
        become increasingly important as they will be asked to provide 
        increased operating and investment support. Capital funding 
        decisions, as with mass transit, should ultimately reside with 
        the Department of Transportation, based on congressional 
        direction and in partnership with the States.
  --Adequate and Stable Federal Funding is Essential.--None of the 
        corridors around the country, including the NEC, can provide 
        the type of mobility needed without significant capital 
        investment. In the NEC, this means bringing the existing 
        facilities to a state-of-good-repair with no match requirement. 
        In other corridors around the country, it means creating the 
        infrastructure for high-frequency services in partnership with 
        freight railroads and commuter authorities. A robust Federal 
        program of capital matching grants will be essential if these 
        corridors are to be developed. In addition, long-distance 
        services that provide connections between corridors require 
        recapitalization if they are to be run efficiently and are to 
        provide the high quality services their passengers deserve. 
        None of this, however, implies giving more money directly to 
        Amtrak, especially under the current model.
    In our view, a framework for reauthorization requires the 
incorporation of six core elements:
  --Capital Matching Grants to States for Development of Corridor 
        Services.--This program would give States the ability to 
        improve and expand routes and service on their supported 
        corridor routes through a Federal capital funding program with 
        a reasonable state match requirement.
  --Formula Grants to States for Capital and Operating Costs.--This 
        program would address the needs of areas served by long-
        distance routes that have little corridor development 
        potential, while simultaneously creating incentives for States 
        to encourage operating efficiencies from the service operator. 
        Formula funds can be used for operating expenses, capital 
        maintenance, and/or capital improvements at the discretion of 
        the States and have no match requirement.
  --Restoration of the Forward-Going System to a State-of-Good-
        Repair.--This program would provide Federal funds, with no 
        match required, to address the accumulated backlog of deferred 
        investment and maintenance on the NEC and in fleet and 
        facilities outside the NEC. After a state-of-good-repair has 
        been achieved, capital funds with a reasonable State match 
        would be available for capital maintenance.
  --Setting Federal and State Funding of These Programs at Adequate 
        Levels.--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.
  --Resolution of the Legacy Debt Issue.--This element would give the 
        Secretary the authority to evaluate Amtrak's debt and to take 
        action in the best interest of intercity passenger rail that is 
        economically advantageous to the United States Government.
  --Resolution of Northeast Corridor Ownership.--The NEC is of 
        considerable interest in reauthorization. Unlike the rest of 
        the passenger rail system, Amtrak owns the infrastructure 
        between Boston and Washington, DC. The Federal Government may 
        decide to take on the responsibility of restoring the NEC to a 
        state-of-good-repair, and its debt--if it is determined to be 
        in the public's interest to do so. Once the NEC is returned to 
        a state-of-good-repair, the States can take a larger 
        responsibility in directing and managing ongoing operations and 
        maintenance. In return for fully funding the corridor, the 
        Federal Government may decide to take title to Amtrak's assets. 
        Although Amtrak may very likely remain the operator for the 
        NEC, we will be in a better position to decide what is the best 
        use and ownership structure of the NEC assets by the end of the 
        reauthorization period.
    This framework would require cost efficiencies as Federal funds 
available to cover operating losses would decline over the 5-year 
reauthorization period. Specifically, it would give States greater 
responsibility for passenger rail investments with oversight of capital 
investment vested in the department. Additionally, it would focus 
Federal funding on stable and robust capital investment programs that 
would bring the system to a state-of-good-repair, maintain it in that 
condition, and provide for the development of corridors throughout the 
country.
    Madame Chairman, this concludes my statement. I would be happy to 
answer any questions at this time.

    Senator Murray. Thank you, Mr. Tornquist. We're going to 
turn to Senator Spector for a short quick statement. He has to 
return to another committee.

                   STATEMENT OF SENATOR ARLEN SPECTER

    Senator Specter. Thank you, Madame Chairperson.
    I wanted to comment, very briefly, about my support for a 
much larger allocation than the appropriation than the 
administration has requested. I think we will work it through 
in the Congress, as we have in prior years.
    I regret that I can not stay for the hearing. The Judiciary 
Committee, where I'm ranking, is conducting hearings on 
immigration, and I have to be there. But, my staff will be 
present and we'll examine the transcript, and submit some 
questions to you gentlemen, but you have my support for a very 
substantial increase above what the administration is asking 
for.
    Thank you very much for permitting the interjection.
    Senator Murray. Thank you, Senator Specter.
    Senator Murray. Mr. Wytkind.

                       NONDEPARTMENTAL WITNESSES

STATEMENT OF EDWARD WYTKIND, PRESIDENT, TRANSPORTATION 
            TRADES DEPARTMENT, AFL-CIO
    Mr. Wytkind. Madame Chair, thank you for inviting 
Transportation and Labor, on behalf of our 32 member unions, to 
participate in today's hearing.
    I think a lot has been said this morning about Amtrak and 
its financial needs, but obviously the 20,000 workers--that we 
represent a substantial majority of--have a vested interest in 
the outcome of this debate. Amtrak workers know, better than 
anyone, how difficult it is to operate and maintain the 
national Amtrak network without sufficient resources. These 
workers have seen and felt the effects of neglect and 
underfunding for too many years. They've been forced to do more 
with less, due to the Federal Government's lack of attention to 
the severe financial needs of Amtrak, and the needs of the 
cities and the States, who--under the administration's 
proposal--would be really forced to fend for themselves.
    Amtrak workers constantly read about Amtrak teetering on 
the edge of financial insolvency. Not because Americans do not 
want passenger rail service and Amtrak service, but because of 
an administration that has refused to support funding for a 
first-class national passenger railroad.
    Fortunately, in the absence of administration leadership 
the Congress and especially key members of this subcommittee 
has stepped in to provide funding that has averted a financial 
collapse, year in and year out. A collapse, I might add, that 
would have occurred had the administration--over the last few 
years--had its way during debates over appropriations.
    It is extremely disappointing to appear before you, and 
again have to comment on a Bush proposal, Bush administration 
proposal that frankly we view as a shut-down budget for 2008. A 
budget that leaves States, again, to fend for themselves, and a 
budget that leaves an already teetering system on the edge of 
probably insolvency, leaving 20,000 workers potentially out of 
work.
    It is also disturbing that the administration has recycled 
old ideas that may sound different from past renditions, but in 
the end, amount to the privatization and breakup as Amtrak as 
we know it. It seems to us that the administration's learned 
nothing from the British rail privatization debacle, that we 
all read so much about in the late 1990s.
    The fact is that our national approach to Amtrak must 
change. Forcing Amtrak to limp from one financial crisis to the 
next, with no long-term funding plan, is a recipe for failure. 
Deferred maintenance, unmet security needs since 9/11, outdated 
cars and equipment, poor training, and unfairly treated and 
unfairly compensated workers, whose morale has reached an all 
time low, are now the norm. And we must break this cycle.
    Amtrak is a part of a vast network of publicly supported 
transportation services. No mode of transport in America can 
succeed without some form of public subsidy. This is the 
standard world-wide. As economic powers and emerging nations--
as Senator Lautenberg alluded to, including Germany--spent 
literally billions to rebuild and expand their passenger rail 
systems. And yet, there are those who believe Amtrak should be 
a profitable enterprise.
    This is pure fantasy, no matter Wall Street financiers and 
lawyers will tell you. Some believe Amtrak is better off if we 
sever it into pieces, and possibly spin off the Northeast 
Corridor into a separate entity controlled by private 
interests. Interestingly, the advocates of this approach want 
the Federal Government to back a $17.5 billion loan, permit 
payback of the loan, interest-free over 50 years.
    Now, I can't speak for Amtrak's CEO, or anyone of that 
company, but maybe we should ask Amtrak if it could use such 
favorable financing tools to build and rebuild its system and 
infrastructure, before we venture into any sort of breakup 
Amtrak plans.
    Finally, it is no secret that labor/management relations at 
Amtrak have eroded significantly. Most Amtrak workers are now 
in their eighth year without a general wage increase. I believe 
this is simply outrageous. Working people in this country can 
not live and make the ends meet under an 8-year wage freeze, 
which is what they've faced over the past decade. Amtrak's 
negotiators have used one delay tactic after another, have used 
the appropriations battles on Capital Hill, have used every 
possible excuse to deny workers what the new CEO of Amtrak--
which we're pleased to hear--has referred to as a need for 
reasonable wage increases.
    The result is that Amtrak workers are rated the lowest-paid 
in the industry, continue to fall further behind freight and 
commuter rail workers who earn up to 20 percent more in similar 
jobs. It is obviously unfair for Amtrak to continue to solve 
its financial shortfalls on the backs of its employees. 
Ultimately, should this trend continue, it will lead to more 
and more experienced Amtrak workers leaving their jobs for 
better paying, more stable opportunities with the freights and 
commuters.
    We are heartened by the comments of Mr. Kummant, who has 
formally declared settlement of these long overdue contracts 
one of the company's seven objectives. Obviously, Mr. Kummant 
has inherited badly ruptured labor management relations that 
didn't occur on his watch. A product of poor management 
decisions by the Amtrak Board and poor decisions by previous 
managements. And while Mr. Kummant's public position is a 
welcome departure from past Amtrak leaders, it is time to move 
beyond the rhetoric and finally resolve a bargaining stalemate 
that is making it impossible for labor and management to work 
together to solve problems at Amtrak, to rebuild the system and 
to make it the finest transportation system in the world.

                           PREPARED STATEMENT

    In closing, it is time for Amtrak to receive the resources 
it needs, not merely enough to survive. The political games 
that have repeatedly put Amtrak on the brink of collapse must 
end. And the much needed long-term investment must recognize 
that the cost of doing business as our national passenger 
railroad includes treating, and compensating, the employees 
fairly.
    I appreciate the opportunity to testify and thank you for 
letting us participate in today's hearing.
    [The statement follows:]

                  Prepared Statement of Edward Wytkind

    On behalf of the 32 member unions of the Transportation Trades 
Department, AFL-CIO (TTD) and specifically the 10 unions that make-up 
our Rail Labor Division (RLD), thank you for inviting us to testify 
this morning on Amtrak's financial needs for fiscal year 2008.\1\ I 
must point out that we would not be talking today about Amtrak's 
financial needs for 2008 without this subcommittee--we wouldn't be 
talking about it because without your work Madame Chair, and the work 
and support of the other members of this subcommittee, Amtrak would be 
on the brink of collapse.
---------------------------------------------------------------------------
    \1\ Attached is a list of TTD member unions.
---------------------------------------------------------------------------
    While its proposals have taken various forms, year after year the 
administration has sought to shut down Amtrak or subject the company to 
reckless privatization initiatives. By offering a zero budget for 
Amtrak in fiscal year 2006, the White House demonstrated its gross lack 
of understanding of Amtrak's importance to our transportation system 
and our economy. By attempting to dismantle Amtrak as a national system 
and downsize or eliminate its long distance service, the administration 
demonstrated it does not understand the importance of Amtrak to the 
cities and States that are clamoring for more, not less, transportation 
choices for its citizens. And by shortchanging Amtrak every fiscal 
year, the administration has forced the company to defer much needed 
security and safety upgrades because it simply does not have the 
resources.
    Fortunately, Congress--and specifically this subcommittee--has 
rejected the administration's various plans and for this Americans owe 
you a debt of gratitude. This subcommittee, without the benefit of an 
authorization since 2002, has come forward and funded our national 
passenger railroad each and every year at levels adequate to avoid the 
catastrophe of bankruptcy and done so under extremely tight budget 
conditions. So on behalf of the men and women we represent, and the 
millions of passengers that use this vital service, I want to again 
thank you for your leadership and acknowledge the hard work that you 
have done on behalf of Amtrak.
    For fiscal year 2008, the administration has once again submitted a 
budget request, at $800 million, that is nothing more than a shut down 
number. As members of this committee have already observed, this is 
asking the carrier to do the impossible and should be rejected. 
Furthermore, the administration has again attached destructive and 
disingenuous conditions to this meager request. For example, the budget 
request states that ``within 30 days of the enactment of this Act, the 
Corporation shall produce a comprehensive corporate-wide competition 
plan that will identify multiple opportunities for public and private 
entities to perform core Corporation functions, including the operation 
of trains.'' Let's be clear--the administration would expect Amtrak to 
find others, including private entities, to provide the service that 
Amtrak is currently charged with providing. This isn't a funding plan--
it's a path to privatization and ultimately destruction of Amtrak as we 
know it.
    The fact is we need to change the way we look at and fund Amtrak. 
Forcing the carrier to limp from one financial crisis to the next with 
no long-term funding plan is simply a recipe for failure that can no 
longer be tolerated. Deferred maintenance, unmet security needs, 
outdated cars and equipment and unfairly treated and compensated 
employees whose morale has reached an all-time low are now the norm. 
First-class rail service that needs to be customer-sensitive cannot 
succeed in this environment. And we would submit that a portion of 
Amtrak's security needs should be borne by the Department of Homeland 
Security. Americans expect leaders of government responsible for our 
homeland security to ensure that our passenger rail system receives the 
Federal resources it needs to address security threats and 
vulnerabilities. A cash-starved Amtrak cannot meet these important 
homeland security objectives without adequate Federal assistance.
    Labor-management relations at Amtrak have eroded significantly. 
Most of Amtrak's employees are now entering their eighth year without a 
general wage increase and have seen their employer, especially its 
Board of Directors, turn on them repeatedly. Meanwhile, because of the 
processes under the Railway Labor Act (RLA), collective bargaining 
agreements do not expire but become amendable at a certain date. In 
other words, if no new agreement is entered into by labor and 
management, the current contract remains in place interminably. That is 
exactly what has happened at Amtrak and, frankly, the company's 
negotiators have stonewalled and refused to engage in any meaningful 
negotiations. The result is that Amtrak workers, already the lowest 
paid in the industry, continue to fall further behind their 
counterparts in the freight and commuter railroads who make up to 20 
percent more in comparable jobs.\2\ Members of the committee, I am 
concerned that if this trend continues we will see more and more Amtrak 
employees leave their positions for more attractive jobs with the 
freight and commuter carriers.
---------------------------------------------------------------------------
    \2\ In 2003, the rail unions released a study on Amtrak wage data 
prepared by expert labor economist Thomas Roth. It definitively showed 
that labor costs at Amtrak, including wages and benefits, have remained 
constant over 21 years and have actually declined in real dollars; 
wages have also been well below the prevailing rates of those working 
in the freight and commuter rail industry.
---------------------------------------------------------------------------
    I am heartened by the public comments of the new Amtrak President 
and CEO who has formally declared (in Amtrak's budget submission to 
Congress) that the settlement of collective bargaining agreements is 
one of his seven priorities for the coming year. Hopefully, Mr. Kummant 
will repair the badly ruptured labor-management relations he inherited 
last year when he accepted the CEO position. While Mr. Kummant's public 
position is a welcome departure from past Amtrak management teams, it 
is time to move beyond the rhetoric and finally resolve the bargaining 
stalemate that is making it nearly impossible for labor and management 
to work together towards making Amtrak the world's finest passenger 
rail system. We hope this committee will insist that new contracts get 
settled and that Amtrak stop this cycle of securing Federal funding but 
refusing to provide its workforce with--as Mr. Kummant wrote--
``reasonable wage increases.''
    There have also been attempts over the years to contract-out jobs 
at Amtrak to the lowest-bidder with little regard for the impact such a 
move would have on delivery of vital services. There are also safety 
and security questions raised when on-board positions and maintenance 
posts are targeted by the drive to outsource. And history is replete 
with examples of badly botched contracting out plans that paint a sad 
picture of incompetence, mismanagement and shabby service. In last 
year's committee passed bill, Senators Murray and Byrd inserted 
language that would have prevented Amtrak from using Federal money to 
outsource work overseas. We supported this language but more broadly 
would urge the committee to monitor closely any attempts by Amtrak to 
pursue reckless outsourcing initiatives that jeopardize service, 
security, safety and jobs.
    Of course, there are those that still believe Amtrak should somehow 
``turn a profit'' or only offer service that is ``commercially 
responsible.'' Others believe private companies should be permitted to 
cherry-pick the most lucrative parts of Amtrak's national system such 
as its Northeast Corridor, jettison the rest and leave the States to 
fend for themselves. Great Britain tried this approach and failed 
miserably. We reject these propositions and fortunately, so do a 
substantial majority in Congress.
    As public transportation privatization scholar Elliot Sclar wrote:
    Proposals to privatize Amtrak rest on hopes that its deficits can 
be eliminated. But privatization will not cut the operating deficit 
unless it shrinks passenger rail service. And far from yielding more 
efficient operation, privatization will make Amtrak more cumbersome. 
That is the primary lesson of Great Britain's recent experience with 
privatization and reorganization.\3\
---------------------------------------------------------------------------
    \3\ Amtrak Privatization: The Route to Failure. Elliot D. Sclar. 
2003. Economic Policy Institute.
---------------------------------------------------------------------------
    Amtrak is part of our vast network of publicly supported 
transportation services. No mode of transport in America can succeed 
without some form of public subsidy. This is the standard worldwide. 
Economic powers and emerging nations around the globe spend billions on 
passenger rail because they know that a strong economy is dependent on 
a strong transportation system and infrastructure. There is no 
substitute for a transportation system that can move our people and 
goods safely and efficiently.
    Amtrak should be efficient, it should recover as much as possible 
from the fare-box (which it does), and it should offer the best service 
at the most reasonable price. But in the end, Amtrak will always need 
substantial public support--as does our aviation and air traffic 
control system, our mass transit and commuter rail systems, our ports 
and our highways, and America's entire public infrastructure.
    It is time for Amtrak to receive the resources it needs to succeed. 
And that investment must recognize that the cost of doing business as 
America's national passenger railroad includes paying fair wages to 
Amtrak's 20,000 workers.
    Thank you for the opportunity to testify this morning. TTD and our 
members unions look forward to working with you throughout the fiscal 
year 2008 appropriations process. I would be happy to answer any 
questions the committee may have.

                     ATTACHMENT--TTD MEMBER UNIONS

    The following labor organizations are members of and represented by 
the TTD:
    Air Line Pilots Association (ALPA); Amalgamated Transit Union 
(ATU); American Federation of State, County and Municipal Employees 
(AFSCME); American Federation of Teachers (AFT); Association of Flight 
Attendants-CWA (AFA-CWA); American Train Dispatchers Association 
(ATDA); Brotherhood of Railroad Signalmen (BRS); Communications Workers 
of America (CWA); International Association of Fire Fighters (IAFF); 
International Association of Machinists and Aerospace Workers (IAM); 
International Brotherhood of Boilermakers, Blacksmiths, Forgers and 
Helpers (IBB); International Brotherhood of Electrical Workers (IBEW); 
International Federation of Professional and Technical Engineers 
(IFPTE); International Longshoremen's Association (ILA); International 
Longshore and Warehouse Union (ILWU); International Organization of 
Masters, Mates & Pilots, ILA (MM&P); International Union of Operating 
Engineers (IUOE); Laborers' International Union of North America 
(LIUNA); Marine Engineers' Beneficial Association (MEBA); National Air 
Traffic Controllers Association (NATCA); National Association of Letter 
Carriers (NALC); National Conference of Firemen and Oilers, SEIU (NCFO, 
SEIU); National Federation of Public and Private Employees (NFOPAPE); 
Office and Professional Employees International Union (OPEIU); 
Professional Airways Systems Specialists (PASS); Sailors' Union of the 
Pacific (SUP); Sheet Metal Workers International Association (SMWIA); 
Transportation-Communications International Union (TCU); Transport 
Workers Union of America (TWU); United Mine Workers of America (UMWA); 
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied 
Industrial and Service Workers International Union (USW); United 
Transportation Union (UTU).

    Senator Murray. Thank you.
    Mr. Serlin.
STATEMENT OF ROBERT SERLIN, PRESIDENT, RAIL 
            INFRASTRUCTURE MANAGEMENT, LLC
    Mr. Serlin. Thank you.
    Madame Chairman, Ranking Member Bond, distinguished 
committee members. Thank you for inviting me to testify.
    Recently the IMO plan, the Infrastructure Management 
Organization Plan, received a wonderful criticism. I was told 
the plan sounds too good to be true. I'm here today to tell you 
the plan is good, and that it is true. I'm also here to free up 
for you, and your committee, more than $1 billion, this year, 
and for each of the next 50 years.
    Instead of Amtrak requiring appropriations for its own 
infrastructure, the private sector is willing to fund it. 
Bridges and tunnels will be constructed, tracks will be laid, 
14 new stations and parking will be built.
    Under the IMO Plan, Amtrak's owned infrastructures will be 
spun off into a federally owned company. The right to manage 
that company for a 50-year period will be granted to a private 
entity through an open, transparent, public solicitation, run 
by the Surface Transportation Board.
    The IMO Plan is a win, win, win solution. The Federal 
Government, taxpayers, Amtrak, the States, labor, and--most 
importantly--the traveling public, will all come out ahead. 
Your subcommittee and the taxpayers will come out ahead, being 
relieved of the obligations to fund Amtrak's own 
infrastructure. And Amtrak's required ongoing subsidy should 
only be around $500 million.
    Amtrak comes out ahead. Amtrak is a minority user of its 
own corridor, yet it is funding all of the corridor's 
infrastructure costs. This allows other users to pay only the 
avoidable costs. Under the IMO Plan, Amtrak would have no 
infrastructure cost and would simply pay, as it already does on 
98 percent of its route miles, a track usage fee. By 
implementing the IMO Plan, Amtrak can focus on providing rail 
passengers transportation services.
    The Northeast Corridor States come out ahead. For the first 
time ever, infrastructure investment is guaranteed at a minimum 
level of $600 million per year, or more than 2.5 times what is 
currently being invested. And this entire amount from the $17.5 
billion RRIF loan--the repayment of which is fully secured--
therefore, to the Federal Government, it's a risk-free 
undertaking.
    The Northeast Corridor commuter carriers are protected, 
because all preexisting contracts and agreements are 
transferred to--and must be honored by--the IMO. Additionally, 
as in the Lautenberg-Lott bill, the Northeast Corridor States 
will gain a stronger voice and role through the reconstituted 
Northeast Corridor Coordination Board and Northeast Corridor 
Safety Committee.
    The non-Northeast Corridor States come out ahead, because 
Amtrak's Northeast Corridor infrastructure costs will no longer 
show up in the financial accounts of trains going through their 
States. This makes the operating costs of the Empire Builder--
serving Senator Murray's Washington or Kansas City Mule going 
through Senator Bond's Missouri--more transparent, because it 
will no longer reflect the Northeast Corridor-infrastructure 
incurred costs.
    Labor comes out ahead. Under the IMO Plan, the IMO is 
required to offer employment to all Amtrak employees performing 
infrastructure work. The IMO is also required to honor existing 
collective bargaining agreements and rights, and it is 
obligated to fund the back pay requirement for all Amtrak 
employees. If RIM, my company, is awarded the right to be the 
IMO, we intend to immediately negotiate higher rates of pay for 
those employees agreeing to work with us.
    As Senator Murray said, we can not pay significantly less 
than the regional and commuter carriers, and still retain the 
quality workforce we require. We will also offer employees 
signing bonuses and back pay effective to the year 2000. This 
translates into a payment ranging from $10,000 to $25,000 per 
employee. In addition, RIM will contribute sufficient monies to 
a trust fund to settle Amtrak's full back pay obligation to 
those employees remaining with Amtrak. RIM believes that in the 
long run, paying more will cost less.
    And finally, the traveling public comes out ahead. Under 
the IMO plan, train riders will enjoy more frequent service, 
increased travel options, new city pairs, and very likely lower 
prices, which is exactly the vision Senator Lautenberg 
expressed yesterday at his hearing.
    Reliability and security redundancy will be increased, 
while trip times will be reduced, as the IMO addresses deferred 
maintenance, and makes major new capital investments. 
Washington-New York trip times will be reduced from roughly 3 
hours to roughly 2 hours as Acela trains finally achieve their 
150-mile-per-hour top speeds.
    Senator Murray. Mr. Serlin, if you can summarize quickly 
that would be great.

                           PREPARED STATEMENT

    Mr. Serlin. Sure.
    Ultimately, the IMO Plan is about growth. This means 
providing an infrastructure base that allows more reliable 
service at higher speeds and lower prices. We are convinced 
this plan will work. We're willing to bet our own money on it. 
The business model is simple. The more riders, equal more 
trains, equal success for the IMO, and this is what attracts 
investors, and what will attract Wall Street.
    [The statement follows:]

                  Prepared Statement of Robert Serlin

    Madame Chairman, Ranking Member Bond, and distinguished committee 
members, my name is Robert Serlin. I have, for over 20 years, developed 
business solutions to revitalize capital-intensive transportation and 
basic commodity companies. I am President of RIM Services, LLC.
    Thank you for inviting me to comment on Amtrak's financial 
condition, efforts Amtrak has made to improve its financial condition, 
and Amtrak funding options. I will limit my comments to--
  --exploring a new Amtrak funding option that can revitalize Amtrak's 
        owned rail properties in the Northeast and Midwest;
  --eliminating much of Amtrak's private-sector debt; and
  --giving this subcommittee a means to reallocate limited 
        transportation budget dollars to other priorities, including 
        enhanced rail passenger service.
    In 1997, JP Morgan--currently the third largest bank in the United 
States--invited me to assemble a group of experienced rail industry 
professionals and companies to develop a plan to address Amtrak's 
recurrent funding problem. Ultimately, using techniques from existing 
legislation and Federal programs, a method to inject significant non-
appropriated funds into Amtrak and its owned infrastructure was 
identified. The solution was embodied in the Infrastructure Management 
Organization (``IMO'') Plan.
    The IMO Plan, developed as a direct result of numerous meetings 
with stakeholders interested in better intercity rail service--
  --preserves Amtrak as our country's single national passenger rail 
        carrier;
  --keeps all of Amtrak's assets under Federal ownership and oversight;
  --frees monies to this subcommittee to appropriate as the Federal 
        share under Lautenberg-Lott; and, most importantly,
  --provides a platform to grow train services and rail industry 
        employment.

                               BACKGROUND

    Amtrak is active in two different businesses: furnishing rail 
transportation services, and owning and operating rail infrastructure.
  --The rail transportation services business is a variable cost 
        business. New train services can be added and existing train 
        services dropped or modified on short notice with few drastic 
        or unforeseeable financial consequences.
  --The rail infrastructure business, in contrast, is a fixed cost 
        business. Infrastructure projects take years, sometimes 
        decades, to implement. During the implementation period, there 
        is very little to show other than large front-loaded outlays. 
        Furthermore, once completed, those formerly new infrastructures 
        must be repaired, maintained and upgraded--invisible tasks, for 
        which the public has little appreciation, and consequently, for 
        which it has proven not possible to appropriate funds.
    Amtrak's owned rail infrastructure is the overwhelming problem. 
Though it has been recognized for decades as the part of Amtrak that 
singularly requires the most funds, this is a truth no one dares to 
speak. Amtrak cannot live without using its owned infrastructure, but 
it also cannot afford to keep it.
    While Amtrak operates passenger trains over roughly 23,000 route-
miles, it owns and is responsible for only about 2 percent or 600 
route-miles (about 500 route-miles in the Northeast and about 100 
route-miles primarily in Michigan).
    Former Amtrak President David Gunn stated in a Railway Age article 
that it is a myth that Amtrak's long-distance trains are the primary 
source of Amtrak's losses. ``Out of our current year Federal subsidy of 
$1.05 billion, only $300 million will go to covering the operating loss 
of long-distance trains.'' \1\ Kenneth Mead, former Inspector General, 
U.S. Department of Transportation, found that eliminating long distance 
trains would only reduce operating losses by $300 million.\2\ In 2003, 
Amtrak lost approximately $1.3 billion.\3\ Consequently, losses of 
about $1 billion must be attributable primarily to Amtrak's owned 
infrastructure.
---------------------------------------------------------------------------
    \1\ David Gunn, Separating Fact from Fiction, Railway Age (May 
2003).
    \2\ Hearing Before the Subcomm. on Railroads, Transp., H. Comm. on 
Trans. And Infrastructure, 109th Cong., 1st Sess., Dep't of Transp. 
Doc. No. CC-2005-070, at 8 (2005) (statement of Kenneth M. Mead, 
Inspector General, Department of Transportation) [hereinafter IG 
Testimony].
    \3\ See Nat'l R.R. Passenger Corp., 2003 Consolidated Financial 
Statement, Consolidated Statement Of Operations (2004).
---------------------------------------------------------------------------
    A previous Amtrak President, W. Graham Claytor, Jr., once said 
Amtrak would be unfundable were the country to recognize that the great 
majority of Amtrak's annual appropriations went into Amtrak-owned rail 
infrastructure in just a few Northeastern States. On a route-mile 
basis, two States alone account for over 50 percent of Amtrak's owned 
Northeast Corridor infrastructure.
    Even without political considerations, it is inherently harder to 
secure public support for infrastructure projects than for 
transportation services. Infrastructure investment benefits are not 
immediately, publicly apparent and can easily be delayed with few 
immediately visible consequences. Yet, infrastructures must be funded. 
Without continuous funding, infrastructure will deteriorate to the 
point of being unusable.
    Since 1997, the Department of Transportation's Inspector General, 
the Government Accountability Office and, most recently, numerous 
members of Congress have reached the conclusion: the status quo is not 
sustainable and change is necessary.
    Ken Mead, the former Department of Transportation Inspector General 
put it most succinctly on September 21, 2005 when, before the House 
Committee on Transportation and Infrastructure, Railroads Subcommittee 
he stated: ``We have testified numerous times since Amtrak's 
authorization expired in 2002 that the current model is broken. Amtrak 
continues to incur unsustainably large operating losses, provide poor 
on-time performance, and bear increasing levels of deferred 
infrastructure and fleet investment on its system.'' \4\ Infrastructure 
degradation reduces service reliability, and jeopardizes all of Amtrak 
and its national rail system.
---------------------------------------------------------------------------
    \4\ IG Testimony at 1.
---------------------------------------------------------------------------
    The IMO Plan offers a solution both to Amtrak's short-term funding 
requirements and the two-pronged challenge of Amtrak's infrastructure 
needs--injecting new current maintenance funds annually into Amtrak's 
owned Midwest and Northeast infrastructures, and addressing Amtrak's 
looming $9 billion deferred maintenance liability.
    Under the IMO Plan, the IMO--
  --makes a one-time payment of about $2.0 billion to Amtrak;
  --assumes from Amtrak almost $750 million in infrastructure-secured 
        debt;
  --funds the back pay for Amtrak employees (estimated by Amtrak to be 
        about $200 million); and
  --invests not less than $600 million annually in Amtrak's owned 
        Midwest and Northeast infrastructures.

                              THE IMO PLAN

    The IMO Plan separates Amtrak into two federally-owned entities.
    The first Federal entity, Amtrak, continues its primary 
responsibility as a transportation service provider. It retains the 
reservations system, locomotives, passenger cars, maintenance of 
equipment workshops, and operating rights on the Nation's rail network. 
It continues to operate all of its current intercity, Northeast 
Corridor and contract commuter trains.
    By separating Amtrak's train operating functions from its owned 
infrastructure, William Crosbie, Amtrak's Senior Vice President of 
Operations estimated that the current 46-State network can be sustained 
on an annual appropriation of under $500 million \5\--significantly 
less than the $1.5 billion that Amtrak is requesting for fiscal year 
2008.
---------------------------------------------------------------------------
    \5\ William Crosbie, Senior Vice President of Operations, National 
Rail Passenger Corporation, Remarks at Railway Age Conference (October 
17, 2006).
---------------------------------------------------------------------------
    The second Federal entity owns the 600 route-miles of Amtrak 
infrastructure, passenger stations on that infrastructure, and overhead 
wires that power the trains. The Surface Transportation Board (STB), in 
a process similar to its existing ``directed service'' authority, would 
conduct a public solicitation and select a private sector IMO from 
among the qualified applicants.
    The IMO, for a period of 50 years, is responsible for managing and 
funding all rail infrastructure operations and improvements. This time 
period is necessary due to the very high level of front-end loaded 
investments--it is projected that the IMO will require about 15 years 
to generate enough revenue to break even. Each improvement becomes the 
property of the Federal Government as it is made. At the end of the 50 
years, the Federal Government can either re-bid the management 
concession or operate the infrastructure itself. At any time during the 
concession, the designation of the IMO is revocable for cause.

                           FUNDING STRUCTURE

    The IMO is financed using the existing Railroad Rehabilitation 
Infrastructure Financing (``RRIF'') loan program. Under the Safe, 
Accountable, Flexible, and Efficient Transportation Equity Act of 2005 
(SAFETEA-LU), RRIF program authorization was increased to $35 billion.
    The IMO would be allowed to borrow up to $17.5 billion under the 
RRIF program, after having given the United States Treasury a repayment 
guarantee issued by an investment-grade third party in the amount of 
the full $17.5 billion.
    As interest on the loan, the IMO is required to invest a minimum 
average of $600 million annually in the Federal Government's owned 
infrastructure. This ``payment-in-kind'' has been successfully used in 
other Federal Government initiatives in defense and power generation. 
On average, this statutory minimum investment exceeds by more than 200 
percent the amount Amtrak currently spends annually on its owned 
infrastructure.\6\ If my company--RIM--is designated the IMO by the 
STB, we foresee laying out in excess of $1 billion annually.
---------------------------------------------------------------------------
    \6\ Right-of-way and Other Properties and Leasehold Improvements 
increased just $254.4 million in 2005. See Nat'L R.R. Passenger Corp., 
2004-2005 Consolidated Financial Statements, Consolidated Balance 
Sheets (2006).
---------------------------------------------------------------------------
    The IMO Plan does more than just shift the financial burden of 
Amtrak's owned infrastructure from Congress to the private sector; it 
provides natural incentives to increase capacity, services, reliability 
and safety. It is the IMO's responding to these incentives that 
translate into an increase in the number of passengers carried by all 
transportation service providers and, in turn, into new revenues for 
the IMO. Revenue increases come from new train services that pay track-
mileage fees to the IMO and from which the IMO pays for infrastructure 
improvements.

                          STAKEHOLDER BENEFITS

    The IMO Plan creates a platform upon which new and exciting rail 
services can be launched by Amtrak, existing commuter operators, or new 
transportation service providers, while the IMO, which is prohibited 
from operating trains, focuses on infrastructure management and 
improvements. The result will be more service options with greater 
access to both the Northeastern and Midwestern rail networks, allowing 
more passengers to enjoy the efficiencies and benefits of rail travel.
    The Plan forces the IMO to innovate by developing new opportunities 
for transportation service providers. To meet these goals, the IMO must 
be a truly neutral party. This is achieved by not permitting the IMO to 
operate its own trains. The IMO may not compete with its customers--the 
users of the infrastructure it manages. The only way the IMO should 
succeed is if its customers succeed.
    This vision of rail passenger service can be reached. The IMO Plan 
is the route:
  --High-speed train trip-times between New York and Washington will be 
        reduced from close to 3 hours to roughly 2 hours through 
        capital expenditures that eliminate choke points and provide 
        infrastructure redundancy.
  --Commuter carriers will be able to integrate their services by 
        operating new run-through trains, as the IMO adds 
        infrastructure capacity, instead of being confined to historic 
        geographic areas. For example, New Jersey Transit and SEPTA 
        will each be able to save millions of dollars and be able to 
        offer faster and more attractive travel options by instituting 
        a pooled New York-Philadelphia service, instead of forcing all 
        passengers to change trains at Trenton, NJ.
  --New city pair combinations will be encouraged to permit rail 
        passenger traffic to expand meaningfully. For example, 
        Princeton Junction, NJ has sufficient population and business 
        activity to support multiple direct trains daily to Baltimore 
        and Washington. New riders will be attracted by convenient and 
        faster direct trains offering expanded travel options.
  --Building 14 new stations in the first 20 years at rail/highway 
        intersections will attract more travelers though more 
        convenient access.
  --Dedicated airport express train services will help speed travelers 
        to airline check-in while reducing airport overcrowding.
  --Redundancy of infrastructure will provide more security and 
        reliability.
  --More employment will be created to build and maintain the enhanced 
        infrastructure.
  --Further employment will be created to staff and operate added train 
        services.
  --Carbon emissions will be reduced by seamlessly shifting travelers 
        from automobiles to electrically powered trains.

                        STAKEHOLDER PROTECTIONS

    Addressing the needs of principal stakeholders is a key element of 
the IMO Plan's win-win solution.
Federal Government
    The RRIF loan principal is never at risk because it is fully 
secured by an investment-grade third-party guarantee in the full amount 
of the RRIF loan.
    The Inspector General of the Department of Transportation is vested 
with the authority to certify compliance with the terms of the 
legislation. The IMO is also required to file with the Secretary of 
Transportation and Congress annual reports both of its audited 
financial results and its operations, thus ensuring accountability to 
the public and to Congress.
    To align the long-term interests of the owners of the IMO to those 
of the Federal Government, ownership of the IMO is non-transferable for 
the full 50-year management concession term.
    Under the IMO Plan, Congress continues to maintain oversight over 
both Amtrak and Amtrak's owned infrastructure, yet is relieved of the 
burden of funding Amtrak's owned infrastructure since the IMO, using 
non-appropriate funds, is now responsible. It frees Congress to focus 
more on transportation services that constituents demand, and that 
States and other governmental entities desire.
States
    The States will gain a stronger voice and role in infrastructure 
investment through the reconstituted Northeast Corridor Coordination 
Board and the Northeast Corridor Safety Committee.
    Multi-State compacts are not required and States are not obligated 
to fund the maintenance of or capital expenditures in the Government's 
owned infrastructure. Under the IMO Plan, State-requested projects may 
be expedited either by the IMO advancing funds to a State or the 
Department of Transportation providing funds to a State under a grant 
program.
Amtrak
    The IMO Plan improves Amtrak's financial statements by--
  --transferring $2 billion to Amtrak;
  --assuming from Amtrak up to $750 million in infrastructure-secured 
        debt; and
  --relieving Amtrak of its responsibility for the roughly $1 billion 
        in annual losses attributable to Amtrak's owned infrastructure, 
        most of which are incurred in just 5 Northeastern States.

Commuter Carriers and Freight Railroads
    Vested commuter carriers and freight railroads with operating 
rights must also be protected. All pre-existing contracts and 
agreements are transferred to and honored by the IMO, including the 
commuter carriers' ``avoidable cost'' access fee structure codified in 
Title 49, United States Code.\7\
---------------------------------------------------------------------------
    \7\ See 49 U.S.C.  10904.
---------------------------------------------------------------------------
    This furnishes Amtrak the means and allows it the time to address 
the needs of its entire 46-State system, including the need to acquire 
new passenger cars and locomotives.
Labor
    The existing Amtrak employees are a great and irreplaceable 
resource. Labor must be treated fairly and equitably in order to assure 
the success of the IMO. Wages must be increased to be competitive in 
the region.
    Under the IMO Plan, the IMO is required to offer employment in 
seniority order to all Amtrak employees performing infrastructure work 
to be performed by the IMO. The IMO is also required to honor existing 
collective bargaining agreements. If RIM is awarded the right to be the 
IMO, it intends to negotiate Northeast-competitive rates of pay and 
working conditions for those employees to whom it offers employment.
    Many of Amtrak's employees have been working for over 7 years 
without contract base rate increases. As a result, there is pressure on 
many of these highly qualified workers to join commuter carriers or 
retire early. This potential loss of experience would be highly 
detrimental to the development of improved passenger services.
    To assure the future integrity of both Amtrak and its owned 
infrastructure, I personally believe that a fair wage settlement, 
including full back pay for the IMO's employees must be implemented 
quickly. To encourage Amtrak employees to accept employment with RIM, 
RIM will also offer signing bonuses. This translates into payments 
(signing bonuses and back pay) in amounts ranging from $10,000 to 
$25,000 per employee. In addition, RIM is prepared to contribute 
sufficient monies to a trust fund to settle Amtrak's full back pay 
obligation to those employees remaining with Amtrak.
    If RIM is awarded the right to be the IMO, with regard to the IMO's 
employees, it intends to--
  --resolve outstanding proposed contract changes by offering rate 
        increases to make wages competitive with the commuter carriers 
        in the area and by paying full back wages from January 1, 2000;
  --withdraw Amtrak's proposed concessionary contract changes, 
        including Amtrak's proposal that employees pay a portion of 
        their health and welfare premiums; and
  --negotiate for working conditions that provide quality of life 
        improvements without adversely effecting productivity.
    In a more general vein, the IMO Plan--
  --furnishes incentives to resolve the outstanding section 6 contract 
        notices;
  --preserves collective bargaining agreements and rights, including 
        labor representation for IMO employees;
  --makes the IMO subject to the Railway Labor Act, the Railroad 
        Retirement and Unemployment Insurance Acts, FELA, and all rail 
        safety legislation and FRA regulations; and
  --protects employees affected by the transfer.

The Traveling Public
    For the traveling public, reliability and security redundancy will 
increase, while trip-times will be reduced by the IMO's addressing 
deferred maintenance through aggressive engineering and construction, 
and major new capital investments. Train riders will also enjoy more 
frequent service, increased travel options, new city pairs, and--very 
likely--lower prices.
    The traveling public is looking for transportation options. RIM 
believes that rail can offer such options, but it requires a new 
vision. In 1974, at the high of the first energy crisis, Amtrak 
reported carrying approximately 10.9 million Northeast Corridor riders, 
compared to approximately 11 million riders in 2005. Despite the fact 
that the number of I-95 automobile trips more than doubled over the 
same period of time, \8\ Amtrak's ridership remained flat. The 
following graph shows this long-term divergence.
---------------------------------------------------------------------------
    \8\ Amtrak--1972: ICC freight railroad filings; 1973: Nat'l R.R. 
Passenger Corp., 1973 Consolidated Financial Statement (1974) 
extrapolated; 1974, 1976-1978, 1980-1986: former Amtrak personnel; 
1975, 1979, 1986-2000: Nat'l R.R. Passenger Corp., 1975, 1979, 1986-
2000 Consolidated Financial Statements (1976, 1980, 1987-2001); 2001, 
2002: extrapolated; 2003-2005: 2003-2005 Consolidated Financial 
Statements (2004-2006). Highway--Maryland Department of Transportation, 
State Highway Administration.


    RIM believes that Amtrak, unburdened by infrastructure ownership, 
can fulfill the new vision.

          THE STATUS QUO HAS FAILED--AMTRAK'S HIDDEN LIABILITY

    Amtrak's owned infrastructure, particularly its Northeast Corridor, 
suffers from many years of deferred maintenance and depreciated assets. 
Major infrastructure components, renewed in the early 1980's, are now 
approaching the end of their useful and reliable lives, and will soon 
have to be replaced.
    According to Kenneth Mead, former Inspector General, U.S. 
Department of Transportation, ``Amtrak [had in 2002] 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.'' \9\ Due to the continued inability 
of Amtrak to maintain its infrastructure and construction project 
inflation over the last 5 years, RIM estimates this liability today to 
be around $9 billion.
---------------------------------------------------------------------------
    \9\ IG Testimony at 7.
---------------------------------------------------------------------------
    If Amtrak's deferred maintenance is not addressed in a timely 
manner, the integrity of the Federal Government's owned infrastructure 
will be in jeopardy. Trip-times will be increased. Service will be 
degraded. Safety could be compromised.
    The General Accounting Office (now Government Accountability 
Office) defines ``state-of-good-repair'' to be a condition requiring 
only cyclical maintenance. The last time the Northeast Corridor was in 
a state of good repair, was in 1981 at the conclusion of the Northeast 
Corridor Improvement Project.\10\
---------------------------------------------------------------------------
    \10\ Briefing Report to the Chairman, Subcomm. on Surface Transp. 
and Merchant Marine of the S. Comm. on Commerce, Science and Transp., 
104th Cong. 1st Sess., Gen. Accounting Office Doc. No. RCED-95-151BR, 
at 47 (1995).
---------------------------------------------------------------------------
    If all we do today is desire to bring the corridor up to a state-
of-good-repair, we are aspiring to return it to its state in 1981. Is 
that our goal in 2007, to return the corridor to its condition in 1981?
    RIM's answer is: No! RIM believes that the Northeast Corridor 
should move into the 21st century and is prepared to make the 
investments to bring it there.
    Through enactment of the IMO Plan, the repair, operations, and 
improvement of Amtrak's owned infrastructure is fully funded using non-
appropriated funds.
    The following graph shows the positive effects of transferring the 
Federal Government's infrastructure liability to the private sector and 
of reducing--by about two-thirds--Amtrak's required annual 
appropriations.


                        APPROPRIATION CHALLENGES

    The Federal Government is able to fund Amtrak's annual operating 
budget. Amtrak's transportation services-related commitments (whether 
capitalized or expensed) tend to be completed in less than 1 year--a 
time period that corresponds to an appropriation cycle. Those outlays 
are expended throughout the 46 States through which Amtrak operates.
    The Federal Government has been unsuccessful at funding all of 
Amtrak's capital improvements and infrastructure investments. 
Infrastructure undertakings tend to be multi-year in nature and, to be 
implemented efficiently and cost-effectively, require multi-year 
funding commitments. They, by their very nature, do not conform to the 
appropriations process. This has resulted in the massive and increasing 
deferred maintenance liability shown above.
    On January 16, 2007, Senators Lautenberg and Lott, joined by other 
members of this subcommittee, introduced S. 294--the Passenger Rail 
Investment and Improvement Act of 2007 (PRIIA). The IMO Plan is highly 
complementary with PRIIA.

                            SOLUTION AT HAND

    By increasing the RRIF loan authority in 2005, Congress expanded a 
loan program that enables the private sector to fund our Nation's rail 
infrastructure multi-year investments. The vehicle to achieve this is 
the IMO Plan--a Plan that benefits labor, the Federal Government, 
States, the commuter carriers, and Amtrak.
    By passing the IMO Plan, Amtrak's infrastructure improvements and 
debt repayment appropriation-requirements will be reduced by over $1 
billion annually. And, that $1 billion will be available to this 
subcommittee to allow Federal funds to focus on providing enhanced 
passenger rail service to the United States.
    The IMO Plan is a win-win opportunity for the Nation's rail 
passenger stakeholders--labor, the States, rail passengers, 
transportation service providers, Amtrak. It provides a solid base upon 
which to build the modern rail passenger network that government 
leaders and travel advocates have championed for the past 30 years.
    Thank you for providing me the opportunity to testify, and I 
welcome questions you might have.


                         Supplemental Statement

    Under the Infrastructure Management Organization (``IMO'') Plan, 
the Federal Government continues to own all of Amtrak and all of the 
real property Amtrak owns today, including all of Amtrak's owned rail 
infrastructure (``AOI''). The IMO, an entity selected by the Surface 
Transportation Board from a pool of competing applicants, will upgrade 
and maintain AOI on behalf of the Federal Government for a period of 50 
years. During this period, neither the States nor the Federal 
Government is obligated to fund the maintenance of or capital 
expenditures on Amtrak's owned infrastructure. If selected, my 
company--RIM--anticipates spending more than $1 billion annually on AOI 
for each of the 50 years that it will be the IMO.
    The IMO Plan provides a zero scoring funding mechanism to maintain 
and expand Amtrak's owned infrastructure, while providing Amtrak with a 
one-time payment of $2 billion of non-appropriated funds and relieving 
it of almost $750 million in infrastructure-secured debt.
    Under the IMO Plan, labor is protected: the mechanism is 
established to settle all section 6 notices; back pay to all Amtrak 
employees, including those who remain with Amtrak, is paid in full from 
funds furnished by the IMO; and the IMO offers employment--in seniority 
order, under existing contracts and representation--to all current 
Amtrak infrastructure employees. The IMO will be subject to the Railway 
Labor Act, FELA, the Railroad Unemployment Insurance Act and Railroad 
Retirement. The enabling legislation will also provide for expedited 
claim settlements for infrastructure employees.
    The IMO Plan allows Amtrak to improve its balance sheet, so that it 
can operate its entire existing 46 State national passenger rail system 
on a subsidy of about $500 million annually. Amtrak receives more 
money, more quickly than any other plan being discussed.

    Senator Murray. Thank you very much.

                        AMTRAK'S OPERATING COSTS

    Mr. Boardman, the Bush administration's budget that you 
sent us is, again, proposing a drastic funding cut to Amtrak. 
And once you set aside that $100 million that you're proposing 
for State grants for our new passenger corridors, your budget 
request cuts direct support for Amtrak by almost 40 percent.
    In your written testimony you said, ``The request for 
operating subsidies is sufficient to avoid a bankruptcy 
provided Amtrak acts to cut costs by focusing on core 
services.'' So, Mr. Kummant, I wanted to ask you, can your 
railroad avoid bankruptcy if we accept the administration's 
proposal to cut funding by 40 percent, and limit your operating 
support to $300 million?
    Mr. Kummant. Well, we would have to go through and 
drastically reduce services overall. We certainly haven't run 
scenarios on that. There are also a lot of payments that go to 
employees if the work is terminated. So, in other words, legacy 
costs continue for some time if, in the extreme case, for 
example, if you would shut down today, in total there'd be a 
whole stream of costs associated with existing contracts, as 
well as honoring labor commitments. So it would be very, very 
difficult.
    Let me say this though, I guess I take the administration's 
statement as, in a sense, a philosophical challenge or 
statement for us to continue work on reduction, on continuous 
improvement, and really change the culture of the organization 
to be far more motivated in that direction. I take that as a 
philosophical challenge, and I think that's what our newly 
constituted management team is about.
    The specific number is obviously very difficult to achieve, 
but again on a philosophical point, I would say that we embrace 
the challenge.
    Senator Murray. So it's a nice talking point, but you 
expect us to provide the dollars--otherwise, bankruptcy.
    Mr. Kummant. Perhaps your words not mine, but I think it 
would be very, very difficult to function under that specific 
financial scenario.
    Senator Murray. Mr. Tornquist, let me ask you. The 
Inspector General's office has consistently advocated efforts 
by Amtrak to reduce its operating costs. Do you see a way that 
Amtrak could avoid bankruptcy if we enacted the President's 
proposed budget?
    Mr. Tornquist. No, we don't believe that Amtrak would 
remain viable at the President's request level. We have 
recommended ways that they could save money, but it seems a bit 
aggressive to assume they're going to save all that money in 1 
year.
    Senator Murray. So, you don't see any way they can cut 
their budget that dramatically?
    Mr. Tornquist. I don't see how they could cut their staff 
and their budget quickly enough to live within the President's 
request.
    Senator Murray. Mr. Boardman, I think if I heard you 
correctly, you said the GAO and IG have endorsed your proposal 
to cut Amtrak operating figures to $300 million--maybe I should 
ask Mr. Tornquist--have you endorsed that proposal?
    Mr. Tornquist. We haven't endorsed it, if I remember Mr. 
Boardman's statement, he said that we had suggested ways that 
Amtrak could save money and GAO might have suggested similar 
ways, and we have suggested ways, but not in the amounts in the 
time frame that the administration is talking.
    Senator Murray. Mr. Boardman, did I hear you?
    Mr. Boardman. No, I didn't say they endorsed, Madame 
Chairman. What I said was that the Government Accountability 
Office, the IGA, and others have recently presented options for 
achieving savings.
    Senator Murray. Okay, I thought I heard you say endorsed 
and I wanted to find out where the GAO had endorsed that, as 
well. So, you're telling me that's not what you said.
    Mr. Boardman. If I used the word, it was inappropriate, I 
didn't mean it.
    Senator Murray. Okay, Mr. Wytkind, there is a footnote in 
your testimony that states that wages at Amtrak are now well 
below the prevailing rates and the freight and commuter 
railroads. Mr. Kummant, do you agree with that observation?
    Mr. Kummant. Yes, we have big gaps that certainly have 
opened up, and many of the proposals we have on the table have 
closed those gaps, but the way the current status is, that is 
true.
    Senator Murray. What impact do those wage differences have 
on your ability to retain skilled craft people?
    Mr. Kummant. Oh, it's certainly a problem, particularly in 
the high skilled areas. We're very challenged with 
electricians, for example, who can command good wages 
elsewhere, and a number of skilled positions. So it's certainly 
a core issue for us.
    Senator Murray. Mr. Wytkind do you want to comment on that?
    Mr. Wytkind. Yes, it's really quite astounding that we're 
in the position we're in, having employees have to wait 8 
years--and potentially more--to have general wage increases, 
ends up creating this mass exodus environment. I can't give you 
specific data today, but it's very clear that, you know, 
American workers are smart. If they see better opportunities in 
other employment venues, they will pursue them. So this 
shortage that Mr. Kummant refers to, I believe, becomes 
exacerbated over the next several months and years if we don't 
resolve these issues. We have workers that are making as much 
as 20 percent less than their counterparts in the commuters and 
the freights. And in the event the freight collective 
bargaining agreements get achieved in the coming weeks or 
months, that will again further bump those workers even further 
ahead of Amtrak workers. So, it's a real problem that needs to 
be resolved.
    Senator Murray. You talked in your testimony about getting 
a contract nailed down affecting morale and other things. Do 
you see any other ways in which Amtrak's Board of Directors or, 
and the labor force might work together more cooperatively?
    Mr. Wytkind. Well, I think it's very clear that the 
employees of this company during these very difficult years 
have really been at the front line of keeping this company 
operating. Mr. Kummant has, you know, in various ways basically 
said that, without these employees this company would have a 
very difficult time succeeding. And, yeah, we could cooperate 
more. We could work up here on Capitol Hill to find real sound 
reforms, and maybe we could work together to adopt many of the 
reform planks that you've articulated today in your opening 
comments, which I wholeheartedly embrace.
    I think there is a way to work on it, but we will not get 
to that point if Amtrak continues to ignore the needs of its 
employees. Because our employees morale is as low as it's ever 
been, and more importantly, they're not going to continue to 
support and work with a company that continues to turn on them.
    Senator Murray. Mr. Kummant, you want to make a comment?
    Mr. Kummant. I don't have that much issue really with Mr. 
Wytkind's words. In fact, we spent a lot of time together, and 
are on the phone a lot. I have probably, personally, along with 
my VP of Labor Relations, done more personal outreach in the 
last 6 months than my predecessors have in the last several 
years. It's a thorny issue, it's a tough issue. One of the 
first objectives is to build trust, and to build an environment 
where dialogue is possible.
    I do think going forward if the freight railroads do settle 
here shortly that will, in a sense, clear out some of the 
underbrush. It will likely set a pattern of sorts in a number 
of the areas that I think may give us another basis for going 
forward.
    Senator Murray. Okay, thank you very much.
    And Senator Bond I will turn to you.

     MULTI-YEAR CAPITAL INVESTMENT PLAN AND THE NORTHEAST CORRIDOR

    Senator Bond. Thank you, Madame Chair.
    I have asked year after year for a detailed multi-year 
capital investment plan from Amtrak, and to my knowledge we've 
not seen it in Congress. I note on page 2 of your testimony and 
your statement that you will send to Congress a multi-year 
strategic plan on which we can base our decisions. When do you 
expect to send that to us?
    Mr. Kummant. First, let me say I think we could give you 
very specific numbers on the Northeast Corridor over--in terms 
of capital needs over the coming years--we could deliver that 
to you in short order. We expect to have a broader strategic 
plan relative to expenditures across the country, probably in 
the April timeframe.
    Senator Bond. Speaking of the Northeast Corridor, I have a 
chart here that shows State payments to Amtrak for train 
operations. It says that it's incomplete, but I note that 
Washington contributes $11.2 million, Missouri contributes $6.6 
million for our humble little operations, but when I look down 
the list I see New York contributing $3.8 million, but I don't 
see any numbers for Maryland, New Jersey, Connecticut, 
Massachusetts--what are their contributions?
    Mr. Kummant. Yes, I was just handed a chart. First, let me 
make the general point that we are really working through a 
process, top to bottom, to address all those issues. There are 
system trains where States don't pay. There are variable 
payment structures in terms of the history of the services. And 
as we rotate the whole organization to face the States and 
build that organization that's fundamentally an issue we need 
to clarify and, in fact, create an equity across. We need to 
have a very clear funding structure, almost a menu approach on 
services.
    So, I don't have the numbers at my fingertips to respond to 
the specific question, other than that equity and clarity of 
those structures is one of the key goals of one of the 
executives, in fact, we recently brought in.
    Senator Bond. Mr. Tornquist, have you looked into that?
    Mr. Tornquist. We haven't specifically looked at it, but 
Mr. Kummant is right, that there is an equity issue across 
States. Some of the States don't pay for their service, some 
States do, some pay operating costs, some pay capital, some pay 
a combination. One of their reforms is to have a new State 
pricing policy. One of the issues that we've raised is the need 
to move ahead, some definition on that policy and get an 
implementation plan that is accepted by the stakeholders.
    Senator Bond. We look forward to seeing it. Mr. Kummant, 
your discussion about the pay--and the inadequacy of pay--are 
there work rule changes which could enable Amtrak to operate 
safely and more efficiently, and be able to pay your skilled 
employees more?
    Mr. Kummant. Sure, let me be very direct. Clearly, moving 
forward, the two fundamental issues on the table will be some 
sort of upfront bonus payment or back pay in Mr. Wytkind's 
terms, as well as workplace flexibility. We do need, in 
Amtrak's view, a more flexible workforce to build the 
groundwork for a 21st century operation.
    I still believe that that's possible for us to jointly work 
on. I think we can get there, but it's thorny, it's tough, it 
clearly runs into the craft tradition, which is the cornerstone 
of the union structure. But yes, we do need to reform workplace 
flexibility issues, some of which date back many, many years.
    Senator Bond. Mr. Wytkind, you probably have a comment on 
that.
    Mr. Wytkind. Well, I would say, I'm not going to comment 
specifically on each craft in the railroad industry because I'm 
certainly not the chief negotiator for each union. But, I've 
always viewed this workplace reform issue in the context of the 
Washington debate on what we do with Amtrak and its future 
funding needs as a bit of a red herring. The reality is that 
the employees of Amtrak over the years have gone through 
numerous renditions of a reform. Many of the reforms that the 
company insisted on in the 1980s and 1990s, they then came back 
to the bargaining table and said, ``Oops, those didn't work 
very well, we want to retrieve those.'' And I could give you 
all kinds of good examples that have been submitted to the 
authorizing committee, which I could send you copies of, that 
explain some of the various reforms that have been tried, say 
on on-board service employees.
    The history is filled with attempts to deal with 
``reforms,'' and at the end of the day reforming the workplace 
is not going to save this company from getting 40, 50 percent 
less than it needs from year in and year out, other than the 
fact that this committee has saved Amtrak from those funding 
crisis.
    What's going to solve it is, labor and management working 
together and trying to find a way to cooperate on issues that 
modernize this company in a way that makes it effective and 
successful. But to just deal with these workplace issues as if 
they're going to solve Amtrak's problems, I think, is really 
frankly not going to work and is going to be disingenuous in 
terms of getting into this debate.
    Senator Bond. Mr. Wytkind, I am disappointed in that 
because we are going to provide more money for Amtrak, we are 
demanding from Amtrak a comprehensive plan for the future. We 
have heard in many instances--Mr. Kummant said that there must 
be flexibility which would enable paying the workers more, and 
I would hope in--your negotiating posture, I understand--but we 
expect to see results because there are many areas in which we 
need not only to provide more money for Amtrak, but see reforms 
and see a clear vision for how it's going to work in the 
future.
    Thank you, Madame Chairman.
    Senator Murray. Senator Lautenberg.
    Senator Lautenberg. I listen with great attention to the 
testimony of the witnesses, and I thank each one of you for 
your participation. I don't understand, I must tell you, why it 
is that we don't lay out the urgency of doing something about 
this, instead of lame reviews of what didn't take place in the 
past.
    And I ask you, Mr. Boardman, and I quote from your 
statement yesterday in front of my other committee. ``Amtrak is 
an outdated monopoly that is on a flawed business model,''--I 
take it Mr. Serlin would like to become the monopoly, you 
didn't say that, I said it--``it does not provide an acceptable 
level of service, nor has it been able to control the 
finances.''
    How long have you been on the board of the company?
    Mr. Boardman. Three months now, sir.
    Senator Lautenberg. Three months. But you've represented, 
you're representing the interests and the views of the 
administration, are you not?
    Mr. Boardman. Yes, sir.
    Senator Lautenberg. Did you fight back when they offered 
this budgetary plan for 2008?
    Mr. Boardman. We had discussions, they were lively 
discussions----
    Senator Lautenberg. No, no, no.
    Mr. Boardman [continuing]. About what it is.
    Senator Lautenberg. But the lively discussions, I had 
those. I used to run a very large company. The company has 
46,000 employees today; a company I started called ADP with two 
other guys. So I know something about the corporate world. 
Lively discussions had to have a termination point, just like 
the railroad has. Are you satisfied with what you've presented 
here today?
    Mr. Boardman. We believe that it continues to provide the 
incentive for Amtrak to improve, and to reduce its costs. We 
believe that--when combined with the $2 billion that Amtrak has 
now in terms of revenue--the probably $200 million of cash 
reserves at the end of last year, that it continues to provide 
some difficult decisions that would have to be made to operate 
Amtrak next year.
    Senator Lautenberg. I'm glad I'm not the patient and you're 
my doctor telling me what my condition is, Mr. Boardman.
    What amazes me is that the Secretary of Transportation 
never went to a board meeting. Do you know whether Mr. Sosa has 
yet taken a ride on an Amtrak train?
    Mr. Boardman. You would have to ask Mr. Sosa that. I do not 
know, sir.
    Senator Lautenberg. Has he?
    Mr. Kummant. Yes.
    Senator Lautenberg. You know when, and how often?
    Mr. Kummant. I can't give you the details, but he 
certainly----
    Senator Lautenberg. Because when he was being promoted for 
membership he had never been on an Amtrak train, and I think 
it's a worthwhile experience. And I submit to my friend from 
Missouri that New Jersey put $1.6 billion over the last decade 
in Amtrak for capital improvements. And a bill that Senator 
Lott and I have proposed, would require all Northeast Corridor 
States and Amtrak to revise the funding formula for those 
States just as the non-Northeast Corridor States are doing. So 
we're paying pretty much as we go. I'm sorry?
    Senator Bond. I asked a question about how much the other 
States were providing?
    Senator Lautenberg. How much are we providing? We're 
providing--the question is opening, we're talking about a 
formula, developing a formula for these States. So that, we 
know that we have to make contributions. As a matter of fact, 
we do make significant contributions, because the value of the 
travel that comes to the Northeast Corridor is manifested in 
every part of the county, every State of the country, to the 
world's financial center, and we provide the skills and the 
persons to do this. And they typically use Amtrak tracks to get 
from New Jersey to New York, and it's a very high level of use 
that is required.
    And when we look back at the experience that we had not too 
many years ago, 9/11, a building in which I had an office and 
saw 50,000 people come to work everyday like one city, and 
Amtrak was the only thing that was able to transport people. 
Aviation was shut down, the highways were jammed and I don't 
understand, honestly, why it is that we argue about whether or 
not this cow that has never been fed properly doesn't give 
enough milk.
    It just doesn't work, Mr. Boardman. And the request, I am 
shocked to hear what you say about this, about the condition of 
things, without acknowledging that there was total lack of 
interest by the President, and the administration, in having 
that board functioning in a way--because they were the ones on 
the job during this period of terrible performance that you 
talk about. Where was the Board of Directors as this failure, 
that you call it, was taking place? I don't get it.
    So you voted to approve the funding that's presented here, 
in the President's budget?
    Mr. Boardman. In the President's budget we--I support the 
decision that was made.
    Senator Lautenberg. So you don't believe this, these things 
about the inevitability of bankruptcy at this funding level?
    Mr. Boardman. I did not believe in bankruptcy when David 
Gunn said it. I think there are decisions that have to be 
made--difficult ones. And you have to make them early not to 
have a bankruptcy.
    But I do understand your point. And if I could just add, 
for your benefit and the effort that went on, on the access 
fees last year, Senator Bond, that we determined at that time--
and I was in the middle of that--that the States on the 
Northeast Corridor were contributing, and in fact, were 
contributing more than what was necessary.
    Where Mr. Gunn again, I guess--and again I was in New York 
State--said that some States had a free ride. The State he was 
talking about at the time was New York State. New York State 
has the system trains that Mr. Kummant's talking about. New 
York should be paying between $20 and $30 million a year for 
those system trains. And I think that's the frustration and 
difficulty that comes from--whether it's Washington or Missouri 
and others. But in the middle of that we were negotiating with 
an Amtrak that could not complete our Turbo Program and we did 
not agree to the kind of things they needed.
    And I think that's important for this debate, that we are, 
in fact, and have received the kinds of investments in the 
Northeast Corridor from the States in the Northeast Corridor 
that I think you're relating to.
    And I thank you for that opportunity.
    Senator Lautenberg. Thank you.

                          SEPARATION PROPOSAL

    And Madame Chairman, forgive me for just a couple of 
seconds more, maybe a minute or so, if it's all right.
    I listen with interest to Mr. Serlin's proposal, and I'm 
determined to be here when that loan is paid off that you want, 
that $17 billion. It means I have to run 6.5 more times.
    We've seen the results of what happened in the United 
Kingdom, which is held out as an example of what you're 
proposing. Separating the infrastructure from the operating 
structure is quite a deal, because if you have the 
infrastructure available, you can build buildings, sell papers, 
do all kinds of things with those installations and take money 
in, but that doesn't mean that the railroad operates any more 
efficiently. You are going to call on rail professionals to run 
it, but it's quite a revelation when we see that this--
Secretary Grayling said we think that--he's British 
Conservative Party--admits flawed rail privatization. ``We 
think the separation has helped push up the cost of running the 
railroad, hence fares, have slowed decisions about capacity 
improvement. Too many people in organizations are now involved 
in getting things done so nothing happens.''
    Mr. Serlin, it's, I'm not sure that your proposal adds much 
to the debate here, because it ain't going to happen. That's 
the way it's going to be. This railroad is like all other 
railroads in other countries. It needs subsidy. It operates, it 
makes money during 2, 3 hours a day and the rest of the day you 
can't get by. So maybe we can send the workers home and have 
them come back for a couple of hours every day, Mr. Serlin. 
Thank you. Otherwise that doesn't bother me.
    Senator Murray. Senator Lautenberg, thank you so much for 
you passion on this issue. We all appreciate it.

                      AMTRAK'S ON-TIME PERFORMANCE

    As I talked about in my opening statement the on-time 
performance of many of Amtrak's trains really is disappointing. 
And sometimes the fault lies with Amtrak itself, but most of 
the time it really relates to the congestion with the freight 
traffic.
    And Mr. Boardman, I wanted to ask you what measures have 
you taken, as the administration's top railroad official, to 
try and improve Amtrak's on-time performance over freight on 
track?
    Mr. Boardman. Thank you, Senator. I think on-time 
performance is probably my--one of my top priorities outside of 
safety itself, which I think Alex has figured out in the board 
meetings that I have attended. And, one of the things I 
understood as you gave your opening statement is that there 
wasn't necessarily an understanding at this point in time, that 
the capital program that we would propose wouldn't benefit 
existing corridors. Rather than putting in an entirely new 
corridor online, what we're really looking for is for States to 
start planning all of their transportation--whether it's 
highways, or rail, or whether it's aviation, or whatever it 
is--as a transportation plan in their States. And part of that 
would be to improve that corridor, the I-5 corridor.
    And the way that you would do that--and one of the things I 
began to understand is--that a lot of times you get caught 
behind a freight train because the freights never intended to 
pass each other, they intended to be able to get by each other 
when they meet, rather than to have the ability to pass. So 
some of the improvements that could be made for the future 
using that capital program, could be passing sidings to allow 
an Amtrak train to get by instead of caught behind it.
    I meet with every major class I railroad every year to talk 
about safety, but one of the things on the agenda is the 
importance for on-time performance that I expect them to have.
    Senator Murray. Well, let me ask you, do you think the 
freight railroads are uniformly complying with both the letter 
and spirit of the law, in granting Amtrak trains preference?
    Mr. Boardman. I don't think there's uniformity in terms of 
the importance of this among the class 1 railroads. I think 
there has been difficulty explaining the importance of how we 
see that work for the future.
    And I took a particular case example of the Southeast 
Corridor where there are the Silver Services, the Palmetto, the 
AutoTrain, and I know that Amtrak has as well. And even if you 
look on our website today, you'll find a linkage to the 
Southeast Corridor, where we're really trying to make a change 
in how we would manage that particular service. And the reason 
is--and I don't want to take up too much time--but the reason 
is because CSX operates on that corridor. Their main interest 
is their juice train and their UPS train. They don't have coal 
on that corridor, like so many of the difficulties we have 
across the country.
    I think there's a new model that we can work out. I guess 
my point is, that we're trying to apply both the grant 
pressure, we're trying to--I'm trying to work with Amtrak 
itself, and with the freight railroads, to improve on-time 
performance.
    Senator Murray. Under the law, freight railroads can apply 
to DOT for an exception from the requirement to provide 
preference to Amtrak trains. Has this administration ever 
received any applications from freight railroads for an 
exception?
    Mr. Boardman. I don't have an answer to that, I'll get you 
an answer to that. They haven't spoken to me since I've been 
here.
    Senator Murray. Okay, I'd like to know that.
    [The information follows:]

    No, FRA has not received any applications under 49 U.S.C. 24308(c) 
from freight railroads seeking a Secretarial determination that the 
passenger preference should not be granted at a specific location.

                         STATE MATCHING GRANTS

    Senator Murray. You talked a minute ago about the $100 
million for State matching grants for the development of new 
passenger corridors and let me go into that a little bit more. 
Before we grant new money to leverage more State contributions 
I do think we have to look at the service the States are 
getting for their current contributions. You heard several 
times up here my State gets $11 million and Senator Bond's 
State gets about $6.5 million.
    I'd like to ask, Mr. Boardman and Mr. Kummant, if you 
believe new money is part of the solution to easing freight 
congestion, shouldn't we focus some of our new dollars on 
improving current services before we try to launch new 
services? Maybe Mr. Kummant, if I could start with you.
    Mr. Kummant. I don't disagree with that. I mean these 
problems are very thorny, and they are really grinding things 
out day by day. And as Mr. Boardman suggested, even looking at 
small projects; a siding, a signaling change, a crossover, to 
really opening things up. I do think we need to tie those 
expenditures to very specific gains to be made, and in some 
cases on existing services.
    I would like to see some of those dollars, if possible, 
float toward equipment, as well, because I think that could 
have a fairly dramatic effect on the overall service, and 
perception of the service. But, again, the whole on-time 
question is as much about investment. I do think there are 
gains to be made in dispatching, and again it's a gut feel 
number, but perhaps 5 to 10 points of on-time performance, but 
not 30 or 40. And so it really in the end is about capital.
    And--if I may say--it's almost a personal mission of mine 
to really build a different relationship between Amtrak and the 
freight railroads. And I've just completed a cycle of meeting 
all the U.S. CEOs, I'll meet the Canadians. And I think part of 
it is really just sitting down and getting everybody to agree 
that we are living in a different world than we did 10 years 
ago, and it has to be some commitment on their part at just a 
very personal level.
    Senator Murray. Mr. Boardman.
    Mr. Boardman. I think I agree with you. I think we need to 
improve the existing corridors first. I think we would be 
looking at that from terms of, a priority as they would come to 
the FRA. When they had to put their projects on the STIP in the 
States I think they would have to evaluate that.
    I think a more difficult problem, you almost related to it, 
is a lot of the States such as yourself that have made major 
investments, could be somewhat frustrated by the fact that, 
``Hey, we've gone ahead and made these investments and now 
we're being asked to put money on the table to make future 
investments.'' And I wondered about that myself.
    If you look back at the interstate system, one of the 
things that New York always felt bad about was that they made 
this major investment in the New York State thruway and then, 
along comes the interstate highway system, which was providing 
the money necessary for the future. And my thought was that one 
of the ways that that got treated at the time was that there 
were credits given for the thruway that you could use as part 
of the matching requirement.
    So, I don't think we've gone in far enough to understand 
that, how we would do that for the future, but certainly we're 
open to discussing that kind of thing.
    Senator Murray. Okay. Well let me ask you one other 
question. Your proposed State-matching grant program only funds 
projects when the host freight railroad commits itself to 80 
percent on-time performance for new train service. It makes 
sense to have a minimum on-time performance for new Amtrak 
services. Why hasn't the administration pushed for minimum on-
time for current State-subsidized Amtrak services?
    Mr. Boardman. I don't have an off-the-top answer for that, 
but I'll get you one. I think we've tried to use different 
methodology and this just kind of tightens it up tighter.
    [The information follows:]

    This is a complex issue that the administration has been trying to 
tackle for some time. As the chairman noted in her opening remarks, the 
solution to this problem lies not only with Amtrak, but also with the 
host freight railroads whose track Amtrak operates over. The 
administration, through the FRA, has been trying for some time to 
influence the debate and push for safer and more reliable service for 
all railroads. In many instances, however, extensive capital investment 
is required in order to make the infrastructure improvements required 
to expand capacity, increase reliability and ensure safer operations. 
Host freight railroads have not always been willing or able to make 
those improvements. The $100 million grant program included in the 
administration's fiscal year 2008 Budget Proposal would help facilitate 
those infrastructure improvements.

                  VOLUME: AMTRAK VS. FREIGHT RAILROADS

    Senator Murray. Okay, well when you look at Amtrak's on-
time performance report, you see some extraordinary differences 
in the way different freight railroads treat Amtrak trains. We 
have two major freight railroads serving the western United 
States. We've got UP and BNSF. Somehow looking at this, Amtrak 
trains running over the Union Pacific are encountering twice 
the volume of delays for the same amount of train miles that 
are encountered by BNSF. What do you think explains that 
differing treatment?
    Mr. Boardman. I think there are probably various reasons. 
Certainly the Coast Starlighter, I don't have all the reasons 
to that. The most recent ones, though, were some rebuilding of 
track, and perhaps Alex can supplement what I'm about to say 
here, I don't have as good an understanding of that.
    I know that it's extremely difficult to run trains through 
the coal chute--which I call the coal chute--through Nebraska 
and out on the California Zephyr has been a real difficulty. 
That's a UP. And when you see the Empire Builder, which is at 
about 74 percent, and Southwest Chief, I think, which is also 
run by the BNSF, you have much better numbers. I don't know 
Alex whether you might add to that for me.
    Senator Murray. I think you used to work for UP.
    Mr. Kummant. Yes, I guess I have to not sound not like an 
apologist in that sense, but let me make a couple of comments. 
BNSF does do a very nice job. Take, for example, when they run 
on their major Transcon route. There's some mix, but a very 
large amount of that traffic is inter-modal traffic that itself 
moves at 60 or 70 miles an hour. So it is easier for us to mix 
into that than in other traffic. Senator Bond and I chatted a 
little before the hearing--I used to actually run the River 
Sub, which is between Kansas City and Missouri and a tremendous 
amount of UP coal traffic goes across there and it's just a 
brutal thing to run. Some of it's single tracked, ice storms in 
the winter, mud slides in the spring, floods in the summer, and 
the operational performance there is just incredibly difficult.
    So, in the end you have to go back and look at what 
commitment did we really make, but it's really a hand-over-hand 
climb on taking slow orders off, on undercutting, on adding 
those sidings. UP also has a very, very difficult time, 
obviously on the Sunset route, which is not fully double-
tracked yet. And on the north-south Coast Starlight, a 
tremendous amount of slow orders. That being said, they have a 
huge capital program going forward, and we expect, for example, 
that we may be--in a sense from a marketing point of view--
relaunching the Coast Starlight at the end of this summer when 
they're through with that work.
    On the long distance trains there is some good news, 
although the absolute numbers are still low, we are actually 
up, year-over-year in 13 of the 15 long distance trains. Where 
we really need to focus, though, is on the State corridors, 
because on those shorter routes the on-time performance is all 
the more critical. So we're up only in 9 out of 15 and we're 
down in 6 out of 15. So there are no easy answers, except for 
grinding it out and UP still has tremendous amount of slow 
orders out there, and catch-up maintenance work that they're 
doing this year.
    Senator Murray. Okay.

                      AMTRAK SERVICE TERMINATIONS

    There are no other members present. I have a couple more 
questions, and appreciate all of your patience. Mr. Kummant, I 
wanted to ask you. Your formal grant request for the coming 
year for you long distance services, you say you may be 
implementing selected route adjustments? I wanted to ask you if 
those selected route adjustments are another name for service 
terminations?
    Mr. Kummant. No, I think what we'll look at, there may be 
one long-distance route that we look at converting into a 
series of State corridors and have a multi-year plan to do 
that. We have absolutely no plans for wholesale service 
terminations, but the strategy that we're developing--and we'll 
be speaking about in April/May timeframe--will be looking at 
long term. Where do the State corridors really grow, and where 
are they dominant, and particularly where they overlay long 
distance routes. We ask ourselves, does it make sense perhaps 
to find some ways to focus on those segments and to grow those 
segments and perhaps then adjust the service into a series of 
State corridors, rather than a long distance piece?
    Senator Murray. Do you anticipating any communities in 
this, in the rail service?
    Mr. Kummant. Any communities?
    Senator Murray. Are you going to eliminate any communities 
from your rail service?
    Mr. Kummant. It could be. We may have to face some of that. 
We do know, for example, that we haven't run the eastern 
portion of the Sunset since Katrina. It is an example of what 
we're working through. It was not a great service to start 
with. It hit a number of communities late at night only three 
times a week. However, we'd like to look at some State corridor 
alternatives in that area. That decision hasn't been made, but 
that's an example. So selectively, yes, if those decisions are 
made there may be some communities affected.
    Senator Murray. Mr. Tornquist, would you like to comment on 
Amtrak's need to implement route cuts?
    Mr. Tornquist. Sure.
    There is little secret that there are several routes in 
Amtrak's system that lose substantial amounts of money both in 
total and on a per person, per rider basis. There's only a 
limited amount that Amtrak can do to make those operations more 
efficient. They have a long-term goal, which we would agree to, 
of running an efficient system. Amtrak needs to look at its 
routes in light of the issues Mr. Kummant mentioned. This is 
something the Board has been looking at for the last year. 
Specifically, where does the service make sense, both in terms 
of the transportation standpoint and an economic standpoint? 
Amtrak then should determine where they can augment the service 
cost effectively through corridor route development and where 
they can make a net savings to the company by altering the 
service.
    They have gone through a very deliberative process. We've 
met with their consultants who have done some modeling for 
them. We don't have any problems with the methodology they're 
looking at, and we're eager to see what they come up with. 
Right now we're waiting for Amtrak to figure out what their 
final proposal is going to be and what criteria they are going 
to apply to each route.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. Well, thank you very much.
    And I appreciate all of your testimony. Obviously, our 
committee will be waiting to get our allocation and once again 
looking at the administration's request and trying to figure 
out how we can balance the incredible needs to make sure we 
keep this service running.
    [The following questions were not asked at the hearing, but 
were submitted to the agencies subsequent to the hearing:]

                Questions Submitted to Alexander Kummant
              Questions Submitted by Senator Patty Murray

    Question. Can Amtrak really grow ridership over congested 
corridors?
    Mr. Kummant, you have stated that, through the initiation of a 
Federal-State capital grant program, Amtrak will be able to double its 
ridership in the next 15-20 years.
    Realistically, will you be able to achieve that goal if the 
Government and freight railroads don't take a more aggressive posture 
on delivering Amtrak trains on time?
    Answer. Ideally, capital investment and more aggressive on-time 
performance (OTP) measures should go hand-in-hand, in order to improve 
reliability for current and future services. Host railroads are 
responsible for most delays to Amtrak trains--75 percent of minutes-of-
delay in fiscal 2006, compared to 18.7 percent from Amtrak-related 
causes (mechanical issues, connections, etc.) and 6.3 percent from 
other causes (weather, trespassers, etc.).
    Traffic congestion accounts for just over half of all host-railroad 
delays, i.e., 38.6 percent of all delays to Amtrak trains. While some 
of that could be improved by better dispatching practices, we believe 
most of it arises from too much traffic using too little rail capacity. 
According to the Association of American Railroads, from the time that 
the freight rail industry was deregulated in 1980 through 2005, track-
miles among the Class I (major) freight railroads decreased 39 percent, 
but traffic (ton-miles) increased by 85 percent and is expected to keep 
growing. In other words, compared to years past, there now is 
significantly more traffic competing for space on fewer miles of track. 
Another 16.9 percent of all delays to Amtrak trains results from track-
related speed restrictions on host railroads. Targeted infrastructure 
investment will go a long way toward reducing delays due to host 
railroad congestion and track condition.
    While we want to retain and improve the quality of today's long-
distance train network, the greatest potential for ridership growth 
lies in corridor development. Already, corridors make up a large 
majority of Amtrak's ridership. In fiscal 2006, the Northeast Corridor 
spine accounted for 38.8 percent of the total ridership of 24.3 
million; other short-distance services accounted for 45.8 percent of 
the total, and long-distance services accounted for 15.4 percent.
    Generally, OTP is a greater issue for long-distance trains than it 
is for corridors. In fiscal 2006, where systemwide OTP was 67.8 
percent, it was just 30.0 percent on long-distance trains, with a 
couple, individual services below 10.0 percent. Aside from Northeast 
Corridor services, where OTP was in the 78-86 percent range, OTP on 
short-distance services averaged 67.3 percent. However, there was a 
wide range of results for those services, from 17.0 percent for the 
Carolinian (a 704-mile ``short-distance'' route with a long run on a 
congested CSX line) to 89.7 percent for the Hiawathas (at 86 miles from 
Chicago to Milwaukee, the shortest route).
    As we have said, corridor development will depend on a Federal-
State partnership for infrastructure. This partnership will lead to 
investment aimed at rolling stock acquisition, station improvements or 
development, signal improvements, track improvements, and track 
capacity expansion, where needed to meet the development objectives of 
each individual corridor. Of those items, the ones involving signals 
and track should be designed and implemented in such a way as to not 
only allow for higher speeds and frequencies, but also to minimize 
conflict with anticipated freight traffic levels. The freight railroads 
will have to be part of this process, so that infrastructure 
improvements meet the needs of all parties involved. If this is done 
successfully, the resulting service should be reliable and attract 
ridership with the aim of doubling our systemwide ridership in the next 
15-20 years.
    Question. Mr. Tornquist included in his testimony a chart 
indicating that Amtrak carried over a cash balance of $215 million into 
2007. That level was well above its cash balance of $75 million carried 
over into 2006, but well below the $247 million it carried into 2005. 
Some people have argued that Amtrak can endure a cut in its subsidy 
because of this $250 million cash balance.
    Mr. Kummant, does this cash balance represent excess funds that the 
corporation does not need? What is the rational for maintaining this 
cash balance?
    Answer. We suggest that a company of the size of Amtrak, with over 
$3 billion per year of cash outlays, and with extraordinary funding 
uncertainties, prudently requires cash working capital of at least $200 
million, the approximate amount in place at the end of fiscal year 
2006. Unlike other companies, Amtrak cannot obtain a short term line of 
credit on which to draw in the event that its operating cash balance is 
insufficient to continue operations. Amtrak's only alternatives are to 
rely on its cash working capital, obtain emergency Federal funding, or 
become insolvent.
    Amtrak's Federal funding requirement has been averaging slightly 
more than $100 million per month. But Amtrak's actual cash usage varies 
widely because of structural reasons like seasonality in revenue, 
capital expenditures, and debt service payments. For example, this past 
January, Amtrak used $177 million of its cash balance because of 
seasonally low revenue and high principal and interest payments. 
Therefore, with a cash balance of $200 million, the Company should be 
able to meet its cash requirements for at least a month; at $100 
million, the Company has 2 to 4 weeks of cash remaining; and lesser 
amounts become critical.
    The risk to Amtrak's cash is increased further by the uncertainties 
in amount and timing of Continuing Resolutions and appropriations as 
well as an unexpected service interruption, economic event, or security 
issue affecting ridership and revenue. These factors are among the few 
events affecting cash flow management that we cannot predict in our 
annual financial planning cycle, though delays to the appropriations 
process are most likely to affect us in the early months of a given 
fiscal year.
                                 ______
                                 
              Question Submitted by Senator Arlen Specter

    Question. Amtrak and the Commonwealth of Pennsylvania recently made 
$145 million worth of improvements to the Keystone Corridor from 
Harrisburg to Philadelphia. Has this investment translated into service 
and revenue improvements?
    If so, in what other corridors might similar investments also 
benefit the corporation?
    Answer. The heart of our Keystone Corridor is the Harrisburg-
Lancaster-Philadelphia segment. Some Keystone trains also extend beyond 
Philadelphia to New York. At Philadelphia, Keystone passengers also may 
connect to other north-south Amtrak services and to SEPTA and New 
Jersey Transit commuter services.
    Investments in the line that were made jointly by Amtrak and the 
Commonwealth from 2004 through 2006 included conversion of 57 miles of 
track from wood to concrete ties, renewal of 75 miles of track with new 
wood ties, installation of 28 new wayside concrete turnout switches, 
installation of 5 miles of new signal cable, installation of 43 
instrument houses, installation of 26 new breakers, brush and tree 
cutting along 90 miles of track, and improved drainage. Some track work 
has continued into 2007.
    The Keystone Corridor schedules that took effect with our general 
timetable change of October 30, 2006, reflect the improvements that 
were made possible by the joint investment. At that time, Amtrak 
increased weekday train service west of Philadelphia from 11 to 14 
trains each way. We reduced express train travel times from 
Philadelphia to Harrisburg from 120 to 95 minutes. We restored all-
electric operation of these trains, where we had been running diesel 
service west of Philadelphia for a number of years. Top speeds west of 
Philadelphia were increased from 90 to 110 mph.
    Even with shorter schedules, on-time performance (OTP) has 
improved. For all of fiscal 2006, 83.1 percent of Keystone trains were 
on-time (within 10 minutes). While we had initial delay challenges 
after the new schedule took effect, with Keystone OTP dropping to 65.2 
percent in November 2006, it has since recovered, increasing to 87.2 
percent in April 2007 and 92.3 percent in May 2007.
    Keystone ridership in the first 7 months of fiscal 2007 (October 
2006 through April 2007) was 552,674, an increase of 17.1 percent over 
the same period in fiscal 2006. Ridership in all of fiscal 2006 was 
823,097, but in the current year, at the current rate of growth, could 
surpass 950,000. Revenues so far in fiscal 2007 are $11.5 million, an 
increase of 23.4 percent over the same period in fiscal 2006.
    Comparisons of the Keystone Corridor to others that await 
development can be only approximate due to the unique history of this 
route. Because of infrastructure investments made by the Pennsylvania 
Railroad through the 1930's, the Keystone Corridor was second only to 
the Northeast Corridor in terms of track capacity, electric propulsion, 
top speeds, and other factors. That gave Amtrak and the Commonwealth a 
good base for the improvements that were made after 2002.
    That said, other corridor partnerships under discussion include 
Raleigh-Charlotte ($189 million to double frequencies and cut travel 
time by 15 percent); Chicago-Milwaukee-Madison ($351 million to 
increase Chicago-Milwaukee service and start Milwaukee-Madison 
service); Chicago-St. Louis ($164 million to cut travel time by 15 
percent); Eugene-Portland ($60 million to increase frequencies by 50 
percent); Seattle-Portland ($552 million to increase frequencies by 67 
percent and cut travel time by 5 percent); San Diego-Los Angeles-San 
Luis Obispo ($756 million to reduce travel times by 21 percent); San 
Jose-Oakland-Sacramento ($89 million to reduce travel times by 8 
percent); and Bakersfield-Oakland/Sacramento ($203 million to reduce 
travel times by 11 percent). (Figures from appendix A-21 of Amtrak 
Strategic Plan Fiscal Year 2005-09.)
                                 ______
                                 
             Question Submitted by Senator Pete V. Domenici

    Question. Passenger rail service is important to New Mexico, 
especially to the communities along the Southwest Chief and the Sunset 
Limited lines that depend on its services. For example, the Philmont 
Boy Scout Ranch hosts over 20,000 scouts per year and many arrive via 
Amtrak's Raton stop. Like many other policy makers, I am concerned 
about the continued service to New Mexico and other regions of the 
country. It is my understanding that Amtrak has cut its expenses and 
trimmed its workforce, while achieving increased rider numbers.
    How do we keep Amtrak viable and still have Amtrak provide service 
to rural areas like New Mexico?
    Answer. Though we believe that the greatest potential for growth 
and for Federal-State partnerships lies in expanded corridor services, 
we are committed to retaining a network of long-distance train services 
that connect the corridors and regions of the country. We believe that 
there are opportunities to make further efficiencies and improvements 
to the long-distance services, and at the direction of our Board of 
Directors, we are in the process of evaluating the entire long-distance 
network to look for such opportunities. We will keep all stakeholders, 
including Members of Congress, informed of our findings. However, 
though the make-up of the long-distance network may change somewhat as 
a result of this work, in the end there still will be a long-distance 
network.
    That said, our goal of maintaining a nationwide system of trains 
rests on our ability to provide our services and make various strategic 
changes within the scope of the revenues we earn and the funding we are 
provided. Our funding request for fiscal 2008 will allow us to move 
forward in these areas. We look forward to working both with 
appropriators and authorizers on issues of funding and overall policy.
                                 ______
                                 
             Question Submitted to Hon. Joseph H. Boardman
               Question Submitted by Senator Patty Murray

    Question. Can Amtrak Really Grow Ridership Over Congested 
Corridors?
    Mr. Kummant has stated that, through the initiation of a Federal-
State capital grant program, Amtrak will be able to double its 
ridership in the next 15-20 years. I am concerned that Amtrak will not 
be able to achieve that goal if the Government and the freight 
railroads don't take a more aggressive posture on delivering Amtrak 
trains on time.
    Mr. Boardman, do you have view on that question?
    Answer. Ridership growth is possible. It is all about providing a 
high quality and reliable service that meets the traveler's needs and 
expectations. A high level of on-time performance is an important part 
of that equation. That is why the administration's proposed grant 
program would permit States to fund the elimination of bottlenecks on 
freight railroads that create on-time performance problems for 
passenger trains and capacity constraints for freight trains if the 
freight railroad commits to an enforceable passenger train on-time 
performance of 80 percent or higher.
                                 ______
                                 
              Questions Submitted by Senator Arlen Specter

    Question. What level of funding remains necessary to bring the 
Northeast Corridor to a state of good repair, and when can this be 
accomplished?
    Answer. There are multiple estimates of the cost of returning the 
Northeast Corridor to a state of good repair. That is why I directed 
Amtrak, as a condition of its fiscal year 2006 grant, to undertake a 
comprehensive assessment of NEC capital investment needs in cooperation 
with the States and other users of the rail line. While that effort has 
not moved as quickly as I would have liked, I hope that more reliable 
estimates will be available within the next 12 months.
    Question. Can the development of passenger rail service contribute 
to reducing our Nation's dependency on foreign oil, a goal that was 
emphasized in the President's State of the Union address?
    Answer. Some Amtrak services certainly can contribute to reducing 
our Nation's dependency on foreign oil. The Northeast Corridor, which 
has high load factors and is powered by electricity, is the best 
example. However, this is not true of all of Amtrak's routes. Indeed 
services that involve two locomotives and six cars but have an average 
patronage of 100 passengers or fewer do not represent a particularly 
effective use of petroleum based fuel.
    Question. Similarly, can increased rail service significantly 
reduce highway congestion and automobile emissions?
    Answer. Well-patronized passenger services in relatively short 
intercity rail corridors can contribute to lessening highway 
congestion, but the impact of long distance trains on highway 
congestion and automobile emissions is negligible.
                                 ______
                                 
                 Question Submitted to David Tornquist
               Question Submitted by Senator Patty Murray

    Question. What is the appropriate working capital level Amtrak 
should have?
    Mr. Tornquist, in your testimony you included a chart indicating 
that Amtrak carried over a cash balance of $215 million into 2007. That 
level was well above its cash balance of $75 million carried over into 
2006, but well below the $247 million it carried into 2005. Some people 
have argued that Amtrak can endure a cut in its subsidy because of this 
$250 million cash balance.
    Mr. Tornquist, what do you think is the appropriate level of cash 
that the company should have on hand at any given time?
    Answer. We believe that Amtrak's fiscal year 2008 appropriation 
could be reduced to create a start of year cash balance of $75 million. 
Amtrak has previously argued that it required a cash balance or working 
capital fund of $250 million. However, Amtrak was willing to increase 
its spending and live with in an end-of-year cash balance of $103.9 
million, an amount not materially different than $75 million. We take 
Amtrak's actions to spend down its cash balance as a better indicator 
than its rhetoric of what constitutes an acceptable cash balance. The 
risk associated with this lower cash balance is minimized by the 
approximately $60 million in unspent Efficiency Grants which can 
provide a further cushion against unforeseen cash flow problems. 
However, in deciding whether to offset Amtrak's subsidy with a portion 
of its cash balance, Congress should consider the likelihood of a labor 
settlement in the near-term and how the associated increased costs 
should be funded.
                                 ______
                                 
              Questions Submitted by Senator Arlen Specter

    Question. Can food and beverage service on Amtrak play a role in 
attracting passengers, thereby offsetting its costs?
    Answer. We believe that intercity rail passengers expect access to 
food service, particularly on long-distance trips. Ridership and 
revenues would undoubtedly drop dramatically if passengers were 
expected to spend 10-12 hours on a train without food. In that context, 
it could be argued that Amtrak's food and beverage service would likely 
attract enough passenger revenue to offset its costs. The same argument 
could be made for other basic services, such as restrooms and running 
water. Few people would ride intercity trains without them, therefore, 
it could be argued that the same passenger revenues are attributable to 
these basic services.
    We are unaware of any proposals to run long distance service 
without providing access to some level of food service. Therefore, the 
comparison of trains with food service to those with no food service 
does not appear to be relevant or meaningful at this time.
    A more relevant, but more difficult question, is whether the cost 
of providing an enhanced food service above a basic level generates 
sufficient revenues from sales and additional ticket revenue to offset 
its fully-allocated costs. Determining whether this was the case would 
require very complex modeling attempt to isolate the revenues derived 
from food and beverage service. We have seen studies that purport to 
address this issue, but have not seen any such studies supported by the 
analysis that would be required to properly answer the question.
    Rather than trying to isolate the revenues related to food service, 
we have recommended previously that Amtrak pilot different levels of 
amenities on its trains, including different food service options, to 
determine which option maximizes net revenues for the train as a whole. 
At the same time, the net revenues from food sales is a reasonable 
measure for Amtrak managers to use to measure the day-to-day 
performance of Amtrak's food and beverage service. It would be 
impractical to try to use models of marginal revenue changes to manage 
food service on a day-to-day basis.
    Question. By granting more decisionmaking authority to States with 
regard to rail service, do we run the risk of developing a patchwork 
system of routes that do not promote connectivity across state borders 
and transportation corridors?
    Answer. The risk of developing a patchwork system of routes that do 
not promote connectivity across State borders and transportation 
corridors by granting more decisionmaking authority to States with 
regard to rail service is minimal. If given the authority to do so, 
States could conceivably choose different operators or service levels 
on segments of multi-State routes, thereby curtailing connectivity. 
However, this presumes a State would actively decide to inconvenience 
its own citizens, which we believe is not likely to happen. States 
already have experience working together through the Federal-aid 
highway program on multi-State surface transportation issues. In the 
near term, Congress is considering proposals that would provide States 
capital grants for corridor development, i.e., routes of up to 500 
miles. These grants would be awarded by the Secretary of Transportation 
based on applications from one State or a group of States. We would 
expect the Secretary to take connectivity into consideration when 
awarding these grants.
                                 ______
                                 
                  Question Submitted to Edward Wytkind
              Question Submitted by Senator Arlen Spector

    Question. What are your unions seeking in their contract 
negotiations with Amtrak?
    Answer. The Transportation Trades Department, AFL-CIO (TTD) 
represents 10 of the 14 unions at Amtrak and a majority of Amtrak's 
nearly 20,000 employees. However, let me clarify that TTD is not the 
collective bargaining representative for these unions nor is it 
directly involved in contract negotiations. Amtrak and its workgroups 
have 24 separate collective bargaining agreements. Some unions 
represent more than one bargaining unit and some unions bargain 
jointly. As you are aware, the collective bargaining process at Amtrak 
is governed by the Railway Labor Act under which contracts do not 
expire, but rather become amendable. A large number of Amtrak's 
employees are working under contracts that have not been updated in 
nearly 8 years.
    With a few exceptions, most bargaining units have been at impasse 
for years. In short, the process for all practical purposes has 
stopped. Employee representatives have been frustrated that Amtrak, 
when it does come to the table, is simply unwilling to negotiate. For 
one union, the Brotherhood of Railroad Signalmen, for example, Amtrak 
has placed the same proposal on the table since negotiations started in 
2000. The company's negotiators have made no meaningful effort to 
engage in good faith bargaining. As a result, the vast majority of 
Amtrak's employees have gone more than 7 years without a general wage 
increase. Meanwhile, Amtrak has found the resources to institute, 
effective June 4, 2007, a 10 percent Premium Pay Plan for managers in 
certain geographic areas and in ``hard-to-fill'' positions. This 
program represents a slap in the face to the rank-and-file employees 
whose needs are being ignored as management employees prosper.
    Other unions have been in mediation for years with no prospects for 
either resolution or release by the National Mediation Board. In 
summary, negotiations are hopelessly deadlocked due mostly to Amtrak 
management's refusal to enter into serious negotiations and its 
tactical decision to use the uncertainty of Federal funding as a 
strategic ploy to evade its obligations to the employees. And 
meanwhile, there is no serious mediation taking place as the NMB 
majority has refused to carry out its duties responsibly.
    As you know, Amtrak employees have played a major role in keeping 
Amtrak running despite anemic Federal investment and continuous 
attempts by this administration to grossly under-fund Amtrak. Amtrak 
CEO Alexander Kummant has conceded that Amtrak workers are paid 
significantly less than their counterparts in the freight and commuter 
industries and that this reality is making it difficult for Amtrak to 
remain competitive in retaining its workforce. In sum, Amtrak workers 
are expecting equity for the years they have put in supporting our 
national passenger railroad without being compensated fairly. Employees 
also are opposed to changes in benefits to the health and welfare 
system. Amtrak's workers intimately understand the budgetary 
constraints under which Amtrak operates and, indeed, it is the driving 
force behind rail labor's collective efforts in favor of Amtrak funding 
year after year. However, Amtrak workers are having a difficult time 
making ends meet. Amtrak workers are highly-skilled and dedicated 
employees who are responsible for the safe transportation of millions 
of Americans nationwide. It is unconscionable that Amtrak refuses to 
negotiate collective bargaining agreements with these workers.
    If you have specific questions about the status of bargaining by 
individual union, please don't hesitate to contact me and I will be 
pleased to put you in contact with the appropriate union officer or 
representative. We greatly appreciate your interest in this area and 
are thankful for your forceful voice in support of Amtrak employees.
                                 ______
                                 
                  Questions Submitted to Robert Serlin
              Questions Submitted by Senator Arlen Specter

    Question. Can you explain the accountability measures that would be 
put in place for the Infrastructure Management Organization under your 
proposal?
    Answer. Under the IMO Plan numerous accountability measures would 
be put in place.
    Safety is first and foremost. The IMO would be a statutory railroad 
subject to all present and future Federal safety laws and regulations. 
The IMO would be subject to enforcement by the Federal Railroad 
Administration.
    The IMO would be required to report annually its financial and 
operating performance to Congress and the Executive Branch in the same 
manner and timeframe as is statutorily required of Amtrak. The IMO's 
and Amtrak's parallel reporting would permit the Government to review 
concurrently and overlay the performance of Amtrak and the IMO. The 
IMO's financial reports would be required to be GAAP compliant and 
audited by an independent certified public accountant.
    To assure Congress and the administration that the IMO is 
fulfilling its annual investment in AOI requirement, the Department of 
Transportation's Inspector General would be designated to oversee and 
certify lease compliance by the IMO. The DOT IG would also have the 
authority to review the IMO's use of Federal funds and compliance with 
Federal laws and regulations.
    The Secretary of Transportation would be required to review and 
approve the IMO's disposal of AOI fixed assets above $500,000 as well 
as approve IMO related-party transactions.
    The IMO's investment plan would be reviewed by the reconstituted 
Northeast Corridor Coordination Board--a body composed of AOI States 
and rail carrier user representatives. The IMO would be obligated to 
publish annually a rolling five-year capital plan that incorporated not 
only the IMO's planned capital expenditures, but also those requested 
by AOI States and users. The Northeast Corridor Coordination Board 
would review and determine that capital expenditure projects are 
integrated and consistent with the balanced transportation needs of the 
region.
    The IMO Plan is fully accountable to labor--both infrastructure and 
non-infrastructure labor.
    Under the IMO plan, the IMO would be required to offer employment 
in seniority order to all Amtrak employees performing infrastructure 
work to be performed by the IMO. The IMO would also be required to 
honor existing collective bargaining agreements for the Amtrak 
employees it hires. Were RIM awarded the right to be the IMO, it would 
resolve infrastructure employees pending section 6 notices by 
withdrawing both Amtrak's health and welfare contribution demand and 
its concessionary rule-change demands, and by negotiating Northeast-
competitive wage rates and working conditions for those employees to 
whom it offers employment. RIM would pay full back pay and signing 
bonuses (between $10,000 and $25,000 per employee).
    Non-infrastructure labor's pending section 6 notices would be 
partially resolved through mandated arbitration of back pay disputes 
were such disputes not resolved within 6 months of the IMO becoming the 
IMO. Non-infrastructure back pay payments would be funded by the IMO 
escrowing the funds from which Amtrak would meet its back pay 
obligations.
    The IMO Plan would do much to help Amtrak's non-infrastructure 
employees by strengthening Amtrak as the sole national passenger rail 
carrier. Employment at Amtrak would be more secure since Amtrak would 
be more fundable, having been relieved of AOI operating losses. 
Expanded employment opportunities on the IMO and on Amtrak would 
generate more operating, clerical and shop craft employment as 
transportation demand over AOI grew. New jobs would be filled very 
quickly from union training facilities and union operated hiring halls. 
Finally, the IMO Plan is a corridor development model, which can 
increase rail employment throughout country.
    The IMO would also be held fully accountable to repay any 
Government funds made available to it. Prior to the IMO being eligible 
to draw upon a Government loan (``RRIF loan''), the IMO would have to 
furnish an investment grade, third-party, irrevocable full principal 
repayment guarantee that would also function as a risk premium payment. 
The private sector owners of the IMO would be obligated to guarantee 
jointly and severally payment of the RRIF loan interest. The IMO's 
owners would also be required to consolidate fully the financial 
results of the IMO into their public disclosures. Publicly traded 
owners of the IMO would be subject to oversight by the Securities and 
Exchange Commission. Full accountability is ultimately derived from the 
estimated $2 billion in equity the owners of the IMO would be required 
to invest in the IMO and the non-transferability of IMO ownership for 
the full 50-year concession-term. The IMO's investors and owners will 
have to believe in the long-term competitiveness of the rail mode.
    The IMO, as a railroad, would be subject to Surface Transportation 
Board jurisdiction and be required to deal fairly with the carriers 
operating over AOI. In the event of an operating or compensation 
dispute, the IMO would be subject to orders issued by the Board.
    Question. Would service under your proposal be consistent with the 
level of service we see today?
    Answer. The IMO Plan leaves the transportation service provider 
(``TSP'') component of Amtrak untouched and, as a result of the 
transfer of $2 billion to it and assumption of up to $750 million in 
debt from it, significantly better capitalized than today. Amtrak's 
train service levels would remain as they were prior to the adoption of 
the IMO Plan. Amtrak would continue to operate its Northeast Corridor 
and national network of intercity trains, subject only to existing 
agreements and contracts.
    TSPs operating over AOI when the IMO Plan takes effect would be 
granted ``vested carrier'' status. This would entitle each of them to 
current service pattern protections on AOI. Amtrak and commuter 
carriers would be encouraged to improve service levels by offering more 
``one-seat'' rides. Commuter carriers could do this by combining 
operations and operating outside their historic service areas. An 
example of this would be SEPTA and New Jersey Transit pooling their 
equipment and operating New York/Philadelphia without requiring 
passengers to change trains at Trenton.
    Amtrak's operating rights over the freight carrier network are not 
altered, and are subject to existing and future contracts that Amtrak 
may negotiate.
    Key to the success of the IMO Plan is improving the Northeast 
Corridor (``NEC'') and increasing its capacity through investments of, 
were RIM to be selected the IMO, more than $1 billion annually. These 
investments would enable Amtrak, the commuter carriers and new 
intercity TSPs to expand transportation offerings and increase service 
levels. This can only be achieved by an independent infrastructure 
manager actively promoting new options. With an upgraded infrastructure 
and reduced travel times, the railroad mode will be able to increase 
its market share as new services are created, which are time-
competitive with highway and aviation.
    The NEC is the most densely populated, most affluent corridor in 
the world--bar none. RIM believes that the only way that the NEC can be 
made to prosper is by increasing the level of service.

                          SUBCOMMITTEE RECESS

    Senator Murray. So, thank you to all of you. This 
subcommittee will stand in recess until Thursday, March 8, when 
we will take in testimony on the administration's recent 
announced plans for cross-border trucking with Mexico.
    [Whereupon, at 12:05 p.m., Wednesday, February 28, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
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