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


 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2009

                              ----------                              


                        THURSDAY, APRIL 3, 2008

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:35 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Lautenberg, Bond, Alexander, and 
Allard.

  STATUS OF SURFACE TRANSPORTATION TRUST FUNDS AND IMPACT ON FEDERAL 
                                SPENDING

                      DEPARTMENT OF TRANSPORTATION

                     Federal Transit Administration

STATEMENT OF HON. JAMES S. SIMPSON, ADMINISTRATOR

                     Federal Highway Administration

STATEMENT OF JAMES D. RAY, ACTING ADMINISTRATOR

               OPENING STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. This subcommittee will come to order. 
Today, we are addressing two different topics, the financial 
health of the Highway Trust Fund and the financial health of 
Amtrak, but in many ways, these two issues present this 
subcommittee with the same question: Is the Federal Government 
prepared to take the steps necessary to invest in our 
infrastructure and in our people, and is it prepared to keep 
people employed, to keep people and goods moving, and to keep 
our economy moving?
    The Highway Trust Fund has served us well since it was 
first authorized in 1956, but today, the Trust Fund's Highway 
and Mass Transit Accounts are rapidly nearing bankruptcy and in 
Congress, this raises some critical questions in the short-term 
and in the long-term about the future of transportation 
funding.
    The Bush administration has suggested some solutions, but 
after examining its proposals, I find them unrealistic and 
irresponsible, and I fear they would harm our highway system 
and the citizens that depend on them.
    For the short-term, the administration wants us to cut 
highway funding by some $1.8 billion next year. It also wants 
to allow the Highway Account of the Trust Fund to borrow 
roughly $3.2 billion from the Transit Account.
    The administration likes to call this unprecedented 
transfer a loan even though it hasn't proposed a budget that 
will guarantee the loan would ever be paid back. As I see it, 
this loan will only bankrupt the Transit Account faster and 
that is unacceptable.
    For the long-term, the administration is proposing the 
Federal Government slash investment for transportation 
infrastructure in a number of areas. President Bush has claimed 
that his budget proposals can reverse the deep deficits he's 
built in the last 8 years and bring us to surplus by 2012, but 
as always, the devil is in the details.
    One of the ways he wants to do this is by cutting 
transportation funding by 25 percent by 2012 and the largest 
cut would come from the Highway and Transit Programs. He wants 
to slash those by almost a fifth between 2009 and 2012.
    To make up for the cuts, the administration has been 
promoting alternative financing, such as privatization schemes 
that involve charging new tolls to drive on existing roads. The 
administration is advocating new tolls for the purpose of 
relieving congestion, but they want to price working families 
off the road.
    I think tolling can be a successful way to build new 
highway capacity. It makes sense when the public supports that 
additional charge for the additional highway capacity that it 
would provide. But, most working families can't be expected to 
make up for Federal funding cuts by paying new tolls on 
highways they have already paid for with tax dollars. 
Especially while they are already struggling to keep up with 
record high gas prices.
    So, it's clear that there are no quick fix solutions that 
will allow the kind of investments our highway and transit 
systems increasingly need, but I think we can avoid President 
Bush's drastic and damaging suggestions. I have been working on 
a short-term solution with the Finance Committee to get enough 
revenues into the Trust Fund to avoid painful cuts next year.
    Chairman Baucus and Ranking Member Grassley have reported a 
bill out of their committee that solves the problem for 2009 
and we need to pass that bill and pass it soon.
    For the long-term, however, Congress must begin the next 
surface transportation reauthorization process with all 
financing options on the table. Separate from these decisions 
about transportation funding, this subcommittee must make 
another short-term decision, whether to invest in highway and 
transit construction to help stimulate our struggling economy.
    I believe that with the economy on the verge of a recession 
and with a growing number of construction workers facing 
unemployment, now is the time to increase, not cut, 
infrastructure spending, but I also believe the money must come 
from the General Fund, not the Trust Fund.
    I can say without hesitation that the next supplemental 
appropriations bill will include funding for highways. The only 
question is which highways.
    The President's supplemental request for the wars in Iraq 
and Afghanistan includes almost $777 million for improved 
bridges and roads in Iraq and Afghanistan. Meanwhile, there are 
21 States, including my State and Senator Bond's, waiting for 
Federal funding that are owed for the repair of highways and 
bridges damaged or destroyed in declared disaster areas, and 
the administration hasn't requested one dime in the 
supplemental for the Emergency Relief Highway Program to make 
those States whole.
    We also have billions of dollars in ready-to-go highway and 
transit projects in every State of the Nation. Money in the 
supplemental to finance those projects could help save 
construction jobs and help our economy.
    A couple months ago, we had the single largest reduction in 
construction employment recorded in the last 14 years. So, I 
hope that as our subcommittee convenes in the coming months to 
mark up the supplemental appropriations bill, we will recognize 
the critical infrastructure needs here at home, not just those 
in Iraq and Afghanistan.
    Now I want to spend a few moments talking about the second 
subject of this hearing before we hear from Senator Bond.
    Our second panel of witnesses this morning will discuss the 
current status of Amtrak, our national passenger railroad. As I 
mentioned earlier, the American public is facing record high 
gas prices, the highest level in 18 years. The average gallon 
of gasoline nationwide last week was $3.29. In my home State of 
Washington, it was $3.46 and States like California are facing 
gas prices of over $3.61 per gallon.
    Partly as a result of those high gas prices, more people 
than ever before have been using Amtrak across the country and 
you would think with gas prices like these, even the Bush 
administration might reconsider the merits of an energy-
efficient mode of travel like Amtrak. Unfortunately, it has 
not.
    For the second year in a row, the administration has 
proposed cutting direct subsidies to Amtrak by almost 40 
percent. For Amtrak's critical operating and debt service 
subsidies, which keep the railroad out of bankruptcy, the 
administration is proposing a cut of 64 percent.
    Once again, the administration is proposing to decimate 
inter-city rail transportation and once again, this 
subcommittee will need to take a much more realistic look at 
what Amtrak's genuine needs are and develop a budget for fiscal 
year 2009 that maintains and hopefully improves rail service.
    I'm pleased that we are now about to resolve a period of 
very sour labor-management relations at Amtrak. I look forward 
to a new era in which management and labor at Amtrak will work 
side by side. We need a railroad that can focus on the 
country's transportation needs without the constant distraction 
of wage and workplace disputes.
    President Bush's Emergency Board addressed all of the key 
disagreements that kept Amtrak labor and management from 
getting an agreement on their own. One particularly difficult 
issue that President Bush's Emergency Board settled was the 
issue of back pay. The PEB settled this by recommending two 
separate payments to Amtrak workers for well-deserved moderate 
wage increases that they did not receive over the last 8 years.
    The first payment will be made shortly and the second one 
will be made in 2009, but we have to decide whether we must 
appropriate more resources to pay for it. Amtrak's management, 
which is represented here today by their Board Chairman, is not 
formally asking for this funding.
    The DOT Inspector General's Office has regularly reviewed 
Amtrak's books. They will testify that Amtrak can expect to 
have adequate resources to make the second payment next year 
without any support from the subcommittee.
    At the same time, the subcommittee must be mindful that we 
are unsure what will happen in the economy or Amtrak's revenue 
in the next year. Over the next several months, this 
subcommittee will have to monitor Amtrak's finances carefully 
to see whether we will have to act to keep Amtrak running or 
whether we will have to ensure that Amtrak's workers get the 
back wages they have gone without for too long.
    With that, I will turn it over to our subcommittee's 
ranking member, Senator Bond, for his statement.

            OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

    Senator Bond. Thank you very much, Madam Chair, and I 
welcome our witnesses today. We have nine witnesses on two 
panels, so it's going to be a long hearing, and in order to 
save time, I will try to keep my opening comments brief, at 
least by senatorial standards, which would not apply in any 
other way, but first to answer the question a whole bunch of 
people asked.
    I'm a born-again safety advocate. I'm here today with a new 
shoulder joint and my arm sewed back on as a result of a driver 
turning right on red without looking last year. So count me as 
a highway safety advocate from the word go.
    Moving on to the direct subject of the hearing, I was one 
of the key authors of the SAFETEA bill. It took us 3 long years 
and two different bills to finally get an agreement with the 
House and the White House on a bill that didn't raise taxes and 
didn't quite spend the $300 billion in total.
    At the time, we used Treasury and CBO projections on what 
the Highway Trust Fund could sustain over the life of the bill, 
realizing that we did have some balances available and that 
forecasts were projections of what we believed would be coming 
in to the HTF to be spent.
    As I stated at our hearing with the Secretary of 
Transportation on the overall budget, I had hoped that the 
administration would have recommended--would have remained 
committed to meeting the guaranteed funding levels for highways 
and transits as authorized in SAFETEA. I understand from the 
testimony today that you believe the administration lived up to 
the terms by providing $286.4 billion over the life of the 
bill, thereby fulfilling the commitment of the spending 
agreement made with Congress when the President signed SAFETEA.
    I disagree with your assessment and believe that Senator 
Murray and I will continue to work to honor our commitment to 
highways and transit.
    I also hope that we can work with the Senate Finance 
Committee and the House Ways and Means Committee, to fix the 
current shortfall in the HTF to get us through fiscal year 2009 
and beyond.
    It appears to me that no one can really get a handle on the 
Highway Trust Fund shortfall that we face this year and next. 
Last year, last August, our staffs were briefed on the midyear 
projections of revenue in the HTF and were told that a $4.3 
billion gap would occur at the beginning of 2009.
    As you know, this came about from lower anticipated gas tax 
receipts into the Highway Trust Funds due to sharp downturn in 
vehicle miles traveled and truck sales being down 20 percent. 
It appeared then that high gas prices were having a major 
impact on the traveling public and their willingness to drive 
long distances.
    It is true that the marketplace works and when prices go 
up, people tend to use less, and in some respects, that's good 
in terms of those who are concerned about global warming and 
economy, but it is bad when you look at it from the Highway 
Trust Fund side.
    The budget you have before us today re-estimates that 
shortfall to be $3.3 billion, based upon slower-than-expected 
outlays on earmarks and projected negative RABA. To make up for 
this shortfall in the budget, the administration calls for 
other budget gimmicks, allowing the HTF to borrow up to $3.3 
billion from the Mass Transit Account to cover the shortfall in 
the Highway Account. That's what I'd call putting a small 
bandaid on a bleeding wound.
    What we really need is a solution to the problem to get us 
through 2009 and beyond and get a comprehensive reauthorization 
proposal that can be passed and signed into law, which, by 
judging past experience, would be a very long time, given the 
fact that there will be a new administration, insufficient 
balance in revenue raisers in the Highway Trust Fund, and a new 
Congress to contend with.
    I understand the old rocker Jethro Tull once said, 
``Nothing is easy.'' He probably didn't know much about 
highways or at least highway funding, but he accurately and 
succinctly characterized the problem.
    SAFETEA guaranteed the States $41.2 billion for highways. 
This budget provides $39.4 billion. This reduction comes in 
part from a projected negative revenue aligned budget authority 
of RAB, as we call it, of just over $1 billion, plus another 
$800 million in other reductions.
    Similarly, this budget proposes to fund the Federal Transit 
Programs at a level which is $200 million below the SAFETEA-
authorized levels for new starts. These funds allow an 
increased investment in key highway and transportation projects 
to complement and assist the continuing growth of the U.S. 
economy and I would hope we could live up to our commitments.
    On Amtrak, once again the administration has forwarded a 
budget proposal which is a non-starter. In 2008, Amtrak 
received $1.325 billion, $850 million of that for capital debt 
service and $475 million in operating subsidies. The budget 
submission we have before us provides only $525 million for 
capital and debt service and $275 million for efficiency 
incentive grants that would take the place of direct operating 
subsidies, placing more control in the hands of Secretary 
Peters and Administrator Boardman rather than Amtrak.
    I'm troubled that, while the administration seems to push 
for lower subsidies to Amtrak, they are also losing sight of 
reform initiatives that need to be part and parcel of a 
lowering operating subsidy.
    The Secretary of Transportation already has sole authority 
to approve or disapprove Amtrak's request for funds to cover 
capital needs and operating losses and to date, I am unaware of 
how the Department has used its existing authority.
    Are there any instances where DOT has denied funding to 
Amtrak because Amtrak's grant request would not be the 
efficient use of Federal funds? I understand that Mr. Boardman 
voted no on the Amtrak grant legislative request for 2009 and 
we'll want to know if that was solely because of the higher 
numbers contained or the fact that there was no operating 
reforms.
    As the chairman has said, we are glad that the presidential 
board did provide the appropriate wage increases and the back 
pay, but as far as I can tell, none of the operating reforms 
were addressed. They whiffed on perhaps what is one of the 
significant long-term solutions for Amtrak's continued 
viability.
    Now, some have indicated an interest in potentially 
reprogramming some of the efficiency grants of $66 million in 
2006 and 2007 to fund a portion of the $114 million in 2009 for 
the unbudgeted retroactive wage costs in the PEB labor 
settlement. The IG for the Department will state that he 
believes that these could be funded out of the $269 million in 
end-of-the-year 2008 cash balances.
    During the question period, I will ask you to describe how 
you believe we should deal with the issue and what's the 
sufficient level of cash balances for Amtrak.
    FRA's priority appears to be the Intercity Passenger Rail 
Grant Program, which in 2009 they requested $100 million for, 
up from $30 million in 2008. I find it interesting that FRA 
doesn't include the labor settlement agreement in the budget 
and Amtrak does not include in its grant a legislative request, 
the Intercity Passenger Rail Grant Program, each totaling 
around $100 million.
    We commend Amtrak for improved on-time performance, 
revenue, ridership and cash operating losses. These are good 
pieces of news. However, some of this can be attributed to 
labor costs held down by the absence of a labor settlement over 
the past 7 years that will now have to be addressed.
    We had attempted to have a witness here today from the 
Presidential Emergency Board (PEB) to describe what exactly 
Amtrak received in work rule changes and the like through the 
PEB settlement, but they declined to come and speak today 
before this panel and as I look at what they did, I can see why 
they wouldn't want to come and talk about it.
    Regardless of Amtrak's success of late, Amtrak has made no 
significant progress in restructuring operations to become less 
reliant on Federal funds. This year in operations, they're 
requesting a $50 million increase over last year. The IG will 
testify that level funding at $475 million is sufficient to 
meet the operating needs. The Graham legislative request for 
2009 contains no operational reforms in 2009. The pace of 
Amtrak's reform savings has slowed from $61 million in 2006, 
almost $53 million the next year, and only $40 million in 2008.
    There is little chance Amtrak will achieve anywhere near 
the $500 million in annual reform savings it promised when it 
adopted its 2005 plan. Is there a new plan or do the witnesses 
feel there's no need for a plan to be in place as long as the 
money keeps coming?
    I look forward to the answers to these questions from the 
panels.
    Senator Murray. Thank you very much. Senator Allard.

                   STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Thank you, Madam Chairman. Thank you for 
holding this hearing.
    I have two important hearings this morning and fortunately 
I do want to make my opening statement and will have to go to 
the other hearing since I am the ranking Republican on 
Securities. It involves our housing and securities issues.
    First of all, you know, these are some very important 
matters for our surface transportation system, and I appreciate 
the opportunity to be able to review the testimony after this 
hearing.
    Before I begin my remarks related to the hearing, I want to 
take this opportunity to publicly commend Federal Transit 
Administrator Jim Simpson. Administrator Simpson has been a 
tireless advocate for public transportation and I especially 
appreciate his efforts in Colorado.
    RTD in Denver is currently in the midst of an aggressive 
multiyear multicorridor package known as Fast Trax. The 
successor in Fast Trax is closely linked to a close cooperative 
relationship with FTA and we are lucky to have him as its head.
    Both Administrator Simpson and Deputy Administrator Sherry 
Little have gone out of their way to be helpful and supportive, 
devoting significant time to RTD and the Denver corridors. I 
especially appreciate their support for our public-private 
partnerships and the value that they can bring, particularly 
during these times of rapidly escalating materials costs. They 
both bring a flexible, innovative, solution-oriented mindset 
that has served the transit community well.
    Jim, I offer my heartfelt thanks to you and Sherry for all 
that you've done. Your public service is appreciated in public 
transportation in Denver and across the country is better for 
it. Thank you.
    Because I've been very involved with Amtrak on the 
authorizing side, I also wanted to make a few comments on that 
topic.
    While passenger rail has a significant role in an 
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 the results that they can demonstrate with those 
taxpayer dollars.
    In the case of Amtrak, I'm afraid those results are not 
very impressive. In the administration's Part Assessment, their 
tool for evaluating the effectiveness of programs, Amtrak was 
rated as ineffective. 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 rating means. From the 
administration's description of ineffective, programs receiving 
this rating are not using your tax dollars effectively. That 
seems pretty clear to me.
    I'm concerned, however, that we're not talking about real 
changes to reform Amtrak. I'm unconvinced that Amtrak has 
completely turned the corner and is solidly on the path to 
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 appropriations process.
    Finally, I want to say a brief word on the Trust Fund. I 
have been fortunate enough to serve on the authorizing 
committee during drafting of the last two surface 
transportation bills. While we struggled to complete action on 
both T21 and SAFETEA and in fact produced both behind schedule, 
in a sense, they were easy.
    With significant funding increases, Congress was able to 
avoid some of the more difficult choices about how we structure 
and fund our surface transportation programs. With the Trust 
Fund that is running on empty, those decisions can no longer be 
avoided.
    I regret that I won't be here to participate in the debate 
for the next bill, but I look forward to today's discussion.
    Thank you, Madam Chairman.
    Senator Murray. Senator Alexander?

                  STATEMENT OF SENATOR LAMAR ALEXANDER

    Senator Alexander. Thank you, Madam Chairman. I thank the 
witnesses for coming. I only have one thing I'd like to say and 
then I'll look forward to your comments.
    Perhaps the greatest compliment I've been paid since I was 
elected a few years ago was by one critic who said the problem 
with Lamar is he hasn't gotten over being Governor, and I 
consider that a big compliment, and one of the things I 
insisted on as Governor was that if we raised money through the 
gas tax to build roads, that we only spent it for 
transportation projects and we did that year in and year out 
and as Governor, I resisted every attempt to take that money 
and use it for something else.
    I want to be the same kind of United States Senator on that 
score that I was as Governor. In Tennessee alone, more than 
$237 million has been taken from transportation funds since 
December 2005, and spent on other purposes, maybe worthy 
purposes, but it's having a severe impact on our State 
transportation system.
    I've heard the chairman talk about the twin goals here of 
dealing with traffic jams and highway safety. About one-half of 
Tennessee's highway budget is funded by the Federal Government. 
Well, when we take $237 million out of Tennessee's highway 
budget, that means less money to relieve traffic jams and less 
money for highway safety, so things don't happen to other 
Americans like what happened to Senator Bond not so long ago.
    So, we're upset about that in Tennessee and so what I want 
to say today is that I intend to offer an amendment in the 
appropriations process in the appropriate way that will exempt 
transportation accounts from these raids by the rest of the 
Federal Government to pay its other bills.
    The American people and Tennesseans have a right to know 
that if they pay gas taxes, that that money is used for 
transportation purposes.
    Thank you.
    Senator Murray. Thank you very much. We will now hear from 
our witnesses and we'll begin with Mr. Simpson who's speaking 
on behalf of the Department of Transportation today as the 
Administrator at the Federal Transit Administration.

                   STATEMENT OF HON. JAMES S. SIMPSON

    Mr. Simpson. On behalf of Jim Ray, the Acting Administrator 
of the Federal Highway Administration, good morning and thank 
you, Chairman Murray, and members of the subcommittee for the 
opportunity to be here today to testify, to discuss the 
President's budget for the Department of Transportation's 
Surface Transportation Programs for fiscal year 2009.
    I am pleased to report to you that the President's budget 
for all of the Department's programs is $68 billion. Of this, 
76 percent or $51.7 billion is for our highways, highway 
safety, and transit programs. Fiscal year 2009 is the final 
year of the current surface transportation authorization known 
as SAFETEA-LU. Our request fulfills the President's commitment 
to provide the total 6-year, $286.4 billion investment that was 
agreed to when SAFETEA-LU was enacted in 2005. It does so 
without raising taxes or subsidizing transportation spending 
with other tax dollars.
    The President's request for the Federal Highway 
Administration reflects the final installment of the total 
agreement for SAFETEA-LU. It totals $40 billion in new 
budgetary resources and reflects the downward adjustment of $1 
billion in accordance with the statutorily-directed revenue-
aligned budget authority calculation.
    The requested funding will be used to improve highway 
safety and improve the Nation's highway system. The request 
also encourages new approaches to fighting gridlock by 
proposing to use $175 million of inactive earmarks and 75 
percent of certain discretionary program funds to fight 
congestion.
    The President's request for the Federal Transit 
Administration's fiscal year 2009 budget provides a record 
level of funding, $10 billion, for the Federal public transit 
programs. Funding will be used to increase transit system 
capacity and improve safety. It will also leverage private 
investment into public transit through joint development 
activities.
    FTA's request fully funds what is needed in 2009 for the 
New Starts and Small Starts Programs. The request for major 
capital investment grants of $1.6 billion includes funding for 
15 existing and two pending full funding grant agreements. When 
completed, these projects will encourage transit-oriented 
development and promote new economic activity throughout the 
Nation.
    Receipts in the Highway Trust Fund have not kept pace with 
SAFETEA-LU funding levels. This has resulted in the continual 
decline of the cash balances of the Highway Trust Fund. During 
fiscal year 2009, we are projecting a possible $3.2 billion 
shortfall in the Highway Account. However, the Mass Transit 
Account is expected to remain solvent through fiscal year 2009 
with an estimated ending balance of $4.4 billion. This will 
leave a combined total of $1.2 billion in the Highway Trust 
Fund at the end of fiscal year 2009.
    To ensure that the administration can continue to meet its 
commitments to SAFETEA-LU, we are proposing new flexibility to 
manage funds in the Highway Trust Fund by allowing repayable 
advances between the Highway Account and the Mass Transit 
Account. We will be able to support authorized funding levels 
for surface transportation programs with the existing tax 
structure.
    Our proposal would not impact the transit program in fiscal 
year 2009. The President's budget builds on the exciting things 
we are doing at the Department of Transportation to help us 
move forward on a new course, a course that provides high 
levels of safety and mitigates congestion.
    As we look to the next surface transportation 
authorization, we have an opportunity to come together and 
completely reassess our approach to financing and managing 
these programs. The Department looks forward to working with 
the Congress to address the challenges we face in 
transportation and to meet our Nation's transportation 
financing needs.

                           PREPARED STATEMENT

    Thank you for the opportunity to appear today. Jim Ray and 
I would be happy to answer your questions, I on the transit 
portion and Jim Ray on the highway side.
    Thank you.
    [The statement follows:]
              Prepared Statement of Hon. James S. Simpson
    Good Morning. Thank you, Madam Chairman and members of the 
subcommittee, for the opportunity to appear before you today to discuss 
the President's fiscal year 2009 budget plan for the Department of 
Transportation's surface transportation programs. I am pleased to 
report to you that the President's fiscal year 2009 budget for the 
Department of Transportation is $68 billion. Of this, 76 percent, or 
$51.7 billion, is for our highway, highway safety, and public 
transportation programs.
    As you know, fiscal year 2009 is the final year of the current 
surface transportation authorization--the Safe, Accountable, Flexible, 
Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). 
Our fiscal year 2009 request fulfills the President's commitment to 
provide the 6-year, $286.4 billion investment in highway, highway 
safety and public transportation programs that was agreed to when 
SAFETEA-LU was enacted in 2005, and does so without raising taxes or 
subsidizing transportation spending with other tax dollars. We are 
working with the President to hold the line on spending, while giving 
travelers and taxpayers the best possible value for their 
transportation dollars by transforming the way our transportation 
system works and is funded.
    The President's budget builds on the exciting things we are doing 
at the Department of Transportation to help us move forward on a new 
course--a course that delivers high levels of safety, takes advantage 
of modern technology and financing mechanisms, and mitigates congestion 
with efficient and reliable transportation systems. However, it is 
increasingly clear that America's transportation systems are at a 
crossroads. Even as we continue to make substantial investments in our 
Nation's transportation systems, we realize that a business-as-usual 
approach to funding transportation programs will not work much longer. 
Long-term, we need a serious reform of our approaches to both financing 
and managing our transportation network. We need to not only maintain 
our infrastructure, but also win the battle against congestion.
                     federal highway administration
    The President's request for the Federal Highway Administration 
(FHWA) in fiscal year 2009, $40.1 billion in new budgetary resources, 
reflects the final installment to the $286.4 billion total agreement 
for SAFETEA-LU. This level includes a Federal-aid highway obligation 
limitation of $39.4 billion and $739 million in exempt contract 
authority. The obligation limitation reflects a downward adjustment of 
$1 billion from the base level in SAFETEA-LU, in accordance with the 
statutorily directed revenue aligned budget authority (RABA) 
calculation. The request supports the Department's goals and policy 
initiatives, and FHWA's priorities including improving highway safety, 
minimizing project delays, reducing traffic congestion, and promoting 
environmental stewardship and streamlining.
    Since the enactment of SAFETEA-LU in 2005, FHWA has implemented new 
programs to improve highway safety, promoted innovative solutions to 
reduce traffic congestion, worked with other Federal agencies and 
States to streamline the project approval process, enhanced program 
oversight and stewardship, and responded to unforeseen events such as 
Hurricane Katrina and the collapse of the I-35W Bridge in Minneapolis, 
Minnesota. Funding requested in fiscal year 2009 will enable FHWA to 
continue to improve the Nation's highway system while looking ahead to 
the next highway program authorization.
    The budget request for FHWA will help address challenges that still 
confront us, such as congestion mitigation. The fiscal year 2009 FHWA 
budget would encourage new approaches to fighting gridlock by proposing 
to use $175 million in inactive earmarks and 75 percent of certain 
discretionary highway program funds to fight congestion, giving 
priority to projects that combine a mix of pricing, transit, and 
technology solutions. Congestion pricing of our highways will generate 
funding that can be used locally for transit projects. While State and 
local leaders across the country are aggressively moving forward, 
Congressional support and leadership is critical. These projects will 
help us find a new way forward as we approach reauthorization of our 
surface transportation programs.
    The FHWA budget includes $4.5 billion for the bridge program, as 
authorized in SAFETEA-LU. In fiscal year 2009, FHWA will focus its 
bridge program on decreasing the percent of deck area of our Nation's 
highway bridges on public roads that are rated as either structurally 
deficient or functionally obsolete.
    The FHWA safety program will continue to concentrate efforts to 
reduce the number of fatalities on our highways, focusing on four types 
of crashes: roadway departures, crashes at intersections, collisions 
involving pedestrians, and speeding-related crashes. The FHWA budget 
includes more than $1 billion dedicated to safety purposes such as the 
Highway Safety Improvement Program (HSIP), and funds utilized by States 
to support safety infrastructure and operational improvements as part 
of other Federal-aid highway programs such as the National Highway 
System (NHS) and the Surface Transportation Program.
    In fiscal year 2009, FHWA will continue to assist States with the 
implementation of Strategic Highway Safety Plans and safety planning so 
that safety funds will be used where they yield the greatest safety 
improvement. The HSIP provides States with flexibility to use safety 
funds for projects on all public roads and publicly owned pedestrian 
and bicycle paths, and to focus efforts on implementation of a State 
Strategic Highway Safety Plan.
    Rural two-lane, two-way road fatality rates are significantly 
higher than the fatality rates on the Interstate. To address these 
higher rural road fatalities, and in support of our Rural Safety 
Initiative, highway safety program funds will provide a foundation for 
safety improvements in areas where the greatest need exists. The High 
Risk Rural Road portion of the HSIP sets aside $90 million in fiscal 
year 2009 to address safety considerations and develop countermeasures 
to reduce these higher rural road fatalities.
                     federal transit administration
    The President's request for the Federal Transit Administration's 
(FTA) fiscal year 2009 budget provides a record level of funding, $10.1 
billion, for the Federal public transportation programs. This is an 
increase of $643.8 million, or almost 7 percent above the Consolidated 
Appropriations Act, 2008. At this level of funding, FTA will achieve 
quantifiable and executable improvements that support the Secretary's 
priorities--safety, system performance and reliability, and 21st 
century solutions for 21st century transportation problems.
    FTA's budget focuses on priorities such as increasing transit 
system capacity and improving safety and performance with existing 
infrastructure; leveraging private investment in public transportation 
through public-private partnerships and joint development activities; 
finding transit solutions to reduce traffic congestion; implementing 
the President's ``Twenty In Ten'' plan by increasing the fuel economy 
of transit buses; improving customer service through targeted program 
delivery process improvements; and increasing productivity through an 
agency-wide continuous improvement program that identifies new 
opportunities for streamlining, efficiency, and performance 
measurement.
    Within the $10.1 billion, $8.4 billion is requested in fiscal year 
2009 for transit services to provide stable, predictable formula funds 
to urbanized areas and increase funding for underserved rural 
communities. A total of $59.6 million is requested in fiscal year 2009 
to support activities that improve public transportation through 
research and technical assistance.
    FTA's budget fully funds the annual cost of multi-year construction 
projects under the New Starts and Small Starts programs, and is based 
on actual project requirements. The fiscal year 2009 request for major 
capital investment grants of $1.62 billion includes funding for 15 
existing and 2 pending Full Funding Grant Agreements (FFGAs). The 
request is about $52 million over the fiscal year 2008 enacted level. 
When completed, these projects will encourage transit-oriented 
development and related initiatives by improving mobility, reducing 
congestion and pollution, and promoting new economic activity 
throughout the Nation.
    The fiscal year 2009 FTA budget will also provide financial support 
and technology to further our Urban Partnerships. Transit is critical 
to the success of the Urban Partners' efforts to reduce congestion. 
Increasing the quality and capacity of peak-period transit service is 
necessary in order to offer a more attractive alternative to automobile 
travel and to accommodate peak-period commuters who elect to switch to 
transit in response to congestion pricing.
                    status of the highway trust fund
    The Highway Trust Fund is the principal source of funding for our 
Nation's highway, highway safety and public transportation programs. 
The President's 2009 budget projections reflect a continuing downward 
trend in the Highway Trust Fund cash balances. A fact sheet is attached 
to this statement that displays the current status of the Highway Trust 
Fund. The trust fund has two accounts--a Highway account that funds 
FHWA, the National Highway Traffic Safety Administration (NHTSA), and 
the Federal Motor Carrier Safety Administration (FMCSA) programs--and a 
separate Mass Transit Account that funds FTA programs. By the end of 
the SAFETEA-LU authorization period in 2009, the administration is 
projecting a $3.2 billion shortfall in the Highway Account. The Mass 
Transit Account is expected to remain solvent through fiscal year 2009, 
with an estimated balance of $4.4 billion, leaving a net total of $1.2 
billion in the combined Highway Trust Fund at the end of fiscal year 
2009.

                       HIGHWAY TRUST FUND CASH BALANCES--FISCAL YEAR 2004-FISCAL YEAR 2013
                   [In billions of dollars as shown in the fiscal year 2009 Presidents budget]
----------------------------------------------------------------------------------------------------------------
                                                              Actual                    Estimated      Repayable
                                               ------------------------------------      Balances       Advances
                                                                                   -------------------  Proposal
                                                  2004     2005     2006     2007     2008     2009       2009
----------------------------------------------------------------------------------------------------------------
Highway Account (HA):
    Cash Balance (Beginning of Year)..........     13.0     10.8     10.6      9.0      8.1      3.0        3.0
    Receipts..................................     29.8     32.9     33.7     34.3     34.2     34.8       34.8
    Outlays \1\...............................     32.0     33.1     35.3     35.2     39.3     41.0       41.0
    Repayable advance from MTA................  .......  .......  .......  .......  .......  ........       3.2
                                               -----------------------------------------------------------------
      Cash Balance (End of Year)..............     10.8     10.6      9.0      8.1      3.0     (3.2)  .........
                                               =================================================================
Mass Transit Account (MTA):
    Cash Balance (Beginning of Year)..........      4.8      3.8      2.0      6.2      7.3      6.4        6.4
    Receipts..................................      4.9      5.0      4.9      5.1      5.0      5.1        5.1
    Flex Funding Transfer \2\.................  .......  .......      1.4      0.2      0.3      0.2        0.2
    Outlays...................................      6.0      6.8      2.0      4.2      6.3      7.3        7.3
    Repayable advance to HA...................  .......  .......  .......  .......  .......  ........      (3.2)
                                               -----------------------------------------------------------------
      Cash Balance (End of Year)..............      3.8      2.0      6.2      7.3      6.4      4.4        1.2
                                               =================================================================
      Highway Trust Fund End of Year Cash          14.6     12.5     15.2     15.4      9.4      1.2       1.2
       Balance (Total)........................
----------------------------------------------------------------------------------------------------------------
\1\ Includes Flex Funding Transfer to MTA.
\2\ Flex Funding in fiscal year 2004 and fiscal year 2005 was fully outlaid to the General Fund.Note: Totals may reflect rounding error.

    Despite the anticipated shortfall in the Highway Account, the 
administration retains its strong commitment to SAFETEA-LU programs. To 
ensure that the administration can continue to meet its commitments, 
the budget proposes a new flexibility to manage funds in the Highway 
Trust Fund so the existing tax structure can continue to support 
authorized funding for surface transportation programs. By requesting 
temporary authority to allow ``repayable advances'' between the Highway 
Account and the Mass Transit Account, the fiscal year 2009 President's 
Budget will enable us to complete the current authorization without any 
impact on transit programs in 2009. In addition to ensuring delivery of 
both FHWA and FTA programs, this mechanism will ensure that the vital 
safety programs funded through the Highway Trust Fund for NHTSA and 
FMCSA will also be able to continue without disruption.
    However, as we look to the future, the projected shortfall in the 
Highway Account is evidence of the need to re-examine how surface 
infrastructure is funded in this country.
                  future surface transportation needs
    For the first time since the creation of the Interstate Highway 
System, we have an opportunity to come together and completely reassess 
our approach to financing and managing surface transportation systems. 
For too long, we have tolerated exploding highway congestion, 
unsustainable revenue mechanisms and spending decisions based on 
political influence as opposed to merit.
    Now, thanks to technological breakthroughs, changing public opinion 
and highly successful real-world demonstrations, it is clear that a new 
path is imminently achievable if we have the political will to forge 
it. That path must start with an honest assessment of how we pay for 
transportation, not simply how much (our current focus). In fact, our 
continued transportation financing challenges are in many ways a 
symptom of these underlying policy failures, not the cause.
    In a report released in July 2007 entitled ``Surface 
Transportation: Strategies Are Available for Making Existing Road 
Infrastructure Perform Better,'' the Government Accountability Office 
(GAO) cited existing revenue mechanisms as the culprit, stating:
    The existing revenue-raising structure provides no incentive for 
users to take these costs (delays, unreliability and pollution) into 
account when making their driving decisions. From an economic 
perspective, a mechanism is needed that gives users price incentives to 
consider these costs in deciding when, where, and how to drive. Because 
the existing structure does not reflect the economic, social, and 
environmental costs of driving at peak periods, drivers who may have 
flexibility to share rides, use mass transit, use more indirect but 
less congested routes, or defer their trips to uncongested times have 
no financial incentives to do so. Without such incentives, the 
transportation system will be headed for more frequent occurrences of 
congestion that last longer, resulting in more time spent traveling, 
greater fuel consumption, and higher emissions in the long run.
    We must decide what our national transportation priorities are, and 
what roles are appropriate for Federal, State and local government as 
well as the private sector, before we can adequately address our 
Nation's infrastructure needs.
    One of the biggest challenges we face is congestion. Technology 
must play an important role in relieving traffic on our Nation's 
highways. Nationwide, congestion imposes delay and wasted fuel costs on 
the economy of at least $78 billion per year. The true costs of 
congestion are much higher, however, after taking into account the 
significant cost of transportation system unreliability to drivers and 
businesses, the environmental impacts of idle-related auto emissions, 
increased gasoline prices and the immobility of labor markets that 
result from congestion, all of which substantially affect interstate 
commerce. Through programs like our Urban Partnerships and Corridors of 
the Future initiatives, we have been aggressively pursuing effective 
new strategies to reverse the growing traffic congestion crisis.
    However, our funding is limited and trying to be all things to all 
people has proven to be an unsuccessful strategy. Options such as 
direct pricing of road use, similar to how people pay for other 
utilities, holds far more promise in addressing congestion and 
generating sustainable revenues for re-investment than do traditional 
gas taxes. Drivers have proven in a growing array of road pricing 
examples in the United States and around the world that prices can work 
to significantly increase highway speed and reliability, encourage 
efficient spreading of traffic across all periods of the day, encourage 
shifts to public transportation and encourage the combining of trips. 
Direct pricing will also reduce carbon emissions and the emissions of 
traditional pollutants. According to Environmental Defense, a nonprofit 
environmental organization, congestion pricing in the city of London 
reduced emissions of particulate matter and nitrogen oxides by 12 
percent and fossil fuel consumption and carbon dioxide (CO2) 
emissions by 20 percent; a comprehensive electronic road pricing system 
in Singapore has prevented the emission of an estimated 175,000 lb. of 
CO2; and Stockholm's congestion pricing system has led to a 
10-14 percent drop in CO2 emissions.
    The Department believes that the highest priorities for Federal 
resources should be:
  --Improving and maintaining the condition and performance of the 
        Interstate Highway System. Roughly one quarter of all highway 
        miles traveled in the United States takes place on the 
        Interstate System;
  --Reducing congestion in major metropolitan areas and increasing 
        incentive funds to State and local officials that pursue more 
        effective congestion relief strategies. A more effective 
        integration of public transportation and highway investment 
        strategies is central to this challenge;
  --Investing in and fostering a data-driven approach to reducing 
        highway fatalities;
  --Using Federal dollars to leverage non-Federal resources;
  --Focusing on cutting edge, breakthrough research areas like 
        technologies to improve vehicle to infrastructure 
        communications; and
  --Establishing quality and performance standards.
    A streamlined Federal role would allow the Federal Government to 
ensure accountability for specific investments that are in the national 
interest and give States greater flexibility to prioritize other 
investments in their transportation infrastructure.
    We look forward to partnering with the Congress to address the 
challenges we face in transportation and to meet our Nation's 
transportation financing needs. Thank you for the opportunity to appear 
before you today. I would be happy to answer questions.

    Senator Murray. Very good. Thank you very much. We will 
move to Mr. John McCaskie, Chief Engineer of Swank Associated 
Companies, who will speak on behalf of the Transportation 
Construction Coalition.

                       NONDEPARTMENTAL WITNESSES

STATEMENT OF JOHN McCASKIE, CHIEF ENGINEER, SWANK 
            ASSOCIATED COMPANIES, ON BEHALF OF THE 
            TRANSPORTATION CONSTRUCTION COALITION
    Mr. McCaskie. Madam Chairman, Senator Bond, and members of 
the subcommittee, thank you for convening this hearing to 
discuss the financial outlook for the Highway Trust Fund.
    My name is John McCaskie, and I am chief engineer of Swank 
Associated Companies, a highway and bridge construction firm 
located in western Pennsylvania.
    I appear today on behalf of the Transportation Construction 
Coalition, a coalition of 28 national associations and labor 
unions.
    The Federal Highway Program is facing a potentially 
devastating situation that, if not remedied soon, will impact 
not only State transportation programs but the construction 
industry and the economy in general.
    SAFETEA-LU set guaranteed funding for the Federal Highway 
Program at the highest annual levels that could be supported by 
projected Highway Trust Fund revenues and existing balances at 
the time. Since then, it's become evident that the revenue 
projections Congress relied on at that time were overly 
optimistic. As a result, projected highway account revenues are 
$3.7 billion below the amount necessary to support the SAFETEA-
LU fiscal year 2009 highway investment level of $41.2 billion.
    Based on the historic spend-out rate, the Highway Account 
could support no more than $29.5 billion of new obligations for 
fiscal year 2009. This is $13.7 billion less than the amount 
appropriated in fiscal year 2008. Every State would be hit with 
a 32 percent cut in Federal highway funds.
    Our Nation already faces a transportation crisis. We are 
not currently investing enough to address that crisis and 
cannot afford to get further behind by cutting transportation 
investment.
    Some warning signs include 27 percent of the Nation's 
nearly 600,000 bridges have structural problems, pavement 
conditions on one-third of America's major roads are not up to 
minimum standards, many of the 15,000 interchanges on the 
interstate system are unsafe or create bottlenecks, and the 
number of vehicles using our highways has nearly doubled in the 
past 25 years while we have added less than a 7 percent 
increase in lane miles.
    The transportation construction industry is concerned we 
may be facing the perfect storm set of conditions that could 
lead to substantial downturn in construction of transportation 
facilities. While public investment in transportation 
infrastructure has remained relatively stable over the past 
year, these numbers don't tell the full story.
    Dramatic construction material cost inflation has reduced 
the purchasing power of public works dollars. As a result, 
fewer contracts are going to bid, which leads to less work for 
contractors, fewer jobs for employees, and denial of 
transportation improvements to the public.
    An industry survey of States indicates that many DOTs have 
cut back substantially in the number of highway projects going 
to bid. The cutback in contracts being bid is already being 
felt. Heavy and civil engineering construction employment 
peaked in January 2007. Over the past 14 months, there has been 
more than a 2.4 percent decrease in heavy and civil 
construction employment over that period of time, which equates 
to 24,400 construction employees out of work.
    An industry survey of the transportation construction 
businesses indicates that further layoffs are a looming 
possibility.
    Not addressing the Highway Trust Fund revenue shortfall and 
the potential resulting cut of as much as 32 percent in highway 
funding would result in further cutbacks in transportation 
projects and lead to further job losses. While the situation 
may seem bleak, there is hope. The Senate Finance Committee, as 
you mentioned, Chairman Backus and Ranking Republican Grassley 
have developed legislation that allows SAFETEA-LU highway 
investment commitment to be met.
    The Backus-Grassley plan would generate new Highway Account 
revenues by crediting the account for currently unrealized 
highway user fee receipts. Furthermore, the legislation is 
fully offset.
    Madam Chairman, failure to address this situation will 
impede your ability to fully fund the Highway Program in fiscal 
year 2009. The Transportation Construction Coalition urges this 
subcommittee's support for the Backus-Grassley proposal and the 
Transportation Construction Coalition is working diligently to 
build broadbased congressional support for this measure.

                           PREPARED STATEMENT

    Thank you again for the opportunity to appear before you 
today and I would be happy to answer any questions that you 
might have.
    [The statement follows:]
                  Prepared Statement of John McCaskie
                      highway trust fund solvency
    Madam Chairman, Senator Bond and members of the subcommittee, thank 
you for inviting the Transportation Construction Coalition to testify 
on the financial outlook for the Highway Account of the Highway Trust 
Fund. What I would like to focus on this morning is how failure to 
address the projected shortfall of Highway Account revenues could 
affect Federal highway investment and highway construction in the 
United States this year and next.
    When Congress enacted the Safe, Accountable, Flexible, Efficient 
Transportation Equity Act: A Legacy for Users--or SAFETEA-LU--in August 
2005, guaranteed funding for the Federal highway program was set at the 
highest annual levels for fiscal years 2005 through 2009 that could be 
supported by projected Highway Account resources. Not only did the bill 
spend all of the projected revenues into the Highway Account through 
2009, it also spent down the accumulated cash balance in the Highway 
Account, envisioning virtually no cash reserve when SAFETEA-LU expires 
on September 30, 2009.
    Since then, it has become evident that the revenue projections 
Congress relied on at that time were overly optimistic. Actual Highway 
Account revenues in fiscal year 2007 were about $300 million less than 
originally expected and the Treasury now projects about $2.7 billion 
less Highway Account revenues in fiscal year 2008 and 2009, for a total 
shortfall of about $3.0 billion. This, combined with higher outlays due 
to positive RABA adjustments in fiscal year 2007 and 2008 and the extra 
$1 billion bridge investment in fiscal year 2008, means that outlays 
from the Highway Account are now projected to exceed revenues by $3.7 
billion in fiscal year 2009 if the Federal highway program is fully 
funded as enacted in SAFETEA-LU, as shown in Figure 1.

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    The Bush administration has proposed two measures for addressing 
this shortfall. First, it proposes to limit Federal highway investment 
in fiscal year 2009 to $39.4 billion rather than the $41.2 billion 
guaranteed in SAFETEA-LU. Second, it proposes to let the Highway 
Account borrow the necessary cash from the Mass Transit Account, which 
will continue to show a positive balance through the end of fiscal year 
2009.
    The administration's proposal is a band-aid. Unfortunately the 
patient needs surgery. Their plan fails to address the core issue of 
insufficient Highway Account revenues. The Transportation Construction 
Coalition opposes it because it perpetuates a zero-sum mentality by 
transferring resources from one mode of transportation to another. 
Madame Chairman, the reality is that greater resources are needed for 
both the highway and public transportation programs.
    We are happy to see that both Houses of Congress have passed budget 
resolutions that assume the full $41.2 billion highway investment 
guaranteed for fiscal year 2009. But Congress still has to address the 
pending Highway Account insolvency to assure this recommendation can be 
realized in this year's appropriations process. Other than borrowing 
from the Mass Transit Account, there are only three options.
    One is to cut highway funding in fiscal year 2009 to an amount that 
could be supported by existing revenue projections.
    Based on the historic spendout of Federal highway funds, the 
Highway Account could support no more than $29.5 billion of new 
obligations for the Federal highway and highway safety programs in 
fiscal year 2009, as shown in Figure 2. This is $13.7 billion less than 
the amount appropriated in fiscal year 2008. Every State would be hit 
with a 32 percent cut in Federal highway funds. Washington State, for 
example, would see its Federal highway funds cut from $573 million in 
fiscal year 2008 to about $390 million in fiscal year 2009. Dozens of 
planned highway improvements in the State would have to be postponed or 
cancelled. Missouri would be hit with a $240 million drop in Federal 
highway funds, from $762.5 million in fiscal year 2008 to about $518 
million in fiscal year 2009. Other States would experience similar 
cuts.

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    A second option would be to fully fund the Federal highway program 
at $41.2 billion in fiscal year 2009 but not add revenues to the 
Highway Account.
    In this case, State departments of transportation (DOTs) could move 
forward on Federal-aid highway projects, but the Federal Highway 
Administration would not be able to pay the bills on time. Currently, 
when a state DOT pays a contractor for work completed on a Federal-aid 
project, the State invoices the Federal Highway Administration for the 
Federal share and receives an electronic transfer of funds usually 
within 24 hours. But when the Highway Account cash balance is 
exhausted, FHWA can pay bills only as new revenues come in, which means 
most bills will be days to weeks late.
    With the economic downturn eroding State government revenues, many 
States will have no option but to stop work on highway projects, 
putting thousands of construction workers out of jobs. The reaction on 
Wall Street and in international markets when investors in Treasury 
bonds see a Federal agency failing to pay its bills on time can only be 
imagined.
    Furthermore, an unfunded highway program is a very dangerous and 
disturbing precedent to set on the eve of a new multi-year 
reauthorization of the Federal surface transportation program.
    Congress has a third option for dealing with the projected Highway 
Account deficit and that is to inject additional revenues. Senate 
Finance Committee Chairman Max Baucus and Ranking Republican Charles 
Grassley made a commitment to you last year to find the necessary 
revenue to keep the Highway Trust Fund whole for the life of the 
current authorization. They honored that commitment when the Finance 
Committee developed a three-part plan--the American Infrastructure 
Investment and Improvement Act, S. 2345--that would:
  --Compensate the Trust Fund for emergency highway spending since 
        1998;
  --Suspend exemptions from the Federal motor fuels taxes for 6 months; 
        and
  --Reduce motor fuel tax evasion.
    The proposal would generate an estimated $5.1 billion for the 
Highway Account between now and the end of fiscal year 2009, which 
would be sufficient to support a $41.2 billion Federal highway 
investment in fiscal year 2009 as called for in SAFETEA-LU and possibly 
provide a small cash cushion for the SAFETEA-LU reauthorization 
process. We strongly support this proposal, even though it is 
temporary, and urge all Members of Congress to support enactment of the 
Senate Finance Committee proposal.
    The transportation construction industry is concerned we may be 
facing a ``perfect storm'' set of conditions that could lead to a 
substantial downturn in the construction of highways, bridges, transit 
and other transportation facilities. Dramatic construction material 
cost inflation has reduced the purchasing power of public works 
dollars. As a result, fewer contracts are going out to bid which leads 
to less work for contractors and fewer jobs for their employees. Not 
addressing the Highway Trust Fund revenue shortage would result in a 
further cutback in transportation projects. This would heighten the 
``perfect storm'' scenario and have a drastic effect on not only the 
transportation construction industry but the U.S. economy as well. The 
construction industry employs more than 7 million people (about 5 
percent of total employment) and represents more than $1 trillion 
annually in economic activity including the purchase of $500 billion in 
materials and supplies and $36 billion in new equipment. Construction 
represents over 8 percent of annual U.S. gross domestic product.
    While economic data show that public investment in transportation 
infrastructure has remained relatively stable over the past year, these 
numbers do not tell the full story. An industry survey of States 
indicates that many have cut back on the number of highway projects 
going out to bid in the last year because of the significant increase 
in highway construction material costs. Economic research shows that 
the Producer Price Index (PPI) for highway and street construction rose 
49 percent from December 2003 to February 2008. This compares to a 15 
percent increase in the Consumer Price Index (CPI) over the same period 
of time. The PPI reflects the dramatic increase in the cost of basic 
building materials, including: steel, cement, asphalt, aggregate and 
other materials. Diesel fuel price increases also impact this cost as 
construction activity is energy intensive.
    State and local budgets are also feeling pressure. At the beginning 
of 2008, 13 States were facing severe budget deficits this year, 
including multi-billion dollar deficits in: California, New York and 
New Jersey. Six more States will be facing significant deficits. Local 
governments, dealing with the ramifications of the housing crisis are 
cutting budgets all across the country.
    The impact from the cutback in contracts being bid by State DOTs is 
already being felt. Heavy and civil engineering construction employment 
peaked in January 2007 and has steadily decreased over the past 14 
months. There was more than a 2.4 percent decrease in construction 
employment over that time period, which equates to 24,400 construction 
employees now out of work. An industry survey of transportation 
construction businesses indicates that future lay offs are a very real 
possibility if States continue to cut back on the number of contracts 
going out to bid. This worrisome trend should not be allowed to 
continue. The potential cut of as much as 32 percent in highway program 
funding in fiscal year 2009 would lead to further job loss only making 
this situation worse.
    The fact that the pending highway trust fund insolvency won't occur 
until fiscal year 2009 belies the fact that Congress cannot waste time 
resolving the problem. This has to be addressed quickly or it will have 
a serious negative impact on highway construction this year, 
compounding the economic downturn and partially thwarting the recent 
efforts of Congress to stimulate the economy.
    As States face uncertainty about receiving their Federal 
apportionment, they tend to take a conservative approach and cut back 
on the number of contracts going out to bid. Since highway and bridge 
projects take time to plan and construct, a reliable and predictable 
flow of financing is essential to keep construction plans on schedule. 
Whenever there is a disruption in Federal financing as often occurs 
during reauthorization or uncertainty about Federal highway funding as 
happened in fiscal year 2003, when this committee led the effort to 
overcome a potential $8.6 billion cut in Federal highway investment--
and is facing us again in fiscal year 2009--State DOTs often hold back 
on starting new projects. They simply cannot afford to commit money 
they may not receive. And this becomes an even bigger problem when the 
economy is in a recession and State governments have their own fiscal 
problems. Uncertainty and disruptions in Federal funding for highway 
and bridge construction is detrimental to the construction industry and 
the economy because decisions about investing in equipment and hiring 
and training employees are deferred. The public also suffers because 
the long term capital investments funded by these dollars are deferred 
and therefore transportation improvements that improve safety, ease 
commutes, and promote economic development are delayed.
    The last time we faced a situation of uncertainty about Federal 
highway investment combined with pending reauthorization and an 
economic recession was in 2002 and 2003. The combination forced many 
States to cut back on highway construction. As Figure 3 shows, the 
value of construction work put in place on the Nation's highways and 
bridges actually fell in 2002 and remained flat until 2005. The same 
forces are at work today, and there is the distinct possibility of a 
similar downturn in the 2008 construction season.
    With the economy facing a possible recession and Congress 
committing $160 billion in tax rebates and incentives to stimulate the 
economy, it makes no sense to worsen the economic situation by putting 
thousands of highway construction workers out of jobs this summer.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Madam Chairman, we appreciate the efforts of this subcommittee to 
draw attention to this critical issue during last year's appropriations 
process. We recognize that failure to address this situation as soon as 
possible will impede your ability to fully fund the highway program as 
you move forward with the fiscal year 2009 transportation 
appropriations bill. In this regard, we hope all members of this 
subcommittee will support the proposal developed by Senators Baucus and 
Grassley to ensure the highway investment commitment made in SAFETEA-LU 
for fiscal year 2009 becomes a reality. Rest assured that the 
Transportation Construction Coalition is working diligently to urge all 
Members of Congress to resolve this issue.
    Thank you very much for the invitation to testify and I am happy to 
respond to questions.

    Senator Murray. Thank you very much. Mr. Millar, if you 
would speak to us? The President of the American Public 
Transportation Association.
STATEMENT OF WILLIAM W. MILLAR, PRESIDENT, AMERICAN 
            PUBLIC TRANSPORTATION ASSOCIATION
    Mr. Millar. Thank you, Madam Chair, and thank all the 
members of the committee for the invitation to be with you.
    Before I address the Highway Trust Fund, let me just second 
something you said in your opening statement, Madam Chair.
    We believe that an economic fiscal package needs to include 
public transit and highway construction. Our own members have 
said they have some $3.6 billion worth of ready-to-go projects 
that could mean thousands of jobs for Americans. We would 
strongly support that. So, thank you very much.
    As you all know, the Highway Trust Fund was created in 
1956. It was created primarily to provide a reliable and 
adequate source of funds to build the Nation's interstate 
highway system.
    In 1982, the Congress amended that Trust Fund and President 
Reagan signed into law a bill that would allow a portion of the 
funds to provide funding for public transportation projects as 
well.
    The Highway Trust Fund has worked well. It has provided a 
reliable and predictable funding mechanism both for highways 
and for public transportation. It has been phenomenally 
successful and therefore we must find ways to save it.
    Now over the years, the Congress had periodically approved 
modest increases in the user fees to fund increases in the 
Trust Fund. Unfortunately, the Congress has not made such an 
approval since 1993. As a result, and I completely agree with 
Mr. McCaskie's statements there, the pure inflation as well as 
the growing needs of our country has meant there simply is not 
enough money for public transit or highway construction.
    As things stand now, the Fund is scheduled to run--the 
Highway Account is scheduled to run out of money next year, 
fiscal year 2009, followed by the Transit Account shortly 
thereafter. Therefore, there isn't a lot of time here. The 
Congress must fix these problems.
    If there's any doubt about it, only look at the collapse of 
the I-35 bridge in Minnesota and then all the subsequent work 
that was done to identify deficient transportation facilities 
throughout the country. We're behind in what we should be 
investing in and as the National Surface Transportation Policy 
and Revenue Study Commission pointed out, the importance of 
having a good transportation system because it is fundamental 
to the growth of our economy, to the ability of our Nation to 
meet its people's needs, to provide jobs and to provide for the 
kind of life that all Americans want to have.
    We certainly agree with that Commission's recommendation 
that the Highway User Fee must be immediately raised to restore 
purchasing power and to allow growth in highway and transit 
investment.
    For fiscal year 2009, we ask you to act quickly. We should 
not accept the administration's proposal. We should reject the 
administration's proposal. It makes no sense, as they say, to 
rob Peter to pay Paul. Both highway investment is important, 
public transit investment is important, and we need to make 
sure there's adequate funding for both.
    We do think that a temporary fix needs to be put in place 
for 2009. We strongly support the work of the Finance Committee 
and its leadership to try to identify a temporary fix. All of 
us know it's only temporary and that by the next year, when 
SAFETEA-LU is scheduled to be reauthorized, a long-term and 
permanent fix will be necessary here.
    I think it's important to point out that many associations 
have come to agreement on this, besides my own APTA that deals 
primarily in transit. Certainly the American Association of 
State Highway and Transportation Officials, AASHTO, which deals 
with all modes of transportation, the U.S. Chamber of Commerce, 
Americans for Transportation Mobility, the American Road and 
Transportation Builders Association, ARTBA, the Associated 
General Contractors, AGC, to name just a few, have come 
together in common interests and belief in this, and we 
strongly urge you to work with the Finance Committee to find a 
temporary fix, reject the administration's proposal. It would 
not be appropriate. Then, finally, we need to work together on 
a long-term fix.

                           PREPARED STATEMENT

    So, in my remaining few seconds here, let me also say that 
we certainly hope the subcommittee will work to restore the 
proposed Bush administration cut in the Transit Program. We 
need to make sure that the levels that the Congress set in 
SAFETEA-LU are met and again we would ask you to reject the 
administration's proposal.
    Thank you, Madam Chair. I'd be happy to answer any 
questions you might have.
    [The statement follows:]
                Prepared Statement of William W. Millar
                              introduction
    Chairman Murray, Ranking Member Bond and members of the 
subcommittee, I thank you for the opportunity to testify today on 
behalf of the American Public Transportation Association (APTA), to 
provide the perspective of the public transportation industry on the 
status of the highway trust fund. My name is Bill Millar, and I am the 
President of APTA.
                               about apta
    APTA is a nonprofit international association of more than 1,500 
public and private member organizations, including transit systems and 
commuter rail operators; planning, design, construction, and finance 
firms; product and service providers; academic institutions; transit 
associations and State departments of transportation. APTA members 
serve the public interest by providing safe, efficient, and economical 
transit services and products. More than 90 percent of the people using 
public transportation in the United States and Canada are served by 
APTA member systems.
                  the status of the highway trust fund
    Madam Chairman, the Highway Trust Fund was created by Congress in 
1956 to provide a dedicated revenue source for the Federal Government 
to build the interstate highway system. In 1982 Congress enacted 
legislation that was singed into law by President Reagan that created 
the mass transit account of the highway trust fund, which provides a 
dedicated source of revenue for public transportation. Funded primarily 
by the motor fuels user fee, the trust fund has provided a steady 
stream of revenue to fund critical capital surface transportation 
projects in America for more than five decades.
    The Federal gas tax is currently set at 18.4 cents per gallon, and 
of that, 2.86 cents is dedicated to the mass transit account. The mass 
transit account of the highway trust fund has served as a dependable 
funding source for the Federal transit program for over 25 years. 
Revenues generated from the highway user fee have allowed for a steady 
growth in Federal capital investment in public transportation. 
Currently, approximately 80 percent of the Federal dollars invested in 
public transportation come directly from the trust fund. This reliable 
funding mechanism has provided predictable and guaranteed investment in 
transit, allowing for not only large scale capital transit projects 
throughout the country, but also important smaller scale transit 
investments.
    Unfortunately, the future of the highway trust fund is in jeopardy. 
Receipts from the highway user fee are not generating sufficient 
revenue to sustain the current level of Federal investment in the 
surface transportation program. While Congress has periodically 
approved modest increases for Federal investment in surface 
transportation, it has not approved an increase in the user fee since 
1993. Recent Congressional Budget Office projections show that by the 
end of fiscal year 2009, without intervening action by Congress, the 
highway account of the trust fund will no longer be solvent. Those same 
projections show that the mass transit account will be insolvent by 
fiscal year 2012. Without sufficient revenues in the trust fund, 
Congress will not be able to continue to sustain current levels of 
Federal investment in surface transportation, and insolvency will make 
future growth in the Federal program impossible. This is bad news at a 
time where increased investment in our Nation's transportation 
infrastructure is critical. One only needs to look at the collapse of 
the 1-35 bridge in Minnesota to realize the importance of maintaining 
and growing Federal investment in the surface transportation program.
    In its recent report on the status of the surface transportation 
program in America, the National Surface Transportation Policy and 
Revenue Study Commission noted that a good transportation 
infrastructure is essential to the Nation's economic health, and we 
need to invest more to both preserve the current aging system and to 
expand and improve our transportation infrastructure to meet the 
demands of our growing population. The report recommends that an 
immediate increase in the highway user fee is necessary to restore the 
purchasing power of the trust fund, and it should be indexed to account 
for future inflation. APTA agrees with those conclusions, and calls on 
Congress to make the necessary increase as it considers the next 
surface transportation authorization legislation next year.
    Since there has been no increase in the motor fuel tax since 1993, 
inflation has steadily eroded the purchasing power of the highway trust 
fund. In addition, recent studies by the U.S. Department of 
Transportation on price trends for construction show that increases in 
construction costs have outpaced inflation, further weakening the 
ability of the trust fund to meet investment needs. The original 
purchasing power of the gas tax must be restored to allow for growth in 
the Federal investment in our Nation's surface transportation 
infrastructure.
                          short term solutions
    While Congress will have the opportunity to address the long term 
stability of the trust fund in the next authorization bill, more 
immediate action is needed to prevent the insolvency of the highway 
account in fiscal year 2009. A short term solution is to ensure that 
revenues are available for Congress to appropriate the guaranteed and 
authorized levels in SAFETEA-LU for the highway program. APTA supports 
full funding of the highway program in fiscal year 2009, but we 
strongly oppose the administration's short sighted proposal to raid the 
mass transit account to cover the short fall.
    The President's budget, released in early February, proposes to 
allow transfers of balances in the mass transit account into the 
highway account to cover projected short falls that occur before the 
end of fiscal year 2009. The administration estimates that this will 
result in a transfer of up to $3.2 billion out of the mass transit 
account. As I wrote to this subcommittee a month ago, we urge Congress 
to reject the administration's proposal. Concern over the projected 
insolvency of the highway account does not justify the proposed 
transfer. Not only is this a temporary fix for the highway account, but 
it jeopardizes public transportation investment by hastening the 
insolvency of the mass transit account. Absent new revenues for 
transit, this would preclude funding the transit program at even 
current levels by fiscal year 2010. The tens of millions of Americans 
who depend on public transportation should not be penalized, especially 
when there are other alternatives to meeting highway funding needs in 
fiscal year 2009. While it is important to fix the Federal highway 
account, robbing Peter to pay Paul is not the way to go. The 
President's short-sighted transportation policy ``fix'' is 
irresponsible and flies in the face of common sense. With more than 10 
billion trips taken on public transportation annually, public 
transportation's growth rate outpaced the growth rate of the population 
and the growth rate of vehicle miles traveled on our Nation's roads 
over the past 12 years. This irresponsible proposal has also been 
opposed by American Association of State Highway Transportation 
Officials (AASHTO), the U.S. Chamber of Commerce's Americans for 
Transportation Mobility (ATM), the American Road and Transportation 
Builders Association (ARTBA), and the Association of General 
Contractors (AGC), to name only a few.
    The Senate Finance Committee has proposed legislation that would 
prevent the insolvency of the highway account in fiscal year 2009, 
without borrowing funds from the mass transit account. APTA supports 
this proposal and we urge Congress to adopt it as soon as possible.
   fiscal year 2009 transportation and housing and urban development 
                          appropriations bill
    I also want to take this opportunity to comment briefly on the 
President's funding request for public transportation in fiscal year 
2009. APTA is disappointed that the Bush administration's budget 
request would fund Federal transit programs in fiscal year 2009 at 
$202.1 million less than the levels authorized and guaranteed in 
SAFETEA-LU. As your subcommittee works to adopt the fiscal year 2009 
Transportation and Housing and Urban Development Appropriations bill, 
we urge you to reject this proposed cut and to provide full funding for 
the pubic transportation program at $10.3 billion, as authorized in 
SAFETEA-LU. The $10.1 billion the president proposes for public 
transportation does not come close to addressing current transit 
capital needs, let alone the costs of a growing public transit system 
that meets growing demands for more public transportation. Ironically, 
failure to adequately fund the Federal transit program will push more 
public transportation riders onto already congested roads making 
matters worse for road users.
    Adequately funding public transportation is an important action 
that benefits all Americans and meets many of our Nation's national 
priorities. Public transportation helps Americans save money and is a 
key strategy in helping conserve energy, minimize climate change and 
reduce highway congestion. A household that uses public transportation 
saves more than $6,200 every year, compared to a household with no 
access to public transportation. This amount is more than the average 
household pays for food each year. Using public transportation is also 
one of the quickest ways that people can help our country become energy 
independent since using public transit saves 4.26 billion gallons of 
gasoline every year (the equivalent of 324 million cars filling up or 
almost 900,000 gallons per day). Using public transportation is also 
more effective at reducing greenhouse gases than environmentally 
friendly household activities which everyone should do, such as home 
weatherizing, changing to efficient light bulbs, and using efficient 
appliances.
The Bus and Bus Facilities Program and Urban Congestion Initiative
    I would also like to express my gratitude to this subcommittee for 
including a provision in the Fiscal Year 2008 Omnibus Appropriations 
bill that limits the Federal Transit Administration (FTA) from spending 
more than 10 percent of Bus and Bus Facilities Program funds on 
congestion pricing initiatives. We urge the subcommittee to continue to 
protect these funds by adopting a similar provision in the fiscal year 
2009 THUD bill. As you know, in fiscal year 2007, Congress did not 
allocate Bus and Bus Facilities Program funds, and instead gave the 
funds to the FTA to distribute to transit agencies to address capital 
needs. We were disappointed that the U.S. Department of Transportation 
(U.S. DOT) decided to allocate virtually all of these funds to its 
Urban Partnership Congestion Initiative (UPCI). While members of APTA 
recognize the potential benefits of projects funded under the UPCI, we 
do not believe that these projects should be funded at the expense of 
much needed capital investment for buses and bus facilities across the 
Nation. Numerous transit systems, both large and small, depend on this 
Federal capital assistance to replace aging buses, expand bus fleets to 
meet growing service demands, and address needs for vehicle maintenance 
and fueling facilities.
New Starts Rule
    We also appreciate the subcommittee's inclusion of language in the 
Fiscal Year 2008 Omnibus Appropriations bill that from prohibits the 
FTA from finalizing its Notice of Proposed Rulemaking (NPRM) for the 
New Starts and Small Starts program. Simply put, the NPRM is 
unacceptable to the transit industry, and does not sufficiently follow 
guidance provided by SAFETEA-LU. For example, the proposed rule does 
not sufficiently consider the benefits of economic development and land 
use criteria in its project approval rating process, and does not 
effectively simplify the Small Starts approval process. The provision 
adopted by Congress to prevent FTA from finalizing this NPRM expires at 
the end of the fiscal year on September 30, and we urge the 
subcommittee to extend the prohibition prior to its expiration.
                               conclusion
    I thank the subcommittee for allowing me to share my views on the 
status of the highway trust fund and fiscal year 2009 transit 
appropriations issues. We look forward to working with the subcommittee 
to take necessary steps to ensure the future solvency of the trust 
fund, so that we can meet the investment needs of our surface 
transportation system. We urge Congress to reject the administration's 
short-sighted proposal to raid the mass transit account of the highway 
trust fund to cover the projected short-fall in the highway account in 
fiscal year 2009, and instead urge this subcommittee to support the 
common sense proposal to solve this problem that is being advanced by 
the Senate Finance Committee. Finally, we urge the subcommittee to 
fully fund the transit program in fiscal year 2009 at the level 
authorized and guaranteed in SAFETEA-LU, and to renew provisions that 
ensure that transit funds are spent in accordance with the authorizing 
statutes.

                     FEDERAL HIGHWAY BUDGET REQUEST

    Senator Murray. Thank you very much. Administrator Ray, I'm 
going to start with you. Your budget proposal would make 
dramatic cuts to the Highway Program. Your request is $1.8 
billion less than the level we appropriated for this current 
year.
    Using the most recent information on the impact of highway 
funding on the economy, this cut to the Highway Program 
represents a potential loss of over 54,000 well-paying jobs and 
almost $2 billion of employment income. You know, few areas in 
our economy have deteriorated as badly as employment in the 
construction sector.
    So, given the state of the economy, is this the right time 
to cut back on infrastructure investments and worsen the job 
losses in our construction sector?
    Mr. Ray. Madam Chairman, thank you for the question. First 
and foremost, let me say that we're, of course, very concerned 
about the economy at the Department of Transportation. We 
recognize that transportation in America is really the life 
blood of the American economy, but let me say that the numbers, 
the $1.8 billion reduction that you're talking about is an 
effort to bring spending in line with the agreement made 
between the administration and the Congress in the original 
SAFETEA-LU agreement. Of that amount, $1 billion is the 
negative RABA adjustment and the rest of it a step to bring 
spending in line with SAFETEA-LU figures.
    The true point of your question is, is this the appropriate 
time to be cutting spending like that, considering the jobs? 
Let me suggest that all of our estimates with regard to 
spending a billion dollars of Federal funding plus the 20 
percent State match supports 34,700 jobs. These are jobs that 
are sustained by current funding levels. They are not jobs that 
are created by funding levels and I think that's an important 
distinction to make.
    The other thing that is important to note about 
transportation spending is that approximately only one-third of 
the jobs created for every $1.25 billion, again that's the 
Federal and the State investment into the transportation 
marketplace, are actually construction-related jobs. The others 
are more downstream.
    Senator Murray. Well, I want Mr. McCaskie to comment on 
that, but first, you claim your budget's just following 
SAFETEA-LU, but in reality, your budget proposals over the last 
couple years have sometimes honored the SAFETEA-LU law and 
sometimes ignored it.
    This year, more than half of the cuts you propose to take 
out of the Highway Program is due to the revenue aligned budget 
authority adjustment that's called for in SAFETEA-LU. That 
provision adjusts highway funding up or down based on 
projections of revenue to the Highway Trust Fund.

                    REVENUE ALIGNED BUDGET AUTHORITY

    Last year, you asked this subcommittee to eliminate Revenue 
Aligned Budget Authority (RABA) adjustment because it would 
trigger increased highway spending. This year, you want us to 
fully honor the RABA adjustment because it would cut highway 
funding.
    So, explain the discrepancy.
    Mr. Ray. Madam Chairman, I appreciate the comment, and it 
seems to be a particular note of interest. Of course, I'm sure 
you know that my predecessor, Administrator Capya, was in this 
position at the time. We'd be happy to respond on the record 
for that.
    Senator Murray. Do you have different philosophies?
    Mr. Ray. It would be premature for me to say. I don't know 
the specifics of what occurred last year. So again, I'd be 
happy to respond on the record, but I don't have that 
information in front of me at this time.
    Senator Murray. Were you at the agency last year?
    Mr. Ray. I was.
    Senator Murray. Were you in any discussions about this?
    Mr. Ray. I was not. I was in the role of Chief Counsel last 
year, but again I would be happy to work with your staff, 
respond on the record and get you a full answer on that in the 
days and weeks to come.
    [The information follows:]

    In preparing its fiscal year 2008 budget, the administration 
considered the projected shortfall in the Highway Account of the 
Highway Trust Fund and determined that it would be prudent to begin to 
address it in fiscal year 2008, and to not increase the discretionary 
Federal-aid highway obligation limitation for RABA in fiscal year 2008. 
The requested level would have been more effective in avoiding a cash 
shortfall during the SAFETEA-LU authorization period than waiting until 
fiscal year 2009 to control spending. Outlays from the Federal-aid 
highway program take place over a number of years, with the highest 
outlays in the second year (the year after an obligation is made).
    Again mindful of the projected Highway Trust Fund shortfall, the 
President's fiscal year 2009 budget proposes a $1.8 billion reduction 
to the fiscal year 2009 Federal-aid highway obligation limitation that 
incorporates the negative $1 billion RABA calculation authorized in 
SAFETEA-LU.

    Senator Murray. Okay, interesting. All right, Mr. McCaskie, 
do you want to comment on the economy and jobs impact of 
transportation funding?
    Mr. McCaskie. I really don't view the Highway Trust Fund as 
strictly a jobs situation. Yes, it employs a lot of people, but 
my focus is on the condition of the highways because what we 
are working on out there today is strictly catch-up maintenance 
and we don't have enough people to do it or enough money to 
keep even, but to cut highway funding, irrespective of 
employment, is ludicrous.
    I heard about Minneapolis. I think we all should feel that 
we were extremely fortunate that Minneapolis was not much worse 
and you say, well, we lost lives and so forth. I would repeat, 
we were very fortunate.
    In Pennsylvania, we have a bridge problem that some 
advertise as the worst of any of the States. I think we have 
competition. The problems that have developed lately, i.e., the 
closing of I-95 for a couple of days to put some shoring under 
it, the closing of the Birmingham Bridge in Pittsburgh, these 
are just indications of the deterioration.
    We bought an interstate system, a wonderful purchase, but 
it's bordering on 50 years old and just like the 20-year roof 
on your house, it needs repairs.
    Thank you.

                    TRANSIT REQUEST BELOW SAFETEA-LU

    Senator Murray. Thank you. Let me go back to SAFETEA-LU one 
more time. Administrator Simpson, you request an increase in 
funding for the Transit Administration over last year's level, 
but you still don't request the $200 million in funds that were 
authorized by SAFETEA-LU.
    Why does the Transit budget ignore the SAFETEA-LU law?
    Mr. Simpson. Well, I wouldn't say that we're ignoring it. 
The shortfall, as you might call it, of $202 million, $188 
million of which is from the New Starts Program, and the need 
wasn't there. We looked at all the projects that we had in the 
pipeline and the flow charts of demand for each project over 
each fiscal year. Then we prepared the budget to meet the need 
100 percent. There's not one project that we're not funding.
    Had we other projects that were ready to go, we would have 
asked for more money. So, we took a needs-based approach and 
did not request the remaining portion of the authority, I would 
hope that you would call that good government because while my 
colleague to the left wants the full amount of SAFETEA-LU, I'm 
sure he's also happy that we're trying to be good caretakers--
--
    Senator Murray. Well, I'd like to ask Mr. Millar where the 
needs are there. You just heard----
    Mr. Simpson. Well, I'd like to finish my answer.
    Senator Murray. Quickly, if you would.
    Mr. Simpson. Yes, because the other part of it was 
discretionary administrative funding. We held the line on 
administrative expenses and we also reduced our discretionary 
research a bit because we took a hard look at the research and, 
like Senator Allard said, we looked for outcomes-based 
solutions. We weren't satisfied with a lot of the outcomes that 
we had in research, so we thought we'd hold back a little bit 
on research and administrative expenses and try to do more with 
less. But we fully fund the Formula Programs and we're fully 
funding every New Starts/Small Starts project in the pipeline.
    Senator Murray. Well, Mr. Millar, Mr. Simpson just 
testified that many of those New Start Programs were not ready 
to go. What is your information on that?
    Mr. Millar. My information is that there are projects 
across the country that could use additional funding, that 
there are bus fleets that need to be replaced, that over the 
years what this administration has done is squeezed the 
pipeline. They have caused projects to be removed from that 
pipeline, so there are many fewer projects in the pipeline 
today.
    Just because a project goes outside the Federal pipeline 
doesn't mean the need isn't there. In fact, we're seeing 
unprecedented in modern times the number of projects that are 
moving forward outside the Federal process. It used to take 5 
years to get through that process. It now takes 10 years. There 
are many reasons for that. Not all of them can be laid at the 
feet of the Federal Transit Administration, but it is a broken, 
flawed process, and as a result, it needs to be fixed, and it's 
our hope to work with the Congress to make sure that we can 
move good projects along that will improve transit for 
Americans.
    At this time, with high gas prices, with the increasing 
concern about global warming and climate change, Americans need 
choice. That's what transit gives them.
    Senator Murray. Okay. And my time is up. I will turn it 
over to Senator Bond.
    Senator Bond. Thank you very much, Madam Chair. Mr. Ray, I 
don't want to influence the outcome of your review of RABA but 
a little historical fact you may not be aware of.
    RABA is in the law because of the Chafee-Bond proposal in 
T21, now known as the Bond-Chafee proposals. So just keep that 
in mind when you're looking at RABA, if you would.
    Mr. McCaskie, I would say that Missouri may rival you in 
bridge needs. We are now down to a maintenance-only status in 
Missouri. So, we are up against the wall.

                   DULLES CORRIDOR METRORAIL PROJECT

    But I want to address a very difficult question to Mr. 
Simpson. You are faced with tremendous popular pull and appeal 
in the Beltway for the Dulles Rail Project. On the other hand, 
you have a responsibility to the taxpayers in Washington, 
Missouri, and the rest of the Nation to spend the money wisely, 
and I would like to know how the process, the review is 
proceeding, when it will be completed. It continues month after 
month, and it's my understanding that if these funds lapse, 
they're 2-year funds, there will be--could be significant 
funds, and I would be interested in knowing how you would 
handle the reprogramming should the decision be made not to go 
forward.
    Mr. Simpson. The Dulles Project has been getting a lot of 
attention, as you know, in the local area, more than we'd care 
to read about, but in a nutshell, we are the last firewall, the 
Federal Transit Administration, for the taxpayer's dollar.
    This is a mega project. The first phase is $3 billion. The 
second phase is $3 billion. That's $6 billion and that's before 
you turn the key and start to operate the system. So, we want 
to make sure before we make that kind of a commitment over a 
10- or 20-year period that the taxpayer is getting the best 
bang for the dollar.
    We have numerous concerns, probably too many to enumerate 
right now, but it's been part of the public record that we've 
been working with the folks in Virginia, the Governor's office 
and the congressional delegation. I was pressed by the 
Commonwealth of Virginia and by the Metropolitan Washington 
Airports Authority (MWAA) to give them an answer by January 31, 
because of contracts that they had ready to proceed.
    When we looked at that project, I guess it was January 23, 
there was no way that I in good conscience could move that 
project forward, given the complexities of the project, given 
the unanswered questions, and also given the state of good 
repair of the WMATA system.
    It's like building a 25 percent addition on to your home. 
The other witness talked about the house analogy. Let's say 
you've got the roof collapsing and, you've got shorts in the 
electrical system and you've got water in the basement and you 
come to the bank, that is the FTA, and you're looking for a 
loan to put this 25 percent addition on to your house. You've 
got to stop and wonder, hey, wait a minute, what's going on 
here?
    So, we're in the process of working with the Commonwealth, 
with WMATA, with MWAA and all the other stakeholders to try and 
get the wheels back on the track to Dulles.
    Senator Bond. If the funds were to lapse, how would they be 
reprogrammed?
    Mr. Simpson. Are you talking about the funds that have 
already been committed to the project? It's about a $180 
million left.
    Senator Bond. Well, actually, there would be--there could 
be. There was a tremendous impact. Would there be unspent funds 
from the 180 or has that already been blown?
    Mr. Simpson. No.
    Senator Bond. Spent?
    Mr. Simpson. The total Federal share is about $900 million 
and approximately $200 million have been committed. About $153 
million is still unobligated. I guess you'd have to ask the 
congressional delegation what they would like to do with that. 
I don't know, but I'll tell you the rest of that pot, that $750 
and some odd million would be up for grabs for another project.

                      URBAN PARTNERSHIP AGREEMENTS

    Senator Bond. Okay. Now let me ask you something on which I 
have a rather strong opinion. You may have read about it some 
place.
    I'd like to ask you about the use of the 2007 bus facility 
money, some $844 million, for five communities or urban 
partners to ``incentivize'' the city councils and the State 
legislatures to impose tolls and also we in Congress are owed a 
3-day notice after the terms have been met before grants are 
announced and I heard the Secretary may be preparing to 
announce a major grant to one city before the tolls have been 
implemented, and I'd like to know how that works.
    Mr. Simpson. The Federal Transit Administration will follow 
SAFETEA-LU to the letter of the law. We will give the three-day 
notification before we at FTA make any sort of announcement. 
I'm sure the Department will as well.
    Senator Bond. And does that not require that the tolls be 
implemented before they grant the money?
    Mr. Simpson. That was a departmentwide initiative. Since 
I'm on the transit side, I'm going to tell you what I've heard. 
The cities have to have the legislative authority. They need 
not have the toll booth up and running, but they have to have 
the legislative authority. Right now, I believe Miami and San 
Francisco are the only two cities right now that have the 
legislative authority to move forward.
    Senator Bond. Well, that's because we heard rumors there 
was going to be an announcement of another city before they had 
the legislative authority, and I'm glad you agree with us.
    Mr. Simpson. What city would that be?
    Senator Bond. New York.
    Mr. Simpson. New York?
    Senator Bond. Yes.
    Mr. Simpson. I believe the deadline is April 7, on New York 
to get their State legislation to vote. It's in the hands of 
the State. The city council passed the resolution, I think it 
was on Monday, and the State needs to vote before April 7.
    Senator Bond. And if they don't vote, no announcement, if 
they don't approve it.
    Mr. Simpson. That's correct.
    Senator Bond. Okay. I want to ask just quickly to Mr. Ray. 
I have mentioned in the previous hearing, I'd asked Secretary 
Peters about the rescission. SAFETEA requires an $8.5 billion 
rescission on September 30, 2009.

                       EXCESS CONTRACT AUTHORITY

    How much contract authority would be available for future 
rescissions if we were to include the $3.89 billion that is in 
your budget, along with the $8.5 billion rescission called for 
in SAFETEA?
    Mr. Ray. Senator Bond, that's a good question. I'm not 
surprised that you asked it and actually did a little bit of 
homework in advance of this hearing to look into it.
    It is a fluid number, of course, it moves. So, it's based 
completely on our estimates, but we believe there would be 
approximately $5 billion in contract authority still available 
in excess of the obligation amount that we would have available 
to us at the end of that time period.
    Senator Bond. There would be $5 billion on top of that?
    Mr. Ray. Approximately $5 billion on top of that.
    Senator Bond. We'd be interested to see the numbers. Thank 
you, Madam Chair.
    [The information follows:]

    The Federal-aid highway program currently has $16.8 billion in 
excess contract authority. Under the Safe, Accountable, Flexible, 
Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), 
$8.7 billion in contract authority will be rescinded in fiscal year 
2009. If Congress were to also enact the $3.2 billion in rescissions 
proposed in the fiscal year 2009 President's budget request, 
approximately $5 billion in excess contract authority would remain at 
the end of the current authorization.

                     REIMBURSEMENTS WHEN SHORTFALL

    Senator Murray. Thank you, Senator Bond. Administrator Ray, 
let me go back to you.
    As much as we all want to prevent the Highway Trust Fund 
from going bankrupt, I think it's still important that we all 
understand what might happen if that Trust Fund's balance is 
depleted.
    Because the Highway Program operates on a reimbursable 
basis, by the time States apply for funding from the Highway 
Trust Fund, they've already spent their own funds completing 
projects that they know are going to be eligible for Federal 
assistance.
    If the Trust Fund were to go bankrupt, States may find that 
the money isn't there when they ask for reimbursement from the 
Federal Government. How would you decide which States get 
reimbursed first?
    Mr. Ray. Well, that's an interesting question, Madam Chair, 
and I appreciate it. It's something that we're looking at right 
now and, as you already mentioned, we don't have the authority 
to slow down or stop obligations. We will continue business as 
normal. But bankrupt may not be the most appropriate word--
perhaps shortfalls is more accurate.
    As you know, we get receipts from the Treasury into the 
Highway Trust Fund twice a month, with the exception of 
October, in which one deposit is made. Right now States can get 
their reimbursements almost instantaneously.
    Senator Murray. Correct.
    Mr. Ray. What will happen is that we will experience fits 
and starts, and so there could be a tremendous slowdown. We 
have not actually decided what framework we would use.
    Senator Murray. Are you looking at establishing criteria? 
Will it be a first come/first serve basis?
    Mr. Ray. We are looking into that issue now. We've not 
decided. First come/first serve is certainly one potential 
approach and we'd be happy to work with you in terms of how 
we're going to do that, but we have not decided that framework 
yet.
    Senator Murray. What do you mean when you say fits and 
starts in terms of reimbursement? Couple days? Few weeks? 
Months? What?
    Mr. Ray. We're estimating a $3.2 billion shortfall and that 
is if Congress gives us the flexibility to borrow from the Mass 
Transit Account. That's not going to occur in any 1 day. It 
will build up over time.
    So, in the early days, certainly there will be a gap, 
possibly until the next receipts come in 2 weeks later or 
potentially sooner than that. As that balance builds up, the 
length of time will extend.
    Senator Murray. Are you beginning to talk to States about 
that possibility? Are you giving them any advice on managing 
their funds?
    Mr. Ray. Those conversations are just beginning, are 
underway. In fact, I had one just last week with the Nevada DOT 
and so those conversations are beginning.
    Senator Murray. Mr. McCaskie, in your formal testimony, you 
say that ``economic pressures have already forced States to 
slow down their bids for contracts so that the impact is really 
being felt across the industry,'' and you testified that 
``States become even more conservative when they feel uncertain 
about their highway grants.''
    Have you started to see evidence of that at your own 
company?
    Mr. McCaskie. I cannot say that in Pennsylvania, which is 
where Swank primarily operates, that we have seen a cutback in 
highway spending at this point. However, going down the road, 
there's a stonewall.
    We face the same problem on State funding. We're right at 
the edge. The Department of Transportation in Pennsylvania is 
doing everything they possibly can with the money available to 
maintain the roads. There is no expansion whatsoever with the 
exception of the Pennsylvania Turnpike which is a separate 
authority.
    There's concern that--for instance, there is a lot of work 
being done and the Department is asking contractors now can you 
handle this and I've heard contractors say yes, we can handle 
it. Well, you better build up; we're going to have more work. 
They say no, we are not building up because we have had 
promises in the past too many times.
    The stability of funding is paramount. If a firm or an 
individual is going to invest in equipment and develop people, 
employ people, he has to have a long-range steady program that 
he can depend upon and a lot of firms in the highway 
construction industry are strictly in the highway construction 
industry. They aren't into what's known as vertical 
construction. They're heavy and highway contractors.

                   TRANSIT ACCOUNT REPAYABLE ADVANCE

    Senator Murray. Thank you for that. Mr. Simpson, let me ask 
you. The administration is asking this subcommittee to include 
language in our appropriations bill that would allow the 
Highway Account of the Trust Fund to borrow from the Transit 
Account.
    Even with the President's proposed cut in highway spending, 
OMB is still estimating that the Transit Account would have to 
borrow $3.2 billion from the Highway Account just to get 
through the year.
    Based on the President's anticipated levels of highway and 
transit spending in our future years, is there any reason to 
believe that this Transit Account would ever be repaid?
    Mr. Simpson. I think the first answer is that we look at 
the Highway Trust Fund as one entity, not as the Highway and 
Mass Transit Account, and we know that the Transit Account 
would probably go bankrupt as well around 2011 or 2012. One of 
the concerns I had as the Federal Transit Administrator is that 
if we left that shortfall in the Highway side, that about $1 
billion a year in CMAQ and STP flexed from Highway into the 
Transit Account. So, the concern that I had personally as the 
FTA Administrator, is that's 10 percent of the Transit Program. 
We've got about $10 billion in our own budget, plus another $1 
billion is flexed from Highway. So that was an immediate 
concern.
    Second, we look at this as more of a mobility problem, one 
problem that the entire Surface Transportation Program has, not 
Highways versus Transit. When we talked about this as far as 
our Department is concerned and the administration is 
concerned, this was the best fix for now. For the long term, we 
are looking to the reauthorization.
    Senator Murray. Okay. I'm certain we'll have more 
discussions about this. So, let me ask you one more question 
and then I'll turn it over to Senator Bond for his questions.

                            CHARTER BUS RULE

    Your agency, Mr. Simpson, has a new rule that is supposed 
to come into effect at the end of April that restricts special 
bus services that can be run by publicly-subsidized transit 
agencies.
    In Seattle, our city and our transit agency have made a 
commitment to minimizing congestion during our Seattle Mariner 
games and our University of Washington football games by 
running free buses from all parts of the city to the ballparks. 
That service, by the way, has made a huge difference in our 
city, it keeps the city out of gridlock. However, there's 
concern, I am told, that this new rule could cause part of that 
service to be canceled.
    Can you explain to me why you are working on a rule that 
would really worsen the congestion problem in Seattle and 
probably other cities?
    Mr. Simpson. Madam Chair, are you talking about the new 
charter rule that went into effect?
    Senator Murray. Correct, yes.
    Mr. Simpson. It's one of the few rules that both the public 
and the privates are happy about, actually. That's been in 
print. I don't know the specifics on the Seattle situation, but 
I'd be more than willing to work with staff when we finish 
here.
    Senator Murray. Okay.
    Mr. Simpson. People are still digesting the rule. It was 
just published. As a matter of fact, Bill Millar and I spoke 
earlier. There's a lot of confusion about the rule because it 
is complex.
    Senator Murray. Mr. Millar, have you heard similar 
concerns?
    Mr. Millar. Yes, there are concerns around the country that 
what used to be classified as public transportation service is 
now classified as charter service and so we have asked the 
Federal Transit Administration to work carefully with us to 
make sure our members understand how to comply with the new 
rule and understand the best way to handle these situations.
    Mr. Simpson. Since I worked on the rule myself, I know it 
is very complex. But, there are opportunities now that the 
public agencies never had before in order to provide charter 
service, particularly for government officials on official 
business.
    Senator Murray. Well, this program, in our city, makes a 
huge, huge difference, and so I would like my staff to work 
with you on this issue.
    Mr. Simpson. We will work with your staff today on it. If 
they will call us any time after 12 o'clock today, we'll get 
with them.
    Senator Murray. So will everybody else now.
    Mr. Simpson. That's all right.
    Senator Murray. Okay. Thank you very much. Senator Bond.
    Senator Bond. Thank you very much, Madam Chair. I think 
you've asked the most important questions. There are many 
questions remaining, but I believe we have significant 
questions for our friends to speak about Amtrak. So, I will 
pass on further questions and thank the witnesses for their 
participation.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. Thank you very much to all of our 
witnesses. We will leave the record open for additional 
questions for members who couldn't be here today. Thank you 
very much, with that, if our next panel could come up and be 
seated.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
              Questions Submitted to Hon. James S. Simpson
              Questions Submitted by Senator Patty Murray
             appropriate balance for the highway trust fund
    Question. As we talk about what needs to be done to fix the Highway 
Trust Fund, we need a better understanding of what level of balances 
would provide an adequate safety net for the Highway Trust Fund.
    Administrator Simpson, as I have mentioned in the hearing, the 
transit account of the Highway Trust Fund is also in a precarious 
situation. Even without the borrowing authority requested by the 
administration, the transit account is expected to go bankrupt over the 
next few years.
    What are your thoughts on the appropriate balance of the transit 
account?
    Answer. The appropriate balance in the Mass Transit Account depends 
on many different factors, including forecasts of future revenue and 
anticipated Federal funding for transit. One of the goals in the Safe, 
Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy 
for Users (SAFETEA-LU) was to spend down the balances in the Highway 
Trust Fund and Mass Transit Account. SAFETEA-LU also restructured 
Federal Transit Administration programs to eliminate split funded 
(trust fund and general fund) accounts, so that outlays from the MTA 
are not premature.
    Going forward and in general, projected spending levels should not 
exceed projected receipts. A prudent balance in the MTA would fund 
annual Federal Transit Administration programs over the course of the 
next authorization, based on projected receipt levels, with a 
sufficient cushion to keep the account solvent if receipts are below 
projected amounts.
                    federal transportation oversight
    Question. This administration claims that the Federal Government 
should play a reduced role in infrastructure investment. Given that 
most Federal oversight is accomplished by requiring States to meet 
certain standards in order to receive their highway grants, I would 
like to know what reducing the Federal role means for continuing any 
kind of meaningful oversight.
    Recent GAO reports have indicated that there is already a lot of 
room for the Federal Government to improve its oversight over our 
highway system. Your agency currently has only a limited ability to 
ensure that projects are completed efficiently, Federal dollars are 
invested in projects with the greatest benefit, and complex projects 
are built safely.
    According to one GAO report, State departments of transportation 
are increasingly using contractors to carry out what had been primarily 
government jobs, such as engineering, inspection, and quality 
assurance. As a result, staffs at the State level are finding it 
difficult to oversee a growing number of projects, and they are losing 
their in-house expertise.
    Administrator Simpson, you provide a very high level of scrutiny 
for transit projects that are applying for New Starts funding. Again, 
this oversight is possible because project sponsors are very interested 
in receiving a New Starts grant agreement from the FTA.
    Do you believe that this oversight works in terms of improving the 
quality of transit projects being built across the country?
    Answer. In the early 1980s, several FTA-funded transit projects 
suffered major setbacks due to problems with quality, cost overruns, 
and delays in schedules. To safeguard the Federal investment and ensure 
public safety, Congress directed FTA (then the Urban Mass 
Transportation Administration) to establish the Project Management 
Oversight (PMO) Program. The Program is financed by setting aside 1.0 
percent of the funds available under 49 U.S.C., section 5309, Capital 
Investment Programs, 0.75 percent of funds available from sections 
5307, Urbanized Area Formula, and 0.05 percent from section 5311, Non-
urbanized Area Formula Program. Today, PMO contractors monitor projects 
worth over $80 billion in a very effective and systematic manner and in 
accordance with pre-established guidelines. PMO contractors serve as an 
extension of FTA's technical staff in assessing grantees' project 
management and technical capacity and capability to successfully 
implement major capital projects. They also monitor the projects to 
determine if they are progressing on time, within budget, and in 
accordance with the grantees' approved plans and specifications. The 
PMO program has repeatedly proven to be a very powerful, effective, and 
efficient tool in monitoring major capital transit projects. We have 
also witnessed some project sponsors incorporating some of the project 
management oversight tools and principles into their project 
development plans on non-FTA funded projects and believe FTA's project 
management oversight is definitely helping improve the quality of 
transit projects being built across the country.
                   borrowing from the transit account
    Question. Mr. Simpson, the administration is asking this 
subcommittee to include language in our Appropriations bill that would 
allow the highway account of the trust fund to borrow from the transit 
account in 2009. Even with the President's proposed cut in highway 
spending, OMB still estimates that the transit account would have to 
borrow $3.2 billion from the transit account just to get through the 
year.
    Administrator Simpson, based on the President's anticipated levels 
of highway and transit spending in future years, is there any reason to 
believe that the transit account will ever be repaid? If so, where will 
the money come from and when will it happen?
    Answer. As I stated our goal is to ensure the solvency of the 
Highway Trust Fund through the current authorization period. The topic 
and solution to the future solvency of the Highway Trust Fund, 
including and the Mass Transit Account, will be addressed in the next 
surface transportation reauthorization. The MTA remains solvent until 
2010 with the proposed ``advanced payment'' provision in the 
President's fiscal year 2009 budget. I believe that once the Highway 
Trust Fund solvency issues are solved there is no reason to believe 
that the MTA will not have sufficient resources to meet all future 
commitments.
    Question. My understanding is that this proposed transfer will just 
speed up the date at which the transit account will go bankrupt from 
2011 to 2010.
    Mr. Simpson, why does the administration believe that the way to 
solve the problem of a bankrupt highway account is to expedite the 
bankruptcy of the transit account?
    Answer. The administration estimate is that if the MTA transfers 
funds to the Highway Account during fiscal year 2009, both accounts 
will remain solvent until fiscal year 2010. This provision will fund 
surface transportation programs at levels requested in the President's 
fiscal year 2009 budget and delay the impending shortfall in the 
Highway Account of the Highway Trust Fund until fiscal year 2010, past 
the point when Congress is scheduled to enact the next surface 
authorization. This mechanism has a precedent in the ``repayable 
advances'' used during the early years of the Highway Trust Fund. The 
mechanism was used in 1960, 1961, and 1966 and each time the advance 
was repaid.
                       tolling and privatization
    Question. The Secretary has clearly stated in previous testimony, 
as well as in her dissent from the Surface Transportation Policy 
Commission Report, that she supports a greater role for tolling and 
private investment in our highway infrastructure, and a reduced role 
for Federal funding. Your testimony today also praises tolling, but 
does not mention its close ties to privatization.
    A GAO report released last month found that many existing road 
privatization schemes are expected to short-change the public in the 
long term and to restrict our ability to respond to changing 
transportation needs.
    The GAO study also found that public opposition to private toll 
schemes has prevented several such projects from getting off the 
ground. Opposition to proposals like the Trans-Texas Corridor shows us 
that, even if we encourage privatization at the Federal level, many 
State and local communities are unwilling to accept it. Just last year, 
at the strong urging of all sides of the Texas delegation, we enacted a 
provision that banned the tolling of certain highways in Texas.
    You claim in your testimony that tolls collected on highways can be 
used for local transit projects. This may be true for publicly-owned 
toll roads, but a private toll road's purpose is to generate revenue 
for investors, not for local governments, and certainly not for transit 
agencies.
    Administrator Simpson, how does private tolling of highways provide 
for the Nation's rapidly growing transit needs?
    Answer. Private tolling of highways involves the long term lease of 
existing, publicly-financed toll facilities to a private sector 
concessionaire for a prescribed concession period during which they 
have the right to collect tolls on the facility. In exchange, the 
private partner must operate and maintain the facility and in some 
cases make improvements to it. The private partner must also pay an 
upfront concession fee.
    It is this upfront concession fee that enables States to address 
longstanding transportation needs. It has been shown that the 
facilities where tolls are used to manage traffic create free-flow 
conditions that benefit transit vehicles by ensuring predictable travel 
times.
    The State of Indiana entered into a toll concession and lease 
agreement with the ITR Concession Company for $3.8 billion. The receipt 
of these funds enabled the State of Indiana to pay for longstanding 
transportation improvements throughout the State. Similarly, the State 
of Pennsylvania has accepted a bid of $12.8 billion to lease the 
Pennsylvania Turnpike, providing the State with resources to repair 
deteriorating transportation infrastructure and invest in new 
construction.
    Given the growing need for transit, it is the State's choice to use 
concession fees from long term leases of highway facilities to invest 
in transit as part of an overall strategy to improve their 
transportation system.
                                 ______
                                 
                  Questions Submitted to James D. Ray
              Questions Submitted by Senator Patty Murray
             appropriate balance for the highway trust fund
    Question. As we talk about what needs to be done to fix the Highway 
Trust Fund, we need a better understanding of what level of balances 
would provide an adequate safety net for the Highway Trust Fund.
    Administrator Ray, what do you believe is the appropriate balance 
to maintain in the highway account of the Highway Trust Fund?
    Answer. The purpose of maintaining a positive cash balance in the 
Highway Account is to provide a cushion in the event that Highway 
Account tax receipts, obligations, and/or outlays are not as projected 
at the time an authorization act is enacted. In addition to providing a 
cushion from the normal economic ups and downs that impact Highway 
Account receipts, maintaining a sufficient cash balance also provides 
time for remedial Congressional action should a dramatic event occur, 
such as an interruption of shipments of foreign oil, or a dramatic 
downturn in revenue.
    Factors to be considered in determining the minimum prudent balance 
for the Highway Account are the size of the programs funded by the 
Highway Account, historic errors in projecting receipts and outlays, 
the time that would be needed for legislative action to correct any 
imbalance between receipts and outlays, and the degree of risk of short 
term insolvency that the Federal Government is willing to bear.
    In recent years, receipt and outlay estimates have been within plus 
or minus 2 percent, but secondary sources indicate that the receipt 
projections were off by about 14 percent as the result of the 1973 oil 
embargo. Risk assessment principles would suggest that the minimum 
balance be based on likely estimation error rather than the maximum or 
minimum error. Of course, the effect of a potential 2 percent error on 
the need for a minimum cash balance depends on the size of the program.
    Question. Administrator Ray, do you have a detailed reauthorization 
proposal that will allow the Congress to see how you would address 
these concerns?
    Answer. The Department recently released a comprehensive and 
fundamental reform proposal a copy of which can be found at http://
www.fightgridlocknow.gov/.
    Question. Will the reauthorization proposal include legislative 
language so that the Congress can see exactly how the administration 
proposes to change current law?
    Answer. The Department is working on legislative language, but has 
not yet decided when or in what manner it would be released. The 
Department may choose to submit some of the concepts as individual 
components rather than as a complete proposed bill.
                    federal transportation oversight
    Question. This administration claims that the Federal Government 
should play a reduced role in infrastructure investment. Given that 
most Federal oversight is accomplished by requiring States to meet 
certain standards in order to receive their highway grants, I would 
like to know what reducing the Federal role means for continuing any 
kind of meaningful oversight.
    Recent GAO reports have indicated that there is already a lot of 
room for the Federal Government to improve its oversight over our 
highway system. Your agency currently has only a limited ability to 
ensure that projects are completed efficiently, Federal dollars are 
invested in projects with the greatest benefit, and complex projects 
are built safely.
    Question. Administrator Ray, do you agree that Federal oversight 
over the Nation's highway system should be strengthened?
    Answer. At its heart, the Federal-aid highway program is a 
federally assisted State program. I believe that at the Federal level, 
we have a responsibility to those who use our highways and pay for them 
through their Federal highway fuel taxes to ensure that the funds are 
effectively and efficiently invested to support the transportation 
projects that promote national interests (e.g., interstate commerce, 
defense and security and economic well being) and meet regional needs. 
More rigorous, data-driven and mode-neutral transportation 
decisionmaking by State and local officials is needed, including the 
use of asset management techniques, benefit-cost analyses, and a focus 
on improving the safety and performance of our transportation systems.
    Question. Do you see a conflict between reducing the Federal role 
in transportation investment and maintaining Federal oversight?
    Answer. No. I do not equate achieving a better focused Federal role 
in transportation investment with a reduced Federal role. The Federal 
role in surface transportation policy should be better focused than it 
is today to provide for surface transportation needs that are critical 
to the Nation as a whole. The Federal role includes providing 
leadership for, and stewardship of, the system with a focus on 
enhancing system performance. This includes ensuring that the 
Interstate System and other facilities of national significance, which 
are critical to the Nation's interstate commerce, are maintained 
properly, rebuilt as needed, and expanded when justified; maintaining 
the productivity of our metropolitan areas, which are the economic 
engines of the Nation's prosperity and which experience the 
overwhelming share of congestion; and providing for safety on all our 
Nation's roads. As described above, I believe that decisionmaking for 
investment of Federal funds in these national priorities warrants 
additional attention.
    Question. According to one GAO report, State departments of 
transportation are increasingly using contractors to carry out what had 
been primarily government jobs, such as engineering, inspection, and 
quality assurance. As a result, staffs at the State level are finding 
it difficult to oversee a growing number of projects, and they are 
losing their in-house expertise.
     Do you believe that it would be easier for States to oversee 
highway development that has been transferred to the private sector?
    Answer. In general, because State DOTs are unlikely to serve as the 
construction contracting entity when States enter into a highway 
development agreement with a private sector partner, demands on State 
employee resources are likely to be considerably lessened but clearly 
not eliminated. The degree of State employee involvement in project 
development is unique to the development agreement, the size and type 
of project negotiated between the State DOT, and the private developer. 
While there may be many routine oversight functions and tasks a private 
sector partner may perform and certify to the State, State DOTs are 
still ultimately responsible for the quality control and assurance 
associated with how a project is designed, constructed, maintained and 
operated. In some cases, the size and type of a project may still 
require a State DOT to provide a substantial amount of staff and 
resources to ensure it is suitably equipped to provide the appropriate 
level of stewardship and oversight needed for each partnership with the 
private sector. The commitment of the staff and resources that may be 
necessary to ensure the public interests are represented in these 
partnerships is typically not covered or funded through an agreement 
with a private sector partner.
                       tolling and privatization
    Question. The Secretary has clearly stated in previous testimony, 
as well as in her dissent from the Surface Transportation Policy 
Commission Report, that she supports a greater role for tolling and 
private investment in our highway infrastructure, and a reduced role 
for Federal funding. Your testimony today also praises tolling, but 
does not mention its close ties to privatization.
    A GAO report released last month found that many existing road 
privatization schemes are expected to short-change the public in the 
long term and to restrict our ability to respond to changing 
transportation needs.
    Administrator Ray, do you agree that encouraging the privatization 
of our highway infrastructure on a grand scale is a responsible 
decision?
    Answer. Increased involvement and investment in the development, 
maintenance and operation of our highway system is a necessity if we 
are to resolve the current imbalance among the needs of our system, 
funding availability and the need to deliver projects in a more timely 
manner whether that investment is derived from public sector resources 
or the private sector. In this era of fiscally constrained budgets, 
private investment in State transportation assets permits States to 
target public sector funds on projects that are not able to be 
supported by user fees.
    The great majority of goods and services produced in our economy 
are provided by the private sector, including telecommunications, 
electricity, and freight rail transportation. Given that we trust the 
private sector in these and other essential areas, there is no reason 
that the private sector cannot play a major role in serving all surface 
transportation infrastructure needs. An increased private sector role 
does not connote privatization. In virtually all highway public private 
partnerships, the public sector owns the roads and is able to establish 
performance standards governing their use.
    I would also note that the GAO report (page 19) cited above also 
found: ``Highway public-private partnerships have resulted in 
advantages from the perspective of State and local governments, such as 
the construction of new facilities without the use of public funding 
and extracting value--in the form of up-front payments--from existing 
facilities for reinvestment in transportation and other public 
programs. In addition, highway public-private partnerships can 
potentially provide other benefits to the public sector, including the 
transfer of project risks to the private sector, increased operational 
efficiencies through private sector operation and life-cycle 
management, and benefits of pricing and improved investment 
decisionmaking that result from increased use of tolling.''
    The GAO study also found that public opposition to private toll 
schemes has prevented several such projects from getting off the 
ground. Opposition to proposals like the Trans-Texas Corridor shows us 
that, even if we encourage privatization at the Federal level, many 
State and local communities are unwilling to accept it. Just last year, 
at the strong urging of all sides of the Texas delegation, we enacted a 
provision that banned the tolling of certain highways in Texas.
    Question. Administrator Ray, given the public's hostility to road 
privatization, how can we rely on private capital to replace Federal 
funding in providing critical highway infrastructure?
    Answer. One reason some oppose public-private partnerships is that 
they believe ownership of facilities will be turned over to the private 
sector and the public sector will lose all control over the facility. 
This, however, is not how public-private partnerships are being pursued 
in this country or in other countries around the world. Other reasons 
that public-private partnerships are opposed include fears that the 
private sector will be free to set whatever toll rates they choose, and 
concern about the private sector not maintaining the condition and 
performance of facilities they operate. These concerns result primarily 
from a lack of information about how public-private partnerships 
operate or misinformation spread by opponents of public-private 
partnerships. In some States, opposition to public-private partnerships 
stems from a more general opposition to tolls, not from the fact that 
facilities would be operated by the private sector.
    We are not proposing that public-private partnerships replace all 
Federal funding, and in States where they are implemented, public-
private partnerships replace not only a portion of Federal funding, but 
State fuel tax revenues as well. Polls have shown that when given a 
choice, more highway users would prefer to fund new highway 
improvements from tolls than from general increases in the gas tax. 
When presented with the facts concerning public-private partnerships 
and when presented with the options available to fund needed highway 
improvement programs, we believe users in more and more States will 
support the use of private capital to fund new highway improvement 
programs rather than increases in their fuel taxes.
    Again, I would cite the aforementioned GAO study (page 72): 
``Highway public-private partnerships show promise as a viable 
alternative, where appropriate, to help meet growing and costly 
transportation demands. The public sector can acquire new 
infrastructure or extract value from existing infrastructure while 
potentially sharing with the private sector the risks associated with 
designing, constructing, operating, and maintaining public 
infrastructure.''

             FUTURE OUTLOOK AND BUDGETARY NEEDS FOR AMTRAK

                      DEPARTMENT OF TRANSPORTATION

                    Federal Railroad Administration

STATEMENT OF HON. JOSEPH H. BOARDMAN, ADMINISTRATOR
    Senator Murray. Okay. As our panelists take their seat, no 
one in the audience needs panic. There are five witnesses but 
two of them are going to combine their 5-minute time, Donna 
McLean and Mr. Kummant. So, I appreciate that.
    We will hear first from Joseph Boardman, who's the 
Administrator at the Federal Railroad Administration. Then 
Donna McLean, Chairman of the Board of Amtrak, and Mr. Kummant, 
President and CEO of Amtrak, will share 5 minutes. Then we will 
here from Mr. David Tornquist, Assistant Inspector General, and 
then Joel Parker, the International Vice President and Special 
Assistant to the President on Transportation and Communications 
International Union.
    So, we'll begin with Mr. Boardman.
    Mr. Boardman. Chairman Murray and 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 2009 as it relates to the FRA and Amtrak.
    Safety remains FRA's mission, essential activity and 
strategic performance objective. You'll find in my written 
testimony and our fiscal year 2009 budget request that provides 
a greater detail about the FRA essential safety initiatives. 
However, given today's hearing, I'll limit my comments to the 
largest portion of our request, our intercity passenger rail 
funding.
    In 2009, FRA requests $800 million in direct assistance for 
Amtrak and a $100 million to expand the new Intercity Passenger 
Rail Grant Program, which Congress appropriated $30 million for 
in 2008.
    The 2009 Amtrak request is intended to encourage the 
corporation to continue to implement meaningful reforms and 
control spending. I would note that while Amtrak has made 
progress in certain reform initiatives, significant progress 
remains to be achieved. In particular, the corporation's 2009 
grant request does not articulate how it will achieve 
operational savings necessary to meet its growing labor and 
fuel costs in 2009 and beyond.
    As you know, we have requested $100 million to expand the 
Intercity Passenger Rail Grant Program, which awards 
competitive matching grant, capital grants to States for 
intercity passenger rail services. This program truly 
represents the single most important initiative to spur 
corridor development and create market pressure, to drive 
reform and service improvements at Amtrak.
    After just one week of accepting applications, we received 
three applications and expressions of strong interest from 13 
other States. The request includes $525 million in direct 
Federal subsidies for Amtrak capital costs and this amount 
allows Amtrak and its State partners to continue to address the 
most pressing investment needs in the Northeast corridor 
infrastructure as well as essential equipment investments.
    I commend Amtrak on its efforts to seek a more 
collaborative investment process by engaging in a multi-State 
Northeast corridor user planning group.
    I would note, however, that the corporation has further 
work to do in developing long-term capital investment 
strategies for other assets, particularly fleet and stations.

                           PREPARED STATEMENT

    The administration's request also includes $275 million for 
operating expenses that are to be made available to Amtrak as 
they demonstrate and achieve efficiencies. Under this account, 
the 2009 request proposes establishing a new competitive pilot 
program that would allow the Secretary to test the viability of 
using non-Amtrak operators on selected routes to provide 
passenger rail services.
    I appreciate your attention and yield back my time.
    [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 2009 as it relates to the Federal 
Railroad Administration (FRA) and Amtrak.
    This budget request continues to support the administration's 
commitment to ensuring that the Nation's rail transportation system is 
safe, secure, and efficient. The requested $1.1 billion will sustain 
and advance FRA's mission to improve railroad safety, while providing 
valuable resources to ensure the continuation of intercity passenger 
rail operations.
    As you are aware, safety remains FRA's single most mission 
essential activity and strategic performance objective. The fiscal year 
2009 request includes $185 million in funds to directly support the 
agency's core safety assurance, oversight and enforcement activities, 
to achieve our goals of preventing and reducing railroad accidents and 
incidents and contributing to the avoidance of serious hazardous 
materials incidents in rail transportation. Included within FRA's 
safety budget is $1.2 million to expand the implementation of the Close 
Call Confidential Reporting Pilot (C3RP) program. This initiative 
allows FRA to more effectively leverage its resources by expanding its 
partnership with industry to promote risk reduction programs on the 
Nation's railroads.
    With regard to FRA's Railroad Research and Development activities, 
the fiscal year 2009 request includes $34 million to support our 
Railroad Safety efforts. Of note are new initiatives that fund research 
in the area of ``level boarding'' to support further access and 
compliance with the Americans with Disabilities Act; the development of 
new Joint Bar Inspection technology; and procurement of a high-speed 
ultrasonic rail flaw detection system.
    By far, the largest portion of FRA's fiscal year 2009 request 
provides $900 million in financial assistance for intercity passenger 
rail services. This total includes $800 million in direct subsidies to 
Amtrak and $100 million to expand the current $30 million Intercity 
Passenger Rail Grant Program that was appropriated for the first time 
in fiscal year 2008. In total, this funding level will support 
continued intercity passenger rail service, while Amtrak's management 
team continues to make progress in reshaping the company. This funding 
level encourages Amtrak to continue to undertake meaningful reforms and 
control spending.
    The administration remains steadfast in its desire to improve the 
manner by which intercity passenger rail services are provided. This, 
of necessity, also includes improvements to how Amtrak provides such 
services and laying the groundwork for the States to have a stronger 
role in determining the important characteristics of services that they 
support financially and for the participation of other entities in the 
provision of intercity passenger rail service under contract to States 
and/or Amtrak.
    The fiscal year 2009 budget request marks part of a multi-year 
effort to reduce, and eventually eliminate, federally funded operating 
subsidies for Amtrak. Overall, this level of subsidy is appropriate as 
it provides Amtrak continuing incentive to more effectively manage 
costs, rationalize its services, and pursue innovations. It also 
expands 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.
                         amtrak capital grants
    The request includes $525 million in direct Federal subsidies for 
Amtrak capital costs. This amount allows Amtrak and its State partners 
to continue to address the most pressing investment needs on the 
Northeast Corridor infrastructure as well as essential equipment 
investments.
                 intercity passenger rail grant program
    In addition, the budget includes the aforementioned $100 million to 
expand the new Intercity Passenger Rail Grant Program, which awards 
competitive grants to States to finance the cost of State driven 
capital improvement priorities associated with intercity passenger rail 
services. This program encourages State involvement in planning and 
decisionmaking for intercity passenger rail service, allowing them to 
identify where mobility needs justify public investment. Additionally, 
State involvement in planning and decisionmaking helps prioritize 
infrastructure improvements, such as stations, and lets States assure 
connectivity to other forms of transportation supporting intermodalism 
within the State. 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. A ``Notification of 
Funds Availability'' for this program was published in the Federal 
Register earlier, and we anticipate awarding the first grant under this 
program later this fiscal year.
                        amtrak efficiency grants
    The administration's request also includes $275 million for 
operating expenses that are to be made available to Amtrak as they 
demonstrate and achieve efficiencies. Under this account, the fiscal 
year 2009 request proposes establishing a new competitive pilot program 
that would allow the Secretary to test the viability of using non-
Amtrak operators on selected routes to provide passenger rail services.
              rail line relocation and improvement program
    Finally, I'd like to offer a brief update on the Rail Line 
Relocation and Improvement Program. As you know, just over $20 million 
was appropriated for this new program in fiscal year 2008. FRA is 
taking aggressive steps to implement the program, and has developed 
regulations governing its implementation. These regulations are 
currently being cleared within the administration. We expect to issue 
them this spring, with the first grant awards under the program 
beginning in fiscal year 2009.
    I appreciate your attention and would be happy to answer questions 
that you might have.

    Senator Murray. Thank you very much. We will move to Donna 
McLean and Mr. Kummant.

                                 AMTRAK

STATEMENT OF DONNA McLEAN, CHAIRMAN, BOARD OF DIRECTORS
    Ms. McLean. Thank you. Good morning, Chairman Murray and 
Senator Bond. Thanks for the opportunity to testify before the 
committee this morning.
    I am the Chairman of the Board of Amtrak, a position I 
assumed in November 2007.
    I'd like to thank the Senate for the recent confirmation of 
our new Board members, Nancy Naples of New York and Tom Carper 
of Illinois.
    As Chairman, I envision the Board as functioning as a 
governing body, one that provides a combination of oversight 
and guidance. The Board should be in the business of setting 
goals and monitoring and assessing performance, but the day to 
day management of the company is the responsibility of Alex 
Kummant and the Executive Committee.
    Alex has assembled an excellent team, and I'm very pleased 
with the progress of Amtrak under Alex's guidance.
    The Board and the Executive Committee are currently 
refining our corporate strategy. We are developing a strategy 
that's multiyear and provides detail and specific guidance for 
the next 5 years.
    One of our key questions, though, is how do we measure 
success at Amtrak? As Alex will report, our ridership and 
ticket revenue are up. They're increasing in almost all of our 
markets and that's success, right? Well, Amtrak's corporate 
debt is decreasing. That's good as well, but our operating 
subsidy needs are increasing, but at the same time, our subsidy 
per passenger mile is declining.
    Our fiscal year 2007 on-time performance was around 82 
percent in the Northeast corridor and our capital needs are 
growing. We collect a lot of great data, but our real challenge 
is going to be analytical. We've often looked at ridership and 
revenue and stopped.
    The Amtrak team understands that we have to rely on some 
additional measures, such as revenue per available seat mile, 
load factor, on-time performance, and customer satisfaction 
indicators which are a leading indicator in revenue. These 
measures are going to be key components to both our day to day 
operations and for planning in the long term.

                           PREPARED STATEMENT

    As we set out to define success at Amtrak, we'll strive to 
be increasingly transparent in all of our areas of business, 
and I feel very strongly that it's our responsibility to 
provide information to Congress and our other stakeholders and 
that information should be clear and easy to understand.
    Thank you.
    [The statement follows:]
                   Prepared Statement of Donna McLean
    Good morning Chairman Murray, Senator Bond, and members of the 
committee. Thank you for the opportunity to testify before your 
committee this morning. My name is Donna McLean, and I am the Chairman 
of the Board of Amtrak, a position I assumed in November 2007. I was 
confirmed as a member of the Board of Directors in late July of 2006. 
Prior to that, I worked as Chief Financial Officer of the Department of 
Transportation and as the Assistant Administrator for Financial 
Services at the Federal Aviation Administration. Presently, I work as a 
consultant and an adjunct professor, and I am based here in Washington, 
DC.
    The Amtrak Board of Directors is a seven-person body, and includes 
the Secretary of Transportation; currently, five of those seats are 
filled and two are vacant. I would like to thank the Senate for the 
recent confirmation of our new board members, Nancy Naples O'Neill of 
New York and Thomas C. Carper of Illinois. As Chairman, I envision the 
Board functioning as a governing body, one that provides a combination 
of oversight and guidance to ensure that the company is working toward 
the attainment of its strategic objectives. The Board should be in the 
business of setting goals and monitoring and assessing performance. The 
day-to-day management of the company and the setting of specific 
policies within the overarching framework of our strategic goals are 
going to be the responsibility of Alex and our Executive Committee.
    We are currently refining our corporate strategy. We have had a 
provisional strategy since last summer, and it is included in the 
business plan we have just published, since it guided the development 
of our fiscal year 2008 budget. Currently, we are developing a strategy 
that is multi-year but provides detailed and specific guidance for the 
next 5 years. Our strategic priorities must reflect the dual nature of 
Amtrak, which combines the goals of a private company with the 
obligations of a public service provider.
                      measuring success at amtrak
    To succeed, this company must be a safe, convenient and affordable 
transportation choice for travelers. We recognize that we can't be 
everywhere, and we know that there are markets where we will not have a 
competitive advantage. But where we do provide service, it must be 
professionally operated and as responsive as possible to the needs of 
the traveling public.
    So how do we measure success? As Amtrak's management team and I 
have been working on our multi-year strategic plan, this is the central 
question that the Board and I have to answer. As Alex will report, our 
ridership and ticket revenue numbers are increasing in almost all of 
our markets. That is success, right? Amtrak's corporate debt is 
decreasing, which is also good. Our operating subsidy needs are 
increasing. But at the same time, our subsidy per passenger mile is 
declining. Our fiscal year 2007 on time performance was around 82.3 
percent in the Northeast Corridor and our share of the air/rail market 
has also improved, but our capital needs are growing. Our average on-
time performance on our long distance train routes in fiscal year 2007 
varied from a low of 10.2 percent to a high of 86.2 percent.
    The good news is we do a pretty good job of tracking and collecting 
the basic data we need to inform our analysis. The real challenge is 
going to be analytical--we are going to need to produce answers that 
matter to us and are useful to other stakeholders. In other words, we 
are going to have to do some thinking about what we want to know, why 
we want to know it, and what it's telling us about consumer demand, 
about the health of our business, and about our internal efficiency. We 
will have to rely on some additional measurements such as:
  --Operating ratio
  --Revenue per available seat-mile
  --Cost per available seat-mile
  --Load factor
  --On-time performance
  --Customer satisfaction indices
  --Partner (state and commuter authority) satisfaction
  --Employee satisfaction
  --Safety ratio
  --Ridership growth
    These measures will be key components of both our day-to-day 
operations and for planning for the long term.
    In my written statement I am submitting several charts and graphs 
that will give you a better understanding of some of the metrics that 
we rely on to monitor our performance. It is important for you to know 
that I am asking the questions of the Board, the management, and the 
employees of Amtrak--how do we measure ourselves? How can we best 
position ourselves for the future, and how can we meet the growing 
demand for our services, given our challenges? As we set out to define 
success at Amtrak, we will strive to be increasingly transparent in all 
areas of our business. I feel very strongly that it is our highest 
responsibility to provide information to Congress and our other 
stakeholders, and that information should be clear, easy to understand, 
and transparent. 

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                         intermodal connections
    As we strive to provide a service that is increasingly transparent 
and successful, as transportation providers, we have a couple of 
important competitive advantages that we can offer travelers that 
increase their range of choices. We are trying to think of travel not 
just in terms of a rail trip, but in terms of the passenger's journey. 
People don't wake up at 5 in the morning to ride an Amtrak train; they 
wake up early to get to a meeting in Philadelphia which they just 
happen to do via Amtrak. We must take into consideration the 
passengers' need to get to and from the train station, a need that 
intermodal planners will need to satisfy if we are to provide those 
essential and convenient connections.
    In fiscal year 2007, Amtrak carried 56 percent of what we call the 
``New York to D.C. air-rail'' market--the people who either flew or 
took the train. That number has been trending generally upward since 
2000, when we had 37 percent of the market share. The Acela service has 
been a big contributor to our market share growth. We believe our 
market advantage is three fold; our service is frequent and reliable; 
our service is between city centers; and our stations include 
intermodal connections to the subway, bus, or taxi. That intermodal 
connection is key to getting our passengers to their final destination.
    This is an important advantage--and one that is not limited to the 
Northeast Corridor. The Bureau of Transportation Statistics recently 
studied the connectivity of intercity rail and airport facilities, and 
concluded that while only 34.5 percent of airports in the 48 contiguous 
States included connectivity with another mode of mass transportation, 
about 54.3 percent of intercity rail stations did. I think that's an 
important statistic. The ability to offer travelers a range of choices 
is vital to Amtrak's appeal, and we consider the development of those 
connections to be a high priority. This connectivity is currently most 
marked on the east and west coasts. This is a pattern not just 
associated with the Northeast Corridor, but in California, Washington, 
and Oregon, over 85 percent of the stations have some kind of 
connectivity, usually bus service. That's a real benefit to travelers, 
and we want to work on developing that elsewhere.
    And as road congestion grows, I think the ability to travel without 
having to drive a car is going to be increasingly popular, and we need 
to be poised to provide consumers with that alternative. We are 
particularly interested in the possibility of offering connections to 
airports, and we currently have direct connections with five airports: 
Newark, Baltimore-Washington International, Burbank, Oakland, and 
Mitchell Field in Milwaukee. While these are all traffic feeders for 
Amtrak, they offer the promise of an essential component of an 
intermodal national transportation policy--the prospect of a system 
that allows the various modes to provide the transportation services 
that maximize the consumer's utility.
    In conclusion, I hope that you are satisfied with the knowledge 
that Amtrak is moving forward with a strategic vision that should make 
sense to most people who understand Amtrak's mission. Our strategy will 
provide a realistic assessment of what we can do as a transportation 
provider, of the opportunities we see, and of the types of events and 
trends that could be obstacles to success. We are committed to 
measuring our performance, continuous improvement, and defining the 
true meaning of success. And each step of the way, we will do our level 
best to provide the transparency that is essential to the policymakers, 
taxpayers, and passengers that provide the resources for Amtrak's 
nationwide service.
    This concludes my opening statement. I will be happy to answer any 
questions you might have.
STATEMENT OF ALEX KUMMANT, PRESIDENT AND CHIEF 
            EXECUTIVE OFFICER
    Mr. Kummant. Madam Chairwoman, ranking member, thanks for 
the opportunity today.
    I would just ask that my full statement be submitted for 
the record and I'll quickly summarize much of what's in there.
    We ended fiscal year 2007 with a set of strong numbers and 
we are now, as we sit in April, halfway through our fiscal year 
and feel good about the progress, certainly on a revenue and 
ridership basis. On ridership, we're up another 11 percent year 
over year and almost 14 percent in revenues.
    One of the key issues we have going forward and you will 
hear in strategy discussion later in the year is we're working 
on a plan for equipment procurement in the coming years. That 
will be especially critical given the aging of the entire 
fleet. It will also be an opportunity to really recast and to 
generate everything we can out of the Northeast corridor, both 
in terms of efficiencies and the fact that new equipment will 
be much cheaper to maintain. I believe you have probably a good 
sense of what it takes to maintain our aging fleet.
    On the core operating numbers, again those numbers have 
been submitted and discussed. Let me make one comment on the 
debt service, a number we're requesting. We've requested $345 
million. Our core debt service needs are $285 million. We 
believe there are some opportunities there to retire debt early 
and in fact generate significant savings over the next couple 
of years if we do that. So that's the nature of that request.
    We are really in an inflationary environment that we have 
not seen probably for a decade and a half, and I think that is 
one of the core issues that are reflected in the numbers next 
year. All the commodities are up dramatically. So, if you look 
at just core materials, cost of tie, rail, copper, anything 
material we put in the system, we're seeing dramatic 
inflationary effects, and there's some obviously effect, as 
we'll discuss, cost of the PEB.
    Let me get to that point and talk directly about that. 
Obviously there will be some discussion about the second 
installment of back pay and there will be some discussion, as 
there was a year ago, about our ability to pay or not pay that.
    I would just suggest, first of all, that we're still 6 
months away from the end of the year, in a pretty complicated 
environment and strong inflationary pressures. So, I think 
before we get too definitive on what the year-end cash balance 
will look like, we need to be careful there.
    I'd also suggest we had this discussion a year ago where it 
was suggested that we had a lot of cash on hand and after the 
CR was signed in December and we got our first installment of 
cash in February, we were a little over 3 weeks from running 
out of cash. So, I would suggest we continue having that 
discussion through the year but take some care on a longer-term 
cash plan rather than thinking about it as a point in time.

                           PREPARED STATEMENT

    That being said, I think we're enjoying a relative period 
of stability. I'm happy with the management team and we're 
working hard to make the operation better every day.
    Thanks.
    [The statement follows:]
                   Prepared Statement of Alex Kummant
    Good morning, Madame Chairwoman, and thank you for the opportunity 
to testify before your committee this morning on Amtrak's financial 
needs for fiscal year 2009. As you may know, fiscal year 2007 finished 
as a strong year for Amtrak, and fiscal year 2008 has gotten off to a 
good start as well. We set an annual ridership record of 25.8 million 
passengers, the largest in the company's history. We had record summer 
months and a record Thanksgiving, which are important indicators of the 
traveling public's preferences and confidence. Our ridership and 
revenue for fiscal year 2008 have also been strong; we carried 11.7 
percent more riders between the beginning of the fiscal year and the 
end of February than we carried in fiscal year 2007, and those riders 
brought us 14.8 percent more revenue. Finally, we have concluded 
agreements with most of our unions after years of negotiations. Of the 
unions before our recent PEB, the members of 9 groups ratified their 
tentative agreements on March 10, one additional group has ratified an 
agreement, and we expect the remainder to be complete soon. These 
agreements follow the recommendations of the Presidential Emergency 
Board in providing wage increases and retroactive pay to our employees, 
and our employees will also be making contributions to health care.
    With this performance as background, I think it's safe to say that 
passenger rail service has a bright future. To help shape the next few 
years, Amtrak is focusing its efforts on a set of key strategic 
priorities. We are working on increasing revenue, reducing costs, and 
improving both trip times and systemwide on-time performance. We are 
also in the process of developing a comprehensive plan for equipment 
procurement in the coming years; the acquisition of additional 
equipment is a small component of the fiscal year 2009 capital request, 
but we expect it to grow as our electric engines and Amfleet cars 
approach the end of their useful lives. We are also working with a 
number of States to develop and augment short-distance corridor 
operations. We are, however, quickly bumping up against the limits of 
our existing equipment capacity at a time when States are seeking new 
service. To address this problem, we are going to need to begin a new 
equipment procurement cycle.
    To realize these strategic priorities, Amtrak will continue to 
require a certain core level of operating assistance and capital 
investment from the Federal Government. In fiscal year 2009, Amtrak 
will need a total of $1.671 billion in Federal assistance. Of this 
total, $506 million will be required to meet operating costs, $801.4 
million will be invested in capital projects, $19 million will be 
required for the funding of Amtrak's Office of the Inspector General, 
and $345 million will be spent on debt service. All of these numbers 
represent increases over our fiscal year 2008 spending levels, and I 
will give you some background on them. We have provided additional 
detail in our fiscal year 2009 legislative and grant request, which I 
would ask to have made a part of the record.
    We foresee significant cost inflation in several important areas in 
fiscal year 2009. The most significant costs will be increases in 
wages, benefits, and fuel. Wage increases will be a byproduct of the 
labor agreement, and will add about $27 million to the fiscal year 2009 
budget, but the largest single category of cost increases is going to 
be benefits. This is principally a reflection of the growing cost of 
health care. We expect our total benefits costs to rise by $50 million 
in fiscal year 2009, and the expenses associated with medical treatment 
and drugs are at the core of it. We expect that the cost sharing 
provisions in our labor agreements will to some degree restrain medical 
cost growth, but that growth is still going to be substantial.
    I think it's also important to mention at this point that we have a 
single additional expense that will come due in fiscal year 2009. As 
you may know, from 2002 until early this year, this company and many of 
its unions were unable to agree on the terms of contracts for our 
employees. In November 2007, the administration appointed a 
Presidential Emergency Board (or PEB) under the terms of the Railway 
Labor Act to hear the dispute and recommend a settlement, which it did 
in early January. The management of Amtrak has accepted this 
recommendation, as have nine of our labor groups; we expect that groups 
whose ratifications and negotiations are ongoing will likewise accept 
the contract pattern the PEB recommended. The recommended agreement 
pattern included a pair of lump sum retroactive payments to Amtrak's 
employees to effectively extend the raises it offered back to the 
beginning of the negotiating period, and Amtrak accepted the 
recommendation. Amtrak believes at this time that it has the financial 
wherewithal to meet our fiscal year 2008 wage and retroactive pay 
obligations, as well as its wage obligations in fiscal year 2009 and 
fiscal year 2010. However the 60 percent (or $114 million) of the one 
time ``back pay'' payment the PEB recommended be made in fiscal year 
2009 is noted separately in the fiscal year 2009 grant request summary 
table on page 3 of the leg and grant request, and is not contained in 
Amtrak's fiscal year 2009 operating costs. The PEB was aware that 
Amtrak did not have the means to pay the additional $114 million and 
recommended that the decision to fund this amount lies with Congress.
    To fund our fiscal year 2009 capital programs, Amtrak is asking for 
a total of $801.4 million. Of this total, we intend to use $506.9 
million to pay for ongoing ``state of good repair'' (or SOGR) programs 
dedicated to the rehabilitation of our plant and equipment. In addition 
to meeting day to day SOGR requirements, we are undertaking an 
ambitious capital program in fiscal year 2008. The replacement of the 
lift span on the Thames River Bridge in New London, Connecticut will be 
the centerpiece, and we are planning a large scale repair ``blitz'' on 
our New England Division in June to undertake repair and replacement 
work on the electric catenary, several interlocking plants, and a host 
of smaller projects. We intend to continue our capital investment 
program effort in fiscal year 2009, when our program to replace the 
lift span on the Niantic River Bridge will hit its stride. Big projects 
like lift bridge replacement are expensive but enduring--we expect the 
completed span to last for a lifetime. Though we have an aging fleet, 
we will also be spending significant capital on bringing it into SOGR.
    We are also working to comply with the Americans with Disabilities 
Act, and our 2009 budget includes $68.5 million for that effort. ADA 
compliance is going to be a significant challenge, and Amtrak is 
seeking an extension of the current compliance deadline of July 26, 
2010, because, even if we had the regulatory guidance and resources to 
comply, it would still be impossible to achieve compliance by that 
date. Amtrak is fully focused on making its service accessible, and we 
are pursuing compliance under the terms of the ADA, but we will need 
additional time to accomplish that. New rules proposed nearly 2 years 
ago by the DOT would materially change the standards for compliance 
under the Act with respect to station platform level requirements, 
would add millions of dollars to the compliance cost, and would deprive 
that aspect of compliance of any clarity and certainty. Even under the 
current law, Amtrak will need more time and more resources to achieve 
full ADA compliance.
    On the whole, I think our projections for the upcoming year are 
responsible, realistic, and attainable. There are a lot of points that 
must be considered, and the rising costs of fuel, which now hovers at 
$4.00 a gallon and health care and the condition of the economy will 
all have a bearing on our plans. We're going to need new equipment, 
both to modernize our fleet and have equipment available for expansion. 
But from where I sit, the leading indicators continue to trend in the 
right direction. I believe there is a latent demand for intercity 
passenger rail service in the United States. In the coming year we will 
work to inform this discussion and to meet the expectations and needs 
of our customers. Let me conclude by saying we are going to have some 
big opportunities ahead, and we will need a strong, skilled and well-
trained workforce with high morale if we're going to make the most of 
them. To that end, these new labor agreements will help. I appreciate 
all of the hard work our employees put in every day, sometimes in 
difficult or trying situations, and I am glad that we have been able to 
conclude a workable settlement and trust that our employees will 
embrace it. I also want to thank our Board of Directors, and 
particularly Donna, for their ongoing support and their wise counsel.
    This concludes my opening statement. I will be happy to answer any 
questions you might have.

    Senator Murray. Mr. Tornquist?

                      DEPARTMENT OF TRANSPORTATION

STATEMENT OF DAVID TORNQUIST, ASSISTANT INSPECTOR 
            GENERAL, OFFICE OF THE INSPECTOR GENERAL
    Mr. Tornquist. Chairman Murray, Ranking Member Bond, I 
appreciate the opportunity today to present the views of the 
Office of the Inspector General on Amtrak's fiscal year 2009 
financial needs.
    Let me start by saying that Amtrak has benefited from the 
strong leadership provided by Chairman McLean and CEO Kummant 
and Alex's executive team. The results of that leadership have 
been borne out in Amtrak's recent operating and financial 
statistics, many of which I've cited in my written statement.
    Regarding fiscal year 2009 needs, we believe that Amtrak 
requires only a modest funding increase. Specifically, we 
recommend $475 million for operations, $675 million for 
capital, and $266 million for debt service.
    In addition, we believe the fiscal year 2009 share of the 
retroactive wages that would result from the pending labor 
agreement can be accommodated within Amtrak's projected end of 
fiscal year 2008 cash balances without additional 
appropriations.
    Our recommended grant level would allow Amtrak to run a 
nationwide system and when combined with Amtrak's likely 
increase in fiscal year 2009 revenues would allow for an 
approximately 3.5 percent increase in operating expenses.
    Of particular concern to us is that Amtrak's request does 
not include any operating reform savings in fiscal year 2009. 
We feel Amtrak can do more to minimize its costs and dependence 
on Federal operating subsidies.
    The $675 million we recommend for capital would allow 
Amtrak to fund its legal, safety and security requirements, and 
continue to make progress to a state of good repair. The $266 
million we recommend for debt service is the minimum that we 
believe is needed to meet Amtrak's fiscal year 2009 debt 
obligations.
    Looking to the future, I'd like to draw the subcommittee's 
attention to a report we issued last week which concluded that 
``Amtrak would receive a significant financial benefit by 
improving its on-time performance.'' Specifically, we found 
that ``improving on-time performance to 85 percent on all 
routes outside the Northeast corridor in fiscal year 2006 would 
have generated a net gain of a $136 million for Amtrak.''
    However, there's little agreement between Amtrak and the 
host railroads, on whose track Amtrak operates, regarding the 
causes of this poor on-time performance and therefore little 
consensus on how to improve it.
    We expect to report shortly on work we have ongoing at the 
request of this subcommittee regarding the root causes of these 
delays. Our preliminary findings indicate that Amtrak trains 
are delayed by a combination of insufficient track capacity, 
host railroad operating practices, and external factors beyond 
the host railroad's control.
    Determining who is responsible for delays is made difficult 
by the disagreement that exists among the stakeholders 
regarding the exact nature of Amtrak's statutory right to 
preference.
    We believe the issue of improving Amtrak's on-time 
performance can best be addressed through collaboration between 
Amtrak, the host railroads and the executive branch which 
balances the enforcement of Amtrak's rights with incentives to 
the freights for cooperation, and we think that the State 
capital matching grant program can play an important role in 
this effort.

                           PREPARED STATEMENT

    As we testified previously, we believe that Amtrak's long-
term outlook would be improved through a reauthorization. We 
look forward to seeing the results of the ongoing strategic 
planning process that the Board has underway and believe it can 
be an important tool in guiding Amtrak's decisionmaking.
    That concludes my statement. I'd be happy to answer any 
questions.
    [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 the Inspector General on Amtrak's fiscal year 2009 financial 
needs and the future of intercity passenger rail. My statement today 
will draw upon the work we have ongoing for your subcommittee on 
Amtrak's financial performance and labor agreement costs, its efforts 
to achieve operating reform savings, and the causes of its on-time 
performance (OTP) problems, as well as other work we have ongoing on 
Amtrak's capital plan.
    Despite Recent Progress, Amtrak Still Faces Challenges.--Once 
again, Amtrak's 2007 ridership and ticket revenue records set new 
records. Amtrak also improved its OTP on about two-thirds of its 
routes, implemented an expanded capital program, and continued to pay 
down its debt. In addition, the labor agreement now in the ratification 
process holds the promise of allowing both Amtrak management and 
employees to focus on the business of running a passenger railroad.
    At the same time, Amtrak is seeking to increase its Federal subsidy 
by 35 percent in a very difficult budget environment while continuing 
to incur unsustainably large and potentially growing operating losses. 
We believe Amtrak can do more to minimize its costs and dependence on 
Federal subsidies and that its spending initiatives need to make a 
demonstrable contribution to its bottom line.
    Amtrak Requires a Modest fiscal year 2009 Funding Increase.--We 
believe that Amtrak's fiscal year 2009 legislative and grant request 
understates Amtrak's likely fiscal year 2009 revenues, overstates its 
costs, and ignores its significant cash balance. As a result, we 
believe that Amtrak needs $475 million in fiscal year 2009 for 
operations, $675 million for capital, and $266 million for debt 
service. Furthermore, the fiscal year 2009 share of retroactive wages 
included in the pending labor agreement \1\ can be accommodated within 
Amtrak's projected cash balances without additional appropriations.
---------------------------------------------------------------------------
    \1\ This agreement would grant full retroactive pay raises back to 
2002 to all agreement employees onboard on December 1, 2007. The 
payment would be split, with 40 percent being paid in fiscal year 2008 
and 60 percent in fiscal year 2009.
---------------------------------------------------------------------------
    Our recommended operating grant level would allow Amtrak to operate 
a nationwide system. When combined with Amtrak's likely increase in 
fiscal year 2009 revenues, our recommendation would cover an 
approximately 3.5 percent increase in Amtrak's operating expenses. 
Regarding these revenues, we believe that Amtrak's forecast is 
understated because it was arbitrarily reduced below the levels 
projected by its econometric models. The expense forecast is likely 
overstated because it includes the cost of significant hiring in fiscal 
year 2008 and 2009 and other cost increases which Amtrak need not 
incur, and no additional operational reform savings.

                                        TABLE 1.--FEDERAL APPROPRIATIONS
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                    Fiscal Year          Fiscal Year 2008                Fiscal Year 2009
                                       2007      ---------------------------------------------------------------
                                   Appropriated    Appropriated   Forecasted Use      Request        Recommend
----------------------------------------------------------------------------------------------------------------
Operating.......................             485             475             454             525             475
Capital.........................             495             565             564             801             675
Debt service....................             277             285             285             345             266
Retroactive wages for labor       ..............  ..............  ..............             114  ..............
 settlement.....................
                                 -------------------------------------------------------------------------------
    Total Table.................           1,257           1,325           1,303           1,785           1,416
----------------------------------------------------------------------------------------------------------------
Source: Amtrak data and OIG analysis.

    The $675 million for capital would allow Amtrak to fund legal, 
safety, and security requirements and continue to make progress towards 
a ``state of good repair''. The $266 million for debt service is the 
minimum needed to fund Amtrak's fiscal year 2009 debt obligations. 
Amtrak's proposal to pay off debt early is linked to a plan to borrow 
funds in the future for rolling stock replacement. However, significant 
issues still need to be resolved regarding States' willingness to pay 
the full costs of State services not covered by ticket revenues which 
may impact the overall demand for new rolling stock.
    Finally, Amtrak could fund the unbudgeted $114 million in fiscal 
year 2009 retroactive wage costs and $11.3 million in other planned 
pay-related costs within its anticipated $269 million end of fiscal 
year 2008 cash balance. The resulting $119 million cash balance would 
be less than Amtrak's preferred $150 million level, but consistent with 
the $103.9 million cash balance that would have resulted in fiscal year 
2007 from Amtrak's spending decisions.
    Achieving Reliable On-Time Performance Could Substantially Improve 
Amtrak's Finances.--We recently reported that improving OTP to 85 
percent on all routes outside the Northeast Corridor in fiscal year 
2006 would have generated a net gain of $136.6 million for Amtrak. 
However, there is little agreement between Amtrak and the host 
railroads on whose track Amtrak operates regarding the cause of this 
poor OTP, and, therefore, no consensus on how to improve it.
    In work we have ongoing at the request of this subcommittee, we 
have found that Amtrak trains are delayed by insufficient track 
capacity; host railroad operating practices, including dispatching; and 
external factors beyond the host railroads' control, such as weather 
and derailments. Amtrak's data on delays does not allow us to quantify 
the relative share each cause contributes to delay. Disagreement also 
exists regarding the precise nature of Amtrak's right to ``preference 
over freight transportation in using a rail line, junction, or 
crossing''.\2\ We believe the issue of improving Amtrak's OTP can best 
be addressed through collaboration between Amtrak, the host railroads, 
and the executive branch which balances the enforcement of rights with 
incentives for cooperation. The State capital matching grant program 
can play an important role in this effort.
---------------------------------------------------------------------------
    \2\ Section 24308c of title 49 of the United States Code.
---------------------------------------------------------------------------
    Reauthorization Remains Key to Amtrak's Long-Term Outlook.--As we 
have testified previously, we believe that Amtrak's long-term outlook 
would be improved through a reauthorization that focused on three 
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.
    Absent a reauthorization, it will continue to fall to the 
Appropriations Committee to maintain fiscal discipline at Amtrak while 
providing the tools to improve their performance. At the same time, as 
we reported last year in our audit of the Amtrak Board's activities, 
the Board plays a key role in setting a strategic direction for Amtrak 
within the statutory parameters set by Congress. The Board and Amtrak 
management currently are developing a new strategic plan, which, if 
accompanied by implementation plans, will be very helpful in guiding 
Amtrak's decisionmaking.
    I will now discuss these issues in greater detail.
         despite recent progress, amtrak still faces challenges
Operating Losses
    Amtrak ended fiscal year 2007 with a net operating loss of $1.0 
billion and a cash operating loss, excluding interest and depreciation, 
of $486.3 million.\3\ Amtrak currently projects a cash operating loss 
of $454.3 million in fiscal year 2008,\4\ $21 million below its 
original budgeted loss, and $525 million in fiscal year 2009. The 
increase in fiscal year 2009 is due largely to fuel, benefits, and 
labor settlement costs, and the impact of a projected economic slowdown 
on revenues.
---------------------------------------------------------------------------
    \3\ Amtrak's fiscal year 2007 cash operating loss includes $190 
million in accrued expenses from the pending labor settlement.
    \4\ Amtrak originally budgeted for a $475 million cash operating 
loss in fiscal year 2008. However, based on actual revenues and 
expenditures through January, this loss has been revised downward by 
$21 million to $454.3 million.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Based on the information available today, we believe Amtrak could 
manage with $475 million for its fiscal year 2009 operating subsidy 
instead of the $525 million requested. We differ with Amtrak's 
estimates of likely fiscal year 2009 revenues, expenses, and operating 
reforms. Our recommended operating grant level would provide Amtrak 
with an increase of almost $100 million and cover an approximately 3.5 
percent increase in operating expenses as a result of likely revenue 
increases. We strongly urge the subcommittee to reexamine Amtrak's 
funding requirements after Amtrak completes its more detailed, bottom 
up budget projection in July.
    We are concerned about the seemingly arbitrary manner in which 
Amtrak management revised its fiscal year 2009 revenue estimates 
developed using their econometric models to reflect a potential 
recession. While we understand the desire to be conservative in light 
of economic uncertainty, we believe that the tight budget environment 
calls for a more scientific and supportable approach to revenue 
forecasting.
    In this regard, we note that both the Federal Reserve's Federal 
Open Market Committee and the Blue Chip consensus forecast call for 
economic growth in fiscal year 2009 at a level commensurate with that 
in fiscal year 2007, not a decline as Amtrak projects. Growth in the 
gross domestic product, a measure of overall economic activity, began 
to slow in 2007, and projected to slowdown further in 2008 before 
picking up in 2009. Despite the current slowdown, Amtrak's fiscal year 
2008 passenger related revenues are projected to be $170 million above 
fiscal year 2007 and $71 million above the level Amtrak originally 
projected in its fiscal year 2008 budget.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    In addition, we believe that Amtrak should take a more restrained 
approach regarding expenditures given the large uncontrollable cost 
increases Amtrak anticipates for wages, benefits, and fuel costs. 
Amtrak's budget estimates anticipates hiring about 200 employees which 
might be aggressive considering the tight budget environment. Finally, 
since Amtrak forecasts its fiscal year 2008 cash operating loss will be 
about $21 million below the amount it used as a starting point to build 
its fiscal year 2009 request, its fiscal year 2009 expenses are likely 
to be less than reflected in Amtrak's budget request.
    Finally, Amtrak anticipates achieving no savings from operating 
reforms in fiscal year 2009. Amtrak saved $61.3 million from operating 
reforms in fiscal year 2006, $52.8 million in fiscal year 2007, and 
anticipates saving $40.3 million in fiscal year 2008. The current 
estimate of fiscal year 2008 savings is just half of the amount Amtrak 
originally anticipated it would save. The Amtrak Board of Directors, in 
the fiscal year 2008 Action Plan, established as one of its seven 
corporate goals, to ``contain cost growth through productivity and 
efficiency improvements''. We strongly support this goal and believe it 
should be reflected in the fiscal year 2009 budget.
    As shown in Table 2, Amtrak anticipates achieving $17.0 million in 
fiscal year 2008 savings through revenue enhancements and $23.3 million 
through expense reductions. The revenue enhancements include 
improvements to both Acela and long-distance services and additional 
food and beverage sales. The expense reductions include reducing energy 
costs, increasing use of credit cards on-board trains, and implementing 
several productivity improvements in Amtrak's Environment, 
Transportation, Mechanical, and Engineering departments. Through 
January, Amtrak has achieved $6.3 million of these projected savings.

                          TABLE 2.--AMTRAK'S FISCAL YEAR 2008 COST SAVINGS FROM REFORM
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                          YTD
                                                                    Annual    Budget YTD  Actual YTD   Variance
----------------------------------------------------------------------------------------------------------------
Revenue Enhancements............................................       17.0         4.5         4.4        (0.1)
    Food and Beverage...........................................        0.9         0.9         0.5        (0.4)
    Overhead Functions..........................................        2.4         0.4         0.4   ..........
    Customer Service............................................        1.3         0.4         0.9         0.5
    Marketing and Sales.........................................        1.8         1.2         0.2        (1.0)
    NEC Operations..............................................        7.6         1.4         2.3         0.9
Long Distance Services                                                  3.2         0.2         0.2   ..........
                                                                 ===============================================
Expense Reductions..............................................       23.3         5.3         1.9        (3.4)
    Mechanical..................................................       (7.2)       (2.1)       (1.7)        0.4
    Overhead Functions..........................................       11.0         0.7        (0.1)       (0.8)
    Customer Service............................................       17.7         6.2         4.9        (1.3)
    Ongoing Efficiencies........................................        1.8         0.5        (1.2)       (1.7)
                                                                 ===============================================
      Total.....................................................       40.3         9.8         6.3        (3.5)
----------------------------------------------------------------------------------------------------------------
Columns may not sum due to rounding.
 
Source: Amtrak.

Labor Settlement Costs
    Amtrak anticipates the fiscal year 2008 and fiscal year 2009 cost 
of the labor agreement currently in the ratification process will be 
$412.2 million for both the operating and capital accounts. As shown in 
Table 3, Amtrak's estimate of $148.9 million in fiscal year 2008 costs 
includes $52.4 million for the prospective fiscal year 2008 pay raise, 
$94.4 million for the fiscal year 2008 share of the retroactive fiscal 
year 2002-2008 pay raise, and $2.1 million for management pay raises to 
supervisors to maintain an appropriate pay differential relative to 
their employees. The $263.3 million in fiscal year 2009 costs include 
$117.4 million for the prospective fiscal year 2009 pay raise, $141.6 
million for the fiscal year 2009 share of the retroactive pay raise, 
and $4.3 million for management pay raises.
    We believe that Amtrak does not require a separate $114 million 
appropriation in fiscal year 2009 to cover the partial costs of the 
retroactive wages resulting from the pending settlement ratification. 
Based on actual revenues and expenditures through January, Amtrak 
forecast that its cash balance at the end of fiscal year 2008 would be 
$268.7 million. According to Amtrak, paying off the unbudgeted labor 
settlement costs would reduce this cash balance to $118.7 million. 
While this cash balance is below the $150 million level Amtrak stated 
they prefer to have on hand, it is 14 percent more than the $103.9 
million cash balance that would have resulted in fiscal year 2007 from 
Amtrak's spending decisions. Amtrak is currently refining these 
estimates as it determines the amounts due on an employee-by-employee 
basis.

               TABLE 3.--ESTIMATED LABOR SETTLEMENT COSTS
                        [In millions of dollars]
------------------------------------------------------------------------
                                      Due in       Due in
                                   Fiscal Year  Fiscal Year     Total
                                       2008         2009
------------------------------------------------------------------------
Retroactive Wage Payment (2002-           94.4        141.6        236.0
 2008)...........................
Management Pay Raise.............          2.1          4.3          6.4
Prospective Pay Raises...........         52.4        117.4        169.8
                                  --------------------------------------
    Total........................        148.9        263.3        412.2
------------------------------------------------------------------------
Source: Amtrak.

Capital
    Amtrak's infrastructure continues to suffer from the effects of 
years of underinvestment, and its estimated backlog of infrastructure 
projects needed to attain a ``state of good repair'' \5\ is $4.8 
billion. The $675 million recommended for capital would allow Amtrak to 
fund legal, safety, and security requirements and continue to make 
progress to achieving a ``state of good repair.''
---------------------------------------------------------------------------
    \5\ Amtrak uses a component life cycle replacement approach to 
defining ``state of good repair''. Amtrak defines being in a ``state of 
good repair'' when each of its infrastructure assets is maintained and 
replaced within the design life of that component.
---------------------------------------------------------------------------
    Amtrak initiated a new capital planning process in fiscal year 2008 
that prioritizes capital projects across different departments. We 
believe this planning process is an important step forward. As it 
matures, we would like to see greater reliance on return on investment 
analyses for projects, when appropriate. This analysis would facilitate 
the comparison and prioritization of projects and would demonstrate how 
projects contribute to meet Amtrak's business goals, i.e., increasing 
ridership and revenues, reducing costs, improving OTP, and reducing 
trip times.
Debt Service
    The $266 million for debt service is the minimum needed to fund 
Amtrak's fiscal year 2009 obligations. This amount reflects Amtrak's 
minimum debt payment schedule adjusted for Amtrak's pre-payment of the 
$21 million on its Railroad Rehabilitation and Improvement Financing 
(RRIF) loan. Amtrak's proposal to pay off debt early is based on the 
economic benefits of paying off higher interest debt and a desire to 
reduce its overall debt burden to facilitate new borrowing in the 
future for rolling stock replacement.
    We have previously testified that from an economic standpoint, the 
taxpayer would benefit by the Federal Government paying off Amtrak's 
$3.3 billion in long term debt and capital lease obligations. 
Currently, this debt is being paid off with Federal appropriations. 
Because portions of Amtrak's debt were financed at higher interest 
rates than what the Federal Government can borrow, it would be less 
costly for the Federal Government to payoff the entire debt at once. 
However, in this tight budget environment, we believe Amtrak has higher 
funding priorities at this time than repaying debt, such as 
infrastructure investment.
    In addition, significant issues still need to be resolved which 
will affect Amtrak's rolling stock needs. In particular, Amtrak needs 
to develop a more equitable method of charging States for State 
corridor services and determine whether the States will pay the fully 
allocated operating costs and, over time, a growing contribution to 
capital costs for new and existing service. In addition, the higher 
labor rates resulting from the pending labor agreement will increase 
State costs and may affect their willingness to pay for current 
services, let alone expand into new services. The impact these issues 
will have on States' demand for new service and the need for additional 
rolling stock needs to be incorporated into a comprehensive fleet plan.
Revenue and Ridership
    Passenger revenues increased to a peak level of $1.52 billion in 
fiscal year 2007, primarily as a result of revenues from Acela service 
that were $56.7 million above budget projections. Amtrak attributed 
increases in Acela revenues and ridership to reduced trip times, 
improved OTP, deteriorating airline service, increased highway 
congestion, and higher gasoline costs. Systemwide ridership increased 
to 25.8 million in fiscal year 2007. For the first 4 months of fiscal 
year 2008, passenger revenues were $71.1 million higher than the same 
period in fiscal year 2007, supported by strong demand for corridor 
trains, particularly for Acela and Regional services. Ridership grew 
11.2 percent during this period. 

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  achieving reliable on-time performance could substantially improve 
                           amtrak's finances
    Amtrak's OTP had been declining steadily since fiscal year 2002, 
from 77 percent to 68 percent in fiscal year 2006. However, the OTP 
increased in fiscal year 2007 to 69 percent and to 72.7 percent through 
January 2008. In fiscal year 2006, average OTP across Amtrak's long-
distance routes was only 30 percent. For Amtrak's corridor routes, 
average OTP was much higher, but still only 67 percent (excluding the 
NEC). In fiscal year 2007, the OTP of a number of long-distance routes 
increased substantially, but only enough to raise the average for long-
distance routes to 42 percent. Through January 2008, long-distance OTP 
increased to 59.7 percent.
    We recently reported that improving OTP to 85 percent on all routes 
outside the Northeast Corridor (NEC) in fiscal year 2006 would have 
generated a net gain of $136.6 million for Amtrak. This total net gain 
includes increased Amtrak revenues of $111.4 million and reduced fuel 
and labor costs of $39.3 million. Revenue would increase as customers 
become more confident in Amtrak's ability to arrive on time. Labor 
expenses would be reduced in part by fewer overtime hours required to 
staff late trains. Fuel costs would also fall with a reduction in 
delays as less time would be spent idling or accelerating and 
decelerating. The improved OTP would also require an increase in net 
performance payments paid to the host railroads. We estimated these 
would total $14.1 million. Achieving an OTP of 75 percent outside of 
the NEC in fiscal year 2006 would have generated a net gain of $122.1 
million and an OTP of 100 percent would have generated a net savings of 
$136.4 million. This latter estimate reflects higher performance 
payments that exceed the revenue increase and cost reductions.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    However, there is little agreement between Amtrak and the host 
railroads on whose track Amtrak operates regarding the cause of this 
poor OTP, and, therefore, no consensus on how to improve it. In work we 
have ongoing at the request of this subcommittee, we have found that 
Amtrak trains are delayed by insufficient track capacity; host railroad 
operating practices, including dispatching; and external factors beyond 
the host railroads' control, such as weather and derailments. The 
available data does not allow us to quantify the relative share each 
cause contributes to delay.
    The capacity of the freight rail network is insufficient to handle 
the mix of fast (passenger and inter-modal freight) and slow (bulk 
commodity freight) trains operating according to different business 
models, i.e., scheduled versus unscheduled or loosely scheduled 
service. In this network, passenger trains frequently catch up with 
slower moving freight trains, or other passenger and commuter trains. 
In addition, most Amtrak trains outside the NEC operate over single 
tracks with bi-directional traffic, which requires trains to be held on 
sidings until they can pass each other. Capacity is also reduced by 
temporary speed restrictions, or slow orders.
    Host railroad operating and dispatching practices also can delay 
Amtrak trains. Dispatch operations are focused on maintaining network 
fluidity, sometimes at the expense of Amtrak's OTP. It is difficult to 
determine how individual dispatching decisions impact delays simply by 
observing day-to-day dispatching operations. Nevertheless, we found 
certain practices intentionally delay Amtrak trains. In addition, a 
lack of management attention by a host railroad to Amtrak's performance 
can increase delays. Amtrak and the host railroads largely attribute 
recent OTP improvements on the Auto Train and other Florida services, 
the California Zephyr, Crescent, Capitol Limited and Lake Shore Limited 
trains to more focused and cooperative management efforts. Each of 
these root causes contributes to Amtrak's delays, often in combination 
with each other. As delays accumulate, it can be difficult to separate 
the relative impact from each other.
    Disagreement also exists regarding the precise nature of Amtrak's 
right to ``preference over freight transportation in using a rail line, 
junction, or crossing''.\6\ Amtrak views the legislation as granting an 
absolute right to run unimpeded on the freight network and, as such, 
considers all freight train interference a violation of its right of 
preference. In Amtrak's view, host railroads need to proactively manage 
operations on their rail lines to avoid interference-related delays. 
The host railroads we met with did not offer us a legal definition of 
preference, but generally viewed their responsibility to grant 
preference relative to their ability to manage congestion levels and 
maintain ``fluidity'' in the overall system.
---------------------------------------------------------------------------
    \6\ Section 24308c of title 49 of the United States Code.
---------------------------------------------------------------------------
    We believe the issue of improving Amtrak's OTP can best be 
addressed through collaborative interactions between Amtrak, the host 
railroads, and the executive branch which balances the enforcement of 
rights with incentives for cooperation. The State capital matching 
grant program can play an important role in this effort in terms of 
providing an incentive to freight railroads for cooperation. In 
addition, the quarterly reporting requirements regarding host railroad 
OTP Congress established last year will also focus the Department and 
host railroad management's attention on this issue.
       reauthorization remains key to amtrak's long-term outlook
    As we have testified previously, we believe that Amtrak's long-term 
outlook would be improved through a reauthorization that focused on 
three 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.
    Absent a reauthorization, it will continue to fall to the 
Appropriations Committee to maintain fiscal discipline at Amtrak while 
providing the tools to improve their performance. At the same time, as 
we reported last year in our audit of the Amtrak Board's activities, 
the Amtrak Board of Directors plays a key role in setting a strategic 
direction for Amtrak within the statutory parameters set by Congress. 
The previous Board set a strategic direction for Amtrak with its April 
2005 Amtrak Strategic Reform Initiatives and fiscal year 2006 
Legislative Grant Request. However, this plan's broad long-term 
objectives were not fully translated into a detailed plan with 
outcomes, milestones, and performance measures. As a result, the Board 
and Amtrak management lacked a comprehensive standard against which to 
evaluate how Amtrak's day-to-day activities are addressing the Board's 
strategic vision for Amtrak.
    The current Board and Amtrak management are developing a new 
strategic plan, which if accompanied by implementation plans, will be 
very helpful in guiding Amtrak's decisionmaking.
    Madam Chairman, this concludes my statement. I would be happy to 
answer any questions at this time.

    Senator Murray. Thank you very much. Mr. Parker.

                        NONDEPARTMENTAL WITNESS

STATEMENT OF JOEL PARKER, INTERNATIONAL VICE PRESIDENT 
            AND SPECIAL ASSISTANT TO THE PRESIDENT, 
            TRANSPORTATION COMMUNICATIONS INTERNATIONAL 
            UNION
    Mr. Parker. Good morning. Thank you very much. I'm an 
International Vice President and Special Assistant to the 
President of Transportation Communications Union, TCU, which is 
affiliated with the International Association of Machinists.
    I've been renegotiater for TCU on Amtrak since 1984. TCU 
represents the most unionized workers on Amtrak, approximately 
7,500. In the just-completed bargaining round, I served as 
spokesman for a coalition of shop craft unions. I was also lead 
witness for all 8 unions that were before PEB 242 representing 
about 11,000 Amtrak workers.
    I've submitted written remarks that cover the relevant 
issues in greater detail, particularly Amtrak's overall funding 
needs and labor's belief that only a permanent funding source 
for Amtrak will make it possible for Amtrak to fulfill its 
promise as a truly national rail passenger service.
    Today, I will focus only on the recent labor settlements. I 
want to begin by thanking this committee for including forceful 
report language in last year's appropriation bill calling on 
Amtrak to negotiate fair and equitable collective bargaining 
agreements.
    We have now succeeded in that task. Contracts have been 
ratified covering the 10-year period from 2000 through the end 
of 2009 by all eight unions that were before PEB 242 and four 
other unions who were not.
    For the first time in a very long time, I am pleased to say 
that labor peace is a real possibility on Amtrak. For that to 
happen, Amtrak must live up to the one item left hanging in all 
the contracts, payment of the second retroactive pay 
installment that the unions agreed to defer to 2009.
    To understand why the unions agreed to defer this payment, 
I want to review the negotiations briefly and especially the 
PEB recommendations that served as a basis for the contracts 
that were reached.
    Negotiations opened on January 1, 2000. From almost the 
first day, Amtrak stated no contract was possible without far-
reaching unprecedented concessions. Amtrak never wavered from 
that position. While making take-it-or-leave-it demands that it 
knew the unions would never voluntarily accept, Amtrak also 
pronounced another departure from traditional bargaining. It 
would never agree to a dime of back pay.
    Under this strategy, the longer negotiations dragged on, 
the more money Amtrak saved. Amtrak had no incentive to 
compromise to reach a negotiated deal, and let me just say that 
the reason we now are before you for this extra money is 
largely a result of the negotiations going on so long.
    As you know under the Railway Labor Act, there's no time 
limit for negotiations. The parties can't resort to self-help 
until released by the NMB. Repeated requests over the years by 
several of the unions for release for mediation were opposed by 
Amtrak. Finally, in October 2007, the NMB proffered binding 
arbitration to the eight unions who were then in mediation. 
Following the rejection of that proffer, President Bush created 
PEB 242.
    President Bush appointed the following individuals to serve 
on the PEB. As Chairman Peter Tredick, as members, Ira Jaffe, 
Joshua Javits, Annette Sandberg and Helen Witt. Chairman 
Tredick was a long-time management side attorney, specializing 
in labor disputes. Joshua Javits and Helen Witt were former 
Chairmen of the NMB, appointed by President Reagan. Annette 
Sandberg had recently served as Administrator of the FMCSA to 
which she had been appointed by President Bush.
    No one could possibly accuse this Board of harboring a pro-
labor bias, yet their report overwhelmingly adopted labor's 
proposals for settlement. Many outside observers professed 
surprise at this result. I was not surprised. The unions 
proposed to follow the contracts that had traditionally served 
as a pattern for settlement on Amtrak, the National Freight 
Agreements. Those agreements were hardly extravagant. The wage 
increases, 2.6 percent a year net of employee health 
contributions, were far less than national outside industry 
averages and than those, for example, of Federal employees 
during the past 8-year period.
    A strong case could have been made that Amtrak employees 
had more in common with much higher-paid commuter workers who, 
like them, work on passenger carriers that require public 
subsidy, but we elected to present the conservative proposal 
based on historic pattern considerations.
    Amtrak, on the other hand, proposed radical departures from 
pattern in the areas of back pay and work rules. The Board 
rejected Amtrak's non-traditional approach.
    On back pay, the Board recommended that the wage increases 
be effective on the same dates they were effective in the 
pattern agreements, the National Freight Contracts.
    I'm going to run out of time. I would beg your indulgence 
to go a little beyond. Thank you very much.
    To address Amtrak's argument that Congress had not 
appropriated enough funds to allow them to pay retroactive 
wages, the Board recommended two divergencies from their 
National Freight Agreements.
    First, it recommended that the back pay component be paid 
in two installments, 40 percent at the time of signing the 
remaining 60 percent 1 year later. Secondly, the Board limited 
back pay to employees in service on December 1, 2007, which was 
the day the Board was established. By doing that, the Board 
eliminated all employees who had retired or died before 
December 1, 2007, from receiving any compensation for the 7 
years of work they had performed.
    Upon issuance of the report, negotiations between Amtrak 
and each of the eight unions immediately began. Contracts were 
reached on January 18, 2008. The contracts followed almost to 
the letter the PEB's recommendation.
    However, there was one significant departure. Amtrak 
insisted it would not agree to the second back pay payment 
until sufficient funds were appropriated by Congress. In order 
to avoid a strike, the unions agreed to a contingency 
provision. If Amtrak determined it lacked the money to pay the 
second back pay installment, it would notify the unions in 2009 
and after a 60-day negotiation and cooling-off period, the 
unions would be free to strike.
    In summary then, what has been the most difficult and 
contested negotiations in Amtrak history are finally on the 
verge of being resolved with a fair outcome. Only one 
outstanding issue remains, the payment of the second back pay 
installment. Amtrak estimates it requires an additional 
specific appropriation of $114 million to be able to pay that 
installment.
    As you consider this request for appropriation, I believe a 
few facts should be front and center. First, the agreements 
reached with Amtrak are modest, 2.6 a year net in wages is by 
no means an extravagant settlement. Most importantly, the 
contract is a product of recommendations by a well-respected 
group of neutral experts that concluded there could be no 
rationale for Amtrak workers to be paid less than their 
counterparts in the rail industry simply because the company 
they work for receives public subsidies.
    Senator Murray. Mr. Parker, if you could summarize for us. 
We will submit all of your testimony for the record.
    Mr. Parker. I will. Let me end on a positive note. I felt 
compelled to bring the issue of retirees to you but that is in 
my written statement and it's in the oral statement that I 
didn't get to.
    We believe there are valid reasons for optimism going 
forward. Amtrak President Alexander Kummant has said he wants 
to establish a new partnership with Amtrak workers. He was not 
there when this bargaining strategy was devised nor were most 
of the current Board of Directors.

                           PREPARED STATEMENT

    We wholeheartedly seek a cooperative relationship with Mr. 
Kummant and his management team. We want to strive together to 
work for the best possible service to the riding public. We can 
accomplish much for the public good. It's time to embark on 
that journey and to put the strains of the past behind us. That 
will require the payment of that $114 million back pay 
installment.
    [The statement follows:]
                   Prepared Statement of Joel Parker
    Thank you for your invitation to testify this morning about 
Amtrak's budgetary outlook, and specifically about the recent labor 
settlements on Amtrak and their impact on Amtrak's financial needs.
    I am testifying on behalf of the Transportation Communications 
Union, TCU, an affiliate of the International Association of 
Machinists. TCU is the union which represents the most workers on 
Amtrak, approximately 7,500 clerks, carmen, on-board service workers, 
mechanical supervisors, maintenance of way supervisors, and product 
line supervisors.
    I have served as lead negotiator for TCU on several contracts with 
Amtrak since 1984. In the just-completed bargaining round I served as 
spokesman for a coalition of Shopcraft unions, which included the 
International Brotherhood of Electrical Workers, the International 
Association of Machinists, the Transport Workers Union and TCU. I was 
also the lead witness for all eight unions that were before 
Presidential Emergency Board 242.
    I want to begin by thanking this subcommittee for its historic 
support for Amtrak funding. The members we represent have had to endure 
the uncertainty of working for a company whose survival was never 
assured beyond the upcoming year. Every year we faced a serious attempt 
to underfund Amtrak, or in the case of the current administration, to 
zero fund it. This funding uncertainty not only fostered job insecurity 
and concomitant low morale, but also was a direct contributor to the 
unprecedented nadir in collective bargaining that marked the last 8 
years on Amtrak.
    The administration has attempted every year to dismantle Amtrak by 
starving it of the Federal resources it needs or pursuing risky 
privatization initiatives. Through those efforts the White House 
demonstrated its complete lack of understanding of the importance of 
Amtrak to our national economy and our competitiveness. It also 
demonstrated the administration's disregard for the growing 
transportation needs of cities and States that are on the front-lines 
of addressing major congestion and environmental challenges. And by 
pursuing a reckless funding plan for Amtrak every year, the Bush 
administration exacerbated Amtrak's already enormous backlog of much 
needed equipment, infrastructure and safety and security upgrades.
    Fortunately, each year this subcommittee has stepped to the plate 
and funded Amtrak at levels adequate to keep a national system running. 
You have done this even though Congress as a whole has failed to pass 
an authorization bill since 2002. For that steady support I again want 
to thank you on behalf of all of the men and women we represent.
    I am especially appreciative of you, Madame Chair, for calling an 
early hearing last year to highlight the plight of Amtrak employees who 
had worked for up to 8 years without new contracts and a general wage 
increase. And I want to thank you and your committee colleagues for 
including forceful Report Language in last year's appropriations bill 
that called on Amtrak to negotiate fair and equitable collective 
bargaining agreements.
    Amtrak's accomplishments have been remarkable given its year to 
year funding scramble for survival. Ridership records continue to be 
set, and service levels continue to improve. This is largely due to the 
dedication and professionalism of Amtrak workers, who have refused to 
let adverse working conditions and terribly bitter labor negotiations 
deter them from their work of making sure train sets, even terribly 
antiquated ones, run safely and efficiently, and that service to the 
passenger be of the highest caliber possible.
    But year to year funding can never be the real answer to this 
Nation's need for a technologically advanced coast to coast rail 
passenger system. The greatest obstacle to Amtrak's long term success 
is the absence of a permanent funding source. At this time of soaring 
gas prices, energy dependence, and the need for environmentally 
friendly modes of transportation, there is a growing public consensus 
that Amtrak can play a major positive role in all three areas. Amtrak 
President Alexander Kummant has laid out an exciting vision of growth 
in those markets where Amtrak service is now woefully inadequate but 
where the demand for decent speed rail passenger service clearly 
exists. To realize that vision will take consistent investment and 
planning, which is contingent on long term funding certainties.
    That is why TCU and the rest of rail labor wholeheartedly endorses 
a multi-year funding plan that provides no less than $2 billion a year 
with adequate allocations for both capital and operating needs. We will 
work with Senators and House Members to achieve long-term financial 
stability permitting Amtrak and its workers to produce the first-class 
national rail passenger system Americans deserve.
    It is our sincere hope that the Senate and House will not only fund 
the current needs of Amtrak including the costs associated with newly 
signed collective bargaining agreements, but will adopt a multi-year 
blueprint for a truly national Amtrak system. Hopefully, a 
congressional blueprint for Amtrak will:
  --provide multi-year Federal funding of at least $2 billion a year;
  --restructure and pay-down Amtrak's debt, which is a product of 30 
        years of under-funding and neglect;
  --reform the make up of Amtrak's Board to include a rail labor member 
        and to ensure it is comprised of strong advocates of the 
        company and its mission; and
  --fund critically important security and safety upgrades.
    But while we work to see a long term authorization passed, we must 
necessarily also focus on making sure Amtrak receives an adequate 
appropriation to not only fund next year's operations, but also to live 
up to the settlement terms of the just-negotiated contracts that ended 
an unprecedented 8 years of negotiations without a strike. On the first 
count, TCU and rail labor support the $1.8 billion for fiscal year 2009 
that the House and Senate Budget Committees provided. On the second, we 
strongly urge the Senate to appropriate an additional $114 million that 
is needed to fulfill the economic terms of the recent contracts.
    It is to that issue that I will devote the balance of my testimony.
    To understand the need for the additional $114 million, it is first 
necessary to understand why negotiations dragged on for 8 long years, 
why a Presidential Emergency Board appointed by President Bush 
overwhelmingly decided on recommendations that were largely consistent 
with labor's proposals, and why the unions agreed to allow Amtrak to 
pursue additional funding to meet its contractual obligations rather 
than striking when the law permitted.
    Negotiations for contracts opened on January 1, 2000. From almost 
the first day, Amtrak stated that no contract was possible without far-
reaching, unprecedented concessions. In the 8 years that followed, 
Amtrak never wavered from that position. While making take-it-or-leave-
it demands that it knew the unions would never voluntarily accept, 
Amtrak also pronounced another departure from traditional bargaining: 
it would never agree to a dime of back pay. Under this strategy, the 
longer negotiations dragged on, the more money Amtrak saved. Amtrak had 
no incentive to compromise to reach a negotiated deal. As months turned 
into years, the ever-growing amount of back pay due itself became an 
obstacle to settlement.
    Under the Railway Labor Act, there is no time limit to 
negotiations. The parties cannot resort to self-help until released by 
the National Mediation Board (NMB). Repeated requests over the years by 
several of the unions for release from mediation were opposed by 
Amtrak, and ignored by the NMB.
    Finally, on October 18, 2007, almost 8 full years since bargaining 
began and in some cases 7 years after the NMB had assigned mediators to 
the disputes, the NMB proffered binding arbitration to the eight unions 
who were then in mediation. (Four unions had elected not to be in 
mediation and they were therefore not subject to the proffer of 
arbitration.) The involved unions were: the Brotherhood of Maintenance 
of Way Employes--Teamsters; the International Brotherhood of Electrical 
Workers; the International Association of Machinists & Aerospace 
Workers; the Brotherhood of Railroad Signalmen; the Joint Council of 
Carmen, comprised of the Transport Workers Union of America and TCU; 
the American Train Dispatchers Association; the National Conference of 
Firemen & Oilers/Service Employees International Union; and two ARASA 
(Supervisors) crafts of TCU.
    After the involved unions all rejected the proffer of arbitration, 
President Bush, on November 28, 2007, created Presidential Emergency 
Board (PEB) 242. Under the Act, the Board had 30 days to investigate 
the dispute and issue non-binding recommendations, after which there 
would be a 30 day cooling off period at the end of which the parties 
would be free to exercise self-help.
    President Bush appointed the following individuals to serve on the 
PEB: as Chairman, Peter Tredick; as Members, Ira Jaffe, Joshua Javits, 
Annette Sandberg, and Helen Witt. Four of the five had previously 
served on other PEB's appointed by President Bush. Chairman Tredick had 
served as Chairman of PEBs 240 and 241, which made recommendations in 
2007 to settle disputes on Metro North Commuter Railroad and several of 
its unions. Joshua Javits and Helen Witt were former Chairmen of the 
National Mediation Board, appointed by President Reagan. Annette 
Sandberg had been an official in the Department of Transportation under 
President Bush.
    The Board held 3 days of hearings in December 2007, at which the 
parties fully presented their positions. All eight unions presented a 
common position to the Board.
    The Board issued its Report to the President on December 30, 2007.
    The Report for the most part recommended the proposals for 
settlement that had been advanced by the unions. It advocated adoption 
of the wage terms of the last two national freight railroad settlements 
to cover the period January 1, 2000 through December 31, 2009. Wages 
would be increased by approximately 28 percent over the 10 year period, 
or about 2.6 percent a year. As in the freight agreements, employee 
health insurance contributions would be retroactively increased from 
zero to $166 a month this year, and $200 a month by the end of the 
agreement. Employees would also have to pay significantly higher copays 
for doctor visits and prescription drugs, and deductibles were also 
increased. Wages would be paid retroactively to the dates the increases 
in the freight contracts were effective, to be offset by retroactive 
health insurance contributions and COLAs already paid. There would be 
no changes in work rules.
    To address Amtrak's argument that Congress had not appropriated 
enough funds to allow them to pay retroactive wages, the Board 
recommended two divergences from the national freight agreements. 
First, it recommended that the back pay component of the settlements be 
paid in two installments: 40 percent at the time of signing, and the 
remaining 60 percent 1 year later. Second, the Board limited back pay 
to employees in service with Amtrak on December 1, 2007, the day the 
Board was established. By doing so, the Board eliminated all employees 
who had retired or died between January 1, 2000 and December 1, 2007 
from receiving any compensation for the work they had performed. The 
Board stated it did this in response to Amtrak's inability to pay 
argument as a way to ``reduce somewhat the cost of the retroactivity 
pay . . .'' (P. 40 of Report of PEB 242).
    Upon issuance of the Board report, negotiations between Amtrak and 
each of the eight unions immediately commenced, and contracts were 
reached with each union on January 18, 2008. The contracts followed 
almost to the letter the recommendations of the PEB. However, there was 
one significant departure. Amtrak insisted that it could not agree to 
the second back pay payment until sufficient funds were appropriated by 
Congress. In order to avoid a strike, which would have been legally 
permissible on January 30, 2008, the unions agreed to a contingency 
provision. Under that provision, the 60 percent second retroactive 
payment would be due 1 year from the first retroactive payment, which 
will occur within 60 days after contract ratification. If Amtrak 
determined that it lacked the money to pay that installment, it would 
notify the unions and, after a 60 day negotiation and cooling off 
period, the unions would be free to strike.
    All of the contracts involving the eight unions before the PEB have 
now been ratified by their memberships. The four unions who also had 
not reached agreements since 2000 but were not before the PEB have also 
reached agreements that mirror the Board's recommendations. Those 
contracts have either been ratified or are in the process of being 
ratified. Three crafts (clerks, on-board service workers, and product 
line supervisors) reached agreements in 2003 for the period January 1, 
2000 through December 31, 2004, but are without agreements for the 
period 2005 through 2009. They are now in negotiations with Amtrak, and 
I am confident agreements will be reached in the immediate future.
    In summary, then, what has been the most difficult and contested 
negotiations in Amtrak's history are finally on the verge of being 
resolved with a fair outcome. Only one outstanding issue remains, and 
that is payment of the second back pay installment. Amtrak estimates 
that it requires an additional specific appropriation of $114 million 
to be able to pay that second back pay installment.
    I am here today on behalf of all of rail labor to urge this 
subcommittee, and Congress as a whole, to bring this bargaining round 
to a fair conclusion by appropriating the $114 million to allow Amtrak 
to fulfill its back pay obligation to its employees.
    As Congress considers this request for appropriation, I believe 
certain facts should be front and center. First, the agreements reached 
with Amtrak are modest in their terms, 2.6 percent a year in wages is 
by no means an extravagant settlement. The $114 million needed for back 
pay covers an 8 year period, which amounts to less than $15 million a 
year.
    Most importantly, the contract is the product of recommendations by 
a well-respected group of neutral experts, none of whom could be 
accused of harboring a pro-labor bias or background. They were guided 
by the evidence before them, and concluded there could be no rationale 
for Amtrak workers to be paid less than their counterparts in the rail 
industry simply because the company they worked for received public 
subsidies. The Board adopted the traditional pattern for Amtrak 
workers--the national freight agreements.\1\ In doing so, the Board 
noted that had it looked at contracts of rail workers that worked for 
other subsidized carriers, namely commuter rail workers, its 
recommendations on wages would have been significantly higher.\2\
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    \1\ ``There is no dispute that . . . the Freight Agreements have 
served over the years as the historical pattern referenced for 
establishment of wages, benefits, and working conditions, at Amtrak.'' 
(P. 14 of Report of PEB 242.)
    \2\ The Board found that if the freight pattern was not used as the 
basis of settlement, ``One would then be compelled to more closely 
examine similarities between Amtrak's operations and those of Commuter 
Rail and Urban Transit in which wages and benefits are significantly 
higher.'' (P. 23 of Report of PEB 242.)
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    As to the prolonged nature of negotiations, the Board found the 
blame lay squarely at Amtrak's door. ``. . . the evidence paints a 
fairly clear picture that places much greater responsibility on Amtrak 
for the failure to ink a deal over the prolonged period since December 
31, 1999, than on the Organizations.'' (P. 37 of Report of PEB 242.)
    In fashioning its recommendations, the Board noted the ``tremendous 
gains in productivity in recent years by the employees represented by 
the Organizations.'' (P. 30 of Report of PEB 242.)
    On the back pay issue, the Board unequivocally wrote, ``We are 
persuaded that, in this case, nothing short of full retroactivity is 
fair and equitable and appropriate to begin to restore to employees the 
lost wages that resulted from their inability to obtain a successor 
agreement over the unprecedented 8 year period that these employees 
have continued to work without a new agreement. Even an award of full 
retroactivity will result in Amtrak having had the benefit of an 
interest-free `loan' of the pay that would have been granted on an 
ongoing basis if the Freight or other applicable pattern had been 
timely incorporated as part of an Agreement.'' (P. 38 of Report of PEB 
242.)
    Because Amtrak could not credibly point to collective bargaining 
settlements in the rail industry, freight or commuter, to justify its 
no back pay position, it relied principally on an argument that it 
simply could not afford to pay retroactive wages without jeopardizing 
its operations.
    Amtrak failed to mention that not once over the course of the 8 
years had it asked Congress to appropriate money to fund an eventual 
settlement, including back pay. In the absence of such a request, I 
submit it was disingenuous for Amtrak to suggest that Congress' failure 
to appropriate such money in advance as evidence of congressional 
intent that Amtrak workers should work for lower wages than comparable 
workers in the rail industry.
    In fact, the PEB cited this very committee as evidence that 
Amtrak's arguments on this score were remiss. On page 11 of their 
Report, the Board wrote that ``the Senate Committee on Appropriations 
recently noted that most of Amtrak's employees have gone more than 7 
years (now eight) without a general wage increase, and that 
consequently many craftsmen have fallen further and further behind 
craftsmen conducting identical work for freight and commuter railroads. 
This report went on to State that `Amtrak's failure to reach a labor 
settlement is not a result of inadequate Federal funding.' ''
    The PEB also referenced your counterpart committee in the House who 
in 2007 reported that ``Amtrak's wages, in many cases, are well below 
market . . .''
    Labor did not rely on those reports to make our economic case to 
the PEB. The facts of the wage comparisons spoke for themselves. But 
the reports did demonstrate that underpayment of Amtrak workers was not 
necessarily congressional intent, as Amtrak tried to suggest.
    But in fashioning what they considered a fair settlement based on 
traditional comparators such as pattern settlements in the industry, 
wages paid for comparable work, and economic trends such as inflation, 
the Board did in effect punt one part, albeit a small part, of the 
settlement to Congress: the second back pay installment.
    In doing so, the Board wrote that its ``role is to find a fair and 
reasonable basis for agreement. We must consider traditional factors 
relevant to the collective bargaining process but cannot tailor those 
recommendations to a prediction of Congressional action. We are 
cognizant of the political and financial constraints facing Amtrak, and 
have recommended adoption of contractual terms that are reflective, in 
part, of those realities. But we agree with PEB 234 (the last Amtrak 
PEB) that Congress should be informed of the `true cost' of Amtrak's 
service. It is then for Congress to determine whether to provide the 
funding necessary for passenger train service.'' (P. 11 of Report of 
PEB 242.)
    Labor believes that it was never Congressional intent to base 
Amtrak's survival on having Amtrak workers endure substandard wages and 
working conditions. Just as Amtrak suppliers, vendors and contractors 
expect to be fully compensated, Amtrak workers deserve to be treated 
fairly, and to not have to discount their labor as the price of keeping 
a national rail passenger service funded.
    Now the decision is squarely in Congress' hands. Appropriating the 
$114 million will bring this round of bargaining to a long overdue 
conclusion. Failure to appropriate will foment another year of labor 
unrest, at the end of which once again Amtrak workers will have to 
contemplate a strike as the only legal means to obtain the settlement 
that the Board recommended and to which Amtrak agreed.
    Amtrak admits that the lion's share of the settlements is payable 
based on current and anticipated funding action--that is, Amtrak is not 
requesting additional funds to pay the wage increases over the 10 year 
life of the agreement, nor the 40 percent of the back pay due payable 
in 2008. The only piece that Amtrak says it requires additional funding 
for is the 60 percent back pay component payable in 2009, which Amtrak 
calculates as $114 million.
    All of labor on Amtrak strongly urges this subcommittee, and 
Congress as a whole, to appropriate that additional $114 million.
    There is one other issue I would like to address before concluding. 
I mentioned before that in an attempt to reduce the amount of back pay 
due, the PEB recommended that employees who retired and the estates of 
employees who died between January 1, 2000 and December 1, 2007 would 
not be eligible for any back pay. All of the unions vigorously 
disagreed with this recommendation, but Amtrak would not agree to 
ignore it without funding to pay for it. Amtrak estimates the cost of 
funding the back pay for retired and deceased employees as between $13 
and $14 million. We do not have the data necessary to verify those 
figures, so for purposes of this discussion I will rely on them as 
accurate.
    We believe that it is extremely unfair that these employees who 
contributed so much to Amtrak's success be arbitrarily excluded from 
any consideration for the time they worked during the 7 year period. 
Amtrak didn't even propose this as a resolution. The Board came up with 
it out of thin air, arbitrarily picking the date of its appointment as 
the cut-off date for back pay. Its only stated reason was to reduce 
costs. Many of the affected workers had been there from Amtrak's 
creation. Excluding them is both inequitable and bad public policy. As 
a result of this action, their railroad retirement annuities were 
permanently reduced. We don't believe that Congress ever intended that 
retirees be treated in such a manner. For an additional $13 to $14 
million, this unfair situation could be rectified. We urge Congress to 
give it serious consideration.
    In conclusion, it is time to move beyond the bitter labor relations 
of the past 8 years. That will be impossible until the issue of funding 
the second back pay installment is resolved, since a lack of resolution 
will throw the parties back into impasse and a possible strike. We 
believe that it was never congressional intent to embark on such a 
course, and past Amtrak management used it as a smokescreen to justify 
their confrontational agenda.
    But we believe that there are valid reasons for optimism going 
forward. Amtrak President Alex Kummant has said he wants to establish a 
new partnership with Amtrak workers and their unions. He was not there 
when Amtrak's bargaining strategy was devised. Nor were most of the 
current Board of Directors. Amtrak unions wholeheartedly seek a 
cooperative relationship with Mr. Kummant and his management team. We 
want to work together to strive for the best possible service to the 
riding public and the expansion of service to new areas and along 
existing routes so that Amtrak fulfills its promise as a major 
transportation alternative. Working together, we can accomplish so much 
for the public good.
    It is time to embark on that positive journey, and to put the 
strains of the past behind us. That must begin with fulfillment of the 
contractual terms just agreed to, which includes the second back pay 
installment. I urge Congress to appropriate the necessary $114 million 
to finally bring this round to a fair and equitable conclusion. Thank 
you.

    Senator Murray. Thank you very much, and all of the 
testimony will be included as part of the record.
    Mr. Parker. Thank you.
    Senator Murray. The President's budget cuts direct 
subsidies to Amtrak by about 40 percent, and when you look at 
the direct subsidies for Amtrak's operating losses and required 
debt service payments, the cut proposed by the administration 
for fiscal year 2009 is 64 percent.
    Mr. Tornquist, let me start with you. Your office has been 
reviewing Amtrak's books every quarter for some time now. Do 
you believe there is any way possible for Amtrak to avoid 
bankruptcy if they absorb a 64 percent cut at this time?
    Mr. Tornquist. No, we don't see a way forward with that 
level of reduction that would avoid bankruptcy.
    Senator Murray. Mr. Kummant?
    Mr. Kummant. Excuse me. It would take just a complete 
radical reconfiguration of what's there. It would not resemble 
what's here today.
    Senator Murray. Ms. McLean?
    Ms. McLean. I agree with what Mr. Kummant said, that it 
would be very difficult.
    Senator Murray. Mr. Boardman?
    Mr. Boardman. I wondered if I would be last.
    Senator Murray. You are.
    Mr. Boardman. I think $900 million is the number that has 
probably been dealt with here since 2004. The years 2004, 2005, 
and 2006 were zero years, it was $360 million at that time. It 
was $900 million in 2007 and $900 million in 2008, and when you 
look at that number, what you find is that on all the requests 
of all administrations back as far as I could look is the 
highest number that's been requested, and you ask yourself how 
do you deal with a trap that you continue to seem to be in here 
between what is asked for, what is appropriated, what is spent, 
and I think it partly has to do with the fact that there is no 
request of the administration from Amtrak in the budget 
process.
    They aren't part of the budget process, we never receive 
anything from them, and so you wind up with a number that goes 
in and if you look over the years, those numbers sometimes have 
been more realistic than other times, but what Amtrak has 
instead is a legislative and grant request which I see as a 
board member right before it comes here as a request for----
    Senator Murray. Well, you are on the Amtrak Board?
    Mr. Boardman. Yes.
    Senator Murray. You know what their expenses are,----
    Mr. Boardman. Yes.
    Senator Murray [continuing]. Their operating expenses are?
    Mr. Boardman. Yes.
    Senator Murray. You sent the request to us?
    Mr. Boardman. Yes, we sent the request to you. We do our 
budget in the July beforehand. We provide and lock down the 
budget by the end of the year and by that point in time, we 
have not yet had an estimate from Amtrak. Doesn't mean I don't 
have reality of understanding what the number is.
    Senator Murray. Well, in that reality, hearing what you 
just heard, do you think the budget request, 64 percent cut, is 
going to----
    Mr. Boardman. I don't know what the percentage is, Senator. 
I trust your----
    Senator Murray. Okay.
    Mr. Boardman [continuing]. Your numbers.
    Senator Murray. Sixty-four is----
    Mr. Boardman. The $900 million that we propose----
    Senator Murray. The question is do you realistically 
believe that the budget request you sent in your position and 
in your capacity as a Board Member will allow Amtrak to 
continue without going bankrupt?
    Mr. Boardman. Not in the system that they currently 
operate.
    Senator Murray. And what miracle will occur in the next 6 
months to have that change?
    Mr. Boardman. Well, there's no miracle. I'm not talking 
about any miracle, but there are hard business decisions that 
could be made that would reduce the need for that Federal 
assistance substantially.
    If you look at the fare box going back to 1995, they 
covered approximately----
    Senator Murray. As a Board Member, have you proposed those 
changes?
    Mr. Boardman. Yes.
    Senator Murray. And the Board has said?
    Mr. Boardman. The Board itself has had those discussions. 
Management has had those discussions. We have not had action on 
those changes.
    Senator Murray. Well, can you describe for us what those 
detailed changes are?
    Mr. Boardman. One of the changes could be that New York 
could start paying for the services that are provided and it 
was a fairly fun discussion that we had at the time since I'm 
the former New York Commissioner and they said to me and 
management said to me and the Board, well, you could have paid 
us then.
    Senator Murray. Okay. So, first of all, New York sends us a 
big check. Then what?
    Mr. Boardman. Well, I think that's part of it. I think it's 
a lot of different things that would need to happen and change 
for the future, and I think the administration has said from 
the beginning, if it sees those changes, it sees those reforms 
then we can talk about what additional incentives could be 
provided to Amtrak for the future.
    Senator Murray. Mr. Kummant, do you want to comment on 
that?
    Mr. Kummant. The reality is that Mr. Boardman and I are not 
really that far off. In fact, this feels a little bit like a 
board meeting with Mr. Tornquist who sits in on all of ours and 
Donna McLean as well.
    But if you look, it's really a question of timing. I think 
there are a lot of things we agree on. In fact, one of the 
first things I did when I arrived was to reconfigure our 
organization to be able to go and gauge the State DOTs more 
effectively. It was one of the strategic reform initiatives to 
recoup more overhead and equipment money from the States and 
that, as you all know, is easier said than done given the state 
of the State budgets as well.
    But we are in very active discussions and strategic 
planning with States everywhere to say how can we reconfigure, 
make this far more transparent.
    To your question, will that happen in the next 6 months, 
no.
    Another example we're very much together on is working very 
hard on our mechanical operations. That's a $500 million 
operation. It needs to be modernized. We're doing that. We 
also--we have choices to also even attract outside business in 
order to leverage those assets more effectively. Again that 
will all take time.
    Senator Murray. Well, let me jump to one other question 
before I turn it over to Senator Bond.
    Ms. McLean, I want to ask you. The budget submission by 
your board of directors is really confusing. It acknowledges 
the requirement to pay an additional $114 million for the 
second installment on back pay, but it doesn't actually request 
the funding of this committee.
    Mr. Tornquist has testified that if Amtrak receives the 
current year's level of operating support again in 2009, then 
the railroad can be expected to have sufficient cash on hand to 
make the $114 million payment without an explicit appropriation 
from our committee.
    What is the formal position of the Amtrak Board on this?
    Ms. McLean. If I can step back for one second on our 
request for our operating, we've got a $50 million increase and 
what it represents is we have agreed that we can absorb the 
$127 million in 2009 for additional wage increases as a result 
of the PEB.
    We are saying we're going to absorb the anticipated 
increase in fuel costs, deal costs, et cetera, et cetera, but 
what hit us unexpected was a $50 million increase in our health 
benefits, our estimated costs for health benefits. We could not 
absorb that, so that's most of our request for an increase in 
operations in 2009.
    Then on top of that, you've got the PEB back pay. We went 
into the PEB negotiations offering as much as we could afford, 
which stopped short of the 100 percent back pay. After 
accepting the PEB, the PEB's recommendation is based on 
historic patterns. They looked to what happened in the past. 
That was their recommendation. We accepted it, but we also 
looked to the past and in previous negotiations where there had 
been additional requests and the PEB stated this in their 
recommendation, it's the decision of Congress on meeting those 
requirements.
    So, our request does not include the $114 million. It is 
the decision of Congress on whether or not that's going to be 
funded. We have worked with your staff on other ideas, some 
alternative funding. The efficiency grants is something that 
was brought up. That's not something we can do, but it's 
something that can be changed in law and offset that $114 
million.
    We have come to the table paying and offering that within 
our budget request, we are able to afford 81 percent of this 
PEB, but the $114 million is dependent on Congress and the 
ratification clearly states that if Congress gives us the 
money, then we will be paying that 100 percent back pay.
    Senator Bond. Thank you very much, Madam Chair. As the 
Inspector General pointed out, there's a great big black hole 
in the presentation of Amtrak that I didn't hear either the 
Chair or the Chief Executive Officer address.
    Mr. Tornquist noted the commitment to savings. I believe in 
2005, the goal was set for $500 million savings. Well, the next 
year they got 61.3 in operating reforms, 52.8 in 2007, 40.3 in 
2008 planned, and then it's disappeared. The funding requests 
go up, the operational reforms disappear.
    What happened to them? Where are the operating reforms?
    Mr. Kummant. Well, I'll start. First, I'm not entirely sure 
what the genesis of that figure is. All of our internal numbers 
are based on an additional $40 million in savings, so that 
continues. The food reforms continue. We continue to 
reconfigure the mechanical operations. We continue having fuel 
savings work.
    As I alluded to, the State partnership work is very 
difficult and is a very heavy lift. We have a whole group of 
people working on that. So, the operating reforms certainly are 
continuing, sir.
    Senator Bond. There were no work rules changes. Are you 
considering those?
    Mr. Kummant. We're considering every day to make the 
operation more efficient, but as you well know, we are 
constrained in what we can do on work rules, given the PEB.
    Senator Bond. And there were no--the Emergency Board 
completely--did they completely ignore the work rule changes?
    Mr. Kummant. Well, in terms of any forward deal, we are 
going to continue to pursue the rights that we do have, but 
there are no reforms contractually agreed to.
    Senator Bond. Mr. Tornquist, you said there are no savings 
from operating reforms in 2009. Do you have a different view of 
the budget from Mr. Kummant?
    Mr. Tornquist. I think it's a question of definitions. The 
$40 million that I think Alex is referring to is the fiscal 
year 2008 reforms and to their credit, Amtrak in the previous 3 
years has had significant reforms. Our definition of reforms is 
a change in business practices that is recurring into the 
future, so that we are lowering their ongoing core operating 
costs.
    So, there have been significant reforms. There are no new 
reforms in that area in the 2009 request as it was presented to 
us.
    Senator Bond. Do you have suggested reforms that you would 
offer to them?
    Mr. Tornquist. I think they have reforms that are on the 
table in terms of their long distance service. I think they 
have reforms that they have proposed in the past regarding 
State payments, and I would encourage them to look in those 
areas.
    Senator Bond. Mr. Boardman, do you know of any instances 
where the DOT has denied funding to Amtrak because Amtrak's 
grant request would not be the most efficient use of Federal 
funds?
    Mr. Boardman. No. When we looked at the efficiency 
requirements itself, we made sure that the kinds of things that 
Amtrak was talking about would provide efficiencies.
    Senator Bond. You voted against Amtrak's grant legislative 
request for 2009 and the basis for that vote?
    Mr. Boardman. So that the chairwoman wouldn't ask me why we 
submitted $900 million and voted for $1.6 billion --what is it? 
I'm just kidding.
    Senator Bond. Just wanted to get that on the record. It was 
rather obvious.
    Mr. Boardman. Yes, sir.
    Senator Bond. Are you concerned there are no operating 
reforms proposed? What do you see for operating reforms in----
    Mr. Boardman. Well, I think that operating the train 
reforms, there are some things that are going on that I see as 
a Board Member. I think there's been a strong effort to reduce 
the amount of debt, and I think that has been important in this 
process and that Amtrak, as you know, was in trouble with that 
debt, and when you look back again at this whole history of the 
appropriation levels, it was when they got in debt back in 2000 
and 2001, when the really big debt came along, it was because 
appropriation levels partly were much, much lower, $520 million 
on 1 year and $726 million on the next, which was substantially 
lower than they had been, and you look at the consistency of 
the revenues, you look all the way along the process, they also 
began to drop between 2002 and 2004 on their revenues for 
ancillary business about 8 percentage points.
    I guess what I'm trying to look at here is I've been trying 
to look at the whole consistency of how you fund Amtrak and I 
think that they are making changes, whether it's in the 
mechanical side of things or whether it's in the back shop 
where they're really changing today, E-ticketing, for example, 
and some of the things, business practices, that have come 
about and they've gotten a focus on.
    As we measure those, I think you're going to see 
improvements, but how you adjust in the middle of the changes 
that Alex talked about with fuel costs and other costs that are 
going up has been particularly difficult.
    Senator Bond. Let me just have one last question for you, 
Mr. Boardman and for Mr. Kummant and Ms. McLean.
    In 2006 and 2007 a total of about $66 million was 
appropriated for efficiency grants. I understand that Amtrak 
has only sent in $15 million in receipts, leaving about $47.5 
million remaining.
    What's going on with the efficiency grants? Would Amtrak 
like to use these funds in part for labor settlement? I'd also 
like to know Mr. Boardman's position on use of those funds for 
that purpose. So, let me ask Amtrak first on the efficiency 
grants.
    Ms. McLean. We are not opposed to using it, but like I 
stated before, it's not something that we can do. It has to be 
legislatively changed. We would have used those funds for a 
variety of activities and which Alex can probably go through. 
That's obviously a lost opportunity but, you know, we have 
immediate needs as well.
    Mr. Kummant. A key point to be made, though, on how the 
efficiency grant functioned and why those funds don't disappear 
quickly is we have to spend the money first and then we're 
reimbursed. So, we don't have enormous other reserves to draw 
on. It's not like we have a lot of excess cash to go work 
projects and then come to the FRA for reimbursement, but there 
are projects identified, such as really modernizing our 
dispatch system and consolidating other backroom functions, but 
it's a slow process, given the mechanism that we have to fund 
it ourselves first, and we're all here today because we're not 
a cash-rich organization.
    Senator Bond. Mr. Boardman.
    Mr. Boardman. We've obligated the funds. They would have to 
be deobligated. We would look at the expenses that Amtrak has 
already incurred on them, but I think Alex said it the right 
way and that is, that these are things that still need to be 
done.
    Senator Bond. Thank you, ladies and gentlemen. Thank you.
    Senator Murray. Thank you. I just have a few more 
questions. I wanted to go back to the PEB recommendations right 
now because Amtrak is signing those contracts right now, and as 
I understand it, if Amtrak does not make the $114 million 
payment for back pay next year, then Amtrak's unions are free 
to strike 60 days after the decision is made.
    Under those new contracts, who decides if Amtrak has the 
resources to make the payment or not?
    Mr. Kummant. It's the sole discretion of the Board.
    Senator Murray. So that's strictly your decision?
    Mr. Kummant. I'm a non-voting member of the Board. I 
actually should perhaps look at Donna and Joe, but it's the 
sole discretion of the Board to look at our cash balance and 
make the decision whether or not we can manage that.
    Senator Murray. Is that correct, Ms. McLean?
    Ms. McLean. Yes, that's how I understand it.
    Senator Murray. Mr. Parker, would you like to comment on 
that?
    Mr. Parker. That is correct. In the negotiations, we 
decided we didn't want to get hung up on whether this amount of 
money was appropriated or not. Obviously revenue is either 
sufficient or not. They can do it without. So, the issue to us 
was payment, period.
    Senator Murray. Let me move on to another happy topic, on-
time performance. When we had the hearing last year, we spent a 
lot of time talking about the very poor on-time performance of 
Amtrak trains outside of the Northeast corridor, and when you 
look at Amtrak's most recent data, things have improved 
slightly but certain trains, including those that are 
subsidized by the States, still have a pathetically poor record 
of getting to their destinations on time.
    Amtrak services in Indiana are on time less than a quarter 
of the time. I'm afraid the record is worse when it comes to 
State-supported services in Senator Bond's State, for example. 
Certain services, like Vermont are not doing well. In fact, it 
is much worse than last year. In Amtrak's long distance 
network, more than 40 percent of the trains do not arrive 
within a half hour of scheduled arrival time and a lot of them 
arrive later than that.
    Mr. Boardman, actually you testified last year that 
improving on-time performance was one of your top priorities. 
Can you tell us what you've done in the past year to work on 
that?
    Mr. Boardman. I think what we've mostly done is work with 
Amtrak. We think Amtrak's done a good job, for example, with 
CSX and the Auto Train and some of the other improvements that 
are out there.
    I think that David Tornquist, in the study that they did, 
did point out some of the real difficulties here, the capacity 
issues. I think that by proposing last year and starting to 
fund the grants programs with the State, the idea was that we 
could get some passing sidings and we could make some 
improvements in the longer term.
    We have included in our annual review of every one of the 
railroads now a document that begins to measure for us what the 
on-time performance is on that particular segment that would be 
on that railroad, regardless of what the railroad itself has as 
capacity problems and we've set up--in a couple of weeks from 
now, the Secretary will meet with the chief executive officers 
of all the freight railroads and the Amtrak Board and one of 
the subjects or topics will be on-time performance. So, we're 
trying to make sure we're raising that to a level of 
importance.
    Senator Murray. You probably know that I included a 
provision in the 2008 appropriations bill requiring some 
quarterly reports from you on on-time performance. The first 
one was due in January 1. The second one was due in April 1. We 
have not seen either one of those.
    Can you tell me what you're doing to meet those statutory 
requirements?
    Mr. Boardman. You will get it right away because I thought 
that we had some time yet.
    Senator Murray. Okay. One was due January 1, another is 
due. When can we expect that?
    Mr. Boardman. Right away. I will get staff. If you need a 
date on it, it will be done by the end of this month.
    Senator Murray. Right away, like in on-time performance 
right away or right away like in right away?
    Mr. Boardman. Yes, ma'am. I deserved that.
    Senator Murray. Thank you. One more question and then I'll 
turn it over to Senator Lautenberg.
    Mr. Tornquist, your agency has been doing an audit of this 
on-time performance and its causes. The law that established 
Amtrak granted passenger trains priority over other traffic 
when operating on track owned by freight railroads. That 
priority was part of the deal in exchange for the Federal 
Government taking passenger trains off the books of the freight 
railroads that used to run them.
    Have you found that there's any consistency among the major 
freight railroads on what they consider to be their obligations 
under this provision of the law?
    Mr. Tornquist. That actually has been one of the 
difficulties in determining the exact cause of the delays that 
Amtrak trains experience. There's both a lack of agreement 
between Amtrak and the freights in regarding the freights' 
obligations under the preference requirements. The freights as 
a whole place a different emphasis on on-time performance of 
Amtrak trains within their own operations.
    So, Amtrak has a very black and white definition of 
preference which is that their trains should run unimpeded 
along the host railroad tracks. The freights did not give us a 
legal definition of their preference obligations. By their 
practices, they are in fact defining Amtrak's preference rights 
since they control the dispatching. They view their dispatching 
responsibilities, as they describe it to us, more in terms of 
giving Amtrak priority while maintaining the flow of traffic 
across their networks.
    Senator Murray. Okay. I have a number of other questions 
that I will submit for the record.
    Senator Lautenberg, who's been a major player in this area, 
I know as well, has some concerns, has a comment. I will give 
you your time to ask questions.
    Senator Lautenberg. Thank you very much, Madam Chairman, 
for holding this hearing.
    With gas prices as they are, greater delays at the 
airports, the train is becoming ever more popular, and I can 
attest to it directly. Coming down on Amtrak last night from 
Newark, the place was busy and so it's been, I'm told by the 
people who work in Newark Penn Station that, they're continuing 
to see ever-larger crowds, and people seem to be content to 
take a little bit longer, or in reality maybe some time less.
    Effectively once you look at the delays getting into the 
airport, the distance from city-centers and so forth, the train 
is the way to go. I've even seen an improvement in the quality 
of the food. So, I wanted to tell you things are picking up at 
Amtrak and over 26 million people having taken the train in the 
last year and again literally clamoring for more space and for 
more opportunity for improving schedules and service.
    So, I thank you, Madam Chairman, and I wanted to just get a 
couple of questions in place here, and I ask for Mr. Tornquist. 
The recent audit that you completed at my request estimates 
that in fiscal 2006, late trains cost Amtrak $137 million or 
about 30 percent of its Federal operating subsidy.
    How can Amtrak recover some of these costs, especially when 
most of these delays are caused by private freight rail 
companies?
    Mr. Tornquist. That's a very good question. The $137 
million was tied to an on-time performance off the NEC of 85 
percent which is an ambitious target. We would view it would 
require a combination of effort, both clarifying Amtrak's 
preference and the enforcement of those rights. S. 294 includes 
provisions in those areas.
    But we also think it has to be a collaborative effort 
between Amtrak, the freights and the administration, that 
simply standing over the freights' shoulders as they dispatch 
trains is not a very good or efficient way of ensuring that the 
desired result will be achieved.
    We look to the State capital grant program that Mr. 
Boardman has referred to as a way of bringing some capital into 
the problem. In addition, a portion of the $137 million that 
could be derived by improving Amtrak's on-time performance 
could possibly be used to further incentivize the host 
railroads to improve their dispatching of Amtrak trains.
    Senator Lautenberg. Have the incentive opportunities moved 
the freights along at all, Mr. Boardman, do you think?
    Mr. Boardman. We have--in the $30 million, we do have 3 
applications and 13 States that have serious interest in it and 
yes, we think that it does help with the freights because in 
some cases, the freights are talking about providing that local 
share, so they can make improvements in the railroad.
    Senator Lautenberg. Is there--how else might we enforce the 
development of the relationship between the two? I mean, in 
law, it says that the freights are to give consideration, the 
preference to the rail service.
    Can you think of what else we might do to make this a 
reality?
    Mr. Boardman. Well, I think--I was instructed or, I mean, 
it was instructed to me to read David's report and his 
testimony and the different definitions that there are out 
there for what a railroad or what their dispatchers, what their 
operators really think the obligation is, along with listening 
to management at some of the board meetings at Amtrak, which I 
think has taken a pretty aggressive approach in dealing with 
the freight railroads, especially the ones that really aren't 
coming up to the plate on these kinds of things.
    I answered the question earlier and got myself in hot water 
because I should have written it as a quarterly report, but we 
have had regular meetings now with the freight railroads where 
we're identifying for them and beginning to measure their on-
time performance in our safety review. The Secretary will be 
meeting with the CEOs and the Amtrak Board this month, on the 
16th of this month, together as a group for the first time and 
one of the key elements of the discussion will be on-time 
performance.
    So, we're going to try to get to the bottom of what the 
definition is, what the expectation is, and we think that's the 
way to go, both in terms of talking to them, having Amtrak be 
more aggressive about it and continuing to measure that 
performance.
    Senator Lautenberg. Mr. Kummant, do you want to tell us 
what Amtrak is doing for their share of the problem?
    Mr. Kummant. We have some good examples. I think we've done 
very well with CSX on the Auto Train, for example, and when 
they have serious maintenance issues, we need to be flexible in 
schedules.
    I do think that going forward to have the opportunity to 
offer them capital for siding extensions or sidings to work 
with them. Some of the best examples are with strong State 
DOTs. If you look at BNSF's relationship on the west coast, 
there's a lot of capital that flows into their systems. That's 
related to passenger rail. That helps clear bottlenecks. So, 
there are capital solutions.
    Other than that, I do think visibility is important. I 
mean, it's clear that the political environment is 
significantly different, but just to scope the magnitude, only 
four times really since the founding of the company has the OTP 
been over 75 percent and that was as far back as 1985 and if we 
recall, in this period of time, freight volume on the railroad 
has doubled while mainline track capacity has probably dropped 
by 30 or 40 percent.
    So, it's a tough problem and in the end, yes, I do think 
working on dispatching is maybe 5 or 10 points, but in the end, 
it's about capital and it's about the way the States, the 
freights and Amtrak come together as a coalition to solve each 
individual problem. They're all different. That's what makes it 
hard. Every single challenge is different on every different 
corridor.
    Mr. Boardman. Can I add to that? One of the other things 
that's been a particular difficulty for us is to figure out how 
to manage the slow order difficulties that are out there, that 
a freight is just fine with the slow order because of their 
demand for their particular service, but it's not an acceptable 
deal for the passenger railroad because it really does hang 
them up and slow them down.
    So, we're trying to figure out how do we get the freights 
to pay attention to that issue and move slow orders and take 
care of things quicker.
    Senator Lautenberg. Well, we have a bill that's passed 
through the Senate, as you know, that will provide more capital 
and perhaps can help us deal with this particular problem. It's 
an important thing. We want freight to continue to be able to 
have the capacity that they need, but we also have to make sure 
that we encourage people to use the rail system and one way to 
do it is to make it more reliable and the appetite is there. We 
should try to fill it.
    I want to ask Ms. McLean. Amtrak has now been given a $114 
million for the resolution of the retroactive employee pay. 
Does Amtrak have the $114 million or will it have now or next 
year?
    Ms. McLean. The $114 million is the back pay dollar amount 
for fiscal year 2009. That is not something that we can absorb 
and one thing that was brought up earlier in the hearing was 
whether or not our cash balance would at the end of the year, 
which we tend to have $200 million to a $180 million at the end 
of the fiscal year, could that--could we just pick that up and 
pay for the $114 million?
    Well, that's what the IG David Tornquist is saying we could 
do. Our experience at Amtrak is that we need a cash balance 
around a $180 million because as our funds come in slowly at 
the beginning of the fiscal year, you know, we need a cash 
balance to be able to run our business, be able to pay your 
basic requirements, and if we run down into about a $100 
million, which we did in fact last year with the continuing 
resolution situation, we get in a position where we are going 
to have to start, you know, calling our company bankrupt, quite 
honestly, because we cannot operate on a cash flow of nothing.
    We have--we basically lose $40 million a month and that's 
just, you know, the facts. So, we can't take our cash balance 
and just pay for the $114 million out of that.
    Senator Lautenberg. Mr. Tornquist, should they have--Amtrak 
have that money available?
    Mr. Tornquist. The point that we were making in our 
testimony is that when looking at how to pay all of Amtrak's 
bills, we think it's important to look at all the resources 
that are available to Amtrak, and the cash balance that Amtrak 
expects to have on hand at the end of fiscal year 2008 is a 
resource that they have available.
    We understand the concerns about cash flow that Amtrak has 
expressed. I think Chairman Murray and Mr. Kummant both have 
talked about how we're dealing with forecasts and we need to 
keep an eye on how the economy is doing and how the 
expenditures are doing. But based on the information we have 
right now, there is almost $270 million that will be on hand at 
the end of the year. Amtrak has expressed a need to have $150 
million on hand at the time. I recognize the cash flow issues 
are tied to when they'll get their appropriation in the next 
fiscal year, but there are ways to address that problem in the 
CR. However, it is a resource that we think just needs to be 
considered in calculating their ultimate appropriation needs.
    Senator Lautenberg. Madam Chairman, you've been patient. 
May I ask one more question? One or two short ones?
    Mr. Kummant, as we look at stimulus packages, opportunities 
I'll call them, are there any capital projects in which Amtrak 
could begin in let's say a 90-day period, if you had additional 
funds?
    Mr. Kummant. I think we could, we certainly could find work 
on the Northeast corridor. The problem and the reason I need to 
be hesitant and there's probably some people behind me grinding 
their teeth, depending on how I answer it, is, I mean, material 
is tight. With commodity markets, I mean that's difficult.
    I can think of all kinds of expenditures, if you broaden 
the 90 days to, you know, 6 or 9 months. The 90-day provision 
is a tough one, but, I mean, I'm sure we could find a few 
things, but material availability is difficult outside of our 
core planned efforts that we have today.
    I might just--I have to turn around and look and see if 
there's a nod. I mean, we certainly have a backlog of projects, 
but again we have to review what we can do on material.
    Senator Lautenberg. Thanks very much, Madam Chairman. I 
appreciate the courtesy.
    Senator Murray. Thank you very much, and before I recess, I 
just want to ask Mr. Kummant. In terms of on-time performance, 
I noticed that one of the biggest problems is in my own 
backyard with the Empire Builder going from 80 percent 
performance to less than 45.
    Do you know what is going on in that case?
    Mr. Kummant. Yes. That was--we had a lot of weather, a lot 
of slides. I think that was very much a seasonal issue over the 
winter. Generally, Empire Builder does well and BNSF does well 
with the Empire Builder. That's--obviously we're concerned 
about that, but that should be improving.
    Senator Murray. So that was mostly due to the snow that we 
had?
    Mr. Kummant. Yes. We had a very difficult winter in your 
backyard.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. At this time I would like to remind the 
members that we will leave the record open for additional 
questions they have for the second panel.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
                  Questions Submitted to Alex Kummant
              Questions Submitted by Senator Patty Murray
                        state supported services
    Question. Mr. Kummant, in your testimony and budget submission, you 
stated that additional States are interested in expanding Amtrak's 
services with State subsidies.
    At the same time, we have heard that new costs associated with the 
labor agreement will have to be covered by States that support Amtrak 
services, and that some of these States may not be in a position to 
cover those costs.
    What should we expect to see in the coming years as far as the 
expansion or contraction of State supported Amtrak trains?
    Answer. Amtrak is currently working with more than two dozen States 
on proposals for new or increased State-supported intercity rail 
services. However, due to a lack of available passenger rail equipment 
and Federal matching capital funds for intercity rail investments, near 
term expansion will be limited. As evidence for the need of such a 
program, 22 States have applied to the Federal Railroad Administration 
for a portion of the $30 million in Federal matching grant funds that 
Congress appropriated this year. The Amtrak reauthorization legislation 
approved by both houses of Congress would at least in part address this 
need by creating a multi-year Federal matching capital grant program 
for intercity passenger rail development, modeled on the Federal 
programs that provide funding to States for other transportation modes. 
We believe that enactment of a Federal capital matching grant program 
would allow States and Amtrak to bring many of the proposals mentioned 
above to fruition, and would encourage additional initiatives to expand 
Amtrak service.
    Question. Do you foresee any States dropping rail service because 
of their inability to pay their portion of the cost?
    Answer. While many States are seeking to start or expand existing 
intercity passenger rail services, increased operating expenses 
associated with higher labor rates resulting from the recent settlement 
and increased fuel costs (which for many routes have been largely 
offset by higher demand) have negatively impacted some routes. Coupled 
with lower than expected tax revenue several States may be forced to 
consider reducing or eliminating service over existing State-supported 
routes. Amtrak is working closely with each of these States to seek new 
efficiencies and/or increase passenger revenue through fare adjustments 
or service improvements. We remain confident that these actions and 
continued strong demand will avoid service cuts. However, a reduction 
or elimination of service remains a possibility in at least four and 
perhaps more States.
    Question. What communities do you think are poised to expand to 
rail service even at these increased costs?
    Answer. Despite higher operating, costs strong demand driven by the 
safety, affordability, comfort and convenience of rail travel has 
driven many communities to seek new or expanded service. Major routes 
where equipment has been identified and service expansion is currently 
underway or in advanced planning phase include the Downeaster Service 
(expansion to Brunswick, Maine), Cascades Service (additional service 
between Bellingham, Washington and Vancouver, British Columbia) and the 
Piedmont service (additional service between Raleigh, North Carolina 
and Charlotte, North Carolina). In addition, routes where planning 
efforts are underway and near term expansion (2 to 3 years) is possible 
include the Northeast Regional Service (between Washington, DC and 
Lynchburg, Virginia and between Washington, DC and Richmond, Virginia); 
addition of an eighth daily roundtrip of the Hiawatha service operating 
between Chicago and Milwaukee; new service between Chicago and the Quad 
Cities; and new service on the Chicago-Rockford-Dubuque route. However, 
Amtrak's inventory of available equipment is nearly depleted and 
therefore not all of these routes will be implemented in the near term. 
Amtrak is working with our State partners to standardize equipment 
templates in an effort to reduce the cost and lead time necessary to 
secure new equipment in the event that Federal capital matching funds 
are made available.
                         health insurance costs
    Question. Mr. Kummant, in your grant request for next year, you 
state that you expect a very large increase in expenditures for health 
insurance. However, health insurance is one area where the expenditures 
for the current year to date are below your projections.
    What is the realistic outlook for your health insurance costs next 
year?
    Answer. The grant request for next year projected a large increase 
in employee benefit costs that included taxes and pension costs as well 
as insurance. Health insurance costs are not expected to grow 
significantly over the current year's forecast as a result of favorable 
lower claims experience. Taxes will increase due to higher wages paid 
and higher tax ceilings. Pension costs are expected to rise as our 
workforce ages. The combined increase is about $20 million less than 
what was projected in the grant request.
                                  debt
    Question. When it comes to Amtrak's appropriations request for debt 
service payments, there is a dramatic difference between the level 
sought by the Amtrak Board and the level recommended by the Inspector 
General. Ms. McLean, the Board is recommending that we increase your 
appropriations for debt service payments by $60 million next year in 
order to allow you to buy down some of your outstanding debt. Mr. 
Tornquist, the IG is actually recommending that we cut debt service 
payments by $19 million next year.
    Could each of you explain the rationale behind your recommendation?
    Answer. The current budget proposal before the Amtrak Board of 
Directors is $264 million in order to satisfy all required debt service 
payments. This is lower than fiscal year 2008 due to the repayment of 
the RRIF loan. The additional $60 million requested was proposed in 
order to buy down approximately $120 million of debt at a discount.
                        defective concrete ties
    Question. Mr. Kummant, Amtrak owns much of the Northeast Corridor. 
I was disturbed to learn that Amtrak has repeated a past problem of 
purchasing defective concrete ties for the Northeast Corridor. Your 
grant request for 2009 points out that the vendor is covering only the 
cost of the new ties, but that Amtrak has to bear the cost of 
installing those new ties.
    Why isn't the vendor covering the entire cost of replacing its 
defective ties? How much is this problem likely to cost the corporation 
this year and in the years going forward?
    Answer. Amtrak's purchase of the defective ties is subject to a 
contract which generally governs Amtrak's rights and remedies. Amtrak 
is currently reviewing available options to recover as much as possible 
for the defective concrete ties. At the present time the vendor, ROCLA, 
is supplying the necessary new ties to Amtrak at cost, but Amtrak has 
not waived any of its rights with respect to the defective ties.
    We have spent $37.4 million in fiscal year 2008 and have budgeted 
$38.0 million in fiscal year 2009 for concrete tie mitigation. Our 
present estimates anticipate a cost of $150 to $200 million over the 
next 5 to 6 years to complete the replacement of the defective concrete 
ties.

                         CONCLUSION OF HEARINGS

    Senator Murray. Thank you very much. With that, we will 
conclude this hearing and this subcommittee is in recess until 
Thursday, April 10, when we will take the testimony in the 
housing crisis with the Federal Housing Commissioner and 
outside witnesses.
    [Whereupon, at 11:40 a.m., Thursday, April 3, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]
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