[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
SITTING ON OUR ASSETS:
REHABILITATING AND IMPROVING OUR
NATION'S RAIL INFRASTRUCTURE
=======================================================================
(112-7)
HEARING
BEFORE THE
SUBCOMMITTEE ON
RAILROADS, PIPELINES, AND
HAZARDOUS MATERIALS
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
FEBRUARY 17, 2011
__________
Printed for the use of the
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JOHN L. MICA, Florida, Chairman
DON YOUNG, Alaska NICK J. RAHALL II, West Virginia
THOMAS E. PETRI, Wisconsin PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee ELEANOR HOLMES NORTON, District of
FRANK A. LoBIONDO, New Jersey Columbia
GARY G. MILLER, California JERROLD NADLER, New York
TIMOTHY V. JOHNSON, Illinois CORRINE BROWN, Florida
SAM GRAVES, Missouri BOB FILNER, California
BILL SHUSTER, Pennsylvania EDDIE BERNICE JOHNSON, Texas
SHELLEY MOORE CAPITO, West Virginia ELIJAH E. CUMMINGS, Maryland
JEAN SCHMIDT, Ohio LEONARD L. BOSWELL, Iowa
CANDICE S. MILLER, Michigan TIM HOLDEN, Pennsylvania
DUNCAN HUNTER, California RICK LARSEN, Washington
TOM REED, New York MICHAEL E. CAPUANO, Massachusetts
ANDY HARRIS, Maryland TIMOTHY H. BISHOP, New York
ERIC A. ``RICK'' CRAWFORD, Arkansas MICHAEL H. MICHAUD, Maine
JAIME HERRERA BEUTLER, Washington RUSS CARNAHAN, Missouri
FRANK C. GUINTA, New Hampshire GRACE F. NAPOLITANO, California
RANDY HULTGREN, Illinois DANIEL LIPINSKI, Illinois
LOU BARLETTA, Pennsylvania MAZIE K. HIRONO, Hawaii
CHIP CRAVAACK, Minnesota JASON ALTMIRE, Pennsylvania
BLAKE FARENTHOLD, Texas TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana HEATH SHULER, North Carolina
BILLY LONG, Missouri STEVE COHEN, Tennessee
BOB GIBBS, Ohio LAURA RICHARDSON, California
PATRICK MEEHAN, Pennsylvania ALBIO SIRES, New Jersey
RICHARD L. HANNA, New York DONNA F. EDWARDS, Maryland
STEPHEN LEE FINCHER, Tennessee
JEFFREY M. LANDRY, Louisiana
STEVE SOUTHERLAND II, Florida
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
(ii)
Subcommittee on Railroads, Pipelines, and Hazardous Materials
BILL SHUSTER, Pennsylvania, Chairman
GARY G. MILLER, California CORRINE BROWN, Florida
SAM GRAVES, Missouri JERROLD NADLER, New York
SHELLEY MOORE CAPITO, West Virginia RICK LARSEN, Washington
JEAN SCHMIDT, Ohio TIMOTHY H. BISHOP, New York
CANDICE S. MILLER, Michigan MICHAEL H. MICHAUD, Maine
TOM REED, New York, Vice Chair GRACE F. NAPOLITANO, California
JAIME HERRERA BEUTLER, Washington DANIEL LIPINSKI, Illinois
RANDY HULTGREN, Illinois JASON ALTMIRE, Pennsylvania
LOU BARLETTA, Pennsylvania TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana LAURA RICHARDSON, California
BILLY LONG, Missouri ALBIO SIRES, New Jersey
PATRICK MEEHAN, Pennsylvania PETER A. DeFAZIO, Oregon
RICHARD L. HANNA, New York JERRY F. COSTELLO, Illinois
STEPHEN LEE FINCHER, Tennessee NICK J. RAHALL II, West Virginia
JEFFREY M. LANDRY, Louisiana (Ex Officio)
JEFF DENHAM, California
JOHN L. MICA, Florida (Ex Officio)
(iii)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Callison, William, President, Wheeling and Lake Erie Railway..... 30
Fenton, John E., Chief Executive Officer, Metrolink.............. 30
Loftus, Thomas P., Jr., Chairman, Public Private Investment and
Project Financing Council, American High Speed Rail Alliance... 30
Porcari, Hon. John D., Deputy Secretary, U.S. Department of
Transportation................................................. 17
Sussman, Michael, President, Strategic Rail Finance.............. 30
Timmons, Richard F., President, American Short Line and Regional
Railroad Association........................................... 30
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Barletta, Hon. Lou, of Pennsylvania.............................. 56
Landry, Hon. Jeffrey M., of Louisiana............................ 57
Mica, Hon. John L., of Florida................................... 59
Petri, Hon. Thomas E., of Wisconsin.............................. 60
Reed, Hon. Tom, of New York...................................... 61
Shuster, Hon. Bill, of Pennsylvania.............................. 62
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Callison, William................................................ 64
Fenton, John E................................................... 67
Loftus, Thomas P., Jr............................................ 72
Porcari, Hon. John D............................................. 76
Sussman, Michael................................................. 83
Timmons, Richard F............................................... 86
SUBMISSIONS FOR THE RECORD
Federal Railroad Administration, response to question from Hon.
Lou Barletta, a Representative in Congress from the State of
Pennsylvania................................................... 81
Hon. John L. Mica, a Representative in Congress from the State of
Florida, and Hon. Bill Shuster, a Representative in Congress
from the State of Pennsylvania, joint letter to Hon. Ray
Lahood, U.S. Department of Transportation, regarding the RRIF
loan program................................................... 50
Kansas City Southern, written testimony.......................... 4
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SITTING ON OUR ASSETS:
REHABILITATING AND IMPROVING OUR
NATION'S RAIL INFRASTRUCTURE
----------
THURSDAY, FEBRUARY 17, 2011
House of Representatives,
Subcommittee on Railroads, Pipeline
and Hazardous Materials,
Committee on Transportation and Infrastructure,
Washington, DC.
The subcommittee met, pursuant to notice, at 11:28 a.m., in
room 2167, Rayburn House Office Building, Hon. Bill Shuster
(Chairman of the subcommittee) presiding.
Mr. Shuster. The subcommittee will come to order. Thank
you, Mr. Secretary, for being here with us today, and all of
our other witnesses. I look forward to hearing from all of you.
This is the first subcommittee hearing--Railroads,
Pipelines, and Hazardous Materials--and we have got a number of
new members, and I want to quickly introduce the--or go through
the list of the Members, and then, of course, introduce some of
our freshmen that are here, which--I'm sure they are going to
make a significant contribution to not only the full committee,
but the subcommittee.
We have a vice-chair, and our new vice-chair is Tom Reed
from New York, former mayor of Corning, New York. We appreciate
having you here. Also, Gary Miller from California is on the
subcommittee; Sam Graves from Missouri; Shelley Moore Capito
from West Virginia; Jean Schmidt from Ohio; Candice Miller of
Michigan; and our new freshman, our Jaime--it's Jaime Herrera
Beutler, someone has got this reversed. And it is ``Beutler,''
not--that's what I thought.
But Jaime Herrera Beutler, from Washington; Randy Hultgren,
from Illinois--he is--Randy is not here; Lou Barletta from
Pennsylvania, former mayor of Hazelton, Pennsylvania--Lou, good
to have you here; Larry Bucshon from Indiana--Dr. Bucshon, good
to have you on the committee; Billy Long from Missouri--Billy,
welcome; Pat Meehan from Pennsylvania, who is not here at the
moment; Richard Hanna of New York--Richard, a successful
businessman, and great to have his insights on the committee;
Stephen Fincher, who is not here, from--where is he from, Frog
Jump, Tennessee, so--interesting place to be from; Jeff Landry
from Louisiana, coastal Louisiana, and Jeff Denham, who is from
California, and also he is going to--he chairs the Subcommittee
on Economic Development, Public Buildings, and Emergency
Management--Jeff's on the committee.
I would also like to welcome my good friend Corrine Brown,
as the ranking member. We worked together for the past four
years, and I look forward to continue to work closely with her
on a bipartisan manner to improve rail, pipelines, and, of
course, the movement of hazardous materials in the country.
The hearing today, though, is dealing with the RRIF
program, the Railroad Rehabilitation and Improvement Program,
known as the RRIF program, which was originally created in 1998
as a dedicated source of loan funding for railroads'
infrastructure needs. It was limited to $3.5 billion in total
outstanding loans. At that point the Congress recognized the
need for strong freight railroad improvement program, and
increased that amount to $35 billion.
We also strengthened the RRIF program in the Passenger Rail
Investment and Improvement Act of 2008, by increasing the
repayment period from 25 years to 35 years.
It's also important to note that in the history of the
program, we have not had a single default of any of the RRIF
loans, and I think there has been one payment that was delayed,
and that was because of a flood or some natural disaster
occurred.
Despite the efforts of the committee, the RRIF program is
in serious need of improvement. Chairman Mica has indicated he
is interested in pursuing improvement to a number of rail
issues, and a rail title to the transportation and
reauthorization bill, and addressing the issues in the RRIF
program are a top priority.
Let me point out these loans cost the U.S. Government
nothing. Loan applicants pay credit risk premiums, and full
collateralize the loans. The cost of the RRIF program to the
taxpayer, again, is zero.
However, only $400 million is currently out in loans,
utilizing just a little more than 1 percent of the program's
capacity. And we must improve access to this program. In 2010,
the Department of Transportation approved only 2 loans in
2009--2 loans. And in 2008, only 1 loan. Despite require for
Department of Transportation to consider and approve a loan
application in 90 days, the average loan processing time for
the FRA is 13.5 months. That needs to be improved.
Additionally, the FRA released guidance for the RRIF loan
program last September that could further hinder the program.
Chairman Mica and I have expressed our concerns to this new
guidance last October.
I look forward to exploring the concerns of the programs
with our panelists today. At a time when our Nation is doing
all that it can to spur economic activity, the RRIF program
stands out as a potential model for how government can
encourage economic growth. Because RRIF is an innovative loan
program, not a grant program where the government merely hands
out cash, the private sector has the incentive to invest money
in projects that will pay a financial dividend down the road.
At today's hearing I am interested in exploring ideas for
improving this important program. Specifically, I am interested
in ways we can reform the program to leverage Federal funding
with private sector resources. I am also interested in ways
that we might be able to apply the RRIF program to improve the
eligibility for high-speed rail projects. To quote Chairman
Mica, ``We must stop sitting on our assets.''
I look forward to working with the chairman and the members
of the subcommittee to improve and better utilize the RRIF
program, and look forward to the testimony of today's
witnesses.
And I should have started out by saying I apologize for us
being late, but a pesky little thing about votes we had to
take, so--and I don't think--we're going to be good for votes
for a couple of hours, so we should be able to move through
that.
I have a--I ask unanimous consent to insert in the record a
statement by Representative Petri. Without objection, so
ordered.
And a statement--or testimony for the record--by the Kansas
City Southern Railroad. And without objection, we will put that
into the record. So ordered.
[Hon. Petri's statement is on page 60; testimony for the
record by Kansas City Southern follows:]
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Mr. Shuster. Secretary Porcari, we're going to have him up
first, by himself, and get some questions. I know you have got
a very busy schedule.
So we will let him go, and then go to questions. But
first--and then the remaining witnesses--we will excuse the
Secretary and then have you come forward.
And with that, I yield to my good friend from Florida, Ms.
Brown.
Ms. Brown. Thank you, Chairman Shuster. It's very difficult
to turn this gavel over again, but you know how things go
around here.
Mr. Shuster. It's democracy.
Ms. Brown. This is going to be temporary. I have been on
both sides, and I think I like your side better, but we'll work
on it.
Mr. Shuster. Which side is that, the Republican side? You
could come on over if you want to.
[Laughter.]
Mr. Shuster. We'll make room for you.
Ms. Brown. No, the chairman side. But I am looking forward
to working with you this session to make sure that we continue
to have the best freight rail in the country, and that we
improve our passenger rail network in the world.
The Department of Transportation estimates that freight
rail transportation demand will increase 88 percent by 2035.
Recent studies show that the investment of $148 billion for
rail infrastructure expansion over the next 28 years is
required to meet the DOT projected demands. Without this
investment, 30 percent of rail miles in primary corridors will
be operating above capacity by 2035, causing severe congestion
that would affect every region of the country, and potentially
shifting freight to an already heavy congestion highway system.
For passenger rail, a working group for the national
surface transportation policy and review study commission
reported that the total capital cost estimate of establishing a
national inter-city passenger rail network between now and 2050
is about $357 billion, or $8.1 billion annually.
However, the ability of railroad shippers and states to
meet the rail infrastructure investment needs is becoming
increasingly difficult in the current economic climate. And it
nearly is impossible for anyone to get a traditional bank loan
today. Congress made a big mistake when we bailed out the banks
but did not stipulate that they had to lend it out. Now,
instead of lending money, banks are calling in notes. The RRIF
program can help railroads, shippers, and states meet their
rail infrastructure investment needs. But I don't think we are
taking full advantage of the program.
I meet with the railroads and others all the time, and they
tell me time and time again how difficult it is, the
application process, to navigate, how time consuming it is, how
expensive. And, in the end, many of them tell me it's just not
worth it. Well, we are working to do better, and we are doing
better, and I am looking forward to hearing how much better we
are doing.
The Draft Surface Transportation Authorization Act of 2009
makes significant changes in the RRIF program, which I
proposed. The bill authorized the Secretary to reduce the
interest to be paid on direct loans provided to railroad,
states, and local government, and eligibility for the sole
purpose of installing Positive Train Control system, allowing
applicants to use private insurance, in lieu of the credit risk
premium, and allow applicants to pay the credit premium over
the life of the loan.
The draft bill also authorizes appropriations to assist the
Secretary in reducing the interest rate for loans using--for
installing PTC (Positive Train Control).
I look forward to hearing from the witnesses on these
proposals and other suggestions for improving the RRIF loan
program.
Thank you very much. And I turn it back over to the
chairman.
Mr. Shuster. I thank the gentlelady from Florida for her
statement. And again, we're going to proceed with the Deputy
Secretary, Mr. Porcari. Again, glad to have you here today.
And for those of you that don't know the Secretary--I think
most people are familiar--he was a former secretary of
Maryland's department of transportation, so he's somebody who's
got real-world experience out there, and knows the problems and
the hurdles that we face.
So, with that, Mr. Secretary, go ahead.
TESTIMONY OF JOHN D. PORCARI, DEPUTY SECRETARY, U.S. DEPARTMENT
OF TRANSPORTATION
Mr. Porcari. Thank you, Chairman Shuster, and good morning,
Ranking Member Brown and members of the subcommittee.
On behalf of Secretary LaHood, I am honored to be here to
talk about the RRIF program. RRIF has helped expand the
Nation's freight capacity, preserve small town and rural rail
connections, and improve our urban transportation capacity.
So, I would like to briefly focus my comments on three
different areas: first, how RRIF has been used to increase
freight capacity, improve rail connections, and generate new
jobs and economic growth; second, the purpose of the RRIF
notice that we published in the Federal Register on September
29th of last year; and third, the role of the Department of
Transportation credit council, and the importance of innovative
financing.
On item number one, the Department of Transportation has
been working with freight providers to improve infrastructure,
expand operations, and create jobs. Mr. Chairman, you mentioned
one example, which was Iowa Northern, which received a $25
million RRIF loan to better serve ethanol producers near
Fairbanks, Iowa. When the Iowa Northern railroad was severely
damaged during a flood, the Department approved the railroad's
request to defer loan repayments. That kept them in business,
in part, because of the flexibility that we have in the RRIF
program. Iowa Northern is now back on its feet, it has more
than 160 miles of track and 100 employees.
But RRIF isn't only a benefit for freight; it's also
helping to meet our urban mobility needs. Recently the Denver
regional transportation district approached the Department
about redeveloping the historic Denver Union Station, and the
Department approved both a RRIF loan and a TIFIA loan together
for Denver. And today, hundreds of people are at work right now
on this intermodal project.
On the second point, to build on these successes the
Department published guidance on the RRIF program last
September for the first time. The intent was to provide
transparency to the review process. We wanted to make it easier
for interested parties to determine whether RRIF was the right
fit for their needs. The notice does not endorse the previous
administration's policy of constricting or eliminating the
availability of credit through RRIF. To the contrary, we were
trying to get the word out that we were back in business, and
we want to promote and educate potential applicants about the
RRIF process.
That brings me to my final point, which is the Department
of Transportation's credit council. As it was restructured by
Secretary LaHood, it also helps promote the RRIF program, and
ensures consistency and predictability among the Department's
credit programs. We have regular meetings of the credit
council, where we peer review potential loans. By adding that
kind of predictability to the process, we think it helps the
timely decision-making on loan applications.
Under Secretary LaHood's leadership, the council strongly
believes that credit-based financing can help address the
Nation's infrastructure investment needs. We also believe, by
the way, that the President's proposal for a national
infrastructure bank will help promote further innovative
credit-based financing. And in the current budget environment,
credit programs enable the Department to leverage our dollars
and finance more projects with the help of private investment.
If enacted, many of the RRIF-eligible activities will be
able to compete for financing in the national infrastructure
bank without paying that credit risk premium that the RRIF
program currently requires.
In conclusion, credit-based financial assistance programs
such as RRIF will grow in importance in the years to come. We
will continue to work with the committee, with stakeholders,
with industry, to ensure RRIF's future success. We share some
of the frustration in marketing the program and getting the
word out, and we are looking forward to collaboration and good
ideas on how to do that better. And I am happy to answer any
questions that the subcommittee might have.
Thank you, Mr. Chairman.
Mr. Shuster. Thank you, Mr. Secretary. I guess we're going
to have an opportunity to ask you a few questions, and then
you're going to be replaced as we go forward with Mr. Yachmetz,
who is the associate administrator for railroad policy and
development, so--and if I could start off, the 13\1/2\ months
that it takes, I mean, are we--are there efforts going forward
to get that down to 90 days? What kind of--what can we expect
to see that significantly reduced?
Mr. Porcari. It's a fair question, Mr. Chairman. We are
committed, as you know, to a 90-day process, from a completed
application. And the front-end time has been the one that we
really want to work on to shorten.
One of the purposes of the credit council is, rather than
sequentially going back to applicants with a number of
questions, to get everyone around one table, look at the
application before it's actually an application, before it's
formally submitted, try to understand all the nuances of it and
all the variables, ask all the questions at once before a
railroad, for example, puts hard money at risk through an
independent financial advisor, and do that all at once.
So, we have regular meetings of the credit council to do
that. We are dedicated to streamlining this process. We want to
make it more consistent, predictable, and transparent.
Mr. Shuster. The other question that I have is that there
are--some of the applicants have complained that the Department
of Transportation's credit council has hijacked the RRIF
process, has added to it a lot of time and effort that has
slowed it down. Can I get your views on that? Are you looking
at anything to try to streamline that?
Mr. Porcari. Yes. As I mentioned, the credit council meets
monthly. If the RRIF loan process is not sequenced so it fits
in with the meeting schedule, we can also have meetings out of
cycle--by phone, if we need to.
The credit council came about under the previous Secretary
of Transportation, when some of the other department loan
programs--the title 11 shipbuilding program, in particular--was
in real trouble, where loans were made that, with a little more
scrutiny, would have been either made differently or not at
all. What we are trying to do is apply a consistent approach to
evaluating these programs, so that applicants know up front
whether they are likely to qualify for the program or not.
Mr. Shuster. Well, thank you. And one other question. And,
you know, I discussed this the other day when we met, and you
said in your testimony that the RRIF program can be used for
passenger rail. So high-speed rail, if that were something that
we were to move forward, is that--the potential is there for
the northeast corridor to loan money for those--to that type of
project?
Mr. Porcari. Yes. The RRIF program can clearly be used for
passenger rail. It can also be used, by the way, for Positive
Train Control. It's not an application yet, but there is a very
large project, DesertXpress, which will go from east of Los
Angeles to Las Vegas, that we're in discussions with right now.
The credit council has looked at that and had some
questions that the DesertXpress private operator is answering
now. They're not yet eligible, because they need to complete
their NEPA process and get Surface Transportation Board
approval. Once they do that, if that goes forward, that alone
would be in the $4 billion, $5 billion, or $6 billion range.
Mr. Shuster. Right, OK. Well, thank you. I now ask
unanimous consent to put in the record Mr. Landry's statement
for the record. And without objection, we will put that into
the record.
And also, I should have also said that we're going to try
to adhere as closely as we can to the five-minute rule, and so
we make sure that the Secretary gets out on time.
So, with that, Ranking Member?
Ms. Brown. Thank you. First of all, let me just say that I
want to thank you. And you and Secretary LaHood and yourself is
really one of the bright spots in the administration, as far as
transportation and infrastructure. You have done a great job.
And I am just really outraged today about Florida and the
governor's unwillingness to use Federal funds for the
development of high-speed rail and the creation of good jobs in
Florida over, what, 60,000 jobs is the project that we've been
working on with--over--since the 1980s.
And I want to know, because I was on television this
morning. The governor was saying that the state was at risk.
Can--was there any financial risk for Florida, as far as the
project is concerned?
Mr. Porcari. Congresswoman, Secretary LaHood and I are
extremely disappointed in that decision. Florida DOT did a very
good job of eliminating both construction cost risk and
operating cost risk in the way they structured the public/
private partnership. The entire agreement was structured to
eliminate any financial risk to the state. That's a fact.
People are clearly entitled to their opinions about high-speed
rail; they are not entitled to their own facts.
Ms. Brown. So, the Federal Government put up, what, 90
percent of the project? And private was going to come in, it
was a true public/private partnership?
Mr. Porcari. It was a true public/private partnership.
There is very strong interest from the private sector teams
that clearly understood that they would have to design, build,
operate, and maintain that system, and assume all financial
risk. They were very willing to do that.
Ms. Brown. Why would they be willing to do that? Because
there were some questions about the ridership in this
particular leg. But my understanding, it was because they
wanted the Orlando to Miami leg to have the first right of
refusal to participate.
Mr. Porcari. Yes. First, for a private venture to put that
kind of capital at risk, they typically do their own ridership
studies, and I'm sure they convinced themselves, through their
own due diligence, that it made sense. They're clearly
interested in the right of first refusal, which was in the
structure of the proposal for the Orlando to Miami leg, once
Tampa-Orlando was built.
I can't think of a better example of a public/private
partnership, where you have private capital at risk to build a
project that will serve the already critical needs of Florida
today, but more importantly, the even more congested Florida of
the future.
Ms. Brown. OK. You know, I understand that there was a new
ridership study. Have you all gotten a copy of that? And that
ridership study would show that the ridership would be an
additional 15 percent?
Mr. Porcari. We have not been given any formal copy of the
updated ridership study. The state did this additional study,
an investment grade ridership study. We have asked for that. It
has not been provided. We have heard informally that the
ridership is higher than in previous studies by about 15
percent.
Ms. Brown. Well, I just want to thank you for your
leadership. I understand that--you know, I work with Democrats
and Republicans, it's very bipartisan--we've worked on this
project for over 20--well, over 20, 30 years in Florida, 1980.
Bob Graham put--I was on a study commission before I ever got
elected, working to get high-speed rail in Florida.
Let me just ask you about the RRIF program. In 2006,
President Bush proposed to eliminate the program. When Congress
rejected that proposal, the Bush administration began a
rulemaking to accomplish the same goal. But when President
Obama took office, one of the first things he did was withdraw
this ill-conceived rule.
Do you think that for some reason people don't see that
that is not the administration's goal at this time, and why we
don't get more applicants?
Mr. Porcari. We are clearly frustrated that we are not
successful in getting the word out as well as we should, and in
trying to promote the program as much as we should.
The short line railroads, in particular, where they connect
to the Class I railroads, are a critical part of economic
development, in particular in the rural areas around the
country. RRIF is one of the single best tools out there. And we
just did a $56,000 loan, which is the smallest one we've ever
done. But that grain loader in Mississippi is a very big deal
for the 20 or 30 jobs that it creates. And we get that.
So, we share everybody's frustration but we are back in
business on this. It is clearly creating and preserving jobs.
But I don't think the word is out. And we know that we owe
everyone a consistent, predictable, transparent process, so
they're willing to go through that process and the time of
getting a loan--especially the small railroads.
We will continue to work on that, and we look forward to
working with everybody who has an interest in this.
Ms. Brown. Thank you again for your leadership. I yield
back the balance of my time.
Mr. Shuster. Thank you. And with that, I will recognize the
vice chairman, Mr. Reed, from New York, for----
Mr. Reed. Well, thank you very much, Mr. Chairman. And I
would seek unanimous consent to offer my opening comments for
the record. I believe we have five days.
Mr. Shuster. Without objection, so ordered.
Mr. Reed. Thank you, Mr. Chairman. I would like to offer my
comments that, first, the RRIF program, to me, seems to be an
excellent program. It seems to be doing a great job when you go
down into the weeds and take a look at it.
Mr. Secretary, we're going to hear from some applicants,
I'm sure, later today. But from your perspective--I know we're
down to 13\1/2\ months as the approval process timeline. We
have a 90-day goal in the statute, is my understanding.
From the Department's point of view, what is the cause for
not being able to meet that 90-day requirement in the statute?
Mr. Porcari. Well first, to be clear, we do meet the 90-day
completed application goal. But from an applicant's
perspective, they really want to see it from the time they
first think about a RRIF loan to when it's approved.
My observation of what has happened in the past is there
has been a number of back-and-forths between the applicants
sequentially asking questions.
Mr. Reed. OK.
Mr. Porcari. One of the things we're trying to do, sir,
through the credit council, is think through all the potential
questions and variables up front at one time, give those to the
applicant before an independent financial advisor is hired--
which can be very expensive--so they can answer those questions
all at once, get it into a completed application, and we can
move forward.
We have been working very closely with the Office of
Management and Budget, who has been very supportive on this. So
I think that end of the process is squared away. I think the
pre-application part of it is where we really need to work to
compress the timeframe.
Mr. Reed. And, Mr. Secretary, are you seeing any
consistencies in applications that aren't complete, as to why
they're not complete? Is there something that's routinely
coming up, saying that we need additional information here,
there, from the Department's point of view, that maybe we could
highlight here to applicants as we go forward?
Mr. Porcari. Some of the smaller short line railroads, for
example, because they're privately owned, don't have audited
financial statements. That's a requirement.
With very few exceptions, they have never been through this
process before. So they are climbing a learning curve. They've
only been in the commercial lending market before. So it's a
brand-new process to them.
We try to tailor the amount of assistance we give them to
their ability to do the application process themselves. For the
$56,000 loan example I mentioned, we did the work all in-house,
because if it's a $56,000 loan and you have to hire an
independent financial advisor, it's not worth doing. So, we
have tried to do that.
What we're searching for are ways through webinars,
outreach, newsletters, any mechanism that's out there to give
them a better sense of what will be required if they're
thinking about a RRIF loan before they even start the process.
Mr. Reed. OK, and you have those mechanisms in place? Are
you moving forward with those mechanisms at the Department?
Mr. Porcari. We are looking, actually, for ways through the
American Short Line and Regional Railroad Association, or
anybody else to do that.
Mr. Reed. OK.
Mr. Porcari. So we are very open to ideas and suggestions
on it.
Mr. Reed. OK. Because that dovetails with my next question.
Because you had talked about--in your testimony about trying to
do a better job promoting the program. Can you give me concrete
examples of how the Department is going to promote this program
into the industry?
Mr. Porcari. One that I would like to pursue is just based
on personal experience. In Maryland, with the Short Line
railroads, we used them as a critical part of the state's
economic development strategy. The statewide economic
development people were very keyed into that. So, whether it
was a grain elevator or a small manufacturer, they had their
whole suite of grants, loans, loan assistance available for
that. RRIF should be one of those tools that they have in their
toolbox, and I know for a fact that we really haven't done
everything we can to make the state economic development people
aware of what's out there.
I am convinced that that also helps the Short Line railroad
industry more broadly in each state, because that shows the
value of that. You tend to focus on the Class I railroads. If
the cargoes don't get to the Class I railroad via the short
line, you haven't accomplished anything.
Mr. Reed. OK. So you're going to move forward with
notifying the state economic development agencies? Is that one
of the promotional ideas?
Mr. Porcari. Yes. We've talked about doing that through the
National Governor's Association, through other professional
organizations that might reach them more directly. And that's
something that I am going to personally pursue.
Mr. Reed. OK. Any other ideas to promote--the RRIF program?
Mr. Porcari. Those are some of them. I think, again, if any
other idea is out there, we want to promote it.
Mr. Reed. OK. Thank you, Mr. Chairman.
Mr. Shuster. Thank you. Now I will recognize Mr. Barletta,
if he has questions.
Mr. Barletta. Thank you, Mr. Chairman. How does the
Department explain the priority for projects that enhance rail
service to small communities and rural areas?
In a September 28, 2010, guidance, that priority has been
understood as giving priority to projects ``that support
interconnected, livable communities.'' What is the connection,
and how did livable communities find their way in the RRIF
program?
Mr. Porcari. In that announcement in the Federal Register,
we tried to make sure that the strategic plan goals of the
Department were clear. They were very congruent, they
overlapped very well with the original criteria in the RRIF
legislation. They're not exclusive, sir, in the sense that you
need to meet all those priorities, and they're not an ordinal
ranking in any way.
We believe that RRIF is one of the best tools we have for
rural communities. If you look at the loan portfolio in RRIF,
until the very recent past, that's typically what the loans
have been.
And, in terms of livability, as part of our national
outreach tour, we heard quite clearly from rural communities
that livability is important to them, too. And it means, by the
way, different things in different places. In the rural
context, one of the issues that came up was it meant being able
to age in place, having the kind of transportation facilities
that would allow you to age in place in some of these
communities that are losing population.
So, we have been very aggressive in making clear that any
eligible RRIF application, as long as that money is going to
the improvement of the railroad, is something that we would
encourage.
Mr. Barletta. Thank you.
Mr. Shuster. You done, Lou? OK, that's all right. I wasn't
paying attention, sorry, until the end of it. Thank you.
Mr. Bucshon, I will recognize you. And then after Mr.
Bucshon, we will go to Ms. Richardson, if she wants to ask some
questions. We will go to Mr. Bucshon first, then. OK, great.
Mr. Bucshon?
Dr. Bucshon. Thank you, Mr. Chairman. Just reading through
the letter that was published, I mean, what I am trying to
figure out is--and maybe this has been explained before--is
why, all of a sudden, that the Federal Government essentially
felt like they had to add more layers of bureaucracy on top of
the loan program by examining the cost benefit of a loan, I
mean--and basically giving an opinion on whether you felt like
it benefits the public.
A lot of us are here trying to figure out ways to take away
layers of bureaucracy, and I'm trying to figure out why we're
adding some in this area, especially when we're all here to
promote development of rail and improvement, especially with
the data that shows how we're going to be over-utilizing our
current infrastructure in the future. Thank you.
Mr. Porcari. It's a very fair question. Ironically, the
purpose of the notice in the first place was to get the word
out that we very much encourage RRIF loans. It was a change
from the previous administration, which had actively
discouraged it. In hindsight, the notice probably caused as
much confusion as anything else.
But public benefit is one of the criteria that's in the
original legislation. A very clear public benefit is providing
a connection for goods to get from a manufacturer or an
agricultural source, for example, to a Class I railroad. That
is clearly a public benefit.
Dr. Bucshon. If that was in the original, what were we
doing before, before you guys have added what you have added
on? What were we looking at before? I mean who was determining
the public benefit and everything before the--you added another
layer of bureaucracy?
Mr. Porcari. It is not an additional layer, sir. In theory,
the previous loans made by previous administrations, should
have looked at the same criteria that were in the original
legislation.
I can't speak for exactly how their process worked, but
this is one of the better economic development tools that we
have. We do understand that. And, in particular, for rural
areas, where goods movement is important, it's probably the
single best tool that we have. We understand that.
And want to streamline the pre-application process, because
it is, by law, a 90-day process from a completed application.
But what an applicant cares about is from the moment they think
about a RRIF loan to the minute that they get the funding. And
it's the pre-application process that we need to focus on.
Dr. Bucshon. Could you describe to me the ways in which the
previous administration actively were discouraging RRIF loans?
Mr. Porcari. One very specific way is in the fiscal year
2006 Federal Railroad Administration budget. It says the
administration proposes eliminating the program because the
public policy need to subsidize private railroads is not clear.
That's a pretty clear statement.
Dr. Bucshon. Thank you. I yield back.
Mr. Shuster. Thank you. And I will recognize Ms.
Richardson.
Ms. Richardson. Thank you, Mr. Chairman. And it's always
good to see you, Secretary. And thank you for your commitment
to--as I say often in our committees--of getting out and seeing
what's really going on where we have these projects.
My first question is a little specific to my district. We--
ACTA had submitted a loan application, and I think I had shared
this with your staff earlier in the week. And originally, as
you know, your process, I think, speaks to about 90-day review,
or something like that. And in our process it's already taken
13 months. So, I was wondering what you were doing to look at
addressing that.
And also--so, one, in terms of expediting the process; two,
have you noticed any redundancies or unnecessary steps? And I
think for a real solid project that has had great success,
funding--you know, on time, under budget, the whole thing--it
just seems like this process is a little cumbersome. What would
you say to that?
Mr. Porcari. First, I think ACTA, the Alameda Corridor
project, which is a fantastic freight rail project serving the
ports of LA and Long Beach with two Class I railroads, is one
of the larger, more important freight rail movement projects in
the country. It's an extremely complicated deal, the way it's
been structured.
We are in the final processes of an $83.7 million RRIF loan
for that. But going through that process, it clearly begged the
question of whether the financial structure of ACTA was
sustainable, over the long term. I think a financial analysis
reveals that it is not.
What we are doing with this RRIF loan--which does provide
short-term relief for the Alameda Corridor project--we're also
making clear that we are going to need to work with them on a
longer-term restructuring that--for, really, a 15- or 20-year
period will put it on a sound financial footing. A year or two
of reduced container movements from those ports imperils the
whole economics of this, and we need to put it on a more sound
footing.
Ms. Richardson. OK. And then my next question is the
President has already made such a commitment to I think what
some of us think is a legacy in high-speed rail, and that's
exciting, and it's long overdue. However, a lot in--long
standing in the industry are concerned about what continual
funding we can expect for the systems that we have already in
place. What are your thoughts on that?
Mr. Porcari. Well, first, just on the freight rail side, I
neglected to mention before in the United States we have the
world's best freight rail system. And if it wasn't here--Class
I, Class II, Class III, as a system--if it wasn't here, just
think about what our roads would look like, and what goods
movement would cost us.
First and foremost, we want to make sure that we don't do
any harm to that system and that we, in fact, improve it. On
the passenger rail side, we know we're going to have 70 million
more citizens in the next 25 years. We know it's 100 million in
the next 40 years. If you look at the transportation system
objectively, how else are we going to accommodate a portion of
that growth? And that's really where the dual function of
promoting freight rail and passenger rail comes together. We
are convinced--and I think there is solid evidence behind the
fact--we can do both, working with our private sector partners.
We----
Ms. Richardson. So--and I apologize, but I've only got a
minute and 18 seconds--so are you saying you are equally
committed to maintaining the funding options that we have
available for our current systems, as well as the high-speed
rail? Because I don't think they've been quite as balanced,
thus far.
Mr. Porcari. We are. And I think that if you look at the
President's fiscal year 2012 budget proposal, it is solid
evidence of the continued commitment for passenger rail. Not
just high-speed rail, but commuter rail, and some of the other
really critical aspects of it.
Ms. Richardson. OK. I am co-chair of the California high-
speed rail caucus. I am supportive, but I am concerned about
maintaining existing funding for our existing area.
My last question. I have got 40 seconds. If the President-
proposed the national infrastructure bank becomes a reality,
how do you envision the RRIF program fitting into the larger
infrastructure funding program?
Mr. Porcari. And----
Ms. Richardson. Many of us have been supportive of that for
quite some time.
Mr. Porcari. The RRIF program could clearly continue. I
think the national infrastructure bank would be more attractive
to most applicants, because there is no credit risk premium
requirement.
Ms. Richardson. OK. I yield back. Thank you, Mr. Chairman.
Mr. Shuster. Thank you. I appreciate you adhering to the
five-minute rule. We continue to move on. Mr. Long, I recognize
you for five minutes.
Mr. Long. Thank you, Mr. Chairman, and thank you, Mr.
Secretary, for being here.
Mr. John Fenton of Metrolink points out in his statement a
lack of coordination between the RRIF program's collateral
requirements and the Federal Transit Administration policy
prohibiting liens on property purchased with FTA funds.
How would you recommend addressing this problem, so that
commuter railroads and other publicly funded agencies that have
their assets purchased in part with Federal funds can
participate in the RRIF program?
Mr. Porcari. It's a difficult question, but a very valid
one, because collateral reduces the credit risk premium for the
RRIF program. I would be very happy to meet with him directly
to try to do that. We're not allowed to subordinate RRIF loans
to any other non-Federal debt, as well, which could also come
into play here.
We're going to have to work through this on an individual
case basis. Because on both sides of it, the law is clear. And
if there is a way to do it at all, we would like to do that. I
would like to meet with him.
Mr. Long. I think it's a big problem. I think we need to--
--
Mr. Porcari. And we have run into similar problems with
combining different programs in the case of Denver Union
Station, RRIF and TIFIA, neither of which can be subordinated,
both of which are Federal loan programs. But we managed to work
through that.
Mr. Long. Another question. On kind of the finance angle,
why does the Office of Management and Budget require that
applicants' assets first be devalued to 80 percent of the fair
market value for purposes of establishing the amount of
collateral necessary to secure a RRIF loan? And is this an
issue that could be addressed administratively?
Mr. Porcari. My understanding is the Office of Management
and Budget is looking at the ability to sell those assets if
it's required in an illiquid market. It may be some of the
rolling stock or fixed assets are not necessarily easy to
dispose of. And you almost certainly wouldn't get 100 cents on
the dollar for doing that.
I would point out that OMB--this OMB--has been very
supportive of the RRIF program, and has been working hard to
actually turn the loans around quickly. So we have enjoyed a
very good working relationship with them.
Mr. Long. OK. And just kind of a statement, I guess. Mr.
Barletta was asking about the guidance that--interpreted as
giving projects the support, interconnected, livable
communities. And in your answer to that, your--``livable
community,'' you said, meant different things to different
people. And any time something like that appears in a
government program, I think it probably portends itself to
problems. That's just a comment on my part.
Thank you for your time, and I yield back.
Mr. Shuster. I thank the gentleman. And the gentleman from
Illinois, Mr. Lipinski, is recognized for five minutes.
Mr. Lipinski. Thank you, Mr. Chairman. I thank Chairman
Shuster, Ranking Member Brown, for holding this hearing today.
I think there really is very few issues more critical right now
in transportation than rehabilitating and improving our
Nation's rail infrastructure. It's something that a lot of
people don't--the public doesn't see. And so I think there is
not quite the understanding of the impact that it has.
In Chicago, we certainly do know the impact, if only for
sitting there, waiting for trains to go by. But there is, I
think, some sense of the Chicago being the hub of the Nation.
Knowing how critical it is to our businesses, and being able to
move goods efficiently and moving people efficiently, it's
really critical to moving our economy forward.
I want to recognize Deputy Secretary Porcari for his
leadership at the Department. I think that your experience as a
state transportation secretary has served the USDOT and the
Nation very well.
As we move forward now--being from Chicago, I know this
very well, and know it firsthand, but I think all of us on this
subcommittee know very well that Chicago is the predominant
rail hub of North America at a terrible choke point. And we
talk about rail investment in Chicago, and we're talking about
CREATE, the public-private partnership to upgrade the region's
outdated rail network with 71 individual projects, not just
important to Chicago, but for the entire country.
Now, I know, Mr. Porcari, you're very familiar with CREATE
and its importance. And, as we make progress on CREATE and
these individual projects that are a part of CREATE, can you
comment on DOT's commitment to CREATE, and what the Department
is currently doing to advance the program?
Mr. Porcari. We have a strong commitment to CREATE. It's a
great example of a public-private partnership. We are taking a
step back. Everybody has looked at the larger rail
infrastructure issue in the greater Chicago area, and very
systematically identified the highest priority for discreet
projects, and attacked them, one by one.
Our commitment to that has continued. Chicago has been and
will continue to be a singular rail hub because of the design
of the freight and passenger rail system in America. It was
built, in large part, around Chicago.
We have clearly collectively, both on the private and
public side, not invested as much as we needed to in the past.
We are paying for that today, in terms of freight congestion.
We know we're playing catch-up on that. But we also know that
through projects like CREATE, where we're taking element after
element that's a bottleneck and fixing them, that we're making
real gains.
So, we're not going to be done for a long time, but we are
clearly committed to doing it.
Mr. Lipinski. Is there anything that you can see as being
done to improve the process of implementing the CREATE
projects?
Mr. Porcari. I think the partnership itself is
extraordinarily effective, and has been, in structuring the
sequencing and priority of what needs to be done.
In a perfect world, more investment on both the public and
private side would accelerate those improvements.
Mr. Lipinski. I think that we all understand that there is
going to be a greater emphasis in transportation infrastructure
on public-private partnerships, and I think CREATE serves as a
good example of how it has worked. We can always use more
funding on both the public and private side.
But I think as we move CREATE forward, we can be a good
example for what can be done.
Although it is always critical to point out that public
funding in the public part of that is important, because it's
critical to our Nation moving people and moving goods.
But as my time is running out, I just wanted to ask Mr.
Porcari if, for the next few weeks, we have the opportunity to
sit down and we could talk about CREATE further, and how we
could continue working together to see it through.
Mr. Porcari. I would be happy to, sir.
Mr. Lipinski. Thank you. I yield back.
Mr. Shuster. Thank the gentleman, and I recognize the
gentleman from New York, Mr. Hanna, if he has any questions.
Five minutes.
Mr. Hanna. Thank you. Thank you very much. Yes. Thank you
for being here.
Mr. Porcari. My pleasure.
Mr. Hanna. It seems to me your response to the 90-day
requirement and the 13\1/2\-month reality is that it's, with
all due respect, ``It's them, not us.'' Does that really
explain the full gap of 10 months?
Mr. Porcari. I don't believe it's them, not us. I believe,
first of all, that the distinction of 90 days from a completed
application, which we have been making, is not enough. I think
the pre-application part of it is clearly where, together, we
need to work on it.
There have to be ways where we can make the process more
simple and predictable and consistent and transparent. I think
working through associations and individual short line and
other railroads is probably the best way to do it. Anybody who
tells you you can't re-engineer a process and make it more
efficient is not looking close enough.
Mr. Hanna. So you would like to see the 90 days moved out
to some different date, a number of days that makes better
sense?
Mr. Porcari. Well, sir, I think the part leading up to the
90 days is where the schedule can be compressed, and I think
that's where our efforts ought to be.
Mr. Hanna. Thank you very much. I yield back.
Mr. Shuster. I thank the gentleman from New York. And with
that--anybody on the other side? I think we got everybody.
So, with that, Mr. Secretary, we appreciate your being here
today.
Mr. Porcari. Thank you.
Mr. Shuster. And you will be replaced--joined at the next
panel by Mr. Yachmetz.
Mr. Porcari. Yes.
Mr. Shuster. And again, thank you. Thank you for being here
today.
As the chairman came in and whispered in my ear, he said,
``We want to make sure we work together to figure out how we
make this RRIF program go forward, reducing the time it takes
to loan, and let's get the money flowing, because it will be
good for America.''
Mr. Porcari. We will be happy to come back to the Committee
with a progress report, if you would like.
Mr. Shuster. Thank you very much. Thanks for being here.
With that, the Secretary is leaving, and the next panel can
make their way forward.
While they're making their way, I will introduce the entire
panel, and then of course I will introduce each as they
testify.
But we are joined today by William Callison, who is
president of the Wheeling and Lake Erie Railway; John Fenton,
the chief executive officer for Metrolink--and I am sure we
will hear from Mr. Fenton on the issue about the RRIF with
Metrolink--Michael Sussman, the president of Strategic Rail
Finance, Thomas Loftus, Jr., who is the chairman of Public
Private Investment and Project Financing Council, American High
Speed Rail Alliance, and principal of the Seneca Group. And
last, but certainly not least, General Richard Timmons.
General Timmons, it's great to have you back. I know you
fought a battle for the past several months with cancer, and
it's great to see you. You look like you're in good health, and
you look like you're ready, willing, and able to get into the
fray. So, again, welcome. It's good to see you here today.
General Timmons. Thank you very much, Mr. Chairman. It's
good to be back.
Mr. Shuster. And also Mr. Yachmetz, who is here--I
introduced earlier, that--he is the Federal railroad
administer, or Federal administrator of the railroad policy and
development for the Federal Railroad Administration. So we
appreciate you joining us to be able to continue to answer some
questions for us.
And with that, I will start off with General Timmons. If
you're ready to go, we will hear you first.
TESTIMONY OF RICHARD F. TIMMONS, PRESIDENT, AMERICAN SHORT LINE
AND REGIONAL RAILROAD ASSOCIATION; WILLIAM CALLISON, PRESIDENT,
WHEELING AND LAKE ERIE RAILWAY; JOHN E. FENTON, CHIEF EXECUTIVE
OFFICER, METROLINK; MICHAEL SUSSMAN, PRESIDENT, STRATEGIC RAIL
FINANCE; AND THOMAS P. LOFTUS, JR., CHAIRMAN, PUBLIC PRIVATE
INVESTMENT AND PROJECT FINANCING COUNCIL, AMERICAN HIGH SPEED
RAIL ALLIANCE
General Timmons. Thank you, Mr. Chairman. And members of
the Committee, it's good to be here. I appreciate the
opportunity to provide my thoughts on the railroad
infrastructure and improvement financing program. I am Rich
Timmons, president of the American Short Line and Regional
Railroad Association. We represent about 540 Class II and Class
III railroads.
The short line railroad industry has been the primary user
of the RRIF program: 25 of the 28 RRIF loans approved to date
are short line railroads. The average short line loan is $27.8
million. And together they borrowed a total of $695.5 million
over the last 10 years. These loans have helped short lines
maximize capital investment through direct rehabilitation. And,
in some cases, through refinancing existing debt, so as to
increase cash available for additional rehabilitation.
We are particularly proud to point out that since the
program's inception in 1998, not a single short line railroad
has defaulted on its loan. Only one railroad has ever missed a
quarterly principal and interest payment, and that was due to
serious railroad watersheds caused by the 2007 floods in Iowa.
That delinquency, of course, has been rectified since.
I would like to emphasize three important points about the
current RRIF program, and comment briefly on the recent RRIF
guidance issued by the Obama administration.
First, RRIF leverages substantial private investment in
short line infrastructure. These are not grants, but loans that
must be paid back in full by the railroad. They're relatively
low interest rate, and the 35-year amortization period are
terms short lines cannot secure in the private market and it
allows short lines to undertake projects that could not have
been done, or that would have been stretched out over many
years.
Second, because these are loans that must be repaid, and
are secured by an ironclad first lien on the railroad's hard
assets, RRIF loans are not being used to fund frivolous or
cost-ineffective projects.
Third, most short lines do not have the in-house manpower
to undertake rehabilitation projects, must hire contractors and
additional laborers to do the work. The FRA estimates that 50
percent of every rehab dollar goes to labor. In addition, 100
percent of the ties, and the overwhelming majority of the
materials used in track rehabilitation are U.S. manufactured.
RRIF is currently authorized at $35 billion, and is yet to
reach a billion in outstanding loans over the past 10 years.
This is due, in part, to the slow start-up of the program, and
to the lengthy delays in the approval process. Over the years,
I believe the FRA has worked diligently to accelerate the
process, particularly that part of the process they control.
Indeed, as I have previously acknowledged before this
committee, I believe that part of the blame for this slow start
may lay with the application submitted by my own short line
railroads. I applaud the FRA staff for their patience and
willingness to correct our shortcomings, especially in those
early years. Nonetheless, I believe the FRA is understaffed to
manage the RRIF program.
But it also is no secret that, since the beginning, FRA has
had to deal with substantial institutional opposition to the
program within other Federal agencies, and that opposition has
been largely responsible for the severe under-utilization of
this program. I am fearful that the pattern may be repeated.
On September 29, 2010, the administration issued a Federal
Register notice concerning its priorities in granting RRIF
loans. We believe the new guidelines will make it very
difficult for small, private railroads to qualify for loans.
And it eliminates categories of loans that are clearly
eligible, under the statute.
I have attached to my testimony a copy of a letter that I
sent to the USDOT detailing our difficulties with this notice.
Our primary objections are as follows.
The guidance creates loan criteria that are not part of the
underlying statute. The guidance claims the need to ration
loans, so as not to be disruptive to the railroad economy. The
railroad industry invests over $10 billion a year in capital
projects. If the FRA were to double that number of loans over
night, the combined total would represent just 14 percent of
the industry's annual expenditures.
The guidance discriminates against refinancing as an
eligible purpose, except for public agencies. This directly
contradicts the statute, which makes no differentiation among
eligible categories. Short lines borrowed heavily from banks to
purchase and rehabilitation lines that were going to be
abandoned by the Class I railroads. Refinancing this short term
high interest rate of debt is very important to a short line's
cash flow, and allows it to preserve cash that is much needed
for rehabilitation.
The guidance establishes priority categories of politically
correct RRIF projects which have nothing to do with the
economic world in which short line railroads operate. The
categories include enhancing commuter and inner city rail,
transportation, noise reduction, reduction of waterway
pollution, development of inter-connected livable communities,
and reduction of highway traffic. These have nothing to do with
the short line railroads.
The guidance creates a new requirement of public benefit,
defining public benefit as the difference between the benefit
that would be achieved by using RRIF, as opposed to using
conventional financing. In the real world, the difference is
that short line railroads cannot get these kind of loans from
conventional financing. That was the reason the program was
created in the first place, the reason why $7 billion was set
aside to begin with, which is one-fifth of the revolving
authorization. That amount of money is reserved solely for
projects primarily benefitting freight railroads, other than
the Class I carriers.
Mr. Chairman and committee, I appreciate the opportunity to
appear before you today, and will be glad to address any
questions that you may have at the appropriate time. Thank you
very much.
Mr. Shuster. Thank you very much, General. And I forgot to
mention that you were the president of the American Short Line
and Regional Railroad Association. But I think you made that
pretty clear to us. So again, thanks. Thanks for being here.
It's great to see you.
General Timmons. My pleasure.
Mr. Shuster. Next up would be Mr. William Callison, who is
president of the Wheeling and Lake Erie Railroads. Welcome, and
you may proceed.
Mr. Callison. Thank you. I am Bill Callison, president of
the Wheeling and Lake Erie. The Wheeling is approximately an
850-mile railroad that runs from Toledo in the west through
Cleveland to Akron, Canton, crosses the Ohio River, goes
through West Virginia through Pittsburgh, and on to Hagerstown,
Maryland. We carry about 100,000 car loads of freight per year,
the majority of which is steel-related products, aggregates,
coal, chemicals, and plastics. We currently have 325 employees.
We're a successful regional railroad, but it wasn't always
so. Like most short lines and regionals, we inherited the 1990
railroad that had a depleted customer base and severe deferred
maintenance. Since we've purchased the railroad in 1990, we
have doubled our revenues, and we have increased our employees
from 245 to 325. Again, this is not atypical growth.
Virtually all of today's short line railroads operate at a
profit on a P&L basis. But the issue is not just profitability.
The issue really is earning enough to be able to reinvest in
the infrastructure. We have track, bridges, tunnels, and other
equipment that has to be maintained in order for us to continue
to be able to make money.
We have to earn this money in an environment where we're
serving really small customers that aren't served by the Class
I's, and also directly compete with Class I's, where the
margins are very thin. So--it's a very capital-intensive
business, and it's very difficult to earn a profit.
The RRIF, therefore, is ideally suited to meet the
challenge of upgrading the infrastructure and does so, as you
know, at no cost to the Federal Government. The short lines and
regionals could never secure terms as favorable as the RRIF,
neither in terms of the term of the loan, at 25 years, nor the
treasury rates. You would either not be able to afford it, or
you would have to do your projects over a very long period of
time.
The Wheeling has two RRIF loans, and I would like to
describe our experience with those two RRIF loans as the good,
the bad, and the ugly. The good is the result of the loans. We
have a $25 million RRIF track rehabilitation loan that allowed
us to take approximately 120 miles of track from 25 miles an
hour with numerous 10 mile-an-hour slow orders to 40 miles an
hour. That higher speed allowed us to increase our asset
utilization, allowed us to turn our crews, our locomotives, and
our cars much more quickly. It made us a safer, more efficient,
more customer reliable railroad, and also lowered our operating
costs.
We also have a $14 million loan which allowed us to
purchase 150 open-top hopper cars during a very tight equipment
market. While under any circumstances these loans would have
been very important to the financial success of the company,
but as we had a very severe recession in 2002 and 2009, where
we lost almost 50,000 car loads and $20 million in revenues,
had it not been for the RRIF loans, it would have been very
difficult for us to continue to operate at a profit. We were
able to get through this period without laying off a single
employee or missing a quarterly debt payment.
The bad was the amount of time it took to secure the loans:
18 months for the first and 10 months for the second, under a
statute that requires the government, as you know, to complete
it in 90 days.
The ugly was what took place at the end of the second loan.
The second loan application was made in December of 2005, with
the understanding that the loans would be approved within 90
days, and with the expectation that the first loan had
acquainted the FRA and others with the financial stability of
the company and the other financial aspects.
We placed the car order for delivery to begin in April
2006. The loan was not approved until November 2006. As a
result, we had to get out a bridge loan, which incurred--a $7.7
million bridge loan, which forced us to incur $53,500 in
interest. But, as damaging as that was, there was damage to the
car builder, having to try to get them to hold off on the
orders, and to our customers.
I have worked in the railroad now for about 30 years. I am
familiar with the FRA and its people. They're both our
regulators and they're our partners in certain matters, such as
safety and standards. It's an agency that understands the
industry and is dedicated to making it better. It is,
therefore, very hard for us to understand, in general for short
lines and regionals, why it is that the RRIF program has had
such troubles.
I would like to address three issues. The first is that I
think my colleagues and I believe that there are too many cooks
in the kitchen--that is that the FRA, the credit council, and
the OMB are all re-analyzing the same data. The second is that
both the OMB and the credit council are outside the 90-day
window. And then finally, that the FRA itself does not have
adequate resources to look at the loans and get the final
analysis done. We would like to have them have more resources
so you're doing one-stop shopping.
In conclusion, the RRIF has the potential to enhance the
safety, the efficiency, and the reliability of the regional and
short line infrastructure and equipment, much to the benefit of
rail customers, both large and small. With a little bit of
diligence and oversight, the program's problems can and should
be fixed. I appreciate the opportunity to appear before you
today, and I would be very happy to answer any questions at the
appropriate time.
Mr. Shuster. Thank you very much, Mr. Callison. I
appreciate your testimony, and next recognize Mr. John Fenton,
the chief executive officer of Metrolink.
Mr. Fenton, you may proceed.
Mr. Fenton. Mr. Chairman and members of the subcommittee,
thank you for inviting me to testify today. My name is John
Fenton, and I am CEO of the Southern California Regional Rail
Authority, known as Metrolink. My comments today, along with my
written submission, will hopefully help highlight barriers that
Metrolink has encountered in our efforts to apply for Federal
RRIF support.
I also want to address some suggestions to improve RRIF
program effectiveness for public transportation entities like
Metrolink.
By way of background, Metrolink is the second largest
commuter rail system by size, and the fifth largest by
ridership in the U.S., serving close to 20 million people. We
operate in southern California, a place notorious for traffic
gridlock with more than 15 million cars vying for space on
existing streets and freeways.
We at Metrolink are working hard to provide solutions to
the gridlock. But to do so, we need the benefit of a
comprehensive Federal finance approach to public transportation
infrastructure, including an available RRIF program.
Unfortunately, due to restrictions imposed by the process
itself, we at Metrolink are currently unable to take advantage
of the RRIF opportunity.
To illustrate, Metrolink recently contemplated applying for
a $300 million RRIF loan to purchase advanced technology
locomotives. Our current fleet is one of the oldest and
highest-polluting in the Nation. But it didn't take long to
realize that the cumbersome RRIF exercise was not a viable
option for us. Some of the issues that discouraged our
involvement include lack of coordinated FTA/FRA rules.
Some of Metrolink's hard assets were acquired with
assistance of FTA capital funding. Property acquired with
assistance of FTA funds has a condition of giving FTA rights to
the property, if the property is no longer used for public
transportation purposes. That situation conflicts with the
condition imposed by FRA RRIF rules, which requires a first
lien on hard assets. In effect, that means Metrolink cannot use
an asset as collateral, because the FTA has prior rights. This
eliminates our ability to use RRIF for these improvements.
The credit risk premiums, another significant challenge
with the RRIF program, is the unique feature which requires
credit risk premiums. In effect, the default risk cost is borne
by the applicant through the payment of what is called the
credit risk premium, calculated as a percentage of the amount
of the loan and the risk of non-payment.
Again, this cost is a limiting factor for cash-strapped
public transit agencies like Metrolink. Providing funds for
RRIF loan credit risk premiums similar to the TIFIA loans would
be helpful and certainly make the program more financially
practical.
Another factor working against us is the requirement that
each applicant pay an investigation fee to cover FRA's cost of
evaluating the application, whether or not the loan is
ultimately approved. These extra administrative expenses can
make the loan cost prohibitive for government entities with
limited resources.
The topic of RRIF loan flexibility will be addressed by my
colleague on the panel, Mr. Loftus.
To maximize opportunities for transit agencies to provide
solutions in their respective communities, RRIF and private-
public partnerships must be built upon a comprehensive
investment strategy in the transportation infrastructure. The
RRIF program is a great opportunity to leverage private
investment, and we should do everything we can to make it work.
We encourage more flexibility in the FRA collateral and
repayment rules, as well as better inter-agency coordination
between FTA and FRA on funding policies.
In closing, I would like to emphasize that Metrolink is
more than a passenger train moving people from place to place.
We are the solution for some of the major issues facing
southern Californians today. Metrolink would like to work with
the subcommittee to identify incentives that will encourage
greater private investment and streamline processes that
encourage, rather than discourage investment by public transit
agencies like Metrolink.
I want to thank you for the opportunity to appear before
you today, and I am happy to answer any questions that you
might have.
Mr. Shuster. Thank you very much, Mr. Fenton. And I just
want to give everybody a heads up. Mr. Fenton has to catch a
2:45 flight to make it home in time for his parents' 60th
wedding anniversary.
Mr. Fenton. Sixtieth wedding anniversary.
Mr. Shuster. So that's fantastic. So what we will do is we
will finish through the panel. But if anybody has got a
specific question for Mr. Fenton, I want to try to direct them
to him early, and then you get out of here when you need to go.
And I would imagine about 1:15 you probably want to high-tail
it out of here.
OK. So we will continue with Mr. Sussman, who is president
of Strategic Rail Finance.
Mr. Sussman, please.
Mr. Sussman. Good morning, Chairman Shuster, and members of
the subcommittee. My name is Michael Sussman. I own Strategic
Rail Finance, a company I founded 17 years ago, when I
discovered that most freight railroads, for no inherent
business reason, have fewer funding options than companies that
are much less important to the Nation.
I have coordinated financing for rail projects in 23
states, inventing new ways to integrate private sector
financing with public sector funding. This collaborative
approach delivers more capital and strengthens rail projects
for all stakeholders.
I have been asked by the Committee staff to provide my
perspectives on the RRIF program. The RRIF program is a USDOT
loan and loan guarantee program with three main attractions for
the borrowers. One is the repayment term, which can be as long
as 35 years. Second is its relatively low interest rate, based
on treasury securities of a similar term. Most importantly, it
recognizes the collateral value of track, right-of-ways, and
transportation facilities, assets for which it is challenging
to secure long-term financing in the private sector.
The country can enjoy a substantial return from improving
the RRIF program. In spite of America's love-hate relationship
with railroads, rail transportation provides many public
benefits. Each train load of freight, if moved on our highways,
requires a convoy of trucks 27 miles long. Since those trucks
burn two to four times the amount of diesel fuel, the
consequent increase in air pollution is significant. We need
trucks as part of a complete transportation system, but we need
increased rail transportation more than ever.
RRIF fulfills a role that is missing in the private sector.
Since Federal de-regulation of railroads in 1980, the number of
short line and regional railroads has increased from 190 to
575. At the same time, banks have merged and consolidated,
leaving behind the close connection between local banks and
local railroads.
In spite of the long-term financial stability of rail
projects, they are more challenging to finance than riskier
commercial developments such as office buildings and movie
theaters. So, why does this $35 billion loan program still have
$34.6 billion available? And what can be done to increase the
loan activity?
I will suggest four no-cost remedies, and several process
improvements. Firstly, I recommend enforcing the previously-
mandated 90-day timeline for the FRA to make loan decisions.
Secondly, I would like to see the OMB reverse the practice
of cutting the collateral values by 20 percent when accompanied
by professional appraisals. Hardly warranted when the primary
assets presented in rail projects--i.e., steel, land, and
rolling stock--are among the most stable collateral items we
see, often appreciating in value over time.
Thirdly, it is vitally important to revisit the FRA's
deprioritization of refinancing made public last September.
There should be no reluctance to approve RRIF loans for
refinancing, as long as it supports a comprehensive
capitalization strategy for successful long-term stewardship of
rail facilities.
Fourth, borrowers should be given the option of a higher
interest rate in exchange for a lower credit risk premium.
There are other ways to improve the RRIF program, such as
instituting a clear pathway for the program's loan guarantee
function, and coordinating with state departments of
transportation and local banks. I would be gratified to share
these ideas with the Committee at a later date.
For now, just a brief mention of process improvements.
Seeing a RRIF loan application through to completion is like
raising a child. No one really talks about how damn hard it is.
And, even if they do, it is harder than anyone has the capacity
to imagine until they have one of their own.
What I would like to see is a less expensive, less
strenuous application process for smaller RRIF loans, in
support of one of its stated purposes, ``preserve or enhance
rail or intermodal service to small communities or rural
areas.''
As an addendum to my remarks, I have provided data on the
outstanding repayment history of state revolving loan funds
that rely on much less application information, and a
relatively rapid approval process. The RRIF process needs to be
more predictable and more interactive. Applicants need more
coaching and support at every stage, and the application itself
needs to be rewritten by writers, not financial analysts or
engineers.
Many of the application questions do not clarify the level
of data and detail required, and the FRA is often muted in its
response to inadequate applications. This communication gap
adds weeks and months to the process, often ending in
frustration and withdrawn applications.
Relating to a much simpler state loan application, Kathleen
Grover, former administrator of Michigan's rail loan program,
said that 50 percent of the applicants in her state did not
respond to requests for additional information. Railroaders are
some of the hardest working people in industry. A successful
RRIF campaign requires more determination and communication
than most rail operators can muster.
If we apply our limited public resources intelligently, we
can seed private sector investment to accomplish goals that
neither sector can achieve on their own. The resulting
innovation can provide the capital environment for railroads to
substantially increase their contribution to America's economic
vitality.
Thank you for this opportunity to present my views.
Mr. Shuster. Thank you, Mr. Sussman. Appreciate it. And
next up will be Mr. Thomas Loftus, who is the chairman of
public private investment and project financing council at the
American High Speed Rail Alliance, and also principal at Seneca
Group.
So, Mr. Loftus, please?
Mr. Loftus. Mr. Chairman and members of the Committee, I am
Tom Loftus. I am here today representing the American High
Speed Rail Alliance. I'm on the advisory board of the Alliance
and, as the chairman has mentioned, I am chairman of its public
private partnership and project financing council.
The membership of the alliance includes state departments
of transportation, passenger rail corridors, financial
organizations, the full spectrum of rail supplier companies,
rail labor unions, and grass roots advocates. The Alliance's
mission is to advocate for the development and implementation
of high-speed passenger rail in the U.S.
I am currently a principal of the Seneca Group, a
transportation consulting group located here in Washington that
has worked extensively on railroad rehabilitation and financing
loans. My purpose today is to propose a number of changes to
the RRIF program that the American High Speed Rail Alliance
believes would allow the program to better support the
development of high speed rail, and help leverage the private
financing that is badly needed to make high speed rail a
reality in this country.
Building world class high speed rail will require a
significant commitment of resources. The $8 billion provided in
the 2009 stimulus package, and even the $53 billion that the
President has proposed, are not sufficient to complete the job.
These funds are going to have to be matched by local support
and private investment.
Let me briefly describe three changes that would provide an
incentive for private investment. The first proposal is to
provide RRIF with a TIFIA-like Federal subsidy that allows the
Secretary of Transportation to modify loan terms by deferring
payments or subsidizing the interest rate. Deferring payment
would allow high speed rail applicants to meet the construction
and ramp up time tables of high speed rail projects, which
typically run anywhere from 5 to 8 years to 10 years.
Under TIFIA, repayment can be deferred up to five years
after completion of the project. The cost of this deferral is
paid by annual appropriations, initially set at approximately
$122 million, and supplemented in 2010 to cover additional loan
activity.
We propose also that the RRIF subsidy can be used to lower
the interest rate when the Secretary determines that that would
make the difference in the viability of a project.
RRIF and TIFIA interest rates are set based on comparable
U.S. treasuries. Today, the rate on a 35-year loan is
approximately 4.7 percent. We estimate that, at today's
interest rate, a $1.1 billion subsidy would support a 10-year
deferral of payments, or a 3 percent interest rate on a 35-year
loan of $5 billion. Put another way, one Federal dollar would
leverage five dollars in loans to private entities that must be
repaid.
We fully understand the need to reduce Federal spending,
and we know that $1.1 billion is not pocket change. However, if
the Federal Government is committed to investing in high-speed
rail, would we not be better off taking a portion of the
proposed $53 billion and leveraging it at 5 to 1? Given today's
financial reality, this might be the only way to find the funds
necessary to build high speed rail in the U.S.
Collateral is also an obstacle to the high speed rail
industry. RRIF requires a first lien on hard assets equal to at
least 100 percent of the value of the project. High speed rail
projects will not be able to meet this requirement. We propose
that FRA accept the estimated value of a future stream of taxes
or fees pledged to repay the loan as collateral. In the case of
a default, the government is guaranteed this stream of income
to repay the loan, so it's just as protected as it would be if
there were hard assets to sell to recover the loan.
Finally, we propose that development phase activities be
eligible for RRIF funding. High speed rail projects, as you
know, require substantial development phase activities,
including planning, feasibility analysis, and environmental
review. Under the current RRIF statute, it is unclear whether
these are eligible costs.
Uncertain outcomes can make this first phase of the
projects the hardest to fund. Knowing that a RRIF loan could
reach back and pay for these costs would make it more feasible
for private or local government to initially fund these costs.
High speed rail holds great promise for the American
people, and high speed rail advocates are rightly passionate in
promoting its substantial advantages. Congestion relief, energy
conservation, cleaner air, inter-connected communities are all
potential benefits. Build-out will create many thousands of
jobs in providing rolling stock, signaling systems, and
maintaining the infrastructure will renew critical domestic
manufacturing and supply industries that we have sadly ceded to
foreign countries.
We need to move forward--to move forward, we need to think
about alternative ways to fund high speed rail projects. These
proposals are not the total answer, but they are realistic and
a cost-effective way to begin.
Thank you for your time, and I am available to answer any
questions you might have.
Mr. Shuster. Thank you very much, Mr. Loftus. Appreciate
that. And again, as I said, if anybody has any direct questions
to Mr. Fenton, we want to sort of direct them to him. I know,
Mr. Long, you had a question to the previous--to the Secretary
about the program. I don't know if you wanted to pursue that
line of questioning.
Go ahead, Mr. Long.
Mr. Long. Thank you, Mr. Chairman. I--and I think he's
taking the train to his folks' reunion, not the plane, I
believe.
[Laughter.]
Mr. Long. In your testimony, Mr. Fenton, you described a
lack of coordination--I brought this up with an earlier
witness--between RRIF program collateral requirements and the
FTA's policy prohibiting liens on properties I discussed
earlier.
Do you have a recommendation on how we can rectify that?
Mr. Fenton. Well, I think, you know, there has to be a
recognition of some way that we can take those assets and use
them as collateral.
Now, I appreciate the opportunity to sit down with the
deputy to discuss what those options would be. But until we get
that matter resolved, I mean, I am completely precluded from
participating. So I would be anxious to hear what they would
look at as a viable option on how we solve a very complex
problem. And I just appreciate the chance that we could sit
down and work together through the issue.
Mr. Long. OK. One other question. Why would a public agency
like Metrolink look to the RRIF program when you have other
financing tools at your disposal, such as tax-free munis and
private--that private entities can't access?
Mr. Fenton. Well, actually, I am owned by five different
member agencies. I have no taxing authority. I do not have the
ability to issue bonds. Up to this point, we are funded solely
through our member agencies. We are dependent upon grants.
I am trying to expand my options, so we can advance some of
these projects. When I look at a RRIF program, a lot of the
projects we are examining would be things that would be--add
some operating benefit to our organization, as well, and
hopefully not be a burden from an operating expense, but
actually create some enhancements.
So I am not like a lot of government agencies that would
have the authority to go out and have those tools available to
me at this point.
Mr. Long. OK. And then one other quick one here, so you can
get off to Reagan, but do you view RRIF as a promising
financing tool for commuter railroads to pay for Positive Train
Control systems?
Mr. Fenton. I think at this point it has to be, just
because of the unfunded need to implement the PTC.
You know, I am fortunate that we are first out of the box
with PTC. I am fully funded at this point. But many, many other
transit agencies are not. And I think that RRIF has to become a
part of the equation to meet that need on having money and
capital available for the PTC project.
Mr. Long. OK. Thank you. And I yield back, Mr. Chairman.
Mr. Shuster. Before I go to the next line of questioning, I
will let Mr. Yachmetz engage in this discussion, because--if
you want to go ahead and respond to some----
Mr. Yachmetz. Yes. Actually, I would. I'm not quite
familiar with what the immediate Metrolink problem is.
We have, as you noted from looking at our list of RRIF
loans we have granted, funded 50 passenger coaches for Virginia
Railway Express. And when we also did the Denver Union Station
project, we subordinated the RRIF program to the TIFIA program.
Basically, the Secretary subordinated his right pocket to his
left pocket.
And so, there is flexibility in the Department. If there is
an absolute requirement to let FTA have first position on the
assets, we could look at taking a second position with RRIF. So
we would be very happy to try to flesh out what the specific
issue is, because it may actually be something we can just take
care of administratively.
Mr. Shuster. That would be good for Metrolink and the FRA
to get together. Maybe we can resolve some of this. I would
like to hear back after you've been able to discuss that and
the outcome of it.
And with that, we yield to Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman. And I am glad--is it
Yachmetz--Mr. Yachmetz answered that question. That was one of
my questions I had for you, relative to Metrolink's issue.
And I think what I would like to know--if there--if you can
get back to us--if there is a--rather than solving the problem,
which I hope you do, is in fact, if this is just a one offer,
two offer, three offer--it's for Denver, it's for VRE, it's for
Metrolink, or do you have some sort of guidance on how you
approach these things? And that, I think, from our
perspective--it's great to hear you solve the problem. I think,
from our perspective, we would like to know if you actually
have some guidance on how you make those choices.
Mr. Yachmetz. Well, we will certainly get back to you. We
have had conversations with about three or four commuter
agencies, and this is the first time this issue has come up. So
we will be happy to see whether there actually is an issue that
we have to do a one-off, or maybe just provide some clarity in
our guidance.
Mr. Larsen. And we would also expect FTA to respond to us,
as well.
So, Mr. Fenton, how is--in your view, how is the credit
risk premium--how is that different than pursuing a similar
loan in the private sector? At some point you have to have a
risk tied to your loan.
Mr. Fenton. Well, I think it goes back to what's the
capability to pay. And if you think about what we would be
subjected to, which would be 1 to 3 percent of the loan, of a
$300 million loan, you can see, you know, anywhere from $3
million to $9 million of cost.
Now, in a public agency, when we're sitting here trying to
meet the growth needs, whether it's in infrastructure--you
know, I can build a mile of railroad for $5 million. You know,
technically, we're taking resources and diverting them into a
credit risk premium that could be put into improving
infrastructure. And, you know, since I have sat on both sides
of the fence, I'm much more constrained with my ability to do
creative things in the public sector at this point. And every
dollar means something, especially when you face the many
challenges we face in southern California.
So, when I start talking about, you know, $3 million to $9
million for a credit risk premium, I'm looking at cars,
locomotives, capacity improvements, things that are sorely
needed in southern California.
Mr. Larsen. I would just say every dollar always means
something. Every public dollar always means something, not just
when things are good or bad.
Can you give me a view on whether or not you think we ought
to--well, does Metrolink have a view on subsidizing the credit
risk premium, or there is one other idea--it might even have
been in your testimony--buying up the interest rate to buy down
the credit risk premium?
Mr. Fenton. Well, I think the model is really the TIFIA.
You know, they don't have that aspect as a part of their loan.
And I think, when you start having some consistency in how
public agencies are dealt with, whether it's through TIFIA or
whether it's through the RRIF program, I think they should be
consistent.
I think TIFIA has the right model, when it comes to the
credit risk premium, and I think those dollars should be
allowed to be put into viable assets, instead of something that
the credit risk premium--because, you know, I feel very
comfortable that we would be able to cover our payments.
Mr. Larsen. Just finally, I am not totally familiar with
the TIFIA program and how it works, perfectly, but I'm sure if
we brought people in like this panel to talk about TIFIA, we
could probably find our own problems there, too. So, you know,
I'm pushing back very hard on this because it still--whether
it's your public dollar for Metrolink, or it's a Federal
taxpayer dollar, it's a taxpayer's dollar that you're asking us
to begin thinking about making choices about. And there is not
a lot to go around. In fact, there is negative taxpayer dollars
going around--at one point $6 trillion in deficit this year
alone.
So, that's why I'm pushing back very hard. And before I
even jump on the TIFIA idea I would certainly be interested in
seeing how well the people are participating in the TIFIA
program, and see how that's going.
It might be a model that works for you, because it saves
you money. And that's fine. I don't expect anyone to come up
here and say that--ask us to do things that don't save you
money. But by the same token, it's not necessarily--if it works
somewhere else perfectly, I would be happy to look at it.
Mr. Shuster. Thank you, Mr. Larsen, and I think you make a
very good point. As we go forward, trying to find the solution
to improve the RRIF program--and there is some question as to
whether the FTA will allow their--what they have loaned money
on to be collateralized to the FRA, and so I'm not sure we're
clear on that, and that's something we need to delve into
further and get that squared away so we can move forward.
In addition to that, what was that--oh, the question on the
timing of it. The Secretary said that you're within the--FRA is
within the 90-day window. But my understanding of the law is
that it says that it needs to be completed within 90 days. And
you're completing your part, then you're kicking it over to the
credit council, and it's taking longer and longer.
So, as I said, I think the law is pretty clear that it's to
be a 90-day window. Is that true, what the--how I interpret the
law? Do you interpret it that way? And what's the 90-day
period? What do you call 90 days?
Mr. Yachmetz. Well, 90 days, in our interpretation--and I
think the statute is fairly clear--is from the date we have
received a completed application until the date that the
Secretary--or, in this particular case, the Administrator--
makes a decision on the loan.
We frequently get incomplete applications. We frequently--
less frequently, but on occasion we get applications that
require reviews under the National Environmental Policy Act
that need to be completed before we can deem the application
complete. Because we cannot move forward with a loan or a
grant, because it still falls within the jurisdiction of the
National Environmental Policy Act.
So, there is an extended period of time, but I think it
differs on an applicant-by-applicant basis. And that's why the
Deputy Secretary was saying we need to do more outreach so we
can better inform the community about what is needed for a
completed application.
So, that is one of the things we will be working on.
Mr. Shuster. And kicking it out to the credit council and
OMB outside the 90 days, again, that's--would seem to me you've
got to shorten your process within your agency, so that you can
still get it to the credit council within that 90-day period,
wouldn't----
Mr. Yachmetz. Well, to be clear, the credit council is
within the 90-day period. And after receiving a recommendation
from the credit council, the Administrator makes a decision on
the loan. And the role of OMB, under the Credit Reform Act of
1990, is not to approve or disapprove the loan, but to set the
credit subsidy amount, which is what becomes the credit risk
premium in the RRIF program.
So, the way the RRIF statute is written now, that is
outside the 90-day window.
Mr. Shuster. And I wanted to make clear, Mr. Fenton, you
are excused whenever you need to leave, and then we're going to
go back to sort of more regular order here in asking the
questions.
I just wanted to follow up with that question to Mr.
Callison. Again, your view is the process is way too slow,
and----
Mr. Callison. Well, what happened in our case was simply
that we thought we had FRA approval, and then it was moved to
the OMB, which caused a considerable delay. And the cars were
already delivered, and we still did not have approval. And all
I know is, regardless of how you interpret the statute, in
fact, the OMB had it, the FRA had done the approval, and we
didn't have a final--didn't have final loan dispersement until
some four or five months after the cars were actually
delivered.
Mr. Shuster. Thank you. And, Ms. Richardson, if you----
Ms. Richardson. Yes. Actually, Mr. Fenton, I am glad you
are still here. I did have a follow-up intended question.
You heard me ask Secretary Porcari about a commitment for
both high-speed rail, as well as our existing systems. Do you
feel that that has been translated through the budget and
through other things that you've been told, that there is a
dual commitment?
Mr. Fenton. You know, I'm not as confident that that has
been fully articulated. And being at Metrolink now for 10
months, I see many needs and I am concerned because we aren't
the future, we're today. I mean we are providing service today.
And I think it's something that has to be kept on the front
burner, that as we pursue high speed rail options, you still
have to move people, you still have to provide service on a
daily basis. And at this point, we are that person. And I think
it's important that we continue to be kept in the forefront of
making sure that we can grow to accommodate the needs of the
municipalities that we serve.
Ms. Richardson. And could you articulate specifically what
is it that you're seeing is a concern, in terms of funding,
that you feel that the duality doesn't exist? Because Mr.
Porcari's staff is still here.
Mr. Fenton. Well, I mean, I guess my concern is that as we
start to work through the budget and the different processes,
as our needs--and, look, I'm all about competing. I understand
that the dollars have to be spent wisely. And, you know, I want
to make sure that, as we move forward, that we have a stake at
the table, and that we look at the needs that we have, and rank
those projects accordingly to what the value and the needs are
of those municipalities.
And I don't know if I have seen that process yet, as things
are starting to unfold. But I do think it is important that we
continue to keep the local commuter agencies in the forefront,
because we are providing those services today.
Ms. Richardson. OK. And then finally, my question to all of
you. Have any of you had an opportunity to participate in a
stakeholders' advisory group or something, where it seems to
me--today you have provided excellent feedback of potential
suggestions to improve this program. Have you had the
opportunity to communicate those to the Secretary?
Sir? Just yes or no. Have you had that----
Mr. Callison. No, only through the Short Line Association,
to the extent that they have spoken to the administration.
Ms. Richardson. OK. Sir?
General Timmons. No, we have not.
Ms. Richardson. OK.
Mr. Fenton. No, I have not.
Ms. Richardson. OK.
Mr. Sussman. Only eight years ago, when there was a major
revamping of the program, and there was a stakeholder outreach.
Ms. Richardson. OK. Sir?
Mr. Loftus. I personally have not, but I believe the High
Speed Alliance has.
Ms. Richardson. OK. And you, sir?
Mr. Yachmetz. We are committed to--as Deputy Secretary
said, we are committed to----
Ms. Richardson. I can't hear you.
Mr. Yachmetz. As Deputy Secretary Porcari said, we are
committed to increasing the outreach that the Department does
on this program and our other credit programs.
Ms. Richardson. OK. Might I suggest, Mr. Chairman, that we
refer these excellent suggestions that our witnesses have
provided us today of how to improve the program, that we would
submit them to the Secretary for consideration, and to come
back to the Committee on his thoughts of those recommendations.
I think the general would say often times when you're
requested, a response might come--requested or directed--might
often times get a stronger answer.
Mr. Shuster. That's a great suggestion, and we will pursue
that.
Ms. Richardson. Thank you, sir. I yield back the balance of
my time.
Mr. Shuster. Thank you very much, and yield to Mr. Reed.
Mr. Reed. Thank you. Thank you, Chairman. I guess the
question I would ask is you're all willing to meet with the
Department, I would assume, yes?
[All nod affirmatively.]
Mr. Reed. Yes. And the Department is committed to doing
that. Is that a yes?
Mr. Yachmetz. That's a yes.
Mr. Reed. OK, great. How are we going to accomplish that,
Chairman? How are we going to get that done?
Mr. Yachmetz. Well, the first part of this is, I think,
educating the potential applicant pool of the change in
approach by this administration with regard to credit policy.
And we have had, actually--while we were waiting for the
hearing to start, we have had a number of conversations with
the Short Line Association about us going to their regional
meetings, their annual meetings----
Mr. Reed. Excellent.
Mr. Yachmetz [continuing]. To start the meeting with
members and prospective applicants, to walk through the process
and identify what we will be looking for in a completed
application, how we can help make that process not only more
transparent, but easier for the relatively small, less
financially sophisticated companies.
And one of the other things the Deputy Secretary said is
that we are looking for other good ideas, how to get out and
work with the community, because we view this as a very
valuable opportunity to invest in the transportation
infrastructure of this country at little or no cost to the
government.
Mr. Reed. Well, I appreciate it. So maybe we will have some
more hearings so everybody can get in the same room and we will
get some positive movement there.
One thing that concerned me, Mr. Sussman, in your testimony
you focused on the application and the questions in the
applications that ``they do not clarify the level of data and
detail required.'' Specifically, what in the application is of
concern to you, and how can we, at the Department--or how can
the Department clarify, make that--more user friendly, it
sounds like----
Mr. Sussman. Yes.
Mr. Reed [continuing]. Is what you're looking for.
Mr. Sussman. Well, for instance, there is a question that
asks the applicant to describe the impact of the improvements,
the funded improvements, on the safety of their operation. And
that's the question. What's asked--what they want is a data-
driven, specific dollars-and-cents, how is this going to be
spent, how much do they spend for derailments now, what would
be the projected amount that gets spent on derailments after
this investment, that type of level of detail.
And the applicants, not knowing that, answer that question
like an essay question.
Mr. Reed. OK. That would make sense.
Mr. Sussman. Yes.
Mr. Reed. You have any problem with maybe a little more
detail in the application?
Mr. Yachmetz. No. And, in fact, that is one of the reasons
why we feel like as if now we need to go back out and do
outreach, which, quite frankly, we have not done for a decade,
at least, and talk to the community and maybe walk through the
application, and also see where we can make the application a
little bit clearer and less onerous.
Mr. Reed. Do you have any timelines as to when that would
be completed by?
Mr. Yachmetz. I believe the National Short Line meeting is
in May. Our administrator has already committed to speak there,
and I will probably be out there talking, as well, to the short
line members.
And then, over the course of the rest of the year, there
will be a number of regional meetings, which is where we will
probably have a lot more of the detailed discussions.
Mr. Reed. Well, I appreciate that, because this is a great
program, and I think we want to expand upon it, and I think
that commitment will go a long way to get more money out there
into the field.
Mr. Chairman, I will yield back the balance of my time.
Thank you very much, gentlemen, I really do appreciate the
input.
Mr. Shuster. I thank the gentleman from New York. And
looking down to see if anybody has any--Mr. Hanna, I will
recognize Mr. Hanna for a question.
Mr. Hanna. Mr. Loftus--thank you, Chairman--you describe,
in your desire to change the definition of collateral, because
you don't own 100 percent of the assets, the new assets,
they're still there, they're still collaterable. But then you
go on to say that the--in the event of a default, the stream of
revenue from the high speed rail would serve as a collateral.
But am I missing something, or isn't it, by definition, if
the stream of revenue was adequate to guarantee the loan, then
the loan wouldn't default?
Mr. Loftus. That's correct.
Mr. Hanna. Well, then why would one lead to the other?
Mr. Loftus. The operation might default. So if the
operation had to stop because it's not covering its costs, for
example, the RRIF loan would still be secured by a separately-
pledged stream of tax revenue or fee revenue. That's under a
separate credit agreement with the FRA pledging that stream of
cash to repay the loan.
Mr. Hanna. OK.
Mr. Loftus. And--if the operation wasn't meeting its
operating costs, for example, and it just had to stop
operating, that stream of cash would still be there to repay
the loan, which is similar to what happens in any default,
except in this case, because high speed rails are not
constructed at the time the application is submitted and
approved, there are no assets to pledge. So there are no assets
to sell in event of default. And this is a proposal for a way
to deal with that lack of pledgeable assets.
Mr. Hanna. But the asset is there. You still have----
Mr. Loftus. It will be there after four or five years, when
it's constructed. And I guess you could switch over to a pledge
of assets at that time. But I'm talking about when the loan is
getting approved. Right now the requirement is to have
collateral, hard collateral, to pledge to support the loan. And
that doesn't exist in high speed rail systems.
Mr. Hanna. I see. So, rather than--you might like to see
some period of time between conception and when it's built out,
that associates that problem--that allows you forgiveness of
that.
Mr. Loftus. That's not what I suggested, but that would be
worth considering.
Mr. Hanna. Well, thank you.
Mr. Loftus. It would be more risky, I think, from the FRA's
point of view. But it would be worth considering.
Mr. Hanna. Thank you. I yield back.
Mr. Shuster. I thank the gentleman. First question I have
is to General Timmons, and then I want to come back and, Mr.
Sussman and Mr. Loftus, I would like the two of you to maybe
comment on each other's, because there are different solutions
to the problem. So I would like to hear your assessment on each
other's, and engage the rest of the panel on your ideas.
But first, to Mr.--to General Timmons, from a short line
perspective, why is refinancing such an important eligibility
under the RRIF program? Can you expand on that?
General Timmons. I can, Mr. Chairman. A sentence or two
about the background of that. And as you all may or may not be
aware, the purchase of those short lines and the equipment and
the purchase or the loans appropriate for infrastructure
upgrade are all commercial loans. And so those carry the
baggage of high interest rates and relatively short term. And
so, what that really does is bleed off much-needed cash that
could be used for the reinvestment in the infrastructure of the
small railroads.
The RRIF loan provides a relatively low-interest, long-term
payback which provides a greater cash flow, and you can use
that money to invest in your railroad. You say, ``Why is that
such a critical issue, this reinvesting?'' It seems like short
line railroads are continuing to reinvest.
The reality is that the rail industry itself is the most
capital-intensive industry in North America. And of--within the
railroad industry, the short line industry is the most capital-
intensive. About 30 percent of their bottom-line revenues go
into infrastructure upgrades. Why is that? Because they got old
and deferred maintenance equipment from the Class I railroads
who got rid of them, as a result of staggers. And so they've
been in a continuous and perpetual effort to upgrade those
systems.
And while that has been going on, keep in mind that the
short line industry changed from 8,000 miles immediately after
staggers to 50,000 miles today. And at the same time, the
requirements for heavier track and heavier equipment and more
substantial bridges adjusted because we put heavier cars and
more robust equipment with greater load capacities.
So, this is sort of a very tightly-woven fabric, where the
refinance is absolutely at the center of it.
Mr. Shuster. Thank you very much, General. Appreciate that.
Mr. Loftus and Mr. Sussman, you both have very different views.
Mr. Loftus wants to lower the interest rates and provide some
government subsidies. I take it you put out they are
government-backed, government-underwritten, and Mr. Sussman is
talking about increasing interest rates.
So, Mr. Loftus, if you could, comment on what are the weak
points in Mr. Sussman's that you think won't work and why yours
will work.
Mr. Loftus. Well, first of all, we are talking about
different sectors of the industry. Mr. Sussman, I believe, is
talking about primarily short line freight roads, regional
freight roads. I am talking about the high speed rail industry.
A key difference is, as we all know, high speed rail does
not exist. It's an effort to get started. And the rail lines
themselves have to be constructed. And during that construction
period, obviously there is no revenue being generated to
support repayment of the loan. And there is typically a--you
know, a period of time right at the beginning, after
construction, where demand for the system gets built up as
people become aware of it, and they understand the benefits of
it, and they start to ride.
So, it's anywhere from three to five years, I would say,
until it reaches its full ridership. So the deferral would
address that situation very effectively, from the Alliance's
point of view. An interest rate subsidy over the length of the
loan would do some of the same things. It wouldn't cover,
obviously, the elimination of debt service during construction
ramp-up, but it would lower the overall coast of the loan over
the period of the project.
Mr. Shuster. So I misunderstood. I thought you were talking
about financing the same way.
But, Mr. Sussman, could you expound on yours--higher
interest rates----
Mr. Sussman. My suggestion of an enhancement to the program
would be to add an option for borrowers to agree to a higher
interest rate in exchange for lowering the credit risk premium.
For some applicants, that will be very attractive. For others,
not. It all depends on the amount of the loan, and the rest of
their financial structure.
Mr. Shuster. Would you see--and, as you said, it depends on
the applicant. From what you've seen out there, do you think
there would be a significant number that would prefer what
you're proposing, or not sure, or--I mean what do you think the
market is out there for your recommendation?
Mr. Sussman. Yes, I think there would be considerable
interest in that. Certainly the credit risk premium, which,
just for reference, is typically, for the loans that have been
approved so far, has been in the two, three, four percent, and
that requires the applicant, for every $100 that they want to
accept in a loan, they have to pay in, you know----
Mr. Shuster. Right.
Mr. Sussman [continuing]. $2, $3, $4. So, for some----
Mr. Shuster. Right.
Mr. Sussman [continuing]. That's another one of the
hurdles----
Mr. Shuster. Right.
Mr. Sussman [continuing]. To getting to the finish line.
Mr. Shuster. And the--some, I would assume, would be
interested--stronger balance sheets, higher operating profits,
they're not afraid to----
Mr. Sussman. Yes.
Mr. Shuster. OK.
Mr. Sussman. Yes.
Mr. Shuster. And, Mr. Callison, could you comment on what
your thoughts are on what Mr. Sussman is presenting? Is that
something you're interested in, or----
Mr. Callison. I think it's an interesting option, to have
the ability, rather than to have a credit risk premium, to be
able to pay a default rate risk in the interest rate. I think
it's an interesting option.
Mr. Shuster. And, General Timmons, your thoughts as an
industry-wide----
General Timmons. I think it's an option. Obviously, now,
the--based on the collateral that you put forward, the less you
put forward the higher your interest rate. The more you put
forward, if you collateralize it at 120 percent or 130 percent,
your interest rate gets pretty low.
Mr. Shuster. Right.
General Timmons. Four or five percent. So the program today
has that flexibility built into it. And so, it just depends on
how much you want to step forward on that amount.
Mr. Shuster. OK. All right. Well, anybody else want to
comment?
Mr. Yachmetz. Well, just a couple points. The whole concept
of the credit risk is actually built into the Credit Reform Act
of----
Mr. Shuster. I'm sorry, could you repeat that?
Mr. Yachmetz. The concept of the subsidy amount, the credit
risk, actually flows from the Credit Reform Act of 1990, and
applies to all of the Federal Government credit programs. So,
fixing this for RRIF may not be best. You may want to look at
this in the context of all credit programs.
And then, another--just to point out, a number of the
people here talked about the difference between TIFIA and RRIF.
And one of the good things about RRIF is, in fact, the credit
risk premium being able to be paid by individual companies,
because that takes us out of the appropriations environment.
The way TIFIA is different--because it was created under title
23----
Mr. Shuster. Right.
Mr. Yachmetz [continuing]. Is there is contract authority
to pay it. And in the last year or two, when the contract
authority ran out, TIFIA started imitating RRIF, and letting
individual companies or individual applicants actually pay the
credit risk premium, rather than wait for contract authority to
be available again.
Mr. Shuster. OK. Well, thank you very much for that. And I
want to thank all of you for coming here today. Again,
apologies for getting a late start. I appreciate that. And we
will take Ms. Richardson's idea to pursue this further.
I have to do a UC. I think I've got to step out for a
minute. Mr. Denham wants to ask a few questions. And let me do
this first, it's my housekeeping. I ask unanimous consent for a
statement to be put in the record for Chairman Mica, and also
to insert his October 15th and my October 15, 2010, letter to
the Department of Transportation on the RRIF guidance, our
concerns on that. Without objection, I want to put those both
into the record.
[Hon. Mica's statement is on page 59; the letter follows:]
[GRAPHIC] [TIFF OMITTED] 65451.021
[GRAPHIC] [TIFF OMITTED] 65451.022
Mr. Shuster. And with that, you will be the final
questioner, if you had a couple of questions. Fine, and then
you get to sit here. I have to step out and take a meeting. So
thank you all very much, and Mr. Denham will finish up.
Mr. Denham. [presiding]. Thank you, Mr. Chairman. Thank
you, Mr. Shuster.
I just have a few quick questions on--primarily on
California high speed rail. Obviously, we have had a number of
concerns, you're seeing a number of amendments on the floor
right now addressing a variety of different topics, as it
pertains to funding for high speed rail.
My biggest concern right now is the private capital that is
supposed to make the entire project whole. Mr. Loftus, I wanted
to specifically ask you. The question that keeps coming up is:
When is enough Federal money enough? And do you expect any more
state money? So, when you get those two pieces figured out, at
what point does the private industry step in, and when does it
become a financial--and when is there a financial incentive for
a private company to actually come in and take the burden, the
final burden, of this?
Mr. Loftus. Obviously, that's a very project-specific
situation. But, in general terms, private money will come in
when they believe they can earn what--the return they want to
make on their money.
Mr. Denham. I would agree.
Mr. Loftus. Anyway, that's very obvious, right?
Mr. Denham. Yes.
Mr. Loftus. And the concept is, to the extent the Federal
Government can remove the risk of the project by providing
funds, and the private sector, in effect, tops up the required
amount of funds, that will increase the returns, just by the
fact that they put in less money to get the returns that the
project generates.
And I can't say where that would be. I believe private
sector return requirements are probably in the 14 percent range
on these types of projects. And, again, it's very project-
specific. Cash flow is what generates returns. So the ridership
forecasts and the cost estimates, all of that will be--and the
cost to construct the system, all of that will play into what
the private sector perceives as the potential returns.
And to--again, to the extent that the Federal Government
grants money and the RRIF loan facility is adjusted--perhaps in
the ways I have suggested, or other ways--to the extent that
removes risk from the project, the private sector would be more
interested in stepping in and providing financing.
Mr. Denham. So do you have a specific modeling that would
show when the risk would be low enough for private investors to
step in and be profitable?
Mr. Loftus. Yes, we do. And I can provide that later, you
know, after the meeting, or to your staff, if you like.
Mr. Denham. Thank you. And specifically on the California
high speed rail project, what do you anticipate the Federal
Government and state government are going to have to put in?
Mr. Loftus. I can give you an answer, but I can't say that
number right now. I just don't have enough information in my
head to answer that. But it will be substantial. It's a large
system.
Mr. Denham. Yes, I understand it's going to be substantial.
You know, we took a bond--were you still there when we
voted on that in the legislature? We voted on it at the
legislature. At the time, $9.95 billion. We took that to the
voters, we told the voters that was all that Californians were
going to have to pay. You know, that was assuming that a large
portion was coming from the Federal Government. But now these
numbers continue to escalate.
So, my fear is, now that we're pulling communities out of
thin air and putting rail stops between the first segment, that
not only does the public lose interest, but more importantly,
we actually run out of money and never are able to finish a
project because we can't encourage private investors.
So, my concern is making sure that this model works, and we
continue to move forward on a project that is not penciling out
today.
Mr. Loftus. Right.
Mr. Denham. Do you have that same concern?
Mr. Loftus. Oh, yes. Of course. I mean, obviously, no one
wants to pursue projects that don't make economic sense. And we
would not suggest doing that, although we do think that
Federal----
Mr. Denham. But that is what we are doing right now today.
As other states give up money, we're trying to grab that money.
And I realize that we're trying to grab that money to make the
project whole, but we're doing it without understanding
specifically what the model is to make it successful and
complete.
Mr. Loftus. Well, I can--I will show you a model of a high
speed system that makes sense. I will provide that to your
staff.
And also, you know, historically, passenger operations of
any kind, passenger rail operations of any kind, like the
highways, have not covered their costs. There has always been
some government subsidy involved, including on the highways. So
a lot of this is sort of the unquantifiable public benefits.
There is no cash benefit that you can put on the public benefit
of having better transportation systems in any type of--any
mode of transportation.
Freight railroads are different, because they're
transporting goods that are sold, and companies need to
transport those goods, so that's a very different model of
transportation than passenger transportation. And I think
history shows that the country has been willing to finance
passenger transportation modes--again, including highways --
because they believe there is an overall benefit to society,
whether there is the cash return or a lack of subsidy
requirement has generally been the case, and it's also
generally been that the government is willing to support that.
Mr. Denham. And I would agree that the American public
would be willing to support a project that will have the
ongoing ridership numbers. Where they see the biggest need, you
know, they can see the investment to put the capital forth to
get the project started and actually complete.
But I believe--it's my belief--that the American people
expect the ridership numbers to pencil out, so that it's not an
ongoing subsidy. That would be the administration's position,
as well. I mean is that not how we're moving forward on each of
these projects, is putting the assets out there, and then
expecting the private companies to be able to fulfill the
ridership numbers?
Mr. Loftus. That is the model that Florida is pursuing,
even though the governor returned the funds.
Mr. Denham. And what different challenges are you seeing?
This is high speed in general, across the Nation. What
challenges would you see that would be different in, say, the
northeast corridor versus California or any of the --are there
different regional challenges, I guess, is my question.
Mr. Loftus. There are. The northeast corridor, it's an
existing infrastructure, travels through very densely populated
areas. So, to turn that into a true high-speed rail operation
is going to be difficult, just from an engineering point of
view. It can be done.
In California, they are running over, in many cases,
existing freight lines. So the interaction between freight and
passenger will be something that needs to be worked out. And
they're also building new dedicated facilities.
Florida, I believe, is primarily, in this first leg, Tampa
to Orlando, I think that's pretty much dedicated right of way.
When they've moved beyond Orlando, trying to go down to Miami,
then they're going to be sharing track with a freight railroad
operation. So that interoperability difficulty is present
there.
Mr. Denham. And which of those routes would be most
attractive to private investors?
Mr. Loftus. I--right now, Florida is the only one that I am
aware of that is well-enough defined for the private sector to
get their hands around. And as Secretary Porcari said earlier,
the private sector was ready to take on that project, including
ridership risk, but the governor chose to return the funds.
Mr. Denham. And you have a model on all three of those
projects?
Mr. Loftus. No.
Mr. Denham. Just----
Mr. Loftus. I have a model on a project that I will provide
to your staff.
Mr. Denham. OK. So the project model that you have would be
the same for all three?
Mr. Loftus. No, no, of course not. I mean the riderships
are different, the cost to construct is different. The cost to
operate is different. But, in concept, the ability to generate
returns would be conceptually the same, yes.
Mr. Denham. OK, OK. But you do have three models for all
three projects.
Mr. Loftus. No, I don't. I have one project.
Mr. Denham. You have----
Mr. Loftus. The models for those projects are proprietary,
and they're not available to the Alliance.
Mr. Denham. Oh, OK. OK, thank you.
My final question, Mr. Yachmetz, how many grants did FRA
administer before the ARRA?
Mr. Yachmetz. You mean all kinds of grants? We--generally
speaking, we had--before the Recovery Act we had two big
grants, Amtrak's capital and debt service was one grant, and
operating was another grant. And then we would, on a regular
basis, have 20 to 30 small grants, and 2 or 3 RRIF loans.
Mr. Denham. Thank you. Ms. Richardson, do you have any
final questions?
Ms. Richardson. Yes. Thank you, Mr. Chairman. I just wanted
to follow up on a few of the questions that you asked.
Mr. Loftus, which project are you working with with high
speed rail currently, that you have a model for?
Mr. Loftus. The DesertXpress system.
Ms. Richardson. Excuse me?
Mr. Loftus. DesertXpress, from Victorville, California to
Las Vegas, Nevada.
Ms. Richardson. OK. Mr. Chairman, for the record, I think
some of the answers of what Mr. Loftus provided were actually
not originally within the overall scope of this committee's
jurisdiction, and I--not jurisdiction, in terms of our hearing
today.
And I want to thank you. It's my understanding I think
earlier today you were considering an amendment on the floor
and you withdrew, and I want to express gratefulness to that,
because I know we do have an upcoming hearing in your area--in
fact, next week--that I plan on attending.
But I would just say that I have attended, because I am one
of the co-chairs of the high speed rail caucus for California,
and I would welcome your involvement with that. It is a
bipartisan caucus. And I think that some of the things that Mr.
Loftus said--I have participated in at least three or four
meetings where I have engaged with great private sector
involvement, and hope to be involved with with our projects.
So, maybe after we learn from the hearing next week, we
will be able to speak to the chairman, Mr. Shuster, about
having a more intensive high speed rail discussion with all of
the appropriate parties present, so before we make decisions
of, you know, yea or nay on something, that we have everything
at the table. Thank you, sir.
Mr. Denham. This hearing is adjourned.
[Whereupon, at 1:33 p.m., the subcommittee was adjourned.]