[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
NORTHEAST CORRIDOR FUTURE: OPTIONS FOR
HIGH-SPEED RAIL DEVELOPMENT AND
OPPORTUNITIES FOR PRIVATE-SECTOR
PARTICIPATION
=======================================================================
(112-115)
HEARING
BEFORE THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
DECEMBER 13, 2012
__________
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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 EDDIE BERNICE JOHNSON, Texas
BILL SHUSTER, Pennsylvania ELIJAH E. CUMMINGS, Maryland
SHELLEY MOORE CAPITO, West Virginia LEONARD L. BOSWELL, Iowa
JEAN SCHMIDT, Ohio TIM HOLDEN, Pennsylvania
CANDICE S. MILLER, Michigan RICK LARSEN, Washington
DUNCAN HUNTER, California 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
RANDY HULTGREN, Illinois GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania DANIEL LIPINSKI, Illinois
CHIP CRAVAACK, Minnesota MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas JASON ALTMIRE, Pennsylvania
LARRY BUCSHON, Indiana TIMOTHY J. WALZ, Minnesota
BILLY LONG, Missouri HEATH SHULER, North Carolina
BOB GIBBS, Ohio STEVE COHEN, Tennessee
PATRICK MEEHAN, Pennsylvania LAURA RICHARDSON, California
RICHARD L. HANNA, New York ALBIO SIRES, New Jersey
JEFFREY M. LANDRY, Louisiana DONNA F. EDWARDS, Maryland
STEVE SOUTHERLAND II, Florida VACANCY
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
REID J. RIBBLE, Wisconsin
CHARLES J. ``CHUCK'' FLEISCHMANN,
Tennessee
VACANCY
CONTENTS
Page
Summary of Subject Matter........................................ v
TESTIMONY
Panel 1
Hon. Carolyn B. Maloney, a Representative in Congress from the
State of New York.............................................. 9
Panel 2
Hon. Karen J. Hedlund, Deputy Administrator, Federal Railroad
Administration................................................. 14
Joseph H. Boardman, President and Chief Executive Officer, Amtrak 14
Hon. Joan McDonald, Chair, Northeast Corridor Infrastructure and
Operations Advisory Commission; and Commissioner, New York
State Department of Transportation............................. 14
R. Richard Geddes, Adjunct Scholar, American Enterprise
Institute; Associate Professor, Department of Policy Analysis
and Management; and Director, Cornell Program in Infrastructure
Policy, Cornell University..................................... 14
J. Perry Offutt, Managing Director, Morgan Stanley and Company
LLC............................................................ 14
John P. Tolman, Vice President and National Legislative
Representative, Brotherhood of Locomotive Engineers and
Trainmen....................................................... 14
PREPARED STATEMENT SUBMITTED BY MEMBER OF CONGRESS
Hon. Eddie Bernice Johnson, of Texas............................. 41
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Hon. Carolyn B. Maloney..................................... \\
Hon. Karen J. Hedlund............................................ 43
Joseph H. Boardman............................................... 60
Hon. Joan McDonald............................................... 78
R. Richard Geddes................................................ 84
J. Perry Offutt.................................................. 91
John P. Tolman................................................... 102
SUBMISSIONS FOR THE RECORD
Hon. John L. Mica, a Representative in Congress from the State of
Florida, request to submit the Amtrak chart entitled, ``Stair-
Step Service Milestones''...................................... 25
Hon. Karen J. Hedlund, Deputy Administrator, Federal Railroad
Administration:
Responses to questions for the record from Republican members
of the Committee on Transportation and Infrastructure...... 53
Responses to questions for the record from Hon. Corrine
Brown, a Representative in Congress from the State of
Florida.................................................... 58
Joseph H. Boardman, President and Chief Executive Officer,
Amtrak:
Responses to questions for the record from Republican members
of the Committee on Transportation and Infrastructure...... 69
Responses to questions for the record from Hon. Corrine
Brown, a Representative in Congress from the State of
Florida.................................................... 74
Hon. Joan McDonald, Chair, Northeast Corridor Infrastructure and
Operations Advisory Commission; and Commissioner, New York
State Department of Transportation, responses to questions for
the record from Hon. Corrine Brown, a Representative in
Congress from the State of Florida............................. 82
J. Perry Offutt, Managing Director, Morgan Stanley and Company
LLC, responses to questions for the record from Hon. Corrine
Brown, a Representative in Congress from the State of Florida.. 100
John P. Tolman, Vice President and National Legislative
Representative, Brotherhood of Locomotive Engineers and
Trainmen, responses to questions for the record from Hon.
Corrine Brown, a Representative in Congress from the State of
Florida........................................................ 108
ADDITION TO THE RECORD
Coalition of Northeastern Governors, written statement for the
record......................................................... 111
----------
\\ Hon. Carolyn B. Maloney did not submit a written
statement.
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NORTHEAST CORRIDOR FUTURE: OPTIONS
FOR HIGH-SPEED RAIL DEVELOPMENT AND
OPPORTUNITIES FOR PRIVATE-SECTOR
PARTICIPATION
----------
THURSDAY, DECEMBER 13, 2012
House of Representatives,
Committee on Transportation and Infrastructure,
Washington, DC.
The committee met, pursuant to call, at 10:05 a.m., in Room
2167, Rayburn House Office Building, Hon. John L. Mica
(Chairman of the committee) presiding.
Mr. Mica. Good morning. Welcome to this hearing of the
House Transportation and Infrastructure Committee. And I
welcome everyone this morning. Pleased you could join us.
The title of today's hearing is the ``Northeast Corridor
Future: Options for High-Speed Rail Development and
Opportunities for Private-Sector Participation.''
The order of business will be opening statements by
Members. And we have another Member who has joined us. We will
have an individual panel made up of Mrs. Maloney. Then we will
go to our next panel of witnesses and question them and proceed
with the hearing in that order.
Let me make just a couple of custodial announcements. I
apologize, the other day we tried to get the official committee
room photo of the committee, and notice went askew, but we will
reschedule that. And if votes are cancelled on Monday, which I
don't know if they have made that announcement, but if they do,
we will probably shift the official photo to Wednesday
morning--folks may not come back until Tuesday--and probably
about 10:15 because there is a Republican conference and
Democrat caucus, usually, from 9:00 to 10:00 here and, we want
to make certain everyone is notified.
In addition, I would like, to the Members in the official
photo, if we could have staff from both sides of the aisle,
too, join us for one of the photos so that we can include them
in one of the photographs that morning. It shouldn't take more
than 5 or 10 minutes to get that done, but we would like to
invite everyone and put everyone on notice. And we will try to
get triple notification out to everyone for that.
This morning's hearing is a continuation and will be,
actually, the last full hearing of the committee. I am pleased
to have chaired the committee during the past 20-some months
and focus on our transportation needs and requirements. The
very first hearing that I held as chairman was, I believe,
January 27th, 2011. It was a field hearing in Grand Central
Station, and it focused on the same issue, the development of
the Northeast Corridor and high-speed rail.
This hearing is also a part of a series of hearings to
examine some of the operations of our primary transportation
long-distance and high-speed carrier, which is Amtrak. And as
you know, I have been one of the most vocal critics of Amtrak
and its operations, but I also consider myself one of the
strongest proponents of high-speed rail, intercity passenger
service, commuter and mass transit in the Congress and in the
United States. But what we want are projects that make sense
for the taxpayers. What we want are projects that operate where
we have the greatest need and the lowest subsidization by the
Federal Government for those activities.
But today we will focus almost entirely on the Northeast
Corridor, where we started. And let me make a few comments
about that.
First, I have to say that the history of Amtrak and
attempting to provide high-speed rail in the Northeast Corridor
has been sort of a horrible history. And maybe I can highlight
some of the problems we have had. And I don't want to focus
just on the problems we have had, but you have to learn by your
experience.
First, the original intent to develop high-speed rail in
the corridor, we came up with the Acela project. We have had
regional service in the Northeast Corridor in the area from
Washington, DC, to New York and to Boston.
And let me say, I think it is absolutely critical that we
develop that corridor. It is in not only the regional interest
but in the national interest. We have the highest concentration
of population. We have the most sophisticated delivery system
and interconnection. We have light rail, subway, we have Metro,
we have connecters all up and down the corridor so that high-
speed rail is not something that will run by itself.
As opposed to, last week we heard about the major
administration effort to produce high-speed. They are doing it
between, I think, Bakersfield and Fresno in California, where
there are very few people. Their intention is long-term, to
connect it into population centers in San Francisco and Los
Angeles, but it will be a long time before that is
accomplished.
Right now we do have the connectivity that we need, we have
the population. And then we also have the only corridor, this
430-some-mile corridor, is almost entirely owned by Amtrak, the
American people and the taxpayers. That is as opposed to the
rest of Amtrak service, 20,000 miles of service, long distance
and some intercity service, on which Amtrak runs on private
freight rail that is maintained and paid for on a lease basis
to the private sector. And we, in fact, again, own this
corridor.
We have also highlighted before--actually, when I took the
chairmanship in October of 2010--a report, and the title is
``Sitting On Our Assets: The Federal Government's Misuse of
Taxpayer-Owned Assets.'' The first part deals with GSA, and we
have taken on GSA and some of the idle buildings that have sat
vacant. In fact, met with Mr. Tangherlini a few minutes ago to
continue that effort to get empty buildings filled.
But if you read through this report, it also talks about
the Northeast Corridor, which is one of the most valuable
assets, transportation infrastructure assets, in the entire
world, not just the United States. And it is an asset that we
are sitting on that the taxpayers own. It probably never will
be developed to its fullest potential by Amtrak. The Federal
Government just has trouble operating a two-car train set, let
alone developing a corridor with incredible real estate
development potential and as a transportation and
communications corridor. But this outlines, again, part of our
goal was to take this asset, turn it into a valuable return and
a transportation system for the American people.
So we did our first hearing January 27, 2011. We had heard,
at that time, I think the plans by the administration were to
spend--and they had developed these plans in September 2010.
They were going to develop the Northeast Corridor. It was going
to cost $117 billion and take 30 years. The most recent
projection that we have--and part of this hearing is to focus
on where we stand with that effort to move forward and making
this truly high-speed--but they are looking at $151 billion and
also 30 years. My premise is that it can be done in a third of
the time and probably at much less cost.
You will hear Amtrak come forward in a few minutes, and
they are going to tell you how their ridership is over the top,
they are at 31 million, something like that. We probably have
that many passengers in the DC Metro system in 1 month. But
then they will also tell you their success in the Northeast
Corridor. The figures we have from their reports are the
Northeast Corridor had 12.9 million riders in 2000. In 2012
recently released figures--and this is on the fiscal year, not
the annual year--they had 11.4 million riders. Most of the
increase has been in the State partnerships and other
partnerships rather than, again, totally in the Northeast
Corridor.
The Northeast Corridor--and I think their projections are
right; I have looked at their study--predict that you could
have as many as 40 million riders in the Northeast Corridor,
which is a number of times more than we currently have.
Unfortunately, the train runs about 83, 84 miles per hour,
average. They will tell you that they can get up to speeds of
150 to 160 miles per hour. That is not high-speed. The way it
is calculated, it is average miles per hour. The minimum,
actually, if we have a standard, is 110. Almost every high-
speed train in the world is running today at 130-some, 150
miles per hour, average. And here we are in the dark ages, as
far as 83 miles. You will probably hear from Mrs. Maloney in a
few minutes. The segment from New York to Boston is, I think,
around 68 miles per hour, average. Pitiful.
Again, I started to talk about some of the horrible history
highlights of Amtrak's attempts to get into high-speed rail.
They did acquire a train some years ago; called it the Acela.
The acquisition was a total disaster. There were extended, very
expensive lawsuits that went on and on.
They acquired a European design and they acquired a
European sleek model that was allowed to tilt because you could
get faster speed and you had curves and other things that could
enhance the speed. Unfortunately, Amtrak, in the way it handled
first the acquisition and then the redesign of the equipment,
redesigned the vehicle so they were wider. And they
miscalculated because when the train got to higher speeds and
it tilted, the wider trains would hit. So to compensate for
that, they had to put metal shims into the expensive high-speed
rail tilt trains that they bought so that they wouldn't tilt.
So that was the beginning of the fiascos, but,
unfortunately, the failure went on and on. For about a half a
year, we closed down most of the Acela operations because they
didn't have brake parts. They bought equipment for which they
didn't have parts. And, again, another sad chapter in both
their acquisition and operation and ability to operate and
maintain any semblance of intercity passenger service in that
corridor.
They will tell you that they do make money, but they don't
tell you that most of the capital that we provided, both from
the Congress and also the subsidization and the stimulus money,
has been spent for capital improvements. I defy anyone who is
in business to not include some capital costs in your expenses.
So that is part of the problem that we face. I want to say,
we have some friends from labor here. First of all, I kind of
like leaving my position of chairman because I have had so many
items to say grace over. And I might add, at this juncture,
too, I am very pleased of the progress of this committee in 20
months, 20-some months. We passed almost every major piece of
legislation. We passed a transportation bill that they said we
couldn't pass. We passed an FAA bill that had 17 extensions. We
passed a pipeline safety bill. Last night, the Senate passed
our Coast Guard bill, and it is on its way to the President of
the United States for his signature. And we are negotiating
reauthorization provisions for FEMA, which would be the only
remaining item that hasn't been addressed. So I think it is a
record that speaks for itself.
We have made some progress--well, I started to say about
labor, I want to tell our labor folks that I remain committed
to making certain that the benefits, the wages, the retirement
opportunities remain constant for our Amtrak employees.
However, their future is dim. If you continue down this path,
which some of the labor leaders have led our workers on, we
have gone since I came to Congress from 29,000 Amtrak employees
to 19,000. And if you continue down this path, I don't think
that is hopeful. If we actually expand the service in the
Northeast Corridor and create true high-speed service, I
believe it will be replicated where it makes sense across the
United States, and opportunities for workers will expand, not
contract.
Finally, we have made some progress. We have finally gotten
a designation of the Northeast Corridor by the administration
as a high-speed corridor, which wasn't done before. We are now
undertaking an environmental review. I am hoping we can assist
them--and we will hear more of the progress of that--in
speeding this up. We have provisions that were written under
PRIIA, which I actually helped author, and we need to look at
improvements in PRIIA so that we can move forward on an
expedited basis, not only with environmental review but also
with construction, operation, and future maintenance of these
systems.
And, finally, I am pleased with the progress of the
Northeast Corridor Infrastructure and Operations Advisory
Commission. We will hear from them today. They are moving in
the direction that we set by law, but we want to make certain
that we move that timetable forward. The Northeast Corridor is
vital not only because of the mention I made of congestion and
the interconnectivity and that we own the corridor, but also
the entire country benefits because 70-plus percent of our
chronically delayed airplane flights emanate from the Northeast
Corridor. And everyone will benefit by having true high-speed
rail in that corridor.
So, with those extended comments, and I had to take a
little bit of extra time--being chairman, you get that
discretion. That is the bad news. The good news is you won't
away to put up with that again after this hearing.
So let me yield to my delightful, trusted, and wonderful,
pleasant colleague and the former chair of the Rail
Subcommittee, current ranking member, Ms. Brown, my colleague
from Florida.
Ms. Brown. Thank you.
First of all, I want to sincerely thank the chairman for
his service as chairman of this committee. I do know that you
really have a deep love for transportation. And I would ask
that the committee and the people in the audience give you a
hand for your service. Thank you.
[Applause.]
Ms. Brown. And I wanted to welcome my classmate. We all
came together, Mrs. Maloney and Mr. Mica. We are all in the
great class of 1992.
I am happy that we are having this hearing today, but I
really kind of wish it was on the Water Resources Development
Act, which is something that we have not dealt with. I held a
meeting yesterday between the Port of Jacksonville and the
Corps of Engineers to try to find a way to fix the navigation
hazards at the port. But because this committee has failed to
even work on developing a water bill, those ships will continue
to be in danger and the economic development of the port will
continue to suffer.
Again, I am pleased that the current leadership of this
House wasn't in charge when the Northeast Corridor was
originally developed because it would not exist today. Just
like high-speed rail in California, the Republicans' fondness
for division on transportation is going to impact our Nation's
economic development in a very negative way for a very long
time.
Let's be clear: The Republicans are no friend to rail. They
have plenty to say about what others are doing wrong, but they
never put their money where their mouth is. Their only goal
during 8 years of the Bush administration was to focus solely
on destroying Amtrak, which is clearly still the purpose of
this Republican House of Representatives Transportation
Committee. There is no plan to improve our Nation's rail
system, no investment made in creating a new system or our
current system. In fact, the Bush administration and the
Republicans in Congress spend most of their money rebuilding
transportation infrastructure in Iraq and Afghanistan, they
have spent more money there than right here in the United
States of America.
So after 8 years of lip service from the Republicans,
President Barack Obama committed real money to improve our
Nation's rail system, including the development of high-speed
rail. And, lo and behold, the same Members who didn't dedicate
1 cent to high-speed rail when they were in charge are
complaining that the money wasn't spent the way they wanted it
to be spent.
Mr. Mica's unhealthy obsession with privatizing the
Northeast Corridor has eliminated support and even violates the
U.S. Constitution. The chairman's privatizing language in the
Passenger Rail Investment and Improvement Act of 2008 garnished
no private-sector proposal for the Northeast Corridor, and his
Rail Competition Act introduced last year was determined by the
nonpartisan Congressional Research Service to be a violation of
the Appointments Clause of the Constitution that would raise
costs for States and commuter authorities and eliminate long-
distance service.
I fully agree that we need true high-speed rail in the
Northeast Corridor, but we need to have a serious conversation
about how this is going to happen. And those hearings that
focus solely on privatizing with the goal of making the
administration look bad and ``gotcha'' politics need to stop.
I want to welcome today's panelists and thank them for
joining us, and I look forward to their testimony.
And I yield back the balance of my time.
Mr. Mica. I thank the gentlelady.
And I also thank her for her comments. I agreed with the
first part of her statement rather than the----
Ms. Brown. Last part, right.
Mr. Mica [continuing]. Latter part.
But you could tell we do have a good rapport.
Who seeks recognition?
Mr. Sires?
Mr. Bucshon?
Oh, Mr. Sires, you are recognized.
Mr. Sires. Well, thank you very much. I just want to say
thank you for all the hard work that you have done in the last
20 months. We may not agree on a lot of things, but, certainly,
transportation is important to you.
I also want to commend you on your portrait. You look like
you are 30 years old. It looks great.
Mr. Mica. Thank you.
Mr. Sires. And, you know, as someone who rides the rail
just about every weekend, you know, this corridor is really
important to me because I am a rider, and I see how it is
packed all the time.
Do I wish we had a super-speed? Absolutely. You know, it
takes me about 2\1/2\ hours to get from Newark to Washington,
DC. And could we make it a lot better? You know, absolutely.
This region, the northern region, is a very congested area.
And if you really want to see it, drive up once in a while like
I do and get on the New Jersey Turnpike at Exit 1, and you will
see how you want to get back on the train because it is so
congested and so much work.
I would hope that in the future we can really seriously,
seriously think about high-speed rail. This is a region of the
country that generates jobs, and more important than anything
else, it has the ridership to sustain such an investment. So I
look forward to working in this committee toward that.
And I want to thank the people at Amtrak, who week-in and
week-out do a great job of trying to accommodate the people
that ride. Could it be better? Absolutely.
Thank you very much.
Mr. Mica. Do other Members seek recognition?
Ms. Johnson?
Ms. Johnson. Thank you very much, Mr. Chairman and Ranking
Member Brown.
The Northeast Corridor is the transportation artery through
some of the most populous metropolitan areas and regions in the
entire U.S. And it is essential for commerce, in that we are
able to move goods and people up and down the eastern seaboard
efficiently.
But with increased congestion both on our roads and in our
skies, our current system is reaching its capacity. Not only
are we currently reaching that capacity, but it is estimated
that an additional 15 million residents will live in the
already congested Northeast Corridor by 2050, a 30-percent
increase. It is for this reason that our continued investment
in passenger rail is so essential.
The recent Thanksgiving holiday set a record for Amtrak
ridership with 737,537 passengers. The record ridership brought
in $56.1 million to Amtrak, an 8.4-percent increase over 2011.
The Northeast Corridor is profitable and serves as a model for
what we can accomplish with small investments in infrastructure
in other parts of the country.
What is unclear to me is why there has been a constant
drumbeat to privatize Amtrak and to starve it of its much-
needed funding. As everyone on this committee knows, funding
for infrastructure, whether it is for rail, transit, or surface
transportation, has always come from the public sector. And
only after we have made significant investments does it become
attractive to the private sector. No one on this committee
would suggest that it would be a good idea to privatize our
roads or would suggest that it would be a good idea to
privatize our bridges, yet we come back to this issue again and
again with rail.
I would suggest that a more worthwhile endeavor for this
committee would be to check the partisan politics at the door
and examine how we can improve and expand all modes of
transportation that the American people depend upon.
I thank you, Mr. Chair and Ranking Member, for calling this
hearing and look forward to the witnesses' testimony.
I yield back.
Mr. Mica. I thank the gentlelady.
The gentleman from Maryland, Mr. Cummings.
Mr. Cummings. Thank you very much, Mr. Chairman.
And I could not let this moment go by without thanking you,
Mr. Chairman, for your leadership. You and I have served on
this committee for many years, and we have also served on the
Oversight and Government Reform Committee. And I know that you
have worked very hard to bring about a lot of change in our
Nation and to our rail system. We may not always agree on those
changes and how they should be made, but I have a tremendous
amount of respect for you, and, certainly, I want to thank you
for your service.
And I also want to thank Ms. Brown, Ranking Member Brown,
for her leadership and her staunch advocacy for the rail system
and particularly Amtrak.
Mr. Chairman, I could not let this moment go by, again,
without at least expressing some disagreement with you with
regard to unions. Unions are very, very important. It was
unions that allowed my parents to raise seven children and, as
former sharecroppers with only a second-grade education, in one
generation to send their kids to college and allow me to be a
Member of the Congress of the United States of America. It was
unions. And I will fight until I die for the strength of unions
because they do play a very significant role.
Now, as a representative from Maryland, I know how critical
the Northeast Corridor is to ensuring mobility from the mid-
Atlantic to New York and Boston. The corridor is also critical
to local mobility and hosts many commuter rail lines, including
Maryland's MARC system. Every year, 11 million passengers, our
constituents, ride Amtrak in the Northeast Corridor, ridership
that, as Secretary LaHood told this committee last week, is
only expected to increase with population growth. Isn't that
wonderful?
While the creation of the Acela service moved us in the
direction of high-speed rail, the Acela service simply isn't as
fast as we need. We need modern high-speed rail service, and we
particularly need it in the Northeast Corridor. I remind us
that this is America, this is the United States of America, the
greatest country in the world. We should have the very best
service in the world. For that reason, I strongly support the
vision for high-speed rail set forth by President Obama, as
well as the Department of Transportation's decision to
designate the Northeast Corridor as a high-speed corridor.
At last week's hearing, I was pleased to hear Secretary
LaHood discuss some of the progress that is being made in the
efforts to modernize this essential infrastructure. I also
applaud Amtrak's moves to develop a business plan that will
attract appropriate private investment.
That said, I strongly oppose any proposal that would turn
responsibility for the development of the corridor over to the
Northeast States. Development of the corridor will cost
billions of dollars, and it is simply unrealistic to think that
the private sector will make that investment alone. And I know
that my home State of Maryland, like the other States in the
corridor, does not have the resources available to develop it.
I know that last week we heard from Edward Hamburger,
president and CEO of the Association of American Railroads, who
argued that there should only be one passenger rail operator,
and that operator should be Amtrak. He stated that Amtrak is a
leader in safety/security, operations, labor issues, and is a
great partner for the private freight sector.
Of course, significant infrastructure improvements are
needed all along the corridor to modernize it and enable it to
meet the growing demand. In Maryland, for example, the B&P
Tunnel, which carries every train traveling into Washington,
DC, from points north of the city, must be replaced. The tunnel
was open in 1873, and its antiquated design limits train speeds
to 30 miles an hour. We can do better; we must do better. This
is the United States of America.
In an effort to begin the long process that will be
required to eliminate this bottleneck, I supported inclusion of
a provision in the 2008 rail safety legislation that directed
the Federal Railroad Administration to work with Amtrak, the
Service Transportation Board, the city of Baltimore, the State
of Maryland, and rail operators to select and improve a new
rail tunnel alignment through Baltimore that will permit an
increase in train speed and service reliability.
This provision requires environmental reviews for the new
alignment to be completed by September 30, 2013. The project
subsequently received from the Recovery and Reinvestment Act
$60 million in funding authorized in the rail safety bill to
support the studies necessary to enable a new alignment to be
selected. And so, Mr. Chairman, we move forward. And I know
that we move forward with your blessings.
Again, I want to thank you for your tremendous leadership.
And I want to thank all of our witnesses for being here today.
And with that, I yield back.
Mr. Mica. Thank you.
Do other Members seek recognition?
If no other Members seek recognition, then we will welcome
our colleague, the Honorable Carolyn Maloney, who represents
New York, and we will recognize her for a statement.
Thank you, and you are welcome.
TESTIMONY OF THE HONORABLE CAROLYN B. MALONEY, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW YORK
Mrs. Maloney. Thank you so much, Chairman Mica and my good
friend and colleague Corrine Brown, and the members of the
Committee on Transportation and Infrastructure, for inviting me
to speak at this hearing.
I am truly honored to be here at the chairman's final
hearing, and I want to thank him for his focus on bringing
high-speed rail to the Northeast Corridor and for his support
of the Second Avenue Subway. I appreciate that last year's
field hearing was held in New York.
To begin with--and I would just like to say, Mr. Chairman,
I know this is your last hearing, and I hope you will keep your
focus on the Northeast Corridor. And I would like to challenge
you to start a bipartisan caucus of Republicans and Democrats
to work together on the Northeast Corridor, all the affected
States and communities, because we know how hard it is to push
proposals through Congress and to make them happen.
I truly agree with your analysis that we could cut this
price down a third and that we could cut the time down a third
and build it in 10 years if those of us who care about it
decided to focus on it, and if Corrine would help us out, who
has always been such a great advocate on high-speed rail. So I
hope you will think about that, and I appreciate what you have
done already.
I just want to begin my comments by thanking the men and
women of Amtrak, Metropolitan Transit Authority, the Long
Island Rail Road, and all transit transportation workers who
have worked around the clock to restore the services in New
York after the terrible flooding from Hurricane Sandy. It was
the worse destruction in 108 years of our transportation
system, but because of their hard work, our trains are up and
running again.
In tough economic times, it is critically important to make
needed investments that will modernize our aging
infrastructure, advance our mass transit systems, and
strengthen our communities and workforce. High-speed rail and
improved mass transit networks can play a central role in
helping America keep its competitive edge in a global economy.
By comparison to rail systems in the rest of the world, our
trains crawl along. As the chairman has pointed out, even our
most ambitious plans aren't even anywhere near truly high-speed
rail. Acela averages only 83 miles per hour along the Northeast
Corridor, while some European and Asian trains race by at more
than 180 miles per hour. The connection between two major
business districts in our country, between Boston and New York,
it inches along at 68 miles per hour. And imagine, if we could
cut that and speed that up, how those business districts would
boom and expand with a more efficient and productive economy.
Where once American ingenuity brought rail service through
the wilderness from coast to coast, in recent decades the U.S.
has systematically failed to invest in the modern rail system.
I thank President Obama for making high-speed rail a priority.
Instead of developing energy-efficient mass transit, we have
allowed our rail system to deteriorate. We are not just
lagging, we are not even trying to innovate. That is just not
the American way.
As a resident of New York City, I fully understand the
tremendous value of access to high-speed passenger rail service
along the Northeast Corridor. It is the busiest rail line in
the United States, and it is the only Amtrak segment that runs
an operating surplus. It is making a profit. Of all the places
in our Nation, high-speed rail makes most sense along the
Northeast Corridor, which features the most congested roads and
airspaces, the densest population, and the most interconnected
cities. And it has the ridership to make a profit for the
investment in this rail system.
From Washington to Boston, the Amtrak stations are located
right in the city centers, making them more accessible to
business travelers in the airports. The northeast region also
has the densest population in the country. Fully 20 percent of
the Nation's entire population lives in just this 2 percent of
our land area in our great country.
Seventy percent of all chronically delayed flights
originate in the New York area airspace, causing delays across
our country. And 60 percent of the northeast region's road
miles are considered heavily congested. Last year, when
Florida's Governor rejected high-speed rail funding for his
State, I urged our President, our mayor, our Governor, the New
York delegation, and other delegations to redirect some of the
money to New York. I was pleased he responded, with the help of
the chairman and the New York delegation, our Governor and our
mayor, by directing $295 million of these funds to a project
that will improve what is called the Harold Interlocking, a
century-old intersection of 14 train tracks, where hundreds of
trains travel east and west of New York are sorted out each day
and is very confusing in a very delaying area.
Located in my congressional district, this project helps
eliminate a bottleneck that has plagued train travelers for
years. Investing in these improvements will help relieve delays
and pave the way for high-speed rail from New York to Boston. I
consider it the first link in this important vital rail system.
It will create over 9,000 jobs and will boost economic activity
in our region by over half a million dollars.
While I commend this investment, Amtrak estimates that at
this rate it will take until the year 2040 before the U.S. has
high-speed rail. The need for high-speed rail is so pressing
today, we cannot afford to wait another generation. We used to
lead the world in rail. We are now trailing far behind.
There is general agreement that public and private
partnerships should be included in a larger Federal planning
strategy for the Northeast Corridor. Amtrak's long-term plan
provides a template for joint ventures that is worth
discussing. New York's Governor has met with the New York
delegation and asked us to include public-private partnerships.
And the MTA, which is strapped for cash, as is our State--and I
join my colleague, Mr. Cummings. The States cannot afford this;
we don't have the money. So the MTA is open to partnerships as
long as unions and worker rights are protected and all the
rights that are put in place for the protection of workers, the
environment, pension and other rights.
Investing now in world-class high-speed rail would pack a
double punch. It would create high-paying jobs and spur
economic development throughout the program. We are long
overdue for high-speed rail, and it is time to put this country
on the right track. I thank the committee for drawing attention
to the importance of high-speed rail, and I look forward to the
day when high-speed passenger rail is operating in the
Northeast Corridor.
In closing, Mr. Chairman and Ranking Member, if we really
support high-speed rail, then projects that we fund have to be
successful and they have to be profitable. Right now, the
Northeast Corridor is profitable. It is the only corridor that
is profitable in the whole Nation. So investing in high-speed
rail now would boom. My colleague, Congressman Capuano from
Boston, we both travel between New York and Boston, usually a
3\1/2\-, 4-hour ride. If we could cut that down to an hour and
a half or 2 hours, it would be a boom to economic development
in two important business employment districts in our great
country.
So I applaud your attention to it, and I want to be on your
team in helping to implement and support transportation in any
way. It is vital to our country, but particularly high-speed
rail.
How did the great country, the great United States, fall so
far behind the rest of the world? How did the most prosperous
country, the most innovative country, fall so far behind the
rest of the world? You can be in Paris and in an hour and a
half be in London, riding their high-speed rail. You can move
across China throughout their many provinces on high-speed
rail. We do not have it. We aren't even close to it in the
great United States of America. And if it is going to happen in
America, it has to happen with the leadership of you, the
leadership of this committee.
Thank you for listening to me. Thank you for all the work
that you do for transportation across our great country. And I
welcome any questions.
Mr. Mica. Well, thank you.
I don't think we will question you, but I will ask
unanimous consent that Mrs. Maloney be extended the courtesy to
sit on our panel. And after other Members have been heard or
questioned, you will have the opportunity to participate, if
you like.
Without objection, so ordered.
Thank you so much for your testimony.
Mrs. Maloney. Thank you, Mr. Chairman.
Mr. Mica. I will just say two things.
One, you asked about the caucus. I don't make many pledges.
Didn't even pledge to term limits, but that is another story.
But I did make a pledge when I first ran not to join caucuses,
and I actually spent part of my early part of my career
dismantling select committees and things that had grown into
huge bureaucracies. Filled the whole building next to us, where
the parking lot is; now we took that down. So I can't do that.
But I can tell you, I will be focused on two projects, and
one will be the high-speed rail and the Northeast Corridor,
whatever it takes. And I will work with you and others in that
positive regard.
So thank you. And we will let you go, and we will turn--we
are going to have a vote, so we will turn to our witnesses and
try to get them up.
Mrs. Maloney. May I thank the gentleman and chairman for
allowing me to join the committee. I am in another committee--
--
Mr. Mica. This will be going on for some time.
Mrs. Maloney [continuing]. That I have a responsibility to
be asking questions and participating. So thank you for that
honor. If my other committee meeting finishes, I will come back
and join you.
Mr. Mica. Thank you so much. We will welcome you. And thank
you again for coming to the committee and testifying.
Ms. Brown. I did have one question.
Mr. Mica. OK. Real quick.
Ms. Brown. I just had one question. Because, you know, I am
100 percent supportive of high-speed rail in the Northeast
Corridor. And one of the problems or one of the challenges, it
is not just high-speed; it is making sure the train is there at
a certain time, you know, making sure it is reliable and it is
going to be there every day at 10 o'clock or whatever time.
But the time from, I think Boston to Washington is about 8
hours, which is ludicrous. And as you said, that corridor
between New York, Boston, and Washington is key. However, part
of the problem is that you have so many local communities. And
even in your area, where we had the hearing in New York, it is
not just Amtrak, it is several agencies, several communities
that are involved.
And so it is not just that Big Government can't come in and
say that we are going to do it this way, it is pulling all of
those communities together. And what is your--and you don't
have to do it now, but it is just that we can't come in as a
Federal Government and say, We are going to do it this way.
These communities are already built up.
Mrs. Maloney. Uh-huh. I thank Corrine for your question.
When the high-speed money was returned and we discussed it,
because you were distressed that Florida was sending it back
and----
Ms. Brown. I am still distressed.
Mrs. Maloney. And I appreciate that, you know, you were
pushing to have it in Florida, but your Governor made another
decision, so we reacted to that.
But I went to MTA, which is the transportation hub and
director in our region, and first proposed that they go after
getting the high-speed rail between New York and Washington.
And they said that would be so difficult because of what you
just said: It is extremely built up along the corridor, very,
very built up. And they couldn't see how they could build that
quickly because of the communities that were blocking it and
the fact that we did not own the rail. They said they owned the
rail. The Federal Government and the MTA owns the rail lines
between New York and Boston and that that would be much easier.
And they said, Shift your focus to New York and Boston. And
with the Governor's support and the mayor's support, that is
what we did.
Now, that is why we need, exactly what you are saying, why
we need a task force or a meeting, I don't care what you call
it, of Members of Congress that are affected by that rail line
to get together and make it happen, to get the communities
behind it. And, you know, it goes through many States, and so
it would have to be a collective State-led--Members of Congress
from those States working to help make it happen.
But according to the MTA, they own a lot of the lines,
meaning the MTA owns it and the Federal Government owns it. And
it is not as dense. It goes through the countryside, the rail
now; it is not going through cities as much. But they said
going between New York and Washington. You know I would love to
cut that time down since I am on that train every week.
Ms. Brown. That is right. That is right.
Mrs. Maloney. But they said Boston and New York made sense,
would be more economical, there would be less hindrance of
already-built-up neighborhoods, and that it could be done
quicker and cheaper.
And I think it is important for those of us who support
high-speed rail to have a success. We want it to make money. We
want to show America that this is something we should invest in
and that it is going to pay dividends back and that we should
be building it in every State and we should be building it
clear across America.
But there are certain areas in New York where it is not
going to make money because the ridership isn't great. The
ridership between New York and Boston is packed to the limit
every single day. I am convinced if we could build that line it
would make money. I am convinced.
Mr. Mica. I thank the gentlelady.
We don't want to get into too much of a debate with the
Member at this point because we do have a large panel of
witnesses and we are going to have votes.
So thank you so much, Mrs. Maloney.
I will ask the other witnesses if they can begin occupying
their seat.
We have Karen Hedlund, and she is the Deputy Administrator
of the Federal Railroad Administration. We have Joe Boardman,
the president and CEO of Amtrak, as a witness. We have Joan
McDonald, chair of the Northeast Corridor Infrastructure and
Operations Advisory Commission and also commissioner of the New
York State Department of Transportation. We have Dr. Richard
Geddes, adjunct scholar of the American Enterprise Institute.
We have Mr. Perry Offutt, who is a managing director at Morgan
Stanley. And Mr. John Tolman, who is vice president and
national legislative representative of the Brotherhood of
Locomotive Engineers and Trainmen.
I want to welcome all of our witnesses. We are trying to
get to as many as we can. They are going to call a vote in a
few minutes. If you have a lengthy statement, it will be
submitted, by unanimous consent, to the record. I would like to
have you summarize, and then when we finish with everyone, we
will go to questions. So thank you so much for joining us.
And we will turn first to Karen Hedlund. And she is the
Deputy Administrator of FRA.
Welcome. And you are recognized, ma'am.
TESTIMONY OF THE HONORABLE KAREN J. HEDLUND, DEPUTY
ADMINISTRATOR, FEDERAL RAILROAD ADMINISTRATION; JOSEPH H.
BOARDMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMTRAK; THE
HONORABLE JOAN MCDONALD, CHAIR, NORTHEAST CORRIDOR
INFRASTRUCTURE AND OPERATIONS ADVISORY COMMISSION; AND
COMMISSIONER, NEW YORK STATE DEPARTMENT OF TRANSPORTATION; R.
RICHARD GEDDES, ADJUNCT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE;
ASSOCIATE PROFESSOR, DEPARTMENT OF POLICY ANALYSIS AND
MANAGEMENT; AND DIRECTOR, CORNELL PROGRAM IN INFRASTRUCTURE
POLICY, CORNELL UNIVERSITY; J. PERRY OFFUTT, MANAGING DIRECTOR,
MORGAN STANLEY AND COMPANY LLC; AND JOHN P. TOLMAN, VICE
PRESIDENT AND NATIONAL LEGISLATIVE REPRESENTATIVE, BROTHERHOOD
OF LOCOMOTIVE ENGINEERS AND TRAINMEN
Ms. Hedlund. Chairman Mica and Ranking Member Brown, thank
you very much for inviting me----
Mr. Mica. Pull that up as close as you can. It is a little
hard to hear. Thank you.
Ms. Hedlund. Thank you for inviting me to speak to this
committee.
And, Mr. Chairman, I want to say it is a great honor to
testify before this committee during its final hearing with you
at the helm. You have achieved significant legislative
accomplishments during your tenure, and your oversight and
interest in rail programs has really strengthened our agency
while improving transportation options throughout the country.
And we look forward to continuing to work with you in the
coming session.
This morning, on behalf of President Obama and Secretary
LaHood, I also thank you for this opportunity to discuss our
planning and development efforts in the Northeast Corridor,
which, as has been stated, is one of the most valuable
transportation assets in the United States. And the details
about these efforts, which are called NEC FUTURE, are detailed
in my written submission.
Today, as we look ahead, we know the northeast region's
passenger rail market is as strong and full of potential as any
in the country, but clearly the time has come to plan for and
invest in the future of the Northeast Corridor. And so we are
moving forward with a strategy that is focused on both its
immediate and long-term needs.
We are overseeing a comprehensive regional planning effort,
and this multistate transportation planning project is one of
the largest ever undertaken in the United States. As we look to
invest in the next generation of NEC services, our initial
focus with this planning project is to thoroughly understand
the true needs of the market. This is going to be a market-
based assessment, and we will know from the very beginning what
types of rail services will be needed to meet future demand.
We are also seeking innovative ways to enhance the overall
planning and environmental process. I know that is an important
issue for you. So as part of that effort, early this year NEC
FUTURE was selected by the Council on Environmental Quality as
a pilot project that aims to better engage stakeholders and,
importantly, all the Federal and State resource and regulatory
agencies early on in the planning process. And we expect that
that will produce significant time savings as we go through the
entire planning and environmental process.
It is important that we continue to invest in all
transportation modes, not just rail, but the public benefits of
the Northeast Corridor are central to transportation planning
for the following reasons: Transporting more people by trains
will take pressure off the region's highways and airports,
which, as we all know, are both overburdened and out of room to
grow. And when targeted to the market, rail is the most cost-
effective, least oil-reliant, and most environmentally friendly
mode.
Our current investments are adding or upgrading track,
untying bottlenecks, modernizing power systems; as has been
mentioned, reducing delays at spots such as the Harold
Interlocking. We are working to upgrade stations from New York
to Boston. And we are moving forward with engineering projects
to replace some of the most complex and oldest infrastructure--
the Portal Bridge, the Susquehanna Bridge, and, as been
mentioned, Baltimore's B&P Tunnel. These will be enormous
undertakings in and of themselves.
But I think we can all agree, in order to truly position
the Northeast Corridor for future demand, we need a vision, we
need a framework that will allow this vision to move forward,
one that will provide us with an immediately actionable rail
investment plan, a blueprint to guide our actions. And we are
going to complete this process with an exhaustive public
engagement over the next 38 months.
Already we have seen what can happen with a big leap, how
Amtrak's Acela service came gradually to dominate the air-rail
market in the region. But we know there is demand out there
currently that is unmet, and that demand will continue to rise,
and ultimately we can't meet that demand without a sustained
commitment from the Federal Government. Today it is up to us to
rise to that challenge, just as we have so many times in the
past.
And we have been recently reminded of this after Hurricane
Sandy, which caused unprecedented damage to the Northeast
Corridor. After around-the-clock efforts to restore services,
to de-water the tunnels, we saw a crystal-clear picture of just
how essential the Northeast Corridor is to both the economy of
the region and our way of life.
It makes you think: What if Alexander Cassatt, the
president of the Pennsylvania Railroad, had listened to his
critics back in 1900 and had given up digging those two tunnels
across the Hudson River, tunnels that connect New Jersey to
Manhattan? Today, Penn Station accommodates 550,000 passengers
a day. That is double the passengers that go through the three
airports of New York. But in 1900 those tunnels were called a
boondoggle, too expensive, impossible to build. Some of the
Cassatt's shareholders probably thought he was nuts. But today
could you imagine New York without it? Well, Sandy showed us
what New York looks like without it.
So it is up to us now to create the vision, to do the
planning, to execute the projects that will ensure we hold true
to a basic promise, as the Secretary said last week, that the
America we leave for future generations is even greater, even
stronger than the America our parents and grandparents left for
us.
And I look forward to answering your questions.
Mr. Mica. Thank you.
And we will hold the questions. I just have one quick
thing. Have you read ``Conquering Gotham''?
Ms. Hedlund. Yes, sir, I have, with great interest.
Mr. Mica. OK. I was going to make sure you had a copy if
you didn't.
Mr. Boardman, our Amtrak president and CEO, you are
recognized. Welcome back.
Mr. Boardman. Thank you, Mr. Mica, and thank you for your
service.
One of the other things I would like to thank you about is
that you have put a focus on the Northeast Corridor, and I
appreciate that. We put a vision out in September of 2010, and
by January 2011 you began with a hearing.
By February of that year--and I would just like to
summarize quickly because I know you want to move through here
quickly--we proposed the Gateway project to support that vision
of high-speed rail. In March, the U.S. DOT named us as a
Federal corridor; you already identified that. By May, we were
awarded $450 million to improve the speed in New Jersey on what
we call the ``Raceway.''
By June, we were in a situation where we had a peer review
by our European and Asian high-speed rail operators, validating
our proposal of next-generation high-speed rail. In August, we
began work on a business and financial plan with KPMG to
understand how we can work in the private sector; how the
public-private partnerships might work in that process. In
November, the board approved the Amtrak strategic plan, which
included the creation of the NEC Investment in Infrastructure
Development business line.
In February of 2012, the FRA launched the Northeast
Corridor FUTURE, which was a comprehensive planning initiative
to prepare this corridor, which was necessary for us to move
forward with. By July, Amtrak was--and you were there, and we
appreciate that--Amtrak was a signature sponsor and a
participant in the eighth World Congress on High-Speed Rail. It
was the first to take place in the United States. We also
updated and integrated the high-speed rail vision, at that
point in time, with the Northeast Corridor Master Plan. And we
completed the Northeast Corridor Business and Finance Plan at
that point.
Just this past September, we ran tests with the Acela
Express equipment. We operated at speed tests of up to 165
miles an hour in order to demonstrate that we could do those
kinds of speeds in several locations along the corridor
designated for improvement.
And this morning what I want to tell you is that we are not
going to add any additional cars to the Acelas the way that we
had originally planned. They are too expensive, and also what
we really need to do is to replace the Acelas with a new set of
train and equipment. And our expectation is that we will have
an RFI, a request for information, in February or early this
next year to make that happen.
I have told our folks they need to get this done by the
time I am 70, and I will be 64 next week. Thank you.
Mr. Mica. Thank you.
And let me now recognize and welcome Joan McDonald, who is
the chair of the Northeast Corridor Infrastructure and
Operations Advisory Commission.
Welcome, and you are recognized.
Ms. McDonald. Thank you, Chairman Mica. Good morning.
Good morning, Congressman Nadler, it is good to see you,
from my home State, and members of the committee.
The Northeast Corridor Commission was authorized by
Congress in recognition of the inherent challenges of
coordinating, financing, and implementing major system
improvements that cross multiple jurisdictions. The
expectation, as you laid out, is that by coming together we
will take collective responsibility for the Northeast Corridor.
Realizing a bolder vision for the future does require
unprecedented collaboration. Comprehensive planning is
difficult for a system that spans eight States and the District
of Columbia, supports nine passenger rail operations, supports
four freight railroads, and has four separate infrastructure
owners.
The Northeast Corridor line, as everyone knows, is one of
the busiest and most complex railroads in the world. It carries
over 2,200 commuter, intercity and freight trains every
weekday. These trains carry over 750,000 passengers daily.
The Northeast Corridor must balance acute investment needs
just to maintain the safety and reliability of current services
with the need to address growing service demands. Hundreds of
the corridor's bridges and tunnels are more than a century old
and major portions of the corridor's electric power supply were
installed in the 1930s, and echoing my fellow colleagues on the
panel, we see what happened with the electric system during
Hurricane Sandy.
The fact that commuter and Amtrak services intersect at
common facilities inevitably means delays to any one service
could quickly cascade and adversely affect the on-time
performance of all rail services. With major segments at or
near capacity, all services that utilize the corridor are
increasingly susceptible to service disruptions resulting from
infrastructure failures.
In January the Commission will be releasing a report on the
corridor's critical infrastructure investment needs. Input to
the report was provided by Amtrak, the corridor States and
other freight railroads through a collaborative process. While
nine States are part of this organization and this Commission
and we recognize that the assets are in individual States, we
recognize that those assets transcend geographical boundaries.
It is one corridor.
The Commission's authorizing legislation directs that we
develop a cost-allocation methodology for use in the corridor
that ensures that there is no cross-subsidization between
intercity, commuter and freight rail service. Our aim is for
this process to set a foundation for increased Federal and
State investment in the corridor's infrastructure. In return
for increased State investment, we are exploring options to
address the governance of the corridor to ensure that the
States are equal partners in the decisionmaking process. Our
goal is to have a recommended cost-allocation methodology by
the end of this fiscal year. We are also engaged in activities
examining the long-term rail needs in partnership with the
FRA's Northeast Corridor FUTURE program.
Hurricane Sandy gave us all a vision into the chaos that
would ensue without the vital rail assets that are so critical
to the economy and our region. We all watched as our elected
leaders prioritized the reconnection of rail service to get the
region moving again. We commend the railroad and transit
employees who made heroic efforts to restore these services as
quickly as possible.
The Northeast Corridor is a national resource, and, along
with the I-95 corridor, the transportation backbone of the
northeast region. However, the corridor's current path is
unsustainable. The reliability of existing service is
threatened by capacity chokepoints and significant state-of-
good-repair needs. Meeting our future needs, due to increasing
demand for these services, is simply not possible without
significant investment in new capacity. In short, the
Commission is planning for the future at the same time that we
are looking to address the very significant challenges that the
corridor is facing today.
On behalf of my fellow commissioners, in closing I want to
extend our appreciation for this committee's strong support for
the Northeast Corridor, and we look forward to continuing this
partnership. And in particular, I want to thank you, Chairman
Mica, for your support of the Northeast Corridor, and we look
forward to a continued dialogue with you. Thank you.
Mr. Mica. Thank you.
And we will now recognize Mr. Geddes, and he is an adjunct
scholar at the American Enterprise Institute.
Welcome, and you are recognized.
Mr. Geddes. Thank you, Mr. Chairman Mica. I appreciate the
opportunity to be back and speaking to the committee once
again. And I just wanted to note that in addition to my
affiliation with the American Enterprise Institute, I am an
associate professor at Cornell University in the Department of
Policy Analysis and Management, and that just this semester,
with a Cornell grad, John Foote, a class of 1974 engineering
grad whose company developed E-ZPass, we have started a new
program in infrastructure policy at Cornell. And I have some
information about that, and that is to educate future
generations of students and young people on the important
issues that this committee addresses.
And I hope to be able to work with the committee in the
future and hopefully with yourself in developing this program.
In fact, I think it is one of only two such programs that are
currently operational in the United States focusing on
infrastructure policy, the other one being at the University of
Minnesota. So I would just like to draw everyone's attention to
that and seek your advice on that.
I want to address a few things regarding the topic that the
committee is focusing on today, which is the Northeast
Corridor's future and options for high-speed rail development
and private-sector participation in transportation.
There are a couple of key issues I would like to address.
The first is to get a concept on the table that I think is
extremely relevant for this debate that is, I believe, absent,
which is the concept of a residual claim. Sounds like sort of
an academic concept but I think very important, a residual
claim as well as residual claimants. Second, I want to be clear
about the value that I think private participation in the
Northeast Corridor can bring to the Nation in several different
ways. And third, I would like to emphasize that the gains from
private participation, as judging from a number of economic
studies that focus on this, do not come from reducing wages or
reducing employment once you get more private participation.
They come from increased value creation and value capture due
to the incentives and the skills of the private-sector partners
that you bring in.
I also want to emphasize that through competitive public-
private partnerships, it is possible for the public sector to
realize the value associated with private participation now
through upfront concession payments that we have seen. So the
public sector does not have to wait to realize these benefits.
I want to emphasize that a residual claim is defined as a
property right to the profits from a given economic activity;
that is, who actually has a right to obtain the value that they
create from undertaking new efforts and economic activity. This
is a key public policy issue for the Northeast Corridor. The
question is, are the property rights to the value creation from
additional investment and effort clearly assigned to some well-
defined group? I think it is difficult to overstate the
importance of this, and I don't think they are at present.
One of the key things that private participation does is to
introduce clear, well-defined residual claimants who have a
right to capture the value that they create by better using the
current assets that we have on the Northeast Corridor. Private
participation creates such well defined residual claimants.
From this fact of the impact of bringing in private
participation and residual claimants, a number of important
social benefits can be obtained. Those include the expertise
and skills of the private sector, those include the sharp,
focused incentives that you get from private participation that
you do not currently have, and they also include access to new
types of capital, particularly equity capital, which is risk-
taking capital that is critical. Those three aspects of private
participation create enormous social benefits from increased
private participation on the Northeast Corridor.
I want to note also that there are inherent risks,
substantial risks in these types of activities that are
currently entirely being borne by taxpayers. One of the key
benefits of bringing private participants into this situation
is that you have people who are experts in bearing risk, that
is a service that they provide, is a risk-bearing service, and
they make the cost of that risk bearing transparent. I think
that is actually an enormous benefit of bringing private
participation in.
I will just close by noting that one of the, I think,
underappreciated benefits of private participation is the fact
that the public sector can realize that value immediately
through competitive bidding by competing groups of potential
private participants in a number of areas. Suppose it is
operating a train station, for example, and you can concession
that out, receive an upfront concession payment, as Maryland
did on some of the I-95 rest stops that I noted in my
testimony, and that that is one major advantage of bringing in
private participation that is not reliant on negative effects
on labor.
So, thank you, Mr. Chairman, and I will stop there.
Mr. Mica. I thank you.
And what we are going to have to do, we have a vote going
on right now, we have 2 minutes to get to the floor. So our two
panelists, we will return. I think we can be back here at
11:45. We will reconvene at 11:45. We will hear both of our
remaining witnesses.
So with that, the committee will stand in recess for one-
half hour. Thank you.
[Recess.]
Mr. Mica. Like to call the Committee on Transportation and
Infrastructure back to order. And we had three votes and now
return to the hearing of our witnesses that remain. So we will
proceed. It is the designated time that I indicated we would
resume.
So with that, pleased to recognize the managing director of
Morgan Stanley, Mr. Perry Offutt.
Welcome, sir. You are recognized. Sorry about the delay.
Mr. Offutt. No problem, Mr. Chairman. Thank you for having
me. My group works----
Mr. Mica. Might pull that up right close because we can't
hear you.
Mr. Offutt. Hopefully that is better. Thank you again for
having me this morning.
My group works with clients both on the public and private
sector trying to seek out opportunities where private capital
could be used to invest in U.S. infrastructure. As a financial
adviser focused on this area, I appreciate the opportunity to
share my perspective on some of the key considerations that
could affect interest from the private sector--financial
investors, construction companies, and rail operators--in
participating in the design, construction, operation,
maintenance, and financing of a high-speed rail project along
the Northeast Corridor.
Public-private partnership structures have been used for
numerous construction projects and have demonstrated that the
private sector, one, can often build a project more quickly and
at a lower cost; two, drive efficiencies over time by
introducing technology solutions; and, three, develop
incremental revenue sources by delivering additional services.
While there hasn't been a public-private partnership, or P3
transaction, involving a U.S. high-speed rail project, there
are similar greenfield P3 transactions that can provide a
guideline for financing this project. I also believe that there
are numerous companies interested in high-speed rail in the
U.S. given their experience building and operating high-speed
rail systems internationally, specifically in Europe and Asia.
These operators and construction companies would join bidding
groups with financial investors to bid on the right to design,
build, operate, maintain, and finance this project. After being
prequalified, the winning bidder is usually chosen based on
lowest cost.
One of the key considerations is, if the project generates
enough operating cash flow, the private sector would be
compensated over time for their investment by receiving the net
revenues generated from the project. However, if the project
does not generate adequate annual net revenue, the bidding
groups will require an ongoing revenue supplement from a
Government entity, known as an availability payment, to ensure
that they will be able to cover their cost and earn an adequate
return on their investment.
If the revenues reach a certain level, the availability
payments could go away and the concessionaire would only be
entitled to the project's revenue. As a result, the
availability payment could be structured as a floor to support
an investment grade financing and attract maximum private
investor interest.
Given the existing passenger rail footprint in the
Northeast and high-population density in key urban areas, the
project would be a very profitable operation, and the private
sector could also rely heavily on significant historical
traffic information along the Northeast Corridor and be very
confident about their estimates regarding ridership.
As I previously mentioned, one of the primary reasons for
entering into a P3 transaction is to transfer risk of
construction and operations to the private sector. However,
private investors will also expect some comfort from the
Government on a few important risks associated with the
project. One, how potential cost overruns will be dealt with,
especially if they occur as a result of Government action; two,
ensuring some level of protection against Government
investments in future competing transportation infrastructure;
and, three, assessing the political support for the project at
the Federal, State, and local levels.
Thank you very much for the opportunity to testify this
morning on this very important topic, and I would be glad to
answer questions later.
Mr. Mica. Thank you, and we will hold questions.
We have now the vice president and national legislative
representative of the Brotherhood of Locomotive Engineers and
Trainmen.
Welcome back, Mr. Tolman.
Mr. Tolman. Thank you, Mr. Chairman, and appreciate the
opportunity to be here on behalf of the 36,000 active members
of the Brotherhood of Locomotive Engineers, Teamsters, and over
70,000 Rail Conference members. I appreciate the opportunity to
speak to you, Mr. Chairman, and for your services to this
committee. It is truly an honor to me to be here at your last
hearing as the chairman of this committee. I have appeared
before this body many times in the last several years and
always enjoyed your questions and comments, and look forward to
working with you and members of this committee into the 113th
Congress. But thank you.
Today I would just like to talk about a personal experience
as a locomotive engineer on Amtrak, as well as the BLET's
position on Amtrak's progress and successes in the Northeast
Corridor. Also would like to compare to other countries'
passenger rail high-speed service as they relate to
privatization.
I was an Amtrak engineer and operating trains in the
Northeast Corridor in the mid-1970s and early 1990s. From its
inception, I remember Amtrak being chronically underfunded. As
a young man, I remember coming down here some two decades ago
trying to secure some funding for Amtrak to preserve a safe and
reliable rail passenger service and save the jobs of my fellow
employees, all professional and highly skilled workers. Now, 20
years later, I am still fighting the same fight.
I remember running test trains on the Northeast Corridor at
150 miles an hour with a 40-year-old diesel and passenger cars
that were over 40 years old. I have seen the growth and I have
seen improvements in the Northeast Corridor, from
electrification of the main line and improved crossovers for
high-speed trains. You know, while positive train control made
national headlines the last several years, Amtrak has had a
form of PTC in the Northeast Corridor for almost 20 years, all
this while Amtrak's funding is a fraction of that spent on
other modes and by other countries.
It is, frankly, embarrassing to compare Government funding
for Amtrak with U.S. Government funding for domestic aviation
and highways, and passenger rail funding for European and Asian
countries. To build and maintain one of the best highway
systems in the world, we have spent $114 billion and built it
over 35 years. In today's dollars it would be $426 billion.
But times have changed. Congestion on our roads are at
historic levels, and by the year 2020, 90 percent of urban
interstates will be either at or over capacity. And anyone who
has had the pleasure of flying recently knows the serious
problems that plague our Nation's airports, flight delays,
cancellation, overcrowding planes. In fact, in spite of all
this, Amtrak now carries more riders from New York to Boston
than all other airlines put together, 50 percent of all the
people that travel this distance, and between Washington, DC,
and New York City Amtrak carries more than twice as many
passengers as all airlines combined. Today it carries 75
percent of intercity travelers between New York and Washington.
Amtrak has done all this with the threat of funding cuts
and privatization, especially of the profitable Northeast
Corridor, hanging over its head. We know that in other parts of
the world, privatization of high-speed passenger rail has been
tried and has failed to solve the problems it was intended to
solve. These plans were almost always preceded by funding cuts,
systemic safety and reliability problems, caused a great deal
of upheaval in transportation, and forced countries to
renationalize their system.
With that being said, we think that Amtrak's long-term
NextGen Plan for the Northeast Corridor provides a template for
a public-private partnership that is worth discussing if the
partnership does not reduce the public interest or the
interests of the Brotherhood of Locomotive Engineers' members
and Amtrak's other professional and skilled workers. Further,
the BLET believes that Amtrak should continue to be the service
provider for the Northeast Corridor and across the United
States because they have provided progressive quality service
despite many, many obstacles and continue to look for ways to
increase train speed, reliability, and service in spite of
these obstacles.
Thank you, Mr. Chairman.
Mr. Mica. Thank you.
And thank all of our panelists, particularly for your
patience while we had to exercise our constitutional
responsibility, and that is vote. We are back now to finish the
panel and we will turn to questions.
Let me just comment to Mr. Tolman, and welcome, too, on
behalf of labor representing the men and women that work for
us. We appreciate your role. As I have said repeatedly, and
sometimes I wonder if people have a hearing disability, can't
comprehend what I am saying, I have always advocated
maintaining the benefits, the salary, the wages, the retirement
for Amtrak employees in whatever structure we adopt, making
certain that is protected. I have also been here and watched
the number of personnel from Amtrak go from 29,000 to 19,000,
and I say that doesn't portend a bright future for labor,
either if you are the head of a union or labor organization or
a member.
I have been there fighting for labor when labor had to
fight Amtrak and the Federal Government for benefits and wages.
In fact, that was a prolonged and difficult experience for the
people who work for Amtrak, those union members who were denied
benefits and wages. And always used the example of freight
rail, which has taken over, which very often gives better
salary, better wages, and reaches agreements without that type
of imposition.
As far as my record, I have always supported the right of
Americans to join a labor union. When we wrote the TSA
legislation I insisted that we have that right. I also take the
position that no one should be forced to join or compelled to
join a union. But I think that is an important right, and I
think that labor has done an incredible job over the years.
There have been some problems here and there, but in raising
the standards, the compensation, the working conditions for the
people that get out there and roll up their sleeves and
actually make things happen, rather than, like Congress or
bureaucrats, just talk about it.
So I want to make that perfectly clear. And as we move
forward, I think that, again, there are just unlimited
possibilities. If we can have 4 time the numbers of passengers,
I know we can increase the employment.
Actually, technically, Amtrak is a private corporation. It
does have some quasi-governmental characteristics and certainly
substantial Government support. There have been debates about
the level of support. But furthermore I have always supported
long-distance service, a national system. But we want that to
be operated and managed on the very best basis, because the
chief underwriters of the subsidies of the private-sector
corporation that we have with Amtrak and created in 1971, the
main underwriters are the taxpayers of the United States. So
that is all I have asked for.
And then I think our goal is to have high-speed rail in the
Northeast Corridor. I think that is your goal, Mr. Tolman,
correct? You would support that?
Mr. Tolman. Positively.
Mr. Mica. OK. But we want to do that, rather than in 30
years, 30 years to my calculation brings us in their chart,
which we will put in the record without objection, shows us not
getting to really high-speed operations until 2030 to 2040.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 77444.008
Mr. Mica. At that juncture I won't be around to see that,
given my DNA and longevity as far as male members of my family
are concerned. So my goal is to see it while I am alive and not
have it happen after I am pushing daisies out of some better
setting.
But with those words, questions. Let me go to Hedlund
first. I brought a copy of ``Conquering Gotham.'' Has everybody
read that on the panel? Have you read that, Boardman?
Mr. Boardman. No.
Mr. Mica. Mr. Boardman has not. Would the staff please take
this down, present this copy, and I am going to autograph it
for him. If you think----
Mr. Boardman. That is how I get books.
Mr. Mica. ``To Joe, from John, with love.'' But if you
think you are having problems, after you read this story of
Alexander Cassatt's attempts to bring rail service into
Manhattan, the tunnels that he built, Union Station that he
built, you think your politics have been tough, wait until you
read this story. It is one of the most fascinating volumes I
have ever read and it encapsulates all the issues that we are
going through. And he was determined to do this. They were
originally going to build another bridge up in the northern
part of Manhattan to connect. Up to that time about 10, 12 rail
lines went in. The major one, I guess, was the Pennsylvania
Railroad that he had. And then people had to take a ferry from
New Jersey to New York.
And his sister was an accomplished artist, Mary Cassatt,
who had a studio in Paris. So during his visits he observed the
French tunneling, and so he came back and said, hell, if the
French could tunnel, we can, too, and adopted that plan. They
had actually failed, and you will read that story, too, in this
volume, in trying to build a tunnel previous to that. But he
did succeed. It is just an incredible story of vision and just
the type of determination to get the job done.
But would one of the staffers deliver that at this point to
Mr. Boardman? Thank you.
Mr. Boardman. Thanks for bringing it up.
Mr. Mica. But, again, it does take that vision, and it
takes also the determination, and also, to be quite blunt, it
takes the cash.
Now, I was excited about President Obama committing to
high-speed rail. However, I did express my disappointment in
that the money was diverted among 150 projects. Most of the
money went to California for a true high-speed rail. The rest
is intercity enhanced passenger service and a number of other
improvements and grants.
For the FRA representative and administrator, deputy
administrator, what is the intent of the Administration for
high-speed rail in the future, the next 4 years?
Ms. Hedlund. Well, I think the President's vision is in his
budget, and it includes additional billions of dollars for
high-speed rail. And so it is spelled out in his budget. He
continues to be quite committed to it, and we hope that the
Congress will follow through on that.
Mr. Mica. OK. Well, Mr. Boardman, you started out with, I
think, less than $100 million, and some of the money that came
into the Northeast Corridor came in sort of, I guess, at the
same time we designated the corridor high-speed, which I
commend you on doing, but secondly, with the return of money
from at least Florida, Wisconsin and Ohio, and designated.
Mr. Boardman, you are using that in some, I don't mean this
to be critical, but it is sort of a band-aid approach, because
you don't have the money, but you are trying to pick projects
that would make a major impact and improvements in the speed of
that corridor.
Where are you on Gateway as far as funding, planning,
execution. Where do you see it now and how much to get that
done? Maybe you could describe that, too, for the record.
Mr. Boardman. Sure. Gateway is a project that basically
goes from just past Newark into Penn Station, New York. It
involves two new tunnels, a new Portal Bridge, some new tracks
that basically go from Lautenberg Center all the way to the new
two tunnels. And it also includes space within Penn Station
especially for New Jersey Transit trains. These trains don't
have the same ability that the Long Island Rail Road does to
stop quickly and store their trains in the Hudson Yards or the
West Side Yards.
Mr. Mica. And where are you with that?
Mr. Boardman. We are in a planning stage. Some of the
projects could move a little bit quicker than others. We
included that in the after-Sandy request, $336 million. What we
really need to do is make sure we secure a space under the
Hudson Yards, it is about an 800-foot section, at about $190
million, because once that real estate development actually
occurs, it would close off the ability to get those two new
tunnels in.
The second thing we really need to do, that also was going
to be done under ARC, is to raise onto a platform or to a
different location that Substation 41 that was flooded during
the storm. And also add high-density signal systems in the East
River tunnels, not so much to add capacity to the station, but
to give us the ability to move trains through those East River
tunnels more quickly. We could have restored the same level of
service quicker had we been able to do something like that.
Mr. Mica. OK, two things. One, we are trying to complete an
environmental study in the corridor. That is scheduled to be
done about 2015, is that correct?
Ms. Hedlund. That is right. It is the Tier 1 for the
corridor which will set the framework for the entire corridor.
And then you go into Tier 2, and that process looks at
individual projects. Some of the delays that occur in the
environmental process come when the individual projects are
considered, and the advantage of bringing the resource agencies
in early, in the beginning of the planning process, is that
when we get to Tier 2 we can save, we think, significant time
because the alternatives will have been narrowed, the resource
agencies will have bought into that, you won't have them coming
in the way they sometimes do at the end and say, well, we don't
like the way you did the analysis so you have to redo the
analysis or you have to look at two or three other alternatives
that were dismissed early on, but they weren't at the table
when that analysis was done.
So we are hoping to, as I said, complete the Tier 1 by
2015. By the way, we do need additional funding. The first
phase of that, we had $9 million for, that will be completed in
February. But the next two phases will cost an additional
approximately $30 million and we need additional funding to
complete that.
Mr. Mica. Has that been requested in the budget?
Ms. Hedlund. I believe so, but I will get back to you on
that.
Mr. Mica. Let us know on that. Also, anything we can do to
speed that process up. The other thing is, does that include
the entire corridor, all 437, or is it just parts of it?
Ms. Hedlund. It is the entire corridor.
Mr. Mica. Is it? I was wondering again if any of this could
be divided up and expedited, and that is something else I would
like to look at, discuss with you all. I will have a little bit
more time to focus specifically on the Northeast Corridor after
the beginning of the year and I would like to make that a
priority, moving it forward. But you will need the money if you
are going to complete the plan. Then when we get that, we will
have alternatives analysis?
Ms. Hedlund. Yes.
Mr. Mica. OK. At that point and juncture, now, we had
Secretary LaHood here and he was talking about overall high-
speed rail, and he said, we will also need the money. He said
he would be open to opening these opportunities to private-
sector competition. Do you see any problem with that?
Ms. Hedlund. No. As he said last week, and I think he has
been quite consistent on this, we welcome private-sector
investment to be able to leverage the limited public funds that
are available. We are going to want to make sure that where
that money comes in makes the most amount of sense, is the most
cost-effective way to do it, that the contracts are put
together in a way that protect the public interest.
Mr. Mica. I would concur with all of those, particularly
our job is protecting the public interest. And also I think it
is important that we maintain the ownership of that
infrastructure that we are contributing to build along the way.
But I think, one, you are never going to get the Congress to
give you $151 billion, even over a period of 30 years, but I
think if we could attract private capital, and that is where
our managing director of Morgan Stanley maybe could shed some
light.
Right now we take in about a billion dollars. We have about
11 million or 12 million passengers on that run. If that was 40
million passengers, of course, there is costs, not just adding
passengers, but capacity and the infrastructure to support
that. How much money do you think could be raised? Any
thumbnail idea of what that kind of activity would support,
that revenue?
We would probably have about $4 billion coming in from
passenger revenue at that stage and it could be amortized over
a number of years. Maybe you could tell us what that might
foretell or forecast for investment. I know you said there have
to be conditions, Government guarantee and backup, which could
be done. But with that kind of revenue, what kind of investment
would it support?
Mr. Offutt. Thank you, Mr. Chairman. It is hard to put a
precise number on this, of course, but what I would say is we
are in an environment where there is more and more capital
being raised to invest in infrastructure projects globally than
there are actual opportunities to invest that. And I say that
because there are a lot of projects that really are not
profitable and are very difficult to make the math work from a
business standpoint. The Northeast Corridor, I believe, is
definitely an exception to that. It is profitable currently and
I think with additional investment could be a lot more
profitable.
Mr. Mica. Again, if we had $4 billion in revenue versus $1
billion, what would that support? Any idea? I mean, you take
that to the market.
Mr. Offutt. Right.
Mr. Mica. There are a lot of expenses involved, but there
is still going to be a nice net return. Would it support $20,
$30, $40 billion in investment? I don't know.
Mr. Offutt. It could. It would definitely come in two
forms--private debt capital and private equity capital. I think
with steady cash flow, people would get comfortable with the
cash flow that is available for debt service. Let's assume
after all the costs, you get to something in excess of $2
billion, you could argue that there is at least--well,
basically it is hard to give an exact number, but clearly
multiples of that, that would come from the markets. It is hard
to answer, there is no other project like this because it is so
huge relative to what people have been investing in the past.
Mr. Mica. But again, there would be interest, there is
capital now seeking projects of this nature. One, of course, of
this magnitude might have a great deal of interest. My main
thing is to get our alternatives, get this environmental study
done, then look at the possibility and take proposals from the
private sector to build this out. Of course, whoever the
operator is or working with Amtrak has to also honor the labor
agreements, right?
Mr. Offutt. Right.
Mr. Mica. Well, I think, you know, I am looking at it,
trying to look at it from a positive standpoint of what we
could do. There are so many benefits, as I said. The air
traffic congestion, even with Next Generation air traffic
control, which won't be developed in the quickest, I am trying
to speed that up, too, with some things we are doing, maybe 15
years, you can only fly so many planes so closely together.
They can only land so many planes at LaGuardia, JFK and Newark.
Been there and watched them land and can see that we are
maximizing. Even with the Stewart addition of the fourth
airport, you still will run out of air space. But taking this
traffic to the corridor and then the connections that we have.
A question was raised by Ms. Brown about impeding some of
the service along the way. Actually, if it is properly done and
there is separation we can enhance local passenger service,
commuter service, and we can also increase freight traffic by,
again, separation within the corridor with the right plan.
So I look forward to working with you, Mr. Boardman, with
the deputy administrator and others, and thank you for
participating today.
We are going to leave the record open until the 31st of
December. How is that for a date, Ms. Norton? Without objection
so ordered. We may have additional questions we will submit to
you.
May I yield to Ms. Norton now.
Ms. Norton. That is a fine date, Mr. Chairman. We will
either be over the cliff or not by that time.
I very much appreciate this hearing. I want to say that I
have been an aficionado of public-private projects in my own
Subcommittee on Economic Development where it is better known,
better understood and extensively used, and therefore I am very
interested in its conceivable application to a railroad. If we
did more public-private partnerships in construction and real
estate in my other committee we would have saved billions of
dollars. Now I want to see whether or not that is the same if
we are talking about railroads.
I noticed in Mr. Offutt's testimony, I am looking at page
9, that your examples where you were recently advised, as you
say, on transactions tend to be examples like parking systems,
concessions, parking concessions airports and the like. Have
you ever advised on any project as large or as extensive as the
Northeast Corridor?
Mr. Offutt. I would say there are a lot of projects that I
work on that are very similar. In terms of airports, there is
lots of complexity that is very unique to airports. But I would
say this is a very unique project relative to anything that I
have seen in the U.S. or around the globe in terms of the scope
of what this project could be, especially as it relates to
cost. It is not just me speaking--anyone in the financial
community would say that an equity check from a large
institutional investor of a billion dollars is considered
large, and this would be something which could support
significantly more than that if structured appropriately.
Ms. Norton. Now, you testified that capital is available
for investment in such a project like the Northeast Corridor.
Now, I would like you to describe what you think is the reason
for our recent experience where the Department of
Transportation put out requests for proposals, did get a few,
but none for the Northeast Corridor. Why do you think that the
DOT got none for the Northeast Corridor, since that is the only
really profitable one?
Mr. Offutt. I would start by looking at the example of the
Florida high-speed rail project which had been considered at
one point in time, and there was a list of groups that had
formed that expressed interest in that and they were some of
the best operators around the world for high-speed rail, some
of the best construction companies, and some very well known
equity sources as well. So I think there is a lot of interest
in general.
But what the private sector has seen multiple times before
are projects that are still very much in the conceptual stage
and are very concerned about spending significant dollars today
until there is some more clarity on the projects, because it
does cost a lot of money to have consultants and others analyze
it. And that is why I mentioned the concept of political will
in my testimony. On both sides of the House there is clearly
support for projects like this, but there is a lot of details
that need to be dealt with in terms of what the actual
economics may be, and then once those are determined, then I
think there would be a lot of interest from the private sector.
Ms. Norton. Now, you say, and now I am looking at page 6 of
your testimony, that equity contribution from private investor,
that tends to be approximately 10 to 15 percent of the total
project cost given its cost of capital. Does that sound like it
would be sufficient for a bidder who wanted to be the private
partner in the Northeast Corridor?
Mr. Offutt. I think that is a question for a lot of other
people that would be involved in the project, if that is
enough. If you think about the total needs for capital, how
much would you need from the private sector to close that gap.
But when you look at precedent, public-private partnership
transactions in the U.S.--still a more limited subset than if
you look over in Australia, Canada and the U.K.--only about 10
to 15 percent of the money comes from the private sector, in
terms of equity that is, and it really is because the cost of
capital for that equity is definitely, based on precedent
deals, north of 10 percent cost of capital.
So usually for projects such as this they would start with
any potential grant money available first, then any potential
subsidized or low-cost loans, such as the RRIF program, and
then eventually figure out how much more additional capital
would be needed and could the private sector be able to come up
with that amount. And, again, given the size of the total
project, I can't say if there is enough capital to do that, but
in segments, and given the general interest in rail, I believe
that if structured appropriately there should be a way to do
this.
Ms. Norton. But you do say 10 to 15 percent of the total
project cost would come from private capital. Now, where would
the rest come from?
Mr. Offutt. That is right. So if you look at a lot of the
projects, for example, some of the toll road projects that were
built in Florida, a lot of it comes from either Federal or
State funds. It is not to say these are grants, but a lot of
times they are programs like TIFIA, which are low-cost loans
that would be supported by the project that represent roughly
50 percent of the total project cost.
Ms. Norton. It might be low-cost loans guaranteed by the
Government?
Mr. Offutt. That is where a large percentage have come from
historically.
Mr. Denham. [presiding.] Mr. Offutt, we are going to move
on. We will come back. We are going to have several rounds
here.
Along that same line of questioning, when you are looking
at a project, what percentage of the project do you normally
look at as being needed to be funded before private capital
comes in and what type of return are you looking for?
Mr. Offutt. The clients on the private side that I spend
time with are going to look at a return that is consistent with
the risk of a project. If there is an availability payment as a
floor, as I mentioned in my testimony, there is at least some
comfort that no matter what the volume of traffic is, there is
some base level of cash flow. That drives the return
expectation down to somewhere in the low double digits, so
maybe 11 or 12 percent. If you are talking about a project
where there is a lot more volatility, then the project for a
greenfield new construction project could be in the 17-, 18- to
20-percent range.
So I think the reality is, is that these investors who
represent pension fund money or endowment money are looking to
deploy that capital on a global basis and will find projects
that meet those return hurdles. So that is why usually the
percentage is a much smaller percentage of the total cost.
I think the first part of your question as it relates to
figuring out when that money is available, there is definitely
money that has been raised. But I think when it comes down to
thinking about any given project, if the total cost for a
theoretical project was $1 billion, there would be very much a
calculation of given the project's future cash flows and given
what other sources of capital could be available from both
Federal, State, local funds, forms of debt capital that could
be funded on a project basis, on a taxable basis or even a tax-
exempt bases, then how much would be left over for this private
equity capital. And that usually happens after significant
studies have happened in terms of either ridership,
environmental and so on, and that there is enough certainty on
what the timeline of that project might be as well.
Mr. Denham. So at what point, and also what type of
information do you need before you present this to your
investors on investing in the Northeast Corridor?
Mr. Offutt. I believe there are a couple of processes that
are going on right now in terms of a ridership study. That
would be incredibly helpful. There is additional work, I
believe, in terms of analyzing what, if any, kind of
environmental work would be needed. Things that would enable
the development of a financial set of projections based on
certain reputable advisers or consultants that would be backing
those numbers.
I think once there is a real set of projections, both on
the capital side and the operations side, then I think it
becomes a very tangible analysis that the private sector can
get involved in, at least on the equity investment side.
Mr. Denham. And what type of information are you looking
for coming from--or what type of commitment are you looking for
from Congress on the overall project? Is there a percentage
that you are looking for? If it is a $100 billion project, are
you looking for 80 percent of it to be initially funded or are
you normally willing to jump in halfway through the process?
Mr. Offutt. Sure. There definitely is not a specific
percentage that is required. It truly comes down to math. It is
math in terms of making sure that the return is reached. There
is a limit in terms of how much equity capital would be
invested in any one given project.
So while I mentioned in my testimony and there has been
hundreds of billions of dollars that has been raised, that is
true. Clearly a large chunk of it has been invested. But any
different fund adviser is going to be limited by how much they
are going to be able to put in one given project. So, again,
the numbers we have talked about are unprecedented relative to
deals that have actually happened.
Mr. Denham. I am just curious on what point you actually
get the information and take that back to your investors and at
what point you are able to not only present that to them, but
give a commitment overall to the project. This is a $151
billion project that has a little over $3 billion already
allocated to it. Do you get involved in a phase or do you need
to see a certain amount of budget allocated before you are able
to put your financial picture together for your investors?
Mr. Offutt. I think there is definitely the ability, again,
for the broader private sector, not only the investors, but
clearly the operators and construction companies to be getting
involved in early stages to try to give their thoughts and try
to structure things in a way that they think will ultimately
get to the right conclusion. And given the size and the scope
of this project, I would think you clearly would have different
phases for that to happen.
They will spend most of their time and effort when there is
a better sense of when that first phase will actually start or
get close to the construction portion, and 6 months leading up
to that, all the funding will have to come together, and all
the private and public funds will be available.
Mr. Denham. So in a huge project like this, it does not
make your investors nervous to get involved in a phase one or a
phase two or an early part of the process, even though the
overall budget is not put together?
Mr. Offutt. I think it is just a matter of managing their
cost and time. A lot of people would believe in this project in
the long run and would be happy to dedicate a fair amount to
try to make the process move forward. I think it is a matter of
spending millions of dollars trying to analyze the project and
come up with constructs that might make the procurement of it
work, but they will also be concerned about whether that money
is going to be able to recover eventually if there is a
process.
This is a long way of saying that they are very mindful of
how much they do spend upfront, but I do find that they would
probably be very much willing to engage at some point early on
and then hope that they have kind of helped give some guidance
that could actually turn into a process they could be involved
in later.
Mr. Denham. So you would write a clause into any contract
that said if the project significantly changes, then there is
some type of payment back to your investors?
Mr. Offutt. That is one way of doing it. There are people
in the private side that are willing to have funds at risk that
they would not expect to be recovered at all. There have been
discussions about ways in which you can engage the private
sector and give them some comfort that if things do deviate
dramatically, that there could be some recovery, that would be
helpful.
Mr. Denham. And how much does that compensation change
depending on the risk that is allocated, or how much does the
risk change depending on how early the project is?
Mr. Offutt. Obviously, the earlier and less defined a
project is, the riskier it is. There aren't any specific, at
least in terms of the equity capital side, specific funds
dedicated just to kind of passenger rail projects. So I think
it would be trying to figure out which groups would be the most
interested in taking that risk. And the groups that I have
heard of would be a lot of the international operators. Amtrak
has teamed up before with SNCF, the French operators. I think
they are very much believers in this project and other projects
in the U.S. I believe they have been willing to give guidance
and not expect any kind of compensation in return.
Mr. Denham. Thank you. And one final question. This is a
$151 billion project with $3.3 billion allocated from the
Federal Government. Is there a local bond on this? State bond?
Any type of bond? No bond.
OK. So comparing that to California, where you have a now
$68 billion project with $3.6 billion coming from the Federal
Government, a $9.5 billion bond, you have a bigger percentage
already allocated between State and Federal dollars for the
California high-speed rail, which is a better risk? Which would
be a better investment for Morgan Stanley?
Mr. Offutt. I think the investors would definitely view
that the Northeast Corridor, given at least the view that you
are going to be able to go from Boston to Washington, DC, even
if it is, again, not all done in one segment initially. It is
already profitable and it clearly has room to be significantly
more profitable.
California could work when you are able to get from the two
major areas of density in San Francisco to L.A. If you are only
talking about the Central Valley, I think that becomes a
problem. Unless there is a guaranteed availability payment that
I had mentioned before, no one is going to be willing to take
that traffic risk because there is no history of large traffic
between Bakersfield and Fresno.
Mr. Denham. But at some point you are still going to
connect by the California plan San Francisco to L.A. If you
have a $68 billion project and you have a much larger
investment between State and Federal dollars, why wouldn't that
be less risk, unless you really have a huge question about the
ridership numbers between the two corridors?
Mr. Offutt. Yes, it also goes to phases. I think it is hard
to say which is better. If both of them were built tomorrow and
they were done, I think they are both very interesting and
potentially very viable projects.
I think it is just difficult to be able to convince the
private sector that the timeline is going to be within a
reasonable amount of time. Most of these funds have been raised
to try to be invested over the next 10 years, and a project
such as the California one clearly has a timeline that could be
well beyond that.
Mr. Denham. Thank you.
Mr. Hanna?
Mr. Hanna. Nothing.
Mr. Denham. Ms. Norton?
Ms. Norton. I would like to--I am fascinated by the public-
private notion and how real it is.
Did you say you would expect an 11- to 12-percent return on
investment?
Mr. Offutt. When you think about the private capital, there
is definitely debt capital and equity capital. On the equity
side, I would say that the base rate, so the lowest possible
rate, that equity would be willing to receive would be a return
of 10 to 11 percent. And that would be under a structure where
most, if not all, of their key risks were mitigated, such as
the traffic risk for a portion or all of the system.
That just gives you a sense of how much more expensive that
is relative to the RRIF program, which is based on treasuries.
Ms. Norton. For the record, the $3.3 billion that was
spoken of earlier, that is really Recovery Act money and some
appropriation money. It is going into, for lack of a better
word--Mr. Boardman could perhaps elaborate--I would call basic
upkeep, not even upgrade of the kind that would be necessary to
prepare for high-speed rail.
Is that true, Mr. Boardman? Isn't this just getting Amtrak
so that those trains can run safely and on time, as they say?
Mr. Boardman. Ms. Norton, I am not entirely familiar with
the $3.3 billion number; what it consists of. In terms of the
Recovery Act piece, we talked about $336 million. And in terms
of investment for high-speed, the only thing I really know
about is the $450 million that came out of the Florida project
that we are now using on the corridor in New Jersey.
Ms. Norton. So no investment that we could call high-speed
investment yet.
I am asking this because I need clarification from Mr.
Offutt on infrastructure. Does your view of the private
investment assume that the Government has in place and has
already funded all the needed infrastructure? Or is the private
investor part of the infrastructure of the high-speed rail?
Mr. Offutt. It could definitely be structured either way.
There are examples when the Florida high-speed rail project was
considered. One hundred percent of the capital cost could have
been funded through Government funds and then the private
sector would be taking the responsibility of all the operating
costs going forward. That was one concept that had been
discussed. I think it was a really----
Ms. Norton. Moving right along.
Mr. Offutt. Right.
I don't know if the Northeast Corridor would be that way or
not. I think there clearly are examples where a large
percentage of the capital costs would also be covered by the
private sector. I think that in this case, just given the
magnitude, it is unprecedented. So it is not to say it can't be
done; it is just----
Ms. Norton. Well, I can understand, Mr. Offutt, and some of
the questions we are asking are almost impossible. I think one
of the reasons that perhaps if anyone is going to do anything,
they ought to do it on the section of the Northeast Corridor
and see what you got.
But we do have some rough analogies that trouble me when I
try to apply them to a railroad that has to go and can't stop
and is depended upon, and that is the FAA. You know, I saw the
FAA bill held up here year after year after year. Neither party
seemed to be able to move it. It finally got to the point where
in the airports around the country they had to stop all of the
work on those airports because Congress had failed to pass its
bill, its public part of the bill.
Could I ask you whether, you know, the public-private
partnership of the kind you are talking about is even suited
for the way we fund projects? We fund projects on an annual
basis. That means that the Federal--on an annual appropriation
basis. So that means that unless there was also negotiated a
way to keep whatever Government funds were part of this deal
coming, wouldn't the private-public partnership be in the same
position as the FAA was? Some years where there is nothing,
because there is no agreement in Congress--this is a democracy,
and the way in which it works, particularly when it comes to
money, is sometimes Congress does and sometimes Congress
doesn't.
And I am trying to apply that to a railroad which depends
through the annual appropriations on Congress coming up with
its share of the operating funds and then having trouble.
Mr. Offutt. I completely agree with that point. For much
smaller scale projects--for example, a courthouse was built in
Long Beach, California. All of the funds are also subject to
appropriation that are coming from the Government each year.
But given the scale of that, being so much smaller, the
investor felt comfortable that money will come.
I think when you are talking about the magnitude here and
the costs associated with significant delays, it raises it to a
whole other level. That is right.
Ms. Norton. It seems to me that the infrastructure of the
Government would have to also be changed to account for any
such new and important inroad into a public-private partnership
for railroads.
Thank you very much.
Mr. Denham. Thank you.
Ms. Hedlund, you said in your testimony that you have the
right pieces and the right people in place. Do you currently
have any private investment in the project?
Ms. Hedlund. Is there currently any private investment in
the Northeast Corridor?
Mr. Denham. Correct.
Ms. Hedlund. Yes, there is, and it is in the stations. As
Ms. Norton is familiar with, the redevelopment of Union Station
involves a significant public-private partnership with a
private real estate developer. And the same is true with the
proposed redevelopment of Moynihan Station in New York.
So, yes, with respect to stations, there is a great
opportunity to leverage private investment for the development
of those stations to pay for the transportation function of
those stations.
Mr. Denham. And how about as far as phase one of the rail
or the environmental process?
Ms. Hedlund. What we will be doing in phase one is to
evaluate what potential private investment might be. That is
definitely part of the scope of work of phase one, so we will
be studying that.
Mr. Denham. And how about phase two? What type of private
investment are you looking for in phase two?
Ms. Hedlund. Well, we will find out in phase one what we--
you know, that is what phase one is to find out, what the
potential is for private investment for projects going forward.
Mr. Denham. Unlike in California, the Northeast Corridor
service provides, my numbers here show, 75 percent of the rail-
air market. What is the proportion of passenger rail transport
in the air-rail market for California?
Ms. Hedlund. I don't have those numbers, but I know there
has been a study of what the impact of the high-speed rail
project would be on the congestion between San Francisco and
Los Angeles, how much of that traffic is expected to shift to
rail. I don't have those numbers with me, but I would be happy
to get those from the Authority and make them available to you
in the record.
Mr. Denham. And you also would have, or the Authority, I
assume, would also have a 30-year projection?
Ms. Hedlund. I don't know exactly what the nature of the
projections are, but we will get the information that they have
and make it available to you.
Mr. Denham. Thank you. And you currently have a 30-year
projection for the Northeast Corridor?
Ms. Hedlund. For the air-rail split?
Mr. Denham. Yeah.
Ms. Hedlund. That I do not know. I would defer to Mr.
Boardman on this.
The introduction of the Acela service itself in 2000, I
think the air-rail split was something like, you know, 30-70 or
40-60, and then it flipped; it is now 75-25. You know, the
overwhelming number of people going between Washington, DC, and
New York prefer to take the train. And it is not because that
it is always cheaper because the Acela service is not. It is
because of the time savings and the convenience.
Mr. Denham. Mr. Boardman, for the Northeast Corridor, 80
percent of the population lives within 25 miles of the
Northeast Corridor, making the rail very, very accessible. How
would you compare that with California?
Mr. Boardman. It depends on the part of California. One of
the things I can answer, Congressman, is that the air-rail
service between San Diego and L.A. is entirely rail because of
how close they are to each other and the way that it operates.
But when you get to something like the L.A. to San Francisco,
you really only have the Coast Starlight. And so there isn't a
sufficient amount of data that would really tell you what would
really happen here.
So, from that regard, the old train--and I can't remember
right now what they called it; I guess it was the Coast
Daylight--was the primary way they moved, up until 50 years ago
or so, between San Francisco and L.A. And it was probably the
most profitable of the private railroad operations back years
ago in regard to that.
In terms of the Northeast Corridor, we have a projection of
what the revenues would be 30 years down the line. There would
be probably very little air service in terms of Boston to New
York and New York to Washington, because you would be at an
hour and a half between Boston and New York and then another
hour and a half or an hour and 34 minutes between New York and
Washington. So you would really wind up with very little air
service.
And if you remember back in 2008, and you may not, there
was a great deal of discussion by the former aviation
executives that that is something we really should do in the
Northeast, so that those airports today could really be used
for longer distance travel and that we use the mode that made
the most sense, which would be rail, in those corridors. That
would garner us, our expectation is, pretty close to $5 billion
in revenue a year, with about $1 billion, plus or minus, coming
out of that in terms of profit.
Mr. Denham. So you cannot draw a direct correlation between
California's high-speed rail and Northeast Corridor? I mean,
they are just two completely different----
Mr. Boardman. Well, not here. I mean--excuse me. I don't
know if your question is done.
I can't draw that conclusion here because you don't have
the right data sets. We may have some folks that have an
analysis, and I can look at that and get you an answer back.
Mr. Denham. Perfect. Thank you.
Mr. Hanna?
Mr. Hanna. Thank you, Chairman.
Hi, Ms. McDonald. How are you, Commissioner? Nice to have
you here.
On the Advisory Commission, you are in the process of
developing several other reports analyzing the pressure that
would be taken off, projected pressure, off of airlines, off of
roads and what that means to the Northeast Corridor.
Will that report be done? And what will we be able to get
out of it to tell us about the savings that might be incurred
just by virtue of the pressure taken off of those other two or
three modes of transportation?
Ms. McDonald. It is nice to see you, Congressman.
Mr. Hanna. Thank you.
Ms. McDonald. We are undertaking right now several
different initiatives.
Number one, what you will get in early January is, segment
by segment up the corridor, what the various infrastructure
investment requirements are. And it is important to note that,
while it is done in a segment-by-segment basis, the Commission
views the corridor as geographically silent. We don't look at
the borders between States. We really look at the investments
that are needed for the corridor overall. So you will get that
in January.
Number two, in coordination with the I-95 Corridor
Coalition, we are doing a highway intercept study. And what we
are doing there is looking at, in cooperation and collaboration
with the Northeast FUTURE study, what types of people who
currently use automobiles would then transfer to the train
intercity passenger rail. And that is going to be completed
sometime in the spring, and you will get various updates on
that.
And, lastly, our primary initiative that we are undertaking
right now is the cost allocation methodology, which is part of
the PRIIA legislation that Congress enacted which created the
Commission, to see what types of cost-sharing allocations need
to be done between the States, Amtrak, and the Federal
Government.
Mr. Hanna. Will you be projecting the cost savings of any
anticipated improvements in those facilities in the absence of
the Northeast Corridor build-out?
Ms. McDonald. You know, I think what we have all been doing
as standalone States and as part of the corridor is looking at
what those cost savings are. For example, in New York, we just
instituted a major change in how we do business on the service
between Poughkeepsie and Schenectady, New York, and it was a
wonderful collaboration with Amtrak, CSX, and the State as to
how those costs are allocated. And those are the things that we
will continue to be doing.
Mr. Hanna. Uh-huh. So that won't necessarily be broken out
in terms of potential Federal savings or Federal offsets,
investments?
Ms. McDonald. You know, I think the challenge that we are
facing is, first and foremost, we are talking $150 billion here
if something like the Amtrak plan is the agreed upon path
forward, and we see significant capital investments that need
to be made. So one of the primary questions that needs to be
answered is, what are the funding sources to make those capital
investments? And what we are evaluating is, you know, there
will be public dollars, as we have been discussing here this
morning. What is the capacity and the ability and the risk
associated with private-sector investment, and how does that
all come to pass?
Mr. Hanna. Uh-huh.
Ms. McDonald. And then, as we do that, we will look at,
along with Amtrak and the Federal Railroad Administration,
where the potential savings are on the operating side once you
make those capital investments.
Mr. Hanna. Uh-huh. I understand. I am just thinking of, in
total, there could be a great many savings that this body might
want to see and understand. It is going to be a hard sell.
Ms. McDonald. You know, it is going to be a hard sell. In
my 20 years working with both commuter railroads and in
transportation, one of the reasons we are at the point we are
right now, not to anybody's fault, but there hasn't been the
type of investment made that needs to be made.
We have all pointed to Superstorm Sandy, and fortunately
the tunnel connecting New Jersey and New York, even though it
flooded, it did not breach. And that is huge. And a lot of
times, people talk about the tunnel and the Gateway project as
a New York-to-New Jersey project. It is not; it is a corridor
project. If that tunnel had collapsed, just think of what would
have happened in the Northeast--not the Northeast Corridor, but
in the Northeast. It would have paralyzed the region and the
country.
And we need those investments in additional tunnels in
Baltimore, in New York, improvements on the bridges in
Connecticut, to make this system, to attract the ridership that
we need to make those cost savings and that calculation work.
Mr. Hanna. Uh-huh. I guess what I am referring to, also, is
the fact that the $4 billion in revenue that is projected, that
is just one number, one benefit, one source. It is certainly
far from what we should be talking about, and obviously
everybody knows that. But the more you can give us, the more
you can parse this, the different angles you might take, I am
sure it is all going to be helpful.
Ms. McDonald. And we will absolutely do that with Amtrak
and our partners at U.S. DOT.
Mr. Hanna. Thank you.
My time is up.
Mr. Denham. Any further questions from any members of the
committee?
Seeing none, I would like to thank each of our witnesses
for your testimony today.
I ask unanimous consent that the record of today's hearing
remain open until such time as our witnesses have provided
answers to any questions that have been submitted to them in
writing, and unanimous consent that the record remain open for
15 days for additional comments and information submitted by
Members or witnesses to be included in the record of today's
hearing.
Without objection, so ordered.
I would like to thank our witnesses again for your
testimony today and appreciate your working with our
legislative calendar today.
If no Members have anything to add, the committee stands
adjourned.
[Whereupon, at 12:54 p.m., the committee was adjourned.]