[Senate Hearing 113-235]
[From the U.S. Government Publishing Office]
S. Hrg. 113-235
THE FUTURE OF PASSENGER RAIL: WHAT'S NEXT FOR THE NORTHEAST CORRIDOR?
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 17, 2013
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington ROY BLUNT, Missouri
FRANK R. LAUTENBERG, New Jersey MARCO RUBIO, Florida
MARK PRYOR, Arkansas KELLY AYOTTE, New Hampshire
CLAIRE McCASKILL, Missouri DEAN HELLER, Nevada
AMY KLOBUCHAR, Minnesota DAN COATS, Indiana
MARK WARNER, Virginia TIM SCOTT, South Carolina
MARK BEGICH, Alaska TED CRUZ, Texas
RICHARD BLUMENTHAL, Connecticut DEB FISCHER, Nebraska
BRIAN SCHATZ, Hawaii RON JOHNSON, Wisconsin
WILLIAM COWAN, Massachusetts
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
John Williams, General Counsel
David Schwietert, Republican Staff Director
Nick Rossi, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
C O N T E N T S
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Page
Hearing held on April 17, 2013................................... 1
Statement of Senator Rockefeller................................. 1
Statement of Senator Blunt....................................... 3
Statement of Senator Cowan....................................... 15
Statement of Senator Johnson..................................... 42
Statement of Senator Nelson...................................... 44
Witnesses
Joseph H. Boardman, President and Chief Executive Officer, Amtrak 5
Prepared statement........................................... 7
James P. Redeker, Commissioner, Connecticut Department of
Transportation, on behalf of the Northeast Corridor
Infrastructure and Operations Advisory Commission.............. 15
Prepared statement........................................... 17
Jim Steer, Founder and Director, Steer Davies Gleave............. 20
Prepared statement........................................... 21
John P. Tolman, Vice President and National Legislative
Representative, Brotherhood of Locomotive Engineers and
Trainmen....................................................... 29
Prepared statement........................................... 30
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..................................... 32
Prepared statement........................................... 34
Appendix
Hon. Frank R. Lautenberg, U.S. Senator from New Jersey, prepared
statement...................................................... 53
Response to written questions submitted to Joseph H. Boardman by:
Hon. John D. Rockefeller IV.................................. 54
Hon. Frank R. Lautenberg..................................... 58
Response to written questions submitted to James P. Redeker by:
Hon. John D. Rockefeller IV.................................. 60
Hon. Frank R. Lautenberg..................................... 61
Response to written questions submitted to Jim Steer by:
Hon. John D. Rockefeller IV.................................. 63
Hon. Frank R. Lautenberg..................................... 64
Response to written questions submitted by Hon. Frank R.
Lautenberg to:
John P. Tolman............................................... 67
R. Richard Geddes............................................ 69
THE FUTURE OF PASSENGER RAIL: WHAT'S NEXT FOR THE NORTHEAST CORRIDOR?
----------
WEDNESDAY, APRIL 17, 2013
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 2:39 p.m., in
room SR-253, Russell Senate Office Building, Hon. John D.
Rockefeller IV, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. Ladies and gentlemen, I apologize for being
late. And I also apologize that because we are having at least
nine votes on gun issues this afternoon, that my distinguished
friends' and my schedule are just completely ransacked. So I am
going to give my opening statement.
I am tremendously interested in the content, in the
substance, when doing prep last night, for what we are going to
be talking about, something which is so totally impossible to
contemplate and yet which is so totally impossible to
contemplate not somehow figuring out a way to do. It is sort of
a metaphor for whither America.
Should I start my statement? Wouldn't that be better?
Senator Blunt. Probably be good.
The Chairman. Yes. Yes.
OK, when trains first began to roll from Baltimore to
Washington in 1835, highways did not exist. They probably did
in Missouri, but they didn't in West Virginia. Roads between
towns and cities were made of dirt, and traveling between
cities took days. The arrival of trains, obviously, changed
that.
Trains were initially built to move freight from ports to
commercial centers; moving commuters was an afterthought. Then
railroads found that trains could move a large number of people
very efficiently, and that is what people wanted.
Passenger train travel became a viable alternative, but it
was not fast. And I am staggered by what I am about to say. The
first train traveling from Baltimore arrived in Wheeling, in my
home state, although West Virginia did not yet exist, it took
16 hours. But, then again, when you think about it, that is not
too surprising, is it? Early trains. The point is that it got
there.
The rise of the automobile and the interstate bus companies
caused a plunge in the popularity of rail travel. The
Interstate Highway System, a strong example of how the Federal
government can strategically plan for our transportation needs,
was the catalyst for passenger rail's decline.
By the 1970s, the system was on the verge of collapse.
Passenger rail was not financially viable, so Congress created
something called Amtrak. However, it failed to establish a
viable strategy for passenger rail to succeed. Amtrak, and
passenger rail in general, has limped along financially since
it was created.
Unpredictable Federal financial support has been a
detriment to Amtrak's core responsibility to provide travel for
millions of Americans and continues to hamper its long-term
planning. Amtrak is caught in the worst possible of all places,
doing the right thing, doing it efficiently, but not knowing
what the next year will bring.
The transportation system that we rely on to travel through
the Northeast and the rest of the country is from another era.
Commercial expansion has resulted in vast economic powerhouses
of cities that grew to this level because of their strategic
commercial significance. Transportation networks were developed
around and between them, creating a dense, interconnected
region.
With this economic density comes complex transportation
challenges. Spend some time traveling in the Northeast and one
thing is very clear: it is very, very busy. The highways are
jammed beyond capacity, overloaded with cars and trucks. The
airspace is the busiest in the country, where delays are
frequent and have nationwide consequences. Even the passenger
rail systems are at capacity.
The transportation network is overwhelmed, and it is
beginning to have consequences. That has been true for quite a
while. The region is responsible for 20 percent of the
country's gross domestic product. This translates into $2.4
trillion annually. When traffic congestion and delays cost the
region $22 billion in lost productivity each year, it is no
longer just a transportation issue, it becomes an economic
issue.
It is clear that a healthy transportation network in the
Northeast is vital to the Nation's economy. However, building
more highways are either infeasible or astronomically costly in
this dense region.
More and more every day, the system is creaking under the
stress of more and more users. Our transportation
infrastructure is old, it is crumbling and in too many places
obsolete. In the Northeast Corridor, dramatic investment is
needed right now just to maintain existing capacity.
Everyone in this room knows that simply maintaining what we
have in the Northeast Corridor is not enough. We need to
provide expanded capacity to meet future needs of the region.
Throwing $22 billion down the drain annually in this economy,
all because we cannot agree that transportation infrastructure
is a priority, is shameful.
I truly believe our country's lack of focus on investing in
our infrastructure is endangering our ability to continue as a
global leader. I could take 20 minutes to expand on that. What
is it in Americans that will not confront the most obvious
parts of their having a decent future infrastructure in so many
respects? It is deplorable, it is curious, and it is wrong.
The Federal Government can lead on rebuilding our
infrastructure. We can put together a coherent, long-term plan
for how to position this country's interconnected
transportation system for the future. But we need the will to
do it, which is something that has been lacking in this
building in recent years. We need the stakeholder community to
push and work with us to fully meet the present and future
needs of the corridor.
I have an infrastructure fund bill. I say that back home,
and people don't know what I am talking about. You know,
infrastructure bank and infrastructure fund, they don't know
what you are talking about. But it is so critical. It would
leverage private funds to maximize the return on Federal
taxpayer dollars. This is one way to help fill the funding gap,
but all funding ideas and options must be on the table.
The bottom line is that investment in our rail
transportation infrastructure is only part of the solution. In
the last week alone, this Committee has looked at how freight
mobility will change in the next decade and how the aviation
industry is modernizing to compete on a global level, and then
also discussing whether or not sequestration and other things
is going to allow that to happen.
The private sector has plans for how it will adapt to this
century's technological advancements and opportunities. We will
hear today that Amtrak is working on a plan for the corridor's
future needs.
However, our Federal transportation programs are divided by
jurisdictional and programmatic silos. It is just like post-9/
11 and the intelligence community and all of those various
agencies. They just hold on to their turf. All the middle-level
people stop what the top-level people know has to be done, and
they just stop it. It is called inertia. It is rampant.
My good Ranking Member, Mr. Blunt, I used to be something
of a Confucian scholar, and that was considered very good,
except the Confucians were so bureaucratic. You took this test,
and if you made it, you got into the bureaucracy. Once you got
into the bureaucracy, you forgot all about your country and
what its needs might be; it was just about holding on to your
position. And we have a lot of that here in this country.
However, my final page----
[Laughter.]
The Chairman.--our Federal transportation programs are
divided by, as I said, silos in a way that prevents us from
developing a comprehensive strategy for rail, for highways, and
air traffic. We in Congress are not acting in a way that allows
for a comprehensive intermodal strategy to guide investment.
The future of America in the world economy depends on us rising
to the challenge, all of us.
Your Excellency, I turn to you.
STATEMENT OF HON. ROY BLUNT,
U.S. SENATOR FROM MISSOURI
Senator Blunt. Thank you, Chairman.
The Chairman and I are good friends, and we spend some time
together, and anytime we do, I always learn something. And
today it was that bureaucracy is the reason for the decline in
Confucianism.
[Laughter.]
Senator Blunt. So this is good to know, this is good to
know, and I am glad to know it.
And, Chairman, thank you for coming and chairing this
hearing today.
I do want to mention specifically Senator Lautenberg, who
was certainly no--I think there is no bigger advocate for rail
travel, passenger rail, or the Northeast rail corridor than
Senator Lautenberg has been. And he is the chairman of our
subcommittee. Not able to be here today, but we look forward to
him getting back to work quickly.
The Northeast Corridor that we are going to be talking
about today is one of the most important and valuable
transportation assets in the United States. The comments that
the chairman has made about the challenges to that corridor are
real.
From an Amtrak perspective, Mr. Boardman, it is the crown
jewel of Amtrak, the part of Amtrak that makes money, the part
of Amtrak that serves a big and consistent population every
day.
And while the population center of the country continues to
move further west and further south, we need to remember that
there are still 50 million people who live in close proximity
to this critical corridor that we are talking about. Whether it
is on Amtrak or the numerous commuter networks which use a part
of this line or through the freight traffic which shares the
line, millions of Americans every day are dependent for their
jobs, their livelihood, and in getting to their jobs, on this
corridor.
I am interested to hear from our witnesses today about
their view for the future of the Northeast Corridor. And,
specifically, will ridership increase as our population
hopefully continues to grow? And how do we deal with that
ridership in the best way, in a way that encourages the use of
this asset and maintains this asset?
I understand that there is a 30-year master plan conducted
by the Federal Railroad Administration, which highlights both
the near-term and long-term need for this line. And I am going
to be interested to hear more about the implementation of that
plan and the continued sharing of this asset by freight and by
passengers.
Specifically, as the freight industry continues to invest
in our rail infrastructure over the past several years, we see
that that industry has dramatically improved its position and
is investing its own money in a way that allows its
infrastructure to be maintained and improved and bigger than it
was before.
Knowing how important this line is to our country, I know
at least one witness is going to be talking about some of the
potential for private-sector involvement and private-sector
resources, how they might be able to be leveraged. I look
forward to hearing that.
I think the Chairman's views of the critical use of rail if
we are going to be anywhere nearly as competitive as we would
hope to be and if we are going to compete with the people we
have to compete with is something we all need to understand and
appreciate better.
And on behalf of Chairman Lautenberg from our Subcommittee
and others on the Subcommittee, I am pleased we are having this
hearing, Mr. Chairman. And that is all I have.
The Chairman. Well, I have so many questions, but I am
going to have to ask them from some other building, so you
probably won't hear me. So I may send you some questions.
In any event, I just consider what you represent, what you
represent, frankly, to my state, people who come from
Martinsburg on the MARC train every single day to work in
Washington, take it back at night. It is sort of an ideal life.
It is efficient. And yet you are under such stress. And what
you need to do to improve costs so much money, and that is hard
to come by these days.
But I admire you, and I am glad that you are fighting for
this. And I hope that you will forgive me if I get up and
leave.
Mr. Blunt may actually be quite relieved if I get up and
leave.
[Laughter.]
Senator Blunt. No. Always disappointed.
The Chairman. So now we will hear your testimony, starting
with you, sir.
STATEMENT OF JOSEPH H. BOARDMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMTRAK
Mr. Boardman. Thank you, Mr. Chairman. And thank you for
your tireless support in terms of the Cardinal service in West
Virginia and also the Capitol Limited service that is vital in
connecting and creating economic opportunities for communities
in West Virginia. Further, your support for the national
network over the years is noticed and deeply appreciated, along
with Senator Lautenberg's and yours, Senator Blunt.
With that being said, this hearing is about the Northeast
Corridor. While investment has been heavy in improving and
sustaining the Northeast Corridor since Amtrak took it over in
1976, the fact is that much of the infrastructure, particularly
major components such as the electrical system and the bridges,
were built between 1900 and 1930, and some components are even
older. This infrastructure is carrying a much greater load than
its original designers ever anticipated, and the steady
expansion of traffic over the last 3 decades has consumed the
available capacity.
For a while, the Northeast Corridor carried about 1,200
trains a day in 1976. Today, it carries almost double that
number. While approximately 150 Amtrak trains today use the
Northeast Corridor, it also hosts more than 2,000 daily
commuter trains run by 8 separate agencies. Some 70 daily
freight trains also use the infrastructure. The Northeast
Corridor is among the most heavily used rail lines in the
world, moving approximately 260 million passenger trips and 14
million car-miles of freight per year.
Now, this is a good thing, because all of those services
deliver tremendous value to the region. But we are eating our
assets alive. Many segments of the Northeast Corridor are
already at capacity, particularly during peak periods, and it
is not easy to add more capacity. Furthermore, Northeast
Corridor rail ridership is projected to increase by over 50
percent by 2040. So while the operators are succeeding, we are
running out of ways to cram more trains into the
infrastructure, and we are severely underinvesting in a
national critical infrastructure.
Penn Station, New York, is the busiest place in the system.
It is the best example of the absolute failure there will be
for all operators who try to cram more trains under the newest
real estate development that is being built on top of an
inadequate infrastructure.
We have become a nation that does not act upon our beliefs.
We talk about them as if talk will build tunnels or rail lines
or bridges. At rush hour, trains move through the underwater
tunnels between New Jersey and Manhattan every 2 minutes. This
means the slightest delay can trigger backups in the whole
network. There is literally no spare infrastructure capacity.
And the only time we can maintain these tunnels, or anything in
Penn Station for that matter, is a 55-hour period from Friday
night to very early Monday morning.
Five pages and 10 miles. Five pages in the report (http://
www.nec-commission.com/wp-content/uploads/2013/01/necc_cin
_20130123.pdf) that Jim Redeker will put into the record next,
pages 38 to 42, in the critical infrastructure needs on the
Northeast Corridor. That report identifies the most critical
issue of capacity in this 457-mile rail asset: the Gateway
Program. It is the single most important investment needed to
unlock the capacity constraints in the Northeast Corridor and
the many states it serves for the next generation.
When implemented, the Gateway Project will bring additional
capacity to the spot where it is most needed, the bottleneck
between Newark and New York, Penn Station. Today that segment
of the Northeast Corridor is a double-track line that serves
Manhattan through a pair of underwater tunnels built in 1910.
These are among the same tunnels that filled with over 13
million gallons of saltwater during Superstorm Sandy, shutting
down some service in the Northeast Corridor for nearly a week
and underscoring the importance of adding critical redundancy
to this central chokepoint on the corridor.
But as important as redundancy is, this investment is about
having the fortitude to say that the United States of America
is confident in the future of its people and is willing to stop
talking and start building.
Mr. Chairman and Members, join Amtrak in building two new
tracks and tunnels from Newark to serve an expanded Penn
Station and the future Moynihan Station. It is essential to
this nation's economic performance. It is essential if we are
to cram more commuter trains into our crowded space. It is
essential to support reliability for Amtrak, New Jersey
Transit, Long Island Rail Road, and now the plans that Metro-
North has to add even more trains. It is essential for the
success for the real estate development being built over the
West Side Rail Yard in New York City, a development that will
contain more commercial space than all of downtown Minneapolis,
Minnesota.
We are at a crisis point right now, today. Sandy showed our
hair trigger vulnerability. We are going to need more than just
Federal capital funding to address this crisis. We are going to
need a new model, one that ensures equitable contributions by
all users of the Northeast Corridor to the upkeep and
sustainment of our infrastructure. If we do not obtain one, the
outlook for the system's capacity and subsequently the rail-
dependent Northeast economy is grim.
Amtrak is ready to embrace innovations, build new
partnerships, and pursue private-sector opportunities, but none
of this will replace the need for the Federal government to
make a significant, long-term investment commitment to the
Northeast Corridor. We must not dither away our time with great
talk. We must build great futures for those who follow us. And
the time is now.
Thank you.
[The prepared statement of Mr. Boardman follows:]
Prepared Statement of Joseph H. Boardman, President
and Chief Executive Officer, Amtrak
Thank you very much for the opportunity to testify today, Mr.
Chairman. I would like to begin by thanking you and your many
colleagues on this Committee for all of your efforts, which have
spanned decades, on behalf of Amtrak, the Northeast Corridor (NEC) and
the cause of public transportation more generally. Your work here in
the U.S. Senate has made a real difference in the travel experience of
millions of people every year, and your contributions are enduring and
distinctive. While we're here primarily to discuss the Northeast
Corridor, we appreciate your visionary support for a multimodal
transportation network that meets America's future needs, including a
strong and healthy national intercity passenger rail network. And, of
course, upon your upcoming retirement, we're going to miss your
tireless support for the Cardinal Service that is so vital in
connecting and creating economic opportunities for communities in West
Virginia.
So with all that being said, I hope you'll pardon me for beginning
with a quick review of the NEC, including some key data points and some
information about its history and function.
Historical Overview
Although portions of the Northeast Corridor routes were built some
180 years ago, the modern NEC dates from the High Speed Ground
Transportation Act of 1965, an early form of a public-private
partnership between the Federal government and the Pennsylvania
Railroad (which at the time owned and operated the portion of the NEC
from Washington to New York) that resulted in improved trip times and
performance. Through the following decade, ownership of the NEC was
gradually consolidated through the creation of the Penn Central
Railroad and then transferred to public and Amtrak control between 1971
and 1976 as part of the recovery plan for the Penn Central bankruptcy.
At the time we took the NEC over in 1976, the railroad was in a
deplorable state of disrepair and required major investment. To address
this need, the Federal Railroad Administration (FRA), Congress and
Amtrak worked closely together to establish, fund and carry out the
Northeast Corridor Improvement Project, or ``NECIP.'' This project, and
its follow-on, the Northeast High Speed Rail Improvement Program, or
``NHRIP'', invested a total of about $4 billion in the NEC between 1976
and 1998. Over time, the NEC was transformed from a rundown mid-century
railroad into a modern, electrified, high speed line capable of
handling twice the number of trains and suitable for our 125mph
Northeast Regional services, as well as the 135-150mph Acela trains
which entered service in 2000.
Current Operations
As a result, in part, of these investments, Amtrak's system-wide
ridership has risen by almost 50 percent since 2000, and we've set nine
annual ridership records in the last ten years. The NEC has been a
major driver of that growth, and our market share in the region has
risen dramatically. In 2000, we carried about one passenger between New
York and Washington for every two carried by the airlines; today, we
carry three passengers for every single airline passenger. Similarly,
we carried one passenger between New York and Boston in 2000 for every
four who flew; today, we carry more people between these two cities
than all of the airlines put together. This is not something that I
would portray as a ``win'' for one mode or the other, but rather, a
case of modal optimization: Amtrak is now providing efficient and
effective service on a passenger corridor that's ideally suited to its
operational characteristics, and the airlines can free up capacity to
improve service on longer routes where there are currently fewer
service choices, including international flights.
But we are only a part of the story--for today's NEC handles a lot
more than just Amtrak services. This is a blessing to the communities
that are served by the route, but it is also a very severe challenge to
the infrastructure. While we have invested heavily in improving and
sustaining the NEC, the fact is that much of the infrastructure--
particularly major components such as the electrical system and the
bridges--was built between 1900 and 1930, and some components are even
older. This infrastructure is carrying a much greater load than its
original designers ever anticipated, and the steady expansion of
traffic over the last three decades has consumed the available
capacity--for while the NEC carried about 1,199 daily trains in 1976,
today it carries almost double that number. While approximately 150
Amtrak trains use the NEC every day, it also hosts more than 2,000
daily commuter trains, run by eight separate agencies. Some 70 daily
freight trains also use our infrastructure. The NEC is among the most
heavily used rail lines in the world, moving approximately 260 million
passengers and 14 million car-miles of freight per year.
This is a good thing, because all of those services deliver
tremendous value to the region, but it's also a challenge. Many
segments of the Northeast Corridor are already at capacity,
particularly during peak periods. And it's not easy to add more
capacity. Furthermore, NEC rail ridership is projected to increase by
over 50 percent by 2040. So while the operators are succeeding, we're
running out of ways to cram more trains onto the infrastructure. Penn
Station in New York, for example, is the busiest place in the system
and is the best example of the challenges we face at various locations
along the NEC. At rush hour, trains move through the underwater tunnels
between New Jersey and Manhattan on 120 second headways. This means
that the slightest delay can trigger backups on the whole network.
There is literally no spare infrastructure capacity, and the only way
to acquire more is to add two more tracks to the NEC across the New
Jersey Meadowlands and another set of tunnels under the Hudson River.
Addressing the NEC Capacity Challenge
To address this issue of capacity into New York, we created the
``Gateway Program'' which is perhaps the single most important
investment needed to unlock the capacity constraints on the Northeast
Corridor and the many states it serves for the next generation. When
implemented, the Gateway project will bring additional capacity to the
spot where it's most needed--the bottleneck between Newark and New York
Penn Station. Today, that segment of the NEC is a double track line
that serves Manhattan through a pair of underwater tunnels built in
1910. These are among the same tunnels that filled with over 13 million
gallons of salt water during Super Storm Sandy, shutting down service
on the Northeast Corridor for nearly a week, and underscoring the
importance of adding critical redundancy to this central chokepoint on
the corridor. Adding two new tracks and tunnels from Newark to serve an
expanded Penn Station and the future Moynihan Station is essential to
both reliably support the roughly 450 trains that use the current
tunnels today and permit future growth across the entire corridor.
Across the NEC, Amtrak is working on creating plans like the
Gateway program to address existing capacity and performance
constraints. At Washington Union Station, and beginning next year in
Baltimore and Philadelphia, we are advancing terminal master plans to
expand our facilities for the growth ahead while simultaneously
unlocking commercial development opportunities. Thanks to funding from
the FRA and in cooperation with states all along the NEC, we've been
advancing design and environmental review for major new pieces of
infrastructure like the Baltimore and Potomac tunnels and Susquehanna
Bridge replacements in Maryland. These will all be multi-billion dollar
projects of regional significance, but they are the sorts of things
that we must do if we are to create the capacity we need to accommodate
the projected ridership growth.
In the meantime, we are using the funding we can obtain to advance
discrete projects on the existing infrastructure that will deliver
incremental trip time, capacity, and reliability improvements for both
intercity and commuter services. The largest such project that's
currently ongoing is the ``New Jersey High Speed Rail Improvement
Program,'' which will deliver upgrades to the track, electrical and
signal systems between Trenton and New Brunswick to increase capacity
and reliability and allow higher train speeds. Perhaps most
importantly, the project gives us a prototype for modernizing the
entire south-end of the NEC from New York to Washington.
User Pay Model
Measures like these--incremental steps designed to deliver specific
improvements--have helped Amtrak restore and improve the NEC, and
introduce important service developments such as Acela. But they have
also brought on something I would call a ``crisis of success.'' We've
rehabilitated a railroad corridor, and made it into something far more
productive than its builders could have imagined. But our success has
meant that we've used up the legacy capacity of the existing railroad
while further depleting its infrastructure assets, leading us to a
major coming investment crisis that, without a solution, will mean
strangled growth and deteriorating service. We are going to need more
than just Federal capital funding to address this crisis--we are going
to need a new model, one that ensures equitable contributions by all
users of the NEC to the upkeep and sustainment of our infrastructure.
If we do not obtain one, the outlook for the system's capacity and
condition is grim.
The first step in this direction was provided by the 2008 Passenger
Rail Investment and Improvement Act (PRIIA). Section 212 mandated the
development through the Northeast Corridor Infrastructure and
Operations Advisory Commission of a standardized cost allocation
methodology designed to ensure that all users of the NEC pay a fair
share of the infrastructure capital and operating costs. This is an
important beginning to creating the sound financial foundation for the
NEC infrastructure necessary to support its continued improvement and
growth. But, ultimately achieving this goal will require the creation
of a new, long-term and reliable partnership between the Federal
government, Amtrak and the other NEC railroads, the states, and local
communities along the route that ensures adequate investment.
Planning for Future Generations
While infrastructure age and condition are major issues, over the
longer term, the question of capacity is the greatest issue. The
Northeast is a very productive and densely inhabited region, supporting
17 percent of the Nation's population on 2 percent of its land--and
generating 20 percent of its GDP. About 80 percent of this population
lives within 25 miles of the NEC. This population is expected to grow
significantly in coming years, and that growth will translate into
increased demand for both Amtrak and commuter rail service--but the
existing infrastructure cannot accommodate this demand.
Amtrak has created a vision and a strategy that will address this
issue. Our recent report, titled The Amtrak Vision for the Northeast
Corridor (NEC Vision), updates the work first published in 2010, and
outlines a vision for a high-capacity, high-performance railroad
featuring a major upgrade of the existing Northeast Corridor to
accommodate increased and improved commuter, intercity, and freight
service and augmented by new, dedicated high-speed trackage, on new and
existing right of way, that will allow us to dramatically increase
train frequencies, raise speeds and reduce trip times to world-class
levels.
Our NEC Vision is now serving as one of the many inputs into FRA's
``NEC FUTURE'' planning process. This important process will help
determine the options for Corridor service and infrastructure
development over the coming decades and we hope this Committee will
continue to support FRA's ongoing work in this area. In addition to
this important planning work, we are taking near-term steps to help
make this vision a reality, including working with the California High
Speed Rail Authority to jointly pursue new high speed train sets.
Through a recently released ``request for information'' (RFI), we are
in the process of hearing from leading train manufacturers from around
the world on what high speed rail equipment they could provide to both
organizations and we hope to begin a procurement process this year for
new trains to augment and then replace our Acela train sets.
To implement the strategies I have outlined, and in recognizing
that the NEC consists of two distinct Amtrak businesses--train
operations and infrastructure management--we've created business lines
devoted to each of these. Our ``Northeast Corridor Infrastructure
Investment and Development'' group is tasked with the management of the
infrastructure, including creation and implementation of long term
strategies, development of financing options, and the management of our
relations with other NEC users.
NEC as part of a National Network
Among the trains that use the NEC, I would note, are seven of
Amtrak's 15 long distance trains. While it's easy to think of the NEC
as the exclusive province of Acela, the Northeast Regionals, and the
eight commuter services that use it, we shouldn't forget that the long
distance services deliver up to half a million passengers a year onto
the corridor. It also hosts no fewer than seven state-supported
services, which provide direct service to off-corridor cities and towns
such as Charlotte, North Carolina, Pittsburgh, Pennsylvania, and St.
Albans, Vermont. The NEC is a key part of an integrated network that
serves the United States from ``coast to coast and border to border.''
As such, it is both a regional and a national asset, and its future is
both a regional and national responsibility.
The Investment Imperative
These statistics tell you a lot about why the NEC is an asset of
national significance, and why it will require an ambitious investment
program to keep pace with the demands coming decades will make on it.
While these costs may seem high, they would be dwarfed by the impacts
of failing to invest in this asset. The whole of the investment
required to implement our plan over a twenty year period, for example,
is about half of the current annual cost of highway congestion in
America--and the capacity improvements that come with the NextGen plan
deliver the capacity equivalent of three lanes on I-95 in each
direction.
This is an ambitious vision for a project of regional and national
significance--and it is therefore going to have to be funded
accordingly. The investment to realize these plans will have to come
from a variety of sources, principally Federal, but states and cities
in the region will also have to play a part. Private financing will
need to play a role, too, but these contributions will only be truly
possible once the public sector has committed to this project and such
contributions won't come for free. A significant share of the funding
will have to come from the Federal government, just as it has in our
other major transportation modes. The first step toward a necessary
Federal commitment is already underway through the FRA's NEC FUTURE
process. We are hopeful that this service development plan and
comprehensive environmental impact statement for the entire NEC--the
first since the 1970s--will provide the springboard needed to launch a
new era of NEC improvement.
The upcoming reauthorization of Amtrak and passenger rail programs
provides a unique opportunity to advance these initiatives, both for
present and future generations. PRIIA's authorizations will expire in
September of this year, creating an opportunity for Congress to make a
definitive statement about plans and policy for high speed and
intercity passenger rail service--on the Northeast Corridor and
nationwide--in the coming years. We look forward to working with the
Committee as we shape the conversation about what that policy will be.
We are in the process of developing Amtrak's principles for the
reauthorization or PRIIA, and look forward to sharing them with you at
the appropriate time.
In the meantime, if there is one thing we are sure the
reauthorization must accomplish, it is coming up with an increased and
more reliable source of capital investment. This is especially true for
the Northeast Corridor. In recent years, Amtrak has spent an average of
about $259 million annually in NEC infrastructure spending from
Federal, state and local sources from FY09 through FY13, excluding
stimulus. Even though Recovery Act funding provided more than $600
million worth of investment in the NEC, at current annual levels, we
can afford to fund only normalized replacement of assets. This level of
funding is not sufficient to address the backlog of deferred
maintenance needs, or to build capacity for further growth. Our current
estimate is that we will need something in the vicinity of $2 billion
annually to address state of good repair needs and accommodate growth
for all the users.
While I am confident in our collective ability to address the full
range of environmental impacts, design needs, and technical challenges
of modernizing this railroad for the 21st century, what does not
currently exist is a reliable funding mechanism to make this all
happen. Federal funding and financing, the life-blood of all of the
world's major high speed rail systems, must come in a steady,
predictable, and reliable manner that will allow us to execute projects
costing multiple billions of dollars over a period of many years. The
existing appropriations process is barely adequate for the purposes of
keeping Amtrak operating and our infrastructure in a state of basic
maintenance; it cannot sustain a program of this magnitude.
Consequently, I believe that if we are to succeed in realizing our
vision, Congress must act to create a funding program that will support
multi-year, multi-billion dollar projects, and that will require and
incent local and regional contributions.
In this day and age, as we look to recapitalize our aging
infrastructure and deploy new capacity strategically across constrained
networks nationwide, intercity passenger rail stands apart as the
fastest-growing transport mode.\1\. To support this continued growth,
Amtrak is ready to embrace innovations, build new partnerships and
pursue private-sector opportunities, but none of this will replace the
need for the Federal government to commit to the NEC. Today, we have
pushed the current infrastructure about as far as it can go, but the
end of demand and growth is nowhere in sight. A new model for
investment and development is needed, and I hope in the coming year
that the Committee will consider this need carefully--because however
costly these investments may appear, the cost of failing to act will
ultimately be far higher, as the mobility and economic success we and
the entire Northeast have enjoyed in recent years will be relentlessly
eroded under the conditions of a deteriorated and capacity-constrained
railroad.
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\1\ Puentes, Robert, Adie Tomer and Joseph Kane. A New Alignment:
Strengthening America's Commitment to Passenger Rail. Washington, D.C.:
Brookings, 2013.
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Attachment
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT OF HON. WILLIAM COWAN,
U.S. SENATOR FROM MASSACHUSETTS
Senator Cowan [presiding]. Thank you, Mr. Boardman.
Chairman Rockefeller had to step out for a second. I will
step in to the best of my abilities. Awfully big shoes to fill.
I think we will just continue with the testimony over the
course of the panel before we begin the questioning.
Mr. Redeker?
STATEMENT OF JAMES P. REDEKER, COMMISSIONER,
CONNECTICUT DEPARTMENT OF TRANSPORTATION,
ON BEHALF OF THE NORTHEAST CORRIDOR INFRASTRUCTURE AND
OPERATIONS ADVISORY COMMISSION
Mr. Redeker. Good afternoon. And I appreciate Chairman
Rockefeller's kicking off the meeting, Ranking Member Blunt,
and Committee members. I would also like to recognize Senator
Lautenberg, a mentor of mine from my New Jersey Transit history
and a great leader in the Northeast Corridor over the years.
I am Jim Redeker, Commissioner of the Connecticut
Department of Transportation. I am the owner of 56 miles of the
Northeast Corridor, a principal investor in the New Haven-
Hartford-Springfield intercity high-speed rail corridor, and
beneficiary of great service provided through the state of
Connecticut and within the state of Connecticut by Metro-North
and Amtrak.
Today, I represent the Northeast Corridor Infrastructure
and Operations Advisory Commission, and I am pleased to have
the opportunity to discuss our activities and our long-term
needs assessment of the corridor.
The Commission was authorized in recognition of the
inherent challenges of coordinating, financing, and
implementing major system improvements that cross the multiple
jurisdictions of the Northeast Corridor. The expectation is
that, by coming together and taking collective responsibility
for the Northeast Corridor, our members will achieve a level of
success that far exceeds the potential reach of any individual
organization.
Realizing a bolder vision for the future requires
unprecedented collaboration. Comprehensive planning is
difficult for a system that spans eight states, and the
District of Columbia, supports nine passenger rail operators,
serves four freight railroads, and has four separate
infrastructure owners. A key charge for the Commission is to
work with its members to develop strategies for coordinated
action.
To put the Commission's work in context, the Northeast
Corridor region is home to over 50 million people and generates
$1 out of every $5 in GDP. And it does so on less than 2
percent of the Nation's land area.
The Northeast Corridor has some of the Nation's longest
commutes. I-95 is congested, and one-fifth of all the flight
departures are delayed in major airports in the New York and
Philadelphia area.
The Northeast Corridor is one of the busiest and most
complex railroads in the world, carrying 750,000 passengers and
2,000 commuter, intercity, and freight trains every weekday.
And to put it in perspective, the New Haven Line has added this
year alone over 45 weekend trains and will be adding over 8
weekday off-peak trains and 2 reverse-peak trains, the largest,
most unprecedented increase in service in our rail line's
history.
The Northeast Corridor must balance acute investment needs
to maintain the safety and reliability of current services with
the need to address the growing service needs. Hundreds of the
corridor's bridges and tunnels are a century old. Electric
power supply systems were installed in the 1930s, and signal
systems rely on decades-old technologies.
The wear on existing infrastructure and the demand for
passenger rail services continue to increase dramatically. When
you look at commuter and Amtrak services, we are sharing the
same tracks, along with freight trains. Delays on one service
can cause ripple effects on others. Major segments are at or
near design capacity, and all services that utilize the
corridor are susceptible to disruptions, and as Joe said, to
infrastructure failures. We need significant and sustained
levels of infrastructure investment to support the operations
of the Northeast Corridor or the economic benefits will
diminish.
Hurricane Sandy did give us a vision into the chaos that
would ensue without these vital transportation assets. We
watched political leaders act and prioritize the reconnection
of rail service to get the region moving again. We applaud the
railroad and transit employees who made heroic efforts to
restore these critical services as quickly as possible.
In January, the Commission released a report on the
Northeast Corridor critical infrastructure investment needs
that details specific projects in a manner that is accessible
to a broad audience. Input to the report was provided by
Amtrak, the Northeast Corridor states, and other railroads
through a collaborative process.
I ask that the report be included in the hearing record.
[Go to http://www.nec-commission.com/wp-content/uploads/2013/
01/ne
cc_cin_20130123.pdf ]
Mr. Redeker. This process sets the foundation of a
partnership for all stakeholders to develop a comprehensive
infrastructure program this year. The 5-year program will
document annual state-of-good-repair needs and capacity
enhancements, outlining the timing and funding needs through
2018.
The commission has established committees to oversee its
work and to develop cost-allocation methodologies for
proportional sharing and partnership in funding the needs of
the Northeast Corridor over the next several years.
We have also engaged in activities to look at the long-term
rail needs of the Northeast Corridor, partnering with FRA in
its rail corridor investment plan called NEC FUTURE. We are
coordinating closely with the FRA to examine funding and
financing strategies to implement recommended Northeast
Corridor improvements.
The Northeast Corridor is a national treasure and resource
and, along with I-95, the backbone of the Northeast region. But
the trajectory we have is unsustainable. Reliability is
threatened by capacity chokepoints and state-of-good-repair
needs. And meeting future needs for demand for commuter,
intercity, and freight service is not possible without
significant investment in new capacity.
If our region is going to----
Senator Cowan. Mr. Redeker, I just want you to be----
Mr. Redeker. Yes?
Senator Cowan.--mindful of the time. Another 30 seconds,
please.
Mr. Redeker. Fine.
If our region is going to continue to grow and remain an
international competitive powerhouse, we must make necessary
investments.
We are committed as a commission to working together, and
we thank you for this opportunity to testify.
[The prepared statement of Mr. Redeker follows:]
Prepared Statement of James P. Redeker, Commissioner, Connecticut
Department of Transportation, on behalf of the Northeast Corridor
Infrastructure and Operations Advisory Commission
Good morning Chairman Rockefeller, Ranking Member Thune, and
Members of the Committee. I am Jim Redeker, Commissioner of the
Connecticut Department of Transportation, representing the Northeast
Corridor Infrastructure and Operations Advisory Commission (Northeast
Corridor Commission). I am pleased to have the opportunity to discuss
the activities of the Commission as we work together to address the
short and long-term needs of the Corridor.
The Northeast Corridor Commission was authorized in the Passenger
Rail Investment and Improvement Act (PRIIA) in recognition of the
inherent challenges of coordinating, financing, and implementing major
system improvements that cross multiple jurisdictions. The Commission
is comprised of members from each of the Northeast Corridor states,
Amtrak, and the U.S. Department of Transportation and includes non-
voting representatives from freight railroads and states with
connecting corridors. The expectation is that by coming together to
take collective responsibility for the Northeast Corridor (NEC), these
disparate stakeholders will achieve a level of success that far exceeds
the potential reach of any individual organization.
Realizing a bolder vision for the future requires unprecedented
collaboration. Comprehensive planning is difficult for a system that
spans eight states and the District of Columbia, supports nine
passenger rail operators--including four of the five largest commuter
rail services in North America, serves four freight railroads, and has
four separate infrastructure owners. It is also a challenge to ensure
that near-term capital projects align with long-term infrastructure and
service plans. A key charge for the Commission is to work with its
members to develop strategies for coordinated action.
To help place the Commission's work in proper context, the
Northeast Corridor region itself is home to over 50 million people, or
one out of every six Americans. It is an economic powerhouse,
generating $1 out of every $5 in gross domestic product (GDP). One out
of every three Fortune 100 companies has its headquarters in close
proximity to the NEC.
All this activity occurs on less than two percent of the Nation's
land area. The density that supports this immense productivity,
however, also creates congestion challenges for our transportation
network. Since 1990, the average commute in the region has increased by
six minutes, to some of the highest levels in the county. According to
the Texas Transportation Institute's 2012 Urban Mobility Report,
automobile traffic in the region results in approximately $26 billion
per year in lost productivity, with the average driver wasting 47 hours
per year stuck in highway traffic. During rush hour, over half of I-95
is rated heavily congested. At Northeast airports, one-fifth of all
flight departures are delayed (2012). Bottlenecks at Northeast airports
have national repercussions. The major airports in New York and
Philadelphia are the originating source of half of the Nation's flight
delays.
The Northeast Corridor rail line is one of the busiest and most
complex railroads in the world. It carries some 2,000 commuter,
intercity, and freight trains every weekday. These trains carry over
700,000 commuters and 40,000 intercity passengers daily; people who
might otherwise use the region's congested highways and airports.
Feeder routes, such as New York's Empire Corridor, the New Haven-
Hartford-Springfield Line through Connecticut and Massachusetts,
Vermont's Ethan Allen service, and Pennsylvania's Keystone Corridor
extend the reach of the NEC to additional communities. In turn, the
connecting corridors contribute to the total Northeast Corridor
ridership.
The Northeast Corridor must balance acute investment needs just to
maintain the safety and reliability of current services with the need
to address consistently growing service demands. Hundreds of the
Corridor's bridges and tunnels are more than a century old (built
before the debut of the Ford Model T); major portions of the Corridor's
electric power supply system were installed in the 1930s; and signal
systems rely on decades-old installations. Despite the age of the
Corridor's infrastructure, the demand for passenger rail services
continues to increase dramatically.
To illustrate this point, Amtrak's share of the air/rail market has
increased from 37 percent to 76 percent for trips between New York and
Washington and from 20 percent to 54 percent between New York and
Boston since the introduction of Acela service in 2000. As this trend
continues it increases the need for Amtrak to provide additional seats
and service frequencies along the Corridor. The simultaneous rise in
commuter rail services puts substantial pressure on the operational
capability of the infrastructure on a daily basis. For example, Metro-
North's New Haven Line is adding significant numbers of new trains to
its schedule to accommodate continued growth, especially outside of the
traditional commuting period. In fall 2012, Metro-North added twenty-
eight weekend trains and two weekday trains including new reverse peak
service from Grand Central Terminal on the New Haven Line. This April
Metro-North added nine new trains to the weekend schedule. And in
October, 2013, eight new weekday midday off-peak trains will be added
which will provide half-hourly service to/from New Haven for this
discretionary travel market. These changes represent the most
significant increases in service in the history of the New Haven Line.
Commuter and Amtrak services intersect at common facilities and use
shared tracks. Delays on any one service quickly cascade and adversely
affect the on-time performance of other rail services. With major
segments at or near design capacity, all services that utilize the
Corridor are increasingly susceptible to service disruptions resulting
from infrastructure failures. Without significant and sustained levels
of infrastructure investment, the operations of NEC rail services will
suffer and its economic benefits will diminish.
We often ponder what might happen if we lost this invaluable
resource and Hurricane Sandy gave us all a vision into the chaos that
would ensue without these vital rail assets that are so critical to the
economy of our region. While the details of the disruption and its
impacts are still emerging, we all watched as political leaders
prioritized the reconnection of rail service to get the region moving
and functioning again. We should also applaud the railroad and transit
employees who made heroic efforts to restore these critical services as
quickly as possible.
Today, the reality is that deferring replacement of key components
of the NEC is no longer an option--infrastructure inherited from past
generations can no longer provide the mobility needed to support
continued, robust economic growth. New investment is essential to
modernize systems, reduce failures, ensure safety and reliability, and
expand capacity for increased service.
In January, the Commission released a report on the NEC's critical
infrastructure investment needs that details specific projects in a
manner that is accessible to a broad audience. Our goal is to educate
the public, elected officials and other key stakeholders as to the
types of infrastructure investment projects that are necessary to
improve the Corridor. Input to the report was provided by Amtrak, the
Northeast Corridor states, and other railroads through a collaborative
process.
The process used to develop the report on critical infrastructure
needs sets a foundation of partnership for these stakeholders to
develop an NEC Comprehensive Infrastructure Investment Program this
year. This five-year capital program will document annual state-of-
good-repair needs and capacity enhancements, and outline the timing and
annual funding requirements for infrastructure upgrades through 2018.
Through a series of regional meetings, the Commission is ensuring
all owners and operators have the opportunity to contribute their
project priorities and service goals for integration into the planning
process.
Coordination is particularly important for non-Amtrak-owned
portions of the NEC, such as the New Haven Line, a 56-mile section of
the NEC owned by the state of Connecticut and the New York MTA, and
operated by Metro-North Railroad.
Later this spring, the Commission will release a report documenting
the current state of the Northeast transportation network across all
modes so that we can have a clear understanding of the transportation
challenges facing the region today as the Commission formulates its
recommendations. As required by statute, later this year we will also
publish a report on the economic impacts of Northeast Corridor rail
service on the region to help inform our short-and long-term
recommendations and investment strategies.
Section 212 of PRIIA also directs the Commission to develop a cost
allocation methodology for the NEC that ensures that there is no cross-
subsidization between intercity, commuter, and freight rail services.
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 in the Corridor, we will explore options to
address the governance of the Corridor and related institutional
structures to ensure that the states are partners in the decision-
making process.
The Commission has established a Cost Allocation Committee with
broad participation by states, commuter railroads, Amtrak and FRA that
is leading this effort. The state of Connecticut is uniquely involved,
both as a Northeast Corridor owner and as a provider of commuter
service on Amtrak-owned track. Our goal is to have a recommended
methodology this fall followed by significant work on implementation
over the next couple of years.
At the same time that we are making recommendations related to
near-term infrastructure needs and developing a cost allocation
formula, we are also engaged in activities to examine the region's
long-term rail needs. The FRA, in cooperation with the Commission, the
Northeast states, and Amtrak, is undertaking a Passenger Rail Corridor
Investment Plan called NEC FUTURE to develop service and infrastructure
plans for the Northeast Corridor in 2040, including examining the
market for high-speed rail service.
The Commission is closely coordinating with the FRA and providing
supplemental research and analysis that will inform the effort. The
Commission will also examine funding and financing strategies to
implement long-term NEC improvements. Our goal is that through the
Commission's work and our close partnership with NEC FUTURE, we will be
able to unify our members and other key stakeholders behind a long-term
plan and investment strategy for the Corridor.
The Northeast Corridor is a national resource and, along with
Interstate 95, the transportation backbone of the Northeast region.
However, the Corridor's current trajectory is unsustainable. The
reliability of existing services is threatened by capacity chokepoints
and significant state-of-good-repair needs. And meeting future needs
due to increasing demand for commuter, intercity, and freight service
is simply not possible without significant investment in new capacity.
If our region is going to continue to grow and remain an
international economic powerhouse, we are going to need to make the
necessary investments in our highway, rail and aviation infrastructure
to allow us to continue to compete internationally for businesses and
knowledge workers.
The members of the Northeast Corridor Commission are committed to
working together and with Congress and other stakeholders to ensure
that the Northeast Corridor is up to the challenges of the future. The
Northeast Corridor Commission is dedicated to informing sound policy
development, providing a centralized means to generate input about the
future of the Corridor, improving communication among NEC stakeholders,
and bringing the region together behind a unified vision through
coordinated regional leadership.
Thank you for the opportunity to testify today.
Senator Cowan. Thank you.
Mr. Steer?
STATEMENT OF JIM STEER, FOUNDER AND DIRECTOR,
STEER DAVIES GLEAVE
Mr. Steer. Good afternoon, Mr. Chairman. And I hope to be
able to answer some of the challenges that Chairman Rockefeller
and Ranking Member Mr. Blunt put to us. And thank you very much
for inviting me to testify this afternoon.
I am the founder and director of Steer Davies Gleave
transportation consultants and of Greengauge 21, which is a
research group looking at high-speed rail, mainly in Europe. I
am also president-elect of the Chartered Institute of Logistics
and Transport, which is the leading professional body in the
U.K., where I guess from my accent you can tell I come from.
But I have worked extensively here in the States. I worked
through 2011, 2012 on behalf of Amtrak in helping develop the
business and finance plan. I acted as technical lead on that
project. But I have also had a lot of experience from other
countries. I worked for Sir Richard Branson in 1997, when I led
Virgin Trains' successful bid to run intercity services over
Britain's West Coast Main Line, which I mention because it is a
corridor with very close parallels with the Northeast Corridor
here in the U.S.
The West Coast Main Line was the flagship of the U.K.'s
privatization program. Under this franchise, a major upgrade of
the existing line was carried out, and now, some 16 years
later, ridership on that route has tripled, nearly tripled. The
net result, to keep the story short, is the U.K. government has
decided to build high-speed rail in the very same corridor, a
250-mile-an-hour, 50 billion, two-stage investment.
And there are very valuable lessons, I think, that can be
drawn out from this experience, and some of it, I think, could
be applied in the Northeast Corridor. And the Committee may
wish to look at some of those things.
But basic question: Why have so many countries around the
world chosen to invest in high-speed rail? I believe the reason
really is very simple. They have concluded that the economic
benefits at a national scale far outweigh the costs. High-speed
rail enables obviously faster but also more reliable and more
convenient travel. Shorter, more dependable travel improves
business efficiency, attracts travelers who would otherwise fly
or drive, and takes pressure off the wider transportation
network.
It basically builds capacity. It allows major cities--and,
boy, do you have major cities--to expand, to continue to grow.
It brings jobs in construction, manufacturing. And those will
arise not just in the corridor of the investment. That is a
very important point, I think. The economic returns are huge.
The investment may be large; the economic returns are huge.
On funding, I know of no national high-speed line or
network that has started out successfully reliant on private-
sector funding. All have required substantial up-front
investment to be met by their national governments. True, that
can take different forms, including loan guarantees that
provide the private sector the opportunity to borrow at low
interest rates. But for the private investor, there really are
too many risks up front to take on these big challenges. As a
network is built out, these risks diminish, and the opportunity
for the private sector to step forward emerges. And there are
good examples of that.
In the NEC, there are proposals both to improve the
existing corridor--and Jim Redeker has just outlined those very
clearly--and to introduce high-speed rail, NextGen. In my view,
it would be wrong to suppose that one type of investment should
necessarily precede the other. Upgrading existing lines and
building new high-speed rail both create capacity. They do it
in different ways. You have choices as to what blend to go for
in terms of upgrade and new-build. And that really is the key
planning challenge.
So I think the key things to be thinking about are really
these. Major investment in the Northeast Corridor has to be
broken down into manageable stages. And I totally back what Mr.
Boardman explained about the priority to be given to the
Gateway Project.
There needs to be, however, a very clear mandate, in my
view, from the Federal and, indeed, the state governments
setting out the desired outcomes. Implementation is going to
spread over decades, so a significant level of bipartisan
support is going to be necessary if we are going to avoid a
kind of stop-go situation.
I have mentioned the importance of up-front funding, but
may I say this? Amtrak's adoption of business lines that
separate the management of the infrastructure in the Northeast
Corridor from Amtrak's operations is an inspired step. It
retains an integral organization, a single organization with
overall responsibility, while giving the opportunity to create
a means for charging operators for use of the infrastructure.
And that is a key to what I believe can happen in the
Northeast Corridor in the future, which is the introduction of
private-sector funding. The track fees charged by the
infrastructure owner are the device to remunerate private-
sector investment.
And I will draw a hold there, Senator Cowan, because I
realize I have used up my time. Thank you.
[The prepared statement of Mr. Steer follows:]
Prepared Statement of Jim Steer, Founder and Director,
Steer Davies Gleave
Good morning Mr. Chairman and members of the Committee. Thank you
for holding this hearing and for the invitation to testify today.
I am Jim Steer, the founder and Board Director of Steer Davies
Gleave, international transportation consultants; and the founder and
Director of Greengauge 21, a non-profit public interest group which has
undertaken extensive planning and research into high-speed rail in
Great Britain. In addition, I am President-Elect of the Chartered
Institute of Logistics and Transport, the leading association of
transportation professionals in the United Kingdom.
A close parallel to the Northeast Corridor
Before discussing the Northeast Corridor, I think it may be helpful
to the Committee to share the experience of a close parallel, the West
Coast Main Line in Great Britain. The West Coast Main Line is a 400-
mile rail corridor that connects London with some of the UK's largest
cities and key economic hubs, including Birmingham, Manchester,
Liverpool and Glasgow. The geography and population of the UK are
similar to those of the Northeast Corridor region, with about two-
thirds of the UK's population of 60 million served by the West Coast
Main Line compared with a population in the Northeast Corridor of 52
million.
There are similarities in the constraints faced in the Northeast
Corridor and those along the West Coast Main Line:
There is increasing highway congestion between the cities
along the corridor and limited opportunity for additional
capacity;
There is pressure on airport capacity;
There is strongly growing demand for rail travel;
Intercity, regional and commuter passenger rail and rail
freight compete for paths over the same tracks; and
There is a need to replace and upgrade whole-system
infrastructure while keeping the railway open to traffic.
The existing infrastructure of the West Coast Main Line has been
subject to a major renewal and upgrade (`Route Modernization') which is
now substantially complete at a cost of $13 billion. The modernization
was designed to replace life-expired infrastructure and at the same
time increase capacity and reduce travel times. The work was undertaken
over a period of 10 years, and resulted in considerable disruption to
corridor rail travel during this time. Nonetheless, a much improved
service has been provided. Intercity train frequencies have been
doubled and journey times reduced by about one-fifth. Ridership has
increased dramatically as a consequence, but all of the additional
capacity provided by this work and subsequent train lengthening is
expected to be used by the mid-2020s. As a consequence, there is
limited opportunity for the line to service the needs for growing
commuter rail and rail freight--or indeed for more intercity travel.
In the early 1990s, the UK government began a major privatization
of the railways, establishing a structure whereby track ownership and
train operations were separated and operators were required to pay
transparent access charges to use the infrastructure. Today, as with
nearly all of the UK rail network, the West Coast Main Line track and
other infrastructure is owned by one organization, Network Rail, but
passenger services are provided by separate private companies operating
under a concession structure. The government specifies and organizes a
competitive bidding process, and awards concessions to private
operators who then provide passenger services along a route (or series
of routes). Private sector freight companies operate on an open access
basis over Network Rail tracks. To implement this structure, the
government established one public sector agency to regulate the access
charges and a second public sector agency to award and manage the
concession (franchise) agreements.
In 1997, I led Virgin Trains' successful bid for the franchise to
run inter-city services over Britain's West Coast Main Line, and helped
Sir Richard Branson build a management team to implement the radical
changes contained in the franchise bid. After four years in this
capacity, I joined the Strategic Rail Authority--a Government agency
newly set up to take over responsibility for awarding and monitoring
rail franchises while introducing forward planning to the privatized
railway. I was responsible for industry-wide planning, and I also
chaired the West Coast Program Board which oversaw the introduction of
the new fleet of 125 mph inter-city trains, enhanced infrastructure
(the Route Modernization program described above), and a transformed
service timetable.
When the Strategic Rail Authority was dissolved in 2005, I set up
Greengauge 21 to lead a debate on the case for high-speed rail in
Britain. In 2007, we proposed that the key first step was a high-speed
line in the West Coast corridor, and two years later the Government
initiated the project (`HS2'). This will make possible much faster
journeys between key city pairs and will also release capacity on the
West Coast Main Line to deliver benefits to regional and commuter
passenger rail and rail freight operators.
My experience with the West Coast Main Line in Great Britain taught
me several lessons:
1. Incremental improvement with proven technology can deliver
transformational benefits within 10 years, even when applied to
a busy railway--but this entails significant service
disruption.
2. Even if the private sector provides little equity, it is able to
deliver fleet procurement and service upgrades more quickly and
more efficiently than Government. In the West Coast case, there
was a clear remit and mandate from Government (through
contracted franchise commitments) for the private operator to
replace a life-expired train fleet procurement and to upgrade
services; without both the government's mandate and Virgin Rail
Group's firm commercial resolve, these wouldn't have been
delivered.
3. Success is measured in part by rapidly growing demand and
revenue. Ridership more than doubled--and was forecast with
reasonable accuracy. While this was built into the franchise
bid and plan from the outset, a 15-year franchise term still
limits the planning horizon. Somebody has to take an even
longer-term view. It is clear that the route will have reached
capacity (no more train paths) by 2026, if not sooner, despite
capacity increases created by the Route Modernization program.
4. Government officials and others question, with hindsight, whether
the $13 billion West Coast Route Modernization should have
proceeded, and whether it would have been better to build a new
high-speed line instead. It's a fair question, but over 75
percent of the Route Modernization cost was incurred on a
backlog of infrastructure renewals that would have been needed
anyway to support continuing operation of commuter services and
freight alongside any new construction.
5. Virgin Trains, which paid significant surcharges on its track
access fees to fund the upgrade, was provided with protection
from competitive entry by other passenger train operators
buying spare slots on the West Coast line (open access
operators) for the full 15 year term of the Virgin franchise.
The role of an independent Rail Regulator to enforce these
arrangements, and the contract between Virgin Trains and the
infrastructure owner (Railtrack/Network Rail) was essential to
the investment model.
International High-Speed Rail
I have followed the progress of high-speed rail around the world,
traveling on the first French TGV line soon after it opened in 1982
with a small delegation from British Rail (then state-owned). At the
time, I was responsible for developing a strategy for British Rail's
new business sector (``InterCity'') to turn it from a loss maker
(meeting only 80 percent of its costs) to a profitable business (which
was achieved by the late 1980s). I acted as adviser to the consortium
that won the Public Private Partnership (PPP) to develop the Eurostar
service and build the new high-speed line between London and the
Channel Tunnel (mid 1990s). And I was responsible for a major study for
the Spanish government rail operator RENFE, examining the prospects for
the Madrid--Barcelona high-speed line before it opened (in 2006). So I
have seen and experienced various ways of addressing the challenge of
how best to transform traditional inter-city passenger rail services
into competitive and prosperous entities.
Why have countries facing this challenge invested in high-speed
rail? I believe the reason is simple: they have concluded that the
economic benefits to the Nation of this investment far outweigh the
costs. High-speed rail enables faster, more reliable and more
convenient travel. Shorter more dependable travel improves business
efficiency. By attracting travelers who would otherwise fly or drive,
high-speed rail takes pressure off the wider transportation network.
This also allows time spent traveling to be used more productively.
There are important safety, carbon and valued regional & urban
redevelopment benefits too. But most important of all, in my view, is
the point that high-speed rail builds transportation and thus economic
capacity. It achieves this though two parallel strands: the extra
capacity created on the high-speed line itself and the opportunity to
completely recast timetables for the existing railroad to provide more
commuter rail and freight services. It therefore supports businesses,
expands commuting catchments and helps industry and trade. The economic
returns are huge.
My colleagues at Steer Davies Gleave have worked extensively around
the world to develop and apply methodologies that identify and quantify
the economic impacts of transportation investments--including
documenting and recommending best practice analytical methods for high
speed rail for the USDOT Office of Inspector General.
Alongside the economic rationale for high-speed rail investment, I
believe that international experience provides lessons that are
relevant here in the US--and especially in the Northeast Corridor--when
considering how to advance from a conventional to a high-speed
passenger rail system. These lessons can be grouped under four
headings:
Funding;
Organization;
Leadership; and
Planning.
Funding
I know of no national high-speed line or network that has started
out successfully reliant on private sector funding. All have required
the substantial up-front investment to be met by Government. True, this
might take different forms--including loan guarantees that provide
private sector access to borrowing at low interest rates. But for the
private investor, there are simply too many up front risks, such as:
Planning consent & environmental approvals;
Construction cost and timescale;
Network and/or system integration risks;
Revenue risks; and
Regulatory and political risks too.
As a high-speed line or network is built out, these risks diminish.
The path through planning consent becomes better understood;
construction prices get tested in the market-place; and, with a high-
speed service in operation, market shares and revenues are revealed. In
short, the high-speed rail proposition gets proven, including in
commercial terms. Provided that political resolve remains unwavering--
and in a democracy, this means there is a broad bi-partisan or cross-
party support for the overall vision--then there is a chance that
private sector input to funding can be obtained for the next stages of
the program.
Let me mention three examples--each one different, reflecting the
varying circumstances in three European countries--France, Italy and
Great Britain where this has happened.
The French TGV network was developed and funded by SNCF, a totally
state-owned organization from the early 1980s onwards. The first line
between Paris and Lyon is the busiest, and it remains entirely state-
owned and operated. Right now plans are being progressed to duplicate
it with a second high-speed line serving the same end-points but new
intermediate cities.
The pattern of funding French high-speed lines evolved as the
network was developed. The line between Paris and Strasbourg (``TGV -
Est''), for example, was funded by the French Government through SNCF,
but with substantial funding too from the regions and cities served.
Again, all funding came from the public sector.
The line currently under construction between Tours and Bordeaux
(189 miles) represents an extension to an existing high-speed line
between Paris and Tours (``TGV Atlantique''). The most problematic
section of the overall route (access to central Paris) has been built;
the market for services is proven; now it's a matter of shortening an
already improved journey between Paris and Bordeaux. This project
(worth $10.3 billion) has been privately funded through a PPP
structure. As an extension to what is now a core national network, the
perceived risks are much lower. Political resolve (for now) remains
intact. And the state, through SNCF, is obligated to ``buy'' a
specified quantum of train paths from the company that will own and
maintain the new line on a 50 year concession, thus providing some
degree of revenue predictability.
The Italian experience is very different. Construction of the high-
speed line between Milan and Rome/Naples was started before WWII. It
has opened in stages with fast services (up to 155 mph) starting in
1988. It has been entirely funded and is owned by the Italian State
(through the railway owner FS).
My colleagues in Steer Davies Gleave have acted as advisers to a
funding group, led by four Italian businessmen, that decided to enter
the intercity passenger rail market via the provisions of Europe's open
access regulations; these now require EU countries to provide non-
discriminatory access to the country's track. The new company, NTV,
commissioned its own fleet of 220 mph high-speed trains, built depots
to maintain them, recruited its own operating staff and in 2012
introduced a new service in competition with the State operator
Trenitalia over the State's high-speed line. NTV pays a track charge,
as an open access operator, but has not been able to access the busiest
stations in Rome and Milan.
In Great Britain, the pace of high-speed rail development has been
slower. What is now called High-Speed One (or HS1, the $8.5 billion 68
mile high-speed rail link between central London and the Channel
Tunnel) was opened throughout in 2007--ultimately on time and on
budget, but only after a Government-backed rescue of the private sector
consortium that had won the right to build and operate it. Just three
years later, the high-speed rail infrastructure (but not the Eurostar
service which runs over it, linking London with Brussels and Paris) was
tendered as a 30 year concession. This tender was won by a consortium
of Canadian Pension Funds, who paid $3.1 billion, in effect to the UK
Treasury. They will earn a return from track access fees from two train
service providers (and they hope, in future, a third). So the
Government was able to recoup a substantial part of its capital outlay
once the risky period of planning, construction and service
introduction had been safely negotiated.
Note that in all three cases, charging for access to high-speed
infrastructure is a crucial part of the commercial structure that has
enabled the private sector to participate.
Organization
In the three cases I have mentioned in Britain, France and Italy, a
single organization was responsible for the crucial stage of planning
together the infrastructure and trains--even though, in practice, the
new lines have been able to accommodate differing train designs and
operators once built. This unified organizational structure is, in my
view, important because it removes interface risk. Where this has not
been the case (the Dutch high-speed line being an example), a more
complex funding structure has been necessary and the technical
challenges which lie across the track-train interface (in the Dutch
case, train control systems) proved problematic.
In the British case, a dedicated team was established to create a
high-speed rail project delivery organization that combined expertise
from British Rail (which was being privatized at the same time) and the
private sector. This provided the single-mindedness that is necessary
to deliver complex major construction projects--in this case in a
sensitive rural environment (across the County of Kent) and through
East London to a much-loved historic station that was transformed as
part of the project, in the center of London (St Pancras).
Leadership
In each country, there has been a continuity of political consensus
through many changes of government.
In Britain, the underlying basis for the shared political support
stemmed from a series of factors:
Agreement that investment in infrastructure is essential for
national economic competitiveness;
A recognition of the national importance of the corridor and
need for transport service and capacity improvements to it;
Agreement that improvements to other modes serving the
corridor are not feasible or as effective;
Acceptance that the costs are worth bearing and can be
managed (HS1 was ultimately delivered on time and budget); and
Acknowledgement that the private sector can't shoulder the
initial financing and consequently that Government has a
legitimate role in catalyzing and advancing the project.
In Britain, the political leadership for HS1 came from Lord
Heseltine (Conservative) and John Prescott (Labour). The initiative to
develop the much more substantial HS2 (the dedicated high-speed line
linking London, Birmingham, Manchester and Leeds) came from Secretary
of State for Transport Lord Adonis (Labour) a year after the opposition
Secretary, Theresa Villiers (Conservative) had committed her party to
develop the project and provide $23 billion funding. The project has
since been expanded, and now has a price tag of $50 billion, but it
remains the intention of the current Coalition Government (Conservative
and Liberal Democrat) to proceed on essentially a Government-funded
basis. This also has the support of the Labour opposition and of the
Scottish Nationalist Party.
Planning
The particular challenge to which I would draw the Committee's
attention is the need to consider existing rail networks--and their
attendant expenditures on maintenance and renewal--alongside the
arrangements needed for new construction. I contend that it would be
wrong to suppose that one type of investment should necessarily follow
the other. On the NEC, this is a moment for coordinated strategic
planning, using common investment appraisal methods to ensure the best
value return on public funds. New build high-speed rail releases
capacity that can be used to benefit users of the conventional rail
network. This type of benefit is one of the prime motivations for
investments in high-speed rail. In France, it is now accepted that
investment in existing lines has been neglected while the new build
high-speed line program has progressed.
France also provides useful evidence on another benefit of having
clear forward plans. There, experience with the TGV network suggests
that urban redevelopment around new high-speed rail stations takes
place over a lengthy 15 year timescale. The interesting point is that
this development activity--which is of course private sector-led--
starts well before the new line is open, typically 7-8 years ahead. In
the UK, the 68 mile HS1 project is estimated already to have led to $15
billion in private sector investment in urban redevelopment projects
around the new stations built on the line.
Northeast Corridor
Here in the US, during 2011 and 2012 I acted as Lead Technical
adviser to Amtrak, working in a team that blended the expertise of
Steer Davies Gleave's Boston team specializing in demand and revenue
analysis of transportation projects and the financial expertise of the
professional services firm KPMG. Our task was to develop a financial
and business plan for Amtrak that embraced:
The Masterplan program, which would return the Northeast
Corridor to a state of good repair and accommodate expected
expansion in commuter rail, freight and Amtrak services through
to 2030; and
The NextGen high-speed rail program, which would see a new
true high-speed rail network implemented by 2040.
In carrying out this work, I was able to visit the whole of the
existing corridor and engage closely with Amtrak at the officer and
Board level.
As detailed in the charts below, ridership on Amtrak's Northeast
Corridor services (especially Acela Express) has been increasing
steadily, and Amtrak is now capturing 60 percent of the air/rail market
between Washington and New York and 50 percent of the air/rail market
between New York and Boston. Running more services, whether intercity
or commuter, is constrained by a series of bottlenecks along the
corridor. Capacity limits have been reached on the Acela services, and
more growth is now taking place on the Northeast Regional services as a
result.
Figure 1 Amtrak NEC Ridership (In Millions) By Fiscal Year
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Figure 2 Amtrak NEC Annual Ridership Growth
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Table 1.--Aamtrak NEC Ridership Growth
------------------------------------------------------------------------
Train Name FY05-12 CAGR FY10-12 CAGR
------------------------------------------------------------------------
Acela Express 5.1% 2.7%
Northeast Regional 2.1% 5.9%
------------------------------------------------------------------------
It is clear to me that there is an overwhelming case for major
investment in rail transportation in the NEC.
If the United States Government, the States of the Northeast
Corridor, Amtrak and other key stakeholders come to the same
conclusion, they will be faced with the challenge of how to implement
such a large scale program.
I have ten observations to make on this challenge:
1. There are advantages in having a single entity with overall
responsibility for at least the early stages of development of
a transformational effort such as the introduction of high-
speed rail. If Amtrak didn't exist, I believe it has been said,
you'd have to invent it--and as far as the prospects for the
NEC are concerned, I think that is correct.
2. Major investment as envisaged for the NEC must be broken down
into manageable stages. The sooner the early success of a
separable new product can be created--separable in a verifiable
commercial sense--the sooner it would be possible to draw in
private sector finance to fund subsequent development stages.
3. There needs to be a clear mandate from the Federal and NEC state
governments setting out the desired outcomes, and--given the
implementation timescales, which spread over decades--a
significant level of bipartisan support is essential if there
is to be efficient progress made, and stop-start is to be
avoided.
4. There also needs to be substantial up-front Federal (or
possibly, multi-state) funding, on a level above and beyond
that available through existing programs.
5. Amtrak's adoption of business lines is an inspired development
that retains the necessary integrity of a single agency (see
point 1 above) while facilitating the evolution towards an
infrastructure owner-operator business that is remunerated
through transparently set track access fees applied to the
multiple operators who use the corridor. As required by the
PRIIA legislation, it is extremely helpful for decision-making
on investment choices and for attracting future private capital
to have track charges that reflect costs in a normal business-
like way. In the longer term, this will serve to drive more
efficient operating practices and therefore potentially reduce
Amtrak's reliance on Federal funding.
6. Along with other interested parties in the Corridor, Amtrak has
made submissions to the FRA's ongoing Passenger Rail Corridor
Investment Plan (which consists of a Tier 1 Programmatic EIS
and a Service Development Plan), setting out differing scales
of investment and outcomes. The best overall approach will
probably be a combined upgrade/new build program. New build
will most likely be to high-speed standards, since study after
study shows this delivers the best value return on investment.
The right balance requires a serious attempt to look at the
alternatives alongside one another in an unbiased way. It would
be wrong and wasteful to assume that the priority is to `fix
the existing railroad' first--as if that ever reaches a totally
acceptable end-state--and then, as that railway gets full to
capacity, to start to thinking about new construction (possibly
to high-speed standards). You do not face the same situation in
the Northeast Corridor as the UK faced 16 years ago with the
West Coast Main Line, when new build high-speed rail was not on
the agenda at all. Here it is on the agenda, but considered
choices still need to be made. New build and upgrade both
deliver more capacity and better reliability. New build has the
advantages that:
It is less disruptive on to existing services
during construction;
It can lead to a separation of rail traffics by
type and speed, improving overall network efficiency by
releasing capacity on existing lines as well as providing
separate new capacity for high-speed; and
It offers the potential for very high-speed
service, enabling step change journey time reductions, and
it will bring greater benefits including more widely across
the other transportation modes in the corridor.
In short, high-speed rail lines are about capacity--with the
ability to bring additional benefits from transformational
journey times an add-on advantage. The focus on capacity was
the key driving factor in countries such as France at the
outset of their high-speed line program, and it is the right
way to examine the prospect in the NEC as well.
7. My own view is that there are limits to what can be done through
upgrading existing lines. The practice adopted in the NEC,
which is one of great reluctance to lose continuity of service
while upgrades are in progress, leads to very lengthy
implementation times. It may be best in some situations to
build new lines first so that upgrades can be carried out on
the existing corridor with at least some of its traffic load
diverted away on to the new line.
8. As for where to make a start, the Gateway project is rightly
seen as a priority because NEC capacity constraints between
Newark and New York City represent a significant bottleneck.
Many smaller projects in the Masterplan should also be
progressed, once they have been examined together with new
sections of high-speed line and incorporated into an integrated
program. Sections of new high-speed line such as across the New
England States could well be developed away from the existing
coastal alignment, perhaps by a third party, as part of an
overall plan.
9. In our consulting assignment for Amtrak, we identified an
improvement to a section of route across Maryland and into
Delaware that offers as much as 25 minutes off journey times,
requires no new stations and has a cost estimate of $12
billion. Along with other options, I believe this should be
examined by Amtrak and the FRA for early adoption (by which I
mean by the 2020s). It would showcase a genuine high-speed
capability and allow full testing of 220 mph operation in the
USA.
10. In the longer term, with increased capacity available, it would
be possible to see new market entrants providing services on
the NEC, offering competition and customer choice. It will also
be possible to introduce private sector funding and direct
returns to the U.S. public account--for instance by a long-term
concession for new (or possibly enhanced) sections of route.
But these are for the future, and it is essential to realize
that the risks around investment in the first place need to be
minimized, including competition risk. Once the program is
underway and the operating and commercial outcomes are more
predictable, additional service providers add the prospect of
an upside return for infrastructure investors.
Once again, thank you for the opportunity to testify today and I
look forward to answering your questions.
Senator Cowan. Thank you, Mr. Steer.
Mr. Tolman?
STATEMENT OF JOHN P. TOLMAN, VICE PRESIDENT
AND NATIONAL LEGISLATIVE REPRESENTATIVE,
BROTHERHOOD OF LOCOMOTIVE ENGINEERS AND TRAINMEN
Mr. Tolman. Good afternoon, Chairman Cowan, Ranking Member
Blunt, members of the Committee. I am a Vice President with the
Brotherhood of Locomotive Engineers and Trainmen, a division of
the Teamsters Rail Conference, representing 37,000 locomotive
engineers and trainmen and over 70,000 Rail Conference members.
I want to express my appreciation for the opportunity to
speak here today of our position on Amtrak high-speed rail and
the development of the Northeast Corridor. I will focus on the
progress Amtrak has made on the Northeast Corridor and the
future of passenger rail in the corridor.
Since the Federal Highway Act of 1956, we have spent
billions on our Interstate Highway System. The system cost $114
billion and took 35 years to build. Today it would cost $426
billion simply just to build.
Congestion on our nation's roads is at historic levels, and
projections are that by 2020 some 90 percent of urban
interstates will be either at or over capacity. By 2055, there
will be at least 400 million automobiles on our highway system.
This problem will only grow exponentially as the number of cars
on our roadways increase, with little ability to increase the
capacity.
The solution to these problems lies right before our eyes.
Improvements to passenger rail funding on the Northeast
Corridor are a necessity to expand service. Increased rail
service would reduce congestion on other modes of travel,
especially in the Northeast Corridor. Significant investments
are sorely needed.
When Amtrak funding is compared to the majority of European
and Asian countries, it is, frankly, embarrassing. In 1970,
Congress passed the Rail Passenger Service Act. Amtrak was
created as a private company on May 4th, 1971, and began
running a nationwide passenger rail system. Since then, the
capital and operating subsidies from the Federal government
have been at levels that have barely allowed Amtrak's survival.
There is a need for continued development of passenger rail
and high-speed passenger rail. There is no doubt about the
economic benefits of high-speed rail and intercity passenger
rail. Ridership trends demonstrate that people are willing to
take trains with reliable and frequent service. On the
Northeast Corridor, it is especially true. Seventy-five percent
of all people that travel from New York City to Washington,
D.C., take the train. Fifty percent of all the people that
travel from Boston to New York City take the train. Amtrak
logged its best ridership ever, with more than 31 million
passengers last year.
Amtrak trains consume 20 percent less energy per passenger-
mile compared to airlines, 30 percent less than automobiles.
Its benefits reach across our economy in many, many ways.
The Teamsters Rail Conference believes that reauthorization
of the Passenger Rail Investment Improvement Act, PRIIA,
provides an opportunity for Amtrak to attain long-term funding
levels. Amtrak supports the jobs of skilled professionals and
dedicated employees who provide the traveling public with safe
and reliable transportation.
It is important to note that these on-board service
employees provide more than just meals. They provide some of
the first responders when a safety problem occurs on board. We
cannot outsource safety to workers who are paid at minimum
wages without benefits.
PRIIA provisions expire in Fiscal Year 2013, as you know.
If the provisions in section 205 of PRIIA were reauthorized, an
additional 33 leases could be terminated in the next 5 Fiscal
Years. This would entail an up-front cost of $572 million but
would save $965 million in future payments, a net savings of
$393 million. PRIIA reauthorization offers many opportunities
to sustain and build on the great work that Amtrak is doing.
The cycle of underfunding Amtrak must end. It is not about
the Democrats, Republicans, or independents. It is about the
future of travel in the United States of America, and we all
should be on board.
In closing, Amtrak is vital to the Northeast Corridor. It
must be part of the future, moving toward a higher-speed
Northeast Corridor. Amtrak's reauthorization offers many
opportunities for expansion and renewal for the public.
Thank you.
[The prepared statement of Mr. Tolman follows:]
Prepared Statement of John P. Tolman, Vice President and National
Legislative Representative, Brotherhood of Locomotive Engineers and
Trainmen
Good morning, Chairman Lautenberg, Ranking Member Blunt, and
Members of the Subcommittee. My name is John Tolman and I am Vice
President and National Legislative Representative for the Brotherhood
of Locomotive Engineers and Trainmen, which is a Division of the
Teamsters Rail Conference.
On behalf of more than 37,000 active BLET members and over 70,000
Rail Conference members, I want to express our appreciation to the
Subcommittee for the opportunity to present our position on Amtrak,
high-speed rail, and in particular regarding the development of the
Northeast Corridor.
Through comparison and discussion regarding capacity, costs and
needs, I will focus on our perspective of the progress Amtrak has made
on the Northeast Corridor and the future of passenger rail on the
Corridor.
In addition, I will discuss other countries' experience with
privatization of passenger rail and high-speed service.
Brief History
Since the Federal Aid Highway Act of 1956, we have spent billions
building and maintaining our interstate highway system. That system
cost $114 billion and took 35 years to complete. In today's dollars, it
would cost $426 billion simply to build, and billions more to maintain
the system because a significant portion of it is in a serious state of
disrepair.
Passenger miles on highways increased 18.1 percent between 1997 and
2004. Congestion on our nation's roads is at historic levels and it is
projected that by 2020, some 90 percent of urban interstates will
either be at or over capacity. Projections are that by 2055 there will
be at least 400 million vehicles on our highway system, further taxing
our infrastructure. Already, the Texas Transportation Institute
estimates that--in 2005 alone--$63 billion in time and fuel was wasted
due to traffic congestion. This will only grow exponentially as the
number of cars on our roadways increase with little ability to increase
capacity.
Our nation's airports are in a similar state, as anyone who has
flown recently knows. Serious problems plague our nation's airports--
flight delays and cancellations, lost luggage, and overcrowded planes.
Only 82 percent of commercial flights were on time in February 2009,
and most of these delays occurred because of overcrowded airspace along
the East Coast.
The solution to these problems lies right before our eyes:
Improvements to passenger rail service on the Northeast Corridor are a
necessity. Increased rail travel would reduce congestion on our
highways and in our airports, especially on the Northeast Corridor.
However, to do this, significant investments are sorely needed.
Comparing Countries
When you compare the level of government funding provided to Amtrak
as a percentage of Federal funds provided to domestic aviation and
highways, with the majority of many European and Asian countries, it
frankly is embarrassing. And it is clear that in other parts of the
world, privatization of high speed and passenger rail comes with many
problems that privatization itself portends to solve. For example,
systemic safety and reliability problems that were a direct result of
privatization have led to reversals that caused much upheaval in
transportation systems in Great Britain and New Zealand, who were
forced to re-nationalize all or portions of their systems and provide
significant subsidies. Funding cuts always have been the precursor to
privatization schemes.
In fact, we cannot forget our own history of private operation of
American passenger railroads. Amtrak was founded nearly a half-century
ago to provide relief for the freight railroads. Congress recognized
need to protect the profitability of the private freight railroads
along with the continued need for passenger rail in this country and in
1970, passed the Rail Passenger Service Act. Thus Amtrak was created,
as a private company which, on May 1, 1971, began managing a nation-
wide rail system dedicated to passenger rail service. Since then,
Amtrak has received capital and operating subsidies from the Federal
government, albeit often at levels that have barely allowed its
survival. The reauthorization of PRIIA could allow this trend to change
by providing long-term, stable funding for Amtrak.
High Speed Rail Profits and Amtrak's Northeast Corridor
In addition to stabilizing Amtrak's funding, there is a need for
continued development of passenger rail, and specifically, high speed
passenger rail. There is no doubt about the economic benefits of high
speed and intercity passenger rail, and Amtrak's Northeast Corridor
clearly demonstrates that there is a demand for expanded service.
Ridership trends demonstrate that people are willing to opt to take
trains in areas with reliable and frequent service. On the Northeast
Corridor, this is especially true. Amtrak now carries more riders on
this route than all of the airlines put together. And between
Washington, D.C. and New York City, Amtrak carries more than twice as
many passengers than all of the airlines combined. Since introducing
its Acela service, Amtrak has almost tripled its air/rail market share
on the NEC, and today carries 75 percent of intercity travelers between
New York and Washington.\1\ Introducing Next Gen high-speed rail on the
NEC will improve that performance even further.
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\1\ Amtrak, ``State-Supported Corridor Trains, FY 2011-2012,''
April 2012.
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High speed rail will not operate in a vacuum. All modes of
transportation can work together as part of the transportation network.
High-speed rail and airlines also complement one another in providing
safe, fast and efficient travel to the public.\2\ And multi-modal
passenger transportation is not limited to comparing rail travel with
air travel.
---------------------------------------------------------------------------
\2\ Amtrak NEC Briefing.
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Fifteen years ago DOT estimated the savings from reduced highway
delays range from $489 million to $2.9 billion annually, depending on
the corridor. Those are savings that can only be realized by providing
appropriate investment in high-speed passenger rail.\3\ Amtrak trains
consume 20 percent less energy per passenger mile than airlines and 30
percent less than automobiles.
---------------------------------------------------------------------------
\3\ High Speed Ground Transportation for America,'' U.S. Department
of Transportation, September 1997.
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Additionally, countless studies have shown the impact of investment
in rail. In fact, a recent APTA report, published in July 2012, showed
that discontinuing high-speed passenger rail investments in the
Midwest, California, the Pacific Northwest and the Northeast Corridor
would possibly cause $24.6 billion in net forgone economic benefits
over the next 40 years.\4\
---------------------------------------------------------------------------
\4\ ``Opportunity Cost of Inaction High Speed Rail and High
Performance Passenger Rail in the United States: http://www.apta.com/
resources/reportsandpublications/documents/HPPR-Cost-of-Inaction.pdf
---------------------------------------------------------------------------
The Teamsters Rail Conference believes that the reauthorization of
the Passenger Rail Investment and Improvement Act (PRIIA) provides an
opportunity for Amtrak to finally attain stable long-term funding
levels, enabling Amtrak to support the jobs and rights of their skilled
and dedicated employees, who provide the traveling public with safe,
reliable transportation. PRIIA reauthorization offers many
opportunities to sustain and build on the great work Amtrak is doing.
Important to include in a reauthorization of Amtrak are the
provisions of Section 205 of PRIIA 2008, which allow for the repayment
or restructuring of Amtrak's debt by the Department of Treasury. Using
its authority under this provision, the Treasury Department has worked
with the U.S. Department of Transportation and Amtrak to exercise early
buyout options on 13 leases held by Amtrak for its train equipment,
producing savings for Amtrak, and by extension the taxpayer, by
avoiding future rent and end-of-lease payments--payments which Amtrak
otherwise would have relied on the government to fund. However, these
provisions expire in FY 2013, even though additional buyout
opportunities and their associated savings remain. If the provisions of
Section 205 of PRIIA were reauthorized, an additional 33 leases could
be terminated over Fiscal Years 2014 to 2019. This would entail an up-
front cost of $572 million, but would save $965 million in future
payments, a net savings of $393 million.
Last year, Amtrak logged its best ridership year ever with more
than 31 million passengers. Despite this achievement, some political
leaders refuse to acknowledge the economic advantages of this increase
in ridership. Unfortunately, some members of Congress are seeking to
divest in Amtrak or attempt to outsource good jobs for Amtrak's front
line workers by pointing to straw man issues such as cheeseburger
costs. It is important to note that these on-board service employees
provide more than a good meal--they are some of the first responders if
a safety problem occurs on board.
And for those critics of Amtrak who demand private investment:
Amtrak's long-term plan for the Northeast Corridor provides a template
for a public/private partnership. We believe that such a partnership
should never be subordinate to the public interest--or the interests of
the professional rail employees--to private profits or investment
strategies. That said, such partnerships would improve service and
provide the public with greater transportation choices in decades to
come.
PRIIA's reauthorization should also help foster a sustained
national rail policy. It will curb privatization schemes that fail to
acknowledge the history of privatization failures and the problems of
outsourcing safety to workers who are paid minimum wage and receive no
benefits. The cycles of funding neglect must end.
In closing, Amtrak is vital to the Northeast Corridor. It must be
part of a future moving toward a higher speed Northeast Corridor with
long term funding. Amtrak is moving in the right direction, utilizing
programs and provisions already in place, and its reauthorization
offers many opportunities for expansion and renewal of these programs
and provisions. Political will is necessary for America to compete
globally by moving our people safely and efficiently via high-speed
passenger rail. High-speed rail will also create good middle class jobs
for a lasting economic recovery, and provide energy security for
America. Again thank you, for the opportunity to address you today.
Senator Cowan. Thank you, Mr. Tolman.
Mr. Geddes?
STATEMENT OF 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
Mr. Geddes. Thank you, Mr. Chairman, Senator Blunt, and
other distinguished members of the Committee. I am Rick Geddes,
Associate Professor in the Department of Policy Analysis and
Management at Cornell University, founding director of our new
Program in Infrastructure Policy at Cornell, and a visiting
scholar at the American Enterprise Institute.
I thank you very much for the opportunity to appear today
on this important hearing regarding the future of the Northeast
Corridor, which I believe is one of America's most valuable
infrastructure assets.
I believe it is critical to the Nation that our policies
ensure that the public realizes the greatest possible value
from this critical national asset as possible. And I believe
that one of the most important improvements that we could adopt
are policies that help encourage more private investment and
private participation in the Northeast Corridor through
increased use of public-private partnerships.
Increased use of private participation, in my view, would
generate a number of critical social benefits. First of all,
you bring in high-powered, focused incentives to innovate and
to seek new revenue sources. You may not think that economists
agree on anything, but there is wide agreement in the economics
profession that this type of physical infrastructure asset is
exactly the type of activity where public-private partnerships
can create huge value. And that is mainly because you can
easily monitor the quality of contract enforcement, of contract
compliance.
Second, PPPs bring in additional business acumen,
knowledge, and experience sourced from a global market. It
comes from all around the world, like perhaps from the U.K.
Third, fresh capital. People often talk about fresh capital
brought in by public-private partnerships, and that is
obviously critical in the Northeast Corridor, where we have
heard about all the investment needs. So we need to go to the
people who have the investment dollars in the private sector.
But there is another issue related to this that I believe
is grossly underappreciated, Mr. Chairman, and that is the
ability of the private sector to efficiently bear risk. Unless
we transfer some of that risk inherent in operating any massive
infrastructure asset to some private-sector investment, that
risk by necessity would be borne by taxpayers. And I think we
have learned in recent years that taxpayers are simply terrible
at bearing risk. There are professional risk-bearers, and those
people are called investors.
But, fourth, Mr. Chairman, I believe that another massively
underappreciated benefit is that you can, through a private
contract, insulate the dollars for maintenance and expansion of
the asset from the budgetary process that we all know can have
its ups and downs. These assets require ongoing, constant
maintenance on a specific engineering schedule, Mr. Chairman.
And one of the ways we can guarantee that is through a long-
term contract that says maintenance is part of the duty of the
private-sector partner. That insulates all of that from the
budget process.
Finally, I believe that one of the most important elements
of public-private partnerships is that you introduce what I
think economists believe is the single most powerful force for
social good that we know of, and that is competition. In other
words, you can get competition injected, competition on any
margin you want--on price, on quality, speed of service, how
well you maintain the asset--through a contracting approach.
Essentially, the contracting approach enforces a
transparent, high quality of service and high-quality asset
maintenance standards that can be enforced, they can be legally
enforced, through a PPP contract. Under the current system, if
there is deferred maintenance, how do you stop that? Well,
through a private contract, there are legal mechanisms to stop
that.
I believe that these benefits can be captured for all of
America through increased use of public-private partnerships on
the Northeast Corridor. Greater use of public-private
partnerships, I believe, would not be a major departure from
the status quo. As we know, the government is effectively
already contracting with Amtrak, which is a private company, it
is a private law company with shareholders, to perform this
service. It is just that Amtrak is the only one that is able to
provide that service, but I believe there are many other
opportunities for using PPPs on the Northeast Corridor.
A PPP would not merely inject competition. If the P3 were
for train operations, you would be able to attract all these
other additional benefits.
Just to provide one final example that I believe is
concrete, Mr. Chairman, a public-private partnership could be
used in the Gateway Tunnel that Mr. Boardman just mentioned
very effectively because you have a dedicated source of revenue
specific to that facility, which is a pretty low-risk source of
revenue, that I believe would effectively attract a lot of
private investment to help get that project done. As we know,
it is a critical project, but it lacks funding and financing,
and I believe that is where the private sector could play a
large role.
I could provide many other examples of successful P3s, Mr.
Chairman, but in the interest of time, I will stop there. And I
just want to conclude that we should try to encourage that use.
And I am happy to answer your questions. Thank you.
[The prepared statement of Mr. Geddes follows:]
Prepared Statement of 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
---------------------------------------------------------------------------
\*\ The views expressed in this testimony are those of the author
alone and do not necessarily represent those of the American Enterprise
Institute.
---------------------------------------------------------------------------
Chairman Rockefeller, Ranking Member Thune, and distinguished
Members of the Committee:
Thank you for the opportunity to submit testimony to the Senate
Committee on Commerce, Science, and Transportation hearing entitled,
``The Future of Passenger Rail: What's Next for the Northeast
Corridor?'' I am R. Richard Geddes, Associate Professor in the
Department of Policy Analysis and Management at Cornell University,
Director of the Cornell Program in Infrastructure Policy, and Visiting
Scholar at the American Enterprise Institute.
In my view, one of the most important policy innovations that could
be undertaken to revitalize passenger service on the Northeast Corridor
(NEC) is to increase the role of private participants in a variety of
activities. I thus focus on opportunities to better utilize private
investment to enhance and expand passenger rail service in the NEC.
Greater private participation in the design, construction, operation,
maintenance, and financing of passenger rail service has the potential
to improve significantly the overall experience of passengers traveling
on the NEC as well as the value realized by American citizens from this
critical national asset. Increased private participation is not a
policy panacea. However, if properly implemented, such participation
through greater use of public-private partnerships (PPPs) will address
a set of problems that continue to hamper the development of high-
quality passenger rail in the United States, particularly on this high-
density corridor. Social benefits of PPPs stem from four main qualities
associated with enhanced private participation:
High-powered, focused incentives to innovate, to seek new
revenue, and to better manage costs in a sector where high-
powered incentives are socially beneficial
Business acumen, knowledge, and experience sourced from a
global market for infrastructure operators
Additional capital and highly developed risk-bearing
services through access to new debt and equity capital markets
The utilization of a competitive contracting approach that
enforces high-quality service and asset maintenance, and allows
the discipline of competition to be harnessed for the public
good
Such benefits of PPPs are currently being realized through enhanced
private participation in many aspects of the U.S. transportation
sector. For example, the entire U.S. freight rail system can be viewed
as a large, multi-faceted PPP. The public sector there provided the
right of way and created the legal/institutional setting for
contracting. Freight rail companies maintain and operate tracks,
signaling, and rolling stock, while private investors provide capital,
bear risk, focused incentives, and budgetary discipline. It is thus no
accident that the grade assigned to freight rail infrastructure by the
American Society of Civil Engineers in its 2013 Report Card for
America's Infrastructure improved from a C- in 2009 to a B in 2013, the
largest improvement of any sector. The improvement was mainly due to
billions of added private investment.
Private expertise and resources have long been instrumental in
designing and building highways, bridges, and tunnels in the United
States. Private partners are increasingly called upon to provide
capital, bear risk, and offer expertise associated with the operation
of major transportation facilities such as toll roads and HOT lanes.
Private firms are also now successfully operating large urban U.S. bus
systems, such as in Nassau County, Long Island. They are making even
larger contributions in many developed and developing countries'
transportation systems. Private participation is also significant in
other U.S. industries that require heavy investment in physical
infrastructure, and which share a network structure, including aviation
water, sewerage, and energy. For example, over half of all electric
generating capacity in the United States is now provided by investor-
owned utilities.
PPPs are the key contractual vehicle for incorporating private
investment into the provision and operation of transportation
infrastructure such as the NEC. The term ``PPP'' refers to a
contractual relationship between a public-sector project sponsor and a
private sector firm or firms coordinating to provide a critical public
good or service. A PPP is subject to the standard rules of contracting,
with clear performance standards linked to readily observable metrics.
It is useful to think of a PPP as one application of a broader
contracting approach.
There are many ways in which greater private participation on the
NEC through PPPs will improve social welfare. Private participation can
enhance welfare by creating new types of service, by generating more
revenue from existing assets, by improving the quality of existing
services, and by lowering the cost of providing a given service. It is
useful to distinguish between two broad areas through which private
firms can participate on the NEC. Private investors can be asked to
make long-lived, sunk investments in transportation infrastructure,
such as in tracks, stations, yards, right-of-way, signaling, etc. on
which they will require assurance of a rate of return over time
sufficient to compensate them for risk assumed. After investing,
private partners often also maintain and operate the infrastructure.
Institutional arrangements in this case must be designed to make such
long-term irreversible investment rational in order to attract risk
capital.
In the second area, private partners contribute by bringing
capital, risk-bearing services, focused incentives, and expertise to
the management of existing transportation assets. Although substantial
investment in technology, upgrades, and renovation may be required,
policy in this case is less focused on ensuring the security of long-
term investment returns than on capturing the social benefits of
greater innovation and expertise in managing existing assets. I focus
on the role of private participants in this second capacity because
many of the long-lived assets required to operate the NEC are already
in place. It is important to stress that, in all cases, actual
ownership of transportation assets remains with the public sector, and
under enhanced public control through transparent contracts that
include clear, enforceable performance standards.
Importantly, increased private, for-profit participation may not be
appropriate for the provision of all goods and services. A consensus
has emerged in economics that private participation may not be
efficient where contracting with a private partner is complex and
costly due to the inability to oversee--or ``monitor''--the quality of
service provided. To offer a possible example, one may be concerned
about contracting out the operation of a wildlife sanctuary to a
private firm for fear that the operator would not maintain the
environment in the sanctuary to a certain socially desirable standard,
which is difficult to monitor. Stated differently, the quality of the
wildlife's environment could be costly to contract over because quality
of performance is difficult for the public contract sponsor to observe.
Because they involve ``hard'' assets, the types of activities being
considered for increased private participation on the NEC are, however,
precisely those activities where the private partner's performance is
readily observable. The variety of metrics indicating how well
stations, yards, signaling, and trains themselves are operated are
readily observable. They can be provided for in a contract with
measurable performance standards and clear enforcement provisions.
Private participation on the NEC is thus likely to improve social
welfare substantially through better performance. Perhaps more
importantly, the enormous value locked within this critical national
asset can be realized for all citizens though upfront concession
payments, as I describe below.
Opportunities for Value Capture on the NEC
The entity we refer to as the ``Northeast Corridor'' is in fact a
large set of transportation assets, each of which is valuable, and many
of which are vastly underutilized under existing policies. The
incentives, expertise and resources associated with private
participation allow for the substantial value latent in those assets to
be both increased and captured.
Competitive concession bidding (which can only be achieved by
including private participants) is the key mechanism through which
latent asset value can be realized. For example, the substantial value
inherent in improving the management, maintenance and operation of a
single station on the NEC can be extracted by requiring potential
private partners (which may include a consortium of firms) to bid on
the basis of the largest upfront concession payment they will offer to
perform those services. Private partners bring high-powered incentives
to enhance the station's value as much as possible. This is because
private participation includes well-defined residual claimants who
stand to capture value created by operating the station more
efficiently (a residual claim refers to the explicit property right to
capture the profits from an economic activity). This is in contrast to
current government operation, where no well-defined group can capture
the value created, so operation remains inefficient. Because they have
such a large effect on incentives, the concepts of residual claims and
residual claimants are critical to understanding how private
participation generates enhanced value from NEC assets. Indeed, one can
think of the concept of ``value capture'' as virtually synonymous with
well-defined property rights, which include the right to capture value
created by the property in question.
To continue with the station operation example, a private residual
claimant generates additional value from operations in numerous ways. A
private operator has the incentives, skills and resources to generate
the greatest value possible from the station. This can be done through
both revenue enhancement and through cost reduction, although economic
studies of privatization in the former East Bloc countries indicate
that the largest gains come from innovations to raise more revenue. The
partner may be able to increase revenue opportunities through more
intensive use of concessions for food and beverage service, through
more intensive use of shop concessions, through waiting-room naming
opportunities, real estate development opportunities near stations, and
many other possibilities. Through restoration and innovation, revenue
opportunities can take advantage of the historic nature of the NEC's
critical infrastructure facilities, some of which predate the First
World War. By creating well-defined residual claimants and requiring
them to bid against one another for station operating rights, upfront
concession payments allow society to immediately realize the new value
created.
A highway transportation PPP within the NEC provides another
example. In January 2012, the Maryland Transportation Authority
announced approval of a 35-year PPP concession for the redevelopment
and operation of two travel plazas (Maryland House and Chesapeake
House) on I-95 in Northeast Maryland. As an illustration of the private
sector's access to capital, the concessionaire, Areas USA, will invest
$56 million to redesign and rebuild the aging travel plazas, while the
State will receive an estimated $400 million in added revenue over the
life of the concession.
The travel plaza PPP came on the heels of Maryland's PPP agreement
with a private partner to renovate and operate the Seagirt Marine
Terminal in Baltimore. Under that agreement, the Maryland Port
Administration leased its 200-acre marine terminal to Ports America. In
return, Ports America will build a container berth with a 50 foot
depth. This will allow the Port to accommodate ships with a larger
draft, which will attract more shipping.
A third example is provided by the PPP completed in June 2011
between Violia Transportation and Nassau Country, New York to manage
and operate all aspects of its transit service, which includes almost
300 buses and 180 para-transit vehicles. With a population of 1.3
million people, the Nassau County system is now the Nation's largest
privately operated municipal bus service. Although the PPP is
relatively new, the early assessment is positive, and holds important
lessons for the NEC. Buses are cleaner and more reliable due to a
renewed emphasis on service quality and on customer needs. That
enhanced reliability has generated greater ridership. Violia adopted a
new, customer friendly website, and developed innovative visual tools
that make Nassau's buses more appealing to passengers. Improvements
have occurred without negatively impacting passengers. Fares were not
increased and routes were not eliminated. Because of its operational
focus, the Nassau bus contract has been termed a public-private
operating partnership, or PPOP.
To apply this approach to NEC infrastructure, a PPP could be
utilized to help construct the proposed Gateway tunnel for passenger
rail traffic under the Hudson River. Such a PPP would rely on private
financing, but would be funded through charges to the freight,
commuter, and Amtrak trains that utilize the tunnel. The tunnel could
be operated under a ``real toll'' PPP in which the private partner
received the toll revenue directly, or under an ``availability
payments'' type PPP in which the public sector receives the toll
revenue, but then compensates the private partner based on pre-
determined, transparent performance metrics. The project is estimated
to cost $14.5 billion, but funding has not yet been identified. Such a
project provides an ideal opportunity to leverage the power of capital
markets to generate the most capital possible from a given revenue
stream.
In each example, the use of a PPP identified and tasked skilled,
motivated, well-defined residual claimants with an incentive to
maximize facility value. Enforceable contracts that include transparent
performance standards can be used. The PPPs also brought additional
capital and risk-bearing skills to bear. The citizens of Maryland and
New York will share in the value created by private partners. A similar
approach can be applied to other aspects of the NEC, particularly in
passenger rail.
Opportunities for contracting operations, improvements, expansion,
and management of NEC facilities can occur at different levels in the
delivery process. The public PPP sponsor must decide how broadly versus
how deep into the process it wishes to contract. At the highest, most
aggregated level, operations, maintenance, and expansion of the entire
NEC, including all train operations, could be contracted to a single
private entity, which may represent an affiliated group of firms.
Although the resulting contract would likely be very complex--and would
require care and expertise to oversee--citizens would share in the
massive value created by receiving one large upfront concession payment
for the entire line. Because of the massive value of the transportation
alternative provided by the NEC, such a payment would likely be very
large. This is consistent with the substantial values realized by
concession payments in other recent U.S. transportation PPPs.
The public sponsor could instead undertake private participation
deeper down into NEC's operations. For example, station management
could be competitively bid through a single management contract, with
the management of ticketing, for example, undertaken through a separate
entity. Still deeper into operations, the management of on-board food
and beverage services, as well as in-station food, beverage, and
newsstands could be competitively awarded through a different PPP.
Additional on-board revenue opportunities include advertising on
rolling stock, and advertising along the route. Increased private
participation presents numerous clear opportunities to capture
additional value from existing assets. The key decision is how far into
process details should the public PPP sponsor execute and monitor
contracts on the NEC versus how much it should delegate those
responsibilities.
Value Revelation through PPP Bidding
An important insight from the economics literature on PPPs is that
it is difficult to know the value inherent in an infrastructure asset
(such as the NEC) until it has been assigned a value through
competitive bidding. That is, in addition to allowing citizens to
capture the value of the infrastructure they own, a key purpose of
competitive PPP bidding is to reveal the true value of the assets in
question. Importantly, such bidding will reveal value based on the
financing and implementation of the latest technological innovations,
since private partners have strong incentives to adopt such
technologies. However, the effects of new technology implementation
that accompany private participation on both revenue opportunities and
on cost reduction are virtually unknowable until they are implemented.
This is highlighted by the fact that state and local governments are
sometimes surprised by the large size of the upfront concession fees
they are offered for brownfield PPP leases of highway assets,
indicating that those assets were more valuable than previously
thought. Importantly, value under-estimation often leads to under-
investment in asset maintenance, which has plagued many U.S.
transportation assets.
When more PPPs are used, the role of the public sector changes--and
becomes more specialized--as private partners' participation grows. The
public partner's role shifts from being a service provider to being a
designer and monitor of contracts with private partners. Like any
business, the public sector must decide where its core competency lies.
There is little reason to believe that train station operation, for
example, is a core government competency. Indeed, the benefits of
contracting out train operations to private operators are being
realized in other countries.
An objective assessment of which aspects of the NEC lie within the
government's core competency as a service provider should be
undertaken, and those aspects that are not core public sector
competencies should be contracted to private partners who are expert in
those activities. Once non-core competencies are determined, the public
sponsor may need to develop additional skills in contract design,
monitoring, and enforcement.
An added social benefit of the PPP approach is simply that a
transparent contract exists. The contract clarifies such issues as the
actions that constitute adequate performance. The PPP approach thus
encourages the public sponsor to reflect upon, and articulate, what
specific actions by the private partner constitute excellent, moderate,
or poor performance. This may include metrics about key issues, such as
the reliability and frequency of train travel, but also more detailed
considerations such as the cleanliness of cabins, restrooms, and dining
cars. The PPP approach thus improves the public's control over NEC
assets by introducing a transparent, enforceable contract into its
operation.
NEC Value Improvements Generated by Cost Management and Risk
Assumption
An additional way in which citizens are able to realize added value
via PPP concessions on the NEC is through the private sector's sharper
incentives, resources, and skill in managing costs. Indeed, such
incentives are referred to as ``high powered'' in the economics
literature. Such cost savings will be realized by citizens through a
larger upfront concession payment. Moreover, a lower cost of service
may also depend on access to capital markets, since the social benefit
of new technology often manifests itself through lower costs for the
same type and quality of service.
A final, often-stated social benefit of including private partners
is risk assumption. Train operations on the NEC are inherently risky.
They include operational risks, such as bridge or tunnel problems, but
also financial risk associated with changes in ridership. Under the
current approach in the United States, taxpayers assume virtually all
of the substantial risks associated with designing, constructing,
operating, and maintaining passenger rail systems. Through a PPP, some
of those risks can be allocated to the private partner, thus reducing
taxpayers' risk exposure. Because private investors are experts in
pricing and bearing risk, this is an important benefit.
Finally, a hallmark of the PPP approach is it's inherently
flexibility. The range of ways in which private participation can be
incorporated on the NEC appears to be limited only by the creativity of
the contracting parties. For the reasons I outline above, private
participation in the provision of passenger rail service in the United
States through greater PPP use should be encouraged.
Senator Cowan. Thank you, Mr. Geddes.
Thanks to the panel as a whole. Very informative testimony.
Sounds like we are going to have a robust conversation and
debate once we get into the examination from my colleagues
here.
I am going to exercise my prerogative in my pseudo-role as
Chairman for today just to issue a few brief opening comments
and then kick it over to questioning.
First, I want to thank Chairman Rockefeller for convening
this hearing about the future of the Northeast Corridor.
Obviously, being a Senator from Massachusetts, this is
particularly relevant and important to me. And I know it may
not stretch to the other parts of the country represented by
the Senators here, but I know they are equally interested,
passionate, and concerned about the issues we are talking about
today.
Passenger rail is an important component of our nation's
transportation infrastructure no matter where it is located,
and concerns about safety, capabilities, and speed of our rail
network are universal. Again, perhaps it is nowhere more
relevant and important than to those of us in the Northeast,
where congested highways and airports increase pollution and
cost tens of billions of dollars every year in lost
productivity.
Unfortunately, as you have all said, the infrastructure we
put in place long ago cannot keep pace with current demands or
those we anticipate. Our stations and lines are stretched too
thin, and service is delayed, disrupted, and slower as a result
of the aging infrastructure.
It is an opportunity for me to remind you all of South
Station in Boston, which dates back to 1899. It is a beautiful
building, but it is not nearly large or sophisticated enough to
handle the growing passenger rail service needs. That is why
the state of Massachusetts has proposed a critical expansion to
the South Station that would not only allow for increased
ridership on current lines but would also open the door to
expanding access for residents in the south coast of
Massachusetts and beyond.
Our businesses are telling us that we are losing our
competitiveness because our infrastructure is falling apart.
Too many bridges and roads are not safe, and experts say it may
cost as much as $3 trillion over the next decade just to bring
existing infrastructure to acceptable levels. Thousands of
needed construction jobs across the country could be realized
if we fully fund our infrastructure deficit.
Now, we know that resources are not unlimited, and we have
a responsibility to be sure we are getting the most out of the
dollars we spend. But I am a big proponent of the notion that
investment in infrastructure is a smart investment and a needed
one.
And we have to look at new and innovative ways to bring
private capital into the mix. I am a strong supporter of TIFIA
grants, but they are clearly not enough, and we have to look
for new, additional ways to finance the level of investment we
need, especially those projects that have a national benefit or
are critical to the economics of a region, particularly the
Northeast.
And, with that, I have more, but I will put that into the
record. And I will exercise my prerogative again and ask
Senator Blunt if he has questions for the panel at this time.
Senator Blunt. Thank you, Chairman. I do.
I mentioned when Chairman Cowan arrived that if he hadn't
shown up, Senator Johnson and I were going to just privatize
the entire system. But he got here to----
[Laughter.]
Senator Blunt.--protect the hearing, and so we are not
going to do that.
I am interested--Mr. Boardman, what about that last comment
that Mr. Geddes made about a taking a specific asset, like the
tunnel, that has a stream of revenue, and how dependent are you
on that stream of revenue for other operations? And just
respond to that for me.
Mr. Boardman. I think the real revenue would come from
other public agencies. For example, Amtrak doesn't have nearly
the number of trains operating through the new tunnels as would
New Jersey Transit, for example. So you do have policy running
into policy, Senator, to some extent, depending on what another
public agency, such as New Jersey, would want to charge its
passengers.
But the kinds of things that Rick is talking about, I
think, are things that we can consider for the future if you
have a long-term, reliable source of funding that comes out of
the Federal Government. It really takes that level of
investment to make that happen.
When Perry Offutt was here, who was one of the investment
folks, he really talked about the private sector being in for a
project something like that or even smaller, perhaps, at about
15 percent. But he was also looking at that consistent funding;
otherwise, the risk level is too high for them to really step
in and do something.
So it is complex, and I think Rick has thought about a lot
of those issues. But the practical nature of making that happen
on a working railroad, which is I think part of what Jim Steer
was talking about, is also problematic.
Senator Blunt. Yes, let me go to Mr. Steer.
I was going to ask, based on what Mr. Boardman said, the
idea of a consistent enough governmental funding, what you saw
on the West Coast corridor, how do you kind of link those two
comments together of your panelists on either end of the table
there?
Mr. Steer. OK, well, I think that there is an awful lot to
do to get to a position where the kind of private-sector
funding that Mr. Geddes has talked about actually could be
realized.
If you think about it, taking the Gateway as an example of
the next big project perhaps, the income stream to remunerate a
private-sector investor under a PPP there would probably be
what is known as the availability payment. They would look for
each year, each time a train goes over, I get a return, because
I am the private-sector investor, I have spent $15 billion
building these bridges, tunnels, expanding Penn Station.
So, first of all, I want to be pretty sure those trains are
going to run. Actually, I want to know if something is going to
run on the old tunnels, as well, so you are going to have to
put those in the picture. And I am going to want to know that
whatever those charges are, and they are set to be at the
beginning of the contract, that I can rely on them not
changing. And that might be a tricky thing to do because the
kind of term of contract here is probably going to be 20, 25
years to make this work. You are going to need a good period of
earning.
Now, look, the concept is great, because we all know there
is private money looking for this kind of reliable, dependable,
steady-state, long-term return. But you do have to have the
apparatus in place to give the assurance to investors that they
are going to get that return. An independent rail regulator,
for instance, is what we have in the U.K. We thought we needed
it in a time when we weren't expanding the railroad. As it
turns out, it is a fantastic device to help secure that kind of
private-sector funding. But there is work to be done to get
that kind of arrangement in place, I would say.
Senator Blunt. Mr. Geddes, do you envision this to be
significantly different than, like, Indiana selling some of its
highways to a private investor to maintain and depreciate--I
assume they depreciate those highways out, which is another
advantage to them.
I am just trying to figure this out. I am not trying to be
very crafty here in my question. I am just trying to figure out
how these--these three things don't sound like, to me, they are
that far apart really.
Mr. Geddes. Thank you, Senator. That is a terrific
question.
To me, yes, there is a critical difference between what
happened in Indiana on the Indiana Toll Road and what I think
we are talking about with, for example, the Gateway Tunnel in
the Northeast Corridor. In my view, a key difference is that
the Indiana Toll Road was built, it was priced, it was tolled
already, prior to the PPP being taken over. It is what is
called a brownfield lease.
Now, a tremendous investment in the Indiana Toll Road was
necessary, Senator, to just get it up to standard. And the
tolls needed to be adjusted, I think. But what we are talking
about here is more of what we would call a greenfield project,
which is the construction of a new facility for which we do not
yet charge.
So a key, absolutely key issue here is charging for the use
of the asset, whether it be per mile or per ton, whatever it
is. And we could even talk about varying that charge according
to peak times, like we do for electricity and a lot of other
utilities.
So if we were building new capacity here, the demand is
more uncertain. We don't know exactly what the demand is going
to be. That is a typical problem with a greenfield project. On
a brownfield project like the Indiana Toll Road, you know how
many trucks and cars are using it already, so your demand risk
is lower.
That is why I think the private sector is so important. As
I stressed, the private sector is good not only at providing
capital and operations, they are also good at bearing risk. And
we as a society would be taking on a lot of risk by building a
new tunnel, but we still have a pretty good idea that there
would be a lot of demand for that tunnel. So I think we would
get a lot of up-front capital going into the construction of a
new tunnel.
I don't know if I am getting to your----
Senator Blunt. No, no, you do.
Mr. Geddes.--question. But----
Senator Blunt. And I am going to ask one question----
Mr. Geddes.--the key thing, Senator, is that pricing issue.
Senator Blunt. And, Mr. Redeker, I assume in your report
one of the things you talk about is the additional
infrastructure you need, whether it is a new tunnel or an
additional bridge, as well as maintaining current
infrastructure, whenever I look at that Northeast Corridor
critical needs report?
Mr. Redeker. Yes, the critical needs, at this point, is
really a look at the current infrastructure and what it needs
to sustain itself.
Senator Blunt. What the current infrastructure needs.
Mr. Redeker. It may add capacity by doing investments in
that infrastructure. We are partnering with FRA on that future
through the NEC FUTURE process and where that new
infrastructure needs to be or how much of it to build under
what scenarios.
Senator Blunt. I assume I may have time later for a couple
of other questions, Mr. Cowan, I will--thank you, Chairman.
Senator Cowan. Thank you, Senator.
Senator Johnson?
STATEMENT OF HON. RON JOHNSON,
U.S. SENATOR FROM WISCONSIN
Senator Johnson. Thank you, Mr. Chairman.
I am new to the Committee, new to this issue, so I am going
to ask some pretty basic questions. I am also an accountant, so
I like numbers.
Can you give me what level of revenue is going up and down
the Northeast Corridor right now? Is there a figure on that?
Mr. Boardman. It is over a billion at this point in time.
But in terms of the number that is coming to my mind, the
revenue is between $200 million and $300 million above what our
costs are to operate on the corridor without capital.
Senator Johnson. Now, is that just Amtrak or is that total
revenue?
Mr. Boardman. That is just Amtrak.
Senator Johnson. Just Amtrak. Do you know total traffic
over the Northeast Corridor?
Mr. Boardman. The total traffic is about 260 million
passenger trips per year.
Senator Johnson. OK, I am talking revenue, though, because
I----
Mr. Boardman. I don't have that.
Senator Johnson.--want to get down to dollars.
Mr. Boardman. Does the Commission have that, Jim? No, I
don't think so.
Mr. Redeker. I would say we don't at this point.
Mr. Boardman. We could get that, but----
Senator Johnson. OK. That is kind of critical.
What are we talking about in terms of maintenance
infrastructure, Mr. Redeker, in terms of just what we need to
do to invest to maintain what we have? I mean, a ballpark
figure.
Mr. Redeker. Yes, so we have put together this needs report
which breaks it up by segment, into what each segment needs.
And this is multiple billions of dollars to reach a state of
good repair on the infrastructure, so capital investments, the
ongoing operating costs in addition to Amtrak's.
The commuter railroads are not profitable, typically,
across the corridor. They are very efficient as a
transportation mode. I know for the New Haven Line we are
running at about 75 percent cost recovery. So it is a
subsidized operation. So when you throw the commuter operations
on top of the Amtrak operations, from the operating and
maintenance side, it is not the same as the Amtrak-only
operation.
Senator Johnson. OK, ``multiple billions.'' Are you talking
$10 billion? Are you talking $15 billion?
Mr. Redeker. Well, so we have identified a period of time
that we believe there is an infrastructure need. Total number--
--
Mr. Boardman. I could tell you that. We are behind right
now about $5.1 billion in terms of bringing it up to a state of
good repair.
And we are putting in whatever the Federal Government
allows us to do on capital for each year. And there is the
appropriation that comes from the Federal Government. It could
be a half a billion dollars, and it could be over a billion
dollars, depending on what is available.
Senator Johnson. Well, how much does Amtrak lose on the
Northeast Corridor, then, every year?
Mr. Boardman. The entire amount of the capital investment,
the way Congress figures it, is what Amtrak loses.
Senator Johnson. I am not interested in the way Congress
figures it. What does your profit and loss look like? I mean,
so you have a billion dollars in revenue; how much did you
lose?
Mr. Boardman. Whatever we put in to the capital.
Senator Johnson. Which is how much?
Mr. Boardman. It depends on the year, sir.
Senator Johnson. Well, last year----
Mr. Boardman. You only provide money every year. You don't
give us, as with the highway side for 5 years.
Senator Johnson. This isn't trying to be hostile.
Mr. Boardman. No, no, I understand, I understand.
Senator Johnson. So do you do an annual income statement at
all?
Mr. Boardman. Yes.
Senator Johnson. So how much would you consider your loss
per year?
Mr. Boardman. I will get a real number for you and get it
back to you.
Senator Johnson. Can you give me a ballpark just for
discussion here?
Mr. Boardman. Not in the way you are asking the question, I
can't, no, sir.
Senator Johnson. OK, well, that is a problem when you are
trying to figure out how to privatize something. Wow. So you
can't tell me how much you lose in a year?
Mr. Boardman. I can tell you what the whole company loses,
but----
Senator Johnson. OK. How much----
Mr. Boardman. On the Northeast Corridor itself, we make
about $300 million over the investment--let me see if I can
figure it out here. I am talking out loud. Between $200 million
and $300 million over our operating cost. And the Federal
Government provides an investment for us in the neighborhood of
$500 million a year. So we are losing probably a couple hundred
million, $200 million to $300 million, a year.
Senator Johnson. OK.
Mr. Boardman. And if you add the ARRA funding or if you add
the extra funding we have had, we would lose a greater amount
of that because we would have a greater investment in
infrastructure.
Senator Johnson. So, total, what does Amtrak lose a year,
then, in total?
Mr. Boardman. It is on our long-distance trains and those
that are the state corridors. We are losing, this year, I think
around $400 million to $500 million.
Senator Johnson. OK. And that is inclusive of what you get
subsidized by the Federal Government?
Mr. Boardman. Yes.
Senator Johnson. So, in other words, the Federal Government
pumps money in, you count that as revenue, and then you still
lose $500 million.
Mr. Boardman. No, we count that all as subsidy. All the
Federal Government comes in for is considered a subsidy for the
capital side, which is the Northeast Corridor for the most
part, and you take all of our profits off the Northeast
Corridor and you put that into long-distance trains, and then
what is left is the subsidy for long-distance trains and state
corridors.
Senator Johnson. OK. But you say you lose about half a
billion dollars a year?
Mr. Boardman. Yes.
Senator Johnson. $500 million a year.
Mr. Boardman. $400 million to $500 million.
Senator Johnson. But is that exclusive of the subsidy, is
what I am asking you, or is that after the subsidy? So, in
other words, if you get $2 billion worth of revenue, you get
half a billion dollars' worth of subsidy from the Federal
Government, you still lose $500 million.
Mr. Boardman. Well, it includes all of the subsidy. It
includes everything from the Federal Government.
Senator Johnson. Let me just ask one question. Have you
tried adjusting prices so you don't lose money?
Mr. Boardman. Yes.
Senator Johnson. And what happens?
Mr. Boardman. On the Northeast Corridor, we have increased
revenue. On the long-distance trains, that is not possible.
Senator Johnson. OK.
Thank you, Mr. Chairman.
Senator Cowan. Senator Nelson?
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Just to interpret what you said, you put it
all together, what you get in revenue and what you get from the
Federal Government, and you are losing, the big Amtrak,
everything, somewhere around $400 million to $500 million a
year?
Mr. Boardman. Yes, sir.
Senator Nelson. OK. That is what I thought was said.
Now, I am from Florida. Sadly, the attempt to build high-
speed rail was rejected by our Governor, and we had a project
ready to go. And then when the Florida Department of
Transportation estimates came out, it would have shown that it
would have actually made $10 million in the first year on the
expected ridership. This was the Governor's own department. And
by the tenth year, it was expected to be making $30 million a
year.
So that is gone. And that was just one leg of high-speed
rail. That was on the least-transited leg, from Tampa to
Orlando.
We now have a private enterprise, the Florida East Coast
Railway, that wants to do a higher-speed rail on their own line
from Miami up to Cocoa and then do an extension paralleling a
limited-access highway right to the Orlando Airport. So you
would now have high-speed rail from Orlando to West Palm,
slower speed but still fast from West Palm south to Fort
Lauderdale. That is the second stop, or the third stop with
Orlando being the first, and the last stop, Miami, and then
reverse.
Now, my question to you is, what do you think about that?
You are the head of Amtrak. This would actually be a competitor
to you because you don't have a lot of ridership on your line
that goes down the center of the state.
Mr. Boardman. We actually have quite a bit of ridership,
but I think it would be great for Florida if that happened.
Senator Nelson. Is this entirely a private enterprise, or
is Amtrak in any way involved?
Mr. Boardman. Well, they are entirely a private enterprise
the way it exists now. I have been down to talk to Secretary
Prasad. We have looked at what Amtrak could do and have talked
to him about the potential of operating along the Florida East
Coast because the All Aboard Florida service really was going
to stop at West Palm Beach and not stop beyond that.
Senator Nelson. That is correct.
Mr. Boardman. So I think the Florida folks are interested
in making sure that it was equitable, but we don't know yet
what they really want to do, at this point in time.
Senator Nelson. Well, what I interpret they want to do is,
they own the tracks----
Mr. Boardman. No, no, I meant the state, sir. I didn't
mean----
Senator Nelson. Oh, what the state----
Mr. Boardman. I understand what the----
Senator Nelson. Well, that is true. I mean, the state has
to give them the ability on the state right-of-way along this
expressway from the east coast of Florida where the FEC
railroad tracks are all the way to the Orlando Airport. And the
good news there is there is a highway expressway, and so there
is right-of-way there. And so they can put a track there, and
it can go right to the Orlando Airport.
And, apparently, according to these folks, Florida East
Coast Railway, apparently it looks like it could be a
moneymaker. Because they think they can do the trip in 3 hours
from Orlando to Miami, and you can't drive it except in 4. And
if you want to fly, of course, start to finish, even though the
actual flight time is 40 minutes, you have all the extra that
you go through going into the airport, et cetera, et cetera.
So it is intriguing, and I wanted to know what you thought
about it.
Mr. Boardman. I agree with you. It is intriguing. I have my
own real thoughts about how successful it will really be,
whether they can do what they are talking about doing. But they
certainly have a plan that, if they can execute it and it turns
out that way, will be good for Florida, it will be good for the
people there.
Could I go back to a question that I think Senator Johnson
was asking me and probably getting frustrated with me about?
Somebody sent me a note; he says, OK, boss, the real loss after
all the money is in there is zero.
And I wasn't paying attention to your question well enough,
sir, and I apologize. Once you get the Federal money in, the
loss is zero. There is not a continuing loss.
Senator Nelson. So there is not a $400 million to $500
million loss each year?
Mr. Boardman. No. Once the Federal money is applied, it is
a balanced book. And I think that is maybe what you were trying
to get from me, was there additional loss beyond what the Feds
put in.
Senator Johnson. Just answer me, what is the total Federal
subsidy?
Mr. Boardman. The total Federal subsidy this year is in
that $400 million category. And that is what I was trying to
answer.
Senator Nelson. OK. So, then, my interpretation was
correct. You have a $400 million to $500 million loss, but the
Federal Government subsidizes that----
Senator Johnson. Correct.
Senator Nelson.--over and above what the Federal Government
puts in initially.
Senator Johnson. No.
Senator Nelson. Not so? OK. OK.
Mr. Boardman. They break even with----
Senator Nelson. All right. So if I can interpolate again--
--
[Laughter.]
Senator Nelson.--the Federal Government nationwide puts in
$400 million or $500 million.
Mr. Boardman. Yes.
Senator Nelson. However, in the Northeast Corridor, you
have a profit of $200 million or $300 million.
Mr. Boardman. Yes, they take that and apply that, as well.
So, I mean, in the end, all of that balances us out to zero, in
the end.
Senator Nelson. OK.
Mr. Boardman. No loss, no gain.
Senator Nelson. With that much loss outside of the
Northeast Corridor, how can you justify doing what you do,
other than it is a government service?
Mr. Boardman. With all due respect----
Senator Nelson. Which is what it is.
Mr. Boardman.--it is what Congress has to justify.
Senator Nelson. That is right. That is right.
Senator Cowan. Thank you, Senator Nelson.
I just have a couple questions. I think we have time to go
back around if folks have more questions, and I suspect they
may.
Actually, a question to Mr. Steer.
Mr. Steer, you spoke about, as you said, that history has
shown us that there is tremendous potential here, but in every
successful model, starting with an expectation that the private
investors will get the ball rolling hasn't proven to be the
case and that there needs to be some, as you say, national
government financing.
In light of what you have heard today and your
understanding of what the needs and opportunities are, do you
have an opinion as to what you think, at least in this instance
as it relates to the expansion of rail and this nation via the
high-speed, the Northeast Corridor or elsewhere, what you think
that level of investment might be before we could be in a
position to effectively leverage private investment?
And then, Mr. Geddes, if you have an opinion on that, I
would love to hear from you, as well.
Mr. Steer. OK. One way of looking at this might be just to
take the Northeast Corridor first of all, Senator Cowan. And if
you looked to create what I would consider to be a viable,
commercial section of high-speed rail, and by that I mean
something that is new-build so you don't have the risk of
knowing what is the condition of the asset. It is new-build, it
is clean, you have created it, which is going to take some
doing. You have some work to do in institution-building, the
means to charge operators for using that. That is the income
stream back to the private-sector investor. Then you could look
at concessioning that.
How long would that take, and what would it cost? A
reasonable section of route, maybe Maryland-Delaware section of
high-speed line, might be in the range of $12 billion or $15
billion. You build that, you get it operational. And I am
suggesting this because I have seen it done elsewhere. Maybe a
year or 2 after you have opened it, you know what the income
charges could be, you concession it.
And you ask for your private sector, your fund, your
pension funds, these kind of players in the market to come
along, and they would acquire it, say, from Amtrak. And they
will say, OK, we will maintain it for 30 years. Amtrak will
still run the trains over it.
You could do that. But you really have to build a
substantial enough piece to make it work, and it is certainly,
you know, some way downstream. This isn't even the first-
priority project.
I don't believe it would be anywhere near so easy to do it
with Gateway, just because of its complexities with the old
tunnel and Penn Station. You know, there are a lot of
interdependencies to get the value out of that investment. But
here, assuming a fairly clean investment of this type, that is
the kind of scale of money that would be needed.
So that is public-sector money, Federal dollars, before you
get to that stage. That is my opinion, anyway.
Thank you.
Senator Cowan. Thank you.
And, Mr. Geddes, if you could opine. And I would also like
your thoughts on a financing model that might be borne out of
an infrastructure bank, a Federal infrastructure bank.
Mr. Geddes. OK. Thank you, Mr. Chairman. I will take your
first question first.
I must say I am a little more optimistic than Mr. Steer is
on the willingness of the private sector to take risks and to
invest in the Northeast Corridor as it is or with the current
institutional arrangements.
I think we need to appreciate that one of the huge
advantages from the global infrastructure investment
community's perspective of investing in the United States is
our strong contractual enforcement in this country through our
legal system and our strong system of property rights. Both of
those legal factors make the United States an extremely
attractive environment for infrastructure investment from all
over the globe. And I believe that there would be a lot of
entities that would be willing to take risks on different parts
of the Northeast Corridor.
I direct you to a project here in Washington, D.C., which
is the construction of the HOT lanes on the Northern Virginia
side of the Washington, D.C., Beltway as a public-private
partnership between Transurban, which is an Australian company,
and Fluor, which is U.S., the private sector taking the risk of
building that new infrastructure asset and constructing it at
very little government cost.
So I believe there are huge opportunities here for private-
sector investment. I am a little bit more optimistic than Mr.
Steer on that.
Second, Mr. Chairman, I would like to emphasize that the
private-sector advantage comes from their incentive to use the
existing assets to raise more revenue. So to say naming rights
at stations, stations concessioning for shops and restaurants
more aggressively, a whole series of things that they can do to
squeeze more value out of those existing assets. I believe
there is enormous latent value within the Northeast Corridor,
Mr. Chairman, that a private-sector investor, if we were to
take the opportunity, would really be interested in investing
in.
Now, your second question, Mr. Chairman, on an
infrastructure bank, I have to say that I believe the devil is
in the details on a Federal infrastructure bank. The one
proposal from a few years ago regarding--the structure of the
infrastructure bank is important. One structure I heard was an
independent agency within the executive branch, which is
exactly the same structure as the U.S. Postal Service. And I am
not optimistic that that structure would lead to investments
purely on the basis of economic value. And so I would have to
see the structure of the bank itself, Mr. Chairman, to answer
wisely.
Senator Cowan. So I am going to take that as a ``maybe.''
And I am going to ask Senator Blunt if he has further
questions.
Senator Blunt. Let me ask a couple, Chairman.
Mr. Tolman, I am assuming that, in terms of infrastructure,
you want it to be as safe and as upgraded, as up-to-date as it
can be. And do you have a particular view of how that happens,
as long as it happens?
Mr. Tolman. We do have a view about that. And the key is,
and I think Mr. Boardman testified to this, we need a long-term
funding for Amtrak. And then you are going to get, as the two
gentlemen to my right and left have emphasized, then you get
some potential investors. But until you give Amtrak an
opportunity, a 10-year investment plan, I don't see either one
of these plans working, personally.
Senator Blunt. Well, certainty in all areas is usually a
helpful thing for decisionmaking, no doubt about that.
The other thing I wanted to ask you, you mentioned the
Passenger Rail Investment Security Act----
Mr. Tolman. Yes.
Senator Blunt.--that expires this year. What is your advice
on that?
Mr. Tolman. Long-term funding----
Senator Blunt. So long as we could go with a long-term
point of view on this bill, this act that expires this year?
Mr. Tolman. Yes, positively. I said 10 years. I would say
20 years, 25 years, whatever you could do.
I mean, I have testified and been coming down to D.C. back
in the 1990s from Boston, you know, praying that we are going
to get some type of subsidy to keep it running for years. We
have had professional people, employees, working tirelessly to
keep it going, as well as a wonderful relationship currently
with Amtrak management. And I think we have done a really nice
job working together on both sides of the aisle. We would like
to continue that.
And it would be extremely helpful to anybody employed in
the industry to have some type of long-term funding and not be
worrying whether they are going to be there tomorrow.
Senator Blunt. Yes.
Mr. Redeker, you mentioned that in the area of your
responsibility, you had the largest increase in service in the
history of--what do you attribute that to? Obviously demand,
but what do you attribute the demand to? Is it all demand, and
what do you attribute the demand to?
Mr. Redeker. Yes, I think that rail investment really does
create the economic engine for the state of Connecticut. The
Shore Line, which is the New Haven Line, Northeast Corridor, is
one of the busiest commuter railroads in the country. The
utilization of that not just to the New York CBD but actually
in the reverse direction, as well, now--there are more folks
coming into Connecticut than leaving Connecticut going the
other way. This is the core of our economy. And it is the
competition to the congested I-95 corridor.
So it is growing, it is growing consistently. It is growing
on top of fare increases that have been put in place to raise
revenues. And so our response to that is to add service.
At some point, we will reach congestion limits, capacity
limits. But in response to that, we have added, particularly on
weekends, we have added a significant increase, almost 45
trains, on the weekends, and then off-peak trains as well.
So it is a market that is not just peak work hours. It is
all day long, it is all directions, it is all purposes. And I
think that is because of the quality and the dependability.
Senator Blunt. And do some of these commuter lines actually
not lose money?
Mr. Redeker. No, actually, all the lines in----
Senator Blunt. So the more service you add, the more money
you lose?
Mr. Redeker. No, actually, most of the service we are
adding now is break-even or profitable. Weekend service tends
to be, for us, incrementally relatively inexpensive to add, and
the revenues cover that. But we are one of the more efficient
commuter rail services in the country, recovering over 75
percent of those costs.
Senator Blunt. And who makes up the 25 percent?
Mr. Redeker. That is the state of Connecticut.
Senator Blunt. The state of Connecticut.
Mr. Redeker. Yes.
Senator Blunt. Thank you, Chairman.
Senator Cowan. Senator Johnson, further questions?
Senator Johnson. Yes. Thank you, Mr. Chairman.
Again, I am a private-sector guy, so I believe in it. Can
you just describe to me the difference between the freight rail
system and the commuter rail system? And tell me where I am
wrong, because I think I know a little bit more about the
freight rail system, but what percentage of the freight rail
infrastructure, the track, is owned by the freight companies?
Mr. Boardman. A hundred percent. And their plan is to
invest about $24 billion a year in their infrastructure. About
17 percent of that is capital investment, and the rest of it is
maintenance cost. They maintain their railroad at a Class 4
track, which is a lot lower speed. And we also operate much
lower speed, about 79 miles an hour, on those tracks than our
own. And they have done a good job with that.
Senator Johnson. OK. But the freight rail system is pretty
profitable, correct?
Mr. Boardman. It is now, yes.
Senator Johnson. Mr. Geddes, you seem wanting to hop in
here.
Mr. Geddes. Thank you, Senator. I had to raise my hand
there, I am sorry. But if you take a look at the most recent
report from the American Society of Civil Engineers, 2013, it
came out about a month ago, they rate all sectors of
infrastructure in the United States.
The sector that had the largest--so it comes out every 4
years. The sector that had the largest improvement in its grade
was the freight rail system. And they attribute that to the
billions of dollars of--so it went from a C+ to a B+ or
something. I can't recall the exact grades. But they attribute
that to the massive additional private-sector investment in the
infrastructure of the freight rail system to bring it up to a
much better standard.
Senator Johnson. Would you say that one of the reasons is
because of the discipline of a private-sector marketplace, the
competition and the fact that not only do you have to break
even, you actually have to build a surplus, and so you have a
certain market discipline or pricing discipline?
Mr. Geddes. Yes, Senator, I would attribute it to market
discipline on a number of margins. You have the discipline of
the capital markets. As we know, Warren Buffett bought BNSF
Rail. There is a lot of capital market discipline there. There
is discipline on the margin of product market competition.
There is market discipline in a whole--bond markets discipline
these companies through the bond rating agencies.
A whole series of market disciplines are brought in. And I
believe we can capture that on the Northeast Corridor through
the judicious use of public-private partnerships.
Senator Johnson. Well, I am just listening to the ridership
and the use of those tracks. It looks like it is really at
capacity. To me, from the private sector, when you are
operating that close to capacity, you ought to be----
Mr. Geddes. Expanding.
Senator Johnson.--expanding or at least charging for the
utilization so you can actually make a profit. I mean, is it
true, because the numbers are still a little confusing, is it
true that the Northeast Corridor without government subsidy
makes a profit, or not?
Mr. Geddes. Are you asking me or----
Senator Johnson. Whoever might know.
Mr. Geddes. I believe that economically speaking, so your
Econ 101, the Northeast Corridor is an enormously profitable
asset. Now----
Senator Johnson. But, again, I am not talking about the
infrastructure surrounding it. I am talking about just the rail
system itself.
Mr. Geddes. I am, too.
Senator Johnson. Does it operate at a profit?
Mr. Geddes. I don't believe under the current arrangements,
probably not. But with the proper policies and institutional
arrangements, I believe that the Northeast Corridor could be a
very profitable asset.
Senator Johnson. Why not just with proper pricing?
Mr. Geddes. Yes. Yes.
Senator Johnson. I mean, when you are at that level of
capacity, shouldn't you be able to increase prices to be able
to make a profit on the use of the asset?
Mr. Geddes. Yes, Senator, I agree entirely. And I believe
that another underappreciated benefit of private involvement is
the incentive and the skills to properly price use of the
asset. Pricing, as you know, is a----
Senator Johnson. So let me ask the other folks, why can't
you, when you are operating at that high a capacity, why can't
you at least break even with your own operations, without
government subsidies? I mean, what prevents that from
happening?
Mr. Steer. If I can attempt an answer here, I think the
first key difference between the Class 1 freight railroads,
which have performed very well, and the Northeast Corridor is
the Northeast Corridor is a mixed-use railroad. So you have one
organization, Amtrak, that owns most of it, not all of it but
most of it, and runs intercity rail service, but it also
supports a huge number of commuter rail services, and it
supports some freight services.
So the key to getting into this and saying, oh, well, it is
full, can't we charge more, which is really, you know, a pretty
basic and commonsense question----
Senator Johnson. There you go.
Mr. Steer.--if you will forgive me, is, well, where is the
pricing for the use of the infrastructure? And the fundamental
first step has to be to charge for the infrastructure on a
cost-reflective basis. Because----
Senator Johnson. So wouldn't that be the policy
prescription, the first policy prescription is make sure that,
rather than have the taxpayers subsidize that, we come up with
a model where the people utilizing the track are actually
paying for it?
Mr. Steer. Well, yes, but--and here is the ``but.'' And I
do mean ``yes'' before I get to the ``but.'' And the ``but''
is, in particular, when you look at the biggest usage in the
corridor, it is actually commuter rail. Commuter rail the world
over needs subsidy. You will not find commuter railroads around
the world--and I don't really see why the U.S. on this is----
Senator Johnson. But is that totally dependent on capacity
utilization, though?
Mr. Steer. Well, it is just----
Senator Johnson. And I have been on the New York-
Washington, D.C. That is a very full train almost every time.
Mr. Steer. Absolutely. But it is also a very peaky
business. It is a lot of equipment that is used a couple of
times in the day. Absolutely flat-out in the middle of the day,
it is not used as much. And people try to make better use of it
in the off-peak and weekends and so on.
The reality is you could increase the charges. The
commuters won't love you for it, but you could do it.
Senator Johnson. Taxpayers would like it, though.
Mr. Steer. Well, yes. And no doubt those adjustments have
been made. I think Mr. Redeker is saying the prices have been
going up. I don't have the detail on that.
But to think that you will get to a stage where those
commuter rail operations, paying properly for their access to
the track, are going to be profitable in the way that rail
freight is profitable in the U.S., I think the evidence is you
are unlikely to reach that position.
Senator Johnson. But, again, you are using your kind of
global perspective, in general, commuter lines, versus a
specific corridor that, to me, is operating at a very high
level of capacity.
Mr. Steer. It is.
Senator Johnson. And, again, as a business guy, I am going,
boy, that is something that ought to be profitable.
Mr. Steer. Yes.
Senator Johnson. So that is my only point.
Thank you, Mr. Chairman.
Senator Cowan. Thank you, Senator Johnson.
I just have one final question. Actually, it is to Mr.
Boardman.
Mr. Boardman, you heard in my opening comments, obviously I
represent the great Commonwealth of Massachusetts, where South
Station is located. It is very much near and dear in our
hearts. And we believe South Station expansion is a vital
opportunity for economic growth in our region.
My question to you simply is, do you agree with my
assessment, sir?
Mr. Boardman. We not only agree with that, I personally
have supported that and Amtrak, as a policy, is supporting
that. We absolutely need more space in South Station.
Senator Cowan. Well, it seems to me there is no better
place to leave it, then, gentlemen.
[Laughter.]
Senator Cowan. I want to thank the panelists for their
testimony today. This is an important issue. The information
you provided to this Committee is important to the future of
rail in America and Amtrak and the expansion of the Northeast
Corridor and will help us make better decisions going forward.
And I look forward, I know I speak on behalf of Chairman
Rockefeller, to working with the Committee and many of you to
sort of move us in that direction.
The record will remain open for 2 weeks, and this hearing
is otherwise adjourned. Thank you.
[Whereupon, at 4:04 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Frank R. Lautenberg,
U.S. Senator from New Jersey
Mr. Chairman,
Our nation has a proud history of prioritizing investments in
transportation. Great public-works projects--from the Transcontinental
Railroad to the Interstate Highway System--have expanded our horizons,
brought this country together, and helped make us a global economic
power.
Some will say now isn't the time to make public investments. Some
will say we can't afford it. But some of America's greatest
infrastructure investments were made during economic downturns. And
just as we had to make these previous investments to adapt to a
changing country and world, new demands on our transportation system
mean that we must invest in new ways to connect people and get them
where they're going faster.
Over the past 40 years, our population has grown by more than 100
million, straining the infrastructure we depend on every day. Sufficed
to say, the next 100 million will come much faster--so we must begin to
prepare today.
Nowhere is this need more clear than in the Northeast, where the
cities along the Northeast Corridor have a huge impact on the economic
health of the whole country. While the area only takes up two percent
of the Nation's land, we produce more than 20 percent of our nation's
GDP.
The investments we need must go beyond filling potholes or fixing
broken traffic lights. Simply building more highways in this highly
congested region is not the answer either. Our economic success depends
on improving our passenger rail system and bringing faster trains to
the region. Passenger rail service on the Northeast Corridor helps
businesses thrive, connects our economic centers, and helps clear the
air by getting thousands of cars off our congested highways.
The Northeast Corridor plays a critical role in the region's
transportation network. Rail is the preferred method of travel between
New York and Washington, D.C. with rail making up 77 percent of the
air-rail market. Without Amtrak service, thousands more people would be
clogging our nation's highways and airspace every day. And demand
continues to grow as ridership on the Corridor climbs. In 2012, more
than 11 million passengers used the Corridor, a nearly five percent
increase over the year before.
However, despite its success, the Northeast Corridor is operating
at capacity in many places on the Corridor and constantly battling to
repair aging infrastructure. In my state of New Jersey, we face
problems with this aging rail infrastructure every day. Amtrak and New
Jersey Transit trains that travel on the Northeast Corridor frequently
face capacity and infrastructure failures traveling through the Hudson
River tunnel or over the Portal Bridge, both of which are more than 100
years old. Aging electrical infrastructure also causes frequent shut
downs that disrupt service and create delays for riders. When a single
disruption occurs, it can create a ripple effect throughout the entire
system--a delay of just 15 minutes can affect as many as 15 Amtrak and
New Jersey Transit trains.
That's why I have been working with Amtrak to advance the Gateway
Tunnel project, which will build a new tunnel under the Hudson River
and replace the Portal Bridge--adding much needed capacity, improving
aging infrastructure, and allowing for higher speed rail service.
Running underneath the Hudson River, it will ease congestion, shorten
travel times for commuters, and create good jobs for working families.
The Gateway Tunnel will also provide a critical transportation
option in the case of a future disaster. Superstorm Sandy, which hit
the East Coast last year, was a wake up call to the national and
regional significance of the Corridor. When flood waters inundated the
Hudson River rail tunnel and electrical systems, the Northeast Corridor
was shut down and service was limited for more than a month. As a
result, thousands of New Jerseyans had long, arduous commutes.
Importantly, the Gateway Tunnel will ensure that the Corridor is
protected from flooding and provide an alternate route when disasters
strike.
The message could not be simpler: investments in these critical
infrastructure projects are urgent and vital to our country's future.
We cannot continue to underfund Amtrak and turn a blind eye to the
needs of one of our Nation's greatest assets. We must provide Amtrak
the dedicated funding they need to bring the Corridor into a state of
good repair, increase capacity, and add higher speed rail service.
Making these investments won't be easy or cheap. Everyone must play
a part, including the Federal government. But we must remember that
these are investments in our people and our future prosperity. They are
well worth it.
Take it from me. When I was building my business, I learned
firsthand--if you want to be successful tomorrow, you must begin laying
the foundation today. And the same principal applies here. If we want
our children and grandchildren to enjoy a better, stronger, and more
dynamic country, we must make smart investments on their behalf--and
that means investing in Amtrak and the Northeast Corridor.
This year, I will be working on a bill to reauthorize Amtrak and
improve our passenger rail systems. One key area will be ensuring the
success of Amtrak's Northeast Corridor and providing the tools they
need to bring our infrastructure into the 21st Century.
I thank the Chairman for calling this hearing to launch our
discussion on the next passenger rail bill and I thank our witnesses
for coming to speak on the future of the Northeast Corridor.
______
Response to Written Questions Submitted by Hon. John D. Rockefeller IV
to Joseph H. Boardman
Question 1. Many stakeholder groups are affected by the NEC. Recent
rail legislation, PRIIA, set up a new organization--the Northeast
Corridor Commission--to bring many of these stakeholders together. The
law requires that the Commission advise on NEC's future needs and work
with the stakeholders to set up fees that passenger and commuter trains
must pay to access the NEC. The Commission plans to establish the ways
fees should be set up by the end of 2013. Once the Commission develops
the approach to setting up fees, it is unclear how the fees will be
implemented and administered. Also, members of the Commission may be
more interested in the NEC's projects, now they are financially
contributing to these projects. Who should be responsible for
implementing and administering the cost-allocation methodology; and how
would that work?
Answer. The Commission has not made any decisions on these points,
as it is first focused on development of the cost allocation
methodology and will soon turn to implementation questions. However,
paragraph (c)(2) of Section 212 of PRIIA clearly answers some aspects
of this question by requiring that the methodology developed by the
Commission be implemented through the access agreements between Amtrak
and the NEC commuter agencies, with the Surface Transportation Board
providing enforcement authority if the parties fail to implement such
updated agreements. We anticipate that the Commission will monitor
implementation progress, provide a forum to raise and address
implementation issues, and continue to serve as the decisional body
responsible for any prospective changes to methodology over time after
its initial adoption.
Once the new methodology has been developed, existing access
agreements between Amtrak and the commuter agencies will need to be
amended to incorporate the new methodology. As the one entity that is
party to every agreement that will be required to be amended, Amtrak
faces a unique challenge in meeting this responsibility.
Business processes and systems will need to be modified to support
the new methodology. This responsibility will mostly fall to the major
infrastructure owners, including Amtrak, Metro-North Railroad,
Connecticut Department of Transportation, and Massachusetts Bay
Transportation Authority.
As for the general administration of the new methodology, we
anticipate that the Commission will retain this role. As the new
methodology is implemented, periodic reviews, updates and refinements
will likely be warranted. While the allocation of costs consistent with
the methodology will be handled by each infrastructure owner, cost data
and operating statistics must be consistent and transparent.
Question 2. What role should states play in NEC decision making,
now that they are financially contributing to it?
Answer. Section 212 of PRIIA, which required the formation of the
NEC Commission, does not assume that states themselves will be funding
the Northeast Corridor. Rather, PRIIA requires development of a
methodology in which users of the corridor, including Amtrak and
commuter agencies, pay a ``proportional'' share for use of the corridor
(most agencies are state entities, but not all--for example, Virginia
Railway Express and SEPTA). It is also important to note that commuter
agencies have been financially contributing to the Northeast Corridor
for as long as they have operated on it. What will change once the new
cost allocation methodology is implemented is that all users will
contribute based on a uniform ``fully allocated'' methodology for both
operating and capital costs.
That said, we expect that commuter agencies, freight railroads, and
Amtrak all stand to benefit from more collaboration in the decision
making affecting the NEC network. The need for a more collaborative
effort has become more crucial as demand for intercity, freight and
commuter rail services has grown and is now outstripping available
capacity on the NEC in many segments. To make the most efficient use of
existing infrastructure and to prioritize investment in new capacity
projects requires region-wide, all-services, approach. The Commission
has already begun to help facilitate this regional approach through the
development of the Critical Infrastructure Needs report, submitted to
Congress in January 2013. As stated in the report, ``the expectation is
that by coming together to take collective responsibility for the NEC,
these disparate stakeholders will achieve a level of success that far
exceeds the potential reach of any individual organization.'' The
Commission is currently supporting this effort by helping to coordinate
data gathering in support of NEC-wide 5-year capital programs developed
by the infrastructure owners and users that, when taken together, will
create the first prioritized, near-term comprehensive investment
program for the whole NEC.
Question 3. The Railroad Rehabilitation and Improvement Financing
program (RRIF) has provided loans and loan guarantees to help finance
railroad infrastructure including passenger and freight rail. Amtrak
has used RRIF to replace aging rolling stock and increase capacity.
However, loans have been sporadic and roughly $33 billion of loan
authority still exists. The Administration has suggested a National
Infrastructure Bank for a broad range of infrastructure projects
including transportation. In addition, it has suggested establishing
bonds similar to the Recovery Act's Build America Bonds. How could RRIF
program loan and loan guarantees be more helpful in supporting
infrastructure investment in the NEC?
Answer. As a RRIF program participant, Amtrak believes there are a
number of targeted improvements that could be made to improve the
applicability and attractiveness of the RRIF program for intercity rail
projects and will be happy to provide such suggestions to the
Committee. Amtrak may apply again in the future for RRIF loans to
purchase new equipment or make investments in new infrastructure
capacity that would generate new revenue, assuming RRIF's terms are
advantageous compared to other forms of available financing.
Central to any financing strategy for NEC improvements is the
identification of repayment streams to service outstanding debt. Under
the current circumstances where the net contributions from Amtrak NEC
train operations are utilized to cover other Amtrak business line costs
and access fees paid by other NEC users primarily only cover marginal
operating costs and minimal capital contributions, it would be
difficult to utilize the RRIF program or other financing tools to
finance the backlog of state-of-good-repair and normalized replacement
needs on the NEC unless federal, state or local grants could be
provided to cover debt repayment, as was done with Amtrak's initial
RRIF loan in 2002. If such Amtrak train operations contributions were
made available for this purpose or if, under Section 212, anticipated
commuter access fees increase, then such financing methods may become
potential options.
Additionally, in applying for a RRIF loan Amtrak has an unusual
problem. When determining Amtrak's risk of repayment and associated
credit risk premium, the Administration has in the past maintained that
it cannot consider the enactment of future legislation, including
appropriations bills. Therefore, Amtrak's risk is dealt with in the
context of an insolvent corporation, despite its 40-plus year history
of Federal support. In order for Amtrak to take full advantage of the
RRIF program, a more realistic way to appraise the risk that it will
repay a loan--perhaps in line with the way a private lender would price
Amtrak's risk and view its ability to repay loan--is necessary.
Amtrak generally supports the development of new infrastructure
financing options, including an infrastructure bank aligned with USDOT,
Build America Bonds, or other tax policy changes that incent investment
in long-term infrastructure projects. Most critical for the future of
the NEC are financing mechanisms that can help the timing challenge
associated with the significant differential between early capital
outlays and eventual increased financial returns, either though ticket
revenues in Amtrak's case or access fees in the case of commuter and
freight railroads. Because the NEC is at or near capacity and many of
the major structures are at or past the end of their useful lives,
major capital outlays must be undertaken before new capacity can be
created and generate increased revenues that could help support such
capital outlays.
Question 4. Would a broader infrastructure bank be more helpful in
attracting private investment to the NEC than RRIF, and why?
Answer. A broader infrastructure bank that considers projects that
integrate elements across sectors such as transportation, economic and
community development and utilities and public works could be of use to
Amtrak for many projects at key stations that involve many other
sectors and have wide benefits beyond transportation.
Some versions of the infrastructure bank that have been proposed
include both grants and loans. An infrastructure bank that provides
grants in addition to loans would be a welcome funding source for
portions of the significant capital needs on the Northeast Corridor.
An infrastructure bank that provides low interest or subsidized
loans directly to private partners could provide attractive financing
for capital projects and open up new opportunities for PPPs. However,
as with all debt, these would need to be projects that have the
potential to generate increased revenues to Amtrak that could be
channeled back to repay debt costs, or would need to be backed by new
and increased Federal funding streams.
Question 5. Identifying funding for addressing the maintenance
backlog and making capacity improvements on the NEC would benefit
intercity, regional and commuter passengers and freight movements.
However, making the level of investment laid out in many planning
documents is difficult given the current fiscal situation in the U.S.
Please explain in detail examples of private investment that might be
applicable along the NEC in the U.S.
Answer. Despite the difficult fiscal situation in the U.S., Amtrak
believes that the Federal Government must be a significant partner in
funding the NEC maintenance backlog if this work is to get done. The
financial need to fix the backlog is simply too great to be borne by
the users or private sector alone. However, there are several models of
private investment that could be applied in the NEC and which may play
a role in a funding and financing package to augment Federal funding of
the existing infrastructure and to support the building of new
capacity. Amtrak researched the role of private financing in its 2010
report, A Vision for High-Speed Rail in the Northeast Corridor and
found that private capital financing could play a role in this program,
but that the best opportunities for such investment come once systems
are built and running, have demonstrated market appeal, and are
generating sufficient revenue streams to attract the private sector.
Experience around the world, as the Committee has heard from other
witnesses, has demonstrated that private investment in high speed rail
and rail infrastructure generally only occurs after significant
majority investment by the public sector, such as a national or state
government, is made and that the private sector investment usually only
accounts for a small share of total project costs. The use of PPPs
throughout passenger rail is not widespread, and is usually focused on
new, high-speed rail projects. For example, France, a leader in high-
speed rail for more than 30 years only recently completed into its
first major PPP, to build a rail tunnel under Pyrenees Mountains
between France and Spain.
In the near term, the most likely private sector participation
model in the NEC is through public-private project delivery models,
such as design-build, and partial financing and/or equity for high-
return, capacity increasing projects.
Question 6. What resources, legal basis, etc. need to be in place
to take advantage of private capital funding?
Answer. As discussed above, a major hurdle to Amtrak entering into
any version of PPPs is revenue stream risk. Under an availability
payment model of PPPs, unless Amtrak has a more dependable source of
revenue to repay loans, such as segregated NEC revenues, private
financing will come at a premium, making this source of financing more
expensive to secure. This could potentially be overcome with Federal
backing that secures private loans, which would make private financing
more attractive.
Even if Federal backing negates the effects of revenue risk,
private financing may be more expensive than public financing because
of the premium that a private sector partner would place on any of the
risks it assumes through the transaction, such as construction risk,
and the relatively quicker returns the private partners typically
expect with their investments. It is important for Amtrak to weigh
whether the cost of private financing in this case outweighs the
potential benefits (i.e., sharing risk, leveraging public funding, and
outside expertise).
U.S. Department of Transportation/Federal Railroad Administration
approval is likely to be required for any PPP, especially one that
includes the transferring of an Amtrak asset, new or existing, to a
private entity for ownership or management or the taking of new debt.
Question 7. The nation's passenger rail infrastructure is not
currently in a ``state of good repair''. If the Nation invests in the
NEC infrastructure to bring it in a state of good repair and move it
into the 21st century, ensuring its continued maintenance and upkeep is
expected to be an important protection for private sector investment.
Once the NEC is in or near a state of good repair, what steps will be
taken to help ensure it is maintained and that infrastructure, such as
bridges, is replaced by the end of their useful lives?
Answer. The main impediment to bringing and maintaining the NEC to
a state of good repair (SOGR) is the lack of reliable capital funding.
The Northeast Corridor Master Plan (2010) estimated that the NEC has a
total SOGR backlog of $8.8 billion, which included $5.2 billion on the
363 miles of the NEC Main Line and branches owned by Amtrak, $3.2
billion on the CT-owned portion of the 56-mile NEC Main/New Haven Line,
$100 million on the NY-owned portion of the NEC Main/New Haven Line,
and $240 million on the NY-owned Albany Line. It is important to note
that a significant issue to be addressed through the NEC Commission's
current cost allocation efforts is what role current NEC users have in
funding a portion of this backlog (largely inherited from the Penn
Central era and bankruptcy), as a use-based allocation of backlog costs
to users would far exceed the financial capacity of operators, agencies
and states.
Once the backlog is taken care of, the corridor still requires
normalized replacement, i.e., regularly scheduled maintenance (such as
switch and rail replacement, bridge repainting, etc) of aging
infrastructure assets to replace worn out and broken components or
systems which are functionally obsolete. The projected cost of
normalized maintenance, from 2010 to 2030, is $9 billion, or $450
million per year. This is the cost of recapitalizing the existing
corridor to keep it in a state of good repair and does not consider the
addition of any new capacity. Amtrak believes that the users of NEC
should generally be expected to cover this normalized replacement cost,
once the NEC is brought up to a state of good repair.
Question 8. PRIIA required FRA and Amtrak in consultation with the
Surface Transportation Board, rail carriers over whose rail lines
Amtrak trains operate, States, Amtrak employees, and other groups
develop new or improve existing metrics and minimum standards for
measuring the performance and service quality of intercity passenger
train operations. What performance measures have been developed and how
has the NEC done against these new or revised performance and service
quality standards?
Answer. Under Section 207 of PRIIA, metrics and standards were
issued for various performance aspects of intercity passenger rail
service, including for services on the NEC. The metrics and standards
generally fall under 5 broad categories: Financial; On-Time
Performance; Train Delays; Other Service Quality; and Public Benefits.
See Docket No. FRA-2009-0016 for a listing of all the metrics and
standards that were issued, including those that apply to the NEC.
The FRA publishes quarterly reports that measure performance
against the metrics and standards. The latest report, published in June
2013, covers performance for the second quarter of Fiscal Year 2013 and
provides an indication of how NEC services performed against the
standards. To briefly summarize, the Acela Express and Northeast
Regional services both met the financial performance standard of
achieving ``continuous year-over-year improvement on a moving eight
quarter average basis'' for the ``Percent of Fully Allocated Operating
Costs Covered by Passenger-Related Revenue'' and ``Passenger Miles Per
Train-Mile'' metrics. Northeast Regional service out-performed each On-
Time Performance standard for the second quarter of FY 2013 (Change in
Effective Speed, Endpoint OTP, All-Stations OTP). Acela Express out-
performed the All-Stations OTP standard, and is essentially at standard
(-0.1 percent deviation) for Change in Effective Speed and Endpoint
OTP. NEC services (Acela Express, Northeast Regional and Keystone
Services) met the Delay Standard while operating on Amtrak NEC
territory. NEC services that operate over non-Amtrak Host Railroad
territory generally met the standard for Off-NEC Host-Responsible
Delays, with the exception the Richmond/Newport News/Norfolk Northeast
Regional service on CSX railroad while Amtrak Responsible Delays for
NEC services that operate over non-Amtrak Host Railroad territory out-
performed the standard for Acela Express, but under-performed against
the standard for some Northeast Regional services. The ``Overall
Service'' Customer Service Indicator scores out-performed the standard
for Northeast Regional but underperformed against the standard for
Acela Express. The report also contains metrics for service
interruptions caused by equipment-related problems and various
passenger complaints, though no standards were issued for these
performance metrics.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Joseph H. Boardman
Question 1. Amtrak is in the process of building the Gateway
Tunnel, a new rail tunnel under the Hudson River. Once completed, the
project will increase capacity for Amtrak and New Jersey Transit
trains, as well as provide necessary resiliency against future extreme
weather events. If we don't address much-needed capacity projects on
the Northeast Corridor like the Gateway Tunnel, what will be the impact
on service, ridership, and revenues?
Answer. The obsolete condition of aged and insufficient
infrastructure assets in the territory between Newark, NJ and New York
Penn Station will continue to threaten the reliability of service on
the entire Northeast Corridor, inconveniencing daily commuters and
intercity travelers, and restricting existing ridership and revenues.
Furthermore, there is no practical means of meaningfully expanding
intercity or commuter rail service to New York until these assets can
be replaced with the Gateway Program.
Currently, the greatest bottleneck in the Northeast Corridor is
between Newark, NJ and New York Penn Station, where only two tracks
serve 450 trains per day. These 450 trains, serving Amtrak and NJ
Transit customers, must travel over the Portal Bridge over the
Hackensack River, a 100-year-old movable swing-span bridge, which opens
and shuts to accommodate maritime traffic and occasionally gets stuck
in the open position, causing cascading delays along the NEC. The
replacement of the Portal Bridge with two new, 52-foot high, fixed-span
bridges is part of the Gateway Program. Design and NEPA are complete
for the first replacement bridge--Portal Bridge North--and it is
estimated to cost $900 million.
The 450 trains per day in the Newark to NYC territory must also
pass through Hudson River Tunnels, completed in 1910, which were
flooded with seawater during Superstorm Sandy, shutting down the NEC
for three days and leaving longer-term damage to the system. These cast
iron, early twentieth century tunnels require frequent and expensive
maintenance that is performed on the weekends. The infrastructure
programs cannot be performed efficiently without reducing the Northeast
Corridor to one-track service through Manhattan and restricting
combined intercity and commuter service to just six trains per hour all
weekend. This condition will continue permanently until two new tunnels
can be built with the Gateway Program, providing added capacity,
redundancy, reliability and flood resilience, and allowing the existing
tunnels to be taken out of service for an extended period of time to be
rebuilt.
Question 2. The Northeast Corridor Commission included portions of
the Gateway Tunnel in its report Critical Infrastructure Needs on the
Northeast Corridor. How will the Gateway Tunnel project help bring the
Northeast Corridor into a state of good repair?
Answer. The Gateway Program encompasses both replacement of
existing, obsolete assets, such as the Portal Bridge, ``Sawtooth''
Bridges, and Hudson River Tunnels, between Newark and New York City and
new capacity in the form of two additional tracks that will travel over
new bridges and through new tunnels in the same territory. The
replacement of Portal Bridge, Sawtooth Bridges, the Hudson River
Tunnels, and additional track improvements along that territory will
bring that section of the NEC to a state of good repair. Portal Bridge,
Sawtooth Bridges, and other track work can be replaced in the near term
as soon as funding is secured, whereas the reconstruction of the
existing Hudson River tunnels must wait until new Gateway Tunnels are
built under the Hudson River to absorb the existing rail traffic before
the existing tunnels can be taken out of service.
Question 3. Superstorm Sandy wreaked havoc on New Jersey's
transportation system and shut down or limited service on the Northeast
Corridor for more than a month. In what ways will the Gateway Tunnel
help prevent a similar shutdown from happening in the future?
Answer. The new Gateway Tunnels will be designed in a way to
greatly reduce the potential for and the impact of the type of flooding
experienced during SuperStorm Sandy and future storms. While no asset
can ever be said to be completely impervious to such risks, Amtrak's
goal will be to design a tunnel that would resist likely flood levels
in the future and to ensure that the tunnels could be quickly restored
to service in the unlikely event that the tunnels would be flooded.
This includes designing the tunnels with elements such as flood gates,
greater pumping capacity, higher emergency access shafts, enhanced
drainage capabilities, and tunnel pump discharge outlets that are
independent of the municipal sewer systems in New York and New Jersey.
Question 4. The Gateway Tunnel project will provide additional
capacity between New Jersey and New York, but it will also impact the
entire Corridor. How will the project improve service for all states on
the Northeast Corridor?
Answer. The Gateway Program, by doubling capacity in the most
constrained stretch of the Northeast Corridor, will allow for the
increase in rail services by all the users of the corridor through
better optimization of all train schedules which are currently
compromised due to the tunnel restrictions, and roughly double the
number of trains that can travel between New York and New Jersey every
weekday.
The project will remove the restriction on weekend service that
currently exists because of the outage of one Hudson River tunnel every
weekend, greatly benefitting visitors from New Jersey and points north
and south who wish to travel to and from New York on the weekends.
The Gateway Program is a prerequisite for introducing Next
Generation high-speed rail service on the Northeast Corridor, which
will dramatically reduce trip times in the Northeast Corridor, bringing
cities on the East Coast closer to each other with greater frequencies
of trains per hour.
The Gateway Program will be designed in such a way to allow for
construction of the ``Bergen Loop,'' through Secaucus, NJ, which would
allow for one-seat NJ Transit service from Bergen and Passaic Counties
in NJ and Orange and Rockland Counties in NY to New York City.
The Gateway Program is necessary for any meaningful future
expansion of services throughout the Northeast Region, such as Metro
North Service across the Hell Gate Line into New York Penn Station, and
expansion of services from upstate New York, New England, and points
south, such as Virginia, Pennsylvania, and North Carolina.
Question 5. The Northeast Corridor is Amtrak's most popular and
successful route. Yet, some have suggested that fully privatizing the
Northeast Corridor is the only way to bring it into a state of good
repair and advance high-speed rail service in the Northeast. What would
be the impact on our national passenger rail system if we separated and
privatized the Northeast Corridor?
Answer. Privatizing the Northeast Corridor, whatever form that
might take, does not address the chronic undercapitalization of the
NEC, which has resulted in an $8.8 billion state of good repair
backlog, deteriorating service quality, and more frequent delays. A
private sector partner taking over the NEC in its current form would
inherit the same investment needs faced by Amtrak, the same need for
Federal capital subsidies, and the same obligation to make the NEC
available to the 2,000 daily commuter trains and 60 freight trains that
share the corridor with Amtrak's intercity services.
Claims that HSR service on the NEC could be significantly expanded
at greatly reduced costs and time frames are not based upon a realistic
understanding of the current needs on the existing corridor, the cost
of building a new, 427-mile two-track right-of-way along the most
densely populated and valuable coastline in the United States, or the
complexity of delivering this project alongside an active railway that
already moves 2,200 trains per day.
Question 6. In New Jersey, the Northeast Corridor is a vital
component of our transportation network, providing access for hundreds
of thousands of commuters using Amtrak and New Jersey Transit every
day. What impact would full privatization of the Northeast Corridor
have on passengers, commuter rail service, and the states along the
Northeast Corridor?
Answer. Private sector investors will seek a return on their
investment. We can assume that if a private sector entity were to take
over the management of the NEC infrastructure from Amtrak, it would be
seek to charge increased track access fees to NJ Transit, Conrail, the
territory's primary freight carrier, and other commuter railroads for
use of the corridor and for their share of new capacity improvements.
These access fees could very well be above and beyond those that are
currently being contemplated through the Section 212 process for cost
allocation, as the private investor seeks to generate returns rather
than just cover the fully-allocated capital and operating costs of the
NEC, as Amtrak is seeking to do under the Section 212 process. These
increased fees would likely be passed along to the passengers, freight
customers and/or the states.
Question 7. Unlike highway and transit funding, intercity passenger
rail lacks a dedicated multi-year funding source. How does the lack of
dedicated, multi-year funding impact the ability to plan and budget for
major capital projects on the Northeast Corridor?
Answer. It cannot be overstated that the absence of stable, multi-
year funding is one of the greatest structural challenges faced by
Amtrak and other agencies funding intercity service. Railroad
infrastructure investments typically require many years to go from
planning to implementation. Sporadic, uncertain annual funding levels
forces Amtrak and all other agencies to adopt the most conservative
construction assumptions to compensate for the absence of steady,
multi-year funding to permit a logical progression of work. Not only
does this lead to construction and project delivery inefficiencies for
all stakeholders, it adds unnecessary costs and labor inefficiencies,
provides a disincentive for planning and long-term development,
challenges Amtrak's ability to maintain a culture of continuous
improvement, creates market uncertainty for suppliers that retards
growth and innovation, and shackles Amtrak's ability to establish
partnerships and take full advantage of private sector opportunities.
Resolving this issue should be considered Amtrak's top priority.
Question 8. What public benefit would be provided by dedicated
funding for passenger rail similar to highways and transit funding?
Answer. Projects would be completed sooner and/or at less cost.
Outcomes and deliverables would be much more predictable and would
enable focusing on completing state-of-good-repair projects before they
become a backlog problem. It would become easier for all agencies,
Amtrak, and other partners, to commit to contractual project delivery
dates, since the risk of funding deficiencies would be eliminated or
greatly reduced.
Question 9. Many countries have heavily invested in passenger rail
systems and continue to make substantial public investments to expand
and maintain their systems. If we fail to invest in our transportation
infrastructure, what will it mean for our country's economic
competitiveness?
Answer. Countries that have invested in passenger rail systems have
made this choice understanding rail provides efficient, if not the most
efficient, mobility in an environmentally friendly, energy-saving
manner. Passenger rail has no equal in linking cities with convenient,
short journey times for cities up to 400-500 miles apart and for
connecting major city hubs with radial commuter routes. The result, as
is demonstrated by the Northeast Corridor, is a broad regional network
that forms the backbone of the region's economy, for business,
educational and recreational travel. The Northeast Corridor provides a
globally competitive edge that makes the region such a powerful
economic force. Failure to nurture it with new investment will almost
certainly lead to measurable diminishment of the region's competitive
attractiveness in favor of other locations across the world.
______
Response to Written Questions Submitted by Hon. John D. Rockefeller IV
to James P. Redeker
Question 1. Many stakeholder groups are affected by the NEC. Recent
rail legislation, PRIIA, set up a new organization--the Northeast
Corridor Commission--to bring many of these stakeholders together. The
law requires that the Commission plan for the NEC's future needs and
work with the stakeholders to set up fees that passenger and commuter
trains must pay to access the NEC. The Commission plans to establish
the ways fees should be set up by the end of 2013. Once the Commission
develops the approach to setting up fees, it is unclear how the fees
will be implemented and administered. Also, members of the Commission
may be more interested in the NEC's projects, now they are financially
contributing to these projects. Who should be responsible for
implementing and administering the cost-allocation methodology; and how
would that work?
Answer. The PRIIA legislation tasks the Northeast Corridor
Commission (``the Commission'') with bringing the parties together to
develop an allocation methodology and transmitting a timetable for
implementation of the methodology to the Surface Transportation Board
(STB).
It is our goal that agreement to a cost allocation methodology is
voluntary in nature and will not require petitioning the STB to make a
determination. The Commission is developing a policy document of the
proposed methodology which will serve as the basis for new contractual
arrangements among the parties. It is the view of the Commission that
the contractual arrangements must be transparent to all owners,
operators, and funding partners across the NEC to ensure adherence to
the adopted methodology and related policy principles. The Commission
will serve a valuable role in the implementation of the methodology by
working with the parties in an open and collaborative manner to settle
any policy disputes to avoid any escalations to litigation.
Question 2. What role should states play in NEC decision making,
now that they are financially contributing to it?
Answer. First, it is important to clarify that the states (in
varying levels of magnitude) have always financially contributed to
Northeast Corridor infrastructure and its related facilities although
this has not been in a uniform manner. For example, in the last 10
years, Connecticut has invested over $3.2 billion in the New Haven
Line. Of the $3.2 billion, two-thirds, or over $2 billion has been
funded by state bond funds, while the remainder is Federal Transit
Administration rail formula or discretionary funding. In addition, both
New Jersey and Maryland have joint benefit capital programs with Amtrak
and other states and agencies partner on an ad hoc basis to make
capital improvements in addition to the access charges currently paid.
To address near-term needs, the membership of the Commission should
collaboratively agree on the capital improvement priorities and
projects that need to be planned, designed, and constructed over the
next five years beyond the baseline level of maintenance required to
maintain existing service levels.
The Federal Railroad Administration's NEC FUTURE process, which is
comprised of a programmatic Tier 1 Environmental Impact Statement and a
Service Development Plan, offers states a considerable opportunity in
defining the framework for the future investments needed to improve
passenger rail capacity and service through 2040 and beyond.
The future of the NEC is dependent on a shared vision for its
service potential and the development of an implementable capital
program, the foundation of which that is a multi-year Federal funding
commitment. This is required to leverage state, local, and private
sector resources.
The financial implications of cost allocation and project planning
and prioritization are tied to the overall governance of the NEC. To
address these and other key policy topics, the Commission has recently
established a Governance Committee to make recommendations to help
enable the NEC to reach its maximum potential.
Question 3. What benefits, if any, do you see of having states more
involved in the NEC, both financially and in planning?
Answer. There are many benefits to a strengthened partnership among
the owners and operators of the NEC. Shared financial and planning
responsibilities create opportunities to implement operational
efficiencies and make strategic investment decisions that lower
operating costs over the long term for all users.
A partnership instead of a landlord-tenant relationship also
recognizes that long-term goals become more achievable when everyone
feels like an owner and has a direct stake in the success of the NEC.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
James P. Redeker
Question 1. If we don't address much-needed capacity projects on
the Northeast Corridor like the Gateway Tunnel, what will be the impact
on service, ridership, and revenues?
Answer. Amtrak's Gateway Program comprises many projects, including
new tunnels under the Hudson River. Simply put, the biggest impediment
to increasing service and improving reliability on the NEC is the
current pair of one-track tunnels connecting NJ to Manhattan. The two
existing tunnels carry a maximum of 24 trains per hour. During rush
hour, there is simply no remaining capacity to add trains to meet
ridership demand.
Question 2. The Northeast Corridor Commission included portions of
the Gateway Tunnel in its report Critical Infrastructure Needs on the
Northeast Corridor. How will the Gateway Tunnel project help bring the
Northeast Corridor into a state of good repair?
Answer. The current tunnels were completed in 1910 and due to their
considerable age, require extensive maintenance and are in need of
substantial repair. This portion of the NEC faces reliability
challenges due to the age and intensity of current use. New tunnels and
the reconstruction of the existing tunnels will be built to 21st
century standards for structural integrity, operations, fire and life
safety, and resiliency to flooding and other potential emergencies,
enabling increased operational reliability. In addition, the tunnels
will unlock capacity to provide for future expansion all passenger rail
services throughout the Northeast region.
Question 3. Superstorm Sandy wreaked havoc on New Jersey's
transportation system and shut down or limited service on the Northeast
Corridor for more than a month. In what ways will the Gateway Tunnel
help prevent a similar shutdown from happening in the future?
Answer. The current system lacks both redundancy and reserve
capacity. Even when the tunnels are functioning properly, a lack of
reserve capacity increases maintenance costs because this important
work must be done at night and on weekends to avoid service disruptions
during the day. New tunnels will create system redundancy so that in
the event a tunnel needed to be taken out of service for maintenance,
severe weather or other unforeseen event, the service could still run
smoothly. Further, the new tunnels will be built to provide enhanced
protection from future storm surges and flooding.
Question 4. The Gateway Tunnel project will provide additional
capacity between New Jersey and New York, but it will also impact the
entire Corridor. How will the project improve service for all states on
the Northeast Corridor?
Answer. Growth in the demand for commuter and intercity services in
the face of aging infrastructure and capacity constraints has caused
increased system failure rates and higher levels of congestion, which
negatively impacts the reliability of existing services.
Mitigating these consequences of the current rail network with new
tunnels under the Hudson will improve service reliability, enhance
connectivity, and ensure future generations do not inherit the even
more expensive consequences of a failure to invest in these projects
today.
Question 5. The Northeast Corridor is Amtrak's most popular and
successful route. Yet, some have suggested that fully privatizing the
Northeast Corridor is the only way to bring it into a state of good
repair and advance high-speed rail service in the Northeast. What would
be the impact on our national passenger rail system if we separated and
privatized the Northeast Corridor?
Answer. There are many types of privatization structures and
without a specific example it is difficult to comment. As Connecticut
is also an owner of a portion of the Northeast Corridor right-of-way,
any potential scenarios that only address the Amtrak-owned segments
ignores the realities of the complex governance issues of the Northeast
Corridor.
Privatization is not a cure all for the Corridor. Significant
Federal investment will first be necessary to help bring the Corridor
up to a state of good repair before any serious conversations can be
had on a potential role for the private sector on the Corridor.
Question 6. In New Jersey, the Northeast Corridor is a vital
component of our transportation network, providing access for hundreds
of thousands of commuters using Amtrak and New Jersey Transit every
day. What impact would full privatization of the Northeast Corridor
have on passengers, commuter rail service, and the states along the
Northeast Corridor?
Answer. It is correct that the NEC is a vital component of the
region's transportation network and any future discussions on
privatization would have to ensure that the significant public interest
at stake would be protected.
That said, it is difficult to contemplate a private investor
stepping in to take on the massive financial, construction, and
liability risks without a far greater Federal financial commitment than
exists today.
Question 7. Unlike highway and transit funding, intercity passenger
rail lacks a dedicated multi-year funding source. How does the lack of
dedicated, multi-year funding impact the ability to plan and budget for
major capital projects on the Northeast Corridor?
Answer. Simply put, it means a lot less efficiency and higher
costs. When planning major, multi-year projects on an annual basis, it
is much more difficult to size the workforce appropriately, procure
goods and materials in a timely manner, and delivery projects on
schedule, which results in a higher overall price tag. Perhaps the most
important thing Congress could do to help the Northeast Corridor would
be to create a dedicated multi-year funding source to help restore the
NEC to a state of good repair. The gains in efficiency of the
infrastructure spending on the Corridor would be significant and the
improvements in system reliability would mean significantly reduced
risk to the national and regional economies from a major service
disruption.
Question 8. What public benefit would be provided by dedicated
funding for passenger rail similar to highways and transit funding?
Answer. As noted above, we would see substantial improvements in
the efficiency of our investments and much greater reliability for
commuter, intercity, and freight services on the Corridor.
Question 9. Many countries have heavily invested in passenger rail
systems and continue to make substantial public investments to expand
and maintain their systems. If we fail to invest in our transportation
infrastructure, what will it mean for our country's economic
competitiveness?
Answer. Without investment in our transportation infrastructure,
the country becomes a less attractive to place to invest and less
competitive internationally.
Failing infrastructure means that the U.S. becomes a place where
goods become more expensive to bring to market, mobility is hampered,
and productivity is lowered due to ever-increasing congestion. On the
Northeast Corridor, we are relying on investments made a century ago.
Our aging rail infrastructure is asked to do more and more as demand
continues to increase for commuter, intercity, and freight traffic. We
cannot continue to fail to do our part while we rely on investments
made by previous generations. It is time for us to step up to the plate
and make the investments necessary to maintain and improve this rail
corridor that is so critical to our national and regional economy, our
international competitiveness, and our overall transportation network.
______
Response to Written Questions Submitted by Hon. John D. Rockefeller IV
to Jim Steer
Question 1. Identifying funding for addressing the maintenance
backlog and making capacity improvements on the NEC would benefit
intercity, regional and commuter passengers and freight movements.
However, making the level of investment laid out in many planning
documents is difficult given the current fiscal situation in the U.S.
Please explain, in detail, examples of private investment that might be
applicable along the NEC in the U.S.
Answer. There are many examples of private investment being used to
finance either upgrading of existing railroad infrastructure or of
construction of wholly new lines, but their specific applicability to
the NEC needs careful consideration.
Great Britain's West Coast Route Modernization (WCRM) was paid for
by private sector infrastructure manager Railtrack, which borrowed the
funds on the commercial market against its balance sheet but was paid
back by the principal operator buying the capacity through increased
access charges.
France has developed high speed lines using a public private
partnership (PPP) in which the design, construction, maintenance and
financing risk of new infrastructure is transferred to a private sector
company, which borrows at least part of the finance required on the
commercial market.
France and Spain jointly used a PPP approach to procure the
Perpignan-Figueres high speed line linking the two countries with a
tunnel under the Pyrenees. The project finance structure enabled
greater transparency than if each country had been responsible for
building the line in its own territory.
Great Britain's High Speed 1 (HS1) line was ultimately delivered by
the private sector within the planned timescale and budget using public
money. The infrastructure was then leased as a long term concession
allowing the government to recoup a proportion of the initial
construction costs.
The critical component in this (and other private financing/funding
models) is the existence of track access fees which provide a largely
foreseeable income stream to a private sector investor. As required by
PRIIA Section 212, steps have been taken through the NEC Commission to
develop a standardized formula that determines and allocates costs,
revenues and compensation between the NEC infrastructure owners and the
various rail operating companies, which is necessary to get track
access fees on a more commercial basis. This is a good start towards
being able to attract private funding.
Question 2. To the extent of your knowledge, what resources, legal
authority, etc. need to be in place to better take advantage of private
capital funding?
Answer. Major programs of maintenance, renewals and upgrades cannot
normally be achieved without some contribution of public funds. This
does not mean, however, that the private sector cannot be involved in
the process. Private sector investment can only be expected to be
attracted if the right conditions exist. First, the investor's exposure
to risks needs to be limited to those it is able to manage and for
which it can earn a reasonable reward. Secondly, investor's rights and
responsibilities, and those of other parties, should be clearly set
out. These may be either set down in contract or, to provide
flexibility for changing requirements, subject to review by an
independent regulator who will, among other things, protect the private
sector investors from changes or risks that could not be foreseen or
managed.
In the case of the NEC, this is likely to mean establishing and
agreeing a unified approach to the whole corridor, based on clear
economic and competition principles, establishing what capacity and
rail services should be provided in the longer term. Then it will be
possible to define and agree the roles and responsibilities of all
parties, including the Federal Government, the states, and their
agencies, including Amtrak, and the private sector. Once this framework
is agreed it will be possible to identify the specific resources and
authority needed for each stakeholder and to obtain private capital
funding. This may be achievable through commercial contract, or may
require new legislation, for example to establish the powers,
responsibilities and funding of an independent regulator.
These arrangements may include structural separation of the
operation, maintenance, renewal and upgrading of the infrastructure
from the provision of train services, although this need not be the
case. Debate in Europe is currently finely balanced between whether
separation or integration of infrastructure and operations delivers the
more effective results, and the advantages and disadvantages of each in
different circumstances.
Such an approach could then be applied to leverage private
investment across the corridor and/or in specific parts of the
corridor, for example, Gateway. A similar approach has typically been
adopted in Europe for cross-border links where both infrastructure and
operations will best be planned and managed on a cross-border basis.
Question 3. Rail in Europe, including rail in the U.K., has been
through different governance, ownership and funding/financing designs
over the last number of years. What lessons learned from those
experiences do you believe the U.S. could apply to the NEC?
Answer. Europe's many national railroads provide a range of models
of governance, ownership and funding/financing. A wide range of lessons
can be drawn from specific projects and in relation to specific
circumstances, but some general points are worth making:
A clear approach is needed to managing the competing
requirements of long distance and commuter operators, which are
likely to change over time. Contractual rights may need to be
supported by processes for independent oversight through
arbitration or a regulator with duties to strike a reasonable
balance between the aspirations of all the parties.
Even if the private sector provides relatively little equity,
it can be incentivized to manage rapid and cost-effective
delivery.
The private sector's commercial focus on the needs of the
traveler can be highly effective at growing ridership and
revenue, and improving performance and wider aspects of
quality.
In return, any private sector operator will expect reasonable
protection from other operators entering, and poaching from, a
travel market which has been built largely through its own
investment and effort.
There are limits to the scale of project risk that the private
sector can bear. Early consultation with potential investors
helps to identify the appetite for risk and the packages of
rights and responsibilities, and risks and rewards, which can
most effectively be transferred to the private sector.
Related to this last point, the models which have been tried in
Europe have developed, in most cases, by first agreeing broad economic
principles. With principles established, more specific proposals are
developed, in consultation with relevant stakeholders and potential
private investors, with the aim of finding the most effective way of
harnessing their resources to deliver the required outcome.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Jim Steer
Question 1. The Northeast Corridor is Amtrak's most popular and
successful route. Yet, some have suggested that fully privatizing the
Northeast Corridor is the only way to bring it into a state of good
repair and advance high-speed rail service in the Northeast. What would
be the impact on our national passenger rail system if we separated and
privatized the Northeast Corridor?
Answer. Separation and privatization are two distinct actions.
Separation need have no material impact on the remainder of the
national passenger rail system, providing the appropriate funding and
contractual interfaces remained in place. It would of course lead to
greater transparency on where Federal dollars were being applied.
Complete privatization of the Northeast Corridor, in theory need
have no impact on the remainder of the national passenger rail system.
It is inevitably the case that a fully privatized NEC would require
Federal or other source grant funding, all the more if the backlog of
renewals is to be made good to achieve a state of good repair.
Question 2. In New Jersey, the Northeast Corridor is a vital
component of our transportation network, providing access for hundreds
of thousands of commuters using Amtrak and New Jersey Transit every
day. What impact would full privatization of the Northeast Corridor
have on passengers, commuter rail service, and the states along the
Northeast Corridor?
Answer. Experience in Europe is that privatization of some or all
of the activities of a railroad corridor can be compatible with the
rights and interests of different national, federal, regional, local
and urban governments. However, for this to be achieved, the first
requirement is a new legislative and regulatory structure with
appropriate safeguards on minimum levels of services, fares levels,
retailing obligations, depot access rules, etc. This can then allow the
reasonable interests of all the stakeholders, and changes to them over
time, to be accommodated. Incentives can be set through contracts,
where necessary supported by performance and compensation regimes and/
or subject to oversight by an independent regulator, setting out the
rights and obligations of each party.
Depending on their requirements, the states could retain full
control of local commuter service timetables and stopping patterns,
station facilities, fares and ticketing arrangements, including
integration with other local transportation. Passengers could be
offered guarantees related to any of these aspects of the quality of
their services.
However, to avoid complete fossilization of existing timetables,
and to allow timetables to be changed and improved to mutual advantage,
it may be necessary to have independent regulation or arbitration of
competing requests for capacity. In the NEC context, there is no entity
that has these responsibilities. Privatization would mean at the least
a major extension of the role and responsibilities of the FRA, or a
new/different regulatory organization.
Question 3. You have considerable experience working on high-speed
rail projects around the world, and you have analyzed Amtrak's plans to
improve the Northeast Corridor and incorporate private sector support.
Is full privatization of the Northeast Corridor feasible given the
current state of the Corridor? If not, what level of private sector
involvement would be appropriate on the Corridor? And, what are some
examples of where the private sector could play a role in improving the
Corridor?
Answer. We have identified a range of potential approaches to
private sector involvement in the Northeast corridor. Full
``privatization''--transferring operations, maintenance, renewal,
upgrade, financing, ridership and revenue risk--to the private sector
might be feasible but, even if it were, it would probably not deliver
the most cost-effective outcome to the Federal Government, the states,
and the long-distance and commuter travelers. In other words, the cost
in terms of tax dollars would likely rise.
This is primarily because the private sector would require a high
level of reward to accept the risks of asset condition uncertainty and
the threats to ridership and revenue of modal competition and
externalities. Furthermore, while the scale of investment needed would
no doubt benefit from an injection of private sector expertise to
strengthen the existing resource-base, there is no precedent for
private sector funding of the levels needed in the NEC to achieve state
of good repair (say, $40bn), or enhancement to 21st century world
standards (perhaps a further $100bn).
Private sector involvement is likely to be more effective if it is
exposed to smaller or more manageable risks, through mechanisms such
as:
Separating the risks associated with delivering an upgrade (which
starts early) from the risks associated with operating a future service
(which starts later); and/or
Independent regulation to limit the exposure of the private sector
to risks which it cannot foresee or over which it has no control.
Thus, the private sector could be involved in activities, or
combinations of activities, such as supplier contracts for
infrastructure, design, build finance and maintain contracts for
infrastructure upgrades, asset management, maintenance, fleet
provision, fleet maintenance and preparation for service, train service
planning and operations and ridership and revenue risk.
Question 4. From a business perspective, are Amtrak's plans to
bring high-speed rail service to the Corridor rational? Are they the
right entity to handle this service?
Answer. Amtrak has created a number of business lines with a clear
management focus, two of which relate to the Northeast Corridor. It
would have been a failure on Amtrak's part if it had not developed and
offered proposals for how the corridor can better contribute to the
Nation's transportation requirements and to the economic growth
opportunity in the Northeast ``mega-region.'' The proposals are
rational, setting out a program which embraces both improvements to the
existing line of route and new build to accommodate high-speed rail.
The challenge is getting the right blend of these approaches, and
Amtrak is the only entity which sensibly can make the trade-offs and
choices in this area and develop a coherent program that meets customer
needs while improvements are made. It is not, however, the only
potential operator of intercity and longer distance services in the
NEC. With increased infrastructure capacity, competitive service
provision becomes possible, as has happened on Italy's high-speed
network.
Question 5. In other countries with successful high-speed rail
systems, what level of Federal support has been necessary to make the
system work? Is the United States currently providing the necessary
level of investment?
Answer. The experience has been that federal/national commitment is
needed to fund at least the early building blocks of national rail
systems. Every nation, having built a first line, has gone on to add
further routes, and it is at this second stage that private funding
options become worth considering. New high-speed rail lines are
distinct assets to which a commercial value can be ascribed and funding
can be attracted--but not from the outset, when usually the planning,
political and commissioning risks are too high to attract private
finance. In each case, a proven concept with a largely predictable (if
incentivized) payment stream has to be ``visible.''
This is much harder to achieve in the case of upgrades to existing
assets where the question of asset condition--there are always
``legacy'' components to consider--remain and where full separability
of an income stream is harder to achieve.
Major programs of maintenance, renewals and upgrades cannot be
achieved without some contribution of public funds. Government funding
and guarantees are in recognition of public benefits not captured
through ridership and revenue, such as reductions in highway and
airport congestion, improved economic competitiveness, and reduced
noise and pollution.
Determining an optimum level of investment in the maintenance,
renewal and upgrading of the existing transportation infrastructure and
potential investment in high speed rail, requires a balanced analysis
of the wider political, social and economic impacts. Underfunding,
which has been the case in the NEC for several decades, means that
economic benefits have been foregone. The ultimate level of support,
however, is dependent on the policy aims of a high speed rail system
and the subsequent specification. Consideration should be given to
different investments in high speed rail and their costs compared with
the considerable economic benefits which they deliver. This type of
analysis will help to inform policy makers of the optimum level of
investment in high speed rail.
Question 6. Unlike highway and transit funding, intercity passenger
rail lacks a dedicated multi-year funding source. How does the lack of
dedicated, multi-year funding impact the ability to plan and budget for
major capital projects on the Northeast Corridor?
Answer. Much rail infrastructure is long-lived and can be most
effectively maintained, renewed and upgraded if it benefits from a long
range planning horizon, giving the ability to program work in the most
efficient way. Funding uncertainty acts as a constraint to efficient
implementation, leads to sub-optimal decisions, and can result in
expensive ``patch and mend'' rather than lowest cost over the long
term. In practice, a 5-year horizon is the minimum for sensible
resource planning, but with at least an agreed outline of a longer term
strategy to set the context for short term investment.
If Amtrak, or another entity responsible for implementing capital
projects, were offered multi-year funding it should in return offer a
clear agreement on what will be delivered in exchange, ideally
supported by incentives to deliver within time and budget targets.
European experience provides many examples of how such contracts can
specify delivery of specific outputs and incentivize performance and
adherence to an efficient asset management plan which maintains asset
quality. Mechanisms have been developed to:
Define output requirements;
Assess the efficient level of funding required to deliver them;
Ensure that funding is not diverted into other activities; and/
or
Allow flexibility of funding draw-down to allow work to be
carried out at the most cost-effective time.
Question 7. What public benefit would be provided by dedicated
funding for passenger rail similar to highways and transit funding?
Answer. Dedicated funding can provide two principal streams of
benefit:
Efficiency, as described above, through mechanisms to ensure that
expenditure generates maximum value, is carried out efficiently, and
delivers the required output and performance; and
Certainty, in that once contracted there is a clear understanding
by all parties of what will be delivered and when and, if appropriate,
with performance and compensation regimes to penalize and compensate
for any late or under-delivery.
Question 8. Many countries have heavily invested in passenger rail
systems and continue to make substantial public investments to expand
and maintain their systems. If we fail to invest in our transportation
infrastructure, what will it mean for our country's economic
competitiveness?
Answer. Under-investment, or poorly-targeted or inefficient
investment, will reduce the effectiveness of the transportation system
and connectivity, leaving business and other travelers reliant on poor
and unreliable service across the various transport modes available.
The effect of this is that productivity and competitiveness are
adversely affected.
There is a wide body of evidence that efficient transportation,
with adequate capacity and service levels, facilitates the benefits of
agglomeration which feed through to a more competitive economy.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
John P. Tolman
Question 1. Amtrak is in the process of building the Gateway
Tunnel, a new rail tunnel under the Hudson River. Once completed, the
project will increase capacity for Amtrak and New Jersey Transit
trains, as well as provide necessary resiliency against future extreme
weather events. If we don't address much-needed capacity projects on
the Northeast Corridor like the Gateway Tunnel, what will be the impact
on service, ridership, and revenues?
Answer. Without needed capacity expansion, along with bringing the
Corridor to a state of good repair, service, ridership and revenues
will be negatively impacted. Amtrak's Gateway Tunnel would run from
Secaucus to the south side of an expanded New York Penn Station in
Manhattan and allow 13 more NJ Transit trains during peak hours--for a
total of 33--and eight additional Amtrak trains, which is just the sort
of capacity expansion the corridor will need in the future. Even now,
the capacity expansion is vital with more than 2,000 trains per day and
major segments at or near capacity on the Corridor. According to
Amtrak, Northeast Corridor rail ridership is projected to increase by
over 50 percent by 2040, so this problem will only get worse as
capacity projects, such as the Gateway Tunnel fail to be addressed.
Question 2. The Northeast Corridor Commission included portions of
the Gateway Tunnel in its report Critical Infrastructure Needs on the
Northeast Corridor. How will the Gateway Tunnel project help bring the
Northeast Corridor into a state of good repair?
Answer. Gateway Tunnel is intended to augment tunnels that were
completed over a century ago. Along with other vital infrastructure,
they are currently showing their age and require constant maintenance
and repair.
Question 3. Superstorm Sandy wreaked havoc on New Jersey's
transportation system and shut down or limited service on the Northeast
Corridor for more than a month. In what ways will the Gateway Tunnel
help prevent a similar shutdown from happening in the future?
Answer. There are currently only two tracks--one in and one out--
and more capacity is sorely needed. While Superstorm Sandy shined a
spotlight on the weaknesses of the system, even simple breakdowns of
trains on these tracks create problems that cascade into delays
throughout the whole system. Hurricane Sandy emphasized that the
Gateway Tunnel project is vital because it will provide redundancy and
system stability.
Question 4. The Gateway Tunnel project will provide additional
capacity between New Jersey and New York, but it will also impact the
entire Corridor. How will the project improve service for all states on
the Northeast Corridor?
Answer. Capacity expansion, through the Gateway Tunnel project,
will have a positive impact on Amtrak, commuter rail agencies and
people throughout the Corridor region.
Question 5. The Northeast Corridor is Amtrak's most popular and
successful route. Yet, some have suggested that fully privatizing the
Northeast Corridor is the only way to bring it into a state of good
repair and advance high-speed rail service in the Northeast. What would
be the impact on our national passenger rail system if we separated and
privatized the Northeast Corridor?
Answer. The privatization of the Northeast Corridor would have a
grave impact on the rest of our nation's passenger rail system and
railroad workers. Without the corridor, Amtrak would shut down. Amtrak
makes an operating profit in the Northeast Corridor; that profit
offsets operating losses on Amtrak's other routes. Amtrak further uses
those revenues to help finance and maintain its rolling stock, as well
as more than 500 stations, mechanical and equipment shops, and other
facilities it owns or operates in 46 states. Unless the Federal
Government or states are willing to pick up those costs, Amtrak and
several commuter rail agencies that depend on Amtrak for service would
be out of business. Long distance service, that is the only rail
service for 23 states, 223 local communities and over 4.5 million
passengers, could be cut. Alternative modes of transportation would
also have to be found by the residents of 106 cities without air
service. States like California, Maryland, and Connecticut, where
Amtrak is the contract operator of commuter rail service, would have to
find a new operator for their service, and to bear the associated costs
despite already tight budget constraints.
The privatization of the Northeast Corridor would also impact
railroad workers. If Amtrak goes bankrupt as a result of the
privatization, railroad workers--both freight and passenger--would
suffer dire consequences. Amtrak's workforce makes up 10 percent of the
Railroad Retirement and Unemployment system. In 2005, the Railroad
Retirement Board estimated the financial impact of a decline in Amtrak
employment on the Railroad Retirement and Unemployment Insurance trust
funds. According to the RRB, a decline in Amtrak employment would
result in a loss in tax income which would trigger an increase in the
taxes paid by other railroads (including freight railroads).
Question 6. In New Jersey, the Northeast Corridor is a vital
component of our transportation network, providing access for hundreds
of thousands of commuters using Amtrak and New Jersey Transit every
day. What impact would full privatization of the Northeast Corridor
have on passengers, commuter rail service, and the states along the
Northeast Corridor?
Answer. As for commuters, agencies such as NJ Transit, may have
their access fees increased by the new operators, and will then have to
either have the states increase their budgets or pass the increased
costs on to riders. Passengers on the Northeast Corridor could find
themselves without the consistent, reliable service that Amtrak has
provided. As we have seen in other countries, privatization has caused
safety and reliability issues when new operators come in.
Question 7. Unlike highway and transit funding, intercity passenger
rail lacks a dedicated multi-year funding source. How does the lack of
dedicated, multi-year funding impact the ability to plan and budget for
major capital projects on the Northeast Corridor?
Answer. This is a critical issue. From the stand point of any
organization, it is important to be able to project funding for long-
term projects. You cannot start a large scale, multi-year project
without knowing from year to year if you will have the money to
complete it. Amtrak and the Northeast Corridor are no different. The
yearly fight for funding makes it difficult to plan major capital
projects. Just recently, the House Transportation-HUD appropriations
bill slashed Amtrak's capital and debt budget by a third (29 percent)
and its operating budget by 19 percent, threatening Amtrak's very
existence. The bulk of what was cut was from Amtrak's capital and debt
service request. Amtrak requested $2.065 billion for capital and debt
assistance. The House bill appropriates $600 million. The funding that
Amtrak requested was intended to maintain the Northeast Corridor and
other Amtrak-owned or maintained infrastructure and equipment; advance
the Gateway Program to expand track, tunnel and station capacity
between Newark, N.J., and New York Penn Station; acquire new equipment;
and improve accessibility for passengers with disabilities. Many of
these projects will be left undone without additional appropriations.
Question 8. There are several good ideas, including a gas tax, an
infrastructure bank and a VMT, in order to ensure stable funding. This
would provide Amtrak with less debt and more stability. What public
benefit would be provided by dedicated funding for passenger rail
similar to highways and transit funding?
Answer. Amtrak has released an interesting statistic. Since 2010,
for every dollar of Federal investment, Amtrak has placed nearly $3
back into the economy. Last year, Amtrak covered 88 percent of its
operating costs through its ticket revenue. This clearly has a
financial benefit to the public. But more importantly, having a
dedicated funding source would allow Amtrak to expand services, provide
better service on current lines and ensure the safety of the travelling
public even better than they already do.
Question 9. Many countries have heavily invested in passenger rail
systems and continue to make substantial public investments to expand
and maintain their systems. If we fail to invest in our transportation
infrastructure, what will it mean for our country's economic
competitiveness?
Answer. In today's global economy, the need to move people from
place to place grows ever-more important. There is a mindset with some
in Congress that we cannot spend the money to upgrade our
infrastructure, but around the world other countries are identifying
the importance of doing so and are pouring money into it. Our
infrastructure isn't going to take care of itself. It is crumbling,
while our international competitors are building and maintaining
theirs. China, now one of our biggest global competitors, has the
world's longest high speed rail network with about 5,800 miles of
routes in service as of December 2012. They have spent billions over
the past 20 years to upgrade their infrastructure. In early July,
Italy's national rail service Trenitalia, unveiled its new very high
speed train sets, the Frecciarossa 1000, with regular passenger service
to begin using the trains in early 2015 at speeds of up to 250 miles
per hour. The Japanese have been operating high speed rail since 1964,
with trains that now go at speeds of up to 200 miles per hour with
impeccable safety records. If these countries are doing this, we need
to be doing it to maintain our competitiveness. It is simply an
embarrassment for The United States to sit back and watch the world
innovate in high speed rail while we listen to the pessimists bellow
that the system is too expensive and will not work.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
R. Richard Geddes
Question. Many countries have heavily invested in passenger rail
systems and continue to make substantial public investments to expand
and maintain their systems. If we fail to invest in our transportation
infrastructure, what will it mean for our country's economic
competitiveness?
Answer. The competitiveness of the United States economy will
decline if we fail to invest adequately in the country's transportation
infrastructure. It is critical, however, to ensure that such
investments are not haphazard or piecemeal, but instead are targeted
and are economically justified.
Investments are economically justified if the value to the
customers enjoying the services provided by that infrastructure (such
as to riders in the case of high-speed rail) exceed the overall social
costs of those transportation infrastructure investments. High-speed
passenger rail in the United States is likely to be most economical in
the highly traveled Northeast Corridor (NEC) between Washington, D.C.
and Boston. In fact, it may be the corridor in the United States that
best meets the necessary requirements to have self-sustaining HSR. This
conclusion is based on the following characteristics of the NEC:
Sufficient population density: There are currently in excess
of 50 million people in the corridor, which constitutes less
than 2 percent of the U.S. land mass.
Demonstrated demand as measured by existing intercity auto,
bus, air, and rail traffic: Three of the top 25 U.S. intercity
air travel city pairs are among NEC cities, 60 percent of the
top 25 U.S. intercity air travel pairs include one or more NEC
cities, in excess of one-third of all of Amtrak's intercity
traffic is among NEC cities, and NEC intercity bus traffic
growth has been explosive in recent years.
Unfettered access to the rights-of-way necessary to enable
HSR trains to achieve sufficient speeds between stations.
Existence of robust local transit systems, which facilitate
potential passengers' arrival at or departure from HSR stations
along the route: The NEC route encompasses Washington,
Baltimore, Philadelphia, New York, and Boston, all of which
possess local transit systems that are among the most extensive
in the U.S.
The demographics and demonstrated ridership within the NEC make it
an appealing route for both public and private investment. HSR makes
economic sense on such a route since the revenues from rates paid by
riders, as well as other revenue sources generated by HSR activities,
are likely to be sufficient to cover the operating costs of providing
HSR.
It is thus socially beneficial for investment dollars to flow into
the highly used NEC. Recent attempts to improve HSR in the United
States have, however, not focused public resources on critical
renovations within the NEC, or on leveraging private investment there.
Private investment in HSR is critical because it helps to ensure that
scarce infrastructure investment is in fact allocated to those
activities where the social benefits are the highest.
There are several additional reasons why it is socially beneficial
to develop public policies to facilitate additional private investment
in the NEC. Public-private partnerships (PPPs) are the main vehicle for
incorporating private investment into the provision and operation of
infrastructure. It is important to first define PPPs in general. The
term PPP refers to a contractual relationship between a public-sector
project sponsor (where the project may include operation and
maintenance of passenger trains as well as improvements to the
underlying infrastructure) and a private sector firm or firms
coordinating to provide a critical public good or service. The PPP
contract is subject to all of the standard rules of contracting, and it
is useful to think of a PPP as one application of a broader contracting
approach.
Before discussing the benefits of the PPP approach, let me review
the structure of PPPs, and how they can be adapted to meet differing
social objectives. A passenger rail PPP, either on the Northeast
Corridor (NEC) or on lower-density, less economical routes, can be
structured in different ways depending on the objective of the public
PPP sponsor.
Under one approach, the public sponsor may wish to maximize the
amount of private sector investment available for infrastructure
renovation, such as upgrading tracks and expanding rights-of-way, which
reduces the amount of public dollars necessary for that upgrade.
Alternatively, the public project sponsor may conduct competitive
bidding for the grant of a concession or lease of operational rights,
while retaining responsibility for infrastructure.
In the latter example the public project sponsor would determine
all the key attributes of the desired service, such as train speed,
frequency of service, allowable rates, lease length, and other
contractual details. This proposed contract would also allocate various
risks between the private partner and the public sponsor, such as the
risk of cost overruns on system expansions and renovations.
Although some commentators focus on revenue from rates paid by
riders, there are additional possible sources of revenue that can be
used to attract private sector investment, which may make private
investment in HSR more feasible than first imagined. For example, the
winning private partner could be granted commercial or residential real
estate development rights in areas adjacent to stations. Other possible
revenue sources include naming rights for stations and bulk purchases
of tickets by corporate entities, among many others.
The public PPP sponsor may have a goal other than maximizing
private investment in passenger rail infrastructure. The goal may be
obtaining the best fare/service quality combination, for example. In
that case, the sponsor can set the basic parameters of the contract,
announce the precise criteria on which the winner will be determined,
and accept bids. The key insight is that the PPP contracting approach
is flexible enough to accommodate a variety of public sector sponsor
objectives.
There are multiple salient benefits of the PPP contracting approach
including the introduction of competition with all of competition's
attendant benefits, the shifting of risk from public to private
entities, and the provision of fresh capital:
The introduction of competition. One important social benefit
of the PPP approach is that it allows for competition to be
introduced into HSR service provision. Competition encourages
firms to provide quality service at low cost, to be responsive
to customer's needs, and to encourage competitors to innovate.
The competitive benefits of PPPs can be realized on both NEC
and non-NEC routes.
The articulation and enforcement of clear key performance
indicators. An important social benefit of the PPP approach is
simply that a contract exists. The contract includes details
regarding what actions constitute adequate performance on the
contract. The PPP approach thus encourages the public sponsor
to reflect upon, and articulate, what specific actions by the
private partner constitute excellent, or poor, performance.
This will improve service provision. This may include metrics
about major issues, such as the reliability and frequency of
train travel, but also more detailed considerations such as the
cleanliness of cabins, restrooms, and dining cars.
The provision of fresh capital. One key consideration is that
the PPP approach allows fresh capital to be injected into
passenger rail in the United States. In many cases, the public
sector simply does not possess the necessary resources.
Reliance on private capital is thus the only way to complete
necessary renovations, upgrades, and maintenance that result in
safer, faster, and more efficient service. But it also results
in substantial savings, since a project will be completed
faster under the PPP contracting approach where the private
capital is readily available to get work done quickly.
The introduction of new technologies and the fostering of
innovation. One key advantage of the PPP approach is that the
private sector has incentives to develop new technologies, and
has the resources to implement them. This results in lower
costs and improved service.
The assumption of risk by private partners. Under the current
approach in the United States, taxpayers assume virtually all
the risks associated with designing, constructing, operating,
and maintaining passenger rail systems. In a PPP, some of those
risks can be allocated to the private partner, which reduces
risks borne by taxpayers.
Private participation in the provision of passenger rail service in
the United States through PPPs should be encouraged. Unfortunately,
recent attempts to expand funding for HSR in the United States did not
include appropriate mechanisms to attract and retain private investment
in rolling stock, stations, or rail infrastructure. It is important
that future efforts to improve the Nation's HRS system include such
mechanisms.