[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


                      THE 35TH ANNIVERSARY OF THE STAGGERS 
                        RAIL ACT: RAILROAD DEREGULATION PAST, 
                             PRESENT, AND FUTURE

=======================================================================

                                (114-16)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                       RAILROADS, PIPELINES, AND
                          HAZARDOUS MATERIALS

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 13, 2015

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure
             
             
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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                  BILL SHUSTER, Pennsylvania, Chairman

DON YOUNG, Alaska                    PETER A. DeFAZIO, Oregon
JOHN J. DUNCAN, Jr., Tennessee,      ELEANOR HOLMES NORTON, District of 
  Vice Chair                         Columbia
JOHN L. MICA, Florida                JERROLD NADLER, New York
FRANK A. LoBIONDO, New Jersey        CORRINE BROWN, Florida
SAM GRAVES, Missouri                 EDDIE BERNICE JOHNSON, Texas
CANDICE S. MILLER, Michigan          ELIJAH E. CUMMINGS, Maryland
DUNCAN HUNTER, California            RICK LARSEN, Washington
ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHAEL E. CAPUANO, Massachusetts
LOU BARLETTA, Pennsylvania           GRACE F. NAPOLITANO, California
BLAKE FARENTHOLD, Texas              DANIEL LIPINSKI, Illinois
BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
DANIEL WEBSTER, Florida              DONNA F. EDWARDS, Maryland
JEFF DENHAM, California              JOHN GARAMENDI, California
REID J. RIBBLE, Wisconsin            ANDRE CARSON, Indiana
THOMAS MASSIE, Kentucky              JANICE HAHN, California
TOM RICE, South Carolina             RICHARD M. NOLAN, Minnesota
MARK MEADOWS, North Carolina         ANN KIRKPATRICK, Arizona
SCOTT PERRY, Pennsylvania            DINA TITUS, Nevada
RODNEY DAVIS, Illinois               SEAN PATRICK MALONEY, New York
MARK SANFORD, South Carolina         ELIZABETH H. ESTY, Connecticut
ROB WOODALL, Georgia                 LOIS FRANKEL, Florida
TODD ROKITA, Indiana                 CHERI BUSTOS, Illinois
JOHN KATKO, New York                 JARED HUFFMAN, California
BRIAN BABIN, Texas                   JULIA BROWNLEY, California
CRESENT HARDY, Nevada
RYAN A. COSTELLO, Pennsylvania
GARRET GRAVES, Louisiana
MIMI WALTERS, California
BARBARA COMSTOCK, Virginia
CARLOS CURBELO, Florida
DAVID ROUZER, North Carolina
LEE M. ZELDIN, New York

                                  (ii)

  
     Subcommittee on Railroads, Pipelines, and Hazardous Materials

                   JEFF DENHAM, California, Chairman

JOHN J. DUNCAN, Jr., Tennessee       MICHAEL E. CAPUANO, Massachusetts
JOHN L. MICA, Florida                CORRINE BROWN, Florida
SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
CANDICE S. MILLER, Michigan          JERROLD NADLER, New York
LOU BARLETTA, Pennsylvania           ELIJAH E. CUMMINGS, Maryland
BLAKE FARENTHOLD, Texas              RICK LARSEN, Washington
RICHARD L. HANNA, New York           STEVE COHEN, Tennessee
DANIEL WEBSTER, Florida              ALBIO SIRES, New Jersey
TOM RICE, South Carolina             RICHARD M. NOLAN, Minnesota
SCOTT PERRY, Pennsylvania            ELIZABETH H. ESTY, Connecticut
TODD ROKITA, Indiana                 GRACE F. NAPOLITANO, California
JOHN KATKO, New York                 JANICE HAHN, California
BRIAN BABIN, Texas                   PETER A. DeFAZIO, Oregon (Ex 
CRESENT HARDY, Nevada                Officio)
MIMI WALTERS, California
LEE M. ZELDIN, New York
BILL SHUSTER, Pennsylvania (Ex 
Officio)

                                 (iii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               WITNESSES

Hon. Deb Miller, Acting Chairwoman, Surface Transportation Board:

    Testimony....................................................     4
    Prepared statement...........................................    48
    Responses to majority-side questions for the record..........    64
Hon. Calvin Dooley, President and Chief Executive Officer, 
  American Chemistry Council:

    Testimony....................................................     4
    Prepared statement...........................................    68
    Responses to majority-side questions for the record..........    77
Edward R. Hamberger, President and Chief Executive Officer, 
  Association of American Railroads:

    Testimony....................................................     4
    Prepared statement...........................................    82
Linda Bauer Darr, President, American Short Line and Regional 
  Railroad Association:

    Testimony....................................................     4
    Prepared statement...........................................   107
John W. Mayo, Professor of Economics, Business, and Public 
  Policy, McDonough School of Business, Georgetown University:

    Testimony....................................................     4
    Prepared statement...........................................   113

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Hon. Peter A. DeFazio of Oregon..................................    43

                       SUBMISSIONS FOR THE RECORD

Edward R. Hamberger, President and Chief Executive Officer, 
  Association of American Railroads, submission of the following:

    Letter of March 14, 2014, from Chairman Bill Shuster and 
      Ranking Member Nick J. Rahall II, Committee on 
      Transportation and Infrastructure, and Chairman Jeff Denham 
      and Ranking Member Corrine Brown, Subcommittee on 
      Railroads, Pipelines, and Hazardous Materials, to Chairman 
      Daniel R. Elliot III and Vice Chairman Ann D. Begeman, 
      Surface Transportation Board...............................    10
    Charts: Average U.S. Freight Rail Rates for Commodities and 
      Chemicals..................................................    28
    Chart: Freight Railroad Spending on Infrastructure and 
      Equipment Since 1980.......................................    40

                        ADDITIONS TO THE RECORD

Letter of May 13, 2015, from Ginny Sinkel Kremer, Esq., Blatman 
  Bobrowski Mead and Talerman, LLC, to Chairman Bill Shuster, 
  Committee on Transportation and Infrastructure.................   116
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 THE 35TH ANNIVERSARY OF THE STAGGERS RAIL ACT: RAILROAD DEREGULATION 
                       PAST, PRESENT, AND FUTURE

                              ----------                              


                        WEDNESDAY, MAY 13, 2015

                  House of Representatives,
          Subcommittee on Railroads, Pipelines, and
                               Hazardous Materials,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:25 a.m., in 
room 2167, Rayburn House Office Building, Hon. Jeff Denham 
(Chairman of the subcommittee) presiding.
    Mr. Denham. The subcommittee will come to order.
    This morning's hearing is on the 35th anniversary of the 
Staggers Rail Act. But before we get started with the hearing 
itself, I think that it is important to let the American public 
know that it is with a heavy heart we are given the notice of 
this tragic accident in Philadelphia. Last night, we saw 
something horrific that was unimaginable, that we would never 
expect to see on our passenger rail. So, this morning, myself, 
Ranking Member Capuano, the chairman, and ranking member would 
each like to make a statement.
    First of all, I want to commend the first responders and 
the fellow travelers that helped out those that were injured in 
this accident. We have now seen the Federal officials, both 
from the National Transportation Safety Board and the Federal 
Railroad Administration, respond quickly. I think the American 
public is looking for answers on how this can happen, and we 
have held several hearings now on rail safety, and that will be 
the question that this committee continues to follow up on and 
ask, as well.
    Again, we express our condolences to the loved ones who 
have lost or have someone missing or injured in this accident.
    I now turn it over to the ranking member, Mike Capuano.
    Mr. Capuano. Thank you, Mr. Chairman.
    I want to join you in everything you just stated, and I 
would also just like to just offer my prayers and, I guess on 
behalf of everyone, to be perfectly honest, to offer the 
prayers for those who are still in the hospital or suffering. 
May God bring them a speedy recovery and bring them back to 
health as quickly as possible.
    Thank you, Mr. Chairman.
    Mr. Denham. The full committee chairman, Mr. Shuster.
    Mr. Shuster. Thank you, Chairman Denham.
    Obviously, it is a horrific accident, as the chairman said, 
something that, you know, we haven't seen in some time.
    The National Transportation Safety Board is obviously up 
there looking at it. We certainly don't know why. I have heard 
some politicians already come out and say, ``If we would have 
spent more money.'' Maybe that is the case, but it is 
something, I think, we really need to take a serious look at 
that and, first of all, figure out what happened up there.
    The Northeast Corridor is extremely important to the 
Nation. That is why Chairman Denham and myself worked hard with 
Ranking Member Capuano and DeFazio to put out a passenger rail 
reform bill focusing really on the Northeast Corridor, making 
sure those profits for the Northeast Corridor get put back into 
the Northeast Corridor.
    So, again, it is waiting for some action in the Senate. We 
hope that they will take a serious look at it and especially 
with this accident, because hundreds of millions of people ride 
the Northeast Corridor, not just Amtrak but all those daily 
commuters from SEPTA, to New Jersey, Massachusetts, 
Connecticut, and all the way up that corridor. So it is 
critical we find out exactly what happened up there and make 
sure that we take the appropriate response to make sure it 
doesn't happen again.
    And, with that, I yield back.
    Mr. Denham. With that, we will start with our panel 
members. Let me just first start with opening statements on the 
hearing this morning.
    Railroads have played an important and integral role in 
this country since railroading came onto the transportation 
scene in the early 1800s. In fact, most American cities and 
towns, especially in the Midwest and West, were founded along 
the railroads.
    Today, they are the backbone of the Nation's freight 
system, transporting 40 percent of all freight volume--more 
than any other mode. They transport 30 million carloads of 
freight every year, ranging from coal to agriculture products 
to intermodal shipments. In fact, our freight rail system is 
the envy of the world. And countries--as we travel around, we 
hear most often that other countries are envious and look to 
emulate our rail system in their countries.
    However, it was not long ago when America's freight rail 
system was in complete disarray. By the 1970s, battered by 
competition from trucking and airlines and hampered by 
burdensome regulations, railroads were dying a slow death. 
Their infrastructure was falling apart. Customers were not 
getting efficient service. Railroad bankruptcies were an all-
too-common occurrence.
    Congress tried several acts to fix the system, even going 
as far as getting into the business of creating railroads, yet 
nothing seemed to work. It wasn't until the Staggers Act that 
Congress was able to find the mix of policies to get the system 
working again. First, it allowed railroads to act more like 
true businesses, by allowing them to charge market-driven rates 
rather than ones handed down from Washington bureaucrats. 
Second, the act allowed railroads to right-size their networks 
by focusing on rail lines that made economic sense. And, 
finally, it encouraged the creation of the short line railroads 
to serve those regional markets that the larger Class I 
railroads could not do economically. Thirty-five years later, 
we can see the benefits of these changes in the strong rail 
system that we have today.
    However, while we have had great success with the Staggers 
Act, we need to make sure that the regulatory system still 
works well. The service issues the railroads had last winter 
was a good reminder of this and of the important role of the 
STB, the Surface Transportation Board, and the role that they 
play with rail and with our customers.
    So today we are going to hear from the STB, the railroads, 
and others about the importance of the Staggers Act reforms. I 
also look forward to hearing the future of how best railroads 
can serve America.
    In closing, I look forward to the hearing and would now 
like to recognize Mr. Capuano for any opening statement he may 
have.
    Mr. Capuano. Thank you, Mr. Chairman. I will keep mine 
brief.
    Basically, the Staggers Act, as we all know, was a great 
act. It was really an improvement and an advancement in the 
rail industry. Yet, with all good acts, they require and demand 
and deserve continuous monitoring and attention and updating 
and amendments if and when they are necessary.
    And, to me, that is what I am hoping to find out from this 
hearing. Is it working as we hoped? Are there any improvements, 
are there any tweaks we can make to it? Should we completely 
leave it alone? Should we roll it back? I mean, not that I 
would agree with any of those statements, but I want to hear 
other people's opinions.
    And, with that, I will simply yield back. Thank you, Mr. 
Chairman.
    Mr. Denham. Thank you.
    And the chairman of the full committee, Mr. Shuster.
    Mr. Shuster. Well, I want to thank Chairman Denham and 
Ranking Member Capuano for holding this hearing today.
    It has been one of the committee's priorities to look at 
the movement of freight across this country, whether it is by 
rail, whether it is by highway, by water. So, again, we look 
forward to, whether we passed WRRDA last year or the surface 
transportation bill or the FAA reauthorization, making sure we 
are doing the right things to strengthen all the modes of 
transportation.
    The Department of Transportation is projecting that freight 
volumes will increase significantly over the next few decades, 
and we need to prepare for that growth, again, through all the 
modes.
    As Chairman Denham noted, the railroads have played a 
critical role in moving large quantities of freight long 
distances. So we need to make sure that we are doing the right 
things here in Congress to stay out of the way when necessary 
but to assist where necessary with the transportation system.
    After 35 years, it is clear the Staggers Act has been 
successful, and we can learn from it, what it has done to the 
railroad and, I think, across all the modes, in ways to 
upgrade, change our infrastructure.
    I always like to point out that the railroads reinvest 19 
percent of their revenues--not their profits, their revenues--
back into their infrastructure, which in 2015 I believe is 
projected to be $29 billion. Volume is up, productivity has 
increased, safety has improved, and the financial health of the 
industry is strong.
    We have, though, seen some disruptions because of the 
winter in 2013 and 2015. And, again, there is concern with 
shippers as to the STB's relief procedures, I think. So it is a 
good time to revisit the regulatory environment of the 
railroads.
    And in response to some of those concerns, I know our 
counterparts in the Senate have produced an intriguing bill 
that we need to take a careful look at. But I hope that when we 
look at that bill we realize we have a very strong railroad 
industry. And, over the past 35 years, it has gone from being 
not strong to very strong. And I think, again, we need to do 
what is right here in Congress to make sure that we maintain 
the strength of our railroad industry, which, as Chairman 
Denham said, is the envy of the world.
    And, with that, I yield back.
    Mr. Denham. Thank you.
    I would now like to welcome our panel of witnesses: first, 
the Honorable Deb Miller, Acting Chair of the Surface 
Transportation Board; the Honorable Calvin Dooley, president 
and CEO of the American Chemistry Council; Edward R. Hamberger, 
president and CEO of the Association of American Railroads; 
Linda Darr, president of American Short Line and Regional 
Railroad Association; and John Mayo, professor of economics at 
Georgetown University.
    I ask unanimous consent that our witnesses' full statements 
be included in the record.
    Without objection, so ordered.
    Since your written testimony has been made part of the 
record, the subcommittee would request that you limit your oral 
testimony to 5 minutes.
    Ms. Miller, welcome, and you are recognized.

   TESTIMONY OF HON. DEB MILLER, ACTING CHAIRWOMAN, SURFACE 
 TRANSPORTATION BOARD; HON. CALVIN DOOLEY, PRESIDENT AND CHIEF 
   EXECUTIVE OFFICER, AMERICAN CHEMISTRY COUNCIL; EDWARD R. 
 HAMBERGER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, ASSOCIATION 
 OF AMERICAN RAILROADS; LINDA BAUER DARR, PRESIDENT, AMERICAN 
SHORT LINE AND REGIONAL RAILROAD ASSOCIATION; AND JOHN W. MAYO, 
PROFESSOR OF ECONOMICS, BUSINESS, AND PUBLIC POLICY, MCDONOUGH 
           SCHOOL OF BUSINESS, GEORGETOWN UNIVERSITY

    Ms. Miller. Thank you very much.
    Good morning, Chairman Shuster, subcommittee Chairman 
Denham and subcommittee Ranking Member Capuano, and members of 
the subcommittee. My name is Deb Miller. I am the Acting Chair 
of the Surface Transportation Board. What I would like to do 
this morning is give you a brief look back at the history of 
the ICC and a brief look forward, looking at the priorities 
today of the Surface Transportation Board.
    The Interstate Commerce Commission, the predecessor agency 
of the Surface Transportation Board, was the first Federal 
regulatory agency, created in 1887. Over time, the ICC grew 
into a massive organization, with 2,900 employees at its peak.
    But, by the late 1960s, the railroad industry in the United 
States was in decline. One reason was competition from other 
modes, but another major contributing factor was excessive 
regulation. Railroads were not given the flexibility needed to 
manage their business in this new competitive environment. They 
were governed by burdensome and Byzantine regulations.
    By the early 1970s, the situation was so perilous there was 
even talk of nationalizing the rail industry. In response, 
Congress passed a series of laws aimed at deregulating the 
industry. And, in what many considered a last-ditch attempt to 
save it, the most sweeping of these was the Staggers Act, 
passed in 1980.
    The Staggers Act instituted a number of changes to the 
regulatory landscape. First, it allowed railroads to more 
easily abandon unprofitable lines. Second, it made it easier 
for railroads to merge. Third, it provided exemption authority 
to quickly approve transactions that were routine and 
noncontroversial. Most significantly, though, Staggers gave 
railroads greater pricing freedom. Railroads were allowed to 
engage in differential pricing, meaning they could charge 
different shippers different rates depending on the demand for 
that traffic.
    Since passage of the Staggers Act, the railroad industry 
has become more efficient, productive, and profitable.
    In 1995, Congress sunsetted the ICC and created the Surface 
Transportation Board. Today, the agency's mission is still 
governed by many of the principles established by Staggers.
    The Board is charged with promoting an efficient, 
competitive, safe, and cost-effective rail network by enabling 
railroads to earn adequate revenues that foster reinvestment in 
their networks and attract outside capital and provide reliable 
service. At the same time, the Board is mandated with working 
to ensure that effective competition exists between railroads 
and to maintain reasonable rates where there is a lack of 
effective competition.
    This hearing is particularly timely for me, as the Acting 
Chair of the Surface Transportation Board. The Board is in the 
process of reevaluating many of our economic regulatory 
practices to determine if they are still appropriate for 
today's environment.
    On May 8, we announced that we will conduct two significant 
hearings. First, the Board will hold a hearing on June 10 to 
examine whether our rate case methodologies are sufficiently 
accessible for grain shippers. Second, the Board announced that 
on July 22 and 23 we will explore issues pertaining to the 
concept of revenue adequacy.
    Revenue adequacy is an economic concept that describes 
whether a carrier is earning sufficient revenue to cover its 
costs and earn a reasonable return sufficient to attract 
capital. The ICC held that rates could be challenged if a 
railroad were revenue-adequate over a period of years, but no 
corresponding methodology was ever adopted.
    The Board also has another major proceeding that has been 
pending before us for some time. It involves something called 
competitive access or reciprocal switching. Reciprocal 
switching occurs when one railroad that exclusively serves a 
facility agrees to provide switching services for another 
carrier for a flat switching fee. These reciprocal switching 
agreements create rail-to-rail competition by permitting a 
competing railroad to offer its own single-line rate even 
though it cannot physically serve the shipper.
    The Board was presented with a proposal for the increased 
use of reciprocal switching several years ago. I regret to say 
that the Board has taken no action. I believe the Board owes 
our stakeholders, who have spent significant resources to 
develop the record in this proceeding, a decision on what it 
plans to do with the proposal.
    Given the overlap between the issues raised by the 
competitive access proposal and the proposals raised in our 
grain rate and revenue adequacy proceedings, my goal after 
these hearings is for the Board to issue a package of proposals 
on many, if not all, of these matters.
    The Board is also examining our method for regulating 
railroad rates. It is well known that our current process, 
known as a stand-alone cost test, is cumbersome and expensive.
    To address concerns related to rate regulation, the Board 
initiated two studies. First, the Board engaged an independent 
firm to study rate reasonableness methodologies used in other 
industries and throughout the world. Second, the Board hired a 
consulting firm to examine the Board's internal processes for 
deciding rate cases. The consultant was tasked with studying 
our internal process and offering recommendations on how we 
could streamline and improve our case processing so we would be 
quicker and more accurate.
    The Board is also reviewing how to handle nonrate cases to 
improve and speed up our decisionmaking. The industry is 
frustrated with our pace, and so am I. It has been one of my 
priorities since my first week at the Board, and I am hopeful 
that this set of recommendations, including a set of 
performance metrics that we are putting in place, will help 
move the Board forward more quickly.
    Mr. Chairman, thank you for giving me this opportunity. I 
will welcome questions at the end.
    Mr. Denham. Thank you for your testimony.
    Mr. Dooley, you may proceed.
    Mr. Dooley. Well, thank you, Chairman Denham and Ranking 
Member Capuano, and it is a pleasure for me to be testifying 
today on the Staggers Act.
    And I represent the American Chemistry Council, and we 
employ about 800,000 men and women throughout this country. We 
are the second-largest shipper of commodities by rail in the 
country, and it is absolutely important for us to have a strong 
rail industry.
    I want to say at the outset, there is no interest among our 
membership to see a reregulation of the rail industry and go 
back 20 or 30 years ago. But we do feel that when we have seen 
what has transpired over the past since the Staggers Act has 
been implemented: that we have a changed rail landscape that is 
resulting in a greater consolidation.
    And with this greater consolidation of the rail industry, 
it is changing the marketplace and the competitiveness of the 
marketplace. Because what we have seen happen in just since--I 
guess you would go back to 2001, when you had the last major 
consolidation of the rail industry, we now have basically seven 
Class I rail lines out there, of which four are responsible for 
90 percent of all shipments.
    We think that also can be--you can see a correlation to 
that increased consolidation to what we have seen is a fairly 
rapid increase in the shipping rates, which have increased 
almost 100 percent since about 2000, 2001.
    That has also resulted in--that consolidation--in an 
increased number of shippers that are captive to one rail line. 
We think now that there is almost--the figures you can--you 
know, close to 75 percent of all shippers now in our industry 
are captive to one rail line.
    What that is resulting in is a fairly significant increase 
in rates and cost of shipments. We have done an analysis, using 
AAR data and STB data, I should say, that has calculated what 
is the cost of shipments that exceed the 180 percent RVC, 
recoverable variable cost, that the STB uses to consider 
whether or not a rate could be challenged. In the last year, 
that figure was about $20 billion.
    Now, we are also concerned not by the aggregate amount of 
that, because I am not challenging--all those rates are 
certainly not unjustified. But what we are also seeing is a 
very rapid increase in the rates that are in excess of that 180 
percent. In fact, we have seen a 50-percent increase in the 
rates, an increase of 300 percent of the RVC, since 2005.
    So that is what is being experienced not just by our 
industry but by shippers throughout the country. And that has 
resulted in a coalition that we have helped to organize that 
includes 47 other groups representing manufacturing, 
agriculture, and energy interests that employ about 4.7 million 
people and contribute $2.4 trillion in economic output.
    And what we are asking for is some commonsense reforms to 
the Staggers Act and some modifications that Commissioner 
Miller has articulated. We think it is badly in need of 
reforms.
    So what we are suggesting is that we need to give greater 
attention to improving the administrative process, reforming 
rate bundling protections, closing rate review loopholes, 
allowing competitive switching, updating rate review standards, 
and providing arbitration as an option to streamline rate 
reviews.
    There are clearly regulatory and financial impediments to 
securing rate relief through STB. STB's own calculations are it 
costs about $5 million to bring a rate case to the STB. It 
takes close to 3 years before you get an outcome in that rate 
dispute case. That clearly is not acceptable.
    Now, I think that there is a way forward. And I appreciated 
Congressman Shuster's acknowledging the action that the Senate 
took that passed a bill that passed unanimously out of the 
Senate Commerce Committee. But what we need to do is set aside 
some of the hyperbolic rhetoric.
    And I just want to cite a statement that Ed Hamberger has 
in his written testimony. He said, ``When one looks behind the 
actions that proponents of reregulation are urging upon 
Congress and the STB to 'reform' freight rail policy, it is 
clear that 'reform' is a euphemism for 'force railroads to 
subsidize us' and that the needs of the railroads and the 
general public are a distant second to their own narrow 
desires.''
    Let me be very clear that the farmers, the manufacturers, 
the energy producers, that are all part of our coalition are 
not narrow interests. They are in every congressional district 
in this country.
    What we are asking for is commonsense reforms that have 
been articulated by STB Commissioners. What we are asking for 
is commonsense reforms that have been advanced by the Senate. 
This type of rhetoric does a disservice to shippers that are 
customers of the rail industry, that need a strong rail 
industry. It is an insult to Senator Thune and Senator Nelson, 
who embraced the objectives that are part of the STB reforms 
that we are trying to advance.
    I hope that we can continue to work with this committee to 
see if we can advance similar legislation that ensures--there 
is nothing mutually exclusive about a strong and a financially 
robust rail industry and giving equitable, efficient access to 
a rate resolution process through the Surface Transportation 
Board.
    Thank you.
    Mr. Denham. Thank you, Mr. Dooley.
    Mr. Hamberger, you are recognized.
    Mr. Hamberger. Thank you, Chairman Denham, Chairman 
Shuster, Ranking Members DeFazio and Capuano. Thank you for the 
opportunity to be here this morning.
    Before we turn to the issue of the Staggers Act, I would 
like to associate myself with the eloquent statements of the 
leaders of this committee about the horrific accident outside 
of Philadelphia last evening. Everyone in the rail industry was 
saddened by what occurred last evening. Our thoughts, prayers, 
sympathies go out to the victims, their friends, their family.
    I had occasion to communicate with Joe Boardman, President 
of Amtrak, this morning, and he asked me to express his 
gratitude to the medical personnel, the firefighters, the 
emergency responders, all of whom were there working through 
the night tirelessly to try to mitigate the impact of this 
accident.
    I understand the NTSB and FRA are on the scene, as is Joe 
Boardman. I hope in the days and weeks to come that we will be 
able to learn a lesson from what happened there last evening, 
that we will be able to take that lesson, as we try to do with 
every accident, and apply it into the future so that we can 
make what is already a safe industry even safer.
    If I might turn now to the Staggers Act, it is an 
interesting juxtaposition to me that we are sitting here in the 
middle of National Infrastructure Week with pundits from across 
the political spectrum saying we should be spending more 
private money on our Nation's infrastructure. On that same side 
of the ledger, this committee and all of Congress, wrestling 
with where to find money for the Highway Trust Fund. And on the 
other side, juxtaposed with that, thanks to the Staggers Act, 
the freight rail industry quietly goes about its business, 
spending this year $29 billion, private capital, on the 
140,000-mile network that is recognized as the best in the 
world.
    It is the best in the world because of a direct result of a 
balanced economic system at the Surface Transportation Board. 
It relies on competition to establish rate and service 
standards, with a regulatory safety net available to rail 
customers who need it.
    This balanced regulation has allowed railroads to improve 
their financial performance from the anemic levels prior to the 
Staggers Act, which Chairwoman Miller talked about, which in 
turn has allowed the railroads to plow $575 billion, private 
capital taxpayer money, back into the network. Class I 
railroads, as I mentioned, will spend an additional $29 billion 
this year.
    Millions of Americans work in industries that are more 
competitive in the tough global economy thanks to the 
affordability and productivity of America's freight railroads. 
We know that if America's future freight transportation demand 
is to be met railroads must have the capacity to handle it. We 
are preparing for tomorrow today all over the country, 
expanding intermodal terminals, double-tracking hundreds of 
miles of track, installing millions of new rail ties, upgrading 
signal systems, and building new major rail yards.
    These projects are aimed at maintaining and growing the 
railroads network so that they are better able to serve our 
customers and provide the safe, efficient freight 
transportation service our Nation's economy needs. And all of 
these projects are more likely to be undertaken under today's 
balanced regulatory system than they would have been under a 
system of excessive, needless regulation.
    This committee knows well that transportation systems are 
expensive to build and maintain, whether with private or public 
funds. Railroads are no exception. By any of a number of 
measures, the capital intensity of freight railroading is at or 
near the top of all U.S. industries. For example, this year, 
railroads will spend 19 percent of revenue on capital 
investment. The comparable figure for U.S. manufacturing is 3 
percent.
    Looking ahead, the long-term demand for freight 
transportation will undoubtedly grow. With highway congestion 
becoming more acute and with public pressure growing to reduce 
emissions, conserve fuel, and promote safety, railroads are 
likely to be called upon to do even more in the years ahead. 
And as our economy evolves, we will be called upon to make 
additional investments.
    For that to happen, there must be appropriate public 
policies in place. Policymakers should acknowledge that, for 
reasons of international competitiveness, safety, and economic 
growth, the United States has a critical and growing need for 
investment in transportation infrastructure. Private rail 
investment should be encouraged, and regulations and 
legislation should not adversely affect railroads' ability or 
willingness to make those investments.
    And I want to thank the committee for its bipartisan letter 
last year to the STB explicitly acknowledging those facts, 
dated March 14, 2014, which I would ask be made part of the 
record.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
           
    Mr. Hamberger. Today our Nation faces a number of serious 
transportation-related problems, many of which this committee, 
to its credit, is working hard to address. I submit to you that 
it makes no sense to add to that list by trying to fix 
something that is not broken. The current rail regulatory 
system is working well, and, because of that, our Nation's 
freight rail network is working well too.
    I will just add at the end, with respect to the bill that 
came out of committee in March from the Senate Commerce 
Committee, our industry did not object to that bill, and I 
expect that it will be moving through the Senate and on its way 
to the House sometime this year.
    Thank you for the opportunity. Sorry I went a little over, 
Mr. Chairman. I appreciate your allowing me to do so.
    Mr. Denham. Thank you, Mr. Hamberger.
    Ms. Darr, you may proceed.
    Ms. Darr. Thank you, Chairman Denham, Chairman Shuster, 
Ranking Members Capuano and DeFazio, and members of the 
committee.
    In the wake of last night's Amtrak accident, I also wanted 
to contend the condolences of all those in the short line 
industry to those that lost their lives, those that are in the 
hospital, and the family and friends that grieve for them.
    I am Linda Darr. I am president of the American Short Line 
and Regional Railroad Association. We are ``the little 
association that could.'' ASLRRA is a national trade 
organization representing the Nation's 550 Class II and Class 
III railroads. Together, the short line railroads operate 
nearly 38 percent of the national rail network. We handle in 
origination or destination one out of every four railcars 
moving on the national system.
    The Staggers Act saved the rail industry from collapse, 
and, in many respects, it is the parent of the short line 
industry. The economic freedoms and the regulatory flexibility 
embodied in the act allowed the railroads to save light-density 
branch lines rather than abandon them. As a result, short lines 
have grown from 8,000 miles of track in 1980 to 50,000 miles 
today.
    We operate in 49 States. In 5 States, short lines operate 
100 percent of the State's total rail network; in 10 States, we 
operate more than 50 percent; and in 30 States, we operate at 
least one-quarter of the rail network.
    In creating the modern-day short line industry, the 
Staggers Act ensured that huge areas of rural and smalltown 
America would stay connected to the national network. For the 
small businesses and the farmers in those areas, our ability to 
take a 25-car train 50 miles to the nearest Class I creates the 
critical link that allows rail to be their choice for shipping.
    The Staggers Act jump-started today's short line industry, 
but short lines took hold of that opportunity, and short lines 
made it work. The industry was formed by entrepreneurs who took 
large financial risks to purchase and rehabilitate light-
density lines. Most borrowed heavily from the bank and 
contributed substantial amounts of their personal capital to 
make these new ventures work. They are aggressive marketers 
that fight as hard for single-carload business as they do for 
unit trains. And that fight for business keeps transportation 
costs as competitive as possible, which is good for our 
customers and, ultimately, for the Nation's consumers.
    Short lines have worked hard on building relationships with 
their customers. Many of those customers were our partners in 
helping save even the most marginal lines. They did so by 
helping finance rehabilitation through realistic rates and by 
agreeing to meaningful traffic volumes. Today, our customers 
are the beneficiaries of our success.
    Short lines reinvest, on average, as much as 30 percent of 
annual gross revenues in repairing and upgrading our 
infrastructure. This is a huge percentage of what we earn, and 
it is evidence of our real drive to succeed. That investment 
has been supplemented by important help from Congress in the 
form of the 45G rehabilitation tax credit, which allows us to 
invest more of what we earn in improving our infrastructure.
    We are grateful to the members of the Transportation and 
Infrastructure Committee, who have been enormously helpful in 
shepherding this legislation. This has been the most 
consequential piece of railroad legislation for the short line 
industry since the Staggers Act, responsible for leveraging 
over $1.5 billion in short line capital investment.
    Capital investment in railroads is not only about economic 
growth and jobs; it is also about safety. Every dollar we 
invest in track rehabilitation makes our tracks safer. The 
leading cause of train derailments are track-related, and the 
better our track, the safer our railroads.
    We also know that improving safety requires building a 
strong safety culture on every short line property. To that 
end, the Short Line Association has partnered with the Congress 
and the FRA to establish a Short Line Rail Safety Institute to 
assess the safety practices and the safety culture of 
individual short lines and to provide support to improve 
workplace safety.
    Track rehabilitation and a strong safety culture are what 
we need to take the progress we have made under Staggers and 
make the short line story viable for the long term.
    Let me conclude with an anecdote that tells the short line 
story post-Staggers as concisely as anything I have said here 
today.
    In 1983, 3 years after Staggers was passed, Dick Webb, the 
father of Watco's current CEO, was a unionized car repairman at 
the Kansas City Southern. He took out a $25,000 bank loan to 
begin a rail switching operation in DeRidder, Louisiana, which 
began Watco Companies. Today, Watco operates 4,600 miles of 
short line track, employs 3,600 people, and moves over 1 
million carloads annually across track that was surely headed 
for abandonment.
    Hundreds of short lines across the country can repeat some 
version of that story. It is a great American success story, 
and it was made possible in no small measure by the Staggers 
Act.
    I appreciate the opportunity to be here today, and I 
welcome any questions.
    Mr. Denham. Thank you, Ms. Darr.
    Mr. Mayo, you are recognized.
    Mr. Mayo. Chairman Denham, Ranking Member Capuano, members 
of the committee, my name is John Mayo. I am a professor of 
economics, business, and public policy at Georgetown 
University's McDonough School of Business.
    For 30 years, I have studied the economics of regulation 
and deregulation in the American economy in a variety of 
industries, including electricity, telecommunications, cable 
television, pharmaceuticals, the Internet, as well as the 
domestic freight rail industry. A summary of my publications 
and relevant experience is included as an attachment to my 
testimony. \1\
---------------------------------------------------------------------------
    \1\ The summary of John Mayo's publications and experience is 
attachment A of the addendum to his testimony available online at GPO's 
Federal Digital System (FDsys) at http://www.gpo.gov/fdsys/pkg/CPRT-
114HPRT96276/pdf/CPRT-114HPRT96276.pdf.
---------------------------------------------------------------------------
    In 1980, the Staggers Act passed Congress in an 
overwhelmingly bipartisan fashion. It was signed and 
enthusiastically endorsed by President Carter. This act 
fundamentally altered the governance structure of the rail 
industry, shifting from a highly granular model of regulation 
to a model in which markets, rather than regulators and rate 
bureaus, are largely responsible for establishing prices and 
investment.
    Importantly, this legislation was not driven by simple 
ideology. It did not embrace deregulation out of a belief that 
markets are always superior to Government. Neither, at the time 
of the passage of the act, did ideologues argue that steps to 
free railroads from regulatory constraints should be halted out 
of a fear that railroads would necessarily harm the public 
interest.
    Rather, the deregulatory measures adopted in Staggers were 
embraced for a simple and profound reason: Deregulatory steps 
in the industry were, as a practical matter, not an ideological 
matter, but a practical matter, being revealed to produce 
superior economic outcomes for the industry and for the economy 
more generally.
    Legislators from both political parties, economists, and 
industry observers at the time were all very optimistic about 
the potential for improved rail performance under the Staggers 
Act. Of course, optimism on the front end of any legislation is 
very normal. The real question--the real question--is, how have 
economic outcomes evolved for consumers, for producers, and for 
the American economy as a whole in the wake of Staggers?
    Fortunately, we now have 35 years of experience with 
Staggers, and I can tell you with considerable confidence that 
the governance structure of the act has been significantly and 
substantially successful. This was recognized in Congress in 
1995 when the Senate Commerce Committee declared, quote, ``The 
Staggers Act is considered the most successful rail 
transportation legislation ever produced, resulting in the 
restoration of the financial health of the rail industry,'' end 
quote.
    Consequently, with President Clinton's support, Congress 
took the additional step of further easing regulatory 
constraints by eliminating the Interstate Commerce Commission, 
replacing it with the current Surface Transportation Board. 
Importantly, the bill transferred authority to the STB, 
carefully avoiding alteration of the fundamental premises of 
the Staggers Act.
    With the benefits of an additional 25 years now of 
observation--or 20 years since the observation of the 1995 
congressional blessing of the Staggers Act, it is now possible 
to look afresh at whether the act is succeeding in promoting a 
safe and efficient rail transportation system as is called for 
in the act.
    Economic signals of efficiency include increased output, 
the breadth and utility of service offerings, reduced cost, and 
indications of consumer value. And, of course, as with all 
transportation modes, safety is generally thought of as being 
measured by or gauged by the severity and frequency of 
casualties.
    While a detailed discussion of these economic metrics is 
beyond the time permitted by my oral testimony, I have taken 
the liberty of attaching a recent study that I coauthored with 
Professors Jeffrey Macher and Lee Pinkowitz, also of Georgetown 
University, that examines in detail the economic metrics 
associated with this industry. \2\
---------------------------------------------------------------------------
    \2\ The study is attachment B (page 15) of the addendum to John 
Mayo's testimony available online at GPO's Federal Digital System 
(FDsys) at http://www.gpo.gov/fdsys/pkg/CPRT-114HPRT96276/pdf/CPRT-
114HPRT96276.pdf.
---------------------------------------------------------------------------
    We find, as numerous other scholars have, that the 
liberalizations introduced by Staggers and their subsequent 
implementation have produced a variety of positive economic 
indicators and consequences for the industry, for consumers, 
and for the economy as a whole.
    We also identify areas of vulnerability as the future of 
rail policymaking unfolds. Of particular concern is the 
prospect that the emerging successes in the industry may be co-
opted by the imposition of earnings regulation in the industry. 
These concerns are discussed in detail in the research article 
that is appended to my testimony.
    Thank you very much for your time and attention this 
morning. I look forward to any questions.
    Mr. Denham. Thank you, Mr. Mayo.
    I am going to deviate from this morning's schedule just 
slightly in light of last night's horrific accident and 
recognize Mr. DeFazio for any opening statement he may have.
    Mr. DeFazio. Thank you for the courtesy, Mr. Chairman.
    And I am going to deviate from my prepared remarks for a 
few moments here in light of the horrific accident last 
evening, where 8 people lost their lives and more than 200 were 
injured. Our hearts and prayers go out to the family and 
friends of those involved, and hope for a speedy recovery of 
those who were injured.
    We obviously don't know the cause at this point. We always 
depend upon the good work of the NTSB to bring that result to 
us, and I look forward to learning and finding out what we can 
do to mitigate or prevent future accidents.
    We do know a little. It was a shared section of track. So 
that is, you know, the beginnings of, you know, understanding 
where and how these things happen. But we don't know much else 
at this point.
    However, I will observe--and I find it very, very ironic 
that, as we sit here, over there somewhere, wherever the 
appropriations lords sit, they are proposing to cut $290 
million from the Amtrak capital grants program.
    I would say that that program is already somewhat 
insufficient since Amtrak has a $21 billion state-of-good-
repair backlog. And, you know, it is deteriorating every year, 
and at the current level of investment, if the appropriators 
don't cut it, it will take about 25 or 30 years to get it up to 
a state of good repair. And that doesn't deal with some other 
major projects that would facilitate rail movement, let alone 
make it safer and in a state of good repair.
    So I would hope that our friends on the Appropriations 
Committee are cognizant of the real world out there, of what 
happened last night, of what the capital needs of Amtrak are, 
and will not engage in a shortsighted budget cutting in an area 
where we already have a $21 billion backlog.
    There were two issues--and I will submit my full opening 
statement for the record--that I really wanted to focus on: 
short line investments and tariffs or the potential for tariffs 
for transporting dangerous products.
    We have heard from the rail industry about the investments 
they are making. And they shouldn't have to divert from basic 
investments that they need to be making in capacity and safety, 
including positive train control, which we mandated, to deal 
with concerns or problems caused by shipments of hazardous 
materials and others.
    There was one particular case that got my attention, Powder 
River Basin coal, where the company was refusing to put a 
surfactant on it. The dust was coming out; it was getting into 
the ballast and destabilizing the rail bed. So, since the 
company was refusing to deal with that, you know, they were 
taken by BNSF to--BNSF decided to charge an additional tariff. 
They lost that judgment, even though the STB found that coal 
dust did propose a danger for the ballast and the rail 
stability, but they couldn't charge that differential tariff.
    I think we need to reexamine that principle and our 
directives to them in light of current shipments. I mean, if we 
could send a market signal, we would see probably a lot less 
chlorine being sent on rail because there are substitutes for 
unbelievably toxic chlorine, which would cause much more damage 
in an urban area, potentially, than oil. There are problems 
with oil, et cetera. So I hope we will look at that.
    And, secondly, short line railroads. We had an FRA report 
on the capital needs, and they found that, although holding 
companies are able to attract some capital, that the total 
overall investment needs are about $6.9 billion that are unmet. 
And I would hope we can find ways to work with the short line 
railroads to accomplish those necessary investments because 
they are critical to areas like my Port of Coos Bay and other 
areas.
    So, with that, I would yield back the balance of my time. I 
thank the chairman for his courtesy. And I apologize that I am 
going to have to go meet with a bunch of mayors pretty soon and 
leave.
    Mr. Denham. Thank you, Mr. DeFazio.
    The first question I have: Mr. Mayo, given the history of 
railroads and the Staggers Act, what is the appropriate role of 
regulation in this marketplace currently?
    Mr. Mayo. Well, from an economic perspective, the role of 
regulation in general is to correct market failures where the 
cost of correcting that failure is less than the damage done by 
the market failure itself.
    Now, if we turn to the Staggers Act and to the rail 
industry itself, I think the place that I would start if I were 
you is right at the very outset of Staggers there is a set of 
congressional findings, legislative findings, that, number one, 
transportation services are, generally speaking, provided under 
conditions of competition, and, number two, in light of that 
competition and the general absence of market failures, that 
unnecessary and inefficient regulations should be removed.
    Now, the Staggers Act did that. The Staggers Act peeled 
away a number of regulations that were deemed to be unnecessary 
and inefficient. In your situation now and today at the 
hearing, what you are trying to do is say, how did that work 
out for us as a Nation?
    And I think the good news for you is that it has worked out 
quite well on the economic metrics. Prices are lower than they 
were in 1980. Output is massively higher than it was in 1980. 
The quality of services is higher than it was. Investment has 
been very robust. Innovation has been very high. And safety is 
generally improved. On any number of metrics, it has worked out 
pretty well.
    So what I would say is that, in terms of regulatory and 
legislative oversight--let's call it a light-touch regulatory 
approach has been very, very successful. That doesn't mean that 
there can't occasionally be market failures that warrant 
intervention. It doesn't mean that we ought not have regulatory 
oversight when market failures do occur. Regulators should be 
vigilant and move decisively. But, by and large, the light-
touch approach has worked very well.
    Mr. Denham. Thank you, Mr. Mayo.
    Ms. Miller, we have heard from shippers quite often about 
the access to rate cases as well as the cost of rate cases. 
And, as I understand, the STB has taken a look at several 
different steps to enhance the accessibility to some of these 
smaller shippers and medium-size shippers.
    Can you explain some of the actions that STB has taken and 
whether or not that is improving that access?
    Ms. Miller. Yes, Mr. Chairman. I would be happy to address 
that.
    The Board, over a period of time, has taken a look at ways 
that they can improve access to our processes for smaller 
shippers. We have put in place something that is called the 
simplified SAC approach. We also have something we call the 
three benchmark test.
    What we have discovered, though, is that few shippers have 
found those approaches to be beneficial to them, and, while we 
have had a few rate cases filed under our streamlined 
methodologies, it hasn't had the impact we had hoped that it 
would have.
    So I think we need to go back to the drawing board. We have 
gone back to the drawing board. We need to look for additional 
ways that we can make our processes more accessible and easier 
for shippers.
    One example of that would be the hearing that we are going 
to have in June, which is for grain shippers. You know, there 
has not been a grain rate case filed since 1981. Some might 
conclude that is because grain rates are quite appropriate so 
there is no need for a rate case. Certainly, when agricultural 
groups come in to meet with me, that is not their view. They do 
feel that the processes before the Board simply don't suit 
their needs.
    So we need to do some work, see if we can't find some 
better approaches to come back and present to our shippers and 
see if we can't make our processes more accessible and more 
useful.
    Mr. Denham. OK. Thank you.
    And, Mr. Dooley, have you utilized these new provisions 
that have been put in place by STB? Are they working?
    Mr. Dooley. In terms of the new provisions, our industry, 
in terms of the simplified SAC or the three benchmark, I don't 
think there are any of our member companies that have used 
that, in part because the caps on awards that you can secure 
there doesn't justify the cost of expense.
    I think Commissioner Miller would state, too, that----
    Mr. Denham. Big caps meaning that they are too high and it 
becomes too expensive for the smaller shippers?
    Mr. Dooley. Yes. I mean, it is--yeah. You still, on a SAC, 
simplified SAC, there still could be a $3 million to $4 million 
investment. And then you have a limited ability in terms of 
what you could be rewarded if you prevailed, that it doesn't 
justify it.
    On the stand-alone cost of SAC is that, you know, we had 
two member companies, Olin and DuPont, that invested, you know, 
in excess of $5 million each and brought cases, which both were 
turned down. And they were turned down, in large part, because 
they are required to develop their own theoretic railroad, a 
SAR, a stand-alone railroad. And that process is so cumbersome 
and expensive, and, you know, we are not in the business of 
that.
    And I would just read a statement that Commissioner Begeman 
had in regards to the DuPont case. And she stated, ``I was 
struck by the level of detail that must be considered to design 
a SAR and the high burden it places on both parties, but 
especially for the shipper, who lacks familiarity with 
constructing and running a railroad. I am concerned that, in 
some instances, the task of designing a winning SAR''--so the 
shipper would prevail--``can be so burdensome, and a single 
error by the shipper in the design of the SAR can be fatal.'' 
This is a clear example of the regulatory problems we face.
    And she also stated in another case, ``The Board has a duty 
to ensure that shippers have a viable means to challenge a 
rate. I already know that is not the case for grain shippers. 
And the Board should ask whether the SAC process can provide a 
meaningful gauge of rate reasonableness for carload traffic 
shippers.''
    And I think that is consistent with Commissioner Miller's 
commitment to continue working on this, and it is also 
consistent with the legislation that passed the Senate Commerce 
Committee.
    Mr. Denham. Thank you, Mr. Dooley. My time has expired.
    Mr. Capuano?
    Mr. Lipinski?
    Mr. Lipinski. It will take me a second here. I wasn't 
expecting to be next. But thank you, Mr. Chairman, for holding 
this hearing.
    You know, it would be an understatement to say the Staggers 
Act has saved the railroad industry, since it really saved our 
freight system as well as preserving thousands of miles of 
track for goods movement.
    And, as others have said, you know, I have been to Europe, 
I have been to Asia, and they talk about our freight rail 
system as the envy of the world. And I certainly think that the 
Staggers Act has, you know, played a very important role.
    Now, that doesn't mean, though, that every railroad has 
been a good actor and that there haven't been some problems for 
local communities and sometimes for shippers.
    In many instances, we have seen freight railroads do the 
right thing and work with local communities beyond Federal 
regulations, obviating the need to expand regulations. I 
certainly applaud these efforts, and I have been pleased to 
work with Norfolk Southern, CSX, BNSF, and Union Pacific on 
CREATE in northeastern Illinois; also working with the 
railroads and Metra on commuter rail and other issues.
    But I have concerns that not all Class I railroads are 
holding up their ends of the bargain as community members. And 
I hate to raise this publicly, but I feel the need to do that 
here.
    There is one railroad that I won't name, but I think people 
will find easy to figure out, I have had a few issues with. 
This railroad refused requests to slow its trains as they 
passed close to a local annual weekend-long festival--so that 
is just a couple days a year--that featured a children's 
carnival. I have joined this town in asking for cooperation 
this year and have yet to hear anything 1 month before the 
event.
    I have also asked this railroad to work with commuter rail 
to add more service, and nothing has moved forward after many 
years of working on this. I have also heard some complaints 
from shippers.
    Now, I am not asking for more Federal regulations. I think 
that is the last place that we want to go and only if it is 
absolutely necessary to do.
    But I am wondering, what can be done--I wanted to ask 
Chairwoman Miller and Mr. Hamberger, if he has any comments to 
add--what can be done to encourage any bad actors to change 
their behavior? You know, how do we get everyone on the same 
page? You know, are there options for STB?
    Chairwoman Miller?
    Ms. Miller. Well, I think that is an excellent question. It 
is certainly one I spend some time thinking about.
    We have a minimal number of regulatory tools available to 
us at the Surface Transportation Board. Truthfully, I don't 
think that regulatory tools really is what would be useful in 
the situation. As the professor has pointed out, the rolling 
back of regulation really has had a profound effect in terms of 
allowing the freight transportation industry in the United 
States to really blossom, and we need to be mindful of that.
    I know from my own experience in the year that I have been 
at the Board, fairly aggressively reaching out to both shippers 
and railroads, doing a fair amount of traveling, that there are 
certainly frustrations out there on the part of both shippers 
and communities at times when they feel that the railroads have 
not been responsive to their concerns.
    By the same token, I have seen amazing things that are 
happening on the rail system in terms of the way that they are 
improving their processes and becoming more and more 
productive. And we want to keep that going, as well.
    I think one thing that the Board can do, I think we need to 
be cognizant of providing opportunities, is to be a sounding 
board, a place where people can come when they have concerns, a 
place where problems can be aired and we can try to find 
opportunities to get both shippers, communities, and the 
railroads to work together to solve them.
    And I think that the Board's presence, just the very fact 
that we are present and at times can bring both parties in for 
discussions, has been helpful. And I would like to look for 
more opportunities to do those things.
    Mr. Lipinski. Thank you.
    Mr. Hamberger. Mr. Lipinski, thank you for that question. I 
would be glad to meet with you offline to get the specifics of 
this particular case.
    I would like to point out, however, that all of my members, 
all of the AAR members have taken voluntary steps to improve 
safety, whether it is speed limits, increased track 
inspections, reaching out to their communities, emergency 
responders, making sure that they are trained for dealing with 
an incident if a hazardous-material incident does occur.
    So, while I understand your frustration at this particular 
incident, I guess I would take exception with your saying that 
one of the Class I's is a, quote, ``bad actor.'' I think they 
are all committed to working with the communities in which they 
operate and operating at a safe level. But I will be glad to 
come by and discuss the details of your specific situation.
    Mr. Lipinski. Thank you. I appreciate that.
    And I had other questions I won't be able to get to on 
reciprocal switching. If we don't have a chance to come back 
for more questions, I will submit a question for the record.
    I yield back. Thank you.
    Mr. Denham. Thank you, Mr. Lipinski.
    Mr. Shuster.
    Mr. Shuster. Thank you very much.
    My question concerns, as I mentioned in my opening 
statement, the Senate Commerce's STB bill. I am very interested 
in hearing your views. And could you be concise as to what you 
may have concerns in it or what you like about it, but if you 
could be concise.
    I will start with Ms. Darr.
    Ms. Darr. Thank you, Chairman Shuster.
    We are generally supportive. We especially like the 
provision that allows the board members to talk to one another. 
We think that that is just good common sense. And we also 
support the idea of it being an independent agency.
    Mr. Shuster. Any concerns in it that you--in general, you 
are OK with it?
    Ms. Darr. We are OK with it.
    Mr. Shuster. Mr. Hamberger said he didn't object to it. I 
don't know if he----
    Mr. Hamberger. We did not object to it.
    I think that the bill does provide for voluntary 
arbitration. I would point out that the Board itself set up a 
voluntary arbitration program 1 or 2 years ago, I believe, 
whereby a shipper or railroad would sign up and say, ``I hereby 
agree that arbitration can be used for a case to be brought 
against me.'' And, of all the shippers, not one has signed up. 
One Class I railroad has, but--so I just find it interesting 
that that is the case.
    But, with respect to the committee's action, again, we have 
no objection.
    Mr. Shuster. And Mr. Dooley?
    Mr. Dooley. Yeah, maybe I will start off with the 
arbitration issue, is that there is an improvement in the 
arbitration process in the Senate bill.
    Ed referred to the existing arbitration that no shipper has 
utilized, is because there really is no real value to it. It 
doesn't specifically allow for the consideration and 
arbitration of rates.
    Mr. Shuster. Do you think this bill addresses that so----
    Mr. Dooley. It does.
    Mr. Shuster. You would anticipate some of your members 
signing up?
    Mr. Dooley. And it does have a cap of damages--or a cap on 
awards of $200,000, which, you are talking in the shipper 
community, is not worth the effort. In the Thune proposal, they 
increase that to $25 million. And so you will see a lot more 
interest and participation in this. And it will be interesting 
to see if the rail industry will agree to it.
    The other issue I would say that we are very appreciative 
is included in the Thune bill--and it gets to Congressman 
Lipinski--is the issue of reciprocal shipping. And we 
appreciate the work that the commission is continuing to do on 
that.
    But if you look at this and why this is an increasingly 
important issue when you have the consolidation of the rail 
industry, is that, right now, if you were shipping, say, from 
Chicago to Long Beach, the Port of Long Beach, and you have two 
different rail lines there, you have two competitive 
opportunities, in terms of pricing your shipment. But if you 
are shipping through a short-haul--or through a Class I 
railroad into Chicago, today you can't get a rate from that 
point A to Chicago and then from Chicago to Long Beach. And 
this doesn't allow for the marketplace to work and give you the 
access.
    What we are hopeful is that, with the inclusion in the 
Senate bill of consideration of reciprocal shipping, is that we 
can see a way where we can get a rate quoted from point A to 
Chicago, we would be willing to pay the cost of that transfer, 
and then we would have the ability to have a more competitive 
marketplace from Chicago to Los Angeles or Long Beach.
    Mr. Hamberger. Mr. Chair, if I might correct Mr. Dooley for 
the record.
    Mr. Shuster. Briefly.
    Mr. Hamberger. Last year's bill that was reported in 
September had a specific provision directing the Board to 
proceed on the NIT League proposal. That provision is not part 
of the bill that was reported out at the end of March. I 
believe there is a great deal of inference that the Board 
should draw from the fact that this year's bill is not 
directing them.
    Mr. Shuster. OK. I got the point.
    Ms. Miller, what are your thoughts on the Senate Commerce 
STB?
    Ms. Miller. Well, I think it is a regulator's--we didn't 
necessarily take a position saying we supported it or had 
problems with it. But, generally speaking, we found it to be a 
very balanced bill that I think will provide some advantages to 
the Board and will allow the Board to do its job in a better 
way. And, generally speaking, we think it is a good bill that 
will be advantageous.
    Mr. Shuster. And, Mr. Dooley, instead of you responding 
here, I would rather the two of you come see me and let's talk 
about this issue so I fully understand.
    Mr. Dooley. This only has--you know, Ed was right--it 
doesn't have a specific requirement. It has a specific 
requirement that STB concludes their consideration of 
reciprocal shipping and come to a decision.
    Mr. Shuster. And you made a comment about Mr. Hamberger 
saying narrow interest. Well, I don't know about narrow 
interest, but I know about self-interest. And I have seen the 
railroads, and I have seen the different industries, yours 
also, driven by self-interest. I understand that. That is what 
keeps us all straight, self-interest up here. The Founding 
Fathers said that is the critical issue that is going to keep 
us all in line.
    But I just want to make sure that, you know, captive 
shippers, I have had testimony after testimony, I ask the 
question, who is building facilities? You know, mines, of 
course, are where the mines are. And the agriculture industry 
is kind of where it is. But I know that there are manufacturers 
that actually build facilities to be captive shippers along 
rail lines. And several years ago, 1 railroad, there were 48 
different companies making themselves captive shippers.
    So, again, when we are talking about that captive shipper 
issue, that is something I am always focused on to say who does 
this to themselves. And I would also like to add I have a place 
in western Pennsylvania that has connections to three Class I 
railroads. And I have yet to have a big manufacturer come and 
locate there when they talk about captive shipping. So, again, 
that is something I am very interested in. If some of your 
companies are doing that to themselves, well, I mean, they must 
be there for a reason. It must be the railroads are providing 
something that they want, and so again.
    And the final issue, if I could, Mr. Denham, on the issue 
of natural gas, I think you guys have taken the right position. 
But some of your members don't want to export natural gas 
because that will possibly drive up their costs. And, once 
again, I know that is self-interest. But my self-interest is we 
have got a tremendous amount of gas in Pennsylvania. And we 
want to share it with the world.
    With that, I yield back.
    Mr. Denham. Thank you, Mr. Shuster.
    Mr. Sires.
    Mr. Sires. Thank you, Mr. Chairman. I enjoy watching the 
Mayweather-Pacquiao fight between you two. Let me just say, 
first, that my heart goes out to the victims of last night. And 
I hope that there is a speedy recovery for the people that are 
hurt and that they determine quickly what happened so we can 
address it.
    You know, I represent the northern part of New Jersey, 
which is very congested. I represent the ports. And there have 
been a number of investments over the years between the 
railroads and obviously the port authority. But I was wondering 
what can, you know, what policies can the STB and the Congress 
put in place to continue and maximize the investment into the 
infrastructure of the railroads? Because in my district it is 
very important. What policies can we put, can we help out with? 
Mr. Hamberger?
    Mr. Hamberger. Thank you, Congressman Sires.
    As I tried to point out in my written testimony, there is a 
direct correlation between the amount of money that railroads 
can put back into the infrastructure and the amount of money 
that they can make in the private sector, direct correlation, 
which is why we have been able to put $575 billion back in 
since 1980; $29 billion this year; $26 billion last year. As 
the Congressional Budget Office has observed, profits are both 
the means and the motive for reinvestment. You have to have an 
ability to have that revenue to reinvest. And you have to have 
the expectation that that investment will pay a return. And 
that means you have to have a balanced economic regulatory 
system, which I think the Board currently enjoys. I believe 
that there are process changes that can be made. I commend the 
Board for the 3-B or the three benchmark approach, the 
Simplified SAC [Stand-Alone Cost]. I believe they have 
increased the amount of money that can be recovered under that. 
The authority that they are going to get from the Senate 
Commerce bill, should that come into play. So I think there are 
process changes that can be made, but that the underlying basic 
economic approaches Dr. Mayo has pointed out is working. And I 
think, going forward, it should be continued.
    Mr. Sires. Thank you. Ms. Miller, I don't know if you 
discussed this before, but can you just discuss some of the 
major proceedings that are pending before the STB Board, and 
what challenges does the STB face in resolving some of these 
proceedings in a timely fashion?
    Ms. Miller. Well, let me say a couple of things. One, I was 
surprised when I got to the Board to discover how many 
decisions, in fact, pass across the Board. So we tend to focus 
a lot of our attention on the rate cases, which take years, 
cost millions of dollars. But, in fact, day to day, there is so 
much more work that is going on at the Board. So I think, one, 
it is just good to have that as a reference point, that there 
are other things that are happening or happening in a very 
timely way.
    I would say a couple of issues related to the Board's 
ability to move more quickly and do its work in what I would 
consider to be a better process. One, I want to take the 
opportunity--and I am most sincere when I say this--to say that 
one of my biggest surprises when I came to the Board was to 
discover that we have virtually a Third World computer system 
which is so arcane and outdated that we just cannot get on top 
of solving our problems. Our Web site regularly goes down. Our 
practitioners can't get access to our information. We have 
massive problems with it and have very little budget to deal 
with it. One of my highest priorities is fixing our computer 
system. But it is hard to do it when you don't have a capital 
budget to fix it. It is a serious issue.
    Secondly, we have process problems that we can and should 
solve ourselves. When I look at what I would consider the 
process for how the Board deals with rate cases, it is not a 
rigorous enough process. We are not creating deadlines. And we 
are not then being disciplined in terms of meeting what 
deadlines are set. I think that is something we can solve 
ourselves and that we need to do. One of my first questions 
when I came to the Board was to ask, what are the performance 
metrics that we use in order to monitor the Board's own 
performance, and was met with surprised looks because people 
didn't even know what I was talking about so one of the things 
we are doing is to develop a set of metrics. Are we, in fact, 
meeting goals we should be setting for ourselves in terms of 
how we are doing our work? I think those things will be hugely 
beneficial in terms of not just improving how we function as a 
Board but, quite frankly, better serving the shippers who come 
to us and better serving the railroads. And I think they are 
very important.
    I would want to say one other thing, the Senate 808 gives 
greater authority for the board members to speak with each 
other. I think that would be very helpful. But I also think 
that the Board has been quite conservative in how it has looked 
at those issues. It has been quite conservative in how it deals 
with ex parte communications. Far too often, the Board is 
making decisions based simply on a written record. And I don't 
know about any of you, I just know that if all I am doing is 
reading a record that has been written by attorneys, I am not 
going to fully understand an issue in a way which will allow me 
to make a good, on-the-ground, practical decision. And I think 
it is extremely important that we open up our processes. I feel 
like many of our Board employees are much too isolated from the 
industries that we are regulating. And so I want to open that 
up as well. And I think we can do that in a responsible way 
that will in significant ways improve our decisionmaking 
process.
    Mr. Sires. My time has run out. Thank you very much.
    Mr. Denham. Thank you, Mr. Sires.
    Mr. Hanna.
    Mr. Hanna. Mr. Mayo, Mr. Hamberger rightly points out that 
they invested billions and billions of dollars, $29 billion 
recently. Mr. Dooley would argue that a disproportionate amount 
of that comes out of his pocket because of the captive 
shipping, the limited competition, et cetera. The 180 percent 
benchmark for the RVC ratio would also--Mr. Dooley would argue, 
that the appeal process is difficult, cumbersome, and, frankly, 
just not worth it. As someone, I assume, is more independent 
here than others and less vested, what do you think about that, 
Mr. Mayo?
    Mr. Mayo. Two things: One, the data speak pretty clearly to 
the issue of investment. As I described it, the light touch 
regulatory approach has been swimmingly successful. A number of 
$29 billion of investment this year was used; that's just a 
fact. And that is an intense level of investment. And that 
bodes very well not only for current consumers but for future 
consumers.
    Mr. Hanna. But speak to the issue that Mr. Dooley is 
talking about. I mean, no one is going to argue that it is a 
wonderful thing to invest their money. The argument that I hear 
and that I am trying to understand better is the 
disproportionate because of the lack of captive lines and 
allegations.
    Mr. Mayo. So that brings me to the second issue, which is 
that how is the investment going to play out for consumers? And 
there is a regulatory process in place to ensure that rates at 
the end of the day are reasonable. The STB oversees that 
regulatory process. If rates aren't reasonable, then the STB 
can and should step in. But, by and large, what you have seen 
over the last 30 years is that prices have fallen. As I 
mentioned in my opening remarks, prices are lower now than they 
were even in----
    Mr. Hanna. That still doesn't speak to the 180 percent RVC 
benchmark--what you're saying right now--because that hasn't 
changed.
    Mr. Mayo. That benchmark has not changed. And I am not 
advocating that it should change. That change was part of 
Staggers. Some rates are below that 180 benchmark. Some are 
above the 180 benchmark. And the STB has a process, now a 
three-part process, for allowing consumers, shippers, to come 
to the STB and make a case that those rates, if they lie above 
180, are unreasonable. In the event that the firm is, that 
there is a captive shipper and that the rates are judged to be 
unreasonable, there is a mechanism in place----
    Mr. Hanna. But I also hear you saying that on a weighted-
average basis, it sort of works out.
    Mr. Mayo. It has more than worked out. Prices, as I 
mentioned, on average are considerably below where they were 
in----
    Mr. Hanna. Mr. Dooley, would you like to comment?
    Mr. Dooley. I guess, you know, first off, you know, I think 
the 47 associations representing, again, the farmers, 
manufacturers, energy producers, we don't want to go back. I 
mean, the Staggers Act made a major improvement in terms of 
creating a robust rail industry. And we want that to continue. 
What we are asking for is something--it is not like we are 
paying a disproportionate share. I wouldn't even go as far as 
to say that is our complaint. Our complaint as shippers is, is 
that we do not have access to an efficient and an equitable 
rate resolution process.
    Mr. Hanna. Are you all right with the Senate bill then?
    Mr. Dooley. We think the Senate bill takes the step in the 
right direction. It doesn't prescribe any specific outcomes. It 
really drives the STB to conclude some of their issues that 
they currently have under review that we think, whether it is, 
you know, the stand-alone cost methodology that they are----
    Mr. Hanna. Mr. Hamberger, I have got about a minute here.
    Mr. Hamberger. I would like to associate myself with 
Chairwoman Miller when she opened, in her opening statement, I 
wrote it down: quicker and more accurate. That is what we need 
at the Board. We need quicker. But that needs to be balanced 
with more accurate. Some of these rate cases have $200 million, 
$300 million in the balance. So you don't want that done on a 
coin flip. You want it down quickly, but it has to be accurate. 
And that is why it takes some time.
    Mr. Hanna. Thank you very much. I yield back.
    Mr. Shuster [presiding]. Thank the gentleman.
    With that, Mrs. Napolitano is recognized for 5 minutes.
    Mrs. Napolitano. Thank you, Mr. Chairman.
    And I do have a couple of interesting observations. Ms. 
Miller, you indicate your computer, that goes to the issue of 
being able to have enough adequate staffing to investigate 
complaints, do you have them?
    Ms. Miller. One of the things that the Senate bill does is 
provide the Board with investigatory authority. Currently, we 
are a complaint-driven Board. So we don't initiate any 
complaints or any investigations. We just respond to the 
complaints that have been brought to us. In the Senate 808, one 
of the things it would do is provide us with investigatory 
authority. And so we certainly would need additional----
    Mrs. Napolitano. How about funding for the computer change?
    Ms. Miller. Pardon me?
    Mrs. Napolitano. Computers. You say you have outdated 
computers.
    Ms. Miller. Right. And you are asking if we have the 
staffing resources to improve our computer systems?
    Mrs. Napolitano. And to do a new system of computers.
    Ms. Miller. I think that we have the staff to do it. What 
we really need still is hardware and software updating. So it 
is not a staffing problem as much as it is a hardware, software 
problem that needs to be updated.
    Mrs. Napolitano. Which leads me to the other question. My 
understanding is the Board is supposed to have three members; 
only two were appointed.
    Ms. Miller. That is correct.
    Mrs. Napolitano. They are asking for an increase to five. 
Would that have an impact?
    Ms. Miller. Mr. Dooley and others could perhaps address 
this better. Some of our practitioners have felt that the Board 
is handicapped by having three members because no two members 
can have a conversation on any topic before the Board. And if 
we had five members, then at least two members would have the 
ability to talk with each other. I think that would be 
extremely helpful----
    Mrs. Napolitano. Anybody else?
    Ms. Miller [continuing]. But I think we can also improve it 
by opening up our ex parte communications.
    Mrs. Napolitano. Agree?
    Mr. Dooley. Yes, I would agree. We think that STB needs to 
be a more efficiently operating organization. We think the 
expansion of the number of Commissioners would be a partial 
solution to that. But also I think we are seeing the evolution 
of the focus of the STB, is that they did help to get the rail 
industry back on track. But now we are moving into an area 
where there is increased consolidation, their focus needs to 
increasingly shift to ensuring that there is competition in the 
marketplace.
    Mrs. Napolitano. OK. Mr. Dooley, you hit on another point 
that some of my shippers have brought to my attention, and that 
is overcharging. Do you want to address that?
    Mr. Dooley. Well, that gets back to the fundamental issue, 
I think, that shippers are most interested in, is that having 
access to or eliminating some of the regulatory and financial 
impediments to having access to a rate resolution process. It 
is, it is not acceptable that a shipper has to commit to paying 
$5 million----
    Mrs. Napolitano. And 3 to 4 years for resolution.
    Mr. Dooley [continuing]. And 3 or 4 years. So let's find a 
way that we can fix that which----
    Mrs. Napolitano. What will be, what is your recommendation? 
What would help?
    Mr. Dooley. I think that, you know, part of it is, you 
know, reevaluating some of the policies that were put in place 
35 years ago. I mean, the whole issue of revenue adequacy, that 
was a relevant issue, I mean, a very relevant issue back 35 
years ago. But I attest that Warren Buffett doesn't make 
investments in companies that are not revenue adequate----
    Mrs. Napolitano. Correct.
    Mr. Dooley [continuing]. And we need to be evaluating how 
that is used and calculated in resolving rate disputes.
    Mrs. Napolitano. Another area of great concern, as we have 
gone through and talked to is public safety, railroad safety, 
safety of our grade separation. As you know, I am key on grade 
separations because the Alameda Corridor-East.
    Mr. Hamberger. Absolutely.
    Mrs. Napolitano. And the safety of anything that comes out 
of the ports for ontime delivery to the eastern seaboard. So I 
am just wondering how much of that is going to be continued to 
be able to address the different aspects of the infrastructure 
change, whether it is the ties, whether it is the rails, 
whether it is your locomotives, greener, what is it that is 
going to affect us?
    Mr. Hamberger. Well, of course, all of that is where the 
$29 billion I keep referring to goes, to millions of new ties, 
new rail, stronger gauge rail, Tier 4 locomotives that are the 
newest, cleanest locomotives out there that are now being 
bought. But if I could go back to your previous question for 
just a quick second, where you talked about overcharging, I 
would just like to put in the record, I think it may be in my 
written statement but I would like to draw your attention to 
it, that the average inflation-adjusted freight rail rates for 
all commodities are about where they were in 1991. And for Mr. 
Dooley's members, it is where they were in 1988. So where there 
is, quote, ``overcharging,'' that is what the Board is there 
for. And I have expressed our support for quicker but more 
accurate processes. But I would like to get on the record that 
the rates being charged today are where they were in 1991, 1988 
for the chemical company.
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    Mrs. Napolitano. Is there a way to be able to, and I will 
leave this for the record, to be able to ensure that the 
complaints received will be resolved in a faster, more 
expedient manner? The complaints?
    Ms. Miller. Yes. I think there is. And I think we are 
working on that to improve our processes so that we can ensure 
that happens. I would want to say, as I said before, we get 
very focused on these rate cases because, as Mr. Hamberger 
pointed out, sometimes we are talking about hundreds of 
millions of dollars that are at stake. So they are very 
important. They take a lot of our staff time. But every day, 
every month, decisions are going through our agency that are 
handled very quickly and are allowing businesses to get back to 
doing what they need to do.
    Mrs. Napolitano. Thank you to the witnesses.
    And thank you for your indulgence, Mr. Chairman.
    Mr. Shuster. Thank you, Mrs. Napolitano.
    With that, Congressman Rokita is recognized for 5 minutes.
    Mr. Rokita. I thank the chairman. Good morning, gang. I 
appreciate you being here. And I appreciate the passion I see 
in each one of you for the industries that you regulate or are 
in. I do think you are part of America's 21st-century future. 
So, again, thanks for being here. Ms. Darr, we have a lot of 
short-range railroads in Indiana or a lot for us. We seem to 
like them. General question for you, what is the overall 
economic outlook for the U.S. short line railroad industry and 
the future demand for rail transportation? And, in your view, 
what role should Ms. Miller's agency play to ensure that the 
U.S. freight rail system can continue to grow, especially with 
regard to the short lines?
    Ms. Darr. Thank you, Congressman Rokita. I would say, first 
of all, short lines love Indiana. So I think it is a reciprocal 
relationship.
    Mr. Rokita. We love you. Don't tell CSX.
    Ms. Darr. In regard to your question about the economic 
outlook, I believe it is strong. But that doesn't mean that we 
can just go along a path and not interject along the way and 
assume that it is going to remain strong. We have invested in 
our infrastructure. We have been able to do that through the 
45G program. And as I indicated in my testimony, that is not 
just about economic development. That is also about safety. 
Making sure that our infrastructure is safe is critical for our 
growth. Staggers got us this far. Going forward, 45G is going 
to be absolutely essential to our ability to rehabilitate our 
track.
    And I also think we have done an excellent job of 
attracting new customers. Short lines have developed a 
reputation within the industry as being very customer friendly. 
You have not seen me get into any negative discussion with Mr. 
Dooley. And I can assure you that all of his, all of his 
members would be thrilled with the short line performance that 
they have received to date. And I won't let Mr. Dooley take on 
any conversation about that, except outside of the room. And 
then I think also an important part of our growth is the good 
partnership that we have established with the Class I's. I 
think that is demonstrated by the work that we are doing with 
AAR and Mr. Hamberger here. That is going to be very critical. 
We rely on them for a lot of our business. And they rely on us 
to bring the customer to them as well. It is an important 
relationship.
    In regard to what Chairwoman Miller can do in regard to 
changes in the STB to help us out, it is speed and expedited 
rulings. And, as Ed said, the speed can't happen without 
accuracy. Both of those things are absolutely critical. In 
relation to what we are talking about today, don't roll back 
Staggers. Anything else that rolls back the Staggers Act is 
going to put us in a position, as Chairman Denham had said 
earlier, of being hammered by burdensome regulations. And, as 
in the past, that was putting us in a position where we were 
dying a slow death. And we can't go there again.
    Mr. Rokita. Thank you.
    And, on that, Mr. Hamberger and Mr. Dooley, would agree, 
correct? You are all in line on that, with that last statement?
    Mr. Hamberger. I do certainly would, yes.
    Mr. Rokita. OK. Let the record reflect they are answering 
in the affirmative. And Mr. Dooley has a footnote.
    Mr. Dooley. We certainly do not want to see the Staggers 
Act eliminated. But we think there could be some modifications 
that, again, give us more equitable access to a rate resolution 
process.
    Mr. Rokita. OK. At the risk of not getting to you, Mr. 
Mayo, I need to go to the chairwoman. And I want to, first, 
thank you for sitting in the chair as you do and actually 
articulating the fact that you have a strategic plan with goals 
and rates set to them and that kind of thing inside your 
office. I think that goes without saying, quite frankly, when 
you have agencies as big as yours and others that are much 
bigger. Yet many who sit in that chair don't bring any of that 
information to us. I am puzzled that your testimony seems to 
focus on the fact that you don't have a computer system or your 
technology is behind and this and that. And are you trying to 
tell me that the appropriations has that much control in 
micromanaging your budget that well that you couldn't fire a 
nonperforming employee or 2 or 10 or 20 or 100 and get the 
computer money you need so that you can expedite these cases 
with a bit more accuracy?
    Ms. Miller. Well, in terms, overall, just very quickly, we 
are actually quite a small agency, about 140 people. And the 
way that we have created any of the funding necessary to try to 
make improvements to it is by holding positions open and not 
filling them. Otherwise, we just don't have any kind of a 
capital budget at all. So we have got nothing to turn to absent 
that.
    I think one of the things that you are saying is that, 
while I am a firm believer you don't start by saying we need 
more people to accomplish your job; you start by saying what 
can we be doing differently to get our jobs done. I have been 
at the Board for a year. I could not say that we are 
overstaffed. I would not draw that conclusion at all. And, in 
fact, there are some real gaps, I think, in skill sets at the 
Board that we need to be better able to serve both the 
railroads----
    Mr. Rokita. You don't have one nonperforming worker that 
you wish you could under the law fire?
    Ms. Miller. I sure do.
    Mr. Rokita. OK.
    Ms. Miller. And I have to say, I come from State 
government. It is where I worked my whole life.
    Mr. Rokita. Can you tell I came from State government?
    Ms. Miller. And I would tell you that I have found many 
more ways at the State system to take care of nonperforming 
employees than I have been able to uncover----
    Mr. Rokita. Maybe we should work together and find a way to 
get those ideas here.
    Ms. Miller. But I do want to go back to say quickly, 
because I don't want to give anybody a false impression, we are 
working very hard to solve our own problems. But I have to say, 
we have very few tools to do it. And I use this as an 
opportunity today because I feel so strongly about it. We want 
to do a better job for these guys, but we need some tools. And 
you just can't do that, you can't create it out of nothing. And 
we really don't have the resources necessary.
    Mr. Rokita. My time is up, Mr. Chairman.
    I will yield back. We can carry on later hopefully.
    Ms. Miller. Sure. Happy to.
    Mr. Denham [presiding]. Thank you, Mr. Rokita.
    Ms. Hahn, you are recognized for 5 minutes.
    Ms. Hahn. Thank you, Mr. Chairman. And thank you for 
holding this hearing.
    I do want to add my voice to those who are expressing, 
first, shock and then, of course, sympathy for the horrible 
train accident last night. And I will say, I am one of those 
politicians that Chairman Shuster was maligning earlier. Even 
though we have not found out what the cause is--and I am sure 
we will--this is National Infrastructure Week. And I do know 
for sure that the funding for our infrastructure in this 
country is woefully inadequate. I think everybody needs to be 
investing more in our country's infrastructure. And even 
sometimes when we find out that the cause of a train accident 
was human error or something else, it seems that we move away 
from focusing on, did infrastructure play a role or are we just 
another bad infrastructure design away from another accident? 
Folks on the morning news shows this morning were talking about 
our design, our outdated design of our rails and curves that 
maybe shouldn't be there and shared tracks.
    I think if we really want a rail system and an 
infrastructure that is the envy of the world, I think we are 
far from having the perfect infrastructure. And other countries 
are investing billions more in their rail infrastructure than 
we are. I still think that is a huge problem. And I think our 
Highway Trust Fund is running out in a few days. Maybe we will 
have a short-term fix. But that is no way to run a country. And 
it is no way to run rail lines.
    And no matter what fees we are paying and no matter what 
disputes we are arbitrating, at the end of the day, I am 
embarrassed about the infrastructure we have. And we just 
haven't put the time or effort or money into it.
    I do have a bill that I have introduced. It is a freight 
network bill because I don't think our freight network ought to 
be competing with our Highway Trust Fund. So I have got a way 
to take what the shippers are paying in import fees, they pay 
about $40 billion in import fees, and diverting some of that to 
a freight network guaranteed revenue stream that we can fund a 
lot of the things that we are talking about. So I hope we take 
a good look, unfortunately, in light of this accident, at what, 
if any, role our infrastructure played or will play in future 
accidents in this country.
    And I just wanted to follow up on something my colleague, 
Pete DeFazio, was talking about with the short line railroads. 
And I am a big fan of short lines. A lot of them service our 
ports, which is a huge role and also a hugely needed infusion 
of infrastructure funding in and around our ports, the last 
mile into our ports. I think that keeps us from being globally 
competitive like we should be. But of the 560 short line 
railroads currently operating, 27 holding companies control 
almost one-half of these railroads. And I am concerned that 
these holding companies, these investment firms, are looking at 
turning a profit for shareholders more than maybe investing in 
railroad improvements and safety. And the FRA published a 
report on the capital needs of short line railroads and found 
that while holding companies reduce the risk associated with 
lending capital, funding that is available must be thinly 
spread among all carriers under their control in order to meet 
current and ongoing needs. And we know there is about a $6.9 
billion need for short line and regional railroads. I would 
like to hear your comment on that funding mechanism for short 
rails. And is that a positive thing that we are seeing? Can we 
do better?
    Ms. Darr, I would love to hear from you. I didn't know if, 
Mr. Hamberger, and, Ms. Miller, if you would like to comment on 
that as well, the economic structure of who is owning our short 
line railroads.
    Ms. Darr. Certainly we have seen a lot of consolidation, 
especially in the last few years, particularly one of our 
largest members. But, altogether, there is really only one and 
maybe two publicly held companies in the short line business. 
So I don't know that that would be an accurate representation 
of our industry. Although certainly there are constraints for 
publicly held companies that independents don't have, I am not 
sure that that is, altogether, a bad thing because, obviously, 
we have seen some tremendous growth as a result of those 
arrangements.
    As to what is needed to allow our independents to grow--and 
the bulk of my members are independent railroads--45G is 
absolutely critical to that. And 45G is a tax credit that 
allows us to take our earnings and reinvest them back into 
tracking. You made some excellent points about this being 
National Infrastructure Week and the challenge that we are 
facing. If the short lines don't have access to that capital, 
we are not going to be able to do our part of the job for the 
industry. So, again, I would like to thank everyone on the T&I 
[Transportation and Infrastructure] Committee for their 
overwhelming support. We have had great luck with that. But if 
we don't continue to follow through with 45G and make it 
permanent, rather than have to fight for it every year and deal 
with that vulnerability, we are not going to be able to engage 
in the long-term planning that is necessary.
    Ms. Hahn. Thank you. I can hear you tap, tap, tapping back 
there.
    Mr. Denham. The time was definitely expired.
    Mr. Capuano.
    Ms. Hahn. I will yield back.
    Mr. Capuano. Thank you, Mr. Chairman.
    First of all, I want to thank the Board. This has been just 
as informative as I had hoped it would be. To some extent, this 
is kind of ending up like a lovefest, which is good. It sounds 
like we all want to do some minor improvements to the STB to 
make everybody work a little bit better and make this country 
better. So I want to thank you all for your input.
    But I do want to pick at a couple little things that bother 
me.
    Mr. Hamberger, do any of your member companies haul wheat?
    Mr. Hamberger. Yes, sir.
    Mr. Capuano. Do they haul coal?
    Mr. Hamberger. Yes, sir.
    Mr. Capuano. OK.
    Ms. Darr, do yours haul wheat?
    Ms. Darr. Yes. They do.
    Mr. Capuano. And coal?
    Ms. Darr. Yes.
    Mr. Capuano. Do you know if they haul casino chips, poker 
chips, or slot machines? You may not know that, but I thought I 
would ask.
    Ms. Darr. Should they?
    Mr. Capuano. I don't know. If some were to ask, they would?
    Ms. Darr. Yes.
    Mr. Capuano. Mr. Hamberger, do you----
    Mr. Hamberger. If some were to ask, we have a common 
carrier obligation, so absolutely.
    Mr. Capuano. That is what I thought.
    Ms. Miller, if a railroad came to and you said, ``We haul 
wheat and so, therefore, we want to build a bread factory on 
our land in the middle of a residential area and we want to be 
exempted from all health regulations, we want to be able to 
make that bread any way we please, not subject to local zoning, 
not subject to local environmental issues, not subject to local 
health issues,'' would the STB approve that as a related 
activity?
    Ms. Miller. I don't know. In that specific example, I think 
you are referring to the preemption----
    Mr. Capuano. You don't know? So you think there is a 
possibility that the STB would approve a railroad making bread 
to sell to the general public that is not subject to local 
health requirements? The problem is your hesitation. The 
problem is that that is a possibility. Would you approve them 
if they haul coal? Would you approve the railroad saying, ``By 
the way, we want to process coal, we want to mine coal, we want 
to dig oil because we haul oil, we want to frack in my 
backyard, not subject to State or local requirements because 
Federal law preempts them''? Is there a possibility the STB 
would say yes?
    Ms. Miller. Well, Mr. Capuano, I think perhaps my 
hesitation has less to do with not knowing for sure how the STB 
would act but reflecting on what I do or don't know about any 
authority we would have if a railroad----
    Mr. Capuano. Fair enough.
    Ms. Miller [continuing]. Was wanting to build a factory 
that had nothing to do with transporting or rail 
transportation.
    Mr. Capuano. Fair enough. Well, then why in the world would 
you approve a railroad getting into the hazardous waste 
business? Why in the world would you approve a railroad getting 
into the propane business not subject to State or local 
regulations? Why on earth would you say that anyone would be 
exempted from local safety requirements, local zoning 
requirements, when it is not an issue that is directly related 
to a railroad? Yet you have done that. Why should I have faith 
that the STB is not just a tool of the railroad industry, and 
it is truly an independent agency that understands, yes, when 
it comes to rail, we all want successful railroads. But let's 
be honest, trash handling is not a core item in any railroad.
    Now, I am not saying they shouldn't do it. If the railroad 
wants to get into the trash business, good luck. But your 
business, your entity, not necessarily you, I don't know if you 
were on the Board at the time, said that they were no longer 
subject to local zoning requirements. Just last year, the STB 
said they are not subject to local zoning requirements on a 
propane facility in the middle of my State. I have to tell you, 
that shakes my trust in the system.
    I want the STB to work. And all of the issues that we talk 
about today, they sound fine; we are heading in the right 
direction. That is the wrong direction. I would like to know 
what the STB might ever do about it, except to say: We are 
sorry. We are going to turn this issue backwards. We are going 
to do the right thing moving forward and stop this nonsense. Is 
that possible that that might happen?
    Ms. Miller. I think one of the--I think the issue that is 
frustrating you--which I appreciate the frustration, I felt it 
myself--is the way the preemption rules play out. Under the 
Federal laws, State and local laws are preempted as to having 
to do with rail transportation. And the frustration I think you 
are expressing is whether or not we have properly determined 
whether an activity is a part of rail transportation, or if, in 
fact, it is something else. I can say that since I have been at 
the Board, I have a strong sense of importance of the 
preemption requirements. One of the reasons we, in fact, do 
have such a strong rail network in the United States is because 
of preemption. I think it is extremely important that 
preemption----
    Mr. Capuano. I am not arguing when it comes to the core 
business of railroads.
    Ms. Miller. But I would also say, I have seen situations 
that have come before the Board since I have been there that I 
have personally found repugnant but that I also believe fall 
under the preemption requirement. So, even though I personally 
have not been supportive of what I have seen an entity doing, 
we have also found that they do, in fact, meet the requirements 
of preemption.
    Mr. Capuano. I know what you have found, but you earlier 
touted your background in State government. I also have a 
background in State and local government, and I understand 
there are certain things that are conducive to Federal 
preemption, which I support in many instances, but I don't 
think that applies to zoning. I don't think it applies to 
health. I don't think it applies to the environmental issues. 
Those are State and local matters, and the Federal Government 
should stay out of them. And I believe that preemption was 
inappropriate, wrong, and should be changed. And I guess you 
have left me with no choice but to now advocate for legislative 
change, which I actually think is always the last option.
    I think you have made a big mistake. I think you have 
opened the door to basically sticking your Federal thumb in the 
eye of every State and every city and town in this country. And 
I wish that that weren't the case. And I would like to find a 
way to get the STB to correct that action, but I guess we will 
have to do it legislatively.
    Thank you, Ms. Miller.
    Mr. Denham. Thank you, Mr. Capuano.
    Mr. Mayo, if a wheat farmer and a coal miner opened a 
bakery--I think we have covered that topic long enough.
    I actually have----
    Mr. Mayo. I would have gone mute at this point. I would not 
have answered that. Thank you, though.
    Mr. Denham. Actually, I have one final question, and that 
is, you know, a misconception of revenue adequacy. We continue 
to hear how the railroads are doing so well on Wall Street, but 
that misconception of revenue adequacy is always out there. Can 
you explain in a little detail the challenge there?
    Mr. Mayo. Sure, and I will try to be concise. The details 
are in the study that is appended to my written testimony. But 
what the study does, is to look at the notion of revenue 
adequacy and to really understand the purpose of revenue 
adequacy, you need to go back to the time that it was 
introduced. It was introduced in the 1970s. There was a period 
when the rail industry was in dire financial and physical 
conditions. It was literally falling apart. In the 4R Act of 
1976, the language first appeared. And it created a benchmark. 
It said to regulators--then the ICC, now the STB--that the 
regulators should calculate a number, should calculate whether 
railroads were earning back their cost plus a cost of capital. 
So it provided an informational benchmark and a set of 
guideposts that helped legislators and regulators in assessing 
whether the industry was coming back and how far it had come 
back. So that was the legislative intent. It was a purpose. The 
purpose, I believe, at the time was informational, to create a 
set of guideposts and benchmarks.
    In 1985, the then-ICC introduced a bit of an 
interpretational change, interpreting revenue adequacy not as 
an informational benchmark but as a constraint. It was at that 
time that the word revenue adequacy ``constraint'' first 
appeared in the regulatory documents. And, at that time, the 
ICC indicated that in the rail industry, that railroads should 
not be entitled to any more revenue than what would exactly 
cover their cost of capital.
    Now, at that time, what happened is, in theory anyway, that 
regulatory determination would reintroduce back into the rail 
industry earnings regulations which we had just stepped out of 
with the Staggers Act. Now, I said in theory it did that 
because, at that time, the railroads were, largely speaking, 
and completely revenue inadequate. So it was a theoretical 
constraint, not a practical one. Now, if you move forward 20--
30 years now, the rail industry, as we all know, is doing 
better financially. They are now being judged increasingly to 
be revenue adequate. That is to say they are covering their 
cost of capital.
    Now, to the extent--and this is where the concerns come in 
in my study--to the extent that the revenue adequacy constraint 
is then imposed and we reimpose earnings regulations in this 
industry, that is a risk of some significant backsliding, I 
think. And so what I would appeal to you, and to the regulatory 
community is to reestablish the original legislative intent of 
the revenue adequacy language, and that is as an informational 
benchmark, which is really a good thing, but to avoid using 
revenue adequacy as a regulatory hammer.
    Mr. Denham. Thank you, Mr. Mayo.
    Our final question today is from Mr. Babin.
    Dr. Babin. Thank you, Mr. Speaker, I appreciate it.
    Mr. Chairman, thank you very much. I had a couple of 
questions that I would like to ask of Mr. Dooley, if you don't 
mind. What role can the STB play to ensure that the rail system 
supports manufacturing, investment, and growth?
    Mr. Dooley. Yeah, you know, again, Congressman Babin, is I 
think that, you know, consistent with the Senate legislation, 
there is a directive there for STB to conclude some 
considerations of a host of issues that range from the rate 
resolution issues that are associated with the stand-alone 
costs, the requirements that, in order to bring a rate case, 
you have to have required that company to design a rail line 
and operating, assess the cost of that in order to make a 
determination of whether or not if you made these new 
investments, had an appropriate return on capital, whether or 
not that would result in a rate lower than what was being 
provided.
    But it provides--it is such a complicated process that even 
the STB Commissioner said they question whether or not that is 
an equitable and effective way.
    What the legislation also does is it asks for STB to 
conclude their consideration of the issue in terms of 
reciprocal switching, which again is, you know, with the 
increased consolidation, with fewer rail lines, Class I's that 
are providing service, is that there is not as much competition 
in the marketplace, and so what we think is important is, is 
that you ought to have a mechanism that can give a shipper the 
ability to ship from point A to point C through point B, but if 
there is only one shipper to get you to point B and you have 
got two shippers there, that there ought to be a way to get a 
quote from that rate from A to B and then have the opportunity 
to get a competitive quote from B to C from two rail issues and 
have the opportunity to pay for the cost of that switch. So we 
think that there is progress that STB can be making on that 
front, too, that again will ensure.
    We also have some other issues related to rate bundling 
that is a little more complicated that also could ensure, 
again, more competition or a more competitive marketplace. And 
that is what we are asking for. Two things is, when you have 
increased consolidation, you basically have a duopoly in the 
rail industry in many regions of the country, and that doesn't 
necessarily result in quite as a robust marketplace of forces 
as we think is appropriate. And how do we adjust for that? It 
is where the equitable rate resolution process as well as some 
of these other provisions that could be addressed through STB.
    Dr. Babin. OK, thank you very much.
    One other question, I am already--no, I have still got a 
little time.
    Ms. Miller, if I could ask you, the Staggers Act 
established numerous objectives for U.S. freight rail policy 
which wanted to minimize the need for Federal regulatory 
control over the railroads and would allow railroads to earn 
adequate revenues, providing expedition resolution or 
proceedings, ensuring effective competition, and maintaining 
reasonable rates where effective competition does not exist. 
How well has the STB succeeded in achieving these objectives, 
and what areas need the greatest attention in the future?
    Ms. Miller. I think if you look back over the last 35 years 
since Staggers has passed, you would have to say that the STB 
has done an outstanding job. When you look at the issue of rate 
regulation to the extent the Surface Transportation Board has 
any involvement at all, it is only 10 percent, really, of any 
of the traffic or rate regulation that we even have any 
oversight over. Anything that is done by contract we are not 
involved in. That is, the vast majority of what is moving on 
the freight system today is done under contract. And other 
situations, even though there may not be a contract, they might 
be using tariff, there is clearly competition. We are not 
involved there. So our role really is a pretty small role but 
in an area that I think becomes very important.
    I think that in a year of serving on the Board, my 
observation is, is that to the extent we are, in fact, to be an 
arbitrator of whether or not rates are reasonable where 
competition doesn't exist, if there is a criticism that I would 
have of the Board, it is that I can understand why shippers 
feel so frustrated and say to us: You know, we don't really 
feel like we have an opportunity to bring cases before you.
    We can say that we are available. We can say that you can 
file a rate case, but what we know is that it is going to take 
3, 4, 5 years. It is going to cost millions of dollars, and the 
reality of actually doing that has quite a chilling effect, I 
think, on a number of shippers.
    So Mr. Hamberger made the comment--and he is absolutely 
right--we are talking oftentimes about hundreds of millions of 
dollars. There is no way to take that sort of a rate process 
and turn it into a 6-month activity. The issues are much too 
complicated. They are much too important. So I am not saying 
that our goal at the Board should be to rush to judgment on any 
of these things. Some of these questions are simply going to 
take some time to get at. But by the same token, I don't think 
there is any question that there are people who feel they have 
an issue that they would like to have addressed, who simply 
don't bring it before us because they think it is hopeless.
    Dr. Babin. Thank you, Mr. Chairman.
    I would like to thank all of the witnesses, too.
    Mr. Denham. Thank you, Mr. Babin.
    Ms. Brown, you are recognized for 5 minutes.
    Ms. Brown. Thank you, Mr. Chairman.
    First of all, I want to say that last night I started 
getting calls about the accident that occurred in Philadelphia. 
And I want everybody to know that my heart goes out to the 
families and the community at this time.
    I mean, I am--rail is so important, and reauthorization of 
the Staggers Act and investment in rail is crucial. It is 
absolutely crucial that we work to keep rail, freight rail, and 
passenger rail separated. And, you know, other countries have 
figured it out. And we as a people of--in the United States 
need to get with it. I tell people all the time in Florida: Our 
competition is not Georgia and Alabama. It is people in other 
countries that have figured out how to move goods and services.
    And when I travel around the world, they ask me: How do you 
all have such a great freight system? And I want to know from 
them: How do you have such a great passenger system? And we in 
the United States need to figure out and we need to invest in 
making sure that we can move people, goods, and services.
    So I want to thank you all for your testimony.
    And do any of the members, I know Ms. Miller, he was 
tapping. Do you want to make any closing statements? And Mr. 
Hamberger, anybody want to make any closing statements?
    You know, I am now on the Committee on Veterans' Affairs, 
and I appreciate the fact that over 30 to 40 percent of the 
people in rail are veterans. And I thank you all for continuing 
to reach out to them because they are ready for employment.
    And Ms. Miller, do you want to add anything?
    Ms. Miller. No. I really appreciate your comments and would 
echo your statements. I have always been amazed by the U.S. 
transportation system. I think it is extraordinarily important, 
and I am struck all the time, as you said, you know, our 
competition--I came from the State of Kansas. I felt the same 
way. Our competition wasn't the States next door. It is other 
countries around the world. And I think we need to continue to 
think that way. And one of our advantages economically is our 
freight transportation system. It is extremely important that 
we maintain that advantage.
    Ms. Brown. My colleague, Mr. Dooley?
    Mr. Dooley. No, I have no other statement, but I, again, 
thank the committee for the opportunity to testify today.
    Ms. Brown. Thank you.
    Mr. Hamberger.
    Mr. Hamberger. I would just like to on a personal note say 
I know that you had a Committee on Veterans' Affairs meeting 
this morning, and the fact that you made it here just 
underscores your dedication and support for the rail industry, 
and I just want to thank you for that.
    Ms. Brown. Thank you.
    Ms. Darr. Congresswoman Brown, I just wanted to echo on 
your thoughts about the Amtrak accident last night. And I 
think, you know, it is appropriate that we talk about safety 
today. And from the short line perspective there are two 
critical aspects of safety that we can help out with. One is 
raising up the safety culture in our industry, which we are 
able to do through the Short Line Safety Institute, thanks to 
support from Congress.
    And then, finally, focusing on our rail infrastructure. By 
improving the track, we improve safety, and we are able to do 
that through programs like 45G. So I think it is a good 
partnership and appreciate your support for both of those 
programs.
    Ms. Brown. Thank you. The last comment?
    Mr. Mayo. So I, too, would echo your reflections about the 
need to look abroad for benchmarking and identifying that our 
real area of competitiveness is best benchmarked around the 
world, not necessarily here in the States. I would say, in the 
context of this hearing, that it is really sort of important, 
once in a while--I mean, we are pretty good at pounding our 
chests and chanting we are number one in the world, even if we 
are not necessarily that way. In this particular area, in the 
area of freight rail policy, I think we have a lot to be proud 
of. The economic data are very clear. It is rather remarkable 
as an economist to see an alignment of positive economic 
indicators in prices, output, innovation, employment, and so 
on, that have worked so well. So I am just glad to be here and 
to speak about this bill or this act.
    Ms. Brown. Well, thank you very much.
    And like I said, I don't care whether I am in Russia, no 
matter where I am around the world, they always ask me about 
our freight rail. And, depending on where I am, whether I am in 
Europe, or someplace, I am asking them about their passenger 
rail.
    So thank you again all for your testimony.
    And Mr. Chairman, I yield back the balance of my time.
    Mr. Denham. Thank you.
    Mr. Cummings, you are recognized for 5 minutes.
    Mr. Cummings. Thank you very much, Mr. Chairman. I 
apologize for getting here so late. I was in another hearing 
where I am ranking.
    I wanted to express my condolences to those who were 
injured in last night's terrible accident, to the families of 
the victims who died.
    I also want to express my strong support for Amtrak. Tens 
of millions of passengers ride the Northeast Corridor every 
year, including me, as we pass through Penn Station in my 
district in Baltimore. Amtrak is an essential component of our 
Nation's transportation infrastructure. Sadly, Republicans on 
the House Appropriations Committee have proposed cutting 
capital funding for this service by 25 percent in fiscal year 
2016.
    While we cannot speculate on the causes of last night's 
accident, the media reports indicate that it occurred in a 
sharp curve. And there are many such curves and tight turns 
along this very old corridor. We would never find it acceptable 
to operate the Congress using 19th-century technology, and yet 
we continue to operate in many stretches of the Northeast 
Corridor under 19th-century infrastructure. Rather than cutting 
our investments, we should be expanding them and taking all 
steps necessary to bring the Northeast Corridor into a state of 
good repair.
    Now, Mr. Hamberger, can you discuss the trends you have 
seen in the rail industry's investment in infrastructure both 
during and after the financial crisis, and have railroad 
investment trends changed in these years?
    Mr. Hamberger. Thank you, Mr. Cummings, and you were not 
here earlier, but I do want to associate myself with your 
remarks about--as I did earlier, the tragedy last evening. The 
very interesting chart, which I can provide for the record, 
what we saw in 2008, 2009, and 2010, was a very minor drop off 
in the amount of capex that the industry put into the network.
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    If you go back to 2002, the previous recession, 2001 and 
2002, we saw a dramatic dropoff. When the economy came roaring 
back, we were not ready for it, and I think what our members 
individually decided was why there was some decline, about a 10 
percent perhaps, if memory serves, that there was a need to 
continue to invest. Many of our members kept the employees that 
they furloughed on part-time status so that they continued to 
be qualified to be called back and continued to receive their 
benefits so that those investments continued to be made.
    Now, the service disruptions of 2013 and 2014 would 
undercut my argument that we were ready, but there were a lot 
of factors that went into that service challenge. But we were--
we took the money that we were earning and put it back into the 
network the same as we are doing now at record amounts.
    Mr. Cummings. Now, Ms. Miller, you wrote in your testimony 
in July, the Surface Transportation Board will hold a hearing 
to explore issues pertaining to the concept of revenue 
adequacy. You also wrote that revenue adequacy is an economic 
concept that describes whether a carrier is earning sufficient 
revenue to cover its cost and earning reasonable return. And so 
you indicated that the Board makes the determination about 
revenue adequacy annually, is that right?
    Ms. Miller. That is correct.
    Mr. Cummings. You also wrote that the Board is beginning to 
see that some of the Class I railroads are becoming revenue 
adequate across consecutive years. Can you explain how revenue 
adequacy is calculated and is that threshold of investment and 
profit that----
    Ms. Miller. No, I think you meant to direct that to the 
professor at the end of the table.
    Mr. Cummings. Oh, I am sorry, Professor.
    Ms. Miller. No, no, I am sorry. I am just teasing you 
because----
    Mr. Cummings. OK.
    Ms. Miller [continuing]. This complicated exercise----
    Mr. Cummings. I am tired, so don't confuse me.
    Ms. Miller. I am sorry.
    Mr. Cummings. It has been a long day already. Go ahead.
    Ms. Miller. No, I have my cheat sheet----
    Mr. Cummings. OK.
    Ms. Miller [continuing]. On how it is calculated. I don't 
know that we need to go into, you know, the----
    Mr. Cummings. But you see what I am getting at? I am trying 
to figure out, you know, when we talk about the adequacy, I am 
trying to figure out what the threshold is, and how do we 
measure that? Do you follow me?
    Ms. Miller. Yes, I do follow you, and so I hope the 
professor won't be totally offended by the way I am going to no 
doubt make a mess of his economics. But when we are looking at 
revenue adequacy, we are not looking at the question of, are 
railroads profitable? It is a different question. The question 
is, can they attract adequate capital? Because we want them to 
be able to attract the capital to continue to expand as they 
have been. So what we are looking at is a little different 
question. What the Board does now is it calculates a cost of 
capital and then does a comparison between what the railroads--
what their revenue is against that cost of capital. And if it 
is greater than the cost of capital, we would say, for that 
year, they are revenue adequate.
    What we are also trying to determine, and one of the 
reasons we are going to have the hearing is if you wanted to 
declare a railroad revenue adequate, should they be revenue 
adequate for 1 year? Should it be 5 years? Should it be over 
some period of time? What is that period of time? And so how do 
we make those determinations? And then, more importantly still, 
I think the question on the table is, if we concluded there is 
a railroad that is revenue adequate, does that say anything 
about how they should be economically regulated? Should it 
change because they are now in a changed circumstance of 
revenue adequacy? And those are the questions we are going to 
be exploring in our hearing in July.
    Mr. Cummings. I see my time is expired.
    Thank you, Mr. Chairman.
    Mr. Denham. Thank you, Mr. Cummings.
    And thank you to each of you that came to testify today. If 
there are no other questions, I would ask unanimous consent 
that the record of today's hearing remain open.
    Mr. Hamberger. Mr. Chairman, could I possibly, at the risk 
of offending you, end today's hearing on an upbeat note, 
perhaps a kumbaya moment between Mr. Dooley and myself? You may 
not have noticed in this morning's Washington Post, page 11, 
that the plastics industry is pumping out jobs. A report coming 
out of the ACC today, $130 billion of investment over the next 
5 years in the U.S. That is good news for our jobs. It is good 
news for the American economy, and I trust it is good news for 
the railroad because we will get more business from Mr. Dooley. 
But congratulations to you and your members. It is a very 
upbeat note and I appreciate you allowing me to put it into the 
record.
    Mr. Denham. Thank you. We would ask that each of our 
witnesses be provided questions--unanimous consent that the 
record remain open for 15 days for any additional comments and 
information submitted by Members and witnesses to be included 
in today's record.
    Without objection, so ordered. I would like to thank, 
again, each of you for being here to testify today. If no 
Members have anything to add, this subcommittee stands 
adjourned.
    [Whereupon, at 12:27 p.m., the subcommittee was adjourned.]
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