Intercity Passenger Rail: Assessing the Benefits of Increased Federal
Funding for Amtrak and High-Speed Passenger Rail Systems (Testimony,
03/21/2001, GAO/GAO-01-480T).

This testimony discusses the benefits of increased federal funding for
the National Railroad Passenger Corporation (Amtrak) and high-speed
passenger rail systems. Amtrak made minimal progress in 2000 toward
achieving operational self-sufficiency. Although Amtrak is required by
law to achieve operational self-sufficiency by the end of 2002, the
outlook is not bright. In 2000, it reduced its "budget gap" by only $5
million. It must achieve an additional $281 million in savings by the
end of next year. In addition to the uncertainty over Amtrak's future,
this is an opportune time to begin examining the future of intercity
passenger rail. Federal costs are expected to be large. For example, the
ultimate cost of building high-speed rail corridors is unknown, but it
will certainly be in the many tens of billions of dollars. Much of the
funding could be expected to come from the federal government. A number
of benefits to the public and the national transportation system have
been attributed to intercity rail service. These benefits need to be
realistically examined. In deciding the future of intercity passenger
rail, it is important for Congress to have realistic assessments of the
benefits to the public from this mode of transportation. These
assessments would help establish the role of intercity passenger rail
service in the nation's transportation system, if any, and guide
Congress in its decisions over potentially large funding of such
systems.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-480T
     TITLE:  Intercity Passenger Rail: Assessing the Benefits of
	     Increased Federal Funding for Amtrak and High-Speed
	     Passenger Rail Systems
      DATE:  03/21/2001
   SUBJECT:  Railroad transportation operations
	     Railroad industry
	     Federal aid to railroads
	     Financial analysis
	     Cost control
	     Program graduation
	     Financial management
IDENTIFIER:  Florida Overland Express Project (FL)
	     Amtrak Northeast Corridor

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-01-480T

INTERCITY PASSENGER RAIL

Assessing the Benefits of Increased Federal Funding for Amtrak and High-
Speed Passenger Rail Systems

Statement of Phyllis F. Scheinberg, Director, Physical Infrastructure Issues

United States General Accounting Office

GAO Testimony Before the Subcommittee on Transportation, Committee

on Appropriations, House of Representatives

For Release on Delivery Expected at 10 a. m. EST Wednesday March 21, 2001

GAO- 01- 480T

1

Mr. Chairman and Members of the Subcommittee: We appreciate the opportunity
to testify today on issues surrounding the federal commitment to the
National Railroad Passenger Corporation (Amtrak) and intercity passenger
rail, particularly high- speed rail. This statement is based on our recent
reports on Amtrak financial and high- speed rail issues, 1 others' reports,
and Amtrak's recently- released finance and capital plans.

In summary: Amtrak made minimal progress in 2000 toward achieving
operational selfsufficiency. Although Amtrak is required by law to achieve
operational selfsufficiency by the end of 2002, the outlook for it doing so
is not bright. In 2000, it reduced its “budget gap”- the gap
that Amtrak says it has to close to become operationally self- sufficient-
by only $5 million. It must achieve an additional $281 million in savings by
the end of next year. If it does not, Amtrak must submit a plan to the
Congress for its liquidation.

In addition to the uncertainty over Amtrak's future, this is an opportune
time to begin examining the future of intercity passenger rail. Federal
costs are expected to be large. For example, Amtrak proposed last month that
the federal government provide it with $30 billion over 20 years to support
an expanded Amtrak system and to invest as seed money in helping develop
highspeed rail corridors. The ultimate cost of developing these high- speed
rail corridors is unknown, but certainly in the many tens of billions of
dollars. Much of the funding could be expected to come from the federal
government.

1 Performance and Accountability: Challenges Facing the Department of
Transportation (GAO- 01- 443T, Feb. 14, 2001), Intercity Passenger Rail:
Decisions on the Future of Amtrak and Intercity Passenger Rail Are
Approaching (GAO/ T- RCED- 00- 277, Sept. 26, 2000), Intercity Passenger
Rail: Amtrak Will Continue to Have Difficulty Controlling Its Costs and
Meeting Capital Needs (GAO/ RCED- 00- 138, May 31, 2000), Surface
Infrastructure: High- Speed Rail Projects in the United States (GAO/ RCED-
99- 44, Jan. 14, 1999 ), Letter to the Chairman, Committee on the Budget,

House of Representatives (Sept. 15, 1998), and Amtrak: Issues for
Reauthorization (GAO/ T- RCED- 95- 132, Mar. 13, 1995).

2

A number of benefits to the public and the national transportation system
have been attributed to intercity passenger rail service- such as reducing
congestion and increasing travel choice. These benefits need to be
realistically examined. For example, intercity passenger rail service can
work well in certain situations, such as service between two densely-
populated cities that are a couple hundred miles apart, but is not a
realistic travel alternative for most longer- distance travelers.

In deciding the future of intercity passenger rail, it is important for the
Congress to have realistic assessments of the benefits to the public from
this mode of transportation. These assessments would help establish the role
of intercity passenger rail service in the nation's transportation system,
if any, and guide the Congress in its decisions over potentially large
funding of such systems.

Background

The Rail Passenger Service Act of 1970 created Amtrak to provide intercity
passenger rail service. Like other major national intercity passenger rail
systems in the world, Amtrak has received substantial government support-
nearly $24 billion for capital and operating needs through fiscal year 2001.
About 22 million passengers in 45 states ride Amtrak's trains each year
(about 60,000 passengers per day, on average).

Amtrak operates a 22,000- mile passenger rail system, primarily over tracks
owned by freight railroads. (See fig. 1.) Amtrak owns 650 miles of track,
primarily in the Northeast Corridor, which runs between Boston and
Washington, D. C. About 70 percent of Amtrak's service is provided by
conventional trains; the other 30

3

percent of the service is provided by high- speed trains (up to 150 miles
per hour) operating in the Northeast Corridor. 2

Figure 1: Amtrak's Route Network

Source: Amtrak.

With the growth in the nation's highways and aviation system in the previous
decades, intercity rail passenger service has lost its competitive edge.
Highways have enabled cars to be competitive with conventional passenger
trains (those operating up to 90 miles an hour), while airplanes can carry
passengers over longer distances at higher speeds than can trains.

High- speed rail systems (with speeds over 90 miles per hour) are intended
to make trains more competitive with these other modes. 3 The Federal
Railroad

2 As measured by train- miles- the movement of a train for a distance of 1
mile. The percentage of train miles cited as high- speed is somewhat
overstated because it includes some trains that operate at 90 miles per hour
or more on the Northeast Corridor but at slower speeds off the corridor.

3 High- speed rail systems are generally of three types: (1) incremental
improvements to existing tracks, signaling systems, and grade crossings and
purchasing modern trains that permit speeds between 90 and 150 mph on
existing rights of way; (2) a completely new infrastructure to support very-
high- speed operations of 200 mph or more; or (3) magnetic levitation
systems that permit

4

Administration defines high- speed rail transportation as intercity
passenger service that is time- competitive with airplanes or automobiles on
a door- to- door basis for trips ranging from about 100 to 500 miles. The
agency chose a marketbased definition, rather than a speed- based definition
because it recognizes that opportunities for successful high- speed rail
projects differ markedly among different pairs of cities. High- speed trains
can operate on tracks owned by freight railroads that have been upgraded to
accommodate higher speeds or on dedicated rights of way. The greater the
passenger train speed, the more likely it is to require a dedicated right of
way for both safety and operating reasons.

According to the Federal Railroad Administration, 34 states are
participating in the development of high- speed rail corridors and these
states have invested more than $1 billion for improvements of local rail
lines for this purpose. Ten corridors have been designated either through
legislation or by the Department of Transportation. (See fig. 2.)

Figure 2: Designated High- speed Rail Corridors and Amtrak's Northeast
Corridor

Empire Corridor Northern New England Corridor Keystone

Corridor Northeast Corridor

Southeast Corridor

Florida Corridor Gulf Coast

Corridor South Central

Corridor Chicago Hub

California Corridor

Pacific Northwest Corridor

Montreal Portland/ Auburn Boston Albany

New York City Philadelphia Washington, D. C.

Hampton Roads Raleigh

Columbia Jacksonville

Orlando Miami Tampa Atlanta

Charlotte Louisville Indianapolis

Detroit Chicago Minneapolis/ St. Paul

Kansas City Tulsa Oklahoma City

Dallas/ Ft. Worth Los Angeles

San Diego Sacramento

San Francisco Bay Area

Eugene Portland

Seattle Vancouver

San Antonio Houston

St. Louis Mobile New Orleans Little Rock

Birmingham Buffalo

Cleveland Pittsburgh

Richmond

Source: Federal Railroad Administration.

speeds of around 300 mph. Typically, the cost to implement these options
grows as the sophistication of the technology and speed increase.

5

Designated corridors may be eligible for federal funds through several
Department of Transportation programs. According to the Department, the
designation also serves as a catalyst for sustained state, local, and public
interest in corridor development. The 10 designated corridors are generally
in various early stages of planning. Amtrak's Northeast Corridor is in
operation and supports high- speed service up to 150 miles per hour.

The Congress Is Facing Critical Passenger Rail Decisions

The Congress is facing critical decisions about the future of Amtrak and of
intercity passenger rail service. These decisions stem from Amtrak's limited
progress toward achieving operational self- sufficiency and the large amount
of funds that will be needed to maintain and expand the nation's intercity
passenger rail network.

Achieving operational self- sufficiency is very important to Amtrak because
the Amtrak Reform and Accountability Act of 1997 prohibits Amtrak from using
federal funds for operating expenses, except for an amount equal to excess
Railroad Retirement Tax Act payments, after 2002. 4 If the Amtrak Reform
Council (an independent council established by the act) finds that Amtrak
will not achieve operational self- sufficiency, the act requires that the
railroad submit to the Congress a liquidation plan and the council submit to
the Congress a plan for a restructured national intercity passenger rail
system.

Amtrak has made limited progress in reducing its budget gap in order to
reach operational self- sufficiency. 5 In fiscal year 2000, Amtrak closed
its budget gap by only $5 million, achieving very little of its planned $114
million reduction.

4 Amtrak participates in the railroad retirement system, under which each
participating railroad pays a portion of the total retirement and benefit
costs for employees of the industry. According to Amtrak, excess railroad
retirement tax act payments are expected to be $196 million in 2003.

5 Amtrak defines its budget gap as the corporation's net loss (total
revenues less total expenses) less capital- related expenses, including the
depreciation of its physical plant, other noncash expenses, and expenses
from its program to progressively overhaul railcars (i. e., to conduct
limited overhauls of cars each year rather than comprehensive overhauls
every several years).

6

Moreover, during fiscal years 1995 through 2000, Amtrak reduced its budget
gap by only $83 million. By the end of 2002, less than 2 years from now,
Amtrak will need to achieve about $281 million in additional savings to
reach operational selfsufficiency. Although Amtrak has undertaken a number
of actions to reach and sustain operational self- sufficiency, we are not
optimistic that it will be able to do so.

The level of federal financial assistance that will be required to maintain
and expand the nation's intercity passenger rail network far exceeds the
amounts that have been provided in recent years. Last month, Amtrak
announced that it is seeking $30 billion in federal capital support from
2001 through 2020 (an average of $1.5 billion each year with $955 million in
fiscal year 2002) to upgrade Amtrak operations and to invest as seed money
in high- speed rail corridors. The proposed amount is nearly double the
$16.8 billion in federal support that Amtrak has received over the past 20
years (1982- 01). It is also nearly three times the annual amount that the
Congress provided Amtrak in recent years (e. g., $571 million for 2000 and
$521 million for 2001 that could be used for both capital and operating
expenses).

Some of this federal support is addressed in the High- Speed Rail Investment
Act of 2001 (S. 250), which was introduced last month. This bill would allow
Amtrak to issue $12 billion in tax credit bonds 6 ($ 1.2 billion each year
over 10 years), primarily for capital improvement projects on designated
high- speed rail corridors and on Amtrak's Northeast Corridor.

The development of the designated high- speed rail corridors will require
substantial amounts of federal assistance. Overall cost figures are unknown
because these initiatives are in various stages of planning. However, these
corridors and the Northeast Corridor could require tens of billions in
federal

6 Bondholders would receive tax credits rather than interest payments.

7

assistance. The size of these capital investments is illustrated by several
examples:

Last year, we reported that Amtrak had identified capital needs of at least
$7 billion (in 1999 dollars) through 2015 on its Northeast Corridor alone
and at least an additional $2 billion is needed for the rest of its system.
7

The Midwest Regional Rail Initiative, comprised of nine midwestern states,
anticipates capital costs of $4 billion (in 1998 dollars) over 10 years to
develop a 3,000- mile network (including one of the designated corridors).
The rail group expects that the federal government will fund $3.2 billion
(80 percent) of these costs.

In California, a 703- mile high- speed rail system linking Sacramento and
San Francisco in the north to Los Angeles and San Diego in the south could
cost $25 billion.

Estimates of the costs and financial viability of high- speed rail systems
can be subject to much uncertainty, especially when they are in the early
stages of planning. For example, in 1999 we found that ridership estimates
for the proposed Florida Overland Express project may have been overstated
by as much as 30 percent. 8 It was unclear whether the project could achieve
its financial objectives of paying all operating costs, repaying
bondholders, and repaying federal loans if ridership was lower than
estimated by the project.

Besides financial issues, other difficult issues will need to be resolved to
make high- speed rail service a reality. These issues include (1) the
capacity of privately owned freight rail systems to handle additional and
higher- speed passenger rail

7 See GAO/ RCED- 00- 138.

8 The project proposed to establish high- speed rail service between Miami,
Orlando, and Tampa. See GAO/ RCED- 99- 44.

8

traffic along with their own traffic, (2) the access to freight railroad
tracks that these railroads could expect to grant to operators of high-
speed rail passenger systems other than Amtrak, and (3) the ability to close
thousands of grade crossings (the intersection of railroad tracks and roads)
to allow high- speed trains to operate safely.

In part because Amtrak's future is uncertain and because Amtrak and other
rail systems are counting on large increases in federal assistance for
intercity passenger rail, the Congress needs to decide whether the magnitude
of the benefits to the public and the nation's transportation system from
intercity passenger rail justify such investments when compared to
alternative modes of transportation.

The Public Benefits of Intercity Passenger Rail Need to Be Examined

A number of public benefits-- such as reducing congestion, improved air
quality, increased travel capacity, and greater travel choice-- have been
ascribed to Amtrak and intercity passenger rail. Yet these benefits have not
been thoroughly addressed.

Reducing Congestion and Improving Air Quality A public benefit cited for
intercity passenger rail is its potential to help relieve traffic congestion
in air travel and on our nation's highways. At a national level, this
potential is not likely to be realized because intercity passenger rail
currently represents about 3 tenths of 1 percent of intercity travel across
all modes. 9 Even if rail travel quadrupled, it would account for only about
1 percent of the nation's travelers.

9 Congressional Research Service, Amtrak: Overview and Options (Jan. 25,
2001). The Congressional Research Service cites this statistic from
Transportation in America, 1999 (Eno Foundation).

9

Expanding intercity passenger rail service might have some impact on
congestion if it were targeted to areas where roads are at or near their
design capacity. As more traffic uses these roads, travel time increases
sharply and the delays are felt by all travelers. However, expectations for
the extent to which intercity passenger rail can reduce congestion must be
realistic. For example, in 1995, we reported that each passenger train along
the busy Los Angeles- San Diego corridor kept about 129 cars off the highway
(about 2,240 cars each day)- a small number relative to the total volume. 10

High- speed rail could not be expected to ease congestion at airports when
longerdistance travel is involved because rail travel is not time-
competitive with air travel. 11 As a case in point, the scheduled travel
time for the approximate 700- mile distance between Washington, D. C., and
Chicago is about 2 hours for air and about 18 hours for Amtrak. Consistent
with this, the Federal Railroad Administration is supporting the development
of high- speed rail corridors that are competitive in travel time with air
and highway travel.

Another advantage cited for intercity passenger rail is that it is energy-
efficient, thus improving air quality. For example, the Congressional
Research Service reported that Amtrak is much more energy- efficient than
air travel. However, Amtrak is much less energy- efficient than intercity
bus transportation and about equal in energy efficiency as automobiles for
trips longer than 75 miles. 12 Our 1995 analysis of the Los Angeles- San
Diego corridor found the increase in emissions from added automobiles,
intercity buses, and aircraft would be very small if existing diesel-
powered trains were discontinued.

10 See GAO/ T- RCED- 95- 132. 11 For a comparison of travel times for
Amtrak, bus and air travel for several city pairs, see our September 15,
1998, letter cited in footnote 1. 12 Congressional Research Service, Amtrak
and Energy Conservation (Jan., 19, 1999).

10

Increasing Transportation Capacity Another cited advantage is that an
investment in intercity passenger rail can do more to increase
transportation capacity (carry more travelers) than a similar expenditure in
another mode. For example, Amtrak recently suggested that a dollar invested
in intercity rail can increase capacity 5 to 10 times more than a dollar
invested in new highways, depending on location. 13 A 1999 study of the
costs of providing high- speed rail, highway, and air service reached
different conclusions. 14 This study found that the investment costs (per
passengerkilometer traveled) of providing highway and high- speed rail
service between San Francisco and Los Angeles were about the same, but both
were substantially higher than the cost of providing air service for the
same route.

When considering adding transportation capacity, decisionmakers will need to
understand the extent to which travelers are using existing capacity and
will use the added capacity in various modes. If the added capacity is
underutilized (say, for example, because it is not cost competitive or
offers inconvenient travel), then the foreseen benefit will not be realized.

Offering Travel Choice Another benefit ascribed to the expansion of
intercity passenger rail is the increase in travel choice- as an alternative
to air, automobile, or bus travel. For example, the Federal Railroad
Administration estimates that the development of the designated high- speed
rail corridors could ultimately give about 150 million Americans
(representing slightly over half of the nation's current population) access
to one of these rail networks. Yet travel choice entails more than physical
access. To offer travel choice, rail must be competitive with other travel
modes:

13 Strategic Business Plan, February 2001. 14 Included in these costs were
the social costs of accidents, air pollution, noise, and congestion. See
David Levinson, Adib Kanafani, and David Gillen, Air, High- speed Rail, or
Highway: A Cost Comparison in the California Corridor; Transportation
Quarterly, Vol. 53, No. 1 (Winter 1999).

11

It must take travelers where they want to go, be available at convenient
times of the day, be competitive in terms of price and travel time, and meet
travelers' expectations for safety, reliability, and comfort. For example,
travelers may view a rail system more favorably if it offers multiple trips-
rather than one or two round trips-- each day and if it arrives and departs
at convenient hours.

Public Benefits and Financial Goals Affect the Scope of Intercity Passenger
Rail Systems

Once determined, the public benefits of high- speed passenger rail service,
as well as of Amtrak's conventional rail service, must be weighed against
the costs of federal financial assistance needed to support such service.
For example, the Amtrak Reform and Accountability Act of 1997 directed
Amtrak to operate a national system that ties together existing and emerging
regional rail passenger service and fosters intermodal passenger service. As
we stated earlier, we believe that it is unlikely that Amtrak will be able
to operate a national system without federal operating support after 2002.
Thus, the goal of a national system much like Amtrak's current system and
the ability to operate without federal operating subsidies may be
incompatible. In fact, Amtrak was created because other railroads were
unable to operate passenger service profitably.

High- speed rail may work best for relatively short trips (of several
hundred miles or less) where it connects densely populated cities with
substantial travel between the cities. Amtrak's Metroliner service, which
travels up to 125 miles per hour between New York City and Washington, D.
C., is an example. The Metroliner is one of only two Amtrak trains that made
an operating profit in 2000. 15

15 According to Amtrak, the Metroliner made a profit of $65 million based on
revenues of $222 million. The other Amtrak route to make a profit was the
Heartland Flyer. It made a profit of $700,000 based on revenues of $5. 3
million. Of this revenue amount, $3.9 million were payments made by states
and $1. 4 million came from train operations.

12

We believe that the time is ripe for the Congress to begin considering the
future of intercity passenger rail and to bring all affected parties into
the discussion. This should start with a realistic assessment of the public
benefits and costs of investments in intercity passenger rail and other
modes. Such analyses would precede reaching agreement on the goals that will
be pursued, the extent to which Amtrak and other intercity passenger rail
systems can contribute to meeting those goals, and commitments of large
amounts of federal funding.

- - - - Mr. Chairman, this concludes our testimony. We would be pleased to
answer any questions you or Members of the Committee may have.

Contact and Acknowledgments

For information about this testimony, please contact Phyllis F. Scheinberg
at (202) 512- 3650. Individuals making key contributions to this testimony
were Angela Clowers, Helen Desaulniers, Richard Jorgenson, and James
Ratzenberger.

(392002)

Orders by Internet

For information on how to access GAO reports on the Internet, send an e-
mail message with “info” in the body to

info@ www. gao. gov or visit GAO's World Wide Web home page at http:// www.
gao. gov

To Report Fraud, Waste, and Abuse in Federal Programs

Web site: http:// www. gao. gov/ fraudnet/ fraudnet. htm E- mail: fraudnet@
gao. gov Automated answering system: 1- 800- 424- 5454
*** End of document ***