Intercity Passenger Rail: Amtrak Faces Challenges in Improving Its
Financial Condition (Testimony, 10/28/1999, GAO/T-RCED-00-30).

Pursuant to a congressional request, GAO discussed Amtrak's overall
financial condition, its progress in becoming free of operating
subsidies, its use of the Taxpayer Relief Act (TRA) of 1997 funds, and
its need for capital investment to improve quality of service.

GAO noted that: (1) Amtrak's overall financial condition improved in
fiscal year (FY) 1999; (2) its net loss--revenues less expenses--was
+$907 million in FY 1999; (3) this loss is $23 million less than
Amtrak's net loss of $930 million in FY 1998; (4) Amtrak estimates that
its net loss for FY 2000 will decrease to $828 million; (5) the
administration and Congress have directed Amtrak to be free of federal
operating subsidies by the end of 2002; (6) Amtrak reduced its budget
gap--the gap that it needs to close to be free of federal operating
subsidies--by $18 million in FY 1999; (7) however, it must reduce the
gap by an additional $291 million in the next 3 years; (8) this needed
reduction is nearly four times greater than the reduction Amtrak has
been able to achieve in the previous 5 years; (9) finally, Amtrak faces
many challenges in meeting its business plan goals to achieve
operational self-sufficiency; (10) TRA provided Amtrak with about $2.2
billion to acquire capital improvements and maintain existing equipment
in intercity passenger rail service, among other things; (11) Amtrak
reports spending over +$1.2 billion of these funds, as of May 31, 1999;
(12) Amtrak has spent over half of this money--or $756 million--on
capital improvements; (13) Amtrak has also applied $427 million, or
about one-third of its TRA expenditures, to a pool of expenses for
maintenance of equipment through May 1999; (14) however, because of the
way that Amtrak applies TRA funds to maintenance of equipment expenses,
it has not identified specific expenses that TRA funds were used to
cover; (15) capital investments are critical to supporting Amtrak's
business plans and maintaining its viability; (16) such investments are
needed to help Amtrak improve its quality of service and attract
revenues; (17) however, Amtrak does not have a comprehensive 5-year
plan; (18) further, it has significant unmet capital needs over the next
20 years; and (19) as a result, it is unclear at this time what Amtrak's
total capital needs are and how Amtrak plans to fund these needs.

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

 REPORTNUM:  T-RCED-00-30
     TITLE:  Intercity Passenger Rail: Amtrak Faces Challenges in
	     Improving Its Financial Condition
      DATE:  10/28/1999
   SUBJECT:  Railroad transportation operations
	     Financial analysis
	     Cost control
	     Equipment maintenance
	     Maintenance costs
	     Future budget projections
	     Federal aid to railroads
	     Losses
	     Financial management
	     Program graduation

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Cover
================================================================ COVER

Before the Subcommittee on Ground Transportation, Committee on
Transportation and Infrastructure, House of Representatives

For Release
on Delivery
Expected at
10 a.m.  EDT
Thursday
October 28, 1999

INTERCITY PASSENGER RAIL - AMTRAK
FACES CHALLENGES IN IMPROVING ITS
FINANCIAL CONDITION

Statement of Phyllis F.  Scheinberg,
Associate Director, Transportation Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-00-30

GAO/RCED-00-30T

(348185)

Abbreviations
=============================================================== ABBREV

  TRA -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We appreciate the opportunity to testify today on Amtrak's overall
financial condition; its progress in becoming free of operating
subsidies; its use of Taxpayer Relief Act of 1997 (TRA) funds; and
its need for capital investment to improve quality of service.  Our
statement is based on our July 1999 report on Amtrak's financial
condition and our ongoing work for this Committee.\1 In summary: 

  -- Amtrak's overall financial condition improved in fiscal year
     1999.  Its net lossï¿½revenues less expensesï¿½was $907 million in
     fiscal year 1999.\2 This loss is $23 million less than Amtrak's
     net loss of $930 million in fiscal year 1998.  Amtrak estimates
     that its net loss for fiscal year 2000 will decrease to $828
     million. 

  -- The administration and the Congress have directed Amtrak to be
     free of federal operating subsidies by the end of 2002.  Amtrak
     reduced its ï¿½budget gapï¿½ï¿½the gap that it needs to close to be
     free of federal operating subsidies ï¿½by $18 million in fiscal
     year 1999.  However, it must reduce the gap by an additional
     $291 million in the next 3 years.  This needed reduction is
     nearly four times greater than the reduction Amtrak has been
     able to achieve in the previous 5 years.  Finally, Amtrak faces
     many challenges in meeting its business plan goals to achieve
     operational self-sufficiency. 

  -- The Taxpayer Relief Act of 1997 provided Amtrak with about $2.2
     billion to acquire capital improvements and maintain existing
     equipment in intercity passenger rail service, among other
     things.  Amtrak reports spending over $1.2 billion of these
     funds, as of May 31, 1999.  Amtrak has spent over half of this
     money--or $756 million--on capital improvements such as track
     signals and improvements to bridges and electric catenary
     systems.\3 Amtrak has also applied $427 million, or about
     one-third of its Taxpayer Relief Act expenditures, to a pool of
     expenses for maintenance of equipment through May 1999. 
     However, because of the way that Amtrak applies Taxpayer Relief
     Act funds to maintenance of equipment expenses, it has not
     identified specific expenses that the Taxpayer Relief Act funds
     were used to cover. 

  -- Capital investments are critical to supporting Amtrak's business
     plans and maintaining its viability.  Such investments are
     needed to help Amtrak improve its quality of service and attract
     revenues.  However, Amtrak does not have a current comprehensive
     5-year plan.  Further, it has significant unmet capital needs
     over the next 20 years.  As a result, it is unclear at this time
     what Amtrak's total capital needs are and how Amtrak plans to
     fund these needs. 

--------------------
\1 Intercity Passenger Rail:  Amtrak's Progress in Improving Its
Financial Condition Has Been Mixed (GAO/RCED-99-181, July 9, 1999). 
We expect to report to this Committee on Amtrak's use of Taxpayer
Relief Act funds and its major costs and capital needs in 2000. 

\2 Amtrak's fiscal year 1999 financial results are unaudited.  Net
loss amounts exclude federal financial assistance from revenue. 

\3 Catenary is the structure used to conduct electricity to operate
electric trains. 

   BACKGROUND
---------------------------------------------------------- Chapter 0:1

The Rail Passenger Service Act of 1970 created Amtrak as the nation's
intercity passenger railroad.  The act, as amended, gave Amtrak a
number of goals, including providing modern, efficient intercity
passenger rail service; giving Americans an alternative to
automobiles and airplanes to meet their transportation needs; and
minimizing federal operating subsidies.  Today, Amtrak provides
intercity passenger service along 42 routes in 45 states. 

Like all major national intercity rail services in the world, Amtrak
receives substantial government support.  From 1971 through October
1999, the federal government has provided Amtrak with over $23
billion in financial assistance.  This includes (1) about $2.2
billion in fiscal years 1998 and 1999 through the TRA for capital
improvements and the maintenance of existing equipment in intercity
passenger rail service, among other things, and (2) a $571 million
fiscal year 2000 capital appropriation.\4

In December 1994, at the direction of the administration, Amtrak
established the goal of eliminating its need for federal operating
subsidies by 2002.  In addition, the Amtrak Reform and Accountability
Act of 1997 (Amtrak reform act) prohibited Amtrak from using federal
funds for operating expenses, except for an amount equal to excess
Railroad Retirement Tax Act payments, after 2002.\5 This statutory
provision is the test for ï¿½operational self-sufficiencyï¿½ that Amtrak
must meet.  Finally, the act requires that the Amtrak Reform Council
(an independent oversight body created by the act) submit an action
plan to the Congress for a restructured national intercity passenger
rail system if, at any time more than 2 years after the enactment of
the act and the implementation of a financial plan for operating
within authorized funding levels, it finds that Amtrak is not meeting
its financial goals or that it will require federal operating funds
after December 2002.  In addition, if the above events occur, Amtrak
is required to develop and submit an action plan for its liquidation. 

--------------------
\4 Of this amount, only $228.4 million is available for obligation
prior to September 30, 2000. 

\5 Amtrak participates in the railroad retirement system, under which
each participating railroad pays a portion of the costs for all
retirements and benefits in the industry. 

   AMTRAK'S OVERALL LOSSES
   DECREASED IN FISCAL YEAR 1999
---------------------------------------------------------- Chapter 0:2

Amtrak made some progress in improving its overall financial
condition:  it reduced its net loss from about $930 million in fiscal
year 1998 to about $907 million in fiscal year 1999.  (See fig.  1.)
In calculating net loss amounts for fiscal years 1998 and 1999, we
excluded federal financial assistance from Amtrak's revenues.\6 This
exclusion provides a clearer portrayal of Amtrak's ability to meet
its expenses from revenues generated by its own activities.  This
improvement in overall financial condition exceeded Amtrak's
expectation by $23 million.  Amtrak estimates that its net loss for
fiscal year 2000 will fall to $828 million. 

   Figure 1:  Amtrak's Net Loss,
   Fiscal Years 1998 Through 2000

   (See figure in printed
   edition.)

Note:  Net loss amounts do not include federal financial assistance. 

Source:  GAO's analysis of Amtrak's data. 

--------------------
\6 The Amtrak Reform and Accountability Act of 1997 eliminated the
requirement that Amtrak issue preferred stock to the Department of
Transportation in the value of federal appropriations received.  As a
result, beginning with its fiscal year-end 1998 financial statements,
Amtrak, following guidance from its external auditors, recorded a
significant amount of federal financial assistance as revenues
instead of preferred shareholder equity.  In addition, a portion of
the federal funds made available by the Taxpayer Relief Act was also
recorded as revenues. 

   AMTRAK FACES CHALLENGES IN
   MEETING ITS BUSINESS PLAN GOALS
   TO ACHIEVE OPERATIONAL
   SELF-SUFFICIENCY
---------------------------------------------------------- Chapter 0:3

Using Amtrak's approach for measuring its budget gap, the railroad
made some progress in moving toward operational self-sufficiency by
the end of 2002.  However, even this progress has been modest in
comparison to the total improvement needed.  To meet the goal of
operational self-sufficiency, Amtrak has developed a series of
strategic business plans.  Amtrak's latest strategic business plan,
approved by its Board of Directors in October 1998, anticipates that
the corporation will not use any federal subsidies for operating
expenses (other than for excess railroad retirement expenses) in
fiscal year 2002ï¿½1 year earlier than requested by the administration
and specified in the Amtrak reform act.\7 However, it will not be
easy for Amtrak to achieve its targets for revenues and expenses for
several of the business plan's key actions. 

--------------------
\7 Amtrak expects to release its next business plan in December 1999. 

      AMTRAK CITES A NARROWING
      BUDGET GAP
-------------------------------------------------------- Chapter 0:3.1

Amtrak's efforts are pointed toward achieving operating
self-sufficiency by fiscal year 2002.  To achieve this goal, Amtrak's
strategic business plan focuses on reducing what it calls its ï¿½budget
gap.ï¿½ Amtrak defines its budget gap as the corporation's net loss
less capital-related expenses, including depreciation of its physical
plant, other noncash expenses, and expenses from its program to
progressively overhaul railcars (i.e., to conduct a limited overhaul
of cars each year rather than a single comprehensive overhaul every
several years).  In essence, the budget gap represents expenses not
funded by Amtrak's revenues or its capital program.  In Amtrak's
view, if it reduces its budget gap to an amount equal to excess
Railroad Retirement Tax Act payments, it will have met the statutory
requirement for operational self-sufficiency. 

According to Amtrak, its budget gap fell by $18 million in fiscal
year 1999ï¿½from $494 million in fiscal year 1998 (after an adjustment
for the cost of retroactive labor payments was made\8 ) to $476
million in fiscal year 1999.  (See fig.  2.) Amtrak estimates that
the budget gap will be reduced by another $114 million in fiscal year
2000 to $362 million. 

   Figure 2:  Amtrak's Budget Gap
   and Progressive Overhaul
   Expenses, Fiscal Years 1994
   Through 2000

   (See figure in printed
   edition.)

Note:  Amtrak's progressive overhaul program started in fiscal year
1995 and affected its expenses starting in fiscal year 1996. 

Source:  GAO's analysis of Amtrak's data. 

However, Amtrak's budget gap would be larger if expenses for
progressive overhauls were included.  Amtrak does not include these
expenses in its calculation of the budget gap even though they are
considered to be operating expenses under generally accepted
accounting principles.  According to Amtrak officials, while
generally accepted accounting principles require the recording of
such spending as operating expenses, Amtrak funds progressive
overhauls through its capital program and therefore believes that the
costs for them should be counted as capital costs.\9 If progressive
overhauls are included in the calculation of the budget gap, the gap
would have decreased by $3 million in fiscal year 1999 (rather than
by $18 million)ï¿½from $561 million in fiscal year 1998 to $558 million
in fiscal year 1999.  In fiscal year 2000, the estimated gap would be
$442 million if the costs of progressive overhauls are included,
rather than $362 million.  This issue will be important when the
Amtrak Reform Council assesses Amtrak's need for federal funds for
operating self-sufficiency. 

However, even if Amtrak's definition of its budget gap is used, the
railroad must still reduce its losses substantially if it is to
become operationally self-sufficient by the end of fiscal year 2002. 
In the next 3 fiscal years, Amtrak must reduce its budget gap by $291
millionï¿½from $476 million in fiscal year 1999 to an estimated $185
million in fiscal year 2002ï¿½an amount equivalent to excess railroad
retirement payments.\10 This needed reduction is nearly four times
the $78 million improvement that Amtrak was able to achieve in the
previous 5 fiscal yearsï¿½1995 through 1999. 

--------------------
\8 Although Amtrak's audited financial statements allocated the full
$106 million amount of the retroactive payments for recently
negotiated labor agreements to expenses for fiscal year 1998, Amtrak
officials, in calculating the budget gap, allocated the amounts over
the years for which those payments actually accrued ($35 million each
in fiscal years 1996 and 1997 and $36 million in fiscal year 1998). 
The result of this allocation improved Amtrak's fiscal year 1998
budget gap by $70 million. 

\9 According to Amtrak, if it is unable to fund its progressive
overhaul program from federal funds after 2002, it may be forced to
move solely to a heavy overhaul program.  Amtrak officials believe
that the progressive approach keeps its equipment in a higher average
state of good repair and is less expensive. 

\10 According to an Amtrak official, the excess railroad retirement
figure may be higher in the future, reducing the budget gap that
Amtrak must close.  However, Amtrak has not finalized these estimates
as of late October 1999. 

      ACHIEVING AMTRAK'S STRATEGIC
      BUSINESS PLAN GOALS WILL BE
      DIFFICULT
-------------------------------------------------------- Chapter 0:3.2

Under its October 1998 strategic business plan, Amtrak plans to reach
operational self-sufficiency by emphasizing business growth through a
number of initiatives focusing on increasing revenues.  However, it
will be difficult for Amtrak to successfully carry out its plan,
raising the question about whether Amtrak will be able to achieve
operational self-sufficiency by the end of fiscal year 2002. 

As shown in table 1, Amtrak estimates that its business plan
initiatives will result in net cash improvements of $1.6 billion for
fiscal years 1999 through 2002.  Table 1 also shows that the expected
cash impact from six key initiatives will account for nearly 60
percent of the expected financial improvement--$917 million.  The
remaining benefits come from hundreds of individual actions outlined
in Amtrak's business plan.  Overall, Amtrak projects that if it
achieves the financial benefits associated with these initiatives, it
will gradually reduce its reliance on federal operating assistance,
and reach operating self-sufficiency by 2002. 

                                         Table 1
                         
                         Estimated Financial Results of Amtrak's
                            Initiatives From Fiscal Year 1999
                                 Through Fiscal Year 2002

                                  (Dollars in millions)

                                 Change    Change  Net cash
                                     in        in  improvem
Initiative                     revenues  expenses       ent  Basis for estimate
-----------------------------  --------  --------  --------  ----------------------------
Begin high-speed service in        $822    $414\a      $408  Ridership forecast
 late 1999
Expand express service              248     188\a        60  Analyses of market potential
Align intercity route network        60      (45)       105
 to meet customer demand                                      Officials' professional
                                                              judgment
Implement service standards          85      (20)       105  Officials' professional
                                                              judgment
Purchase electricity at             (5)      (34)        29  Negotiations with a utility
 wholesale rates                                              company
Implement cost-saving                56     (154)       210  Placeholders to balance
 initiatives                                                  annual budgets
=========================================================================================
Subtotal                         $1,266      $349      $917
Implement hundreds of other         840       148       692  Strategic business units'
 initiatives\b                                                forecasts
=========================================================================================
Total                            $2,106      $497    $1,609
-----------------------------------------------------------------------------------------
\a The expenses for high-speed rail service and express service
exclude $179 million and $8 million for depreciation, respectively. 

\b We did not review the bases for these estimates. 

Source:  GAO's analysis of Amtrak's October 1998 strategic business
plan. 

Amtrak expects its largest revenue increases to come from
implementing new high-speed rail service between Boston and
Washington, D.C., (known as Acela service) and expanding its express
package service (the delivery of higher-value time sensitive goods). 
Amtrak also plans to increase its revenues and control costs by
developing a market-based intercity route network that aligns its
passenger service more closely with customer demand (adding trains to
certain routes or starting new service where appropriate, for
instance).  In addition, by implementing service standards (such as
improving service to passengers), Amtrak expects to increase
ridership (and revenues) through higher-quality and more consistent
service.  Amtrak plans to contain costs by reducing the costs of
electric power in the Northeast Corridor and implementing cost-saving
initiatives, such as enhancing productivity in a number of ways
throughout its system. 

Among the challenges that Amtrak must surmount are achieving dollar
savings specified in its plan for which it had not identified any
specific action.  In this regard, Amtrak's plan contains broad
categories of cost-saving initiatives referred to as ï¿½undefined
initiativesï¿½ and ï¿½planned management actions to be developed.ï¿½ These
categories represent $210 million in net financial improvements for
which Amtrak had not identified specific initiatives or developed any
plan of action when the plan was approved.  The amounts were
placeholders to balance the yearly budgets.  Amtrak intends to
achieve these net financial improvements primarily through cost
savings that it will identify on an ongoing basis.  As of June 1999,
Amtrak officials had identified actions to be taken representing a
net financial improvement of about $49 million, reducing the dollar
amount of actions yet to be defined to about $161 million.  An Amtrak
official told us that since June 1999, Amtrak has not updated its
identification of these actions. 

As mentioned earlier, Amtrak plans to align its service to better
meet customer demand, referred to as implementing a market-based
network.  Although Amtrak had not completed its network analysis when
it adopted its latest strategic business plan, the corporation
estimated that its realigned network will generate $105 million in
net financial improvements over the period by such actions as serving
currently unserved markets that have good demand potential.\11

According to Amtrak officials, for the most part, this estimate was
based on senior officials' judgment of changes in revenues and
expenses resulting from an analysis of the potential for partnerships
with states and local governments in certain transportation
corridors.  Amtrak did not supply us with information on how it
derived the estimated financial improvement. 

As we reported last year, the business decisions that Amtrak makes
regarding the structure of its route system will play a crucial role
in determining its long-term viability.\12 We reported that, during
fiscal year 1997, a number of Amtrak's routes lost large sums of
money:  13 routes each lost more than $30 million.  Further, for 14
of its routes, Amtrak lost more than $100 per passenger.  Finally, in
fiscal year 1997, fewer than 100 passengers, on average, boarded
Amtrak intercity trains and connecting buses per day in 13 states. 

Other major initiatives portrayed in table 1 face similar
uncertainties and are discussed in our July 1999 report.\13 In
addition, in September 1999, Amtrak announced the delay of the start
of its Acela Express high-speed rail service.  According to Amtrak,
it is working on a combination of cost avoidance and revenue
enhancements that will offset the expected loss in Acela Express
passenger revenue in fiscal year 2000. 

Finally, our ongoing work for this committee suggests that Amtrak may
continue to have difficulty in controlling certain costs, including
labor costs.  In fiscal year 1999, labor costs represented about 52
percent of Amtrak's operating expenses.  In fiscal year 1999, Amtrak
exceeded its budget for wage and overtime expenses for labor
agreement-covered employees, and over $24 million more was spent on
wages than was planned.  It will be important for Amtrak to implement
productivity improvements to help offset cost increases.  Amtrak is
currently finishing the last round of collective bargaining with its
unions and estimates that the total amount of wages and benefits paid
will have increased by $248 million over the 5-year period ending in
fiscal year 2000.  Amtrak has been and plans to continue partially
offsetting these wage and benefit increases through such productivity
improvements as increasing from 4 hours to 6 hours the threshold for
a second engineer in locomotives.  Starting in fiscal year 2000,
Amtrak must begin renegotiating contracts with the 13 labor unions
and 2 councils that represent about 90 percent of its workforce. 
Amtrak has a goal to achieve a 0.2-percent decrease in labor costs
from fiscal year 2000 through fiscal year 2002.\14 We plan to report
more fully on this and other information to this Committee in spring
2000. 

--------------------
\11 As of October 1999, Amtrak was still completing its network
analysis and had not made final decisions regarding network changes,
according to an Amtrak official. 

\12 See Intercity Passenger Rail:  Financial Performance of Amtrak's
Routes (GAO/RCED-98-151, May 14, 1998; and Intercity Passenger Rail: 
Prospects for Amtrak's Financial Viability (GAO/RCED-98-211R, June 5,
1998). 

\13 See GAO/RCED-99-181. 

\14 In constant 1998 dollars. 

   AMTRAK HAS USED TAXPAYER RELIEF
   ACT FUNDS TO FINANCE A VARIETY
   OF ACTIVITIES
---------------------------------------------------------- Chapter 0:4

The Taxpayer Relief Act of 1997 provided Amtrak with about $2.2
billion to acquire capital improvements, upgrade maintenance
facilities, and maintain existing equipment in intercity passenger
rail service; and pay interest and principal on obligations incurred
for these uses.  Amtrak had reported spending over $1.2 billion of
these funds for these uses through May 31, 1999.\15

Amtrak reports spending over half of the $1.2 billion--or $756
million--of TRA funds for capital improvement projects related to
intercity passenger rail through May 1999.  This includes $527
million in infrastructure-related improvements, such as track signals
and improvements to bridges and electric catenary toward completion
of Amtrak's Acela high-speed rail service between Washington, D.C. 
and Boston.  The $756 million also includes about $201 million for
capital projects related to the acquisition of and improvement to
rolling stock used in intercity passenger service. 

Amtrak has also reported spending $427 millionï¿½about one-third of all
TRA expendituresï¿½for maintenance of equipment expenses through May
1999.\16 Even though maintenance of equipment is an allowable expense
under TRA, Amtrak plans to ultimately use most TRA funds for
high-rate-of-return capital improvement projects.  Amtrak therefore
intends to ï¿½repay itselfï¿½ for the TRA funds that have been used to
pay for maintenance of equipment expenses.\17

According to Amtrak's October 1998 strategic business plan, these
repayments will begin this fiscal year, and, according to Amtrak,
$100 million was repaid on October 1, 1999. 

Amtrak does not identify the specific equipment maintenance expenses
that TRA funds were used for.  TRA funds are not used to pay for
equipment maintenance expenses at the time they are incurred. 
Rather, Amtrak has used TRA funds to reimburse itself for equipment
maintenance expenses after these expenses have already been paid from
other sources.  Amtrak applies TRA funds to a pool of allowable
equipment maintenance expenses as a whole, rather than individual
invoices.  According to Amtrak, there is always a sizable pool of
allowable equipment maintenance expenses and it has used TRA funds
for an amount smaller than the allowable pool.  Therefore, Amtrak
believes that it has used TRA funds only for purposes that are
allowable under the act. 

Finally, Amtrak has used nearly $48 million in TRA funding to make
principal payments on its long-term debt.  According to Amtrak's
data, the debt that TRA has serviced has been used to acquire rolling
stock (locomotives, passenger cars, etc.) and to rebuild facilities. 

--------------------
\15 As required by law, Amtrak has also paid $139 million to states
without Amtrak service. 

\16 This includes $15 million in expenses for maintenance of
equipment that Amtrak does not plan to repay. 

\17 Amtrak has historically funded progressive overhauls through its
capital program even though it records them as operating expenses
consistent with generally accepted accounting principles.  Because
Amtrak views progressive overhaul expenses as capital expenses, not
operating expenses, it does not plan to repay about $104 million of
these expenses as it does for most of the other maintenance of
equipment expenses. 

   AMTRAK WILL CONTINUE TO HAVE
   SIGNIFICANT UNMET CAPITAL
   INVESTMENT NEEDS
---------------------------------------------------------- Chapter 0:5

Capital investments are critical to supporting Amtrak's business
plans and maintaining its viability.  Such investments are needed to
help Amtrak improve its quality of service and attract revenues. 
However, Amtrak continues to have significant unmet capital needs. 
In addition, Amtrak currently does not have a comprehensive 5-year
capital plan to identify all its needs and how they will be
financed.\18

To date, from discussions with Amtrak, we have identified about $1.5
billion in short-term (up to 5 years) capital needs.  These include: 
$800 million to complete the Acela high-speed rail program in the
Northeast; $425 million for capital debt payments; $194 million for
life safety investments in the Northeast Corridor; and $94 million
for maintenance facility improvements.  In addition, Amtrak will
require capital funding to conduct mandated environmental remediation
projects; expand high speed rail service to other corridors; make
track improvements in the Northeast Corridor; and buy new equipment
for its planned mail and express service expansion and other possible
refleeting actions.  For example, Amtrak estimates that it will need
an additional 1,500 pieces of equipment to meet current and expected
mail and express service projections.  Federal funding expected to be
available from 2001 through 2003 could meet some of these short-term
capital investment needs.  As a result, Amtrak may be required to
rely heavily on state, local, and private financing. 

Amtrak will also face significant capital funding needs over the long
term (5- to 20-years).  In discussions with Amtrak and the Federal
Railroad Administration, we have identified some of these needs. 
These long-term needs consist mainly of bringing the Northeast
Corridor up to a state of good repair.  In May 1996, the Federal
Railroad Administration and Amtrak estimated that up to $6.7 billion
might be needed to recapitalize the corridor and make improvements
targeted to respond to high-priority growth opportunities over the
next 20 years.  (As of fiscal year 1999, there has been no
significant recapitalization of the south end of the Northeast
Corridor.) If the identified state of good repair needs are not
adequately addressed, Amtrak's trip times, including those for
high-speed rail, and operational reliability could be adversely
affected.  Amtrak is currently finalizing a study of the costs
associated with state of good repair needs on the south end of the
Northeast Corridor (New York City to Washington, D.C.).  Significant
capital investment will also be required for other projects.  These
include (1) life safety work in the New York City area (such as
improving the ability of passengers to leave a rail tunnel in an
emergency), (2) capacity improvements and replacement of the electric
catenary system on the south end of the Northeast Corridor, and (3)
continued high-speed rail improvements on the Northeast Corridor. 
Amtrak has not yet identified sources of funds for its long-term
needs. 

Although Amtrak has significant capital investment needs, it does not
have a 5-year capital plan, making it unclear at this time what
Amtrak's total current capital needs are and how it plans to fund
these needs.  In addition, because Amtrak does not have a
comprehensive capital plan, it has not made decisions about the
relative priority of capital improvements should anticipated funding
sources--such as federal appropriations, assistance from states, and
private financing--be insufficient to meet the railroad's capital
investment needs. 

--------------------
\18 Amtrak expects to adopt a 5-year capital plan covering fiscal
years 2000 to 2004 in December 1999. 

   OBSERVATIONS
---------------------------------------------------------- Chapter 0:6

The Congress gave Amtrak until the end of fiscal year 2002 to reach
operational self-sufficiency.  Amtrak has focused its ambitious
strategic business plan to meet this goal 1 year earlier than
required by the Congress.  Yet, Amtrak has made relatively little
progress over the past 5 years toward achieving this goal:  In the
next 3 years, Amtrak must achieve nearly four times as much in
financial improvements as it was able to achieve through its business
plans over the previous 5 years.  In addition, Amtrak has substantial
capital needs that, if met, could help it improve service, attract
and retain passengers, and improve its financial condition.  However,
Amtrak does not have a comprehensive capital plan; nor has it
identified funding sources to cover all its capital needs.  The
stakes are high:  if Amtrak does not become operationally
self-sufficient by the end of 2002, the Amtrak Reform Council must
submit to the Congress plans for restructuring the railroad and
Amtrak must prepare a plan for its own liquidation. 

-------------------------------------------------------- Chapter 0:6.1

Mr.  Chairman, this concludes our testimony.\19 We would be pleased
to answer to any questions that you or Members of the Subcommittee
may have. 

--------------------
\19 The information contained in this testimony is based on our July
1999 report on Amtrak's financial condition (GAO/RCED-99-181);
updated information on Amtrak's financial results; and our ongoing
work for this Committee on Taxpayer Relief Act expenditures and
Amtrak's major costs and capital needs.  We performed our work in
October 1999 in accordance with generally accepted government
auditing standards. 

   CONTACT AND ACKNOWLEDGMENTS
---------------------------------------------------------- Chapter 0:7

For information regarding this testimony, please contact Phyllis F. 
Scheinberg at (202) 512-3650.  Individuals making key contributions
to this testimony were Angela Clowers, Catherine Colwell, Richard
Jorgenson, Debra Prescott, and James Ratzenberger. 

*** End of document. ***