[Senate Hearing 106-1138]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1138
OVERSIGHT HEARING ON AMTRAK
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 26, 2000
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington JOHN D. ROCKEFELLER IV, West
TRENT LOTT, Mississippi Virginia
KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan RON WYDEN, Oregon
SAM BROWNBACK, Kansas MAX CLELAND, Georgia
Mark Buse, Republican Staff Director
Ann Choiniere, Republican General Counsel
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
C O N T E N T S
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Page
Hearing held on September 26, 2000............................... 1
Statement of Senator Cleland..................................... 103
Statement of Senator Kerry....................................... 73
Prepared statement........................................... 82
Statement of Senator McCain...................................... 1
Prepared statement........................................... 3
Statement of Senator Snowe....................................... 106
Statement of Senator Wyden....................................... 4
Witnesses
Allard, Hon. Wayne, U.S. Senator from Colorado................... 14
Carmichael, Gilbert E., Chairman, Amtrak Reform Council.......... 34
Prepared statement........................................... 37
Coston, James E., Attorney, Chicago, IL, prepared statement...... 95
Kaine, Hon. Timothy M., Mayor of Richmond, VA, on Behalf of the
U.S. Conference of Mayors, Boise, ID........................... 83
Prepared statement........................................... 86
Mead, Kenneth M., Inspector General, U.S. Department of
Transportation................................................. 5
Prepared statement........................................... 8
Scheinberg, Phyllis F., Associate Director, Transportation
Issues, U.S. General Accounting Office......................... 25
Prepared statement........................................... 27
Thompson, Gov. Tommy, Chairman of the Amtrak Reform Board,
Accompanied by George Warrington, President, National Railroad
Passenger Corporation.......................................... 20
Prepared statement........................................... 22
Vranich, Joseph, Irvine, CA...................................... 51
Prepared statement........................................... 53
Appendix
Capon, Ross B., Executive Director, National Association of
Railroad Passengers, prepared statement........................ 110
Selden, Andrew C., Vice President--Law and Policy, United Rail
Passenger Alliance, Inc., letter dated August 24, 2000 to
Senator McCain................................................. 109
OVERSIGHT HEARING ON AMTRAK
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TUESDAY, SEPTEMBER 26, 2000
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 9:30 a.m. in room
SR-253, Russell Senate Office Building, Hon. John McCain,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
The Chairman. Good morning. Today's hearing will be the
first Amtrak oversight hearing by the full Committee since we
approved comprehensive reform legislation nearly 3 years ago.
Clearly not all Members of this Committee share the same
perspective concerning the obligation imposed on the American
taxpayers to fund Amtrak for what is now in its 29th year of
subsidization, and more than $23 billion, even though Amtrak
was to have been free of all federal assistance 2 years after
it was established long ago in 1971.
However, we did all work collectively on reform
legislation, with the intent to give Amtrak the tools it said
it needed to become operationally self-sufficient. I am eager
to learn what progress Amtrak has made toward achieving that
statutory goal.
More important, we must examine whether the statutory
provisions shepherded by this Committee will even be relevant
if Amtrak and others are successful in enacting the $10 million
bond funding scheme being pushed forward by the Senate
Financing Committee. Despite my urging to the contrary, last
week the Finance Committee was expected to report out
legislation which included the bonding authority for Amtrak.
The actual legislative language has still not been made
available, but their postponed markup is now expected to occur
this week.
So far, this multibillion blank check has managed to sail
through without even a single hearing by the Finance Committee,
just like when it found a way to give Amtrak $2.2 billion in
tax refunds, even though Amtrak has never earned a profit nor
paid corporate taxes.
There is a nagging feeling of deja vu, and I fear once
again the American taxpayers will pay the price. As Chairman of
the authorizing Committee, I will not sit idly by for another
committee to effectively nullify the 1997 reform legislation
developed by this Committee. I intend to do all I can to put
the spotlight on how this funding scheme will impact the
federal taxpayers and the legal obligations of the federal
government, not to mention the spirit of the 1997 reform
legislation.
During this hearing, Amtrak will present a glowing report
on its achievements. I caution my colleagues to not tune out
those who will testify about the less than glowing facts. While
Amtrak will discuss last year's record-setting year and this
year's growing ridership revenues, the Department of
Transportation Inspector General will report that Amtrak has
also been experiencing its largest operating losses in history
during the same record-setting period.
Again, Amtrak has been experiencing its largest losses in
history at the time when our Nation's economy has been at its
strongest. Yet we would never know about these losses if we
only relied on Amtrak's press releases. We never hear that
Amtrak's expenses are rising, or that its ridership and revenue
gains are actually below the levels projected in Amtrak's
strategic business plan. I cannot understand how Amtrak can so
easily issue press releases about its seemingly glowing
statistics and outright ignore the realities of the bigger
financial picture. To my knowledge, no legitimate business
enterprise in this country could get away with deceiving its
stakeholders in the manner Amtrak has been doing in its press
releases about ridership and revenues.
Obviously, ridership is not the end-all Amtrak wants us to
think it is, if Amtrak is experiencing astronomical operating
losses at the same time it is touting its ridership. Further,
if you actually look at Amtrak's ridership historically, you
will find that last year's record ridership was essentially at
the same level it was in 1979. Amtrak's stagnant ridership
cannot be ignored, particularly given the growth experienced by
other passenger modes.
In the past decade, car travel is up 25 percent, bus travel
is up 7 percent, and air travel is up 37 percent. And, let us
consider the actual ridership level comparison. Inner city
buses carried 357 million passengers annually, compared to
Amtrak's 21 million. That is 17 times more passengers. Airlines
carry 582 million passengers, 28 times more than Amtrak
carries, but we are supposed to be impressed that Amtrak's
ridership is at the same level it was 20 years ago, and we will
be asked to continue pumping billions of dollars in a form of
transportation that the majority of the traveling public is not
interested in utilizing outside of the Northeast.
If we are serious about fulfilling our responsibilities, we
need to consider all of the facts, good and bad. We need to
oversee Amtrak based on its actual financial results and
service demand. This cannot be accomplished if we allow our
objectiveness to be overridden by notions of nostalgia and a
single goal of retaining a form of transportation from
yesteryear regardless of the cost.
Perhaps today we cannot make a definitive conclusion on
whether Amtrak can meet its statutory requirement to be free of
operating assistance by the end of 2002. According to the
recent report by the Inspector General, however, it is next to
impossible.
But one thing is certain today. Amtrak needs to make more
progress before any further funding schemes are enacted,
particularly schemes in which another committee is effectively
authorizing Amtrak as a federal monopoly for another 30 years.
I welcome today's witnesses, and look forward to hearing
their testimony.
Senator Wyden.
[The prepared statement of Senator McCain follows:]
Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
Today's hearing will be the first Amtrak oversight hearing by the
Full Committee since we approved comprehensive reform legislation
nearly 3 years ago.
Clearly, not all Members of this Committee share the same
perspective concerning the obligation imposed on the American taxpayers
to fund Amtrak for what is now in its 29th year of subsidization--and
more than $23 billion dollars--even though Amtrak was to have been free
of all federal assistance 2 years after it was established in 1971.
However, we did all work collectively on the reform legislation with
the intent to give Amtrak the tools it said it needed to become
operationally self-sufficient. I am eager to learn what progress Amtrak
has made toward achieving that statutory goal.
The Amtrak Reform and Accountability Act of 1997 provided the
operational, procurement, labor, and liability reforms that Amtrak
requested so it could operate more like a legitimate business. The
reforms were designed to allow Amtrak to run its operations based on
good business decisions, rather than political pressures. For example,
the reforms allowed Amtrak to set its own route structure, instead of
conforming to a statutory mandate. The reforms allowed Amtrak to
contract out work where Amtrak decides it makes sense to do so. The
reforms further allowed Amtrak to negotiate more reasonable labor
protection agreements in lieu of the statutory six-year guaranteed
severance. I will be very interested in learning how Amtrak has
utilized its new authorities and what cost savings these long sought
after reforms have actually generated.
In another area, the law required the Department of Transportation
Inspector General (DOT-IG) to oversee an independent audit of Amtrak's
financial books in order to establish a performance bench-mark.
Subsequent annual audits by the DOT-IG were also required. In addition,
the law created an 11-member Amtrak Reform Council (ARC) to review
Amtrak's operations and financial results and make recommendations to
help Amtrak improve both operationally and financially. Today we will
hear from the DOT-IG and the ARC on their findings and perspective
about Amtrak's future. The General Accounting Office (GAO) will also
provide us with an overview on their various reports.
As I said, during this hearing we will hear about Amtrak's progress
toward meeting the statutory requirement of operational self-
sufficiency. I am sure that Amtrak will present a glowing report on its
achievements. But I caution my colleagues to not tune out those who
will testify about the less glowing facts. For instance, Amtrak will
discuss last year's ``record setting year'' and this year's growing
ridership statistics. However, we will also be told by the DOT-IG that
during the same ``record setting'' year, Amtrak also experienced its
largest operating losses in history. Amtrak's operating loss for FY
1999 was $907 million and its projected loss for this year is nearly as
great.
Again, Amtrak has been experiencing its largest losses in history
at the time when our nation's economy has been at its strongest. Yet we
would never know about Amtrak's losses if we only relied on Amtrak's
press releases. I for one, cannot understand how Amtrak can so easily
issue press releases about its seemingly glowing statistics and
outright ignore the realities of the bigger financial picture. To my
knowledge, no legitimate business enterprise in this country could get
away with deceiving its stakeholders in the manner Amtrak has been
doing in its press releases about ridership and revenues. Sure,
ridership has been up a month here and there--and that's great news.
But, obviously, ridership is not the end-all we would expect it be if
Amtrak is experiencing astronomical operating losses at the same time
it is touting its ridership.
Further, if you actually look at Amtrak's ridership historically,
you will find that last year's ``record ridership'' is essentially at
the same level it was in 1979! Yes, its ridership was 21.4 million in
1979 and 21.5 million in 1999. But no one relying only on Amtrak's
cheers would ever know this to be the case.
Amtrak's stagnate ridership shouldn't be ignored particularly given
the growth experienced by other passenger modes. In just the past
decade, car travel is up 25 percent, bus travel is up 7 percent and air
travel is up 37 percent. And let's consider the actual ridership level
comparison: intercity buses carry 357 million passengers annually
compared to Amtrak's 21 million--that is 17 times more passengers.
Airlines carry 582 million passengers--28 times more than Amtrak
carries. But we are supposed to be impressed that Amtrak's ridership is
at the same level it was 20 years ago and we'll be asked to continue
pumping billions of dollars into a form of transportation that the
majority of the traveling public isn't interested in utilizing outside
of the Northeast.
If we are serious about fulfilling our responsibilities, we need to
consider all of the facts, good and bad. We need to oversee Amtrak
based on its actual financial results and service demand. This cannot
be accomplished if we allow our objectiveness to be overridden by
nostalgia, and the notion of retaining a form of transportation from
yesteryear at no matter what cost.
We cannot predict today whether Amtrak will meet its statutory
requirement to be free of operating assistance by the end of 2002. Some
are certain Amtrak will reach operational self sufficiency. Some, like
the DOT-IG, are skeptical and still others consider it virtually
impossible. But I am certain about one thing: Amtrak needs to make more
progress before any further funding schemes are considered.
I am strongly opposed to Amtrak's efforts to enact legislation to
provide it up to $10 billion of additional funding above and beyond
that provided in Amtrak's existing authorization as developed by this
Committee. This latest proposal is being sold as a way to fund high
speed rail projects across the country through the issuance of Amtrak
bonds. It is too bad there isn't a single highspeed route in operation
today to give us any real inkling if the traveling public would utilize
highspeed service at a rate to even come close to making it cost
effective beyond the Northeast Corridor. Why should we hand over
billions of more dollars to Amtrak to selectively invest in highspeed
corridors when it hasn't been able to effectively carry out its
underlying mission?
Intercity rail passenger ridership has remained essentially
unchanged during Amtrak's near 30-years of operation and $23 billion
dollars in subsidies, while ridership via other transportation modes
has fastly grown. Amtrak's capital needs are projected by the GAO to be
$4 billion dollars through 2004 and at least another $5.1 billion
dollars through 2015. I would think it would make a lot more sense for
Amtrak and its proponents to focus their efforts on finding a way to
fund these already identified capital infrastructure needs before
looking to spend billions of dollars on service not even in operation.
More important, Amtrak has not yet fulfilled the operating self-
sufficiency mandate required under the law. Therefore, I find it very
premature, at best, to be pushing a new $10 billion funding proposal at
this juncture. I will nevertheless be very interested to learn how the
proposed bond legislation, if enacted, would impact the federal
taxpayers, the legal obligations of the federal government, and the
spirit of the 1997 Act. And, if enacted, will Amtrak cease to expect
future federal subsidies entirely? Somehow, I doubt it.
I welcome today's witnesses and look forward to hearing their
testimony.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. Thank you, Mr. Chairman. I very much
appreciate your holding this oversight hearing. I personally
think a whole lot more oversight needs to be done in the U.S.
Congress, and I am glad that you are going forward with today's
hearing.
Once again we have another troubling Inspector General
report about Amtrak. This one shows very clearly that Amtrak
continues to employ Alice in Wonderland financial analysis. For
more than a year, both the Inspector General and the General
Accounting Office have been raising concerns that Amtrak is not
going to meet its legal obligation to become subsidy free by
2003.
Despite these warnings, Amtrak keeps issuing rosy
projections and asserting that its business plan is going to
make the railroad self-sufficient one year ahead of schedule.
The recent Inspector General report states that Amtrak's
business plan will not achieve operating self-sufficiency in
2003.
When it unveiled this plan, Amtrak claimed realigning its
routes would generate an additional $105 million in revenue,
but one of the key auditors says, and I quote, ``Amtrak never
gave us any support for their numbers,'' unquote. In reality,
the new high-speed trains which are the linchpin of Amtrak's
plan for financial solvency run into delay after delay.
Originally scheduled to begin running last fall and
generate $180 million in profits next year, these trains still
have not gone into service. Even as it became clear that the
trains were not going to run as scheduled, Amtrak officials
continued to insist that the delay would not have a negative
financial impact.
The bottom line is, the numbers say one thing, Amtrak
insists on something else. Recently a member of the Amtrak
Reform Council created by the Amtrak Reform Accountability Act
resigned on the grounds that Amtrak was making decisions to add
pork barrel trains to the districts or home towns of
politically connected officials. Despite a legislative mandate,
the Amtrak Reform Accountability Act, and commitments to
Congress that Amtrak would achieve operational self-
sufficiency, Amtrak continues to ignore financial reality and
play politics with its routes.
I would just like to emphasize how strongly I feel about
that point, Mr. Chairman, because there is no question that
Amtrak is playing politics with these new routes and what it is
doing with respect to assigning them. Governor Thompson, to his
credit, in one of our last hearings acknowledged that the route
in Eastern Oregon should not have been eliminated.
If you will look at those routes, strictly on the merits,
that route in Eastern Oregon should not have been eliminated.
Fortunately Tommy Thompson has got some candor chromosomes in
there, and he admitted it, and I appreciate that, but Amtrak
still has not addressed the problem, and this Senator is going
to stay with it until we start calling these routes on the
merits.
This is just no way to run a railroad in this country. We
ought to start moving to get Amtrak operating in an efficient
manner before it becomes a financial train wreck and the
taxpayers are left to pick up the pieces. It is time to make
decisions at this agency on the merits, and not with respect to
politics, and I look forward again, Mr. Chairman, to working
with you on a bipartisan basis in this regard.
The Chairman. Thank you, Senator Wyden.
Our panel today is the Hon. Kenneth Mead, Inspector
General, U.S. Department of Transportation, Governor Tommy
Thompson, the chairman of the Amtrak Reform Board. He is
accompanied by George Warrington, who is the president of the
National Railroad Passenger Corporation. Mrs. Phyllis
Scheinberg, who is the Associate Director of Transportation
Issues, U.S. General Accounting Office, Mr. Gilbert Carmichael,
who is the chairman of the Amtrak Reform Council, Mr. Joseph
Vranich, and Hon. Timothy M. Kaine, mayor of Richmond,
Virginia, on behalf of the U.S. Conference of Mayors.
Welcome before the Committee, Mr. Mead.
STATEMENT OF HON. KENNETH M. MEAD, INSPECTOR GENERAL, U.S.
DEPARTMENT OF TRANSPORTATION
Mr. Mead. Thank you, Mr. Chairman. Last week we issued our
most recent congressionally mandated report on Amtrak. The good
news is that Amtrak's revenue and ridership showed marked
improvement in 1999 and continued to do so in 2000. That
improvement has undoubtedly been moved along by the economy and
in the Northeast Corridor is certainly facilitated by aviation
delays and cancellations and aviation system congestion.
That has not been sufficient to turn the tide, though.
Essentially, in order for Amtrak to become self-sufficient by
2003 it will need to aggressively curtail expense growth, which
is offsetting revenue gains--there is still nearly three
quarters of a billion dollars in undefined management actions
in its business plan--launch Acela high-speed rail service, and
secure sufficient capital to support its basic needs. I will
take each of these points briefly in turn and then make a few
observations on S. 1900.
The Financial Status. This year, passenger revenues
improved by nearly 9 percent, ridership by about 4 percent.
Also, nonpassenger revenues showed a strong 9.7 percent growth
in 1999 and over 15 percent in 2000, and these nonpassenger-
related revenues now account for an amazing--at least it is
amazing to me--over 40 percent of the total operating revenues.
Certainly, that area has been improving.
But at the same time, system expenses have grown
significantly, nearly 7 percent in 1999 and so far this year an
additional 7.8 percent over last year. Interest expense on debt
grew rapidly in the nineties, and it will be over $100 million
per year in 2001.
Amtrak's cash loss in 1999 was $579 million, the highest in
a decade. We project the cash loss will decline in 2000 to $521
million, which will be the lowest since 1992, but substantially
greater declines will be necessary under Amtrak's mandate.
Unless Amtrak can find a way to curtail expense growth, and
soon, we doubt that Amtrak will be able to reach self-
sufficiency by 2003.
Mr. Chairman, we examined Amtrak's plans for reducing
losses, and unless they take major corrective action we see
them falling about $1.4 billion short of their projections
between 2000 and 2004. Our biggest concern is that Amtrak's
business plan projects operating self-sufficiency largely on
the back of $737 million in undefined business actions. They
are mostly unspecified reductions on the expense side, and
actions of the magnitude necessary to fill those gaps do not
translate into savings overnight. So we see a real urgency
here.
We also have some issues about Amtrak's Northeast Corridor
projections and on mail and express, but these are minor in
comparison to the three quarters of a billion dollars in
undefined management actions.
A word about Acela delays. The delays in starting Acela
Express will start affecting revenues in 2001, but it will not
be severe if there are no further expected delays. The Acela
service should be able to reach its full potential by 2003 if
there are no further delays.
A word on this, in fairness to Amtrak. Delays of this
nature--it is about a year, maybe a little longer depending on
how you count--are not uncommon in complex programs of this
type. This Committee has for years overseen the air traffic
control modernization effort, and we know that a delay of a
year there would sometimes be refreshing.
Capital outlook. For years we and others, including my
colleague Phyllis Scheinberg from GAO, have warned about
serious capital shortfalls facing this railroad. These
predictions have come true. In 2001, assuming Amtrak's cash
losses are no higher than it projects, and that assumes that it
will close about 20 percent of this three quarters of a billion
dollar gap, Amtrak will face a minimum capital shortfall of
over $90 million.
In 2001, Amtrak is going to have to find an additional $385
million, or Amtrak is going to have no choice but to ignore
some of its minimum needs, cancel key projects in progress,
including ones that are important to its glide path, and defer
on commitments to states for corridor development. I think this
underscores how critical it is for Amtrak to close that three
quarters of a billion dollar gap in its business plan, and
quickly. It is also important for Amtrak to take care of its
minimum capital needs first, such as operational reliability,
before spending scarce capital on growth-related projects
outside of minimum needs.
I am not saying the spending on these growth-related
projects is frivolous, but I am saying that the minimum needs
ought to be taken care of first, and we have found a number of
examples where that is not the case.
Finally, S. 1900. We and the GAO have repeatedly cautioned
that even if Amtrak attains operational self-sufficiency in
2003, it is going to require long-term capital funding. The
Amtrak Reform and Accountability Act, Mr. Chairman, did not say
whether Amtrak could count on long-term capital assistance from
the federal government. Clearly, it is Congress' role to
determine the amount and the vehicle for providing federal
capital support.
Another question is when these decisions ought to be made:
now, before Amtrak shows whether it will meet the requirements
under the reform act, or at the end of the 5-year glide path,
when you know one way or the other.
Under the current version of this bill, Amtrak could sell
$10 billion in high speed rail bonds over the next 10 years.
Interest payments are to be made by taxpayers in the form of a
tax credit to bond holders and repayment of principal is to be
paid by the States, which will be financed by a 20-percent
matching contribution by the States that will be placed in
escrow.
The House version would limit to 30 percent the amount that
could go to any one corridor, and the bonding authority would
be available to any intercity railroad, not just Amtrak.
Now, I am here to tell you that S. 1900 would partially
address Amtrak's capital needs, but Amtrak's total capital
needs extend well beyond high-speed corridors. Even with S.
1900 the Committee should be aware that Amtrak will continue to
need annual appropriations, most likely more than the $500
million or so that it currently receives. Until Amtrak develops
a detailed 5-year plan for capital, its annual requirements
cannot be estimated with any degree of precision.
Also, as introduced, S. 1900 lacks sufficient oversight of
Amtrak's spending of the bond proceeds. The costs of developing
high speed corridors are significant, and $1 billion each year
will not be sufficient for Amtrak to meaningfully invest in
every corridor seeking a piece of the pie. If funds are
sprinkled around the country in amounts sufficient to get
projects underway but insufficient to complete them, the likely
results will be few of the routes will achieve expectations, to
say nothing of the fiscal problems, and Mr. Chairman, the
pressures to do this are going to be extraordinary.
I have got in my hand a list of endorsements for S. 1900
from all over the country--people that are seeking corridors.
Amtrak packaged this up and sent it over, and it really is
amazing, the expectations from around the country. Everybody
will not be able to eat part of that pie, and I think it is
important that if we start projects, that we make sure that we
have the funds available to complete them.
The Chairman. How much money, do you think, just off the
top of your head, is in all those letters?
Mr. Mead. I think probably twice the $10 billion, and I am
sure that is conservative. In other words, the $10 billion is
not going to come close to meeting all the demands from all
over the country.
The Chairman. How many promises have been made?
Mr. Mead. I am not privy to any promises that have been
made. My point here is that federal oversight is critical, and
we have been assured that adequate oversight provisions would
be put in the bill. I think that is a very important point,
otherwise we will have a lot of projects starting up, cropping
up around the country, but you want to finish them, too.
Finally, we have questions about how a 10-year
authorization for high-speed rail bonds would interface with
the mandate to achieve operating self-sufficiency by 2003. If
Congress decides that S. 1900 is the appropriate vehicle for
addressing certain of Amtrak's capital needs, we think
continuation of that authority ought to be made explicitly
contingent on Amtrak meeting its operating self-sufficiency
mandate as prescribed by law.
Now, I know there is concern about what happens if they
miss it by $5 or $10 million, and I think you probably need a
safety valve in there. If they come close I think the equation
is much different, and they should be considered as meeting it,
and so I am not talking about them being off by a few million
dollars. I am talking about them missing it by magnitudes.
That concludes my statement, sir.
[The prepared statement of Mr. Mead follows:]
Prepared Statement of Hon. Kenneth M. Mead, Inspector General,
U.S. Department of Transportation
Mr. Chairman and Members of the Committee,
We appreciate the opportunity to testify on Amtrak's financial
performance and requirements. Last winter when we testified on this
subject, we stated that it would be possible for Amtrak to achieve
operating self-sufficiency by 2003, but that delays in Acela Express
would pose additional obstacles. Today, the picture is bleaker. Acela
Express is still not in service and large holes exist in Amtrak's
business plan that will need to be filled in order for Amtrak to
achieve operating self-sufficiency. On the plus side, Acela Express
stands to benefit if aviation delays continue to plague the Northeast.
However, time is running short, as are Amtrak's available funds to
invest in its equipment and infrastructure. Amtrak will face a $91
million minimum capital needs funding shortfall in 2001, or worse, if
it does not hit its operating targets.
With 3 years to go in its Congressionally-set mandate, we still
believe it is possible for Amtrak to reach operating self-sufficiency,
but this will depend heavily upon Amtrak's ability to curb expense
growth; in its 2001 business plan, fill the nearly three-quarters of a
billion dollars in existing ``undefined management actions''\1\; and
secure sufficient capital funding to support Amtrak's projected
ridership and revenue growth.
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\1\ Placeholders in Amtrak's business plan that represent the
difference between where Amtrak needs to be to achieve operating self-
sufficiency and where it believes it will be based on the performance
of already identified actions.
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We have just issued a report--the 2000 Assessment of Amtrak's
Financial Performance and Requirements \2\--that summarizes our
findings from our most recent Congressionally mandated annual review of
Amtrak. Today, we would like to discuss the main points in this report
by presenting our views on Amtrak's financial status through the first
11 months of Fiscal Year 2000, the likelihood of Amtrak's reaching
operating self-sufficiency by 2003, the impact of Acela delays, and
Amtrak's capital funding needs. And as requested, I would also like to
share some comments on the proposed bond bill, S. 1900, that is
currently under consideration in the Senate.
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\2\ Report No. CR-2000-121, September 19, 2000. 2000 Assessment of
Amtrak's Financial Performance and Requirements, Office of Inspector
General, U.S. Department of Transportation.
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Amtrak's Recent Financial and Performance Results
Amtrak has shown financial improvement but greater efforts must
concentrate on curtailing expense growth. The good news is that
Amtrak's revenue and ridership showed marked improvement in 1999 and
through the first 11 months of 2000. The bad news is that expense
growth has kept pace. If Amtrak is to reach operating self-sufficiency
by 2003, it must aggressively pursue actions that curb the growth in
expenses.
Revenue and Ridership results are positive. The revenue
growth that began in 1995 has brought Amtrak to the highest
passenger revenue levels in its history and Amtrak expects that
2000 passenger revenues will exceed those of 1999. Passenger
revenue grew by 5.7 percent in 1999 and in the first 11 months
of 2000, was up 8.6 percent over the same period in 1999.
Overall operating revenues increased in 1999 by 7.4 percent,
and were 11.7 percent higher in the first 11 months of 2000
than they were for the same period in 1999. Non-passenger
revenues showed a strong 9.7 percent growth in 1999 and in the
first 11 months of 2000, were almost 16 percent better than the
same period last year.\3\ Ridership grew 2 percent over 1998
levels and in the first 9 months of 2000, was up by 3.5
percent.\4\
\3\ Non-passenger revenues include mail and express, commuter,
reimbursable, commercial development, non-transportation, state
reimbursement, and other transportation revenues.
\4\ Ridership and on-time performance results were only available
through June 2000.
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Overall operating revenues increased in 1999 by 7.4 percent, from
$1,708 million to $1,834 million,\5\ with non-passenger revenues
showing a strong 9.7 percent growth, increasing from $707 million in
1998 to over $775 million in 1999. Non-passenger revenue constituted an
increasing share of Amtrak's total revenues between 1990 and 1999. The
overall increase in non-passenger revenue for the last 10 years has
been 105 percent, going from $378 million in 1990 to almost $776
million in 1999. Non-passenger activities now account for over 42
percent of Amtrak's total operating revenues.
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\5\ Amtrak's reported operating revenue in 1999 and 1998 included,
as required by generally accepted accounting principles, $191 million
and $542 million, respectively, of federal payments received, including
TRA funds, and $58 million in interest earnings on temporarily invested
TRA funds. Because the TRA funds and the interest earnings will be
spent on capital investment, they have been excluded from our reporting
of operating revenue.
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Composition of Amtrak Revenues, 1990 Through 1999 ($ in millions)
Although revenue and ridership trends are positive,
increases in labor costs, depreciation, and train operation
expenses have fueled continued growth in operating expenses,
increasing by 6.9 percent in 1999 and by 7.3 percent in the
first 9 months of 2000. Additionally, Amtrak has funded most of
its recent refleeting efforts through external financing, which
caused interest expenses to grow rapidly in the 1990's. The
interest costs on this financing are adding about $100 million
more to cash losses per year between 2000 and 2004 than in the
5-year period before these programs. Principal payments on
debt, which are considered capital costs, are also projected to
grow steadily between 2000 and 2004.
This expense growth has kept Amtrak's cash loss from declining.
Amtrak's cash loss in 1999 of $579 million was Amtrak's highest in 10
years. Although we project the cash loss in 2000 will be $521 million,
the lowest since 1992, Amtrak must make significantly more progress
each year if it is to reach its goal of operating self-sufficiency in
2003. Amtrak must reduce its cash loss to $266 million in 2003 to meet
this goal, a required improvement of $255 million over 2000. Reducing
the cash loss will depend heavily on limiting the growth in Amtrak's
expenses over the next 3 years.
The ridership and passenger revenue growth has occurred in the face
of little change in either Amtrak's Customer Satisfaction Index or its
on-time performance. In 1999, the Index decreased to 83 from 85 in
1998, and has rebounded to 85 for the first 9 months of 2000. On-time
performance was constant at 79 percent in 1998 and 1999, and has risen
slightly to 80 percent for the first 9 months of 2000. Both on-time
performance and customer satisfaction have been affected by the service
problems experienced by the freight railroads over the last 3 years.
To further bolster ridership, passenger retention, and revenue,
Amtrak instituted a Customer Service Guarantee on July 4, 2000. The
guarantee provides passengers who are not satisfied with Amtrak's
service, for any reason, with vouchers for future travel equal to the
value of the trip on which they were dissatisfied. Amtrak's goal for
the Customer Service Guarantee is that no more than 1 passenger in
1,000 (a 99.9 percent satisfaction rate) will request a voucher. The
issuance rate for July was about 2.8 per 1,000 passengers (99.7) and
the estimate for August is about 5 per 1,000 passengers (99.5).
Amtrak's Future Financial Outlook
Amtrak will need to take major corrective actions if it is to
achieve operating self-sufficiency in 2003. Despite positive trends in
revenue and Amtrak's financial results being close to goals over the
last 2 years, starting next year, the bar will be raised much higher.
Amtrak's cash losses must drop by an average of $85 million per year to
reach operating self-sufficiency in 2003.
Our assessment of Amtrak's business plan identified a number of
elements that are unlikely to perform as Amtrak expects. If no
corrective action were taken to compensate for them, Amtrak's cash loss
would be about $1.4 billion more than it projects over the 5-year
period, 2000 through 2004. Most critically, we project that in 2003,
the year of operational self-sufficiency, Amtrak would still require
$351 million more in operating assistance than it can fund with its
federal appropriation.
About 85 percent of the total $1.4 billion at risk of not being
achieved is concentrated in 3 elements of the Plan: $737 million in
undefined management actions, $304 million in Northeast Corridor
passenger revenues, and $179 million in Mail and Express net revenues.
I would like to say a few words about each of these areas.
Undefined Management Actions. Amtrak's business plan
projects operating self-sufficiency largely on the back of the
$737 million in undefined management actions. In essence, these
undefined actions represent the gap between the total cash loss
improvements Amtrak needs and what it expects to get from
actions it has already identified. If Amtrak's 2001 business
plan does not fully define these management actions, we
strongly doubt that Amtrak will be able to achieve its mandate
by 2003. Actions of the magnitude necessary to fill these gaps
do not translate into revenues or savings overnight.
Northeast Corridor Passenger Revenues. We are concerned that
Amtrak's projections for Acela Express ridership assume a
higher-than-likely diversion of passengers from air and
automobile, and an underestimation of ridership on the slightly
slower, but significantly less expensive Acela Regional
service. However, if Amtrak were to make some fare and service
adjustments, and if aviation delays continue to plague the
Northeast Corridor, we believe that a significant share of the
benefits we have questioned would indeed be forthcoming.
Mail and Express. In our opinion, the Mail and Express
service is not likely to ramp up as quickly as Amtrak projects;
however, by 2004, our projections come close to Amtrak's.
Agreements with freight railroads for permission to operate
trains with consists greater than 30 cars is essential to the
growth of Mail and Express capacity. According to Amtrak, most
of the freight railroads have expressed a willingness to enter
into such negotiations.
The bottom line is that if our projected losses were to occur, the
situation would be untenable for Amtrak. In 2001 and 2002, Amtrak would
have to cover the greater losses through its federal appropriation,
leaving virtually no funds for capital investment. Amtrak must take
major corrective actions now.
Acela Delays
Acela Delays Will Impact Revenue but Delays are Understandable in
New Technology Investments. The delays in the introduction of Acela
Express and Acela Regional service will reduce Amtrak's 2001 revenue
below Amtrak's earlier projections. This will put additional pressure
on Amtrak to reduce expenses and fortify its efforts to improve
performance in both its passenger and non-passenger services, including
Mail and Express. However, the approximately 1-year delay should not be
surprising for a program of this nature. The testing and introduction
schedules were ambitious, in part, because of the dire need for Amtrak
to generate as much new revenue as quickly as possible in order to meet
its self-sufficiency deadline.
Amtrak's 2000 Strategic Business Plan incorporated the revenue and
expense impacts of delays until July 2000, which was the anticipated
start-up date when the Plan was issued in January. The revised plan for
starting operations in October 2000 will result in some additional
revenue loss in 2000 (which is reflected in our assessment) and in
2001. While delays of this magnitude will pose a financial challenge to
Amtrak in 2001, if there are no further extended delays, the Acela
service should be able to reach its full operating and revenue
potential in 2003.
Although the Acela delays have affected Amtrak's revenue
projections and path toward self-sufficiency, delays of this nature are
not uncommon in programs of this complexity. In fact, in other
industries projects with delays of this length might actually be
considered ahead of schedule. The new trainsets represent a significant
adaptation of existing high-speed designs to meet more stringent safety
requirements in the United States and to compensate for the unique
track configurations on the Northeast Corridor. Problems identified in
testing and design modifications are normal consequences of such new
technology development programs.
Capital Needs
Amtrak's capital outlook is grave. In both our prior assessments,
we projected that Amtrak would face serious capital shortfalls
beginning in 2001. Our predictions have come true. In 2001, assuming
Amtrak's cash losses are no higher than it projects, Amtrak will face a
minimum needs capital funding shortfall of $91 million, and continued
shortfalls through 2004 totaling $298 million.\6\
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\6\ Our definition of minimum needs includes only the capital
investment necessary to maintain Amtrak's infrastructure and assets in
a steady state through 2003. Thereafter, the condition of Amtrak's
infrastructure and assets will begin to steadily decline.
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Amtrak's Projected Minimum Capital Needs Funding Shortfall, 2000
Through 2004 ($ in millions)
Amtrak will be faced with some very difficult choices next year
concerning how to best use its limited capital dollars. After covering
its mandatory capital costs, Amtrak will have only $179 million left to
invest in its capital program. Competing for these funds would be
remaining minimum needs, key projects in progress--including many
projects that support the self-sufficiency glidepath, and commitments
to States for corridor development projects. Amtrak would need at least
an additional $385 million in capital funding in 2001 if it were to
cover all of these costs.
If our projections for cash losses in 2001 were to occur, Amtrak's
capital position would be far more serious. Amtrak would need to use
$310 million more than planned of its federal appropriation to cover
the losses, leaving only $29 million available for capital investment,
which is not even enough to cover Amtrak's debt obligations in 2001.
This outcome is not inevitable, but it underscores how critical it is
for Amtrak to fill the gap in its business plan for undefined
management actions.
Growth-focused capital spending starves minimum needs and could
ultimately undermine the benefits of key investments like high-speed
rail. Despite known minimum-needs shortfalls, Amtrak has pursued a
growth-focused capital program. In our 1999 assessment, we recommended
that Amtrak set aside funds to meet minimum needs in 2001 and 2002 by
revising its spending plans for 2000.
Although Amtrak agreed with our predictions, its 2000 Plan provided
for continued investment in projects outside of minimum needs. For
example, Amtrak invested $25 million in planning efforts for the
Midwest Regional Rail Initiative, $15 million in infrastructure
improvements to support the future Las Vegas service, and $9 million
for the refurbishment of Heritage diner cars. Amtrak's spending
strategy reflects its belief that these projects are necessary to
achieve the business plan goals and ultimately self-sufficiency by
2003. We agree that these projects are important to Amtrak's financial
growth, but do not believe they should be funded at the expense of the
minimum investments necessary to maintain the reliable operation of the
railroad.
In addition to spending on non-minimum needs, Amtrak also
underspent on certain minimum needs in 1999 and 2000 to support a
higher level of growth-related capital spending. This is most true for
projects that support the operational reliability of Amtrak's services.
Projects in this category include replacing old tracks, resurfacing
rails, and replacing worn out electric traction catenary wire and
insulators. We estimate Amtrak's minimum operational reliability needs
to be $135 million each year. Amtrak's annual spending on operational
reliability projects in the past 3 years has averaged only $71 million.
If Amtrak continues to defer spending on operational reliability,
service quality will suffer and its goals for revenue growth may not be
met. In order for high-speed rail to be successful, Amtrak acknowledges
that it must provide superior service and on-time performance. If it
cannot maintain that level of service, ridership and revenue will begin
to erode.
Funding Amtrak's Capital Requirements
In February of this year, we testified before the Subcommittee on
Surface Transportation and Merchant Marine on several Amtrak issues,
including the question of capital funding for Amtrak beyond 2002.
Although precluding use of federal funds for most operating expenses
after 2002, the Amtrak Reform and Accountability Act did not say
whether Amtrak could count on receiving any long-term federal subsidies
for capital investment.
At that hearing, we stated that even if Amtrak meets its operating
self-sufficiency mandate in 2003, it would not make it by much, clearly
not enough to cover its minimum capital requirements. Our position
then, as it is now, is that without significant capital funding to
cover such costs as debt, safety improvements, infrastructure
reinvestment, and equipment renewal, Amtrak will not be able to
continue to operate the railroad. We do not see this situation
changing--it will not be feasible in the foreseeable future for Amtrak
to progress to a point where it can generate sufficient internal
revenue to cover its capital costs.
If Amtrak is to continue operating a national rail passenger
network, Amtrak will require significant long-term capital funding--in
amounts well above the annual operating subsidy of which it is supposed
to be largely free in 2003. At that point, the central questions would
not be whether Amtrak would receive a capital subsidy, but rather (1)
what the funding vehicle would be (direct appropriations, contract
authority, tax subsidy, etc.), (2) in what amounts, and (3) for what
purposes. Another question is when these decisions should be made--now,
before Amtrak shows whether it will meet the requirements of the Amtrak
Reform and Accountability Act, or in 2003, at the end of the 5-year
glidepath.
S. 1900. Clearly, it is the Congress' role to determine the need,
the amount, and the vehicle for providing federal capital support.
However, at your request, we have several observations on S. 1900, the
High Speed Rail Investment Act.
In addition to Amtrak funding policy, S. 1900 is a question of tax
policy. Under the current version of the bill, the legislation, if
enacted, would enable Amtrak to sell $10 billion in high-speed rail
bonds over the next 10 years. Interest payments would be made by
taxpayers in the form of a tax credit to bondholders and repayment of
principal would be secured by a 20 percent matching contribution by the
States that would be placed in escrow. The House version (H.R. 3700)
would limit to 30 percent the amount of total funding that could go to
any one corridor and would make the bonding authority available to any
intercity passenger railroad, not just Amtrak.
These proposals are clearly attractive to Amtrak. S. 1900 would
address part of the difficulty in securing additional appropriated
funds for Amtrak capital investment. However, Amtrak's capital needs
extend well beyond high-speed corridors and because S. 1900 is limited
to high-speed corridors, Amtrak will continue to need annual
appropriations. These appropriations will be necessary to cover capital
costs such as repayment of debt, information technology projects,
environmental remediation, and approximately $200 million each year in
overhauls and rolling stock improvements.
Until Amtrak develops a detailed, 5-year capital program, the
annual requirements can not be estimated with precision. We recommended
that Amtrak develop such a plan in our recent Amtrak financial
assessment. However, even if S. 1900 or some version of the bill is
passed, Amtrak is still likely to need more per year than the current
Amtrak capital funding of $521 million.
Federal oversight requirements. As introduced, S. 1900 lacked
sufficient federal oversight of Amtrak's spending of the bond proceeds.
Essentially, the tax credit vehicle bypasses the oversight that would
otherwise be in place through the annual appropriation process.
Costs of developing high-speed corridors are significant and $1
billion each year will not be sufficient for Amtrak to meaningfully
invest in every corridor seeking a piece of the pie. Amtrak will need
to make choices on where and how much to invest in each project. If
funds are sprinkled around the country in amounts sufficient to get
projects underway but insufficient to complete them, the likely result
would be that few of the routes would make positive contributions to
Amtrak's achieving or maintaining operating self-sufficiency.
The intent of S. 1900 is to provide Amtrak a vehicle to make
investments that will not only help it maintain self-sufficiency, but
potentially begin generating internal funds for capital investment.
Federal oversight will be critical to ensure that Amtrak's investments
meet those criteria. Without such oversight, passage of this or any
similar bill would be tantamount to writing Amtrak a blank check. We
have been advised that adequate oversight provisions have or will be
included in the bill language; however, we have not seen the provisions
of the marked-up bill and cannot comment on their adequacy.
S. 1900 and Amtrak's Glidepath. Finally, we have questions about
how a 10-year authorization for high-speed rail bonds would interface
with the provisions of the Amtrak Reform and Accountability Act, which
requires Amtrak to reach operating self-sufficiency in 2003. Our most
recent report finds that without major corrective action to curtail
expense growth and fill unspecified revenue increases and expense
savings totaling more than $700 million, Amtrak will not achieve this
mandate. Although S. 1900 will not change how we measure operating
self-sufficiency, it also will not fill this gap. If Congress decides
that S. 1900 is an appropriate vehicle for addressing Amtrak's capital
requirements in the northeast and other high speed corridors, we
believe continuation of any such authority be made contingent on Amtrak
meeting its operating self-sufficiency mandate as prescribed by law.
This concludes our statement. I would be pleased to answer any
questions.
The Chairman. Thank you very much, Mr. Mead. We appreciate
all you have done.
Senator Allard, we welcome you. I know you were delayed and
had requested to make a statement before the Committee.
STATEMENT OF HON. WAYNE ALLARD,
U.S. SENATOR FROM COLORADO
Senator Allard. Mr. Chairman, I want to thank you for your
willingness to accommodate my schedule this morning. I know you
are under a deadline, too. I had to testify at 9:30 before
another Committee, and then I have my own hearing at 10:30, and
we have got votes, I think, at 10:15, and we may have to shut
these Committees down at 11:30 if the Senate two-hour rule is
invoked, so I appreciate you allowing me to move in and give
this testimony.
Mr. Chairman, again I want to thank you for inviting me
here today to share my comments with the Commerce Committee
regarding the Senate Banking Committee's experience with
Amtrak. I regret that I cannot stay to hear the testimony from
your other witnesses, but I have to chair a hearing, as I
mentioned earlier, at 10:30.
As you are aware, I serve on the Committee on Banking,
Housing and Urban Affairs as Chairman of the Subcommittee on
Housing and Transportation. In my capacity as Chairman of the
Subcommittee with jurisdiction over the federal mass transit
program which includes certain parts of the commuter rail, I
have had opportunities to interact with Amtrak management and
personally follow the business practices employed by Amtrak,
and it is disappointing to me that although the taxpayers
provide Amtrak almost $600 million in direct subsidies annually
it does not operate in the best interest of the American
people, nor do the subsidies stop at $600 million, as a recent
hearing before my Subcommittee has demonstrated.
On April 25 and July 11 of this year the Committee and
Subcommittee held hearings which exposed questionable
activities by Amtrak involving a commuter rail contract it
holds in Boston with the Massachusetts Bay Transportation
Authority, or what we refer to frequently as MBTA.
At the urging of the Federal Transit Administration, the
MBTA put out a request for bids for the provision of commuter
rail service in accordance with federal procurement law, which
requires competitive bidding. Four bids were received, and were
subjected to an objective and thorough cost and work quality
analysis. Of the bids submitted, Amtrak ranked fourth out of
the 4 bids, last.
The winning bidder, Bay State Transit Services, won the
competitive bidding process in both categories, submitting a
bid at $116 million less than Amtrak, and I have this chart
behind me, which shows the analysis of these various contracts,
and you can see, here is Amtrak's bid, and we have got Bay
State, Mass Rail, and Bombardier. There are 4 bidders in there.
This demonstrates these contract and bid prices.
Amtrak's management and work force, however, prevented
implementation of the Bay State contract. Current Amtrak
workers refused to apply for employment which Bay State offered
as required by federal law. Amtrak management and the unions
representing the workers created a hostile work environment,
intimidated Bay State employees, and threatened unfounded
lawsuits, all to ensure that Amtrak retained the lucrative MBTA
contract.
Faced with the potential for what amounted to a strike
which could have stranded 60,000 Boston commuters, the Federal
Transit Administration reluctantly approved a 3-year extension
of the commuter rail contract for Amtrak. Amtrak, the same
bidder that offered the lowest quality service at the highest
price. I repeat, Mr. Chairman. Its bid, as analyzed, showed it
was the lowest quality service at the highest price. Further,
Amtrak adopted an all-or-nothing position and refused to
provide service for the MBTA during the transition period of
the Bay State contract implementation, and unfortunately the
cost to the taxpayer for Amtrak continuing to provide service
for the 3-year extension is far greater than the Bay State
offer.
Mr. Chairman, I respectfully request that an article from
the Boston Herald dated July 13, 2000 regarding the Banking
Committee's hearing on this matter be entered as a part of the
record.
The Chairman. Without objection.
[The information referred to follows:]
The Boston Herald
July 13, 2000
Truth about the T told by strangers
It took U.S. senators from Texas and Colorado to stand up for the
rights of Bay State taxpayers and rail commuters this week.
Boy, there's something wrong with that picture!
Sens. Wayne Allard (R-Colo.) and Phil Gramm (R-Texas) used a
congressional hearing to give federal officials what-for over approving
Amtrak's 3-year extension of its maintenance contract for the MBTA
commuter rail system. The T had put the contract out to competitive bid
and the winner, Bay State Transit, promised to save the system--and
that really means taxpayers--$116 million over 5 years.
But Amtrak's unions would not be moved. Workers refused to apply
for jobs with the new company. Then the U.S. Department of Labor, at
the urging of some members of the Massachusetts congressional
delegation who were themselves taking orders from the unions, decided
to play hardball with the MBTA.
Caught between the proverbial rock and a hard place, the Cellucci
administration and the MBTA caved in and extended the Amtrak contract.
Gramm had it about right when he noted at the hearing that ``the
Labor Department is a wholly owned subsidiary of the AFL-CIO.'' He
added that the costly Amtrak contract extension was ``one of the most
extraordinary things I have seen.''
And that it surely is. Bay State taxpayers and commuters have been
taken for a ride again and the Clinton Labor Department and members of
our own congressional delegation--including Sen. John Kerry, who
appeared at the hearing to defend the utterly indefensible deal--share
in the blame.
At least a handful of folks in Washington have the guts to point
out the obvious truth.
Senator Allard. The result of this contract is double
jeopardy for Amtrak, the enormous subsidy provided by this
contract on top of the almost $600 million annually that the
Congress appropriates, and this is only one example. I have
received accounts of similar situations where Amtrak has used
its unique position as a federally subsidized entity and its
existing political support to exercise an unfair advantage in
the marketplace.
I struggle with how I can explain to the taxpayers of
Colorado why the federal government feels it is acceptable to
squander their resources by giving Amtrak a free ride at the
expense of commuters everywhere.
Both full Committee chairman Phil Gramm and I have serious
concerns about pending legislation that will give Amtrak yet
another source of taxpayer resources. Senate bill 1900, the
High-Speed Rail Investment Act, would allow Amtrak to issue $10
million in tax-free bonds to fund high-speed rail. This
legislation proposes giving Amtrak yet another opportunity to
secure federal subsidies, albeit tax subsidies.
With your concurrence, Mr. Chairman, I would like to enter
into the record a copy of the Heritage Foundation's
Backgrounder on Senate bill 1900, called Senate Boondoggle May
Outdo All Others. This is not something I would be comfortable
supporting, since Amtrak seems incapable of operating like a
real business, or even competing fairly in the free market.
Mr. Chairman, thank you for holding this important hearing
and giving me the opportunity to share my views with the
Committee. I am sorry I will not be able to answer any
questions. My Subcommittee hearing begins shortly, and we vote
shortly, too.
[The information referred to follows:]
New Amtrak Boondoggle May Outdo All Others
by Dr. Ronald D. Utt
Backgrounder No. 1392
August 28, 2000
Legislation now before Congress proposes to dedicate as much as $16
billion of future budget surpluses to prop up Amtrak, America's
federally chartered and subsidized passenger rail service. Members of
Congress should view this new proposal with skepticism given Amtrak's
record-breaking losses, stagnant ridership, and persistent failure to
implement high-speed rail service, promised for 1997 and now delayed
for a third straight year.
Instead, Congress should exercise its oversight responsibility to
investigate the system's future viability. It should also weigh the
value received from the $23 billion in direct federal subsidies--
including $3.6 billion over just the past 3 years\1\--that U.S.
taxpayers already have poured into the system merely to keep it afloat.
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\1\ U.S. General Accounting Office, Intercity Passenger Rail:
Amtrak Will Continue to Have Difficulty Controlling Its Costs and
Meeting Capital Needs, GAO/RCED-00-138, May 2000, p. 3.
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The High Speed Rail Investment Act (S.1900, H.R. 3700), introduced
by Senator Frank R. Lautenberg (D-NJ) and Representative Amo Houghton,
Jr. (R-NY), would allow Amtrak to borrow as much as $10 billion in
interest-free loans over the next 10 years. Although Amtrak would pay
no interest, lenders would still earn the equivalent of interest on the
loans through a federal tax credit equal to the interest paid on long-
term corporate bonds.\2\ Currently, this rate is about 8 percent per
annum. In effect, the U.S. Treasury would pay the interest to the
bondholders on behalf of Amtrak.
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\2\ The bill calls this the ``credit rate.''
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These implicit interest payments by the federal government could
add up to as much as $16 billion over the life of the bonds. For
example, at an 8 percent interest rate, an individual investor holding
a $1,000 Amtrak bond would be entitled to an $80 tax credit each year
the bond is held. This means that if the investor owed $10,000 in
federal income taxes in a given year, the $1,000 Amtrak bond would
reduce his or her tax obligation to $9,920. The bill authorizes the
issuance of $10 billion worth of these bonds at maturities of up to 20
years. The loss of tax revenues to the U.S. Treasury would total $16
billion if interest rates remained unchanged at 8 percent.
Renewed congressional efforts to bail out Amtrak are a striking
turnaround from commitments made just a few years ago. In 1994, Amtrak
promised to improve its operations and performance so that it could
eliminate the need for federal subsidies by 2002.\3\ In 1997, Congress
confirmed that commitment when it passed the Amtrak Reform and
Accountability Act (PL 105-134), which among other provisions
established the Amtrak Reform Council, whose responsibility was to
notify Congress and the President in the event Amtrak failed to meet
its financial goals.
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\3\ GAO, Intercity Passenger Rail: Amtrak Will Continue to Have
Difficulty Controlling Its Costs and Meeting Capital Needs, p. 3.
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Currently, however, Amtrak is not meeting its goals; instead, its
operating losses are escalating from year to year. Doubts about
Amtrak's ability to meet its financial objectives are shared by the
Department of Transportation's Inspector General, who observed in a
recent report to Congress that meeting the goal of self-sufficiency by
2003 will be ``difficult.'' \4\
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\4\ U.S. Department of Transportation, Office of the Inspector
General, Semi-Annual Report to the Congress, April 1, 1999-September
31, 1999, p. 21.
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Not only is Amtrak failing to meet its promise and statutory
requirement to break even financially by 2002, but its financial
situation has worsened. Amtrak's annual operating loss rose from $833
million in 1994 to a record $930 million in 1998. Its loss for 1999 was
$916 million,\5\ and losses for the first half of fiscal year (FY) 2000
are reported to be higher than those during the same period in 1999.\6\
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\5\ National Railroad Passenger Corporation, 1999 Annual Report, p.
41. On an operating basis, 1999's loss was the highest ever because
1998's loss included one-time costs associated with a labor settlement.
\6\ Joseph Vranich, ``Resignation from the Amtrak Reform Council,''
letter to Senator Trent Lott, July 10, 2000.
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Furthermore, these losses have ballooned despite a booming economy
that has sent Americans traveling in record numbers and caused business
profits to soar. This suggests that Amtrak's management and strategic
plan are not up to the task of meeting the FY 2002 financial
objectives.
Losses Amid Rising Prosperity
The rising prosperity of the 1990s has led to unprecedented
mobility and travel opportunities for all Americans, and this in turn
has benefited almost all segments of the transportation industry.
Between 1990 and 1999, the number of domestic airline passengers rose
by 37 percent, from 423 million at the beginning of the decade to 582
million last year.\7\ Automobile use as measured by passenger-miles
increased by 25 percent from 1990 to 1998.\8\
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\7\ Air Transport Association of America, Inc., ``Traffic Summary
1960-1999: U.S. Scheduled Airlines,'' at www.air-transport.org/public/
industry/24.asp, August 2000.
\8\ Eno Transportation Foundation, Transportation in America 1999,
2000, p. 47.
---------------------------------------------------------------------------
Even intercity bus service, Amtrak's closest competitor, saw its
passenger volume rise by 7 percent between 1990 and 1998.\9\ Indeed,
intercity bus service currently carries 17 times more passengers than
Amtrak, and Amtrak's share of the intercity passenger market amounts to
only six-tenths of 1 percent nationwide when measured in passenger-
miles.\10\
---------------------------------------------------------------------------
\9\ Ibid., p. 48.
\10\ Ibid., p. 47.
---------------------------------------------------------------------------
In contrast to its competitors' success, Amtrak was one of the rare
American businesses that bucked the trend toward increased customers
and soaring profits in the past decade. According to the railroad's
most recent annual report, Amtrak's annual passenger level fell from
22.2 million passengers in 1990 to 21.5 million last year,\11\ and its
operating loss widened from $704 million to $916 million over the same
interval.
---------------------------------------------------------------------------
\11\ National Railroad Passenger Corporation, 1999 Annual Report,
p. 43.
---------------------------------------------------------------------------
Acela to the Rescue?
As it has done so many times before, the railroad's management has
responded to failure by promising to do better next year--if only
Congress will give Amtrak more money now. Amtrak's 1994 commitment to
break even by 2002 was the most recent of these promises.
Recognizing that a history of broken promises is becoming tiresome
to some in Congress, Amtrak has resorted to a clever new public
relations tactic. It now proposes to implement a profitable, high-speed
rail service called the Acela. Amtrak maintains that the Acela will be
so profitable that it will make Amtrak financially self-sufficient and
independent of future federal subsidies. The $10 billion loan proposal,
under this scenario, would be America's down payment on this promise.
The promise, however, is not likely to be fulfilled. Amtrak has
never made a real profit on any of its existing lines, and there is no
reason to expect that this 30-year record of disappointment is about to
end. For example, one of Amtrak's particularly costly lines is the
Cardinal route, running between Chicago and Washington, D.C., via West
Virginia, which incurs $3.29 of cost for every dollar of earned
revenue. Overall, according to the U.S. General Accounting Office
(GAO), Amtrak incurs costs of $1.86 for each dollar of revenue it
receives.\12\
---------------------------------------------------------------------------
\12\ U.S. General Accounting Office, Intercity Passenger Rail:
Financial Performance of Amtrak's Routes, GAO/RCED-98-151, May 1998,
pp. 6-7.
---------------------------------------------------------------------------
Even Amtrak's contention that it makes a small profit on its
Metroliner service in the Northeast Corridor is true only under
Amtrak's less-than-complete accounting standards. To declare the
Metroliner profitable, Amtrak must neglect the capital costs associated
with road bed, rolling stock, engines, buildings, and signal systems.
While the perennial optimist could argue that Amtrak might improve
its operations, Amtrak's high-speed rail performance to date suggests
that the Acela program will not be the catalyst. Service was scheduled
to begin in 1997, but a series of design, mechanical, and testing
problems have delayed the opening, and a new date has not been set for
Acela's debut.\13\
---------------------------------------------------------------------------
\13\ Don Phillips, ``Amtrak Testing of High-Speed Electric Train Is
Delayed Again,'' The Washington Post, July 22, 2000, p. A11.
---------------------------------------------------------------------------
Assuming that the high-speed line ultimately does open, its
anticipated profitability depends upon substantially increased
ridership. The increased ridership figures, however, may be overly
optimistic. Taking the Acela rather than the Metroliner on the route
where it would work best--between New York and Washington--would save a
traveler only 15 minutes, reducing the trip from 3 hours to 2 hours and
45 minutes. While this represents some improvement, the change is not
likely to convince passengers to abandon cars or planes.
On the Boston to New York run, Amtrak projects the Acela will
reduce train times from 4 hours and 30 minutes to 3 hours.\14\ This is
a significant improvement, but it is still substantially longer than
flying. The same trip on a scheduled airline is currently only one hour
and 20 minutes.
---------------------------------------------------------------------------
\14\ National Railroad Passenger Corporation, ``Acela Questions &
Answers,'' at www.acela.com/questions/index.htm, August 2000. In
reality, the diminished time for the Boston-New York run is closer to
an hour, not the 90 minutes claimed. Amtrak has already reduced the
time on the run by 30 minutes by eliminating the engine change in New
Haven, Connecticut, now that the line from New Haven to Boston has been
electrified.
---------------------------------------------------------------------------
The Potential for Blackmail
Perhaps the most troublesome aspect of the proposed $10 billion
federally subsidized loan is not its projected taxpayer cost of $16
billion. While worrisome, the cost is eclipsed by the potential for
even greater taxpayer costs as a result of the opportunities for fiscal
blackmail that a debt of that magnitude would create. If the federal
government decided to end its funding of Amtrak at some point, it might
feel bound to assume the costs of the loan. If Amtrak were to add the
cost of the loan to the cost of its liquidation, it would have leverage
with which to argue against such a liquidation.
In past efforts to prolong the life of a failing Amtrak, supporters
argued that the government's liquidation cost if it were to allow
Amtrak to go bankrupt would vastly exceed the subsidies necessary to
achieve Amtrak's financial independence. In 1997, for example, Amtrak
claimed that the costs associated with its liquidation could be as high
as $10 billion to $14 billion. Congress asked the General Accounting
Office to confirm this,\15\ but the GAO was unable to estimate Amtrak's
likely liquidation costs with confidence.
---------------------------------------------------------------------------
\15\ U.S. General Accounting Office, Intercity Passenger Rail:
Issues Associated With a Possible Amtrak Liquidation, GAO/RCED-98-60,
March 1998, p. 2.
---------------------------------------------------------------------------
However, if Congress passes the High Speed Rail Investment Act, it
might feel obliged to incur the cost of the $10 billion in federally
subsidized bonds; this would be in addition to the other costs that it
could incur if it chose to liquidate Amtrak. Although the legislation
would not grant the government's full faith and credit to the special
Amtrak tax credit bonds, the government would have a moral obligation
to reimburse those who invest in these bonds. Because the government
created, subsidizes, and directs Amtrak, it would be expected to
shoulder the responsibility of making good on the loan if Amtrak were
to fail.
And Amtrak would make the most of this obligation. If it fails to
break even in 2002 as it has promised, it no doubt will use the
obligation as leverage to seek ever more costly bailouts.
Subsidizing the Last Choice in Travel
Notwithstanding Congress's long-standing obsession with socialized
rail passenger service and its $23 billion investment in Amtrak,
intercity travelers continue to shun Amtrak in favor of alternate modes
of transport. For this reason, the High Speed Rail Act represents an
exceptionally costly bailout of an enterprise that has failed to
provide cost-effective service during its 30 years of operation.
When Congress passed the Amtrak Reform and Accountability Act in
1997, it gave the Amtrak Reform Council the responsibility to assess
Amtrak's progress toward financial independence by 2002. If that goal
is not met, the Council will have to determine whether Amtrak should be
restructured or liquidated. Congress should make no additional
financial commitments to Amtrak until the council submits its report
and recommendations and Congress reviews them.
In the meantime, Congress should study the growing number of
privatization reforms that have been applied successfully to
government-operated passenger rail service in other countries,
including Great Britain and Japan.\16\ Given Amtrak's long history of
failed schemes and operating losses, such innovations--not $10 billion
for an unproven high-speed rail program--are the only way Amtrak will
improve its own operations.
---------------------------------------------------------------------------
\16\ For additional details on the success of transit privatization
worldwide, see Ronald D. Utt, ``Congress Should Accept Industry Offers
to Buy Amtrak,'' Heritage Foundation Backgrounder No. 1179, May 18,
1998
---------------------------------------------------------------------------
--Ronald D. Utt, Ph.D. is Senior Research Fellow in the Thomas A.
Roe Institute for Economic Policy Studies at The Heritage Foundation.
The Chairman. Thank you, Senator Allard. Welcome, Governor
Thompson.
STATEMENT OF GOVERNOR TOMMY THOMPSON, CHAIRMAN OF THE AMTRAK
REFORM BOARD, ACCOMPANIED BY GEORGE WARRINGTON, PRESIDENT,
NATIONAL RAILROAD PASSENGER CORPORATION
Governor Thompson. Thanks, Mr. Chairman. First, to answer
your question, there have been no commitments at all on any
money that may be coming in the future.
Members of the Committee, I want to thank you for inviting
me to testify today. I believe it is important to keep in mind
that our goal should be to create a seamless transportation
network that offers all Americans the widest array of travel
choices possible. As a Nation, we recognize the importance of
funding our highways. We spend $32 billion a year, and yet our
roads are more congested than ever, reducing the quality of
life for our citizens and costing businesses untold dollars in
lost productivity.
The federal government will spend $14 billion this year on
aviation projects, yet as this Committee well knows airline
passengers are facing longer delays and are increasingly
frustrated with the airline industry.
At the same time the federal government subsidizes mass
transit by $6 billion it gives $521 million only to Amtrak,
about one-half of what the authorizers indicated that we should
have. We spent $23 billion on passenger rail, but that was over
29 years, averaging about $\1/2\ billion a year.
However, I believe as you do, Mr. Chairman, that the way
for Amtrak to succeed is not through more subsidies, but
through innovation, market-based reforms. I am here to tell you
that Amtrak will meet its goal of operational self-sufficiency
by 2003 by doing just that. We are making great strides
already. Let me give you a few examples.
On July 4, 2000, Amtrak launched its new service guarantee,
the only transportation mode that does it. This guarantee and
the improved service are designed to increase repeat business.
Amtrak has an unprecedented agreement with Continental Airlines
to connect their customers to our stations in the Northeast.
Amtrak's partnership with the freight railroads have
already helped grow our mail and express business by 30 percent
over last year, 30 percent, and we are only just beginning to
explore this profitable relationship. Our network growth
strategy will expand rail service in 21 States, further grow
our mail and express business and generate $255 million in
improvements to our bottom line by 2003.
While some have criticized Amtrak, saying we expanded
service for political gain, but the truth be told we are doing
it to make money, simply, pure and simple. Amtrak's partnership
with States to build regional high-speed rail corridors will
have a profound impact on our financial situation, as well as
on America's transportation system. On January 31, 2000, Amtrak
launched Acela regional train service between Boston and New
York, which has increased ridership by 42 percent, and our
profits by 70 percent.
Mr. Chairman, the business initiatives I described are
already producing results. Amtrak continues to break ridership
and revenue records. A 21-year high of nearly 2.1 million
passengers rode Amtrak in August, leading to an all-time
monthly ticket revenue record of $108 million in 1 month, and
with only a few days left in this fiscal year, Amtrak is on
course to set a record for annual ticket revenues and to break
its all-time annual ridership record of 22 million passengers.
The strong financial performance of our company assures us
that with continued federal capital support Amtrak will meet
its business plan target of operating self-sufficiency by 2003.
To date, Amtrak has met its annual target on the glide path to
ending federal operating assistance. We will require no more
than the planned $362 million in federal support for operating
expenses this year, $122 million less than we did last year.
Amtrak does face, however, some real challenges if it is
going to succeed. The first is without a doubt the delay in
launching the Acela Express, which created revenue shortfall
for us this year of $150 million, and I want you to know we
will be receiving our first Acela Express within the next
several days, but our strong performance this year has served
to take up more than half of that unanticipated shortfall.
Second, I know that Ken Mead, the Department of
Transportation Inspector General, has issued a report stating
that Amtrak will not achieve operational self-sufficiency by
2003 if we continue along our business plan of last year. His
concern is based primarily on a set of undefined actions in
order to increase revenues and reduce cost. We are addressing
those concerns as a board. Last week at our board meeting we
approved a brand-new business plan, Mr. Chairman and members,
for 2001 that reduces the undefined actions over a 4-year
period to less than 1 percent of our total expenses annually. I
can assure you that Amtrak will have no difficulty identifying
further actions.
But as a Governor, I am here to tell you that this country
needs more than just a self-sufficient Amtrak. We do need high-
speed trains in heavily populated areas that take the pressure
off the overloaded airports and the highways. We need a
national long-distance train network supporting our rural
communities and carrying critical express cargos.
We need to respond to the demands of Governors,
Congressmen, Senators, and mayors all across this country who
are clamoring for a high-speed rail system this country can be
proud of, and that is just part of the kind of pressure we are
receiving, is what we gave to Ken Mead.
The High Speed Rail Investment Act will provide the
necessary capital funds for rail through an innovative
financing mechanism that requires State participation through a
match just like in the highway, just like in the transit
programs. This is a new and, yes, a creative way to get the
capital funds to get high-speed corridor projects that are
ready and waiting and demanding to be built.
Let me be perfectly clear. This is not about a bail-out for
Amtrak. We do not need a bail-out, Mr. Chairman, and that is
not why we are supporting this bill. What we do need is
capital. What we do need is for States around this country to
have a federal matching program, as with highways, as with
airports, as with mass transit, a program that assists them in
making the rail infrastructure investments necessary to support
our growing system.
Mr. Chairman, for much of Amtrak's history it was not run
like a business, did not have an entrepreneurial focus, and did
lack a serious business plan, but in recent years, Mr.
Chairman, since the reauthorization, we have made remarkable
progress in turning Amtrak around, reducing our dependence on
federal operations support, and we will continue to do so for
as long as this board is in existence and for as long as
Congress has given us the support that we deserve.
Thank you, Mr. Chairman.
[The prepared statement of Governor Thompson follows:]
Prepared Statement of Governor Tommy Thompson, Chairman of the Amtrak
Reform Board, Accompanied by George Warrington, President, National
Railroad Passenger Corporation
Mr. Chairman, I thank you and the distinguished Members of this
Committee for giving me the opportunity to describe how Amtrak is well
on its way toward achieving operational self-sufficiency by fiscal year
2003, as required by the Amtrak Reform and Accountability Act of 1997.
As you well know, the Act was the first significant step in
relieving us of the burden of being all things to all people, and to
start acting and performing like a business.
To that end, one of the Board's first actions in 1998 was the
adoption of a five-year Strategic Business Plan that is transforming
Amtrak into a market-based, customer-focused operation. I'll be
discussing the Business Plan, and the extraordinary results it has
achieved in just a moment.
But first, both as a Republican and as the Chairman of Amtrak's
Board, I'd like to say how very proud I am that 2 of our nation's most
prominent Republicans--yourself, Mr. Chairman, and Gov. George W. Bush
of Texas--were our guests this summer aboard Amtrak trains. We feel
deeply privileged to have hosted you, along with nearly 6.2 million
other Americans, all of whom took to the rails this summer--a number
unprecedented in Amtrak's history.
The record-breaking ridership and revenue figures helped us turn an
important corner--not only in Amtrak's corporate history, but also in
America's transportation history. Although hardly anyone predicted it
29 years ago when Amtrak was created, railroads are experiencing a
renaissance in America today. There are 2 reasons for this.
First, travelers are demanding a more personalized way to travel.
And you can't get much more comfortable than rail travel. In contrast,
our highways are jammed, and the news from this summer on the airline
side only gets worse. It's bad enough reading the headlines of hundreds
of flight cancellations each day, but I have also heard some personal
horror stories from travelers that underscore a real need for a
balanced transportation system. I guess the fact that this summer
O'Hare has had to order more than the normal 1,500 cots reserved for
snowstorms says it all.
I believe the second reason for the renaissance is that when
travelers board the train and go with Amtrak they receive better
service than the airlines provide and, frankly, better than what we
have been able to provide in the past. We have worked hard over the
last year preparing to launch an unprecedented national satisfaction
guarantee--and on July 4, we did it!
Our focus is on providing our customers--or guests, as we prefer to
call them--with an enjoyable travel experience, and that means a new
level of service in the travel industry for every customer. Faster,
more efficient service. Consistently professional, highly personalized
service. Striking new and renovated stations. And, of course, new and
refurbished trains with a rich package of amenities for our guests'
pleasure and comfort.
Under the guarantee, we promise all of our guests a safe,
comfortable and enjoyable travel experience. If guests are not
satisfied at any point in their Amtrak travel experience, and if our
employees can't make it right, they'll get a Service Guarantee
Certificate, entitling them to equivalent free travel in the future.
Amtrak launched the Service Guarantee because it makes good
business sense. The guarantee and the improved service are designed to
increase passenger satisfaction and cause those who have tried Amtrak
to return with greater frequency. We estimate that just a one-percent
increase in our guest retention rate will add $13 million in revenues.
Moreover, getting customers to tell us about problems in our service is
a virtually cost-free way of identifying and correcting the things that
tend to drive people away from Amtrak.
Mr. Chairman, I believe that it's the convergence of these 2
factors--on the one hand, travelers searching for an alternative; on
the other, Amtrak's new, unconditional commitment to passenger
satisfaction--that is behind the current railroad renaissance.
There are 3 additional points that I'd like to make about the
resurgence of passenger rail.
First of all, it's real. It's not one of those flash-in-the-pan,
here today, gone tomorrow phenomena. And, the reason railroads are here
to stay has to do with dollars and cents. As I'm sure Committee Members
know, the costs of building new highways and airports are soaring. And,
while we must maintain our highways and airports, you get more ``bang
for your buck'' by investing your transportation dollar in passenger
rail, than by investing that same dollar in new highway or airport
construction.
The second critical point about the current railroad renaissance is
that, although I have naturally focused on Amtrak, public investment in
passenger rail can also revitalize the infrastructure of the railroad
freight industry, and result in increased capacity for freight as well
as passenger railroads. That's why public investment in Amtrak is a
classic ``two fer'': By unclogging our highways and airlanes, it helps
commuters; by unclogging the arteries of our commerce, it helps
shippers and manufacturers.
My third point about the national rail renaissance is that it's
crucial to the success of our entire national transportation system.
What most people fail to understand about this system is that it's a
balanced network consisting of highways, airports and railroads. And
the balance is surprisingly delicate. If you remove passenger railroads
from the balance, then the other parts of the system just won't work
right. But if you've got a strong railroad system that takes some of
the pressure off of our highways and airports, then you enable them to
fulfill their potential, as well.
The goal of public policy, Mr. Chairman, should be to create a
framework within which our highways, our airports and our railroads can
work together to create a seamless transportation network that provides
Americans with the widest array of travel choices.
Today, more and more Americans want to travel, and we all need to
work together to provide them with seamless travel options. Amtrak
plays an important role in the mix. For instance, on long-distance
trips, travelers would fly to major hubs, and then for shorter
distances, rely on high speed rail services. As I put it in my State of
the State Address to the Wisconsin legislature last January, ``Soon,
the business traveler will fly from Washington to Milwaukee, jump on a
high-speed train to Madison, then catch a bus to drop her at her
doorstep just in time for dinner with the family, cooked by her
husband.''
I am pleased to report that Amtrak has already taken steps to build
a seamless system with its partners. We have an unprecedented agreement
with Continental Airlines to connect their customers to our stations in
the Northeast for portions of their trip and to reroute them on our
trains in inclement weather. Working with Hertz, we now have rental car
services available at 56 stations in the country, and the number is
growing. And we work with Coach USA and Greyhound to take travelers to
their hotels and destinations once they step off our trains.
This spirit of entrepreneurial partnership has helped us achieve
some mighty impressive financial successes in the last year, and it is
the kind of spirit that will help us fulfill our legal obligations
under the Amtrak Reform and Accountability Act.
Amtrak's relentlessly entrepreneurial focus informs every step we
take. Our partnerships with the freight railroads have already helped
grow our Mail and Express business by 30 percent over last year--and
we've only begun to explore the possibilities of what promises to be a
vastly--and mutually--profitable relationship.
Our Network Growth Strategy will expand rail service in 21 states,
further grow our Mail and Express business, and generate $255 million
in improvements to our bottom line by 2003. This service expansion is
not about trying to be all things to all people. It's about the basic
economic principle that in order to cover your fixed costs, you must
expand your operations and grow revenues. It's about growing to
prosperity, not cutting services and killing your market just to meet a
budget.
Thanks to our strategic investments in state-of-the-art technology,
our Call Centers--which won the ``Best Call Center'' Award from Call
Center Magazine in 1998--are doing even better today. Sales per man-
hour are up 11 percent over last year, to $859/hour; ticketed sales are
up 12 percent, to $487 million; and bookings are up 12 percent, to $1.7
billion.
And our partnerships with states to build regional, high-speed rail
corridors will have a profound impact on our financial situation, as
well as on America's transportation system.
Mr. Chairman, Amtrak is absolutely committed to building a market-
based national system whose economic viability derives from both
passenger revenue and commercial ventures. On January 31, 2000, we took
a major step in the realization of our vision by launching Acela
Regional train service between Boston and New York. The new, all-
electric Acela Regional service dramatically reduces travel time within
New England, making rail attractive for both leisure and business
travelers. Ridership on the Acela Regional is up 42 percent over the
trains it replaced, adding millions to the bottom line.
The Regional service will prime customers for the arrival of the
Acela Express. When all 20 high-speed trainsets are operating, travel
time between Boston and New York will be reduced to a little over 3
hours, and between New York and Washington to as little as 2 hours and
thirty minutes. We anticipate gaining 3 percentage points in market
share, from 12 to 15 percent, in the Northeast.
But high-speed rail is not something just the Northeast wants.
Across America, interest in high-speed rail is running high. That's why
36 states are working with Amtrak on passenger rail projects--and 28 of
those states are investing in high-speed rail projects. California, for
example, plans to invest $700 million for intercity passenger rail
investment next year. Also, as part of the $5 billion Midwest Regional
Rail Initiative, Illinois plans to spend $140 million; Michigan has
already spent $25 million; and my own state, Wisconsin, plans to spend
$60 million. The state of Washington has invested $125 million, New
York will invest $100 million and both North Carolina and Pennsylvania
are investing at least $70 million in high-speed rail projects
respectively. Virginia recently approved $75 million in new spending
for the Richmond Washington high-speed rail corridor, and Georgia
recently approved $200 million for investment in high-speed rail and
commuter in that state.
As I said earlier in my testimony, the railroad renaissance is
real!
Mr. Chairman, the initiatives I've described are already producing
spectacular results:
Amtrak continues to break ridership and revenue records. A 21-year
high of nearly 2.1 million passengers rode Amtrak in August, leading to
an all-time monthly ticket revenue record of $108.4 million. The record
setting August ticket revenues broke July's record ticket revenues of
$107.2 million, and was the third month in a row that ridership
surpassed 2 million. With only a few days left in the current fiscal
year, Amtrak is on course to set a record for annual ticket revenue and
to break its all-time annual ridership record of 22.2 million
passengers.
We expect ridership and ticket revenues to grow even faster in the
coming year with the introduction of Acela Express. The Federal
Railroad Administration (FRA) has been working in lockstep with Amtrak
and the manufacturers during the testing and we have just received a
favorable review and certification from the FRA. We anticipate that the
manufacturers will offer the trainset for conditional acceptance by
Amtrak any day and that we will soon thereafter launch the service.
Mr. Chairman, the strong financial performance of our company
assures that, with continued federal capital support, Amtrak will meet
its business plan target of operating self-sufficiency by 2003. Amtrak
is successfully continuing along the congressionally-mandated glidepath
to end federal operating assistance. We will require no more than the
planned $362 million in federal support for operating expenses this
year, $122 million less than last year. And, we will meet or improve
upon the cash plan contained in the Corporation's Business Plan.
Finally, we have been predicting that we would have a revenue shortfall
due to the delay in the launch of Acela Express. This remains true, but
I am pleased to tell you that our strong performance so far this year
has served to make up more than half the anticipated shortfall, so that
we will miss our Business Plan goal for bottom-line performance by $60-
$70 million, not $150 million.
Still, the question remains: How can we sustain Amtrak's successes
and create a passenger rail system that truly is an integral part of
our transportation network?
Well, the answer is no surprise. Like every other mode of
transportation, passenger rail needs federal capital investment funds.
The $2.2 billion that Amtrak received from the Taxpayer Relief Act has
provided critical funding to keep Amtrak on its path to operating self-
sufficiency. But, as a Governor, I'm here to tell you that the country
needs more than just a self-sufficient Amtrak. We need high-speed
trains in heavily populated corridors that take the pressure off the
overloaded airports and highways. We need a national long-distance
train network supporting our rural communities and carrying critical
express cargoes. We need the federal government to take a leadership
role in investing in an interstate railroad system that this country
can be proud of.
The High Speed Rail Investment Act would provide the necessary
funds for rail through an innovative financing mechanism that requires
state participation through a match--just like in the highway and
transit programs. This is a new and creative way to get the capital
funds to high-speed corridor projects that are ready and waiting to be
built. This is not about a ``bailout `` for Amtrak. We don't need a
bailout, and that's not why we're supporting this bill. What we do need
is for states around the country to have a federal matching program, as
with highways and transit--a program that assists them in making the
rail infrastructure investments necessary to support our growing
system.
Mr. Chairman, I'd like to conclude my statement by acknowledging
that there was a lot to criticize about the old Amtrak. For much of our
history, I'm afraid that Amtrak was not run like a business, did not
have an entrepreneurial focus, and lacked a serious business plan.
Fortunately, Mr. Chairman, your leadership has helped this
corporation turn itself around and reduce our dependence on federal
operating support. You have focused on our shortcomings to help
strengthen our focus, and to hold us accountable for becoming an
operationally self-sufficient, market-oriented, moneymaking enterprise.
That is why, though we have crossed swords in the past, and may well do
so again today, you should know that I have the deepest admiration and
respect for you, and for your vision of what Amtrak can be.
Thank you, Mr. Chairman.
The Chairman. Thank you, Governor Thompson.
Ms. Scheinberg, welcome back.
STATEMENT OF PHYLLIS F. SCHEINBERG, ASSOCIATE
DIRECTOR, TRANSPORTATION ISSUES, U.S. GENERAL
ACCOUNTING OFFICE
Ms. Scheinberg. Thank you, Mr. Chairman and Members of the
Committee. I appreciate the opportunity to testify today on
Amtrak's progress toward operating self-sufficiency, its
capital investment needs, and the future of Amtrak and of
intercity passenger rail in this country.
In summary, Amtrak's financial performance has not been
bright, and the railroad faces substantial capital needs. Also,
in the next years the Congress will be asked to make important
decisions about the future of Amtrak and the Nation's intercity
passenger rail. There are 3 points I would like to make.
First, Amtrak continues to struggle financially, and must
overcome major hurdles to reach operational self-sufficiency by
2003. Specifically, Amtrak has made relatively limited progress
toward self-sufficiency. In the last 5 years, it has reduced
its budget gap by only $78 million, and must reduce the gap by
another $287 million before 2003.
This financial struggle has continued this year. Amtrak is
significantly behind its current year goal of closing its
budget gap by $114 million. In fact, through June of this year
it was $80 million behind its planned reductions.
The Chairman. $80 million behind how much?
Ms. Scheinberg. $114 million is what it was going to
achieve this current year, and the data we got from Amtrak was
through the third quarter of this year. It was $80 million
behind the $114 million goal. It had achieved $33 million of
the $114 million goal.
The Chairman. Thank you.
Ms. Scheinberg. I do not have the latest quarter's results.
We will have them soon.
We have heard today and previously from Amtrak that its
revenues are up. These increases tell only half the story. They
tell the good news. While revenues are up, so are costs, and
the cost increases tell the other half of the story, which is
the bad news. Unfortunately, the cost increases have mostly
wiped out the impact of the revenue and ridership gains that
Governor Thompson talked about. Amtrak is largely no better off
today than it was a year ago.
Given the limited progress that Amtrak has made toward
self-sufficiency, it will need to make significantly more
progress than it planned in the next 2 years. This will be
extremely difficult, given that Amtrak's costs are expected to
increase. While Amtrak's business plans have tended to hold
cost increases to the rate of inflation, Amtrak's operating
costs increased 12 percent above inflation during the 5 years
from 1995 to 1999.
The impact of these cost increases is that while Amtrak
spent money to make money, it has realized little benefit from
the expenditures that it has made. During the past year, as in
each of the previous 5 years, for every operating dollar that
Amtrak spent, it earned only about 64 cents in total revenue.
It is going to be extremely difficult for Amtrak to turn
this trend around because of upcoming events. For example, the
results of ongoing collective bargaining with its labor unions
and the expected increased interest expenses from financing the
new train sets are 2 of the challenges that Amtrak faces.
My second point today is that Amtrak has substantial short-
term and long-term capital investment needs that will be
difficult to meet. We have estimated Amtrak capital needs to be
at least $4 billion just through 2004, and at least $9 billion
through 2015. Most of these needs are in the Northeast
Corridor, and include life safety improvements and bringing the
corridor up to a state of good repair. Amtrak will find it very
difficult to pay for these needs.
Between 2001 and 2004, Amtrak's capital needs will exceed
expected federal capital funds by about $2 billion. Some of
this amount could be paid by other users of Amtrak facilities.
However, the federal government could be called upon to cover
any shortfall. If so, the federal support requested could be
substantially higher than current appropriation levels.
Moreover, Amtrak has not identified all of its capital
needs or their costs. It has not identified even all of its
needs on the Northeast Corridor, or the needs of its existing
routes off the Corridor, nor has Amtrak identified its needs
for new equipment, or for the costs related to the network
growth strategy, or for the costs of expanding its mail and
express service, and Amtrak has not yet developed the costs of
the new high-speed rail corridors across the country.
The reason Amtrak does not know the costs of all these
capital investments is that it has not had a comprehensive
multi-year capital plan since 1997. We have recommended that
Amtrak develop such a plan, including the related benefits of
the capital investments, the priorities of the needs, and the
likely funding sources.
My final point today is that no matter whether Amtrak
succeeds or fails in reaching self-sufficiency, important
decisions will need to be made about the future of Amtrak, the
scope of intercity passenger rail service in the United States,
and the levels of federal support. Even if Amtrak does reach
self-sufficiency, it will need substantially more federal funds
than it currently receives each year.
The $9 billion that Amtrak will need just to meet
identified capital needs are needs that are critical to
maintain current service levels and will require an average of
$600 million a year. In addition, Amtrak will require about
$200 million annually to cover excess railroad retirement
payments. As a result, the federal government could be called
upon to provide substantially more annual funding for Amtrak
than the $521 million it currently provides.
The Chairman. What range are you talking about?
Ms. Scheinberg. Potentially twice as much. We would be
talking $1 billion if Amtrak reaches self-sufficiency. If
Amtrak fails to reach self-sufficiency, the Congress would be
called upon to decide the future of Amtrak and the future of
intercity passenger rail in general. It is not too early for
the Congress to begin considering what its long-term vision is
for Amtrak and intercity passenger rail, and how this vision
should be implemented. This would include determining the scope
of a national intercity passenger rail network, if any, how
that network would be operated, and the level of federal
funding that would be provided to support the network.
Mr. Chairman, that concludes my statement. I will be happy
to answer any questions.
[The prepared statement of Ms. Scheinberg follows:]
Prepared Statement of Phyllis F. Scheinberg, Associate Director,
Transportation Issues, U.S. General Accounting Office
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to testify today on the National
Railroad Passenger Corporation's (Amtrak) progress toward achieving
operating self-sufficiency; its capital investment needs and how these
capital needs compare with expected federal funding; and the future of
Amtrak and intercity passenger rail. The Congress has directed Amtrak
to be free of federal operating subsidies by the end of fiscal year
2002. This deadline presents serious implications for the future of
Amtrak and intercity passenger rail service in this country. This
statement is based on our recent reports on Amtrak financial issues.\1\
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\1\ Intercity Passenger Rail: Amtrak Will Continue to Have
Difficulty Controlling Its Costs and Meeting Capital Needs (GAO/RCED-
00-138, May 31, 2000), Intercity Passenger Rail: Amtrak Needs to
Improve Its Accountability for Taxpayer Relief Act Funds (GAO/RCED/
AIMD-00-78, Feb. 29, 2000), and Intercity Passenger Rail: Amtrak Faces
Challenges in Improving Its Financial Condition (GAO/T-RCED-00-30, Oct.
28, 1999).
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In summary:
Amtrak continues to struggle financially and must overcome
substantial hurdles to reach operational self-sufficiency.
Amtrak has made limited progress in reducing its budget gap--
the gap that Amtrak needs to close to reach operational self-
sufficiency. From fiscal years 1995 through 1999, Amtrak was
able to reduce its budget gap by only $78 million--from about
$554 million to $476 million. From fiscal years 2000 through
2002, Amtrak will need to achieve about $287 million in
additional savings to reach operational self-sufficiency. Yet
Amtrak has made limited progress toward this goal in the first
9 months of this fiscal year. Furthermore, Amtrak's costs are
expected to increase, and Amtrak has a mixed record in
controlling cost growth. In addition, Amtrak's ability to
realize substantial revenue increases and productivity
improvements is uncertain. Nearly three-quarters of the $1.9
billion in net financial benefits that Amtrak expects to
achieve between now and 2004 have either not been identified or
are based on initiatives that have yet to be fully implemented.
Amtrak has substantial short- and long-term capital
investment needs that will be difficult to meet. From
discussions with Amtrak managers and a review of published
reports, we estimate Amtrak's identified capital needs to be at
least $9 billion through 2015 (in 1999 dollars). In addition,
Amtrak will have other capital needs, such as acquiring new
equipment, for which the company has not yet developed cost
estimates. Amtrak will find it difficult to pay for these
needs. Over the 2001 through 2004 period, the identified
capital investment needs will exceed expected federal capital
funds by nearly $2 billion. Although some of this amount may be
paid by other railroads that use Amtrak facilities, the federal
government could be called upon to cover any funding shortfall,
with capital financial support requested substantially higher
than current levels.
Key decisions will soon have to be made regarding the future
of Amtrak, the nation's intercity passenger rail operator. If
Amtrak does not reach operational self-sufficiency within the
next 2 years, federal law requires that the Amtrak Reform
Council submit a plan to the Congress for a restructured
intercity passenger rail system and that Amtrak prepare a plan
for its own liquidation.\2\ On the other hand, if Amtrak does
attain operational self-sufficiency, it could require a
substantially higher level of financial support than it
receives now to meet its capital needs and for certain railroad
retirement expenses. In either case, the future of Amtrak will
need to be decided. If that future does not include Amtrak,
basic decisions must be made about an intercity passenger rail
system. The decisions include the scope of a national intercity
passenger rail network, if any; how it would be operated; and
the level of federal funding that would be provided to support
this network.
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\2\ The Amtrak Reform Council is an independent oversight body
created by the Amtrak Reform and Accountability Act of 1997.
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--over $23 billion through fiscal year 2000. However,
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.\3\ To help accomplish this goal, the Amtrak
Reform Act provided Amtrak with flexibility to address certain costs.
The act eliminated a statutory ban on contracting out work that would
result in employee layoffs and abolished statutorily required labor
protection arrangements that provided up to 6 years of compensation for
employees who lost their job because of the discontinuance of intercity
passenger rail service on a route or certain other actions. The Amtrak
Reform Act required negotiations with the unions over new protection
arrangements. To help achieve its financial goals, Amtrak has developed
a series of strategic business plans.
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\3\ 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.
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Amtrak, like other railroads, is a very capital-intensive
business. Since its creation, Amtrak has spent about $10.2 billion in
federal support for capital improvements and equipment overhauls. This
amount includes about $1.8 billion of the $2.2 billion that Amtrak
received through the Taxpayer Relief Act of 1997. These funds could be
used for broadly defined expenses, including (1) acquiring equipment,
rolling stock (such as passenger cars and locomotives), and other
capital improvements; (2) upgrading maintenance facilities; (3)
maintaining existing equipment in intercity passenger rail service; and
(4) paying of interest and principal on obligations incurred for these
purposes. Amtrak has also obtained capital funding from state and local
governments, generally for specific capital investments, and from the
commercial debt markets. These funds support Amtrak's 22,000-route-mile
passenger rail system, including 650 miles of track owned by Amtrak.
Amtrak maintains an active fleet of 2,600 cars and locomotives.
Amtrak Will Have to Overcome Major Hurdles to Become Operationally
Self-Sufficient
Amtrak continues to struggle in its quest to become operationally
self-sufficient by the end of 2002. Amtrak has made relatively little
progress over the past 5 years, and the results for the first 9 months
of the current fiscal year in reducing its budget are not encouraging.
This means that substantial additional progress will be required over
the next 2 years to attain operational self-sufficiency. One of
Amtrak's difficulties in reaching operational self-sufficiency is
controlling its costs, particularly labor costs. Finally, Amtrak has
yet to fully implement the various revenue enhancing and productivity
improvement initiatives that it considers important to operational
self-sufficiency, including its Acela Express service.\4\
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\4\ Acela Express is part of Amtrak's high-speed rail program on
the Northeast Corridor. Acela Express trains are expected to reach
speeds of up to 150 miles per hour and have trip times of about 3 hours
between New York City and Boston and about 2\1/2\ hours between New
York City and Washington, D.C.
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Most Financial Results Needed to Reach Operational Self-Sufficiency Are
in the Future
Amtrak has made limited progress in moving toward operational self-
sufficiency in the last 5 years. According to Amtrak, its budget gap
\5\ fell by $78 million during fiscal year 1995 and through 1999--from
about $554 million in fiscal year 1995 to $476 million in fiscal year
1999.\6\
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\5\ Amtrak defines 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\ The 1998 budget gap excludes $36 million in retroactive
payments under recently negotiated labor agreements.
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Through the first 9 months of the current fiscal year (October-
June), Amtrak's revenue increased by 11 percent over the same period in
1999. But, expenses increased by 7 percent. Since Amtrak has about $3
in expenses for every $2 in revenue, the increase in expenses for the
most part negated revenue gains. As a result, the budget gap was only
about $33 million lower than it was for the same period in 1999. Amtrak
officials agreed that additional actions are needed during the final 3
months of this year to achieve the planned budget gap reduction of $114
million and that achieving its goal will be difficult. Amtrak
attributes the problems to the delayed rollout of the Acela Express
service and a slower-than-expected increase in its mail and express
business.\7\
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\7\ ``Express'' is the transportation of higher value, time-
sensitive goods, such as produce.
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The limited progress that Amtrak has achieved in reducing its
budget gap makes it essential that Amtrak make substantial strides over
the next 2 years to achieve operational self-sufficiency. To become
operationally self-sufficient by 2002--that is, to reduce its budget
gap to no more than the amount of excess Railroad Retirement Tax Act
payments--Amtrak will have to reduce its budget gap by an additional
$287 million \8\ over what it was in fiscal year 1999. This is nearly 4
times the reduction that Amtrak made in the last 5 years. It is
therefore critical that Amtrak take those actions necessary to control
cost growth and achieve the revenue projections contained in its latest
business plan.\9\
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\8\ This amount represents the $476 million budget gap in 1999 less
expected excess Railroad Retirement Tax Act payments in 2002 of $189
million.
\9\ In addition, Amtrak's overall financial condition has also not
improved. Through the first 9 months of this year, Amtrak's net loss
was about $711 million--about $6 million higher than it was for the
same period in fiscal year 1999 ($705 million). Amtrak's lower-than-
expected performance appears to be related to higher expenses rather
than lower revenue.
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Amtrak Will Continue to Have Difficulty Controlling Its Costs
Amtrak has had and will continue to have difficulty controlling
cost growth. Amtrak met its expense targets in 1998 and 1999 but missed
them from 1995 to 1997 and, overall, its expenses have been about $150
million more than planned over this period. Amtrak's strategic business
plans have generally tried to hold cost increases to no more than the
rate of inflation. But, as we recently reported, Amtrak's operating
costs increased by about 12 percent over the rate of inflation from
1995 through 1999.\10\ Amtrak's inflation-adjusted costs (1999 dollars)
were about $2.4 billion in 1995 and about $2.7 billion in 1999. Amtrak
has attributed increased costs to, among other things, the results of
labor negotiations, expanded service levels, increased depreciation,
and the implementation of its progressive overhaul program. While
Amtrak has ``spent money to make money,'' it has realized little
benefit from the expenditures it has made. For example, in 1995, for
every operating dollar that Amtrak spent, it earned $0.65 in total
revenue. In comparison, Amtrak earned $0.67 in total revenue for every
dollar spent in 1999. Through the first 9 months of this fiscal year,
Amtrak has earned about $0.64 in total revenue for every dollar
expended.
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\10\ See GAO/RCED-00-138.
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Labor costs represent Amtrak's single largest operating cost--about
52 percent of total operating costs in 1999. Amtrak's labor costs have
increased since 1995--about 10 percent above the rate of inflation
(from about $1.3 billion to about $1.4 billion). This is a net
increase, that is, net of the savings achieved through such actions as
negotiated productivity improvements. In part, this increase reflects
the fact that the size of Amtrak's workforce has not changed materially
in recent years. In 1999, Amtrak employed about 22,500 agreement (union
represented) employees and about 2,700 management employees--about the
same total as in 1994 when Amtrak started to reduce its workforce.
Amtrak officials attributed employment increases to such things as
service expansion and capital investments. In part, increases in labor
costs may also reflect that Amtrak has no standard measures of labor
productivity for its different lines of business (e.g., intercity
passenger rail service and commuter service). Such measures would allow
Amtrak to determine its efficiency and better manage cost growth.
Amtrak's cost growth can be expected to continue. Amtrak's
operating plan for 2000 shows that overall operating costs will
increase by a net $60 million over the next 5 years.\11\ This is a net
increase because it includes growth in such costs as labor and interest
expenses as well as savings from such things as productivity
improvements. Regarding labor costs, Amtrak has entered into a new
round of collective bargaining with its union-represented employees. If
the new round of bargaining follows the pattern of past negotiations,
substantial cost increases can be expected. As a result of collective
bargaining for 1998 to 1994, Amtrak estimated that wages increased
between $120 million and $140 million. As a result of the most recently
completed round of bargaining (1995 to early 2000), Amtrak estimated
that wage payments increased by $144 million through 1999.\12\
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\11\ This includes the costs of progressive overhauls. Amtrak funds
progressive overhauls through its capital program. However, under
generally accepted accounting principles, the cost of such overhauls
are considered an operating expense.
\12\ Total negotiated wage payments (including general wage
increases, signing bonuses, and retroactive payments) were $260
million. Amtrak expects to pay the balance of this amount ($116
million) in 2000.
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Important Business Plan Initiatives to Increase Revenues and Improve
Productivity Have Yet to Be Fully Implemented
Amtrak's plans to reach operational self-sufficiency emphasize
business growth, particularly increasing revenues and improving
productivity. Over the next several years, Amtrak expects substantial
increases in revenue from such initiatives as implementing its Network
Growth Strategy (a strategy to increase passenger and mail and express
business) and new service standards designed to ensure a consistent,
high-quality product. Amtrak's most recent business plan update
estimates that initiatives such as these will result in net financial
improvements of about $1.9 billion through 2004.
Nearly three-quarters ($1.4 billion) of the net financial benefits
that Amtrak expects to achieve from 2000 through 2004 have either not
been identified or are based on initiatives that Amtrak has not yet
fully implemented. (See table 1.) These include such initiatives as
expanding the mail and express program, developing actions to improve
productivity, implementing the market-based route network, and
implementing service standards. Amtrak officials told us they are in
the process of defining the specific actions associated with these
initiatives but agreed they had not yet been fully defined. That Amtrak
has not fully implemented its most important business plan initiatives
increases the uncertainty about whether it can meet its financial goals
over the next 2 years.
Table 1: Estimated Financial Impacts of Amtrak's Business Plan Initiatives, Fiscal Years 2000 Through 2004
Dollars in millions
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initiative Change in revenues Change in expenses Net impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
Productivity $70.3 -$803.6 $874.0
actions to be
determined
Aligning route 30.0 -205.0 235.0
structure to
customer demand
Increasing ticket 175.2 5.9 169.2
revenue
Mail and express 274.3 181.4 92.9
expansion
Productivity 0 -54.2 54.2
actions to offset
inflation a
Subtotal $549.8 -$875.5 $1,425.3
Implement other 429.5 -80.7 510.2
initiatives
Total $979.2 -$956.2 $1,935.51
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Totals may not add due to rounding. Amtrak's business plan does not contain a separate initiative for its Acela Express service. Rather, Acela
Express is integrated into the plan as a whole.
a Amtrak officials told us that this initiative is a combination of actions designed to achieve cost savings to offset potential cost increases due to
inflation. These activities include wage and work rule changes, revenue enhancements, and improved food and beverage management.
Source: GAO's analysis of Amtrak's data
In addition, Amtrak has encountered difficulties in implementing
high-speed rail service on the Northeast Corridor. Amtrak's Acela
program is one of the cornerstones of Amtrak's plans to eliminate the
need for federal operating subsidies. In January 2000, Amtrak began
Acela Regional service on a limited basis between Washington, D.C., and
Boston.\13\ However, the introduction of Acela Express has been delayed
by mechanical problems since September 1999, and Amtrak has yet to
announce a start date for this service. Amtrak expected the Acela
Express to generate about $180 million in net revenues by 2003. Amtrak
officials agreed that revenues have been lost because of Acela Express
delays and are still quantifying these losses as the delay continues.
According to Amtrak, the company is currently identifying actions that
might be needed to offset lost Acela Express revenues and reduce
Amtrak's budget gap as a whole. The loss of Acela Express revenue
increases the pressure on Amtrak to make even more progress in other
areas over the next 2 years to reach operational self-sufficiency.
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\13\ Acela Regional is designed to replace Amtrak's current
NortheastDirect, Empire, and Keystone service and will offer improved
equipment, trip times, and schedules.
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Amtrak's Capital Needs Could Require an Increase in Federal Support
Amtrak has substantial capital investment needs that could result
in requests for increases in federal capital support. As we recently
reported, these needs total over $9 billion through 2015.\14\ These
needs include making safety improvements on the Northeast Corridor,
bringing the Northeast Corridor up to a condition where only routine
maintenance is required (called ``state of good repair''), and
overhauling equipment. However, Amtrak will have difficulty funding
these investments. We estimate that Amtrak's capital investment needs
will exceed expected federal funding by nearly $2 billion from 2001
through 2004. The shortfall will likely be higher since it does not
include capital investment needs for which Amtrak has not developed
cost estimates.
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\14\ See GAO/RCED-00-138. All amounts in this section are in
constant 1999 dollars. Amtrak has not comprehensively identified its
short- and long-term capital investment needs. Therefore, to identify
these needs, we asked Amtrak managers to identify capital investments
they believed are needed to maintain current service levels and improve
Amtrak's service and reviewed Amtrak and other reports addressing
capital investment needs. As a result, the needs we identified may not
be the same as those that might have been identified by Amtrak, had it
comprehensively identified its capital needs.
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Amtrak Has Significant Short- and Long-Term Capital Investment Needs
Amtrak has significant capital needs, both in the short-term (2001
through 2004) and in the long-term (2005 through 2015). Our discussions
with Amtrak officials and review of reports show Amtrak's capital
investment requirements over the next 4 years (through 2004) to total
at least $4 billion. Infrastructure investment needs account for over
$2.5 billion of the total and are targeted toward addressing deferred
maintenance and improving the quality of service on the Northeast
Corridor.\15\ Included in these investment needs is about $316 million
to continue safety investments at various locations on the Corridor.
According to an Amtrak analysis, these investments are primarily
concentrated on the tunnels leading into and out of New York City's
Pennsylvania Station--a station that serves over 300,000 intercity and
commuter rail passengers daily. In addition, about $1.2 billion will be
needed to eliminate deferred maintenance and restore the Corridor's
infrastructure to a condition where only routine maintenance is
required. Other short-term capital investment needs include reducing
equipment maintenance backlogs in the progressive overhaul program (at
an estimated cost of over $1 billion), repaying debt principal for the
acquisition of cars and locomotives ($346 million), and upgrading
maintenance facilities ($42 million).
---------------------------------------------------------------------------
\15\ Amtrak expects to share some portion of this cost with other
users of the Northeast Corridor.
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Amtrak's long-term capital investment needs also focus heavily on
the Northeast Corridor. We estimate that at least $5.1 billion in
investments may be needed from 2005 to 2015. These capital investment
requirements include making further safety improvements to tunnels,
including those leading into and out of Pennsylvania Station,
continuing to restore the Corridor to a state of good repair, and
completing the highspeed rail program. Most of the long-term capital
investments we identified (about $4.5 billion) are concentrated on
continuing the restoration of the Northeast Corridor's infrastructure
to a state of good repair. Other long-term capital investment needs
include replacing bridges and tunnels on the Northeast Corridor and
replacing and rehabilitating the Corridor's electric power system (a
system that supplies power to Amtrak's trains and dates from the 1920s
to the 1940s). These investments would replace aging systems that are
prone to mechanical failures and allow for growth.
In addition to the identified short- and long-term capital needs,
Amtrak will have other capital investment needs for which it has not
developed cost estimates. These include equipment maintenance needs and
new capital investment needs, such as station renovations and acquiring
new equipment. Although Amtrak acquired a large number of passenger
cars and locomotives during the 1990s, some components of Amtrak's
fleet are past their useful lives and will need to be replaced.
Finally, Amtrak will have capital investment needs related to
implementing its Network Growth Strategy, expanding its express
program, and developing new ``high-speed'' rail corridors across the
country.
Potential Funding Shortfalls May Require Additional Federal Support
Amtrak's identified capital investments will exceed expected levels
of federal capital funds by nearly $2 billion over the 2001 through
2004 period. Since Amtrak has never covered the cost of its operations,
it has relied solely on external funds for capital investments. This
has included the federal government, state and local governments, and
the commercial debt market.
Amtrak should be able to meet its planned investment requirements
through 2000 from Taxpayer Relief Act funds and the fiscal year 2000
federal capital grant. However, beginning in 2001, Amtrak's capital
investment requirements will exceed expected available federal funding.
The shortfall assumes that Amtrak will receive federal capital grants
of $521 million annually through 2004.\16\ In reality, Amtrak's funding
shortfall will be more than $2 billion because our analysis does not
include investment requirements for which Amtrak has not yet developed
cost estimates. The potential shortfall in federal capital funds will
require Amtrak to rely heavily on sources other than federal capital
grants to meet some its needs. However, the federal government may well
be called upon to fund these shortfalls in amounts substantially higher
than current funding levels.
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\16\ Our analysis is based on Amtrak receiving $521 million in
capital grants beginning in 2001. Amtrak's most recent business plan
update also assumes that Amtrak will receive this level of capital
funding through 2003. No estimate was available for 2004. Recently
introduced bills, if enacted, could provide capital funds for Amtrak.
S.1900 and H.R. 3700 allow Amtrak to issue $10 billion in bonds over 10
years for capital improvements to Amtrak's Northeast Corridor and other
high-speed rail corridors.
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Analyzing Amtrak's capital needs and expected funding to meet these
needs is made more difficult because Amtrak has not prepared a multi-
year capital plan since 1997. Instead, it has developed a series of
capital plans that cover only a limited horizon--not more than 1 year
at a time. These plans do not fully describe Amtrak's current and
future capital investment requirements and how they will be funded, or
indicate their relative priority. Amtrak has stated that it expects to
issue a multi-year capital plan later this year.
Time Nears for Decisions on the Future of Amtrak and Intercity
Passenger Rail
Amtrak is under extreme pressure to reach operational self-
sufficiency by the end of 2002. In our opinion, no matter whether
Amtrak succeeds or fails in this endeavor, important decisions will
need to be made about the scope of intercity passenger rail service and
the level of federal support, if any.
If Amtrak attains operational self-sufficiency, it will likely need
substantially more funds than it currently receives. As discussed
earlier, we estimate that Amtrak will need at least $9 billion to meet
its identified capital needs through 2015. This amount does not include
needs for which cost estimates have not been made. In addition, Amtrak
will require substantial funds annually to cover excess Railroad
Retirement Tax Act payments, an operating expense for which it may
receive federal funds under the Amtrak Reform Act (e.g., according to
Amtrak, $190 million in 2003 and $200 million in 2004). The federal
government could be called upon to provide support for both Amtrak's
capital needs and excess Railroad Retirement Tax Act payments, which
could total more than the $521 million that Amtrak currently receives
in federal support.
On the other hand, if Amtrak fails to reach operational self-
sufficiency, the Amtrak Reform Act requires that the railroad submit to
the Congress a liquidation plan, and the Amtrak Reform Council submit a
plan to the Congress for a restructured national intercity passenger
rail system. As a result of any congressional action on these plans,
the nation's intercity passenger rail service could have a considerably
different look.
In either situation, the future of Amtrak, and, by extension, the
future of intercity passenger rail in the United States need to be
decided. Given that 2002 is just 2 years away, it is not too early to
begin considering a long-term vision for Amtrak and intercity passenger
rail and how this vision should be structured. If that future does not
include Amtrak, basic decisions about an intercity passenger rail
system need to be made. This would include determining the scope of an
intercity passenger rail network, if any; how it would be operated; and
what level of funding would be provided to support this network.
Mr. Chairman, this concludes our testimony. We would be pleased to
answer any questions you or Members of the Committee may have.
The Chairman. Thank you very much. Mr. Carmichael, welcome.
STATEMENT OF GILBERT E. CARMICHAEL,
CHAIRMAN, AMTRAK REFORM COUNCIL
Mr. Carmichael. Mr. Chairman, thank you for inviting the
Amtrak Reform Council to address your Committee oversight on
Amtrak today. I would like to make the point that the Amtrak
Reform Council is a citizens' group, not paid. I have two of my
members of the Council here with me today. I would like to
introduce James Coston, appointed by Senate Minority Leader
Daschle, and the newest member of our Council, Nancy Rutledge
Connery, appointed by Senator Trent Lott.
The Chairman. Welcome.
Mr. Carmichael. The Council has provided the Committee a
statement that addresses in detail each of the topics of your
letter of invitation. It is a thick report. This morning I will
summarize for you the Council's views on Amtrak's recent
financial performance, and the proposed High-Speed Rail
Investment Act bonds. I will try to make it quick.
The Chairman. Take all the time you need, Mr. Carmichael.
This is a very important issue.
Mr. Carmichael. On Thursday, September 21, the Department
of Transportation's Office of the Inspector General released a
report entitled, 2000 Assessment of Amtrak's Financial
Performance and Requirements. The Council believes that this
report is a highly professional work product that reflects the
views that are generally held of Amtrak's financial situation.
Amtrak definitely faces substantial challenges in its effort to
achieve self-sufficiency, and the Amtrak Reform Council will
continue its program of developing tough constructive
recommendations designed to assist Amtrak to reach that goal by
the end of 2003.
There is little point, Mr. Chairman, in having the Council
discuss the details of its report. Our own analysis supports
its accuracy. The report stands on its own feet real well.
Thus, I will move on to the question of how the Council
perceives the proposed legislation to authorize Amtrak to issue
bonds to finance high-speed rail projects. I think I misspoke a
minute ago when I said end of 2003. I believe December of 2002
is the date.
When the Council was asked by the Senate Commerce Committee
to testify at this hearing on Amtrak issues, including
providing the Council's views on the proposed High-Speed Rail
Investment Act, I directed our staff to send a memorandum to
all the Council members to determine the views of each Council
member as to whether the Council should support or oppose the
passage of this legislation. Having polled its members, I can
say that the Amtrak Reform Council supports the objective of
the bonds, which is to help financially develop a national
system of federally designated high-speed rail corridors, and
the Council believes that the $10 billion, if managed
effectively, can be used to start this important process.
The Council also supports specific legislation authorizing
the bonds, providing certain changes that have been part of the
ongoing discussion among Amtrak and others in the last few
weeks, including our Council staff, that these changes are
incorporated into the final legislation.
Having said that, the Council differs in approach on
several important issues from the Senate Finance Committee's
concept paper that describes the bonds, assuming that no
additional changes have been made since last Friday. Certain of
these issues are policy issues that would affect the bond
program and how it would operate. There is also a technical
issue that could well have impact on whether the bond program
would be able to operate effectively.
With regards to policy issues on the bond program, let me
address the key issues that the Council sees in the context of
the proposed legislation. First, the Reform Council believes
the States and possibly bona fide high-speed rail authority, as
well as Amtrak, should be able to issue the bonds.
Second, it believes that priority should be given to
providing funding for infrastructure investments, and that the
bonds should be only used for equipment on the corridors if
private financing is not available. The Council believes
passenger equipment can be funded in large part by the private
sector.
The Council's third issue is that the States and the U.S.
Department of Transportation should have a major role in
selecting and prioritizing the projects.
From a technical standpoint, the Council also believes
there is an issue that needs to be addressed as the bill is
prepared for consideration, or the entire bond program may not
work as effectively as it should. This issue relates to whether
the bond proceeds should be deposited in Amtrak's corporate
treasury prior to a permanent investment in high-speed rail
projects or otherwise commingled with Amtrak funds.
The Council believes that if the bond proceeds, as well as
the escrow fund, are not under the exclusive control of an
independent trustee, such treatment could have a chilling
effect on the marketability of the bonds. It could also tie up
the bond proceeds and the bond escrow account in court, should
there be creditors' claims against Amtrak.
Mr. Chairman, this position reflects the views of nine of
the 11 Council members concerning the proposed legislation. As
for the remaining 2 members, Mr. Charles Moneypenny, the
Presidentially designated member representing the views of
railway labor, he expressed the view that the Council should
not take a position on the bonds, and the administration, that
is in the process of determining its position in that. When it
is determined, the Council would be so advised. We are treating
the administration's position right now as a temporary
abstention.
Mr. Chairman, we are now looking for the first time in many
decades at a domestic intercity transportation picture that
actually needs the rail passenger modes in many important
transportation markets in this Nation. Air and highway
congestion in critical city pairs and regions have brought us
to this position.
The States and the cities, or at least a significant number
of them, faced with the need to find additional useful
intercity transportation capacity, are being aggressive in
pursuit of the opportunities for improved intercity rail
passenger service, and I think that explains some of the heavy
endorsements that we have seen about this bond act.
The reason we are facing these very difficult issues that
these bonds pose is that, unlike the highways and the airways,
neither local nor State governments nor the federal government
have determined an institutional or financial solution for
adding the track and equipment capacity to our Nation's
railroad right-of-way system to provide an expanded system of
intercity passenger rail service.
The privately owned rail right-of-ways present unique
issues, compared to the publicly owned and publicly funded
national systems of highways, airports, and airways. Rail
rights-of-ways, unlike other modes of transportation, do not
have a stable funding mechanism for the rail passenger service
to develop, so we should realize that under our current
transportation policy we are making or using Amtrak alone to do
what in other modes is done by 2 separate and separately funded
types of organization.
One organization is focusing on infrastructure, and another
one is focusing on transport operation. The infrastructure
organization is exemplified by the Federal Highway
Administration, operating in concert with the State highway
departments, the Federal Aviation Administration, and the Corps
of Engineers.
The role of transport operation in all of these modes is
carried out by operating companies that carry passengers, mail
and express, the airlines, the bus lines, and the truck lines,
or companies in modes other than rail, are not entangled in the
huge infrastructure funding burdens. They pay a user fee for
the infrastructure and focus their attention on serving the
traveling public.
My personal comment, this is a huge burden on Amtrak
management and probably is causing the confusion we have as we
try to analyze how Amtrak should be operating.
Mr. Chairman, should these bonds not pass in this session
of Congress, it is likely other ways could be found to finance
improvements in intercity rail passenger service, and the
federally designated high-speed rail corridors that are
evolving such proposals might best be developed, I believe,
from a well-considered effort by experts in transportation
policy and finance to determine a modern, intermodal surface
transportation policy, and an accompanying array of financing
mechanisms needed to fund improvements in intercity passenger
rail infrastructure and equipment.
The Council will be ready to participate in any such
discussion and debate about how to do the job, and it is my
hope that our January report that we are required by law to
make will offer some solutions in this area to help us fund the
intercity rail system and to solve some of these problems.
Thank you very much.
[The prepared statement of Mr. Carmichael follows:]
Prepared Statement of Gilbert E. Carmichael,
Chairman, Amtrak Reform Council
Mr. Chairman, thank you for inviting the Amtrak Reform Council to
address your Committee's oversight hearing on Amtrak. While I am alone
at the witness table, I would like to introduce other members of the
Reform Council who are here today for this important hearing. These
members include James Coston, appointed by Senate Minority Leader
Daschle, and the newest member of the Council, Nancy Rutledge Connery,
appointed by Senate Majority Leader Lott. Also present is a
representative of the Federal Railroad Administration, representing the
Secretary of Transportation's ex officio position on the Council.
Mr. Chairman, one of my key objectives as the Council's Chairman is
to focus the substantial experience and insight of the Council's
members on solid analyses and initiatives designed to improve intercity
rail passenger service. Through the earnest efforts of the Council's
members, supported by our staff, I believe we have forged a pragmatic
bipartisan majority that brings a practical and realistic perspective
to the issues the Congress has charged the Council to address.
As you requested, the Council has provided to the Committee a
statement that addresses in detail each of the topics that you raised
in your letter of invitation. This morning I will summarize for you the
Council's view on Amtrak's recent performance and the Council's views
on the proposed High-Speed Rail Investment Act bonds, designed to
continue and expand the task of developing the federally-designated
high-speed rail corridors throughout this country. My summary will
include:
Results of Amtrak's use of new authorities provided by the
Reform Act;
Comments on financial performance and Amtrak's progress
toward self-sufficiency;
A brief overview of the Council's perspective on where
things stand, as context for the Council's views; and
The Council's view of the proposed High-Speed Rail
Investment bonds.
How Amtrak Has Used its New Authorities Provided under the Act and What
Cost Savings the Legislative Reforms Have Actually Generated
The reforms set forth in the Amtrak Reform and Accountability Act
of 1997 (``the Reform Act'' or ``ARAA''), among other objectives, were
intended to eliminate statutory obstacles to essential Amtrak
operational, financial and productivity improvements and to provide
Amtrak with additional authority to operate more like a private, for-
profit business. To this end, the Act, in its major provisions: (1)
repealed Amtrak's obligation to provide rail passenger service within
the ``basic system'' defined by statute and provided Amtrak with
complete authority to determine its national system of routes and
services in response to the marketplace [ARAA Sec.101]; (2) repealed
the specific statutory requirements for labor protection payments for
route closures and work transfers and placed the disposition of this
issue on the labor-management collective bargaining table [ARAA Secs.
141, 142]; and (3) repealed the statutory prohibition against
contracting out work and required that this issue be placed on the
collective bargaining table commencing no later than November 1, 1999
[ARAA Sec.121].
The Act also encouraged Amtrak to achieve management efficiencies
and revenue enhancements. In this regard, it charged the Council with
monitoring Amtrak's efforts to achieve labor productivity improvements
and required Amtrak, if it entered into an agreement with its union
employees after January 1, 1997 involving work-rules intended to
achieve savings, to report quarterly to the Council both the savings
realized as a result of the agreement and how the savings are
allocated. The Act requires the Council to submit an annual report to
Congress that includes an assessment of Amtrak's progress on the
resolution of productivity issues or the status of those issues [ARAA
Sec. 203].
Based on information furnished by Amtrak, it is the Council's
understanding that Amtrak has utilized its new flexibility under the
Act as follows.
A. Modifications to the National Route System
To assist Amtrak in identifying economically attractive route
closures and realignments, as well as to assist in overall business
planning, Amtrak has developed a new strategic planning methodology
called the Market Based Network Analysis (MBNA). The MBNA has an
associated Financial Model that estimates, for alternative packages of
rail passenger services and revenues, the expected costs and
profitability of a proposed route or system of routes. Using the MBNA
to assess its route system, Amtrak developed a plan for realignments
and extensions of its route system, which it called the Network Growth
Strategy (NGS). Amtrak announced the NGS in late winter of this fiscal
year. The Council has not yet had an opportunity to fully analyze it
since it was not reflected in Amtrak's FY2000 Strategic Business Plan
and since many of the NGS actions have not been fully implemented.
Based on its NGS analysis, Amtrak has proposed to add additional
routes and frequencies to its current service. Accordingly, no cost
savings have yet resulted from the additional flexibility provided
Amtrak to determine its national service network free from statutory
restrictions. After the Council completes its analysis of the NGS, it
will examine Amtrak's specific route and service proposals. Under the
ARAA, the Council is charged with making recommendations for changes in
Amtrak's route structure based on Amtrak's criteria.
B. Labor Protection Payments
Amtrak and its unions chose to address the issue of labor
protection as required under the Act through binding arbitration. In a
November 1999 decision, the arbitration board modified the pre-existing
employee protective provisions (as regards major aspects) as follows:
(a) LUnder pre-existing law, any affected Amtrak employee was
entitled to wage and benefit protection for a period equal to the
amount of service, not to exceed 6 years; under the arbitration award,
an Amtrak employee must have 2 years of service to be awarded
protection.
(b) LThe maximum duration of employee protective benefits was
reduced from 6 years to 5 years, and employees must have more years of
service than previously, on a sliding scale, to reach maximum benefits.
For example, an employee with 3-5 years of service would receive 12
months' benefits; an employee with 20-25 years of service would receive
48 months' benefits. (According to Amtrak, approximately 20 percent of
current Amtrak employees eligible for labor protection have more than
20 years of service and would be entitled to 4-5 years of income
protection for a ``trigger occurrence'' if unable to exercise
seniority.)
(c) LThe arbitration panel agreed that no employee protection would
be required for the first 2 years of any new service commenced after
the arbitration.
(d) LThe issue of whether labor protection would apply to the
termination of non-commuter contracts for local or state service was
remanded for further negotiation and re-submission to arbitration if
there is no agreement. (The arbitration panel found that Amtrak had no
obligation for labor protection with respect to commuter contracts.)
According to Amtrak, the issue remanded is still under negotiation and
there are open issues that may be resubmitted to the arbitration panel.
(e) LThe ``triggers'' for the imposition of employee protective
benefits remained the same: (1) closure of a route or reduction in
frequency below 3 round trips per week; or, as affects shop employees,
(2) closure of a maintenance shop facility or transfer of work from the
facility to another facility more than 30 miles away.
(f) LThe arbitration award provided that it may be further amended
by the parties through negotiation after January 1, 2000.
Despite the improvements achieved by Amtrak through the arbitration
award, Amtrak's new labor protection obligations to employees,
particularly those with many years of service, remain significantly
higher than those of non-railroad corporations in the United States. No
widespread ``trigger occurrence'' has taken place on Amtrak as yet that
would give rise to labor protection payments. Should such an occurrence
take place, there would be cost savings generated by the arbitration
award modifying Amtrak's labor protection obligations.
C. Contracting Out
As of the date of the Council's first annual report to Congress
(January 2000), Amtrak had not undertaken studies to determine whether
contracting out any of its operations would improve its financial
performance. Amtrak also had not served Section 6 notices under the
Railway Labor Act placing the contracting out issue on the bargaining
table, which the ARAA required Amtrak to do by November 1, 1999.
The Council is informed by Amtrak that it served Section 6 notices
on June 12, 2000 placing the contracting out issue on the bargaining
table. Amtrak, accordingly, considers the contracting out issue to be
currently under active negotiation with unions representing Amtrak
employees. Amtrak considers the specific contracting out issues it
placed on the bargaining table to be confidential.
Because Amtrak has not yet contracted out work under the new
authority provided in the ARAA, there are no cost savings as yet to be
reported. The Act, moreover, puts no deadline on the collective
bargaining process with respect to the issue of contracting out, nor
does it require Amtrak and union representatives to reach agreement on
the issue of contracting out.
D. Productivity Improvements
Amtrak has achieved some changes in work rules in its recent
agreements that have the potential to result in labor cost savings.
Some of the more important changes include: contracting out Amtrak's
entire Commissary operations to an outside contractor, eliminating
approximately 244 positions through employee buy-outs (Amtrak has had
statutory authority to contract out its food service operations since
1981); extension of the period from 4 hours to 6 hours before a second
engineer must be added to an engine consist (Amtrak estimates that this
will permit the elimination of over 50 positions in the short term, and
another 30 positions in FY1999 and FY2000); and providing Amtrak
management with additional flexibility to assign work with respect to
the implementation of high speed service on the NEC (no specific
savings calculations provided).
Under the ARAA, Amtrak is required to report quarterly to the
Council regarding work rules savings resulting from recent agreements,
including how the savings are allocated. Under recent agreements,
Amtrak's labor costs have grown by approximately 10 percent above the
rate of inflation since 1995. (See May 2000 GAO Report ``Amtrak Will
Continue to Have Difficulty Controlling Its Costs and Meeting Capital
Needs'' (``GAO Report'') at 8.) Amtrak's stated goal is to partially
(20 percent) offset recent wage increases through labor productivity
improvements.
Amtrak submitted to the Council a set of numbers on a quarter-by-
quarter basis stating a ``final'' total of $21.3 million in
``productivity improvements and work rules and cash savings'' for
FY1999. The report did not show how the savings were allocated and
provided no analysis of how the numbers were calculated. For the first
three quarters of FY2000, Amtrak submitted a comparable report stating
a preliminary total of $19.5 million in ``productivity improvements,
work rule and cash savings from post-January 1, 1997 labor
agreements.'' Similarly, the report did not show how the savings were
allocated nor how the numbers were calculated.
As found by both the Council (in its January 2000 report) and the
General Accounting Office (in its May 2000 report), there is no way to
confirm Amtrak's productivity calculations nor to distinguish how much
the stated savings are instead attributable to internal Amtrak
departmental budget cuts. Amtrak has no methodology in place by which
it can measure work rule savings nor does it maintain an audit trail of
the information necessary to measure such changes. (See Council Report
at 20; GAO Report at 27, n.14).
Moreover, as further noted by the Council and GAO reports, Amtrak
currently ``does not have standard measures of labor productivity for
its different lines of business (e.g., intercity passenger service,
commuter service).''GAO Report at 26; Council report at 20. Both the
Council and the GAO believe that the development of standard measures
of productivity is critical if Amtrak is to control its labor costs
(which constitute over 50 percent of operating costs).\1\ Amtrak has
stated in response to the GAO Report that it intends to develop such
measures (GAO Report at 5).
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\1\ Indeed, the Council has not been able to find management or
benchmarking systems in place at Amtrak to measure the productivity of
any of Amtrak's endeavors, not just the management of its work force.
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Under subsection 203(f) of the ARAA, Amtrak is required to make
available to the Council all information that the Council needs to
carry out its duties. The Council, in turn, must adopt procedures to
protect against public disclosure of confidential information. Although
the Council staff has negotiated a confidentiality agreement with
Amtrak, Amtrak has to-date declined to provide Council staff with
information (particularly relating to labor productivity) that it deems
confidential. The Council is working with Amtrak to secure additional
productivity data and to agree on acceptable methodologies for
measuring labor cost savings and monitoring general labor productivity.
Progress Toward Self-sufficiency
While there is a general understanding among people knowledgeable
about Amtrak that Amtrak has made some improvements in its financial
and operating performance, and that Amtrak has achieved many of the
objectives of its strategic business plan through the first half of
FY2000, Amtrak needs to achieve significantly greater improvements
beginning in FY2001 for Amtrak to achieve operating self-sufficiency by
FY2003 as required by the ARAA.
A. Key Points From Recent Audits and Reports by the DOT/IG and the GAO.
This hearing will undoubtedly hear in detail from Kenneth Mead, the
Inspector General of the Department of Transportation, about his
office's September 19, 2000, report, ``2000 Assessment of Amtrak's
Financial Performance and Requirements.'' According to an article in
last Friday's Washington Post, Amtrak largely agrees with Mr. Mead's
assessment, as does the Council. We would just like to highlight a few
of the points that report made, from the perspective of the Council.
Starting from the DOT IG's point that Amtrak has indeed increased
its ridership and revenue in 1999 and 2000, but that it must curtail
its expense growth to achieve operating self-sufficiency in 2003, we
would move on to quote 2 points:
``Without major corrective action, Amtrak will not achieve
operating self-sufficiency in 2003.'' Specifically, Amtrak
needs to achieve $737 million in savings from undefined
management actions, and it needs to achieve its revenue
forecasts for Acela Express and other Northeast Corridor
service despite a revenue risk identified by the Inspector
General's report of $304 million.
``Amtrak's capital outlook is grave.'' Amtrak will face
serious capital shortfalls beginning in FY2001. Even assuming
Amtrak's cash losses are no higher than Amtrak projects, Amtrak
will face a minimum funding shortfall of $91 million, and
continued shortfalls through 2004 will total $298 million. The
Council thinks it is important to note that this capital
shortfall reflects, in part, a less than optimal use by Amtrak
of its TRA funds.
You also asked the Council, Mr. Chairman, to comment on the May
2000 report of the United States General Accounting Office, ``Intercity
Passenger Rail, Amtrak Will Continue To Have Difficulty Controlling Its
Costs And Meeting Capital Needs.'' This report made a number of
findings consistent with the Inspector General's report and findings of
the Amtrak Reform Council.
While its performance has improved in recent years, from
1995 to 1999, Amtrak's operating costs were, in total, about
$150 million more than planned.
Amtrak has no measures of labor productivity for its lines
of business (e.g., intercity passenger service, commuter
service) that could help it better manage its labor costs.\2\
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\2\ See Footnote 1
Because future cost increases can be expected, it will be
critical for Amtrak to achieve the revenue projections for such
things as its high-speed rail program on the Northeast
---------------------------------------------------------------------------
Corridor.
GAO estimates Amtrak has short- and long-term capital
investment needs totaling about $9.1 billion through 2015 plus
additional capital investment needs for which costs estimates
have not yet been developed.
GAO recommended that Amtrak develop measures of labor
productivity for its different lines of business and a multi-
year capital plan. Amtrak agreed to these recommendations.
B. Amtrak's Recent Financial Performance
Although Amtrak's actual financial performance as measured by its
``Budget Result'' was slightly ahead of its Strategic Business Plan
projections through the second quarter of its fiscal year (March 31,
2000), Amtrak was $9.5 million below its Budget Result after the third
quarter (June 30, 2000), and its financial performance for the balance
of FY2000 is likely to be increasingly unfavorable relative to its
FY2000 Budget due primarily to shortfalls in passenger and mail/express
revenues attributable to delays in the introduction of Acela Express
service and lower growth of mail/express revenues.
Amtrak's system revenues increased 7 percent from FY1998 to FY1999,
and system revenues were up 11 percent in the first nine months of
FY2000 relative to FY1999, which was essentially consistent with
projected revenue levels in the FY2000 Strategic Business Plan. After
increasing 2 percent in FY1999 over FY1998, ridership was up 3.5
percent during the first nine months of FY2000, but 1.2 percent below
the Strategic Business Plan projection. Amtrak achieved its Business
Plan revenue projections while falling short of its ridership levels
due to higher average ticket prices than projected.
Total system expenses increased 7 percent from FY1998 to FY1999,
and they were up 7 percent in the first nine months of FY2000 relative
to FY1999, which was approximately 1 percent (or $14 million) worse
than projected in the FY2000 Strategic Business Plan. It is important
to note, however, in comparing changes in revenues and changes in
expenses, that since Amtrak's expenses exceed its revenues by a large
amount, operating losses were approximately $16 million greater than
projected in the Strategic Business Plan for the first 9 months of
FY2000 even though FY2000 revenues were essentially on Plan.
Amtrak's cash losses were $54 million greater in FY1999 than
FY1998. Amtrak's cash losses were $27 million (6 percent) lower in the
first 9 months of FY2000 than FY1999, but they are $22 million (5
percent) behind its Strategic Business Plan projection.
We believe, together with the Office of the DOT Inspector General
and the GAO, that while Amtrak arguably has achieved many of its Plan
objectives during the past 2 years, most the ``heavy lifting'' in terms
of improving the Corporation's bottom line lies ahead, with even
greater need for annual improvements starting in FY2001.
Although the general trend of Amtrak's financial performance has
been improving in recent months because of increased ridership--due in
part to new services and to historic levels of congestion in the
aviation system, particularly in the Northeast Corridor--the delay of
Acela has meant that Amtrak is going to end this year significantly
(approximately $75 million) below Plan.
Where Does the Council Stand and What Does it See?
Mr. Chairman, in a recent conversation, Senator Lott told me that
he wants the Council, as part of its statutory duties of making
recommendations for improvements, to give the Congress a plan for a new
modern national rail passenger system and to make sure we include
recommendations about how to fund it. In the broader context, Mr.
Chairman, I think Senator Lott's request captures the essence of what
the Congress in the Reform Act asked the Council to do--regardless of
whether there is ever a need for a finding as to Amtrak's self-
sufficiency.
After about 18 months of full operations, Mr. Chairman, I feel that
this Council has come together quite well and that it has developed a
solid perspective on the situation of intercity rail passenger rail
service in America today.
A. The Situation Today
Mr. Chairman, we are now looking at a domestic intercity
transportation picture that for the first time in many years, actually
needs the rail passenger mode in many important transportation markets
in this nation. Air and road congestion in critical city pairs and
regions have brought us to this position.
The States, or at least a significant number of them that are faced
with the need to find additional useful intercity transportation
capacity, are being aggressive in their pursuit of opportunities for
improved intercity rail passenger service.
The Council also sees a federal government--both executive and
legislative--that has:
Provided Amtrak, which by law is now a private, federally-
chartered District of Columbia corporation, as the sole
national instrument for operating and improving intercity rail
passenger service in this nation today; and
Designated 11 emerging high-speed rail corridors--to go with
2 already-established corridors (the Northeast Corridor and New
York's Empire Corridor).
B. Amtrak Today, as Analyzed and Reported by the Council
Amtrak is a conglomerate, trying to carry out many major functions
in addition to its core mission. That mission is to operate a national
system of intercity rail passenger, mail and express services, which is
what Amtrak was established to do.
In the Acela delay, which it now seems may be coming to an end,
Amtrak is facing a critical obstacle to self-sufficiency. But it is
important to note that Acela--even if it achieves the results that
Amtrak forecasts--will provide significantly less than half of the
financial performance improvements that the DOT IG's report says that
Amtrak needs to achieve.
Its Northeast Corridor infrastructure is also a problem. The
Council has recommended that Amtrak keep separate financial statements
on it. If it were a separate corporate division of Amtrak, it might be
able to raise its own funds in capital markets.
Amtrak has had, and continues to have, major problems achieving
improvements in all areas of productivity, including its use of
capital, labor, and materials. That said, the Council does not regard
labor as the problem at Amtrak. The real problem is the overall
structure of the corporation's management, exacerbated by inadequate
information systems, and a lack of accountability--division by division
and function by function--for bottom line results. Amtrak is also
subject to substantial and continuing political interference, which
seriously hampers its ability to operate like a business.
Amtrak operates a fleet of passenger cars that is too old and too
small. It needs new equipment to provide better service that will
attract new riders and haul more mail and express traffic. The Council
believes that much, if not all, of this equipment should be able to be
financed by private capital markets.
It needs better infrastructure on which to operate, both in the NEC
and throughout the other 12 corridors. But this is far from just
Amtrak's problem.
To do all this, our nation needs a new system of financing for rail
passenger service, which means that the government should put on its
policy hat and design one for it, looking both at infrastructure and
equipment and the roles of government financing and private capital
markets.
This brings me to the question as to how the proposed bonds fit
into all of this.
The Proposal to Authorize Special Bonds to Finance High-speed Rail
Investments
When the Council was asked by the Senate Commerce Committee to
testify at this hearing on Amtrak issues, including providing the
Council's views on the proposed ``High Speed Rail Investment Act''
(S.1900 and H.R. 3700), I directed the staff to send a memorandum to
all Council members to determine the views of each Council member as to
whether the Council should support or oppose the passage of this
legislation. The results of the poll are as follows. Nine of the eleven
Council members supported the proposed legislation with certain
modifications: (1) the Bonds can be issued by ``an intercity passenger
rail carrier,'' which would include state high speed rail authorities,
not just by Amtrak; (2) priority should be given to use the Bond
funding for infrastructure only, and should only be used for equipment
if private financing is not available \3\; and (3) Bond funds be
segregated from the operating bank accounts of Amtrak and other
intercity passenger rail carriers' that might issue Bonds, and not be
treated as fungible assets of these corporations. (This would be a
change from the way that Amtrak dealt with the Taxpayer Relief Act
funds in terms of interim use and investment.) Several Council members
believe that the Council has no business taking a position on certain
tax-related issues that are more appropriately issues for others to
determine. An example of such issues are the Department of the
Treasury's current limitations on private activity tax-exempt bonds and
requirements that proceeds from tax-exempt bonds be expended within 3
years of the time that tax exempt bonds are issued by the States. [A
summary of the specific issues proposed to the Council members as part
of their ``vote'' is found at Attachment I].
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\3\ The Council believes passenger equipment can be funded in large
part by the private sector.
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The 2 remaining members had different positions. Mr. Moneypenny,
the Presidentially-designated member representing the views of rail
labor, expressed the view that the Council should not take a position
on the bonds. The Administration indicated that it was in the process
of determining its position and that, when its position was determined,
it would so advise the Council. As of the time of the submission of
this testimony to the Committee, the Council had not received notice of
the Administration's position. We are treating that as a temporary
abstention.
Mr. Chairman, should these bonds not pass in this session of the
Congress, it is likely that other ways could be found to finance high-
speed rail, including the federally-designated high-speed rail
corridors. Such proposals might best be developed, I believe, from a
well-considered effort by experts in transportation policy and finance
to determine a modern Intermodal Surface Transportation Policy and an
accompanying array of financing mechanisms needed to fund improvements
in intercity passenger rail infrastructure and equipment. The Council
will be ready to participate in any such discussion and debate about
how to best do the job. This effort would have to start with a
comprehensive capital needs plan, which Amtrak has not provided, aside
from its 25-year estimate of capital needs for the south end of the
Northeast Corridor.
Is $10 billion needed? Without a doubt. And considerably more, in
fact, if we are serious about improving and expanding intercity rail
passenger service. The Reform Act charges the Council with a positive
mission--to recommend improvements in Amtrak and, if Amtrak cannot
improve to the extent the Congress requires, to design an improved
national intercity rail passenger system. The Council was established
to determine the best way to improve our national rail passenger
system, and we see the need for a major investment in passenger rail
service over the coming years. Assuming that, in some form and at some
time, $1 billion per year for Corridor Development is provided, that
amount could easily be matched by as much as $1 billion per year for
other needs. These other needs include additional funding for the NEC
and the emerging corridors, enhancements to the current national rail
passenger system and to Amtrak's mail and express operations, and
implementation of the Network Growth Strategy.
Let me preface all this by saying that--on behalf of the Council--I
think we would not be doing our duty as an independent oversight agency
if we did not point one thing out. The reason we are we are all facing
the very difficult issues that these bonds pose--and here I quote from
the Council's first annual report--is that:
L``Unlike roads and air, however, neither local or state
governments nor the federal government have determined an institutional
and financial solution for adding the track and equipment capacity to
provide an expanded system of intercity rail passenger service. The
privately-owned rail freight rights-of-way present unique issues
compared to the publicly-owned and publicly-funded national systems of
highways, airports, and airways. Rail rights-of-way, unlike other modes
of transportation, do not have a stable funding mechanism for rail
passenger corridor development.'' (Amtrak Reform Council, First Annual
Report, January 2000, p.1)
So we should realize that--under our current transportation
policy--we are using Amtrak to do what in other modes is done by 2
separate and separately funded types of organizations, one focusing on
infrastructure, and one focusing on transport operations. The first is
exemplified by the roles of the Federal Highway Administration
operating in concert with the state highway departments, the Federal
Aviation Administration, and the Corps of Engineers. The role of
transport operations is--in all of these other modes--carried out by
operating companies that carry passengers, mail, and express. Companies
in modes other than rail are not entangled with huge infrastructure
funding burdens; they pay a user fee for the infrastructure and focus
their attention on serving the traveling public.
I know Mr. Chairman that this Committee is much concerned with the
problems of the aviation system today, and we each have our own stories
about the stress of contemporary airline travel. But the problems of
the airlines and the aviation system are the problems of success. Each
year for the past 3 years the airlines have been adding more intercity
passengers than Amtrak carries annually in total. And they have been
adding each year as many or more employees than Amtrak's total
complement of agreement employees.
The question the Council is asking is ``What is the best way to get
rail passenger service to begin to share in the economic bonanza that
is causing problems for air and highway travel?''
Against this backdrop, the Council's concern with this legislation
has 2 dimensions--policy and practicality.
From an overall policy standpoint, has this approach really been
thought through thoroughly? Is the mechanism of these bonds, aside from
the matter of who issues them, the best way to finance passenger rail
capital needs? I would think that it depends on what part of those
needs you are looking at. It is almost certainly not a sound way to
fund the capital needs of Amtrak the corporation. But it might well be
a reasonable way to fund long-term infrastructure improvements to the
FDHSRCs. That raises these specific policy issues:
1. LIs Amtrak the corporation, from all standpoints the best
vehicle for issuing these bonds?
LIt does have about $5 billion in Net Operating Loss
Carryovers (NOLs), but these exist because historical
government subsidies were made in the form of preferred stock
investments in Amtrak by the government, which arguably should
have been characterized as operating grants rather than capital
investments.
LWhat about Amtrak's balance sheet? Should it be burdened
with $10 billion in debt (or contingent liability debt) for
improvements to the infrastructure, most of which it does not
own? What will this do to Amtrak's ability to borrow in private
markets?
LShould we be loading major program and financing
responsibilities on a corporation which is clearly having
difficulties getting its core business to run well, and which
is facing the need to achieve self-sufficiency by December 2,
2002?
2. LHas there been a clear assessment of the best potential roles
of public financing and private capital markets?
3. LAnd finally, has there been any solid attempt to determine the
best possible way for money to be put into the infrastructure
improvements of America's private railroads in order to provide the
capacity and speed improvements needed to implement the Federally-
Designated High-Speed Rail Corridors? [Attachment II shows that, under
the most favorable assumptions, over 30 years the taxpayers (federal
and state) will pay at least $15 billion (and possibly as much as $18
billion) for $10 billion of high speed rail projects].
The proposed bond mechanism in effect uses Amtrak as a sort of
Fannie Mae for the infrastructure of the railroad industry. One reason
for the choice is clear--the $5 billion in NOLs that the corporation
holds because of the subsidies it received previously from the
government. These NOLs shelter the escrow Fund's taxable interest
income needed to grow on a compounded basis and be available in 20
years to repay the bonds.
This is where issues of practicality come in. In the event that the
Congress decides to pass the bond bill in this session, the Council
believes that it should be done with the following amendments:
(a) LThe funds primarily should be used for infrastructure
improvements, with 90 percent for the FDHSRCs and 10 percent for non-
FDHSRCs (the 10 percent should be allocated to non-Corridor states by
DOT) and should only be used for equipment expenditures if private-
sector financing of equipment is not available;
(b) LThere should be adequate criteria for evaluating and
assigning priority to the candidate projects, with DOT and the states
playing the major role in the initial selection of projects. Amtrak
should not be in the business of choosing projects outside the NEC.
Assets outside the NEC are not Amtrak's assets, nor does Amtrak have a
monopoly to provide rail passenger transportation in those areas;
(c) LEffective oversight arrangements need to be in place for
the projects to be funded by the bonds;
(d) LAll funds, including both state contributions and bond
proceeds, should be under the control of the Independent Trustee and
should not be able to be borrowed by Amtrak (or any other issuer), or
otherwise be entangled with its internal finances. To do so would be to
create a risk of having the proceeds entangled in the internal finances
of the issuer in a way that could put the bond proceeds and the bond
escrow account at risk in the event of creditors' claims (in Amtrak's
case, this would include the risk of default on its commercial debt
obligations that Amtrak, in Appropriations testimony, has stated that
it could indeed face). Moreover, discussions the Council's staff has
had with financial experts experienced in bonds indicate that, when the
prospectuses for these Bonds are issued, if Bond proceeds are to be
mixed with Amtrak's internal funds, it could raise the perceived
financial risks of the Bonds.
Mr. Chairman, thank you again for your invitation to the Council.
The issues you and the Committee are addressing are critical to the
future of rail passenger service in this country, which we all want
responsibly and effectively to promote.
______
Attachment I
Background Paper on Proposed Changes Accepted and Under Discussion to
S. 1900 and H.R. 3700
I. Issues Discussed With Amtrak and FRA, Annotated by Later Changes
from the Senate Budget Committee Meeting
The Council staff met with Sandra Brown (Vice President, Government
Affairs) and Bill Erkelenz (legal counsel) of Amtrak and Mark Yachmetz
(Associate Administrator for Railroad Development, Federal Railroad
Administration). Ken Kolson followed up by telephone on August 24 with
Bill Erkelenz. On September 8th, the Council staff met with Mitch
Warren of the Senate Committee on the Budget (SCOB).
A. Update on the Status of the Legislation. Amtrak indicated that
ongoing legislative discussions surrounding the High Speed Rail
Investment Act are now based on the text of H.R. 3700, not S. 1900;
that Senator Lautenberg has agreed to the more restrictive provisions
of H.R.3700 \1\; and that Amtrak has agreed to support certain
amendments and clarifications to H.R.3700, which are summarized below:
---------------------------------------------------------------------------
\1\ Amtrak has indicated that it is willing to be bound by the
additional restrictions of H.R. 3700 (no more than 30 percent of funds
invested in any corridor; explicit statement that there is no federal
guaranty of the bonds; and any ``intercity passenger rail carrier'' can
issue the Bonds, not just Amtrak).
1. LAmtrak would support the House language that (a) would
allow rail passenger carriers other than Amtrak (including
specially-established State entities) to issue Bonds and (b)
would place a 30 percent cap on proceeds that could be used for
any corridor, including the NEC. Amtrak noted its
interpretation that the Alaska Railroad was qualified to issue
bonds.\2\ In the Budget Committee meeting, Mr. Warren indicated
that the issue of additional potential issuers of the bonds had
been augmented by a proposal from railway labor that Davis-
Bacon provisions apply to all projects, regardless of the
issuer.
---------------------------------------------------------------------------
\2\ Although only 10 percent of the proceeds of an issue each year
can be used to improve non-designated high-speed corridors under the
language of the bills, Amtrak interprets the language as allowing the
Alaska Railroad to issue bonds for 10 percent of the maximum allowable
$1 billion cap each year. Senator Stevens reads it this way too.
2. LAmtrak would support statutory criteria for Amtrak and DOT
to apply in selecting projects (criteria similar to those used
by the Federal Transit Administration in approving transit
grants). Amtrak also would support oversight and greater
participation by the Secretary of Transportation or the DOT
Inspector General in the process of selecting projects to
receive Bond funding. Mr. Warren of the Budget Committee
---------------------------------------------------------------------------
indicated that work was underway to develop criteria.
3. LAmtrak would support adoption of provisions providing for
federal and state oversight of the projects funded and amounts
expended by Amtrak under the Bond program, possibly using as
guidance the project management oversight process from the
transit industry with a private PMO (``Project Management
Oversight'') contractor making sure that the funds are expended
according to the applications and grant agreements executed
between Amtrak and the States.
4. LAmtrak would support legislation clarifying that States
could use tax-exempt project revenue bonds to fund the States'
20 percent matching contributions in whole or in part.\3\ This
provision could encounter U.S. Treasury Department opposition
since it may open the door for others also to get implicit
federal subsidies by getting authority to issue more tax-exempt
project financing bonds.
---------------------------------------------------------------------------
\3\ Amtrak noted that states can put up their 20 percent shares of
funding by issuing general obligation tax-exempt bonds (but the states
presumably would prefer to issue project financing bonds since such
bonds are not full faith and credit obligations of the states). Amtrak
also noted that the current IRS Code allows States to issue tax-exempt
project financing bonds for high-speed train facilities as long as such
trains can travel at speeds of 150 mph or faster for appropriate
portions of their trips.
5. LAmtrak agreed to have a capital plan in place before any
bonds are issued. Although Amtrak did not provide the
specifications of the promised capital plan, Amtrak seemed to
suggest that it would provide a five-year capital plan rather
than a longer-term plan. It is expected that Amtrak's capital
---------------------------------------------------------------------------
plan would be issued before the end of September.
6. LAmtrak believes the 36-month period to make qualified
expenditures may not be sufficient because it will take time
before projects can get underway (particularly with a
requirement for DOT approval of project plans, and possible
requirements for Environmental Impact Statements). Chairman
Shuster informed Amtrak that he thinks the 36-month period is
too short. FRA noted that its experience with the Northeast
Corridor Improvement Project supports the need for a longer
spend-out period.\4\ Amtrak anticipates that approximately 20
percent of each years' bond funds will be invested in the years
that the bonds are issued. In the Budget Committee meeting the
issue was raised that Treasury regulations do not permit longer
than 3 years between issuance and expenditure for the project
to be financed.
---------------------------------------------------------------------------
\4\ Mark Yachmetz noted during the meeting that in the
approximately 19 years that funds were administered by the Northeast
Corridor Improvement Project, first year funds expended never exceeded
15 percent, and only twice did first year funds expended exceed 10
percent.
7. LAmtrak reads the language of the bills as requiring a State
to put up its 20 percent match in cash (not just to make a
---------------------------------------------------------------------------
written commitment) prior to the issuance of any Bonds.
8. LAmtrak noted that the issue of who will manage a project
must be resolved in each case. The entity that would manage the
project would be specified in agreements among Amtrak, the
states, and any freight railroad that might be involved.
9. LAmtrak will take legal measures, to the extent possible, to
insulate the funds held by the independent trustee (in what
Amtrak calls an Escrow Fund) from Amtrak's creditors; Amtrak
does not envision that a separate taxable entity will be
created; Amtrak will pick the independent trustee using a
competitive process similar to the one used to select the
advisor to invest the TRA funds; and Amtrak expects that the
bonds will be paid off through Guaranteed Investment Contracts
(GICs) purchased by the trustee. Amtrak's legal counsel said
that, if necessary, perhaps the Escrow Fund could be placed in
a Grantor Trust to isolate it from Amtrak's general creditors,
while allowing Amtrak's tax attributes to be used to shelter
taxable income otherwise earned by the Escrow Fund.\5\
---------------------------------------------------------------------------
\5\ Legal structures can isolate the Escrow Fund from Amtrak, but
in an Amtrak bankruptcy proceeding, creditors of Amtrak could argue
that the Escrow Fund should repay Amtrak (a) for the value of any
principal payments made with Amtrak funds pursuant to Amtrak's guaranty
of Bond principal within 3 years of an Amtrak bankruptcy, and (b) for
the value of Amtrak tax losses used by the Escrow Fund to shelter
interest income from federal and state income tax liability within 3
years of an Amtrak Bankruptcy.
10. LWhen asked about how income taxes on Escrow Fund interest
earnings would be paid (which Amtrak anticipates will be taxable for
income tax purposes), Amtrak offered its remaining approximately $5
billion of Net Operating Loss Carryovers \6\ as well as future losses
(due to depreciation, etc.) to be available to shelter any taxable
interest income. Presumably, the same Amtrak losses would be available
to shelter any taxable interest earnings resulting from temporary
investments of the Bond principal of $1 billion per year until the
funds are expended for qualified, approved projects.
---------------------------------------------------------------------------
\6\ Amtrak's audited financial statements report a NOL carryover
balance of $8.4 billion as of December 31, 1998, less a $3.3 billion
reduction in fiscal year 1999 due to the funding received under
Taxpayer Relief Act of 1997. Since the Net Operating Loss (NOL)
Carryovers represent losses funded by federal investment in Amtrak,
primarily through the purchase of preferred stock, this approximately
$5 billion of NOL Carryovers may not be available in the future if
there is a financial recapitalization of Amtrak. Furthermore, depending
upon the income tax treatments appropriate for future federal and state
funding mechanisms, Amtrak may not generate sufficient taxable losses
in the future to fully offset the interest income earned by the Escrow
Fund.
11. LThe 5 percent of the proceeds that can be used for non-
qualified project expenditures is expected by Amtrak to be used for
``soft costs'' (e.g., transaction costs; funds for oversight of
projects [Project Management Oversight similar to that used for
projects funded with transit grants, as proposed by OMB and DOT/IG] and
other set-asides to ensure that no issue arises regarding the
qualification of the Bonds).\7\
---------------------------------------------------------------------------
\7\ The 5 percent could also allow the bonds to be sold at a small
discount to their par value and still satisfy the statutory requirement
that at least 95 percent of the proceeds are used for qualified
investments.
B. Other Issues Discussed. In addition to the above issues, which
Amtrak represented as likely legislative amendments, other issues
---------------------------------------------------------------------------
related to the Bonds were discussed, as indicated below:
1. LWhen asked if certain types of project expenditures such as
progressive overhauls could be funded with Bond proceeds,
Amtrak indicated that they theoretically could. Amtrak,
however, did not anticipate that the States would agree to use
Bond funds for progressive overhauls. The FRA concurred,
stating that although the States may approve using Bond funds
and may provide matching State funds for capital expenditures
on a Generally Accepted Accounting Principal (GAAP) basis
(i.e., new, long-term assets or expenditures which rebuild or
significantly increase the useful lives of assets), approving
Bond funds for progressive overhauls was not likely.
2. LAmtrak anticipated that the DOT or some other federal
agency would have to approve project applications before Bond
funds would be made available. As a result, both Amtrak and
Mark Yachmetz did not think that Bond funds, unlike TRA funds,
would be used for purposes that did not advance high-speed rail
passenger service.
3. LFreight railroads and other entities that benefit from the
Bond funding would have to agree to certain requirements and
restrictions pertaining to use and maintenance of the assets
funded throughout the life cycle of the assets (FRA noted that
there needs to be an agreement with the freight railroads in
place prior to approval of the project and issuance of the
Bonds).
4. LThe bills do not spell out how the Bond fund proceeds can
be invested by Amtrak for the 36-month (or greater) temporary
period before they are used to pay for qualified project
expenditures. Amtrak intends to invest the money in high-yield
investments, the earnings from which would go into the Escrow
Fund to pay off the bonds. Amtrak estimates that the Escrow
Fund will have to earn a rate of return of approximately 6.25
percent (rather than the 8.38 percent rate calculated by the
Council staff, which assumed that Bond principal would be
immediately spent on qualified project expenditures). This is
because Amtrak assumes that a maximum of 20 percent of the bond
funds will be expended in the first year, not more than 40
percent in the next year, with the balance presumably being
spent in the third and following years. Before the funds are
used for project expenditures, the interest earnings on the
invested Bond principal will go into the Escrow Fund, allowing
a lower rate of return to be required on the 20 percent State
matching funds in the Escrow Fund.\8\
---------------------------------------------------------------------------
\8\ Attached to this memorandum are analyses which show the amounts
that need to be earned to repay Bond principal in 20 years with Bond
funds (1) immediately spent on qualified project expenditures, and (2)
invested for a period of time before being spent on qualified project
expenditures. These attachments, showing both after income tax and
before income tax cases, confirm Amtrak's assertion that an after-tax
(or tax exempt) interest rate of approximately 6.25 percent for 20
years will be sufficient for the Escrow Fund to repay the loan
principal in 20 years.
5. LWhen asked, Amtrak agreed that, under the language of the
current bills, it could borrow the money for all or part of the
36-month ``temporary investment'' period at a stated rate of
interest and deposit the interest payments in the Escrow Fund.
Amtrak indicated that, prior to this question, no one in the
Corporation had given any thought to Amtrak's borrowing the
---------------------------------------------------------------------------
funds temporarily.
6. LAmtrak interprets the bills as allowing a freight railroad
to reimburse a state for all or part of the 20 percent match.
Amtrak (and DOT) believe that any benefit to a freight railroad
in improving its infrastructure in a high-speed corridor would
also benefit Amtrak and intercity passenger service, even if
only indirectly.
7. LMark Yachmetz noted that DOT was in discussions with Amtrak
about the bills, but, as of August 23, DOT had taken no
position yet. DOT may endorse the bills (with certain
amendments), or it may not. After the meeting, he noted to the
ARC staff that H.R.3700 was likely to be the last legislative
opportunity to fund high-speed rail development projects until
FY2003.
II. Staff Suggestions for Improvements to Amendments Proposed and
Description of Further Amendments Believed to be Needed
After reviewing the improvements in the proposed legislation as
discussed with Amtrak and DOT, the Council staff believes that some of
the proposed amendments need strengthening and additional conditions
should be imposed.
A. Suggested Improvements to Proposed Amendments.
1. There should be clear investment criteria for the Secretary of
Transportation to use in prioritizing and approving projects, and
Amtrak should be made subject to DOT reporting requirements regarding
project expenditures. It would be preferable for the Secretary of
Transportation to make decisions that will shape the Nation's future
passenger rail infrastructure. In addition:
LThere should be incentives for the states to increase the
percentage of matching funds contributed to financing projects
funded with the Bonds; this should be one of the criteria used
by the Secretary in reviewing and assigning priorities to
projects submitted for approval (Amtrak and DOT noted that this
issue was currently under discussion, and this issue is a high
priority for the Senate Budget Committee);
LThere should be incentives in place to obtain
contributions from freight railroads that are beneficiaries of
bond-financed projects (DOT and the Senate Budget Committee are
also working on this issue).
2. Capital improvements should meet the standards of Generally
Accepted Accounting Principles. The bond proceeds would therefore be
used only for capital expenditures for projects funding infrastructure
improvements or equipment. Amtrak operating expenses, such as
progressive overhauls or preventive maintenance, would not be eligible.
3. Amtrak should be required, on a permanent basis, to incorporate
a rolling five-year capital investment expenditure plan into its
Strategic Business Planning process (``rolling'' means that the
investment expenditure plan would be updated each year for the next 5
years as part of Amtrak's normal business planning process).
4. In addition to the language of H.R. 3700, which permits Amtrak
and other intercity rail passenger carriers to issue Bonds, bona fide
high-speed rail authorities should also be permitted to issue the
Bonds. Rail labor has proposed that Davis-Bacon provisions should apply
to projects financed by any issuer of the bonds.
B. Additional Conditions That Should Be Considered
1. DOT should be required to maintain annual oversight of the state
of good repair of the assets improved with investment funds:
LFreight railroads should be required to issue reports
concerning how the funds were expended and demonstrating that
they have performed normalized maintenance on the segments
improved with Bond funds.
LAmtrak should be required to provide annual reports on
the financial and physical state of good repair of the NEC
infrastructure, including improvements made with bond funds.
2. To ensure that Bond proceeds are not mixed with Amtrak's
operating funds in any way that could entangle the proceeds with any
future creditors' claims, all Bond proceeds and state contributions
should be placed in separate accounts within the Escrow Fund controlled
and managed by the independent trustee. The temporary investment of the
Bond funds should be limited to AAA investment grade securities,
possibly limited to federal government obligations.
3. The statute should require that, within the $3 billion allocated
to the NEC, the highest priority is to correct the remaining fire and
life safety problems in Penn Station New York and its associated
complex of tunnels. At a minimum, safety should be a principal
criterion for the DOT to use in assigning priority to and selecting
projects.
4. States should have the right to inspect Amtrak's financial
records for Bond-funded projects.
III. Impact of Changes Accepted by Amtrak and Those Yet to Be
Considered in the Bills
In looking at the process that has occurred during the past few
weeks since the hearing by the House Ways and Means Subcommittee on
Oversight, it seems that:
1. If, indeed, the bonds are intended to fund only the
infrastructure improvements of the federally-designated high-speed rail
corridors (the FDHSRCs, which, includes the Northeast Corridor, the
Empire Corridor, and the 11 emerging high-speed rail corridors
designated under ISTEA and TEA-21), there is probably a better way to
structure an infrastructure improvement program (e.g., a federal-state
variant of the NECIP program in which FRA, with assistance from FHWA,
would work with the state DOTs and the freight railroads to upgrade
infrastructure).
2. If this were the only vehicle that would ever be possible for
funding the corridors, additional amendments should be considered (as
discussed in Section II) that would ensure:
(a) LFunds could only be used for infrastructure improvements to
the NEC and the FDHSRCs (plus the 10 percent for non-FDHSRCs, which
should be allocated by DOT);
(b) LAdequate criteria be in place for evaluating and assigning
priority to the projects, with DOT playing a direct role in initially
choosing projects. Amtrak should not be in the business of choosing
projects outside the NEC. Assets outside the NEC are not Amtrak's
assets, nor does Amtrak have a monopoly to provide rail passenger
transportation;
(c) LAmtrak should not be eligible to manage projects, except in
the NEC, and only there with the agreement of the participating states;
(d) LEffective oversight arrangements be in place; and
(e) LAll funds, including both state contributions and bond
proceeds, be under the control of the Independent Trustee and cannot be
borrowed by Amtrak or otherwise be entangled with Amtrak's internal
finances.
The overall impact of these changes would be to convert the
original bills, which appeared to be very simple instruments for
providing blanket authority without a well-defined program objective or
adequate restrictions for Amtrak to issue Bonds (based on Amtrak's
exclusive comparative advantage of having about $5 billion in NOL tax
carryforwards), to a bill designed to ensure that the Bonds would be
used to fund the infrastructure improvements necessary to develop the
FDHSRCs. The Council staff believes that a better approach would be to
start with a programmatic bill designed effectively to fund the
infrastructure improvements needed for the FDHSRCs and then to meld
onto it any tax provisions that might be best-suited to finance the
corridor development program.
The Council clearly stated in its First Annual Report that it
believed that Amtrak was trying to perform too many functions to the
detriment of its ability to operate a truly effective intercity
passenger train operating company, and that, accordingly, major
responsibilities in such areas as infrastructure improvement should be
left to others. This view undergirds our assessment of the proposed
Bond legislation.
______
The Chairman. Thank you, Mr. Chairman. We have a vote on. I
suggest we take a brief recess and go vote and come right back.
[Recess.]
The Chairman. The Committee will reconvene. I thank the
witnesses for their patience while we went over and had a vote.
Our next witness, and our next-to-last witness, is Mr.
Joseph Vranich. Welcome, Mr. Vranich.
STATEMENT OF JOSEPH VRANICH, IRVINE, CA
Mr. Vranich. Thank you, Mr. Chairman. Good morning to you
and your colleagues. I appreciate the opportunity to testify
before you today.
I am accompanied here by Mr. Anthony Haswell, who is seated
in the audience. He founded the National Association of
Railroad Passengers in 1967. In 1970 he hired me to be its
executive director, and Mr. Haswell is an attorney who is
occasionally referred to as the father of Amtrak. He is here,
and he agrees with the overall thrust of my testimony.
Although this marks the 31st year that I have been a
proponent for rail service, I am now embarrassed to admit that
I worked to create Amtrak. I served as a member of the
congressionally chartered independent Amtrak Reform Council, a
post I was appointed to by the Senate Majority Leader on
February 24, 1998.
Amtrak has made performing the oversight functions unduly
difficult, if not impossible for the Amtrak Reform Council. As
such, I believe the Council is unable to effectively fulfill
the oversight role that Congress intended for it, and that
there is no realistic prospect it will be able to do so in the
foreseeable future. Thus, I resigned my position effective July
10 of this year.
Amtrak has obstructed the Council regarding several very
important issues. How is Amtrak spending its $2.2 billion
Taxpayer Relief Act funding? The Council is required to turn a
report in to the Congress about that. What is the revenue and
cost picture for Amtrak's freight program? They call it
express. I call it freight, because it slows the trains down.
Another issue is what steps Amtrak is taking to improve
productivity? Again, the Council is required to present a
report to Congress on that. These issues are covered in detail
in my prepared testimony, which includes a chronology of when
we asked Amtrak questions and the questions Amtrak either
inadequately responded to or did not respond at all.
I would like to say something about procedures. In the
Council, we understand the sensitivity of delving into Amtrak's
affairs. The Council established procedures to ensure against
the public disclosure of information that is a trade secret, or
commercial or financial information that is privileged or
confidential. Council members voluntarily signed ARC-developed
confidentiality agreements. Amtrak declined to accept those and
demanded that members sign an Amtrak-written confidentiality
agreement.
All Council members signed the second agreement. Despite
the Council's good faith demonstration that proper safeguards
were in place, Amtrak nevertheless declined to provide germane
or timely information in many cases.
Incidentally, one of the questions I was dealing with is,
what is your rate of return on these capital projects that you
have that you are financing out of the Taxpayer Relief Act?
Amtrak basically told me, we do not calculate that for most of
our projects.
I want to volunteer that when I worked in Amtrak's public
affairs department, which admittedly was some time back, it was
back in the 1970's, I was a member of what was called the
Passenger Service Committee. We reviewed capital projects based
on estimated rates of return, and we recommended projects to
the board of directors for approval. It is beyond belief that
Amtrak's large bureaucracy in the 1990's and now 2000, one that
relies extensively on computer accounting systems, is unable to
produce data that Amtrak's much-smaller staff without computers
compiled in the 1970's.
I have been a high-speed rail proponent for many, many
years. Regarding the High-Speed Rail Investment Act, Amtrak is
torturing the English language to redefine what constitutes a
high-speed train. This is most pronounced for trains in the
Southeast, Midwest, and West, where after money is spent most
of the trains will still run at rather ordinary speeds. Hence,
the legislation will do virtually nothing to bring about true
high-speed trains, demonstrating once again that Amtrak's
management and organizational culture are poorly suited to
develop truly advanced train systems.
One of the arguments for high-speed rail is that we can
divert passengers from air travel to trains, thereby freeing up
slots at congested airports. But after upgrading, Amtrak trains
will still be insufficient to the task of competing with air
travel. This is outside of the Northeast Corridor.
Also, Amtrak may spend funds on routes that are excessively
long, such as Washington, DC, to Jacksonville, Florida, where
there is no way, no way, not now and not ever, that even the
fastest high-speed trains could compete with air travel. No
executive I have ever met on a single high-speed rail operation
overseas, and I have met many, many of them, not one of them
has ever proposed a route that long at 753 miles, where high-
speed rail's effectiveness basically falls after a distance of
300 miles.
For these reasons, Amtrak's claim that this bill will help
ease aviation congestion is unscrupulous. I doubt that the
program will result in the elimination of a single flight from
our busy air system, and incidentally I noticed an earlier
comment about a number of organizations supporting this bill,
and Amtrak's long listing.
One place is the city of Grand Forks, North Dakota. With
all due respect to the people of that fine community, it
boggles my mind that they would endorse a high-speed rail bill,
because North Dakota does not have the population density of a
route like Tokyo-Osaka, or Berlin-Hamburg, or any of these
places where high-speed rail plays a role. So I can only wonder
and imagine what kind of representations were made to the city
of Grand Forks to get them to sign on as an endorser to this
legislation.
Cost estimates are virtually nonexistent for these
upgrades. I have been involved in private proposals for high-
speed rail. We hold private companies up to excruciatingly
painful standards when they develop high-speed rail proposals,
but we are creating a standard here for Amtrak that is
excessively loose. We have no cost estimates. We have no rate
of return calculations. We have no credible estimates of
ridership or revenue that will result from this bill. The
conclusion I have reached is that the bill should not pass.
I would like to conclude by saying that I think Congress
should take a closer look at Amtrak and demand real
accountability on a number of scores, and while I offer a
number of legislative recommendations which are outlined in my
full testimony, I would highlight one here.
One recommendation is that I think Congress, in amending
the ARAA the next time, should establish penalties for Amtrak's
failure to cooperative with the Amtrak Reform Council.
Mr. Chairman, that concludes my testimony. I will be happy
to answer your questions. Thank you.
[The prepared statement of Mr. Vranich follows:]
Prepared Statement of Joseph Vranich, Irvine, CA
Good morning, Mr. Chairman and distinguished Members of this
Committee. My name is Joseph Vranich and I appreciate the opportunity
to testify before you regarding Amtrak. Because of time limitations, I
will summarize my prepared testimony.
I have no employer or client involved in transportation today.
Thus, I speak as an independent voice. I am accompanied here by Mr.
Anthony Haswell, who is seated in the audience. He founded the National
Association of Railroad Passengers in 1967. In 1970, he hired me to be
its executive director. Mr. Haswell is an attorney who for many
significant reasons is referred to as the ``father of Amtrak.'' He
agrees with the overall thrust of my testimony.
Although this marks the 31st year that I have been a proponent for
rail service, I am now embarrassed to admit that I worked to create
Amtrak.
The Amtrak I and others envisioned would design a flexible
system attuned to contemporary need and demand, adjusting and
fine-tuning its services to carry people where they are willing
to travel by train. But we do not have that with today's
Amtrak.
The Amtrak we envisioned would be demonstrating leadership
in bringing about true high-speed trains to America. But we do
not have that with today's Amtrak.
The Amtrak we worked to create would be one that would give
passengers priority over freight. But we do not have that,
either.
Instead, what we have is an underperforming Amtrak that remains a
candidate for liquidation.
My most recent relevant position was as a member of the Amtrak
Reform Council, a post I was appointed to by the Senate Majority Leader
on February 24, 1998. When I was appointed, Senator Trent Lott said,
``The ARC will ensure that Amtrak spends the taxpayers' money wisely.
The Council's first loyalty will be to the American taxpayer.'' Note
the responsibilities under the Amtrak Reform and Accountability Act of
1997 (ARAA), subsection 203,
Amtrak shall make available to the Council all information that the
Council requires to carry out its duties . . . . The Council shall (A)
evaluate Amtrak's performance; and (B) make recommendations to Amtrak
for achieving further cost containment and productivity improvements,
and financial reforms . . . . In making its evaluations and
recommendations . . . the Council shall consider all relevant
performance factors, including . . . management efficiencies and
revenue enhancements, including savings achieved through labor and
contracting negotiations . . . . Amtrak shall report quarterly to the
Council (A) the savings realized as a result of the [new labor work-
rules] agreement and (B) how the savings are allocated.
Amtrak has made performing such tasks unduly difficult if not
impossible for the Amtrak Reform Council. As such, I believe that the
Council is unable to effectively fulfill the oversight role that
Congress intended for it, and that there is no realistic prospect that
it will be able to do so in the foreseeable future. Thus, I resigned my
position effective July 10th of this year.
I will summarize the facts regarding Amtrak obstructionism on
several major issues--its so-called income tax refund, its freight
program, and Amtrak productivity.
Amtrak's ``Income Tax Refund'': Congress in the Taxpayer
Relief Act ordered the IRS to provide Amtrak with a $2.2
billion ``tax refund''--even though Amtrak has never paid
federal income taxes. The ARAA, Section 209 states, ``The
Amtrak Reform Council shall report quarterly to the Congress on
the use of amounts received by Amtrak under section 977 of the
Taxpayer Relief Act of 1997.'' I was appointed by former
Council Chair Christine Todd Whitman to assemble information
for such reports. While Amtrak provided lists of capital
projects, Amtrak routinely failed to provide rates-of-return
for such projects despite repeated requests. I was not
surprised by GAO's February report that stated Amtrak reports
to the ARC are ``less useful than they could be in helping the
Council comply with its responsibility to monitor Amtrak's use
of Taxpayer Relief Act funds.''
Freight: To accommodate freight (which Amtrak refers to as
``express'') shipments, Amtrak has added time to its schedules,
making trips longer for passengers. The ARC has asked Amtrak to
provide the costs of its freight program, not just its
revenues, and Amtrak Chairman Tommy Thompson assured me on
September 24, 1998--2 years ago--that Amtrak would cooperate.
Also since then Amtrak has asserted to the media that freight
is ``contributing to the bottom line.'' This is a worthy goal,
but unfortunately, freight profit-loss information has not been
provided, so the truth of Amtrak's claim cannot be verified.
Amtrak has not been forthcoming on this issue in any respect.
Absent evidence to the contrary, its highly probable taxpayers
are subsidizing shippers who move freight on Amtrak, including
major corporations like Campbell's Soup and United Parcel
Service. If true, that is an outcome never envisioned by people
who worked to create a rail system for passengers.
Productivity: Amtrak has misled the Senate by stating that
it has improved workforce productivity. Up until my July
departure, Amtrak had provided no factual support for
assertions that the 20 percent increase in wages after new
labor agreements were signed in 1997 will be offset by work-
rules savings. Moreover, despite ARC reporting requirements,
Amtrak failed to answer many questions about the subject. Based
on information that can be gleaned from public reports, it
appears that Amtrak's productivity dropped in 1999 compared to
prior years on 2 key measurements--passengers per employee and
passenger-miles per employee. In that last measurement,
productivity was lower than every year of the previous ten
years.
These examples regarding Amtrak's stonewalling of the ARC are more
fully explained in my complete testimony, including a chronology of
when we asked Amtrak questions to which Amtrak was non-responsive.
(Attachment 1.)
No one really knows the full public cost of running Amtrak today.
Senator Wayne Allard was justified to say recently in floor debate: ``I
have grown increasingly skeptical about what is going on with Amtrak.
It seems they found a way to pick up government subsidies all over the
place.'' He is correct. Known federal subsidies to Amtrak will soon
exceed $24.3 billion. But excluded from Amtrak reports are the costs of
numerous public programs that help finance Amtrak or shift Amtrak
expenses to the books of other agencies such as the Federal Railroad
Administration, the Federal Transit Administration and the Treasury
Department. The most notable of these is the federal bailout of more
than $1 billion in Amtrak government-guaranteed loans, the cost of
which is carried on the Treasury Departments books. (Attachment 2.)
Amtrak's pride in its new ridership record is not cause for
celebration but cause for alarm. I say that because during this all-
time record year of travel, Amtrak will be breaking a level set in
1988--twelve years ago. This means Amtrak's ridership growth is anemic
during the biggest travel boom in the history of our country. Indeed,
its ridership figures are an indictment of Amtrak's non-responsiveness
to the changing travel marketplace. As food for thought, on Memorial
Day weekend, U.S. commercial aviation carried well over 12 million
passengers--which means in just one holiday weekend airlines carry more
than half the number of people who board Amtrak during the entire year.
Amtrak's market share routinely drops, and today, according to the Eno
Transportation Foundation, Amtrak holds only six-tenths of one percent
of the travel market. (Attachment 3.)
Amtrak is violating the law that requires it to run modern rail
passenger service when it adds trains that are slower than trains were
decades ago. On April 15, Amtrak began running the Lake Country
Limited, which takes 3 hours and 20 minutes to travel from Janesville,
Wisconsin, to Chicago. The old Chicago & North Western Railroad
connected Janesville with Chicago an hour-and-a-half faster when Harry
Truman was President in 1952. The press reports traffic on the train
has averaged 11 people per day in each direction. In Indiana, Amtrak
added a train whose schedule is 3 hours slower than a pre-Amtrak train
was on the same route when Calvin Coolidge was President in 1926.
Meanwhile, I know this Committee has spent considerable time lately on
airline performance, and I believe Amtrak on-time performance deserves
the same attention. In this testimony I am revealing for the first time
the completed results of my review of Amtrak scheduling practices.
Amtrak may boast that it's enjoying its ``best on-time performance in
13 years,'' but the facts show Amtrak performance outside of the
Northeast is in shambles. Amtrak now inserts very long periods of time
just before checkpoints where on-time performance is calculated. If
Amtrak performance were measured at the stop before an official
checkpoint, Amtrak's on-time statistics would be far worse than
official reports indicate. Amtrak employs this practice to a degree
unprecedented in the railroad business. Amtrak's method goes way beyond
anything found in aviation today, so it's possible that the airlines--
even with terrible airport delays this summer--had a better on-time
record than Amtrak did outside of the Northeast. (See Attachment 4.)
As one who has testified before Congress in support of the Acela
Express program, I am pleased that the Acela Express will soon begin
operations. The train is a needed improvement that I welcome because it
will offer many amenities and quicker train travel. Im disappointed,
however, with management of the project. The Acela Express is 3 years
behind schedule. It is clear from Amtrak promises that the first Acela
Express was to have been delivered in April 1996 and begin carrying
passengers after a year of testing. My complete testimony quotes
Amtrak's words verbatim about the delivery schedule to begin in 1996.
Moreover, I'm dissatisfied with the Acela Express schedules. For
perspective, the New Haven Railroads Merchants Limited connected New
York with Boston in 4 hours flat in 1950. They did that without the
benefits of today's electrification east of New Haven, tilt-train
technology and advanced signaling systems. I also question the degree
of liability facing the U.S. Government as a result of a $1 billion
loan for the Acela Express from the Canadian government, the details of
which remain secret. To my knowledge, the ARC was never informed of the
loan, the uses to which it was put, principal amount owed, interest
rate, repayment schedule, or other terms and conditions. I must ask--
are the Acela Express trains serving as collateral? We don't know.
There is much we don't know about this financial arrangement. (See
Attachment 5.)
Regarding the High Speed Rail Investment Act (S.1900/H.R.3700)--
Amtrak has become zealous in torturing the English language to ``re-
define'' what constitutes a ``high-speed'' train. This is most
pronounced for proposed trains in the Southeast, Midwest and West where
after money is spent the trains will still operate at rather ordinary
speeds. Hence, the legislation will do virtually nothing to bring about
high-speed trains. The bill simply turns over more responsibility to
Amtrak, whose management and organizational culture are poorly suited
to develop truly advanced train systems. Amtrak has taken seven years
to design, build and test the Acela Express while other countries have
completed such projects in only 4 years. One of the arguments for high-
speed rail is that we can divert passengers from air travel to trains,
thereby freeing up slots at congested airports. But the funds in this
bill, once spent, will result in trains insufficient to the task of
competing with air travel. The resulting passenger diversion rate from
air would be so small that I doubt a single flight would be removed
anywhere in our aviation system. Also, Amtrak may spend a portion of
the funds on routes that are excessively long, such as Washington, D.C.
to Jacksonville, Florida, where there is no way--not now, not ever--
that even the fastest high-speed trains could compete with air travel.
No executive I've ever met on a single high-speed rail operation
overseas has ever proposed a route that long, at 753 miles, when high-
speed rails effectiveness falls after a distance of 300 miles. For
these reasons, Amtrak's claim that this bill will help ease aviation
congestion is unscrupulous. Moreover, my understanding is the cost of
the legislation will be more than what Amtrak claims. I note that the
Heritage Foundation issued a report on August 28 describing the federal
government's implicit interest payments, concluding that ``The loss of
tax revenues to the U.S. Treasury would total $16 billion if interest
rates remain unchanged at 8 percent.'' With Amtrak's financial record,
it's doubtful that Amtrak will ever repay those bonds. I view the bill
as a way to create another method to bury subsidies to Amtrak in the
ledgers within the Treasury Department, similar to what was done in the
1980s when Amtrak defaulted on more than $1 billion in government-
guaranteed loans. Finally, by reinforcing Amtrak's de facto monopoly,
the bill is harmful to those imaginative folks in the private-sector
who have expressed interest in developing high-speed rail in the United
States. To effectively plan market-sensitive high-speed train systems,
a new direction is needed to include participation by regional
agencies, private businesses and joint ventures in innovative,
imaginative public-private partnerships. Finally, I ask you to consider
that the Amtrak Reform Council, the GAO, and the DOT Inspector General
have all faulted Amtrak for not having the proper capital planning in
place. It is unreasonable to fund Amtrak-style high-speed rail when we
don't even know what Amtrak's project costs will be. (See Attachment
6.)
In conclusion, Amtrak will likely require billions of additional
tax dollars to stay alive. Congress should take a closer look at Amtrak
and demand real accountability. Congress should consider investigating
inappropriate Amtrak actions and establish penalties for Amtrak's
failure to cooperate with the Amtrak Reform Council. Congress should
amend the ARAA to tighten reporting requirements on Amtrak financial
issues. In the interests of passengers, Congress should pass a ``Truth
in Scheduling'' provision to require Amtrak trains to be on time more
often in more cities it serves, not just at the cities that serve as
``checkpoints'' for the purposes of calculating on-time performance.
Finally, Congress should refuse to pass the so-called High Speed Rail
Investment Act because it will not bring about high-speed trains. The
bill will help bail out Amtrak during another financial crisis, a
reasonable conclusion considering that Amtrak is awash in red ink now
and remains a candidate for liquidation. (Attachment 7.)
Mr. Chairman, that concludes my testimony. I will be happy to
answer your questions. Thank you.
______
Attachment 1: Amtrak's Lack of Cooperation with the ARC
I believe that the Amtrak Reform Council is unable to effectively
fulfill the oversight role that Congress intended for it, and that
there is no realistic prospect that it will be able to do so in the
foreseeable future. I say this because Amtrak has resisted providing
information in significant areas--impairing the Council as it attempted
to carry out its statutory duties.
The Council's right to information is unconditional as to nature
and time frame, subject only to the requirement that trade secrets,
etc. be kept confidential. Understanding the sensitivity of delving
into Amtrak's affairs, the Council established procedures to ensure
against the public disclosure of information that is a trade secret or
commercial or financial information that is privileged or confidential.
Council members voluntarily signed ARC-developed confidentiality
agreements. Amtrak declined to accept those confidentiality agreements
and demanded that members sign an Amtrak-written confidentiality
agreement. All Council members signed the second agreement. Despite the
Council's good-faith demonstration that proper safeguards were in
place, Amtrak nevertheless declined to provide germane or timely
information.
Amtrak's IRS ``Income Tax Refund'' Expenditures Were Unexplained
The Council has a statutory responsibility to monitor Amtrak
expenditures from its tax return of $2.2 billion authorized by Section
977 of the Taxpayer Relief Act of 1997 (TRA). The legislative intention
of Section 977 was to make significant amounts of funding available so
that Amtrak could make investments in high-priority, high-return
capital projects that would facilitate Amtrak's ability to operate
without federal operating subsidies.
Amtrak first resisted providing information to the Council after
the ARC's first chair, New Jersey Governor Christine Todd Whitman,
directed the start of an evaluation as to how Amtrak was spending the
unique and unprecedented subsidy.
The question was whether Amtrak was using TRA funds for the kinds
of high-priority, high-return investments that will help its bottom
line. The ARC asked Amtrak what the projected rates of return are per
project financed. This is a common practice on freight railroads, where
officials rank which capital improvements--track and signal work, new
yards or closing of old ones, bridge replacement, curve straightening,
congestion elimination, and so forth should receive funding from the
current year's budget allocation based on rate of return. In general,
it could be assumed that Amtrak's financing of high rates-of-return
projects would be a healthy practice, but investment in low rates-of-
return projects would indicate a poor practice.
Obtaining such useful information from Amtrak about its TRA
disbursements was an odyssey that failed. The following chronology
represents my personal interactions on this issue:
May 26, 1998: The Amtrak Reform Council holds its first meeting.
July 6, 1998: At an ARC meeting, Amtrak indicated that the first
TRA quarterly report was being prepared for submission to the Council.
The ARC Chairman appointed me and one other member to review the
upcoming Amtrak report and prepare a draft ARC report to Congress for
consideration by the full Council.
July 31, 1998: Amtrak submitted ``Making Investments in America's
Passenger Rail System: Amtrak's Quarterly Report on TRA Funding.'' The
report is replete with phraseology stating that Amtrak is making a
``wise investment'' of its resources and that funds are being committed
for ``high rate-of-return'' projects that were selected after
``rigorous evaluation.''
Date Uncertain: Shortly thereafter I asked Amtrak to substantiate
its assertions by providing rates-of-return for TRA-funded capital
projects. Amtrak asserted that it doesn't compile such data. Which
statement is the ARC to believe? This statement or the one on July 31?
I again requested Amtrak to provide TRA rates-of-return.
August 31, 1998: Recognizing that rates-of-return would not be
forthcoming, I decided to look at the ``bigger picture'' by requesting
a route-by-route summary of the extent to which operating losses are
expected to drop because of TRA-financed projects. My question was: On
which routes will TRA funding induce reduced costs and increased
revenue? Amtrak's reply was non-responsive.
September 17, 1998: At an ARC meeting, I reported that Amtrak
failed to provide appropriate responses to requests for information and
said I believed that ARC was in no position to issue a report to
Congress that could be responsive to the statute. The ARC had no staff
during this period, and it was difficult for the Councils citizen-
volunteers to proceed. I said that I would continue, time permitting,
to try to obtain data for a later report to Congress.
September 24, 1998: In a meeting between the ARC and several
members of the Amtrak Reform Board, I indicated to Amtrak Chairman
Tommy Thompson, Vice Chairman Michael Dukakis and CEO George Warrington
that Amtrak's responses thus far have been inadequate. I also
introduced the subject of concern over possible financial losses in
Amtrak's new freight program and asked Amtrak to provide the Council
with a profit-loss statement. Governor Thompson promised that proper
answers will be provided, a promise that was never kept.
October 1, 1998: In a telephone call, several Amtrak
representatives agree to provide data on these topics in a follow-up
letter.
October 21, 1998: A representative of the Federal Railroad
Administration provides added perspective regarding the TRA issue, but
admits that he also is unable to quantify rates-of-return on TRA-
financed capital items.
Late 1998: I concluded that Amtrak either does not have or will not
provide key pieces of measurement regarding TRA expenditures. Missing
was the degree to which performance of each route is enhanced by TRA
expenditures, an important consideration because, for Amtrak to reach
operational self-sufficiency, routes in addition to Boston-Washington
must become profitable to offset routes that will continue to lose
millions of dollars annually. I've asked Amtrak to identify any route
that TRA expenditures will help move into the black and illustrate with
a timeline when each such route will reach the break-even point. Amtrak
failed to respond.
Because of Amtrak's non-responsiveness, I lay squarely at Amtrak's
doorstep the resulting inability of the Council to meet its statutory
obligation to file reports to Congress on TRA funding. The limited
documentation Amtrak did provide fails to demonstrate the economic
benefits of its capital projects or how they will help Amtrak reach
self-sufficiency.
Continuing a search for adequate information, by early 1999 I
voluntarily reviewed (or re-reviewed) numerous Amtrak documents,
namely:
Strategic Business Plan, FY1998-FY2000, dated September 23,
1997
FY 1998 Capital Budget, November 5, 1997
FY 1998 Proposed Addendum to the Capital Budget, February 3,
1998
FY 1999 Amtrak Legislative Report and Federal Grant Request,
February 13, 1998
Capital Plan Summary Presented to ARC, April 24, 1998
Amtrak's presentation to ARC, May 26, 1998
FY 1998 Third Quarter Business and Financial Performance
Report, July 31, 1998
FY98 Capital Projects Funded by Federal Funds, submitted to
ARC on Sept. 16, 1998
Capital Investment Summary submitted to ARC on October 7,
1998
Strategic Business Plan, FY1999-2002, submitted to ARC on
October 19, 1998
In doing so I discovered a few hints of capital-related data. For
example, route-specific ``internal rates of return'' can rank from a
high of 121 percent (for rerouting Florida trains) to a low of 5
percent for acquiring a parking facility (which adjoins the Providence
station). But such limited information was gleaned from my voluntary
effort, not because Amtrak was forthcoming. Moreover, if Amtrak doesn't
calculate rates-of-return, as it asserted to the ARC, how could some of
these reports contain estimated rates-of-return?
Indicators are absent in the above-listed reports regarding which
investments will help convert money-losing routes into profitable ones
or at least vastly improve their financial performance. This is a
significant concern. In Fiscal Year 1997, Amtrak operated 18 routes
that endured fully allocated losses exceeding $20 million per route.
Moreover, if upcoming labor negotiations cause costs to increase, a
logical question is the wisdom of spending capital on low rate-of-
return projects where cost increases outstrip the savings attributable
to the capital projects.
Amtrak's roadblocks and issuance of conflicting information was
telling. I concluded that Amtrak lacks diligence in funding high rate-
of-return projects and high market-growth opportunities and wants to
avoid scrutiny on the method by which it does select projects. It
seemed to me that Amtrak doesn't want its current practices to be well
known or understood.
Skepticism abounds regarding Amtrak's financial decision-making.
Consider the independent assessment of Amtrak conducted in 1997 by the
Working Group on Inter-City Rail. It found among other deficiencies
that Amtrak's subsidies ``are not directed to activities of maximum
benefit.'' That statement could easily be applied to how Amtrak commits
TRA funding and possibly explains why Amtrak stonewalled ARC requests
for information.
When the ARC was finally able to hire a small staff to review
Amtrak's capital spending, the staff concluded, and the Council
approved for publication in its January 24, 2000, report ``A
Preliminary Assessment of Amtrak'' this statement:
LBased on preliminary information, significant amounts of the TRA
funds are being borrowed temporarily for maintenance expenditures
rather than being immediately invested by Amtrak in high priority, high
return capital projects necessary to achieve the improvements in
financial performance initially anticipated when Section 977 of the TRA
was enacted. If these temporary loans are not repaid, such expenditures
for maintenance (which are permitted under the TRA) will likely result
in the need for increased capital investment funding by the federal
government and others in the future. In addition, Amtrak has not
produced a long-term capital expenditure plan for several years. The
Council, the Congress, and other governmental agencies need Amtrak's
long-term capital expenditure plan to carry out their statutory
obligations.
On February 29, 2000, the GAO in its report ``Amtrak Needs to
Improve Its Accountability for Taxpayer Relief Act Funds'' examined TRA
funding with different objectives and reported:
LAmtrak's quarterly reports to the Amtrak Reform Council on its use
of Taxpayer Relief Act funds do not fully disclose the extent to which
Amtrak has used these funds for equipment maintenance. As a result,
these reports are less useful than they could be in helping the Council
comply with its responsibility to monitor Amtrak's use of Taxpayer
Relief Act funds. . . the reports do not fully disclose how TRA funds
are actually used once they are deposited into Amtrak's general cash
account . . . . Amtrak reviews and approves capital improvement
projects to determine that the projects qualify under TRA. However, it
does not determine whether individual expenses incurred and paid are
allowable under the act. We find Amtrak's lack of review of
expenditures troubling because, without such a review, Amtrak does not
have reasonable assurance that TRA funds are spent in accordance with
the law.
Incidentally, when I was in Amtrak's Public Affairs Department in
the 1970s and served on the Passenger Service Committee, we reviewed
capital projects based on estimated rates-of-return and recommended
projects to the Board for approval. It is beyond belief that Amtrak's
large bureaucracy in the 1990s, one that relies extensively on computer
accounting systems, is unable to produce data that Amtrak's smaller
staff without computers compiled in the 1970s.
Amtrak estimates that it will need in excess of $4 billion in
federally provided capital over the next 5years. Amtrak identifies the
$2 billion in TRA funding as a ``first step'' toward obtaining $4
billion through the appropriations process. But Amtrak does not deserve
an additional $4 billion in subsidies when Amtrak has failed to justify
how it is spending the $2.2 billion ``income tax-refund'' it has
already received.
For Two Years Amtrak Has Failed to Provide Costs of its Freight Service
Since starting freight operations Amtrak has claimed ``success''--
but always citing only the program's revenues, not startup costs or
operating costs. Freight income/expense is a major issue because Amtrak
claims freight can help make it profitable. The ARC has urged a
transparent accounting of the revenues and expenses so that the claim
can be substantiated, a request Amtrak has ignored. Amtrak asserts to
the ARC it cannot as yet separate freight expenses from mail expenses
and create a freight profit-loss statement. (Who remains in a line of
business for more than 2 years without knowing its financial
performance?) Yet Amtrak claims to the news media that freight is
making a ``positive contribution'' to the bottom line. How can this
information exist for media purposes but not the Amtrak Reform Council?
If the ARC is to meet its mandate to evaluate Amtrak's performance
and make recommendations to Amtrak for achieving further cost
containment, productivity improvements, and financial reforms, then the
ARC must understand the extent of profit or loss incurred in this
service. In a meeting on September 24, 1998, I asked Amtrak Chairman
Tommy Thompson to insure Amtrak provides the ARC with information to
help determine the effect of carrying freight on Amtrak's bottom line.
Gov. Thompson promised that Amtrak would cooperate, yet these questions
were not answered--at least not prior to my resignation in July, 2000.
A recent report indicates that Washington State apple growers are
considering shipping via Amtrak. If Amtrak's program is making a
``positive contribution,'' why it is necessary to ask legislators in
Olympia to spend $500,000 in state funds and seek up to $10 million in
federal funds to buy refrigerated cars to ship apples on Amtrak? This
is evidence suggesting that Amtrak's freight program is unprofitable
and is subsidized by federal and state taxpayers.
Amtrak's new Kentucky Cardinal exists primarily to carry United
Parcel Service (UPS) package freight from Louisville to Chicago. It is
possible that this train is losing money, which would mean that public
funds intended for passenger travel are subsidizing UPS. When rail
advocates worked to create Amtrak, none of us intended to create
subsidies for private shippers.
Questions About Productivity Were Unanswered
It appears that Amtrak has misled Congress about improvements in
workforce productivity. According to press accounts, Amtrak said in a
hearing on November 7, 1997, that pay raises negotiated that year would
be paid for by more efficient operations. But no data has been
submitted to the ARC to substantiate Amtrak's claim. In fact, in 1999
Amtrak productivity worsened on 2 measures that were available to the
Council--Riders Per Employee, which at 854.2 was lower than in six of
the previous ten years, and Passenger Miles Per Employee, which at
211,681 was lower than every year of the previous ten years.
It should not be assumed that productivity refers only to employees
represented by labor unions. Anecdotal evidence suggests that Amtrak's
management is overstaffed and contributes to Amtrak's lack of
efficiency gains. Such observations gained credibility when the GAO
reported in a May 2000 report:
LAmtrak attempted to reduce its management staff in 1994 and 1995
by offering management employees early retirement and buyouts to leave
the company. As a result of these buyouts and early retirements,
Amtrak's management staff declined by a total of about 15 percent
between 1994 and 1995. But, by 1999, the number of management employees
was almost the same as it was in 1994.
The Council is charged with evaluating Amtrak's efficiency and its
progress in achieving productivity improvements. Section 203(g)(2)(C)
of the ARAA provides that in making its evaluation and recommendations,
``the Council shall consider all relevant performance factors,
including . . . management efficiencies and revenue enhancements,
including savings achieved through labor and contracting
negotiations.''
The Council must monitor Amtrak work-rule savings and include an
assessment of such savings in its annual report to Congress. Note how
specific the requirement is under Section 203(g)(3): ``If after January
1, 1997, Amtrak enters into an agreement involving work-rules intended
to achieve savings with an organization representing Amtrak employees,
then Amtrak shall report quarterly to the Council--(A) the savings
realized as a result of the agreement; and (B) how the savings are
allocated.''
Note also the specificity of Section 203(h): ``Each year . . . the
Council shall submit to the Congress a report that includes as
assessment of (1) Amtrak's progress on the resolution of productivity
issues; or (2) the status of those productivity issues, and makes
recommendations for improvements and for any changes in law it believes
to be necessary or appropriate.''
The Council's duties are clear, yet Amtrak failed to provide needed
and relevant information to ARC'S questions. According to the Council's
January report to Congress:
Amtrak's responses to the Council's request to date essentially
consist of copies of:
recently negotiated labor agreements;
management summaries of various work-rule changes in the
agreements;
Lrecent examples of productivity analyses regarding: (i) the
Amtrak Reservations Centers (1995), (ii) benchmarking Amtrak
maintenance-of-way productivity against the rail transit
industries (1998), and (iii) determining Amtrak's maintenance
cost for diesel locomotives (1997) (for which the outside
contractor needed to restate Amtrak's financial accounting
system reports with its own estimates); and
Lstatements regarding certain identified savings from
various work-rule changes in recent agreements; and various
factual data regarding the Amtrak labor force.
Amtrak also submitted to the Council a ``FY 1999 Report on
Productivity Improvements and Work Rule and Cash Savings,'' which
provided a set of numbers on a quarter-by-quarter basis for FY1999 . .
. . The report stated a total of $19.5 million in ``productivity
improvements and work rules and cash savings'' for FY1999 [but the
data] arguably may not satisfy the statutory criteria of ARAA Section
203(g)(3). The current format of Amtrak's report does not clearly show
how the savings are allocated and provides no analysis of how the
numbers were calculated.
That was a non-confrontational way of saying that Amtrak failed to
document its claim that 20 percent of recent wage increases will be
offset by work-rules savings; failed to substantiate that it has a
methodology in place to measure productivity; failed to provide any
productivity analyses that Amtrak or a consultant for Amtrak has
conducted; and failed to clarify whether Amtrak has performed any
studies regarding cost savings in the area of contracting out.
On a positive note, as reported in the ARC's January report, Amtrak
has achieved some work-rules changes in recent agreements that have the
potential to bring cost savings. Such changes include contracting out
of Amtrak's entire Commissary operations, extension from 4 hours to six
hours of the period before a second engineer must be added to a
locomotive, flexibility in establishing district gangs in the Bridge &
Building and Electric Traction sub-departments, and increased
management flexibility to establish Construction Gangs working outside
normal starting times on the Northeast Corridor.
The ARC has been stymied in its attempt to review the facts
regarding these issues. I note with interest this passage from the
GAO's May 2000 report: ``Amtrak does not have measures of labor
productivity for its lines of business (e.g., intercity passenger
service, commuter service) that would allow it to better manage its
labor costs.''
______
Attachment 2: Full Public Cost of Amtrak Is Unknown
Federal Amtrak Subsidies Soon to Exceed $24.3 Billion
No one really knows the full public cost of running Amtrak.
Amtrak's financial reporting system does not fairly represent to
government officials or taxpayers its condition or level of subsidies.
Meanwhile, Amtrak's financial losses continue. For the first three
quarters of fiscal year 2000, its operating loss grew to $710.9 million
from the prior year's figure of $705.1 million. Although not Amtrak's
worst performance, it is nonetheless an increase over the prior year
and a far cry from Amtrak's glowing picture of its finances.
Consider the methods employed that artificially reduce Amtrak's
self-reported subsidy totals and mask the extent of its financial
condition:
Amtrak benefits from a taxpayer-sponsored windfall. Although
Amtrak has never paid a penny in income taxes, Congress ordered
the IRS to give Amtrak a $2.2 billion ``tax refund.'' Amtrak
has been using the funds in part to repay a portion of what
I've been told was $1.6 billion in debt to the private capital
markets, and in part as an investment in high-yield, interest-
bearing accounts. Thus, the ``income tax refund''--money Amtrak
did not ``earn'' in the true business sense--is reducing Amtrak
debt costs and increasing interest income, a balance-sheet
sweetener of monumental proportions that has nothing to do with
its commercial activity as a passenger railroad.
Amtrak now inflates income by counting many public subsidies
as ``revenue'' in its annual report, something it hasn't done
through most of its history. For example, the GAO testified
before a House Committee on October 28, 1999, that Amtrak
records a portion of its unearned ``income-tax refund'' made
available by the Taxpayer Relief Act as revenues.
Amtrak has created the appearance of lower operating losses
by shifting almost a half a billion dollars in maintenance
costs to its capital account, according to the GAO.
The GAO report issued in May 2000 entitled ``Amtrak Will Continue
to Have Difficulty Controlling Its Costs and Meeting Capital Needs''
stated that ``Amtrak's losses have remained high: In 1999, its net
loss--revenues minus expenses--was about $900 million.'' The DOT
Inspector General has estimated that Amtrak will incur more in cash
losses than Amtrak suggests. The DOT Inspector General and the GAO have
found that Amtrak is unlikely to meet a legal requirement of zero
operating subsidies by the end of fiscal year 2002.
Dispute About How to Monitor Amtrak's Performance
Section 203(g)(2)(B) of the ARAA prescribes that the Amtrak Reform
Council shall consider all relevant factors in evaluating Amtrak's
performance, including ``appropriate methods for adoption of uniform
cost and accounting procedures throughout the Amtrak system based on
generally accepted accounting principles.'' [Emphasis added.] According
to the Legal Counsel to the ARC, the statute provides for no other
standard than generally accepted accounting principles. The GAAP
principles comprise the criteria normally used to measure the financial
performance of for-profit corporations, which Amtrak--under the law--
was established to be.
Amtrak, however, wants to exclude depreciation and certain other
costs as operating expenses for purposes of measuring operating self-
sufficiency. Amtrak wants to treat progressive equipment overhauls as a
capital instead of an operating expenditure. If Amtrak's contentions
are accepted, there would be no standard in place to ensure that Amtrak
becomes operationally self-sufficient by Fiscal year 2003 and that
taxpayers no longer subsidize Amtrak operations after that date.
This issue has concerned several oversight bodies:
The ARC stated in its January report that ``The accounting
standard specifically referred to in the Council's statutory
mandate, GAAP, is, both logically and under current law, the
method by which Amtrak's performance is measured.'' An opinion
by the ARC's Legal Counsel concluded that ``Both GAO and DOT/IG
have publicly noted their view that under the ARAA, Amtrak
operating expenses as defined under GAAP, such as progressive
overhauls, cannot be federally funded after Fiscal year 2002
regardless of how such operating expenses were funded in the
past.''
The DOT Inspector General stated before a House Committee on
March 4, 1999: ``Regardless of the type of federal grants
Amtrak receives or how Amtrak is permitted to spend them,
Amtrak will have to cover all of its operating expenses (except
for excess payments for RRTA) in Fiscal year 2003 from non-
federal sources. In other words, maintenance of equipment and
maintenance of way expenses would, under current law, no longer
be eligible for federal funding in 2003. That is the mandate
from ARAA, and it is the standard we are using to gauge
Amtrak's financial viability in our assessments.''
The GAO report to this Committee in July 1999 entitled
``Amtrak's Progress in Improving Its Financial Condition Has
Been Mixed'' said Amtrak ``disagreed with our inclusion of
expenses for progressive overhauls in our discussion of
Amtrak's progress in achieving operational self-sufficiency . .
. . As discussed in our report, generally accepted accounting
principles consider progressive overhaul expenses to be
operating expenses [and] we conducted our review from January
1999 through June 1999 in accordance with generally accepted
government auditing standards.''
My view is that if Amtrak's financial performance were truly
positive, Amtrak would have no need to redefine operating expenses as a
device to lower its perceived losses; would have no need to request
treatment that is prohibited in corporations throughout America; and
would have no need to further impair the public's understanding of
Amtrak's true costs and subsidies.
Backdoor Subsidies Increasing
In July, Senator Wayne Allard said in a floor debate: ``I have
grown increasingly skeptical about what is going on with Amtrak. It
seems they found a way to pick up government subsidies all over the
place.'' His doubts are justified as Washington has been masterful in
masking the depth of Amtrak subsidies.
I'm unable to recall when an independent oversight body or public
agency last tabulated and presented for public scrutiny the full public
cost of running Amtrak, but it may have been a GAO report in the early
1980s or late 1970s. That report was prior to the start of numerous
programs that finance Amtrak or artificially lower Amtrak's costs by
shifting expenses to the books of other agencies such as the Federal
Railroad Administration (FRA), the Federal Transit Administration (FTA)
or the Treasury Department.
Excluded from Amtrak's annual reports, and congressional testimony
is a sum of the costs of numerous publicly funded programs that assist
in financing Amtrak, as follows:
Federal Funding Not Included in Amtrak Subsidy Totals
FRA Grants--Amtrak benefits from grants for train stations,
historic building restorations, grade crossing improvements,
studies and technology development.
FTA Grants--2 examples are a grant of $18.7 million to
Pennsylvania to purchase coaches for Amtrak and $3.5 million to
Vermont to start a train to Rutland. FTA grants also help pay
to build or improve Amtrak stations.
TIFIA Federal Credit Assistance (a new program): Amtrak is
seeking a $29 million direct loan in 2001 to finance a $120
million plan to rehabilitate existing locomotives for its Acela
Regional service in the Northeast Corridor. This is under the
2-year-old Transportation Infrastructure Financing and
Innovation Act program administered by the DOT.
Other federal funds--some states like California rely on
Congestion Mitigation & Air Quality funds to support Amtrak.
Federal job-training funds have benefitted Amtrak in several
locations, such as a $500,000 grant to Amtrak to retain a
reservations office in Philadelphia.
Unknown Risk Loan--In 1996, an agency of the Canadian
government issued a loan to help finance the Acela Express, the
principal of which remains outstanding. Without knowledge of
the details of this loan, the degree to which American
taxpayers hold liabilities to repay the loan's principal,
interest or penalties in a default is unknown.
For many years Amtrak failed to list funds received through
guaranteed loans. Amtrak never repaid $880 million in loans
received between 1971 and 1975, and that obligation, plus more
than a quarter of a billion dollars in interest, was paid by
the FRA on Amtrak's behalf. For evidence of this continuing
taxpayer obligation, the 1983 Amtrak annual report contains
this disclosure: ``On September 30, 1983, Amtrak had borrowed
under notes payable to the Federal Financing Bank up to its
maximum federal guaranteed loan authority of $880,000,000. On
October 5, 1983, this obligation, plus $239,635,000 in accrued
interest, was paid on Amtrak's behalf by the Federal Railroad
Administration, and a new note in the amount of $1,119,635,000
was executed as of that date between Amtrak and the U.S.
Government. The note matures on November 1, 2082, and will be
renewed for successive 99-year terms. Interest is payable only
in the event of prepayment or acceleration of the principal.''
It is generally understood that since 1970 Congress has
appropriated more than $23.2 billion to Amtrak. But if the $1.1 billion
note to cover Amtrak's loan default is added (which is rarely done
because it wasn't an ``appropriation''), the federal government's
expenditures total at least $24.3 billion. (State operating and capital
subsidies total at least $2 billion for a total of at least $26 billion
in public funding.) But the true cost of subsidizing Amtrak if we
include all programs is unknown.
______
Attachment 3: Amtrak's Growth Is Anemic Despite a Travel Boom
As one who has promoted train travel for many years, Im pleased
that more people are riding trains today. However, Amtrak is greatly
exaggerating its success in building ridership. The Amtrak Reform
Council's January report stated: ``During a decade when the American
economy and most of its transportation system have expanded in an
unprecedented manner, Amtrak's ridership has remained virtually
unchanged.''
Amtrak Traffic Level Is a Sad Tale
Amtrak's new ridership record is hollow because during this all-
time record year of travel Amtrak will only be breaking a level set in
1988--twelve years ago. In 1999, which Amtrak also boasts of being
``highly successful,'' Amtrak carried 21.5 million passengers, a
million passengers lower than it projected in a report to Congress,
only 400,000 above the previous year, and the same number it carried in
1988. Also in 1999, Amtrak usage totaled 5.3 billion passenger-miles,
500 million passenger-miles lower than it projected in a report to
Congress and a number equal to or lower than that in 8 of the last 10
years.
In testimony before a House Committee on October 28, 1999, the GAO
observed that ``in fiscal year 1997, fewer than 100 passengers, on
average, boarded Amtrak intercity trains and connecting buses per day
in 13 states.'' Although Amtrak will set a record in fiscal year 2000,
it is still true that usage remains very light at many points on
Amtrak's route system.
Amtrak Ridership Growth Is Vastly Inferior to That of Aviation
On Memorial Day weekend, U.S. commercial aviation carried well over
12 million passengers--which means in just one holiday weekend airlines
carry more than half the number of people who board Amtrak during the
entire year. The gap continues to worsen for Amtrak despite serious
airline and FAA problems. In Amtrak's first full year of operation,
1972, Amtrak carried an average of 45,500 passengers a day. In 1999,
more than a quarter-century later, it stood at only 58,900 daily.
Meanwhile, the number of U.S. airline passengers has more than tripled,
from 524,100 daily in 1972 to 1,740,800 daily in 1999. (If airline
traffic reaches a projected 670 million this year, the daily air travel
count will total 1,835,600.)
Population Rises But Amtrak's Usefulness Falls
The U.S. population in 1972, Amtrak's first full year of operation,
was 209.9 million. The Census Bureau population estimate as of
September 18, 2000, is 275.8 million--up 65.9 million. The vast
majority of these additional 65.9 million people aren't riding Amtrak.
Amtrak's insensitivity to marketplace messages is why Amtrak's share of
the intercity travel market is lower than ever--six-tenths of one
percent and still falling.
Projections Doubtful
Amtrak representations to this Committee about future ridership
should be evaluated in the light of history. In 1998 Amtrak told
Congress its fiscal year 1999 ridership would reach 22.5 million--but
it turned out that its traffic was a million passengers lower. This is
a long-running problem. A GAO study in 1979 looked at earlier Amtrak
reports to examine ridership estimates. GAO found that in 1974 Amtrak
filed with Congress a projection that ridership in 1979 would be a
stunning 37 million (it turned out to be 18.7 million passengers). In
1975 Amtrak downgraded the estimate to 29.2 million passengers (it
turned out to be 17.4 million passengers). Amtrak's estimates about
future ridership deserve great skepticism.
When ridership estimates are off, so are revenue estimates, and
this inaccuracy is a continuing problem. In 1995 testimony to Congress,
the GAO stated that Amtrak's financial problems have accelerated, and
one reason is that ``Amtrak overestimated passenger revenues by $600
million from 1991 through 1994.''
On this very day we are hearing from the DOT Inspector General who
has found in his latest assessment that under certain circumstances
Amtrak's cash loss would be about $1.4 billion more than it projects
over the 5-year period, 2000 through 2004.
______
Attachment 4: Amtrak Expands Network of Poor, Slow Trains
New Amtrak Trains Are Slower than 1926, 1952 pre-Amtrak Trains
Prospects for success on new and proposed Amtrak routes in most of
the nation are bleak. For example, Amtrak's new Kentucky Cardinal is
inferior to the equivalent service provided by the Pennsylvania
Railroad 70 years ago. Amtrak's 12-hour Chicago-Jeffersonville, Ind.,
(near Louisville) schedule is 3 hours longer than it took our great-
grandparents to ride a 1926 ``milk run'' on the same route, which was
pulled by a steam locomotive and served nearly every village along the
way. This is why I have called this Amtrak train--one of the slowest in
the world--a ``Conestoga Wagon With Lights.'' This train is driven by
Amtrak's desire to carry UPS parcel freight, and the passenger
accommodations are but a fig leaf to provide Amtrak with legal cover
behind which it expands freight operations.
On April 15, Amtrak began running the Lake Country Limited, which
takes 3 hours and 20 minutes to travel from Janesville, Wisconsin, to
Chicago. The Chicago & North Western train in 1952 connecting
Janesville with Chicago was an hour-and-a-half faster. The media
reports traffic on the train has averaged 11 people per day in each
direction. Amtrak plans to add a train from Fond du Lac, Wisconsin, to
Chicago on a 3 hour, 39 minute schedule. Its 1952 predecessor was an
hour faster.
New Slow Trains Violate Amtrak Law
Amtrak's assertion that millions of new travelers will climb aboard
such slow trains is bogus. I believe that the Kentucky Cardinal, Lake
Country Limited and the proposed Fond du Lac services are illegal
because they violate Amtrak's statutory mandate to provide modern rail
passenger service, 49 USC Sec. 24101 (a)(1)(b). What is ``modern''
about trains that are slower than trains on the same routes were in the
1950s, 1940s, and earlier?
Amtrak Priority Should Be to Fix System of Late-Running Trains
While Amtrak employs resources to start new trains, its existing
services outside of the Northeast Corridor have terrible on-time
performance records. As a member of the Council facing significant
policy issues, I was little inclined to pursue Amtrak's poor operating
practices.
My inclination changed, however, when Amtrak Chairman Tommy
Thompson sent a letter to the Council in 1999 asserting that on-time
performance was 80 percent and ``still ahead'' of airline performance.
The claim was false as many long-distance trains in the Midwest and
West were routinely running 2 or more hours behind schedule.
Next came a press statement that Amtrak has ``the best on-time
performance in 13 years.'' I knew the statement was untrue because of
information coming in from around the nation about late-running Amtrak
trains. As a former consumer-group leader, I was motivated to conduct
my own review of Amtrak scheduling practices.
I determined that Amtrak reports its trains as being far more
punctual than they really are on virtually every route outside of the
Northeast Corridor. Amtrak abuses what used to be a modest railroad
practice to put extra minutes (``fat'') into its timetables for
``scheduling cushion.'' Amtrak inserts very long periods of time just
before ``checkpoints'' where on-time performance is calculated. If
Amtrak on-time performance were measured at the stop before an official
checkpoint, Amtrak's record would be much worse than official reports
indicate. In fact, the performance figures would be devastating. Amtrak
employs this dishonest practice on a sweeping basis.
It is highly likely that the airline industry--despite very serious
delays--had an on-time performance record this summer that was superior
to that of Amtrak outside of the Northeast. One reason is that the time
added near the end of a flight schedule is nowhere near the time
inserted by Amtrak. Also, an aircraft doesn't serve 20 communities a
day, arrive an hour or more late at 19 of them as Amtrak does, and be
considered punctual because it eased through ``fat'' in the end of the
schedule and was on-time only at the checkpoint. (Amtrak generally
defines on-time for short-distance trains as arriving within 10 minutes
of schedule and for long-distance trains as arriving within 30 minutes
of schedule.)
In an August 31, 1999, ARC meeting, I provided a preliminary
analysis of Amtrak's misleading performance figures to the Council with
Amtrak representatives in attendance. I had 3 purposes in introducing
the subject--to alert the ARC of the extent to which Amtrak presents
misleading figures to the Council; to possibly discuss the revenue loss
that Amtrak suffers as a result of misleading travelers; and to
question whether Amtrak has undue overtime expenses if employees work
hours conform to scheduled train times instead of their actual late
arrivals. It turns out that concerns about such expenses are justified
considering these findings in GAO's May 2000 report:
Amtrak incurs a fairly high amount of overtime to provide its
services, which may suggest some level of inefficiency in its
utilization of its labor force. From 1995 to 1999, overtime
represented, on average, about 11 percent of Amtrak's total employee
hours worked. The amount of overtime hours also increased steadily
during this period--from about 4.2 million hours in 1995 to about 6.3
million hours in 1999 . . . . Amtrak did not know specifically why
overtime had increased.
The ARC took no action, but I was hopeful that exposing the issue
would dampen Amtrak's enthusiasm for this deceptive practice.
Unfortunately, it did not as excessive ``fat'' remains in schedules and
Amtrak continues to issue statements regarding on-time performance that
lack credibility.
Please refer to the table below. I will reference the first train
listed to illustrate the point. Amtrak's eastbound Sunset Limited
routinely takes 45 honest minutes when running over the 32-mile stretch
of track from Los Angeles to Pomona, California. No on-time performance
calculations are made on this train at this point. In recent years,
however, Amtrak has added extra time to the westbound schedule from
Pomona to the Los Angeles ``checkpoint'' so that it now takes 1 hour
and 57 minutes for the run--more than twice as long as the eastbound
counterpart. Hence, passengers suffer the inconvenience of waiting for
late westbound Sunset Limited trains in one community after another but
official reports will show their train listed as ``on time.''
Amtrak's long-distance on-time record of 61 percent for Fiscal year
1999 (a poor enough figure in itself) is simply not credible. The
figure represents performance at about 32 checkpoints across the
country, yet Amtrak served 510 stations. If we subtract these and other
checkpoints we have about 470 non-checkpoint stations where trains
could run an hour or more late yet be reported by Amtrak as being ``on
time.''
Traditionally the pre-Amtrak railroads did allow a modest amount of
additional time for trains at the end of their runs to allow a little
bit of cushion to make up time. In 1952, to cite just one example, the
Santa Fe's westbound Grand Canyon took 54 minutes between Chicago and
Joliet, but eastbound took only 4 minutes longer. The minor schedule
difference on the private railroad system was typical for that time.
But over the years Amtrak has added prior-to-checkpoint ``fat'' to
schedules to a degree unprecedented in the railroad business.
Virtually every European and Japanese railroad schedules trains as
expeditiously on final ``checkpoint'' segments of routes as they do on
originating legs.
______
Attachment 5: Acela Express Now 3 Years Behind Schedule
I'm in a difficult position in speaking about the Acela Express
because I've worked for high-speed rail in America since my first
report on the subject was published in 1969, I've testified in favor of
appropriations to Amtrak for the Acela Express and the train is a
welcome and needed improvement. Yet I am disappointed by this train's
many delays and remain unconvinced by Amtrak's explanations.
Amtrak's decision to develop the Acela Express was a mistake.
Amtrak should have purchased off-the-shelf technology, like the
Swedish-Swiss X2000, which Amtrak had successfully tested in the early
1990s. The specifications could have been altered to meet U.S. rail
safety standards, the trains would have been built in this country, and
Americans could have been riding high-speed trains for several years
now.
When The Washington Post exposed Acela's design flaws last year,
Amtrak announced a ``six-month delay'' in service. In fact, the Acela
Express has experienced delays that are far more significant. Perhaps
the extent of delays are unrecognized because the facts are difficult
to locate in information databases--the name of this train has been
changed from Metroliner to American Flyer and now Acela Express.
Following are Amtrak's own words regarding delivery dates for the
Acela Express.
Chronology of Delivery Delays Since Projected April 1996 Date
May 19, 1993: Amtrak initiates procurement of high-speed trainsets,
stating in news release number ATK-93-24, ``To pre-qualify, a firm must
demonstrate that it . . . possesses the necessary resources to deliver
2 complete trainsets by April 1996 and the remainder of the trainsets
within 2 years thereafter . . . . With completion of the New York-
Boston improvement program in 1997, Amtrak plans to operate 16 high-
speed Metroliners each business day between Boston, New York and
Washington, with trip time between Boston and New York in less than 3
hours.''
November 3, 1993: New train slips a bit to middle of 1996. Amtrak
stated in news release number ATK-93-57 that ``Amtrak plans to award a
contract by the middle of 1994 with the first trains being delivered 2
years later.''
March 17, 1994: The program slips to early 1997. Amtrak testifies
before a House Committee that ``Two advance versions of the trainsets
are expected in early 1997 for testing. The remaining 24 trainsets will
then go into production, with the final trainset arriving in 1999.''
October 6, 1994: Amtrak reiterates 1997 for first train. Amtrak
announced in news release number ATK-94-83 that ``The 26 high-speed
trains will attain top speeds of 150 miles per hour and serve become
[sic] Amtrak's Northeast Corridor Metroliner Service fleet of the 2lst
century . . . . The procurement award is expected in early 1995 with
delivery of 2 test trains in 1997 and the remainder during 1998 and
1999 . . . . It is expected by the year 2000 that more than 3 million
additional passengers will be attracted to the service.'' This document
also reiterates promises made by Amtrak many times that New York-Boston
travel time will be reduced to ``under 3 hours.'' But the latest Acela
Express Boston-New York travel time estimates are between 3 hours and
10 minutes and 3 hours and 20 minutes, depending on the frequency of
stops.
November 21, 1995: Associated Press, reports on Acela Express
delays: ``The race to build America a new generation of fast passenger
trains is running late . . . . Two years ago, Amtrak said it hoped to
award the contracts in early 1994.''
March 15, 1996: Associated Press reports that Amtrak selected the
consortium to build the trains, which will ``go into service by 1999.''
The report of the 1999 delivery date fails to reference prior delays
and the mistake goes unnoticed. Newspapers across the country run a
photo of a model of the American Flyer.
March 11, 1998: Amtrak reiterates the 1999 date but refers to 2000
for completion of delivery. Amtrak CEO George Warrington testifies
before a House Committee that ``Five trainsets will be delivered in
late 1999, with the remaining 13 by July 2000.''
March 10, 1999: Amtrak Chairman Tommy Thompson, in testimony before
a Senate committee, reiterates the 1999 date, saying, ``Amtrak will
phase in the Northeast Corridor's high-speed rail program late this
year.''
September 2000: Amtrak indicates that the Acela Express launch is
``late October'' after a year of announcing ``early Summer,'' then
``mid-August,'' then ``sometime in September.''
The Unknown Cost of Acela Express Delays
Amtrak has repeatedly said that Acela Express revenues will enhance
its bottom line but by what amount is unclear. Amtrak gave an estimate
of $125 million to the Council as the expected annual revenue. Next,
Amtrak CEO George Warrington said before a House Committee on March 11,
1998: ``This new service will add, at a minimum, $150 million in
revenues when fully deployed.'' Further confusing are reports in a
November 1999 Trains magazine and subsequent Washington Post and
Associated Press stories stating that Amtrak expects the trains to
contribute another $180 million in income.
Which Amtrak number should we believe--$125 million, $150 million
or $180 million? Whatever the figure, when I served on the Council we
questioned Amtrak as to how it will make up the revenue shortfall.
Amtrak stated that it would implement a combination of cost avoidance
and revenue enhancements that will offset the expected loss in Acela
Express revenue in fiscal year 2000. No details were forthcoming as to
how Amtrak will accomplish that.
Prior to the latest delays, the DOT Inspector General's 1999 and
2000 assessments of Amtrak examined the reasonableness of Amtrak 5-year
projections for the Northeast Corridor and estimated passenger revenues
to be significantly lower than Amtrak's estimate. The differences are,
in part, because the IG calculates the diversion of passengers from air
and automobile travel to the Acela Express trains at a lower rate than
does Amtrak.
For the record, a 3 hour and 10-to-20 minute Boston-New York Acela
Express schedule, while good, isn't the ``grand leap'' needed for high-
speed rail to be truly air-competitive. To put Amtrak's best train in
historical perspective:
The Acela Express can operate at 150 miles per hour between
New York-Boston, but will run that fast on only 52 of the
route's 231 miles.
Japan's first Bullet Trains, which are now in museums,
offered faster trip times in the 1960s than Amtrak's Acela
Express will offer in 2001.
In 1950 the New Haven Railroad's Merchants Limited linked
New York-Boston in 4 hours without the benefits of full
electrification, tilt-train technology and advanced signaling
systems. For Amtrak's Acela Express to run only about 45
minutes faster after Amtrak has spent billions of dollars on
the project is an example of Amtrak's inability to bring truly
air-competitive high-speed rail service to America.
Terms & Liabilities of Acela Express $1 Billion Loan Remain Secret
Questions arise as to the degree to which Amtrak has publicly
disclosed Acela Express costs to oversight bodies and taxpayers. It
appears that Amtrak may have been unduly induced by an agency of the
Canadian government to select Acela Express equipment manufactured by
the Canadian-based Bombardier Corporation in preference to more proven
technologies such as the X2000, which Amtrak had tested with great
success in the early 1 990s. According to an Ottawa Citizen story on
March 18, 2000, ``The federal Export Development Corp. (EDC) secretly
loaned $1-billion to the deficit-plagued U.S. railroad agency Amtrak
while the Chretien government sharply cut passenger rail funding in
Canada. The money allowed the U.S. government-owned Amtrak to side-step
a congressional cap on capital grants . . . The loan package has been a
closely guarded secret. As of the end of 1998, the $1-billion was still
owing. Officials from Bombardier and Amtrak declined to disclose
details about the deal. Details of the EDC-Amtrak loans are not
disclosed in EDC annual reports or financial statements . . . .''
While there is nothing inherently improper with a Canadian
government loan, the secrecy has induced the sense that Amtrak has
something to hide. I question whether this transaction has potentially
handed U.S. taxpayers a $1 billion liability.
To my knowledge, the ARC was never informed of a loan from the
Canadian government, the uses to which it was put, the principal amount
owed, the interest rate, the repayment schedule, other terms and
conditions, or its effect on Amtrak's financial condition. Are the
Acela Express trains serving as collateral? We don't know. There is
much we don't know about this loan.
Congress should insist upon greater transparency regarding this
loan and the liabilities it imposes upon the public treasury in a
liquidation proceeding. This issue of transferability of Amtrak
liabilities to taxpayers is a serious one, especially as Amtrak would
become a candidate for a ``complete liquidation'' should the Council
find that Amtrak will fail to meet its goal of operating self-
sufficiency by the end of fiscal year 2002 (i.e., after September 30,
2002).
In 1997, prior to the Acela Express loan, Amtrak claimed that
liquidation costs could range between $10 and $14 billion. A GAO March
1998 study entitled ``Issues Associated With a Possible Amtrak
Liquidation'' pointed to uncertainties in estimating Amtrak's potential
liquidation costs, saying, ``Should Amtrak's financial condition force
it to file for bankruptcy, it must do so under chapter 11 of the
Bankruptcy Code.'' The GAO was unable to confidently estimate Amtrak's
likely liquidation costs but did state: ``In our opinion, the United
States would not be legally liable for secured or unsecured creditor'
claims in the event of an Amtrak liquidation. Therefore, any losses
experienced by Amtrak's secured and unsecured creditors would be borne
in full by the creditors themselves or their insurers. Nevertheless, we
recognize that creditors could attempt to recover losses from the
United States.''
As far back as March 18, 1985, the GAO issued an opinion that
``legitimate differences of opinion exist with respect to questions
about the rights and obligations of the United States in the event of
an Amtrak bankruptcy.''
______
Attachment 6: High-speed Bond Bill Is Seriously Deficient
Acela Express Delays Warrant Bringing Private Sector Into High Speed
Rail
Amtrak has taken seven years to design, build and test the Acela
Express while passenger railroads in other countries have completed
such projects in only 4 years. Amtrak has taken seven years to upgrade
existing infrastructure, while other nations build all-new high-speed
tracks and put them into operation in 4 years. (Japan, France and Spain
have performed such feats in that time.)
The Acela Express symbolizes Amtrak's inability to launch truly
modem railroad passenger service in a timely fashion. Amtrak's
management and organizational culture are poorly suited to building and
operating truly advanced train systems. This bill reinforces Amtrak's
de facto monopoly in intercity rail, which is sure to have a chilling
effect on new entrants that would otherwise emerge. Should our country
ever build advanced-technology, high-speed trains on other routes, we
should give priority to regional agencies, public-private partnerships
and joint ventures over Amtrak participation.
Amtrak's Claim That It Will Ease Aviation Congestion Is Unscrupulous
Amtrak is overselling its high-speed rail program to lead the
public to think its future trains will be as speedy as the spectacular
high-speed lines found overseas. The German railroad's objective for
high-speed trains is that they provide travel ``twice as fast as the
automobile, half as fast as the airplane.'' Amtrak won't come close.
One of the arguments for high-speed rail is that we can divert
passengers from air travel to trains, thereby freeing up slots at
congested airports. But that's doubtful on Amtrak's best line. While
the Acela Express will be faster than current train service, and indeed
the train will lure air travelers, the number who will shift to rail
remains a question. The DOT Inspector General's 1999 assessment took
issue with Amtrak revenue forecasts, stating that $154 million in
Northeast Corridor passenger revenues through 2002 is ``at risk of not
materializing because of lower-than-forecasted diversion of passengers
from air and automobile travel to the new Acela Express service.''
Amtrak's zeal to torture the English language to ``re-define'' what
constitutes a ``high-speed'' train is most pronounced for its trains in
the Southeast, Midwest and West. Amtrak ``high-speed'' trains in many
cases will offer travel times that will be no faster than passengers
found in the 1950s and earlier. Such trains won't be able to compete
with the speed of air travel. Thus, after billions are spent from the
High Speed Rail Investment Act, I believe that the resulting passenger
diversion rate from air would be very small. I doubt a single flight
would be removed anywhere in our aviation system.
Amtrak may also spend a portion of the finds on routes that are
excessively long (e.g., Washington, D.C. to Jacksonville, Florida)
where there is no way--not now, not ever--that even the fastest high-
speed trains could compete with air travel. No executive I've ever met
on a single high-speed rail operation overseas has ever proposed a
route that long, at 753 miles, when high-speed mail's effectiveness
falls after a distance of 300 miles. The bill is a major step backward
because it seriously misleads the American people, will
institutionalize Amtrak's second-rate planning, and will inhibit
development of the kind of fast corridor train service America needs on
selected high-population-density corridors.
Objectionable Features Regarding Goals, Finances
Passage of the bill is unjustified because the bill is deceptive in
its promise to Americans and contains objectionable features. I say
this because the funds will not necessarily go to build high-speed rail
systems, the costs will be higher than Amtrak claims, taxpayers will be
left liable for another Amtrak bailout, and the bill establishes a
conflict-of interest regarding the Secretary of Transportation.
Addressing these issues:
Cost estimates are virtually nonexistent for the projects
this bill would find. Appropriate estimates need to be in place
to permit proper consideration of granting Amtrak access to
billions of dollars through still one more federal support
mechanism. The legislation does not deserve passage on this
point alone. Consider what the Amtrak Reform Council, GAO and
DOT Inspector General have stated:
GAO, in the report issued in May of this year entitled ``Amtrak
Will Continue to Have Difficulty Controlling Its Costs and
Meeting Capital Needs,'' stated that Amtrak has not prepared a
multi-year capital plan since 1997 and Amtrak has not yet
developed cost estimates for developing high-speed rail
corridors outside the Northeast.
ARC, in its ``Preliminary Assessment of Amtrak'' issued in January,
stated: ``Amtrak has not produced a proposed long-term capital
expenditure plan for several years . . . A corporation such as
Amtrak, however, should have prepared and updated a long-term
capital expenditure plan on an annual basis as part of its
strategic business planning process and overall corporate
management. The GAO and the DOT IG have repeatedly identified
in reports and in Congressional testimony the need for Amtrak
to prepare a long term capital expenditure plan for management
purposes that will allow appropriate federal officials to make
informed decisions concerning Amtrak. The Council also needs a
long-term capital expenditure plan for Amtrak (updated at least
annually as part of Amtrak's strategic business planning
process) to carry out its statutory obligations
DOT IG Office, it its report ``2000 Assessment of Amtrak's
Financial Performance and Requirements,'' issued on September 19, 2000,
stated: ``Amtrak must develop a realistic plan for addressing long-term
capital needs. Amtrak has historically prepared a 1-year capital plan
that reflects a level of spending commensurate with its expected annual
appropriation. Amtrak needs a well-developed long-term plan that
identifies all capital needs, their costs, their timing, and
priority.''
The financial package is premature because Amtrak is under a
congressional mandate to prove it can operate without federal
subsidies by September 30, 2002, and the Amtrak Reform Council
is far from completing its evaluation of Amtrak's performance.
Considering that Amtrak was a candidate for bankruptcy merely 3
years ago, concerns about Amtrak's financial stability should
not be taken lightly.
Proponents claim that the cost of the bill in the form of
tax credits in lieu of interest payments will total $2.3
billion. My understanding is that's misleading because 20-year
bonds are permissible. It's likely that as late as 2010 Amtrak
will issue bonds that will expire in 2030. The cost of the
legislation will probably be more than double what Amtrak
claims, or more than $4.6 billion if Amtrak is ``successful.''
I note that the Heritage Foundation issued a report on August
28 describing the federal government's implicit interest
payments, concluding that ``The loss of tax revenues to the
U.S. Treasury would total $16 billion if interest rates remain
unchanged at 8 percent.''
By transferring tax-credit costs from Amtrak's books to
Treasury Department ledgers, the bill creates massive subsidies
to Amtrak that again will be ``off-book'' for Amtrak. Such
deception frees Amtrak to again claim financial ``success''
despite the continuing drain on taxpayers.
Amtrak claims that the proposal is sound because finding
will be managed by an independent trustee and repayment will be
assured by a guaranteed investment contract. But it appears
that these measures apply only to the 20 percent state share,
not the 80 percent federal share. Thus, the preponderance of
the funds would remain at risk. Is that a prudent process
considering Amtrak's dismal fiscal history and flirtations with
bankruptcy?
The bill grants the Transportation Secretary authority to
prescribe regulations about how certain financial transactions
are reported to the public even though the Secretary sits on
the Amtrak Board of Directors and holds Amtrak fiduciary
responsibilities. This is an obvious conflict of interest.
The inescapable conclusion is that the bill is a stage-setter for
another multi-billion-dollar federal bailout of Amtrak in future years.
With hindsight as a guide, it is virtually impossible that Amtrak will
be able to pay off bond principal and interest. The GAO has observed
several times that Amtrak has a history of not meeting its financial
goals. Bailouts have occurred with Amtrak's government-guaranteed
loans, as explained previously. The $2.2 billion IRA-sponsored ``income
tax refund'' is a partial bailout, because a portion of the funds is
being used to pay off Amtrak debt incurred before the TRA was passed.
No justification exists to pass the High Speed Rail Investment Act in
its present form.
______
Attachment 7: Proposed Congressional Actions
Congress is justified in undertaking the following:
Initiate Investigations
Investigate Amtrak's misleading comments to Congress on
labor/management productivity. The best method to accomplish
this is probably through a GAO study. This is extremely
important considering that employee costs are the largest
single element in Amtrak's operating costs, according to
various studies.
Investigate Canada's $1 billion Acela Express loan by
requiring Amtrak to supply the still-secret details of the loan
to this Committee. Congress should know the uses to which the
funds were put, the amount of principal and interest, the
potential liability to the U.S. government in a default,
whether the Acela Express trains serve as collateral for the
loan, and other terms and conditions that may be germane.
Determine for public view the true extent of Amtrak's
continuing costs to the public. Accomplish this through a GAO
study to quantify all direct and indirect, past and current
federal subsidies. The review should include all liabilities
buried in U.S. Treasury accounts for past taxpayer-financed
bailouts of Amtrak.
Establish Penalties for Failure to Cooperate With Amtrak Reform Council
Direct Amtrak to supply timely, accurate and germane
responses to inquires from the Amtrak Reform Council and
establish penalties for failure to do so.
Amend ARAA to Tighten Reporting Requirements
Require Amtrak to annually submit to Congress the source for
all new loans, the purpose of the loans, the terms and
conditions of such loans, the collateral for such loans, and
the interest and principal obligations incurred, repayment
schedule, and amount paid during the year. The objective is not
to dampen Amtrak loan activity but to increase transparency and
knowledge of real and potential liabilities regarding Amtrak-
incurred debt.
Require Amtrak annual reports to clearly identify current
subsidies as subsidies and identify the source of all
subsidies. The objective should be issuance of reports that
forthrightly explain the true extent of Amtrak's revenues,
costs, losses and subsidies.
Require Amtrak to publish monthly on-time performance
figures on a route-by-route basis. This would restore a
statutory Amtrak requirement in place in the 1970s (in the Rail
Passenger Service Act, Amtrak's enabling legislation) and is
commensurate with government practice today regarding the
commercial airline industry.
Amend ARAA to Require Truth in Scheduling by Amtrak
Require Amtrak to establish consumer-friendly train arrivals
and departures by readjusting schedules so that non-checkpoint
communities are as likely to be served by punctual trains as
official checkpoint communities where on-time performance is
calculated.
Decline to Pass High-Speed Rail Investment Act
Decline to pass the High Speed Rail Investment Act, a bill
that will not bring about high-speed trains in the Southeast,
Midwest and West and will open taxpayers to future liabilities
totaling billions of dollars. To effectively plan market-
sensitive high-speed train systems, a new direction is needed
to include participation by regional agencies, private
businesses and joint ventures in innovative, imaginative
public-private partnerships.
The Chairman. Thank you. Mayor Kaine, I would ask your
indulgence for a couple of minutes. Senator Kerry would like to
respond to the testimony of Senator Allard concerning an issue
that affects his State, and if you would indulge Senator Kerry
just for a few minutes while he responds, I would like to
recognize Senator Kerry, and I thank you for your indulgence,
mayor.
STATEMENT OF HON. JOHN KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Mr. Chairman, thank you, and I apologize,
Mr. Mayor. I thank you, also. I had not intended, frankly, to
stay here this long because of other conflicts, and I have to
get on a plane and leave the city momentarily, and so I
appreciate the intervention, and I appreciate my Chairman and
his characteristic courtesy.
I want to comment on 2 things, if I may, but let me first
say something, and I kind of hesitate to say this but I am
going to say it, because I think that many of us in the Senate
are increasingly frustrated by the way it sometimes works
around here.
I am the Ranking Member of the Subcommittee which Chairman
Allard testified about today, and I regret to say that I had no
notice or awareness whatsoever that this testimony would take
place today. We learned only of the potential that it might by
seeing the witness list, and I do not believe that is the way
the U.S. Senate is supposed to work, number 1. It certainly is
not the way I operated as Chairman of the Subcommittee when I
was Chairman, nor will it be the way I will operate in the
future, should that happen again.
Second, it is really a kind of one-sided representation
that just has no relationship to the facts that were presented
to our Committee in the context of our hearings, and I would
ask unanimous consent, Mr. Chairman, that the text of the
exchange with Bay State between myself and a person
representing the company that the graph showed had 116 million
differential be made a part of the record.
The Chairman. Without objection.
Senator Kerry. I would ask unanimous consent that a letter
from Bay State to the employees of the MBTA also be made a part
of the record.
I would ask unanimous consent that a letter to me regarding
the eleventh-hour invitation to the one person who was allowed
to testify to the contrary regarding the MBTA contract problems
also be made a part of the record.
[The information referred to follows:]
Senator Kerry. Thank you, Mr. Chairman.
I have a copy of one of those letters that was sent and would ask
that it be put in the record.
The Chairman. It will be put in the record.
Senator Kerry. In this letter, outside of the negotiating process,
knowing that there is a union there, let me just clarify. Mr. Stoetzel,
you did run the commuter rail system at the B&M for a period of time.
Correct?
Mr. Stoetzel. Yes, back in the mid-1980s. I was the general manager
when it was operated by the Boston & Main Railroad prior to Amtrak
taking it over in 1987.
Senator Kerry. And I gather in fact that one of the prime people
with the MBTA who was in charge of this contracting process used to
work for you. Is that right?
Mr. Stoetzel. There are actually several who were with me in
Amtrak.
Senator Kerry. So you've had a relationship with those people at
the MBTA who have been part of this process.
Mr. Stoetzel. Several years ago.
Senator Kerry. Moreover, you have had a knowledge of the existence
of 13 (c). This is not a surprise to you, is it?
Mr. Stoetzel. No.
Senator Kerry. And in fact, Bay State Transit--I've heard
somebody--I think the Chairman said this company applied for a
contract.
What is the company? Is this a company that has employees today?
Mr. Stoetzel. It has about ten employees today.
Senator Kerry. At the time of the contract, I gather it had about 2
employees.
Is that correct?
Mr. Stoetzel. Yes, roughly.
Senator Kerry. So you have 2 employees and you're bidding $116
million below anybody else to do something that you have no work force
to do.
Mr. Stoetzel. But you're bidding that on the basis of experience
and on the basis of several other contracts, and on the basis of a very
defined scope of work with the intent of hiring the work force.
Senator Kerry. Sure, if the work force you're going to hire is the
existing work force, if they want to work for you.
Mr. Stoetzel. It's very similar to the situation that Amtrak was in
when they took it over from B&M in `87. And they had no work force and
they hired from the existing work force.
Senator Kerry. It had a name then. It's called union-busting, and
it has a name today. It's called union-busting. That's fundamentally--
the program here is that you're going to come in and change the
contract and get out from under. That's essentially how you lower the
costs. Most of these employees understood that. They saw that--when we
talk about better benefits and better wages, et cetera, it's my
understanding that that offer was only made last month. Is that
accurate?
Mr. Stoetzel. No. The first offers were made in September.
Senator Kerry. Were the first offers better?
Mr. Stoetzel. The first offers--the difference between the first
and second offers was slight and between the second and third, they've
changed.
Senator Kerry. I don't believe the first offers had specific
numbers, did they?
Mr. Stoetzel. They had a wage range for the different positions.
They didn't have specific----
Senator Kerry. Mr. Moneypenny, did they have specific offers?
Mr. Moneypenny. It said comparable. I can give you the package. It
said comparable.
Senator Kerry. Comparable. But were there any--what was the
understanding of the workers with respect to that offer?
Mr. Moneypenny. That you would have to give up your--you would have
to go in alone, you would have no one to negotiate on your behalf.
You would have to accept whatever this offer was, which was not
explained to you. That you would have to have--and this really enraged
our people--you would have to have a background investigation conducted
upon you by this company with 2 employees.
If you worked 25 years at that job, and if you have, you worked for
several different railroads. You worked for the Penn Central. You
worked for the B&M. You worked for Amtrak.
You would have to have these 2 individuals, whoever they were, do a
background investigation to see if you were fit for the job that you
already had.
That's what our people saw.
And let me just correct one thing that Mr. Stoetzel said. There's a
big difference between when Amtrak took over in `87 and what these
folks tried to do.
Amtrak negotiated collective bargaining agreements with each and
every one of the unions before they took over. And that's what these
folks could have done.
The difference is that they probably couldn't have done it for $175
million.
Senator Kerry. That's really the bottom-line issue here. What was
the real cost of trying to run the transit system, recognizing that you
had in existence since 1964 a relationship where the federal government
said that if federal dollars are expended on this system, there's a
certain expectation as to the relationship between the corporate entity
and the people who work there.
Now, listen. I understand. We're all looking for cost savings. And
none of us--I'm not sitting here suggesting that any kind of
featherbedding practice or inappropriate numbers ought to be protected.
That's not what I'm suggesting. And I don't think you are, Mr.
Moneypenny.
I think the question is, is there going to be a legitimate
bargaining process that is respected so that people don't feel that
their rights are being trampled.
Am I correct?
Mr. Moneypenny. And there's a practical reason for this, Mr.
Chairman.
The only place you get to be a railroad worker is on the railroad.
It's not like we're going to get rid of your widget-makers and bring
our widget-makers in.
Mr. Stoetzel and the people he represents know darn right well, if
it's not our folks, there aren't any other folks to do this work.
It's not like you have hundreds of railway workers around the
country waiting to go to work.
And I hear what you said, Mr. Chairman. Some of them are cleaners.
I cleaned cars for 5\1/2\ years myself. It's a good way to make a
living. And these people, they don't break the bank on what they make.
But there are also hundreds of highly skilled people who are very
good at what they do. And to try and bring in a work force of hundreds
of strangers and say, go ahead and run the commuter rail service, is an
invitation to disaster.
Senator Kerry. Mr. Stoetzel, let me ask you--and I don't want to be
unfair to either side here.
Why has there not been the sort of direct kind of negotiation that
Mr. Moneypenny is talking about?
Mr. Stoetzel. Again, Bay State was attempting to hire a work
force--
Senator Kerry. But one by one, by picking them off. Not with the
union.
Mr. Stoetzel. We had made elaborate plans to interview every single
member of the existing work force, offer positions. And however they
chose to organize, that would be the entity with whom we would deal.
Bay State has been very consistent in that approach throughout.
Senator Kerry. That's outside of the law. The law required a
different process.
Let me read from your letter. Your letter says--here's an
individual letter received by a worker who knows he or she is
represented by somebody to bargain for them. You've sent letters to
their family.
Here's what it says.
I am writing to you the third time to invite you to apply for a
position with Bay State Transit Services to perform mechanical services
for the MBTA.
And then you go through a brief summary of these events.
On October 28th, the rail unions met with the MBTA to begin the
negotiation.
Then you come down--what does all this mean to you?
First, the rail unions and the MBTA have agreed to a process that
will protect your rights under the 13(c) agreement.
But if it really were protecting their rights under the 13(c)
agreement, you'd be negotiating with the union, not writing them
individually.
Second, you say to them, applying for employment with Bay State
will not affect your rights.
In fact, the contrary may be true. Failure to apply for employment
with Bay State could negatively impact your rights to 13(c) benefits.
Now that's a threat.
Mr. Stoetzel. That was our understanding from the MBTA. And there
was later an MBTA letter to the employees saying the same thing.
Remember, we're not a party to this 13(c) agreement. That's what we
were told.
Bay State Transit Services
November 8, 1999
I am writing to you for the third time to invite you to apply for a
position with Bay State Transit Services to perform mechanical services
for the MBTA. Bay Suite Transit Services recognizes that the change in
contractors for mechanical services at the MBTA may be causing
uncertainty for you and your families. Several recent events have
clarified the situation to your benefit and may assist you in your
decision to consider employment with Bay State Transit Services. Below
is a brief summary of these events:
On October 28, the rail unions met with the MBTA to begin
negotiation of an implementing agreement that may be required
by the 13(c) agreement. This started a defined process that the
MBTA and the rail unions will follow to resolve any 13(c)
issues.
On November 3, a 3-judge panel of the Suffolk Superior Court
heard arguments from your rail unions, MBTA and Bay State
regarding an injunction to prohibit Bay State and the MBTA from
soliciting or hiring current employees involved in the
mechanical services. On November 4, the 3-judge panel
unanimously denied the rail unions' request for a preliminary
injunction because, among other things, the rail unions failed
to establish a likelihood of success on the merits of their
claims. Bay State is now free to continue its recruitment
efforts.
During the hearings, the MBTA stipulated in court that
current employees involved in the mechanical services would nor
forfeit or waive any of their 13(c) rights by applying for or
accepting employment with Bay State. MBTA and the rail unions
also agreed to expeditiously submit certain 13(c) issues to
arbitration, if necessary.
What does all this mean to you? First, the rail unions and the MBTA
have agreed to a process that will protect your rights under the 13(c)
agreement. Applying for employment with Bay State will not affect your
rights. In fact, the contrary may be true--failure to apply for
employment with Bay State could negatively impact your rights to 13(c)
benefits.
Second, Bay State's contract with the MBTA requires us to give
priority consideration of employment to the current employees. More
importantly, there is a sincere desire on the part of Bay State to hire
as many of the current employees as possible. We have established an
employment process that will ensure fair consideration and treatment
for all applicants.
We understand that you may still have many unanswered questions. We
have included an information package that briefly describes positions
available and wages and benefits. Other questions can be addressed
during your interview.
We understand that there were concerns that our previous offers to
apply and be interviewed did not provide sufficient time for you to
respond. Therefore, we are extending the deadline for receipt of
applications until November 30, 1999. The acceptance of an employment
offer from Bay State now will not affect your current employment. You
will continue in your present position until Bay State begins providing
services on March 1, 2000.
Bay State Transit Services recognizes that you are an integral part
of the past and future success of the MBTA commuter rail service.
Please give us the opportunity to convince you that employment with Bay
State can be a rewarding long-term experience. We look forward to the
receipt of your completed application (additional copy enclosed) so
that we may schedule your interview.
Sincerely,
Raymond V. Lanman,
President.
______
O'Donnell, Schwartz & Anderson, P.C.
April 24, 2000
Hon. John Kerry,
U.S. Senate,
Washington, DC.
Dear Senator Kerry:
I was asked by my Rail Labor clients to provide you with background
information in connection with a hearing regarding the Section 13(c)
transit employee protection program being held tomorrow by the
Committee on Banking, Housing and Urban Affairs. Although the hearing
will address 13(c) protections in the context of the overall Federal
Transit grant program, the Committee was prepared to receive testimony
from witnesses who will present only one side of a dispute between the
Rail Unions and the Massachusetts Bay Transportation Authority
(``MBTA'') concerning MBTA's plan to change the contractor for its
maintenance of equipment work from Amtrak to Bay State Transit
Services, Inc. Unfortunately, a formal attempt (see attached) by the
Transportation Trades Department, AFL-CIO (TTD), to include, in
addition to the Amalgamated Transit Union, both TTD and a Rail Labor
representative among the witnesses scheduled to appear, was denied. But
then today, at the eleventh hour, an invitation was issued to Charlie
Moneypenny, International Representative of the Transport Workers
Union.
It is most unfortunate and, frankly, unfair that my clients were
not given the opportunity to properly prepare for tomorrow's hearing to
present their side of the story and to respond to whatever charges or
complaints are levied against the Rail Unions and their members by the
MBTA and its contractor, Bay State Transit Service. The Rail Unions are
not sure of the nature and scope of the Committee's concerns, but they
have some familiarity with questions that have been raised regarding
this dispute. As such, on short notice I am providing you with this
quick letter that briefly addresses certain questions that have been
raised and that may resurface tomorrow.
Question 1. On what basis could the Department of Labor and
Department of Transportation find MBTA ineligible for federal funds?
Answer. Every grant agreement between MBTA and FTA since May 29,
1997 was subject to a condition that META bind its contractors to its
``13(c) Agreement'' with the Rail Unions. The Department of Labor
imposed that requirement for eligibility for FTA funds in what became
``Attachment A'' to its certifications pursuant to former Section 13(c)
(now Section 5333(b)) after full opportunity for briefing by MBTA and
the transportation unions. MBTA opposed the requirement but the
Department of Labor rejected MBTA's arguments. After May 27, 1997, MBTA
applied for and received a number of FTA grants all subject to the
Attachment A requirement that provided:
LThe MBTA will ensure that any person, enterprise, body, or agency,
whether publicly or privately owned, which shall undertake the
management and/or operation of the system and/or provision of services,
or any part or portion thereof, under contractual arrangements of any
form with the MBTA, its successors or assigns, shall agree to be bound
by the terms of the December 10, 1974 Section 13(c) Agreement, as
supplemented, and accept responsibility with the MBTA for full
performance of those conditions, and as a condition precedent to such
contractual arrangements, the MBTA, its successors or assigns, shall
require such person, enterprise, body or agency to so agree.
Again, it must be noted that this requirement was added to DOL
certifications after a proceeding in which MBTA had the opportunity to
submit argument to the DOL. Its arguments were rejected in the letter
that promulgated Attachment A. The requirement was then imposed in
every FTA grant after May of 1997. MBTA continued to apply for and
receive federal funds while committing that it would comply with the
DOL certifications, including Attachment A, even though MBTA opposed
imposition of the requirement.
However, MBTA did not bind its proposed new mechanical service
contractor, Bay State Transit Services, Inc., to the 13(c) Agreement.
In litigation before the Massachusetts courts, MBTA and Bay State both
argued that Bay State was not a party to the 13(c) Agreement, was not
bound by the 13(c) Agreement and had no contractual obligations to the
Rail Unions and their members pursuant to the 13(c) Agreement. The
Massachusetts courts made findings of fact consistent with those
assertions. Indeed, those findings were a significant part of the
reasoning behind the courts' refusal to grant injunctive relief sought
by the Rail Unions under the 13(c) Agreement.
In short, the FTA grant agreement expressly and unequivocally
required that MBTA bind its contractors to the 13(c) Agreement as a
condition precedent to that agreement, and MBTA clearly violated that
agreement and indeed admitted that it did not comply with that
requirement after committing to it in order to receive millions of
dollars in FTA grants.
Question 2. Did MBTA have an opportunity to provide information
regarding this dispute to the Departments of Labor and Transportation
before any decision was made?
Answer. After the Rail Unions wrote to the Departments of Labor and
Transportation, the Departments wrote to MBTA on December 17 and 20,
1999, stating that it appeared MBTA had not complied with the
Attachment A requirement based on the State Court decision; and they
requested an explanation from MBTA.
MBTA preemptively addressed issues raised by the Rail Unions with a
letter to the Secretary of Transportation on December 17, 1999, 3 days
before the December 20 letter was actually sent by the DOT. Then, MBTA
responded with a 5 page letter dated December 30, 1999. MBTA responded
to the Department of Labor's inquiry with a 5page letter dated December
30, 1999.
Thus, it is clear that MBTA had ample opportunity to provide
information as well as argument on the issues before any conclusion was
reached by the Departments.
Question 3. Was the MBTA procurement process a legitimate
competitive procurement process?
Answer. There are substantial issues as to whether there even was a
truly fair, competitive and legitimate procurement procedure in this
case. It appears that MBTA did not factor in to the weighing of bids
the likely costs of employee protections if the Bay State bid was
accepted as opposed to the Amtrak bid. Since this is essentially a
labor services contract, any savings that might flow from a lower bid
would necessarily come from reduced labor costs, thus implicating
employee protection payments. Indeed, MBTA and Bay State acknowledged
that Bay State plans to reduce the current work force by 130 or more
employees. However, it does not appear that MBTA gave any consideration
to those costs when it concluded that the Bay State bid would result in
net savings of $116 million. A formal request to MBTA under FTA
Circulars 4220,1B, IC and 1D for disclosure of information pertaining
to the procurement process and the weighing of bids was never answered
by MBTA.
Additionally, from the time that Bay State was selected, the Rail
Unions, members of the Massachusetts Legislature and others have
asserted that the Bay State bid was unrealistically low and that MBTA
would be required to pay more than what Bay State originally bid in
order to provide the same level of service now provided by Amtrak. MBTA
never provided any information that would demonstrate Bay State's
ability to provide the same level of service at the price of the bid.
It appears that Bay State based its figures on the employee to rail car
ratios on other commuter railroads and not on actual staffing
projections for the MBTA shops. Among other things, such an analysis
ignores the fact that MBTA has no central yard for the storage of its
entire car fleet. This means that certain economies of scale available
to other commuter rail operations are not available to the MBTA
operation. This also means that MBTA must disperse its cars to outlying
locations and keep workers at those locations to service and maintain
the equipment. An example of the mechanical staffing implications of
the MBTA system is that because local noise and air pollution concerns
the cars stored at outlying points may not ``idle'' at night, but
instead must be turned off; this requires that workers be available at
these locations the next morning to perform necessary tests before
trains go into service. In any event it is clear that Bay State's
staffing numbers were not based on actual plans for staffing particular
locations with certain numbers of employees for certain shifts at
specific locations. Efforts by the State legislature and the Unions to
ascertain the basis for Bay State's staffing plans were rebuffed.
Recent events have only amplified the concerns of those who
questioned the validity of the Bay State bid. It has been reported that
many of the cost overruns on the Big Dig and Transitway projects have
been due to un-budgeted payments to contractors who were awarded
contracts based on low bids, but later sought supplements after
beginning work.
Question 4. Is there federal authority regarding the manner in
which a workforce is hired or which union represents them?
Answer. Among the employee protections guaranteed by Section 13(c),
current Section 5333(b)(2) are (A) ``the preservation of rights,
privileges and benefits (including continuation of pension rights and
benefits) under existing collective bargaining agreements or
otherwise'' ; (B) ``the continuation of collective bargaining rights'',
and (E) ``assurances of priority of reemployment of employees whose
employment is ended or who are laid off''. These protections are
implemented by the Department of Labor and negotiated agreements such
as the 13(c) Agreement between the Rail Unions and MBTA. The 13(c)
Agreement requires an implementing agreement concerning the selection
forces and assignment of employees. And Attachment A to the recent DOL
certification requires that Bay State be bound to the 13(c) Agreement.
Morever, the Department of Labor's letter promulgating Attachment A
actually stated that one reason why it was necessary that contractors
be bound by the 13(c) Agreement was that ``if the applicant is not the
direct provider of services, it cannot directly ensure continuation of
collective bargaining rights, preservation of existing collective
bargaining agreements, or priority of reemployment. Thus, in order to
carry out these statutory requirements, the MBTA must require that any
entity which undertakes the management and/or operation of the system
and/or provision of services be bound by the protective arrangements.''
Question 5. Did the Department of Labor inform MBTA that it would
withhold FTA certifications because MBTA and Bay State had not
guaranteed that Bay State would not change existing collective
bargaining agreements, hire all existing workers or recognize existing
unions?
Answer. The Department of Labor merely said that unless MBTA bound
Bay State to the 13(c) Agreement as required by Attachment A, MBTA
would be ineligible for future certifications. The DOL action dealt
only with the refusal of MBTA to bind Bay State.
Question 6. Why did negotiations between MBTA and the Rail Unions
break down?
Answer. The Unions told MBTA that a pre-condition of any agreement
would be that MBTA bind Bay State to the 13(c) Agreement as required by
Attachment A. The Unions raised the Attachment A issue continually and
at the outset of negotiations with MBTA. The Unions had serious
problems with a number of positions taken by MBTA but they said that
they would be willing to negotiate to attempt to resolve those issues;
however they said they would not negotiate about something that MBTA
was legally required to do, and that was fundamental to the entire
process of negotiating an agreement involving a change in contractor.
Question 7. Were there legitimate questions regarding the
``technical capacity'' of Bay State?
Answer. There were substantial questions as to the ability of MBTA
and Bay State to provide safe and adequate service. Bay State has no
experience whatsoever in providing mechanical services for a commuter
rail operation, and its parent corporations have no experience in
providing such services for a major commuter rail operation. While the
parent corporations have experience in providing services to freight
railroads, they do not have experience with a major passenger
operation. One of Bay State's parent corporations has experience with a
small commuter rail operation, and that operation was cited as
deficient in a number of areas in a FRA study several years ago.
Additionally, as is noted above, the Bay State staffing plan on its
face raises serious questions about its technical capacity.
Furthermore, MBTA and Bay State so alienated the existing work force
that there are substantial questions as to whether Bay State would have
been be able to put together a work force with the requisite skills,
experience and FRA certifications.
Question 8. Did the Rail Unions attempt to communicate with Bay
State regarding their concerns?
Answer. On May 18, 1999 the Rail Unions wrote to Bay State's parent
corporations advising them of the 13(c) Agreement, the history of their
dealings with MBTA and the Unions' position regarding the applicability
of the 13(c) Agreement and its requirements to a change from Amtrak to
Bay State. On June 3, 2000 the Rail Unions wrote to MBTA regarding the
13(c) Agreement and the obligation of MBTA and Bay State to continue
employee benefits such as Railroad Retirement (a copy of that letter
was sent to Bay State). On September 8, 2000 the Rail Unions wrote to
MBTA noting that MBTA had for over 2 months failed to provide promised
information regarding Bay State's planned operations, the content of
Bay State jobs, Bay State's intended plans for selection for employment
and wages and terms of employment, and MBTA and Bay State views as to
employee rights under the 13(C) Agreement; a copy of that letter was
sent to Bay State.
Question 9. Did MBTA and Bay State make job offers to the Amtrak
workers?
Answer. No. Bay State sent Amtrak shop employees solicitations for
them to apply for consideration for employment with Bay State. The
letters did not offer any jobs, indicate that the recipients would have
any right to jobs, describe jobs that would be available, describe
procedures by which employees would be considered for jobs, describe
how Bay State would determine whether an Amtrak employee was qualified
for a job, or describe an appeal process over denial of a job.
Essentially, Bay State would pick and choose among the Amtrak employees
in accordance with criteria established by Bay State. MBTA sent a
letter to the Rail Unions, saying that, under a ``priority of
employment'' all current Amtrak employees who ``apply in a timely
manner'' would be ``interviewed and considered for employment before
Bay State hires any potential employees from the general public.''
Flowever, Bay State would make the sole determination of applicant
qualifications and there would be no appeal from any determination it
makes. MBTA said Bay State believed that it would not be covered by the
Railroad Retirement Act, would not deal with the Rail Unions, and would
not assume any current collective bargaining agreement covering
maintenance of equipment workers.
Many Amtrak workers responded to Bay State by noting that Bay State
had not actually made job offers, that they had rights under the 13(c)
Agreement and that their unions would represent them. MBTA sent letters
to Amtrak employees urging them to apply for consideration for
employment with Bay State, but also threatening them that if they did
not apply, they could lose both job opportunities and entitlement to
any financial benefits under the 13(c) Agreement in connection with a
change from Amtrak to Bay State.
Question 10. What did MBTA and Bay State actually offer in the form
of priority of employment to the Amtrak workers?
Answer. In July of 1999 MBTA said it meant only a right to be
interviewed, but then said it meant a right of hiring for ``qualified''
employees''. When the Unions asked about who would decide whether
current workers are ``qualified'', how that determination would be
made, and what rights employees would have to appeal
``disquaiifications'', MBTA could not answer. Nor could MBTA answer the
most basic questions about the number ofjobs that would be available
with Bay State, the type of shop jobs Bay State would have, or whether
operating employees who move the trains in the yard and track, signal
and building maintenance employees would be included in a Bay State
operation.
At the end of October, 1999, MBTA said that Bay State jobs would
all be called ``maintainer'' jobs in which all employees could be
assigned all shop functions, and that Bay State would contract-out
coach cleaning work. Under the so-called ``priority of employment'',
all current Amtrak employees who ``apply in a timely manner'' would be
``interviewed and considered for employment before Bay State hires any
potential employees from the general public''. Bay State would make the
sole determination of applicant qualifications and there would be no
appeal from any determination it makes. MBTA and Bay State never told
the Unions how prior experience and seniority in a craft would be
considered in evaluating applicants. For example they could not explain
how a twenty year machinist, a fifteen year electrical worker and a 22
year sheet metal worker would be evaluated for the same job. The
employment applications sent out by Bay State made it clear that actual
job offers would be complete on standards and terms dictated by Bay
State. Ultimately, it became clear that there were no objective
standards, no set processes and no appeal mechanisms in the employment
mechanism envisioned by MBTA and Bay State. There also would be no
Union and employee negotiations about, or even input into that
mechanism; there would be only unilateral discretion vested in Bay
State.
Question 11. Was there reason for MBTA and Bay State to feel
surprised by the Attachment A requirement?
Answer. MBTA had litigated the Attachment A issue and should have
been fully familiar with its terms. All post-May 1997 FTA grants to
MBTA were subject to this requirement. Additionally the Rail Unions
brought the Attachment's requirements to MBTA's attention by letter
dated July 13,1999. This letter was sent to MBTA in connection with
negotiations with the Unions the planned change in contractor and was
in part a request for information about Bay State's plans Since MBTA
was conveying information about employment with Bay State to the
Unions, Bay State should have seen this letter even if a copy was not
sent directly to Bay State.
The Rail Unions feel that any inquiry into the issues that have
arisen in their dispute with MBTA and Bay State should have allowed the
Unions ample opportunity to prepare remarks arid to respond to
questions and to claims made by MBTA and Bay State Since they were not
given a meaningful opportunity to present their side of the story, the
Rail Unions appreciate the opportunity that you have provided us to
briefly address some of the key issues involving this matter.
Sincerely,
Richard S. Edelman,
Counsel for the Rail Unions.
Senator Kerry. If I might also say for the record here, Bay
State was a nonexistent entity. Bay State Transportation
Services did not exist in Massachusetts, or Bay State Transit
Services, prior to its bid on this particular occasion, and it
bid, indeed, a differential between it and Amtrak, but may I
point out to my colleagues there were only 2 employees.
Two employees bid to undertake to provide commuter rail
services, and they had no experience in doing that in our
State. In fact, there were substantial questions as to the
ability of the MBTA and Bay State to provide safe and adequate
service to the 60,000 people who use our rail every single day.
Bay State had no experience whatsoever in providing
mechanical services for a commuter rail operation. Its parent
corporation had no experience whatsoever in providing services
for any major commuter rail operation, and while the parent
corporation had experience in providing services to freight
railroads, they had no experience with a major passenger
operation.
One of Bay State's parent corporations had experience with
a small commuter rail operation, and that operation was cited
as deficient in a number of areas in an FRA study a number of
years ago.
Bay State's staffing plan, on its face, raised serious
questions about its technical capacity, and let me simply share
with my colleagues what they did. They planned basically to
break the union, and to violate section 13(c) and other
standards by which negotiations take place.
Now, you may not like negotiating with a union. You may not
like some of the outcomes, but the law is the law, and they
basically tried to circumvent the law, and in a letter that I
have now placed in the record they actually wrote directly to
employees, and this is their third letter.
They say, ``I am writing to you for the third time to
invite you to apply for a position with Bay State Transit
Services to perform mechanical services for the MBTA,'' and
then in a subsequent paragraph they say, ``what does all this
mean to you,'' and then they define what the rail union's
position is, which is not an appropriate negotiating procedure,
and they say, ``Applying for employment with Bay State will not
affect your rights. In fact, the contrary may be true--failure
to apply for employment with Bay State could negatively impact
your rights to 13(c) benefits.'' That is a direct threat to the
employees about what their status might be.
This was a complete violation of negotiating standards of
federal law. The court upheld the position of Amtrak, and I
resent the notion that we are going to have some drive-by
shooting in a hearing of the U.S. Senate to try to attack a
contract when the facts are completely different from what we
know here today, not to mention of what it has done in the
context of senatorial courtesy. Mr. Chairman, I am frustrated
and angry at this kind of approach, which has no place in the
workings of an institution like this.
A second point I want to make, this debate over Amtrak is
also increasingly becoming more and more frustrating. You know,
I have been here 16 years now, and most of those years on this
Committee, not all of them, but I have heard people come in
here and attack and attack and attack Amtrak and, indeed, there
are reforms necessary. I have never sat here and been resistant
to the notion that we cannot improve, and that there are not
some bad practices, and that there has not been some
mismanagement here and there.
But to suggest that a governor with the qualities of
Governor Thompson, who I think is the longest, now, elected
governor in his state, and has had a remarkable record for
efficiency, and other governors like Michael Dukakis and others
who have a reputation for competency and concern, are not
moving this thing toward a responsible status, is, I think,
number 1 unfair, and number 2, discourteous.
Second, when you analyze----
The Chairman. Senator Kerry, I recognized you to respond to
Senator Allard. I would be glad to debate you, particularly
when you are casting some aspersions on the people that as
Chairman of this Committee I rely on more than anybody else,
and that is the General Accounting Office and the Inspector
General, so I would be glad to debate this with you, but I
thought you asked to be recognized in order to respond to
Senator Allard.
Senator Kerry. I also said, Mr. Chairman, if I could just
say, I did not have the opportunity to have an opening----
The Chairman. We have to go with the regular order of the
appearance of Senators and Senator Wyden was here before you
were.
Senator Kerry. Are we going to have openings, Mr. Chairman?
The Chairman. No. I have deviated from the normal procedure
so that you could respond to Senator Allard. I am glad to hear
that. If you would like to then wait your turn and have an
opening statement----
Senator Kerry. Unfortunately I cannot be here.
The Chairman. Unfortunately I cannot account for your
personal schedule, but we have to go with the rules of the
Committee.
Senator Kerry. Mr. Chairman, fine, I will abide by the
rules of the Committee and submit a statement for the record.
[The prepared statement of Senator Kerry follows:]
Prepared Statement of Hon. John Kerry, U.S. Senator from Massachusetts
Mr. Chairman, thank you for holding this hearing today. I think we
have a good opportunity to learn that Amtrak is doing well, and remains
firmly on its glide path toward operating self-sufficiency. As you well
know, in 1997, we negotiated, we reached a compromise, and every member
of the United States Senate agreed, by unanimous consent, to provide
Amtrak with certain legislative relief and certain amounts of capital
funding. In turn, we demanded that Amtrak become operationally self
sufficient by the end of fiscal year 2002.
Amtrak will testify that for FY 2000, it will require no more than
the planned $362 million in federal support for operating expenses,
which is $122 million less than last year. Now, I want to make sure
something is very clear. Amtrak will fall short of the revenue it
estimated in its strategic business plan. Amtrak is like any other
business that will occasionally fall short of the estimated revenue. If
we expect Amtrak to run like a private company, we have to expect that
occasionally they will suffer setbacks. Mr. Chairman, one of the most
respected high technology companies in the country, Intel, just
announced that it would not achieve the revenue it predicted earlier in
the year. These are normal setbacks that occur in any business, and in
this case, such setbacks in no way suggest that Amtrak is not going to
satisfy its target date for operational self-sufficiency.
More importantly, Amtrak will also testify that it just had its
best summer ever, breaking revenue records and showing steady increases
in ridership. It's also seen good results from its new satisfaction
guarantee--with 995 customers out of 1000 satisfied with Amtrak's
service. Mr. Chairman, I think it is very safe to say that none of our
domestic air carriers have a 99.5 percent rate of customer
satisfaction. We should be very satisfied with these results.
Nevertheless, while I feel confident that Amtrak will be able to
achieve operational self-sufficiency, we still need to do more to
ensure that Amtrak has the capital it needs to provide the services its
customers demand. I was proud to be an original cosponsor of an
outstanding piece of legislation my friend Senator Lautenberg
introduced, the High Speed Rail Investment Act, which addresses those
needs. There is no shortage of supporters for this bill. In addition to
the 54 cosponsors in the Senate, we have endorsements from state
governments across the country, editorial boards from California, to
Pennsylvania to Texas, and organizations from the Sierra Club to Morgan
Stanley.
I hope this bill becomes law this year, because this country needs
to develop a comprehensive national transportation policy for the 2lst
Century. So far, Congress has failed to address this vital issue. What
we have is an ad hoc, disjointed policy that focuses on roads and air
to the detriment of rail. The minuscule amount we spend on rail
compared to other countries is unconscionable. In 1995, only 4
countries, Tunisia, Hungary, Saudi Arabia and Bulgaria spent less than
the US on rail. The amount of federal money spent on aviation in Fiscal
Year 2000 is almost ten times what was spent on passenger rail, and the
amounts spent on highways almost thirty times as much. Mr. Chairman, if
we want one answer as to why our highways are so crowded and our
skyways have become just as grid-locked, I think we can turn to the
appallingly low level of attention the United States Congress has given
to passenger rail. Because of our neglect, people simply cannot use
rail to the extent they want to, or should be able to, and are
therefore flying or driving on short trips that could and should be
taken by train.
Mr. Chairman, I want to address an additional issue which I believe
the witnesses may raise today. There has been some attention given to
Amtrak's contract with the Massachusetts Bay Transportation Authority
for commuter rail maintenance services. Amtrak has been criticized for
entering a 3-year contract, and has even been encouraged by members of
the United States Senate to shorten the length of the contract. I find
it ironic that some individuals who want Amtrak to run more like a
business would tell them to enter a contract that would be bad for
Amtrak's bottom line.
The extended contract between the MBTA and Amtrak was necessary
because the MBTA and Bay State Transit Services were unsuccessful in
their attempts to avoid federal labor responsibilities, break the
unions that represent the maintenance workers and threaten individual
maintenance workers into wage and benefit cuts. Because of these
actions, Bay State Transit Services could not find any qualified
workers to perform the maintenance work to comply with their MBTA
contract. Because Bay State was unable to fulfill its contract, the
MBTA asked Amtrak to accept an extension. Only Amtrak was in a position
to provide commuter rail maintenance services after that date.
The problems that the MBTA has endured in their attempts to
contract out the commuter rail maintenance contract were simply due to
their own attempts to avoid compliance with existing federal labor
responsibilities. The framework that the federal government, transit
agencies and unions have successfully used over the past generation,
called ``Section 13 C,'' has preserved transit workers' collective
bargaining rights, established sensible rules for negotiations between
unions and management, and has preserved the rights of employees who
have been adversely affected by changes in the industry. The results of
this partnership are clear. Americans now travel more than 38 billion
miles on mass transit each year. More than 10 million Americans use
mass transit for their daily commute. This growth in mass transit would
not have been possible without stable relationship between the unions,
transit agencies and the federal government. Future growth in mass
transit would be imperiled without this framework--and I am personally
committed to preserving the fairness in the transit marketplace that
has made that growth possible.
Mr. Chairman, Amtrak is making great strides in moving toward
operational self-sufficiency and running more like a business. Congress
should not undercut the progress that has been made so far and should
give Amtrak the tools it needs to continue moving in the right
direction.
I look forward to hearing from the witnesses.
The Chairman. Thank you very much.
Mayor Kaine.
STATEMENT OF HON. TIMOTHY M. KAINE, MAYOR OF
RICHMOND, VA, ON BEHALF OF THE U.S. CONFERENCE OF MAYORS,
BOISE, ID
Mr. Kaine. Thank you, Mr. Chairman. My name is Tim Kaine. I
am the mayor of Richmond, Virginia. I am pleased to be here
today on behalf of the United States Conference of Mayors,
which is the bipartisan organization representing 1,100 cities
and the mayors of those cities whose populations exceed 30,000.
I also speak on behalf of Mayor Pat Owens of Grand Forks,
North Dakota. There was a reference earlier to why would Grand
Forks, North Dakota, support this bill, they must have been
promised something. They initiated their support of this bill
because they are on a feeder passenger rail line to Chicago.
They were not arm-twisted to do so.
I would like to tell you briefly why passenger rail matters
greatly to America's cities, and why America's mayors strongly
support Senate bill 1900. All of you, I know, recognize the
growing problem that the country faces as a result of gridlock
on our highways and winglock in the air. My 100-mile drive from
Richmond this morning took me more than 3 hours.
We have all experienced delays and frustrations that
travelers experience in today's overstressed transportation
systems, but I would like you to know that we mayors, in
addition to experiencing it personally, also have a really
critical stake in this transportation issue. It is one of our
major preoccupations. That is because we own and operate,
together with our county counterparts, nearly all of the
airports in the United States, with our county partners we own
and operate about 80 percent of the road system in the United
States, and either with county counterparts or in regional
agencies we own and operate more than 90 percent of the
Nation's transit systems, buses, subways, light rails and
trolleys.
With this stake in the ownership of these critical
transportation venues, mayors from across the Nation and also
including a vocal public believe that our future transportation
investment decisions must increasingly emphasize passenger
rail, and particular intercity passenger rail service. It is an
undeniable fact that voters are also coming to this conclusion.
This is why mayors are now saying it is time to take the
next step in national transportation policy and restore a
balance to our system. We believe this is accomplished by
building a third leg to accompany the federal investments in
airports and highways to promote this national rail service
that can connect in a high-speed fashion between our
metropolitan economies.
At the Mayors Conference we have begun to focus on
identifying the critical elements of a rail policy for the
Nation for this new century, and we are trying to look at ways
the Nation can reverse a couple of generations of neglect and
inattention to the rail infrastructure both for passenger and
for freight needs.
Just 10 days ago in Boise, I joined with more than 50 of my
colleagues from around the Nation at the conference's fall
leadership meeting. The conference's president, Brent Coles of
Boise, Idaho, dedicated a significant portion of this mayors
leadership agenda to the issue of rail in America, and the need
for additional investment in our infrastructure.
In preparing for these sessions, we looked at what is
happening throughout the United States. For example, today in
47 of the 50 largest metropolitan economies there is either
plans or construction of new rail projects, be they
regionalized or localized. These projects are most commonly
light rail or commuter rail projects.
To put these in perspective, I would note that these 50
metro economies account for over 53 percent of the Nation's
total economic output, and around the country totally the
number of rail starts for projects is astounding, with more
than 200 projects underway and another 200 contemplated in more
than 30 States.
Local areas are now committing billions of local dollars to
rail projects, which makes us all the more concerned about the
vitality and strength of the intercity passenger rail linkage.
These local rail projects with local bus and intercity bus
connections will link passengers to a national rail network and
vice versa to form a more seamless transportation system.
Again, what is noteworthy about these programs is the
extent of the local investment, which exceeds 50 percent in
many of the projects, and shows the level of local commitment.
Clearly--we talked about at the mayors' conference this
``railvolution'' that is now underway in America's cities, and
it is largely being driven on a local level. Increasingly,
there is an emerging consensus among the mayors that this
investment in intercity linkage between these local systems can
help us achieve important social objectives, not only economic
development, but improve mobility and choice, cleaner air, and
smarter growth.
Mr. Chairman, the Nation's mayors have no choice but to
focus most of our efforts on the local problems and issues, but
we see a powerful linkage between a strong Amtrak, a growing
national intercity passenger system, and the long-term
viability of our local economies. That is why America's mayors
have made this rail system restoration in Senate bill 1900 a
top priority.
To put it simply, we are enthusiastic about high-speed
rail. We believe that, when fully funded, high-speed rail
partnerships that have been formed between Amtrak and some 28
State already will spark a revolution in the 21st Century
transportation. High-speed rail will boost the economy's
productivity, increase safety, create jobs, and enable our
highways and airports to fulfill their potential better, and by
connecting downtown business centers served by rail it will
help local officials to use high-speed rail and other
investments to grow smarter in their regions.
In conversations with our European counterparts, we have
been impressed by their accounts of how high-speed rail has
helped revitalize their metropolitan economies. We are
convinced that high-speed rail will make a big difference to
America's cities as well.
I cannot let the occasion pass, in conclusion, without
commenting briefly on the strong partnerships between the
cities and Amtrak. Today, Amtrak serves 45 of our Nation's 50
largest metropolitan economies, and we see real efforts by
Amtrak to work in partnership with local areas. In Richmond,
for example, Amtrak has committed to restoring train service to
downtown Richmond, a train service that had moved into the
suburbs 20 years ago. That is being done in concert not only
with our city, but also with our Commonwealth of Virginia.
We see positive trends on revenue and ridership. We are
excited about the Acela service which is promised for Richmond
and points immediately south of Washington. Thank goodness
North America is finally joining the rest of the industrialized
world in deploying high-speed trains.
As I know you have gathered from my comments, I believe
that the future is bright for rail passenger service in
America, but it will take more energy, more commitment, and
more investment to deliver the services that the public
expects. Most importantly, a balanced transportation system
requires you and your colleagues support Senate bill 1900.
Mr. Chairman, again I would like to thank you and the
Members of the Committee for allowing me to appear today. I
know reference has been made earlier to the endorsements that
have been received by Amtrak for Senate bill 1900, and if they
have not been offered, I would like the permission of the chair
to go ahead and offer these to the Committee.
The Chairman. Without objection, they will be included in
the record if you like, Mayor Kaine.
Mr. Kaine. Thank you. I appreciate that.
[The prepared statement of Mr. Kaine follows:]
Prepared Statement of Hon. Timothy M. Kaine, Mayor of Richmond, VA, on
Behalf of the U.S. Conference of Mayors, Boise, ID
Mr. Chairman and Members of the Committee.
I am Timothy Kaine, Mayor of Richmond, Virginia.
I am pleased to appear here today on behalf of The United States
Conference of Mayors, a national bipartisan organization representing
mayors of the more than 1,100 cities with a population of 30,000 or
more.
I'd like to tell you, very briefly, why passenger rail matters
greatly to our cities, and why America's mayors strongly support
passage of the High Speed Rail Investment Act, S. 1900.
All of you, I'm sure, recognize the growing problems our country
faces as a result of gridlock on our highways and ``winglock'' at our
airports.
All of us have experienced the delays and frustrations associated
with our nation's overstressed transportation systems.
But I'd like all the distinguished Members of this Committee to
know that we mayors don't just read about these transportation
challenges in the newspapers--and we don't just experience it
occasionally. We live it every single day. It's one of our major
preoccupations.
That's because we own and operate many of the nation's airports--
and with counties, nearly all of them.
With our county partners, we own and operate more than 80 percent
of America's highways and streets.
And, locally or in regional agencies, we own and operate more than
90 percent of the nation's transit systems--buses, subways, light rail
and trolleys.
Because we're on the front lines of America's transportation
systems, we can't just sit around and wait for others to solve our
problems. We have to take the initiative, and must confront these
challenges.
Yet, we know that to be successful, we must have partnerships to
help move resources to where they are needed.
Mayors from all across the nation, and many others, including a
growing and more vocal public, believe that our future transportation
investment decisions must increasingly emphasize passenger rail. It is
an undeniable fact that the voter is becoming more frustrated with
their transportation options.
And, Mr. Chairman and Members of this Committee, I am sure that you
would agree that the mayors are particularly attuned to this
disenchantment.
This is why mayors are saying that now is the time to take the next
step in national transportation policy and restore balance and vigor to
our national system. We believe this can be accomplished by building
the third leg of the stool: a national rail system that connects
between and within our metropolitan economies.
At the mayors' Conference, we have begun to focus on identifying
some of the critical elements of a rail policy for the nation as we
enter this new century. And, to look at ways this nation can reverse a
couple of generations of neglect and inattention to our nation's rail
infrastructure, both for passenger and freight needs.
Earlier this month in Boise, I joined with more than 50 of my
colleagues from all across the country at the Conference's Leadership
Meeting. The Conference's President, H. Brent Coles, the Mayor of
Boise, dedicated a significant portion of our agenda to the issue of
rail in America and the need for additional investment in this
infrastructure.
In preparing for these sessions, we looked at what is happening in
throughout the U.S. For example, today, 47 of the 50 largest
metropolitan economies are either planning or constructing new rail
projects, be it regionwide or more localized systems. These projects
are most commonly light rail or commuter rail projects.
To put these areas in perspective, I would note that these 50 metro
economies account for more than 53 percent of our nation's total
economic output.
And around the country, the total number of rail starts is
astounding, with more than 200 projects--and potentially up to 400--in
more than 30 states.
Local areas are now committing billions of dollars to local rail
projects, which makes us all the more concerned about the vitality and
strength of the nation's intercity passenger rail system. These local
rail projects, with their local bus and intercity bus connections, will
link passengers to a national rail network, and vice versa, to form a
more seamless transportation system.
And what's most noteworthy about these investments is the local
share of the ``new start'' projects--which, on average, now exceeds 50
percent, showing the level of local commitment to rail investment.
Clearly, there is what we call a ``railvolution'' that is now
underway in America's cities--and it's locally, not federally, driven.
All across America, our voters are demanding more choice and more
balance in their transportation systems. More voices--and not just
mayors and transit backers--are calling for an expanded national
commitment to rail investment.
And, increasingly, there is an emerging consensus that such
investment can also help us achieve important social objectives. These
include improved mobility and choice, cleaner air and smarter growth.
Mr. Chairman, the nation's mayors have no choice but to focus most
of their efforts on local problems and issues. But we also realize that
our urban transportation systems are part of a larger network. What the
poet John Donne said--``No man is an island, entire of itself''--
definitely holds true of our cities and their transportation systems,
as well.
We see a powerful linkage between a strong Amtrak, a growing
national inter-city passenger rail system, and the long-term viability
of our local and metropolitan economies.
That's why America's mayors have made ``rail system restoration'' a
top priority, and strongly support the High Speed Rail Investment Act,
S. 1900.
To put it simply, we mayors are enthusiastic about high-speed rail.
We believe that, when fully-funded, the high-speed rail partnerships
that have been formed between Amtrak and some 28 states will spark a
revolution in 21st century transportation.
High-speed rail will boost our economy's productivity, increase
safety, create jobs, and enable our highways and airports to fulfill
their potential.
And by connecting downtown business centers served by rail, it will
help local officials to use high-speed rail and other investments to
grow smarter in their regions.
In conversations with our European counterparts, we have been
impressed by their accounts of how high speed rail has helped
revitalize their communities. We're convinced that high-speed rail will
make a big difference to America's cities, as well.
Mr. Chairman, I cannot let this occasion pass without commenting on
the strong partnerships between our cities and Amtrak.
Today, Amtrak already serves 45 of our nation's 50 largest
metropolitan economies. And, we see real efforts by Amtrak to work in
partnership with local areas.
We see positive trends on revenue and ridership. And frankly, we're
excited--very excited--about the Acela service. Thank goodness North
America is finally joining the rest of the industrialized world in
deploying high-speed trains!
Mr. Chairman, as I'm sure you've already gathered from my remarks,
I believe the future is bright for passenger rail in America. But it
will take more energy, more commitment and more investment to deliver
the services that the public expects.
And, most importantly, a balanced transportation system will
require that you and your distinguished colleagues support S. 1900.
Mr. Chairman, once again I'd like to thank you, and the Members of
this Committee, for the opportunity to appear before you today.
The Chairman. Thank you for being here, and thank you for
your stewardship of what is one of the most beautiful cities of
America. I enjoyed very much visiting there.
Mr. Kaine. We would love to have you any time.
The Chairman. Thank you, mayor.
Before I begin my questioning, I would like to put this in
the context of the concerns of some Members of this Committee.
Amtrak was established in 1971. Within 2 years it was going to
be self-sufficient. We have spent $23 billion, and again we
enacted legislation a short time ago that was again going to
free it of all federal subsistence.
There is an argument that can be made that was alluded to
by Governor Thompson and other witnesses that perhaps we should
have a federally subsidized railroad system in America. I think
that debate should be held, but we have the 2 most respected
arms of government, at least from this Chairman's point of
view, the Inspector General of the Department of Transportation
and the General Accounting Office who cast serious, serious
doubts on our ability, on Amtrak's ability to achieve the
independence that we were assured of when we passed the last
bill out, and now another $10 billion is going to be requested
to continue what I view as continued subsidization of Amtrak.
I think we should decide either that we will have a
federally supported, federal tax dollars even if Amtrak does
not run through Arizona any more, or it certainly does not stop
there, and for the good of the country my taxpayers should
continue to spend their dollars and guarantee billions of
dollars worth of bonds, or we should face up to the fact that
it is unlikely, at least in the view of the General Accounting
Office and the Department of Transportation Inspector General
and me that it is very unlikely that financial, true financial
independence can be achieved in the timeframe which we were
guaranteed just a couple of short years ago in return for
another bail-out.
I have forgotten what number bail-out this is since 1971,
but it totals to $23 billion since the Congress and the
American people were assured in 1971 that there would be
financial independence. All these years later, nearly 30 years
later, and $23 billion later, it is understandable why some
members might be a little cynical about the latest rounds of
assurances.
Mr. Carmichael, Governor Thompson, Mr. Warrington, you
should be free to weigh in. Do you intend to take any action on
the Inspector General's recommendations?
Governor Thompson. Mr. Chairman, if I might, first if I
could respond to your proposition, we have only been in
existence 18 months, the new Amtrak Reform Board. Granted, it
has been in existence for 29 years. Granted, we have got $23
billion at the same time that highways are getting $33 billion
a year, airports are getting $14 billion a year.
The Chairman. In all due respect, Governor Thompson, I
tried to frame this discussion that there can be an argument,
which you are making, for federal subsidization.
Governor Thompson. I am not making an argument. I would
just like to finish if I might, Mr. Chairman--and $6 billion
for mass transit.
When the Reform Board was set up, we were supposed to be
authorized about $925 million a year. We have been receiving
about $521 million, a little over half of what the authorizers
said we should have in order to be self-sufficient. We still
developed a glide path, Mr. Chairman, and every year we are
going down.
When we started we had a fiscal year infusion of $484, this
year $362 million. Next year it is $242 million, the following
year it is $189 million, and thereafter we will be, except for
the excess retirement aid, which is an obligation that Congress
has put upon us and said it would not be included in the
operation, we are on that glide path. We are going to make that
glide path.
Mr. Mead made some arguments about our previous business
plan. We went over those, and we have submitted a new business
plan, and the problem we had this year, we have been on that
business plan. The first year we made $500,000, the second year
it was $8 million, this year we are going to be under that. The
reason, we had assumed $150 million of high-speed Acela
express. We did not get them. We will be having the first train
sets shortly, within the next couple of weeks, and once we put
that system in we will make up what we lost this year, and I
can assure you we will be on self-sufficiency by the year 2003,
fiscal year 2003.
Now, saying that, without the capital, we never--I do not
know, I was not involved in the original thing, but capital is
something else. We do not have the capital to sustain a growth
industry in railroads.
The Chairman. Governor, I really appreciate your comments.
It is the custom in this Committee to answer the questions
posed by the Committee. I will repeat my question. What action
does the board intend to take on the IG's recommendations?
Governor Thompson. We took action last week at our board
meeting. We came in with a new business plan. We will submit
that business plan to Mr. Mead and to you. In fact, it has been
submitted to Mr. Mead, and that business plan takes care of the
suggestions he made.
The Chairman. I thank you. I thank you very much.
Mr. Carmichael, would you like to comment, or Mr.
Warrington, either one, in response to the question?
Mr. Warrington. Let me just say this, Senator. I personally
have tremendous respect for Phyllis and Ken in particular, and
I will tell you that Amtrak and our staff have worked very hard
to work very cooperatively with Ken and Phyllis to get all of
the facts out on the table, and during the first several years
of our existing business plan I will tell you that we met or
exceeded----
The Chairman. Again I would like to have an answer to the
question posed by the Chairman, quote, what action does the
board intend to take on the Inspector General's
recommendations? We have got to have the answers to the
questions by the witnesses here. Please, I ask all the
witnesses what action does the board intend to take on the
Inspector General's recommendations?
Mr. Warrington. Management made specific recommendations to
our board of directors, and the board of directors has adopted
significant updates and improvements and changes to last year's
plan, which is what Ken was working off of, to significantly,
reduce the number of undefined plan actions over the next 3
years that we need to achieve. Many have to do with expense.
Some have to do with revenue enhancements.
The Chairman. Thank you. Could you submit in writing for
the benefit of the Committee some of the actions that you have
taken in response?
Mr. Warrington. We will give you all the details, Mr.
Chairman.
The Chairman. Mr. Carmichael, would you like to respond?
Mr. Carmichael. I will try to, Mr. Chairman.
Ken's report, and in all of these 20-odd years of trying to
put together a national rail passenger system the report card
is pretty much in that we organized it wrong to start with and
it has not been able to accomplish many of the things Congress
wanted and that the public wants, and so I cannot help but feel
that we can sit here and talk about what to do with these
recommendations, but we have got to reorganize Amtrak so that
we know what it needs for a national operating system and we
also know what it needs for its infrastructure business.
I cannot see any of this information being relevant until
we reorganize the business itself, and you instructed us in the
creation of this Council that we were supposed to make
recommendations to help them be self-sufficient and if they
were not, then we were supposed to give you a reorganized plan
for the new national system. I just say right now, I do not
think they can cut $737 million worth of expenses that Ken was
talking about, not without doing some radical reorganization of
the corporation right now and coming back to Congress with 2
different requests for funds, one for the infrastructure and
one for the operating company, so I do not see any solution
right now until they do something like that.
The Chairman. That is very different from the way the
proposal was made to Congress when we passed the last
legislation, Mr. Carmichael, a very interesting departure.
Mr. Warrington, how many money-losing routes have been
cancelled since Amtrak received the authority to make its own
routing decisions?
Mr. Warrington. I do not recall that any significant route
reductions have occurred over the past 3 years.
The Chairman. Have any routes been canceled?
Mr. Warrington. I know routes have been canceled, although
our network growth strategy plan, which we unveiled on February
1, did include a significant number of modifications and
reroutes to tap into new markets both for passenger business as
well as mail and express business.
The Chairman. As part of the Taxpayer Relief Act of 1997,
Amtrak received $2.2 billion to make capital improvements and
maintain Amtrak's equipment in intercity passenger rail
service. I remember the language very well.
A February report by the GAO said the Amtrak had spent
substantial amounts of this funding to cover its cash-flow
needs. These funds were actually spent on operating expenses,
but Amtrak contends it will repay these expenses. What is the
legal authority to borrow from the TRA funds, Mr. Warrington?
Mr. Warrington. We do have legal authority to borrow from
the TRA, and over the course of the past, I guess, 2\1/2\ or 3
years it has been very clearly articulated in our annual
business plan and our 5-year plan, and we have repaid the TRA
on schedule as intended in the plan.
The Chairman. Mr. Mead, do you believe they have the legal
authority to borrow?
Mr. Mead. Yes, I do.
The Chairman. When does Amtrak expect to stop using TRA
funds, Mr. Warrington?
Mr. Warrington. The board of directors last week approved
not only our business plan, which deals with many of the issues
that Ken has raised, but also our capital plan as a piece of
that, and we would expect by the end of this next upcoming
fiscal year that all of the TRA funds, the large majority of
those funds will have been programmed or expended.
The Chairman. How much money did Amtrak spend in support of
the recent political conventions?
Mr. Warrington. I do not recall spending any money directly
in support of the recent conventions. What we did do, which we
do with many conventions across the country, is work with
visitor and convention bureaus around discounts and promotions
related to convention users accessing the sites by train. We
did that in both Los Angeles and Philadelphia, but that is a
common practice with all conventions in large cities across
America, and it is a major revenue-raiser for us.
The Chairman. A recent Wall Street Journal article written
by Mr. Jeffrey Krassner writes that he tried to verify Amtrak's
claims about its on-time performance in the Boston-New York
market. He said when he asked Amtrak for this data, Amtrak
spokesmen told him the data was proprietary. How in the world
could on-time performance be proprietary?
Mr. Warrington. It is not. I have no idea what that means,
and we are very public and very open about the on-time
performance of every one of our trains.
The Chairman. I thank you.
Governor Thompson and Mr. Carmichael, the House companion
bill to S. 1900 includes a provision that reaffirms that any
Amtrak-issued bonds are backed by Amtrak only, not the U.S.
Treasury. Such a provision would uphold current law, which
according to 2 rulings by the Comptroller-General, the federal
government is not liable for any of Amtrak's corporate
obligations. Does the proposal you are working on with the
Finance Committee include a similar provision?
Governor Thompson. We are all in favor of it, Mr. Chairman.
We have no opposition to that.
The Chairman. Mr. Carmichael.
Mr. Carmichael. I would like to ask Mr. Mates, our
economist, to comment on that.
Mr. Mates. The majority of the Members of the Amtrak Reform
Council support the freedom of other institutions to also issue
bonds.
The Chairman. Thank you.
Ms. Scheinberg, Mr. Mead argues that it would require about
double the $10 billion in bonding that may be achieved through
S. 1900 if these requests that Mayor Kaine, or these proposals
that Mayor Kaine wanted included in the record, is that a fair
estimate, $20 billion as opposed to the $10 billion they are
seeking now?
Ms. Scheinberg. The problem, Mr. Chairman, is that nobody
knows what the number is. We asked Amtrak that specific
question, how much would it cost to develop these high-speed
corridors around the country, and Amtrak could not give us an
answer. I think $20 billion is a low number. It could be any
number. Until people have an estimate, it is pretty hard to say
what S. 1900 is going to accomplish.
The Chairman. Go ahead, Mr. Carmichael.
Mr. Carmichael. I produced a table called Interstate II. We
have one interstate system out here that is about 50 miles an
hour, and in this country it has an opportunity for a second
interstate system.
I was involved back in 1989 to 1992 in the creation of
these new 5 high-speed corridors that were introduced in 1991.
We have a 43,000 mile interstate system across the country. It
is very possible we could have a 20-something thousand miles
intercity corridor system across the country. I would say to
build a 20-something thousand miles interstate II high speed
trains is going to cost several hundred billion dollars, and it
is the type of thing, do we want it? These mayors seem to be
saying they do want it.
We are so hung-up on Amtrak's failure to achieve what it
has done that we are missing the point of what may be evolving
here. There may be an opportunity now for a new surface
transportation high-speed system across this country, and the
corridors are emerging pretty fast. This $10-billion bond is
maybe a step in the right direction, but we hope to give you
some recommendations in January of how to fund a national rail
passenger system, and also how to fund the emerging interstate
high-speed systems.
It is evolving. Amtrak is excited about it and trying to do
it, but it needs to be approached in a different way.
The Chairman. And your estimate is several hundred billion
dollars?
Mr. Carmichael. That is right, for interstate II, high-
speed intercity rail network. The corridors are sitting out
there, beautiful corridors going right through the center of
all of our cities. The freight railroads are beginning to say,
we will work with you. They are doing it right here in Virginia
between Norfolk Southern and the State of Virginia, so the
stage is being set for this new interstate II system, and for
this new high-speed corridor system.
The question is, who is going to help build it? The State
DOT's are getting excited about it, and they want to build it.
They built the old interstate system, and they are beginning to
see the opportunity for building this other one. We have got to
figure out how to fund it, and I think the American people want
it and Congress is beginning to look at it.
The Chairman. Well, I believe the taxpayers should have a
better estimate than several hundred billion dollars, Mr.
Carmichael.
Mr. Carmichael. I agree with that. It is as big as the
interstate system.
The Chairman. Mr. Mead.
Mr. Mead. My point in saying $20 billion, that is a low-
ball, no doubt about it, was to put in context what is going on
here. S. 1900 is a $10-billion revenue bond package that goes
over a 10-year period, and it does not come close to covering
the demands that are going to be made.
With regard to that I would like to make 2 points. First,
there are roughly 10 corridors, high-speed corridors, already
designated in this country. There are another 8, which will
bring the total to 18 high-speed rail corridors in this
country. All those 18 will be competing for roughly that $1
billion per year. That is point 1.
Point 2 is Amtrak itself has extraordinary needs that are
not classifiable as high-speed rail. So what if S. 1900 is
passed, you should count on annual appropriations for Amtrak in
addition to the $1 billion in bonding authority per year, and
that number I would say would be in the neighborhood of $500
million to $700 million per year in annual appropriations. That
includes the excess retirement money that Governor Thompson was
speaking about.
The Chairman. Governor Thompson.
Governor Thompson. Thank you, Mr. Chairman. Three quick
points. First, I would like to introduce Governor Linwood
Holton, who is on the Amtrak board. He got here a little bit
late because he missed the on-time performance of our train. He
got to the train depot a few minutes late, and it had already
left, and I am happy that he is here.
The Chairman. Welcome, Governor.
Governor Thompson. First off, we are in the exercise right
now, Mr. Chairman and members, of putting together a 5-year
capital plan. We have been working on that for well over a
year. We should have that completely developed, I would say, in
the next 3 to 4 months. Second, the $1 billion in S. 1900 is
for high-speed corridors, the 4 high-speed corridors. Ken Mead
is absolutely correct, if there are more high-speed corridors
it is going to take more money, but we think we can do what is
necessary to get the 4 high-speed corridors up with $1 billion
a year.
On top of that, we need other capital needs, there is no
question about that, and $500 million to $700 million is an
appropriate figure by Ken Mead. We are going to get most of
that money from the high-speed things, but we are hoping that
Congress will also recognize the need, if we want to develop
the kind of railroad, national railroad system that is going to
be profitable and is going to be successful we need to infuse
capital.
Our biggest problem has been the old equipment and trackage
that does not warrant the kind of speeds that we would like to
be able to put on them, and so we are improving our equipment,
we are using all business techniques in order to do that, and
we are doing a much better job than ever before of improving
the equipment and the trackage, but capital is badly needed.
The Chairman. I appreciate very much the job you are doing,
and the job Mr. Carmichael is doing, and the job Mr. Warrington
is doing. The problem that I have again is--and maybe it is a
problem with being here too long--You keep coming back; and
every time, this is it, it is over, this is all we need. The
last legislation we passed, by 2002, it is over. You are
finished. That was the promise in 1971. Here we are, 29 years
later. That is the problem.
I do not know if we would have passed the legislation last
time if we had had the same testimony that we have today,
several hundred billion dollars, at least $500 million, or $700
million for the next X number of years.
I just think that Americans--and you make a strong
argument, Mr. Carmichael, for high-speed rail corridors to
relieve congestion--anybody who has tried to get on an airplane
or has been stuck in traffic lately, recognizes, particularly
out in the West Coast, as well as the East Coast, we need to
have some kind of finite, definitive answer as to what is going
to be needed, and then we can make an informed decision.
No one expected, 2 years after passage, or 3 years after
passage of the legislation, another $10 billion in bonding. I
certainly did not expect it. Certainly it was never mentioned
in testimony before this Committee when we did the bill. Please
respond, and then I would like to go to Senator Wyden, or if
both of you would like to respond, go ahead, Governor.
Governor Thompson. Mr. Chairman, I was not here when it
passed.
The Chairman. I understand, but I was.
Governor Thompson. I understand, and I accept your premise.
All of the people that I have talked to on previous boards and
previous management said there was never any indication that
this was going to be for all the capital. Capital was separate.
This is operationally self-sufficient.
Now, we can argue about that, and I do not want to argue
about it, but that is basically the position taken by Amtrak.
We need capital.
The second point is, is the authorizer said we were going
to get about $984 million. We have been getting about $521
million. We are getting about half of what we expected under
reauthorization.
The Chairman. I would just like to mention real quick I am
told the administration proposed that and Amtrak said that is
fine.
Governor Thompson. Well, that was fine operationally, but
not with capital, and that was the difference. We have always
been, and we are so close. We are on the cusp of making it
operationally, but we never said we could make it without
infusion of capital. We will be able to make 2003 if 1900 does
not pass. We are going to make it, but we are not going to have
much left over after that. We are not going to have a new
railroad. We are not going to be able to have the high speeds.
We need the capital in order to grow and be able to deliver to
you, Mr. Chairman, the kind of railroad you want and America
wants.
The Chairman. I thank you. I have got to go to Senator
Wyden. Can I ask Mr. Carmichael to respond briefly, and then I
will go to Senator Wyden.
Mr. Carmichael. Senator, I apologize, but I believe it fits
in here correctly. We have got 2 things that are confusing
this. One, Amtrak's core business, its core business now is
running passenger trains with mail and express on a national
system from Boston to San Diego. That is its core business.
The Council would like to know how much capital and money
does Amtrak need for its core business. Now, we are confusing
something else with this, this infrastructure development.
These other corridors that are evolving, they need capital from
a different direction and different source, and who is going to
build them, and who is going to be in charge of them and have
responsibility?
So in my mind, as chairman of the Amtrak Reform Council, I
want Amtrak to concentrate on its core business, and I hope my
Council will recommend in January a different funding mechanism
for these corridors. The corridors are not capital they need.
They need capital for the system.
The Chairman. We will have another hearing in January as
soon as you all finish your reports, and perhaps we can get a
better handle on the situation then.
Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman, and Mr. Warrington
I want to walk through with you the situation in Eastern
Oregon, because it illustrates in my view how you continue to
play politics with the way these routes are determined, and I
want to go very carefully through it, because I find this very
troubling, as somebody who has supported Amtrak for 20 years in
both the House and the Senate, and sits here this morning,
frankly, and finds himself agreeing with much of what the
Chairman has said, so I am going to go through this very
carefully with you.
In May 1998 the GAO issued a report on the financial
performance of the Amtrak routes. What this report essentially
showed is that the decision to end the Pioneer in Eastern
Oregon in May 1997 was not a decision based solely on financial
performance. Governor Thompson sat at that witness table at the
last hearing and he agreed with that. He said the GAO was
correct, that that was not a decision based on the merits.
Mr. Chairman, I would ask the statement of Mr. Coston be
made a part of the record.
The Chairman. Without objection.
[The information referred to follows:]
Prepared Statement of James E. Coston, Attorney, Chicago, IL
Federal Infrastructure Funding: the Key to Success for Railroad
Passenger Service
Mr. Chairman, my name is James E. Coston. I am a former Amtrak
employee, and between 1980 and 1986 I was the manager of an excursion-
train and rail-travel business that was Amtrak's biggest customer. At
this time I am an attorney residing and practicing in Chicago,
Illinois. On April 4 of this year I was appointed by Senator Daschle to
the Amtrak Reform Council. My testimony today represents my personal
views as a passenger-rail advocate and should not be construed as
reflecting the thinking of the Council, its staff or any of its
individual members.
I would like to comment briefly--and, I hope, constructively--on
the Inspector General's report that we have been discussing this
morning.
The Inspector General has disclosed publicly what most fair-minded
and informed passenger-rail advocates have been discussing privately
for some time: that Amtrak's capitalization, cash flow and expenses
make it extremely difficult for this company to achieve the financial
break-even which the 1997 Amtrak Reform and Accountability Act mandates
must occur by FY 2003. Amtrak does not have, and never has had, the
resources a business requires to perform such a feat. The 1997 Act's
insistence on break-even by 2003 amounted to an unfunded mandate: It
made stringent demands upon Amtrak, but it did not provide Amtrak--or
any other entity--with the resources that had to be there if those
demands were to be met.
Why did Congress hand Amtrak this ``Mission: impossible?''
I see two reasons:
First, in the closing days of 1997, many members of Congress were
angry at Amtrak's management for an ill-advised cost-control program
that needlessly eliminated train service in several parts of the
country and threatened losses of service in a number of others. The
Chicago-to-Portland Pioneer, which enabled tourists to view the Blue
Mountains of Oregon close up, was discontinued, even though Amtrak
managers knew that adding a single car of mail to each departure would
add enough revenue to keep the service operating. The Chicago-to-Los
Angeles Desert Wind was dropped at the same time, ending all Amtrak
service to Las Vegas and to the ski-resort country of southwestern
Utah.
As a Midwesterner I know that in early 1995 the states of
Wisconsin, Michigan and Illinois were forced to turn to their
legislatures for millions of dollars in additional subsidies just to
keep a token Amtrak corridor service running. Even with those subsidies
in place, fares had to be raised, causing ridership levels to plunge
after several years of healthy growth.
The effect on Amtrak's relations with Congress was close to
poisonous. In the closing days of 1997 Amtrak's board brought in a new
management which began to reverse course, but the damage was done:
Congress's understandable but unrealistic demands for reform were
embodied in law. Only in compliance with that law could Amtrak get on
with business.
Second, in 1997 the ``Contract with America'' was very much in the
air in Congress. There was a strong belief among many members that
railroad passenger service, along with other programs historically
provided by government, could be either privatized or forced into a
private-sector model under government ownership. Many members
apparently believed that of the 4 basic U.S. transportation modes--
highway, inland-waterway, air and rail--one, the rail mode, could
operate successfully by the rules of private-sector business while the
other three continued to enjoy seven decades of abundant infrastructure
funding from the federal government.
In forcing that private-sector model on Amtrak, the 105th Congress
compounded an error made by the 91st Congress when it created Amtrak
under the Rail Passenger Service Act of 1970.
The big mistake of the 1970 Act was to pretend that railroad
passenger service--uniquely in the transportation industry--could
survive and grow under the rules of private business. Congress never
made this demand on the nation's other transportation modes. Our
highways, inland waterways and civil aviation network all were
established and funded by government and continue to be supported by
massive government investment in their fixed infrastructure and their
traffic-control systems. In those modes, only the operation of the
common carriers is in the private sector. Government not only supplies
and owns the infrastructure, but makes sure as well that the
infrastructure is technologically state-of-the art so that the carriers
using it operate at the highest possible degree of efficiency and
financial performance. This is the meaning of the 3-year, $40-billion
funding package that Congress voted in March to enable the Federal
Aviation Administration to upgrade its air-traffic control system.
When it comes to intercity rail passenger service, however,
government is almost totally absent from funding of infrastructure and
is making only the faintest attempts to catch up. So while America
enjoys a 21st century highway system and a 21st century civil-aviation
network, its railroad tracks cannot support even a 1950s-level of
passenger service. In fact, in the state of Illinois we are just now
undertaking a set of state-sponsored track-and-signal improvements that
in 2 years will enable Amtrak's Chicago-St. Louis trains to reach 110
miles per hour. Yet the fact is that in 1936 passenger trains between
Chicago and the Twin Cities were streaking along at speeds as high as
115 miles per hour--behind steam locomotives!
Such are the absurdities that develop when government spends seven
decades funding three types of transportation infrastructure while
ignoring a fourth--and then attends to the fourth with too little too
late. Let me remind you that as of this date, Congress still has not
provided a funding mechanism that explicitly allocates a reliable
supply of dollars to the construction and improvement of intercity
railroad tracks and their command-and-control systems.
This is a scandalous omission in a nation obsessed with personal
mobility. All of the other modes of transportation have enjoyed
dedicated infrastructure funding for many decades:
Federal dollars for highways have been flowing since the
1921, when Congress made its first commitment to connecting up
the nation's cities with hard-surfaced roads .
Dedicated federal funding for barge canals, locks, dams and
navigation aids has been in place since 1917, when President
Wilson, using his wartime powers, seized the nation's tiny
barge and towboat fleet, established a government-owned barge
line and provided the first federal money for a long-term
program of waterway improvements.
Federal dollars for airports and air traffic-control systems
have been flowing since 1926, when President Coolidge
authorized the Commerce Department to erect beacons so pilots
could fly air mail safely at night.
There are federal dollars for urban and suburban mass-
transit systems, and those dollars have been flowing--some
might say trickling--since 1964, when President Johnson
realized that four decades of cheap federal capital for streets
and highways had left the privately owned transit systems and
commuter railroads with no means of modernizing or expanding
their services.
Yet intercity passenger rail technology, which holds the power to
free our nation from its airway and highway gridlock, still has no
dedicated infrastructure-funding mechanism of its own. Amtrak has a
small budget to operate and market its small fleet of trains and
receives periodic capital grants to upgrade the roughly 500 miles of
track it owns--most of it in the Northeast Corridor--but the
overwhelming majority of the trackage it uses is privately owned
freight infrastructure that is not built to passenger-train standards
and is in large part inadequate to handle even the freight traffic
thrust upon it.
Since the Congress has seen fit to impose a set of private-sector
business rules on passenger rail while lifting its competitors on the
strong arms of government, let me just share with you a couple of harsh
lessons that all private businesses understand.
Lesson number one: If a business is denied access to the capital
required to update its technology and make its product competitive, the
customers will not come. That has happened to Amtrak. Its trains are
too slow so its customers are too few. Its share of the travel market
is less than one per cent and dropping. Ridership growth is not strong
enough to replenish market share.
Lesson number two: Old technology costs more to operate than new
technology, so businesses forced to keep using old technology have
higher expenses than their state-of-the-art competitors. They spend
more and more to accomplish less and less. This too has happened to
Amtrak. This is why the Inspector General has pointed out that even
though Amtrak's revenues are rising, its costs are rising faster.
Amtrak's ``revenue gap'' is a direct result of its ``infrastructure
gap.''
One can only speculate how much more effective, efficient, busy and
profitable Amtrak would be if its Northeast Corridor infrastructure had
access to only a twentieth of the federal funding that has been
lavished since the 1930s on its Northeastern competitors: Reagan
National Airport, Baltimore-Washington International, Philadelphia
International, LaGuardia, Theodore H. Green and Logan airports, to say
nothing of the four decades of funding expended on Interstate 95 with
all of its incredibly expensive bridges, tunnels, interchanges and
feeder highways. Those facilities became efficient people movers
because those facilities were funded.
As long ago as 1992, Professor Paul Steven Dempsey of the
University of Denver estimated that our civil-aviation and highway
infrastructures each represented more than $1 trillion worth of
government investment at then current prices. The railroad
infrastructure of our country is worth nowhere near that sum. Thanks to
103 years of federal railroad regulation and 83 years of federal
capital investment in new infrastructures that compete with rail, the
U.S. railroad industry has been conducting a century-long going-out-of-
business sale. Double track has been converted to single track, high-
speed signal systems designed for passenger trains have been removed,
yards have been closed, stations demolished, platforms pulled up and
superelevated track that once permitted passenger trains to pass
through curves at 80 miles per hour has been leveled to accommodate
freight trains traveling at 40 miles per hour. Particularly in the 55
years since the end of World War II, the American railroad industry has
been managing for decline by downsizing its physical plant.
Today, the nation's eight-year economic boom has overwhelmed that
antiquated plant with freight traffic the railroads cannot handle.
Congested main lines and yards are blocking the progress of Amtrak
trains and freight trains alike. Even the nation's best railroad track,
Amtrak's Northeast Corridor, is basically an adaptation of an 1850s
steam-railroad alignment that was upgraded during the 1920s with grade
separations, in the 1930s with a partial electrification, and in the
late 1990s with electrification of the remaining 150 non-electrified
miles. Capital investment in the NEC has been inadequate, intermittent
and subject to interminable debate, while capital investment in the
parallel highway and civil-aviation systems has been lavish, Continuous
and unquestioned.
I know that some Members of this Committee may be under the
impression that Amtrak too has benefitted from federal infrastructure
investment and will benefit further if Senator Lautenberg's High Speed
Rail Investment Act is signed into law.
That is true as far as it goes, but it simply doesn't go far
enough. The fact is, the passenger-railroad infrastructure in this
country, like the freight-railroad infrastructure on which most of
Amtrak's passenger trains run, has been capital-starved for the better
part of a century now and is desperately trying to play catch-up
against competitors that were given a huge head-start. Senator
Lautenberg's bill, while well intentioned, is a drop in the bucket--a
pathetic $10 billion stretched over 10 years. It barely acknowledges
that the railroad infrastructure problem exists--and Senator Lautenberg
is supposed to be one of Amtrak's biggest supporters!
I don't want to sound like a Pollyanna, but it almost looks as if
Amtrak's best supporter now is the Inspector General: He's the only one
who's had the intestinal fortitude to get up in front of Congress and
tell the truth: You can't run efficient, effective, popular, profitable
trains on an obsolete, inadequate infrastructure. You can't sell from
an empty wagon.
Let me close with this thought: If today's airlines tried to move
today's passenger volume using the airports and control towers and
radar systems of 1955, the Inspector General would be writing about
that industry the way he has just written about Amtrak.
And if today's motor carriers tried to move their 48-foot and 53-
foot trailers of merchandise at 80 miles per hour down the 2-lane
highways of 1955, that industry too would be the subject of a
blistering IG report and some very embarrassing congressional hearings.
Knowing that, should we really pretend to be astonished that our
1955-style passenger rail system is delivering inadequate financial
performance?
I challenge the ladies and gentlemen of this distinguished
Committee to revisit the subject of America's railroad passenger
service not just in a critical light, but in a historical light.
I challenge Congress to trace the problem back to its origins--a
70-year failure to capitalize an effective passenger railroad
infrastructure while highways, waterways and airways held a toga party
with the federal budget.
And I challenge Congress and the administration not just to trace
the problem, but to face the problem, by bringing rail passenger
service into the big tent of federal infrastructure financing along
with the highways, the waterways and the airways. Our passenger rail
system has to look more like America. It has to look more like a
federal transportation program and less like a 19th century railroad
trying vainly to finance its infrastructure out of its own earnings.
Rail passenger service will not survive, will not grow, will not
exploit the full potential of its technology, and will not make its
full contribution to the national mobility until it is financed by the
federal government at the infrastructure level--as its competitors have
been for 70 years.
Mr. Chairman, as a resident of Chicago who flies more than 50,000
miles a year on business, I am acutely aware of the anguish experienced
by the hundreds of thousands of travelers who were stranded at O'Hare
this summer. As a frequent visitor to Washington, New York and the West
Coast, I have frequently found myself cooling my heels in their airline
terminals or stuck in traffic trying to reach those terminals. Like
millions of other Americans, 1 have learned that our nation is
suffering a mobility emergency. And like an increasing number of
Americans, including the one who wrote this editorial called ``Speedier
Trains'' in last Thursday's New York Times, I know that a well planned,
well financed and well managed intercity passenger rail system can
alleviate our travel distress. No other industrialized nation is
suffering a mobility crisis like the one we are experiencing in the
United States. And the reason is that no other industrialized nation
has staked its citizens' mobility on air and highway travel alone. Rail
is the critical third component, and we have to stop neglecting it.
What we have to do now, Mr. Chairman, is identify the role
passenger rail should play in our national mobility system, and then
plan, fund and build the kind of passenger-rail infrastructure that
will enable our trains to play that role. Our passenger-train system
has to look more like America. It has to become a federal
transportation program with a predictable and dedicated federal funding
source.
Amtrak can be a successful common carrier, but not until it
achieves what the other common carriers have enjoyed for most of this
century: an up-to-date infrastructure financed by a dedicated federal
transportation infrastructure program.
It is time--way past time--for our railroad passenger service to
share fully in the federal infrastructure funding that has made the
other modes so successful. I hope that the members of the Senate
Commerce Committee will attend to that agenda in the next Session.
Thank you.
Senator Wyden. James Coston states, and I quote, ``the
Eastern Oregon train was needlessly eliminated.'' Those were
his words, and he goes on to say that it could have been
possible, by adding a single mail car, a single mail car, to
have turned this into one that would have been a cost-effective
run.
Now, a baggage car costs, according to my staff, $300,000.
I am not up on the exact cost of a mail car, but do you
disagree with what Mr. Coston has said, (a) that the train was
needlessly eliminated, which by the way was in line with what
Governor Thompson said, and that (b) this could have been
effective if a single mail car had been added? Do you disagree
with Mr. Coston?
Mr. Warrington. I frankly am not well-enough acquainted
with the facts about the economics of one express or mail car
on that train and the kind of difference it would make, and I
can confirm that subsequent to this, Senator, but my gut tells
me that one express car, whether it be a road, rail, or mail
car, probably would not make up the difference around the loss
that we would be talking about, around a reactivated service.
That is what my gut tells me, but I commit to you I will
certainly take a look at that, but that does not sound right to
me.
Senator Wyden. Well, I guess I find your answer troubling
as well because we have got a proven track record that your
agency has played politics with this train. The General
Accounting Office said it, Governor Thompson said it, the
Amtrak Reform Council said it and you come here and you say,
well, I will have to get back to you.
My constituents in Eastern Oregon pay a lot of tax dollars
for a national rail system, and you folks are basically saying
that if they want rail service in Eastern Oregon they ought to
go out and have a bunch of bake sales and see if they can put
it together.
I have got those little towns actually levying per-head
assessments in order to do their share to be part of the
reinvented Amtrak, and I guess my question to you is, when are
you going to stop playing politics with my constituents?
Mr. Warrington. I will be as straight as I can, Senator.
First of all, I do not play politics with trains. The
elimination of the Pioneer preceded me as the president of
Amtrak, and I cannot speak to what the basis was for that
decision.
I will tell you, though, that generally, in retrospect, all
of those eliminations back in 1995 and 1996 ended up costing
the company more in lost revenue than we were able to take out
in the way of expenses, given the fixed cost nature of the
operation. I can tell you that I have committed and we have
committed to look at all variations on a restored Pioneer, and
as a matter of fact we have concluded that the most promising
opportunity, as I think you know, is the Portland to Boise
section, which would have about a $6 million loss with
depreciation, about $4\1/2\ million a year loss without
depreciation, and we are very anxious to work with the States
of Oregon and Idaho to see if we can bring that service back,
but it will require contributions.
I will tell you, over the past 2 years this is a zero sum
game for Amtrak. We are under the gun. We have had a discussion
here all morning about achieving operating self-sufficiency,
and the pressure is on, and as a practical matter, given the
fact that it is a zero sum game, in the end we have to have
participation by more actors than just Amtrak and the U.S.
Congress.
Along those lines, frankly, over the past 3 years we have
doubled the level of support from States for the operation of
trains across this country from about $50 million a year to
almost $110 million a year. I am confident that if we continue
to work with the State of Oregon and the State of Idaho--I was
out at the U.S. Conference of Mayors meeting a week and a half
ago in Boise. There is incredible enthusiasm for that kind of a
service, and not unlike elsewhere around this country, there
are opportunities to do that.
I see Senator Hutchison here this morning. We had a similar
situation, back when the Pioneer was proposed for elimination,
on the Texas Eagle, and the State of Texas stepped up and
loaned Amtrak $5.1 or $5.2 million, and the service has really
turned around, and the contribution level from that service has
been extraordinarily positive, and looking forward, given mail
and express opportunities not only to Laredo but conceivably to
Monterey, it can be an extraordinary winner, but that was jump-
started in a time of crisis by Senator Hutchison and the State
of Texas.
Senator Wyden. Well, Mr. Chairman, I would like to get an
answer to the question. The GAO said you played politics.
Governor Thompson said the train should not have been
eliminated. The Amtrak Reform Council said it should not be
eliminated. Now you are saying that the only way the people of
Oregon are going to get a train is if they, the city and the
State legislature, come back with all the money. That is not
acceptable if this is to be a national rail system.
I am willing to make all these calls on the merits, and I
have told folks in Eastern Oregon that if a train does not
compute, if it does not compute, then that is the way it is,
and they have met you more than half-way by levying these per-
head assessments. We are going to go to the State legislature,
but I for one am not going to accept an approach that says,
essentially, after the train should not have been eliminated
and it was eliminated for political reasons, they should do all
the heavy lifting and the federal government should do nothing.
So I guess, you are on your way, and I guess maybe you all
are not very interested if you turn somebody who has been a
supporter of this agency for 20 years into somebody who is
going to continually, at every single opportunity, say it is
time to drain the politics out of the way you make these
routes.
I think it is very unfortunate, the way you are doing
business, and it is on your watch. It is one thing to talk
about what was done in the past, but it continues on your
watch.
Governor Thompson, did you want to add anything?
Governor Thompson. I do not know if I really want to get
involved in this. Senator Wyden, I think I said that I was not
here, and that may be true, and you may be more correct in
saying it. I do not know, I was not here. George Warrington was
not there.
I do know that we put in, I think, $600,000 in the study,
or 4 or 5 or $600,000 into a study with your office in Oregon
and Idaho. Our back is to the wall. We have to be able to be
cost-sufficient and all the experts tell us we are going to
lose $6 million with depreciation, $4\1/2\ million without, and
we are trying to figure out a way to come up with a solution,
Senator Wyden, for you and for your constituents in Eastern
Oregon.
Senator Wyden. Mr. Chairman, I want to finish with just one
point again. You were here saying that you agreed with the GAO
when the GAO said it should not have been eliminated, so that
is something you said, so now this is your watch, and to tell
my constituents again that they should do everything, that as
part of a national rail system people in Eastern Oregon send
dollars to Washington, D.C. and get nothing in return is
unacceptable, particularly absent some evidence that this does
not compute.
This area, as you know, Mr. Warrington, is being featured
in the New York Times constantly as one of the travel meccas of
the United States, and yet we have not been able to get you all
to even incorporate that into your analysis.
I know the light is on. Thank you, Mr. Chairman.
The Chairman. As usual, Senator Wyden, in your mild and
reticent manner you have made your point, I think very
forcefully.
[Laughter.]
The Chairman. Senator Hutchison.
Senator Hutchison. Well, Mr. Chairman, I feel like the
Texans at the Alamo at this hearing this morning. I just hope
the result is not the same.
Mr. Chairman, there is a lot of discussion about the past
with Amtrak and what was the thought in 1971 when it was
created, and what was the thought in 1997 when we had the
reform act that was passed, but let me say, in relationship to
what Governor Thompson has said, that operational self-
sufficiency is what we intended with the 1997 act. It would be
unrealistic to say, looking at any transportation system, that
capital is not going to be part of the starting up of a truly
Nation-wide transportation mode.
There is no question that multimodal transportation options
are good for all Americans. The citizens of Arizona are paying
for capital expenditures in the transit systems of New York and
Philadelphia and San Francisco, and we do not question----
The Chairman. And Phoenix and Tucson.
Senator Hutchison. But we do not question that more goes to
New York and San Francisco than Phoenix and Tucson. We do not
question that.
The Chairman. Yes, we do. We indeed do, all the time. In
fact, that is the reason I voted against the last
transportation bill was exactly that.
Senator Hutchison. And I hope, Mr. Chairman, in the future
that we will look at the potential for a national rail
passenger system that is part of the multimodal option
available to the people of this country, because I hope it will
stop in Phoenix.
The Chairman. Let me show you the proposal. It goes a lot
through Texas, but there is a large portion of America that it
does not go through.
Senator Hutchison. And the reason, Mr. Chairman, is because
we continue to have people who will not let it have the chance,
with the right capital expenditures. I think Mr. Wyden----
The Chairman. These are the proposed ones, Senator
Hutchison, not just existing.
Senator Hutchison. Mr. Chairman, the Pioneer and the Texas
Eagle both got official notice on the same day that they were
going to be eliminated. They had the official notice given. I
went to bat to get the loan from the Texas legislature. It was
not easy. It takes time to get things done. We got it. He
tried, they did not get it, and that was the difference.
Now they are further down the line because you have certain
requirements for the number of cars that have to be gotten in
order to provide the operation into Oregon, and those cars are
now servicing the areas that did step up to the plate, but Mr.
Chairman, when you look at our aviation system and our highway
system you know that to keep up with the growth, and the
economic growth in this country, we are going to have to have
another mode of transportation.
I would hope that we would have the vision to say yes, we
are going to step up to the plate for the capital expenditures.
We are starving Amtrak right now. We have an authorization of
$1.058 billion for 1999. The appropriation was $600 million.
You have heard it now several times that the appropriations
have been about half of the authorized level.
You cannot starve the operations and expect to have
operations and capital growing. We cannot expect them to
succeed with the mandate of the 2003 operational self-
sufficiency if we do not give them the chance. This has the
potential for a future that is every bit as important as our
mass transit system, as our aviation system, and almost as
important as our highway systems.
The highway systems are the base, there is no question
about it, but when you look at the federal funding by mode of
our transportation systems, here is Amtrak since 1982, here is
aviation, and here is highways.
Now, I believe it is in our traveling public's interest
that we would have another mode of transportation. Right now,
it is not truly national. It is not even half what I think it
can be, but you know, it takes time. The transit systems are
just now coming into being that are feeding into Amtrak, and
that is going to add to the convention business.
I applaud what Mr. Warrington is doing in conventions, and
I see it in other cities where they go out with convention
packages and they say, for two people traveling one person goes
free. We can duplicate that for conventions, for sporting
events, for tourists, and that is a marketing technique.
Second, the States are beginning to step up to the line,
but this takes time. Most State legislators meet biennially. It
is going to take time to bring our States into the thinking
that rail is a basic mode of transportation that will be a
contributor to the system if we do not starve it to death
before its time.
So if I could just ask the question of Mr. Warrington, do
you see, with these subsidies that are you getting, and I think
very creatively with package and express delivery, do you see
the time that we will be able to start clearly from not a truly
national system today, but if we continue getting those kinds
of subsidies from the package delivery and the mail delivery,
will we be able to solidify the base we have in place today and
go into some of these other places like Oregon, where it would
be warranted to have a system put forward if the State
legislature will work with Amtrak to do it?
Mr. Warrington. Senator, I am very confident that in 2003
we will be at or very close to achieving our goal of operating
self-sufficiency. It is purely a timing matter, the combination
of getting our high-speed program launched and, as Governor
Thompson said, we expect to take down the first Acela train set
next week and put it into service within a month, and then 19
more after that.
The combination of Acela high-speed service in the
Northeast and exploding mail and express business across the
system in partnership with the freight railroads, continuing to
focus on service quality and consistency, which is a big
revenue generator for us, and you have seen that over the past
summer, and continuing to focus, as Ken and Phyllis have said,
on cost structure--which we are religious about entirely, and
it is not about trains, it is about back office systems and
costs associated with the invisible stuff.
You do not see behind the operation, and there is lots of
opportunity that we have clearly identified. We will put all
that together, and we will be at or very close to where we need
to be by 2003, and the problem will be, we will get there and
unless this capital problem is solved between now and then,
frankly, it will all be for naught, and we will be wringing our
hands about what a disaster we have wrought then over 34 years,
or 35 years.
And the prospect of that occurring within the context of
extraordinary political pressure and economic pressure all over
this country--I travel all over the place, and the thirst for
this kind of service and success--and this is about choice and
alternatives, practical choices and practical alternatives,
across America. There is an incredible thirst for it out all
across this country.
The irony will be if we do not solve it as a matter of
national public policy, investing in intercity and high-speed
rail service in America--we will get at or close to where we
need to get to. We will deal with a lot of Ken's issues, but if
we do not solve the capital problem it will all be for naught,
and we will frankly be spinning our wheels over the next couple
of years.
The Chairman. Senator Hutchison, I have been informed the
other side has objected to this hearing, and we were supposed
to have stopped about 10 minutes ago. I apologize, but we have
to adhere to the rules of the Senate. I was just informed of
that. I am sorry about that. We will have another hearing in
January, and I would ask the indulgence of my colleagues to
allow Senator Cleland at least to make a comment, since he has
been here.
Senator Hutchison. Absolutely, Mr. Chairman, and I do hope
that when we have the future hearings that you will be as
relaxed as possible so we can have back-and-forth, because this
is obviously a very important issue to you and to many of us,
and we need to have all the facts out there on the table.
Thank you.
The Chairman. Absolutely. Senator Cleland, I apologize. I
want to mention, it was over here that the hearing was objected
to.
STATEMENT OF HON. MAX CLELAND,
U.S. SENATOR FROM GEORGIA
Mr. Chairman, today's hearing has been called in response
to the just-released report by the DOT Inspector General on the
state of Amtrak's financial performance. The report states, and
I quote, ``Without major corrective action Amtrak will not
achieve operating self-sufficiency in 2003.'' Today we will
have the opportunity to hear more on the report's findings and
to hear Amtrak's response.
Let me just say that in poll after poll, Americans support
a nationwide passenger rail system and further, they support
government contributions to keep that system running. I am
amazed over estimates that show that Congress has provided just
enough support to keep Amtrak operating at the level of service
it has offered for the past 29 years. Since its creation in
1971, Amtrak has received just $23 billion from the Congress,
for an average contribution of $790 million a year. By
contrast, Western European governments, in just 9 years, from
1980 to 1989, provided $101 billion to their railways. This is
more than 4 times what Amtrak has received in the entire 29
years of its history.
In a House hearing this spring, it was pointed out that
several States across this country are appropriating funds to
make improvements in their passenger rail service, even in the
absence of federal matching funds. And no wonder: High speed
rail is a viable alternative to 2 of the 21st century's most
challenging and frustrating problems, sprawl and traffic
congestion.
Mr. Chairman, the promise of high speed rail is critical in
my state of Georgia. Why? Because our highways and skyways are
approaching gridlock. Today Metro Atlanta has the very worst
traffic congestion of any Southern city, and Metro Atlantans
drive more miles than drivers in any other part of the country.
Hartsfield International Airport, with 78 million passengers,
is both the world's busiest airport and the world's most delay-
impacted airport. Last year Hartsfield's passengers
collectively experienced over 4500 days in lost time. High-
speed trains offer another option--and Georgia's commitment to
rail is shown in its bottom line: a state budget investment of
$45 million next year for passenger rail! And there's more:
Georgia is prepared to flex over $300 million from highway
funds to passenger rail over the next 4 years.
In closing let me say that we should look hard at providing
Amtrak enough money to achieve the goals mandated by Congress:
to provide national service and operate at a profit. One of the
best ways to do this is to enact the High Speed Rail Investment
Act. An investment in high-speed, high-quality rail will
benefit commuters across this land by helping our nation change
its focus from moving cars to moving people, from promoting
sprawl to promoting smart growth. The future of our
transportation system, and therefore of our economy, depends on
far-sighted national statesmanship. Thank you, Mr. Chairman,
and I look forward to hearing from our witnesses.
Senator Cleland. If I find out who on my side canceled this
hearing I am going to wring their neck.
[Laughter.]
Senator Cleland. Let me just say, I think Amtrak has been
caught for the last 29 years in that conundrum, kind of catch-
22, that meetings will continue until morale improves.
[Laughter.]
Senator Cleland. In so many ways we have been starving you
and then expecting you to perform, and I think you know the
Yogi Berra comment, that is that when you get to a fork in the
road, take it, is true, too.
We are at a fork in the road, there is no question about
it, and I think we are, Mr. Carmichael, confusing operations,
quote, ``subsidies,'' with legitimate investment and
infrastructure. Senator Hutchison is right. What company, what
business, private or nonprofit, what entity, what organization
would expect to grow, meet new market demand and so forth,
without an infusion of capital? Let us face it, that has got to
happen.
I just came back from Japan. I was medivacced there 32
years ago, and did not get a chance to spend much time there
then, but recently I just got back from Japan. I spent a few
days there, talked to Ambassador Tom Foley. We all know that
Japan was leveled in 1945, literally. I talked to one
serviceman whose father said that he went into Tokyo September
2, 1945, after the signing of the surrender, and nothing was
standing in Tokyo but the safes, just the safes.
Now, 55 years later, after the Japanese have made a
concerted effort to invest dramatically in their economy, and
the things that boost their economy, a tremendous educational
system and a massive infrastructure development program,
particularly in terms of rail--Ambassador Tom Foley mentioned
to me he was invited to a recent test of a magnetic levitation
train in Japan that will go 320 miles an hour. Now, they lost
the war.
In 1945 we had the finest rail system in the world, in the
known universe. Japan lost the war, yet they have a world-class
system. We won the war and we are sucking air between Richmond
and Washington. I mean, that really does not make sense.
So I think we are at a fork in the road. Most Americans
support a nation-wide passenger rail system. They support
government contributions, and we have been stingy in many ways
to give you enough just to survive.
I want to say Western European Governments have poured 4
times the amount of money into their rail systems that we have.
My State is willing to put in well over $30 million a year, and
if we bring this plan to fruition here where we bring Amtrak
in, the fast trains, 140 miles an hour down through the
Carolinas to Macon, Georgia is willing to flex some $300
million in transportation funds your way.
So my State is ready for you to come south. We welcome it,
and especially all of those 78 million passengers who sit out
on Hartsfield's tarmac for an hour and a half. We are looking
for options to ride somewhere on time. At Hartsfield,
passengers clocked some 4,500 days in lost time last year, just
at the Atlanta airport alone, the busiest airport in the world
and yet the most delay-impacted airport in the world.
So I think that we are at a fork in the road. It is time we
invested in high-speed, high quality rail, which benefits the
commuters across our Nation, that works on the problems of
urban sprawl, and is part of our smart growth strategy.
Thank you, Mr. Chairman.
The Chairman. Thank you very much. I want to thank the
witnesses, and I apologize that here at the end of the session
sometimes these things happen. Hearings are objected to for
reasons that have nothing to do with the hearing.
This is a very important hearing. I would emphasize again,
after you are prepared to come back before the Congress in
January or February and you will notify us we will have another
hearing, and Senator Hutchison, it has been the practice of
this Committee to have free give-and-take, and I will continue
it in this hearing as well, and we would have continued, I am
sure, for a long time. It is probably a relief to the witnesses
that we are not, but if we not had this hearing objected to----
Senator Hutchison. Well, thank you, Mr. Chairman, because I
had a number of followup questions, because if you look at the
timing of this hearing, I do not feel like we did have a chance
to make our case, and it is no fault of yours that the last
half did not get the equal time, but at some point we cannot
have a legitimate debate on this issue if we do not have both
sides.
And I hope that we will be able to settle in your mind and
everyone else's the issue of capital needs in order to give
them the fighting chance to make that 2003 deadline, and I hope
that we do set the base so that we will be able to spread out
and have the truly national system that stops in Phoenix, too.
The Chairman. It will be a cold day in Gila Bend.
STATEMENT OF HON. OLYMPIA J. SNOWE,
U.S. SENATOR FROM MAINE
Thank you. I would like to express my appreciation to the
Chair for scheduling this hearing today. I hope it will give us
an opportunity to highlight Amtrak's successes as well as focus
on the challenges Amtrak faces for the future. This Committee,
we should remember, gave Amtrak 5 years to achieve operating
self-sufficiency under the Amtrak Reform and Accountability Act
of 1997, which was enacted December 2, 1997. The Act contains
provisions designed to help Amtrak not require federal
operating funds after the end of FY2002.
For many years, I have been a supporter of Amtrak and would
like to express my strong support for a national passenger rail
system and the need to maintain a passenger rail system which
is flexible and possesses the incentives necessary to become
self-sufficient.
Today, my home State of Maine is one of only a handful of
states in the continental United States that is not served by
passenger rail service. I am proud and excited that after a
decade of hard work, negotiations, and a bit of heartache,
Maine will find itself finally a member of the Amtrak family
this spring. I thank Amtrak for working with me over the years
to make this service a reality, and I very much look forward to
riding the new Boston-Portland train. The State of Maine is
also working on plans to upgrade the Boston-Portland line to a
high-speed rail service in the future, and also may extend the
line even further north to Lewiston-Auburn, Maine and
elsewhere.
More than 25 years ago, Congress created Amtrak to
consolidate and strengthen our national passenger rail system.
Watching the success with which new and higher-speed rail
service swept through Europe and the Pacific Rim, we recognized
the opportunities that rail service could provide as a part of
our overall transportation system.
But today, the Amtrak system remains incomplete and the
system faces many challenges. While Amtrak provides rail
service throughout this nation, a variety of factors--including
lack of investment in the future of rail, and the failure of
Amtrak to operate like a business--have combined to keep our
national rail system from attracting the type of widespread and
popular usage that has marked service in most other modern,
industrialized democracies in Europe and Asia.
I believe that if we are to confront our great
transportation challenges--including air traffic delays and
highway gridlock--an enhanced nation-wide rail network must be
part of the solution. And yet, investment in our national
passenger rail system has traditionally lagged far behind
investment in highways and air travel.
A 1993 CRS analysis of per capita federal spending on
transportation noted that while we spend $79 per person for
highways and $44 per person on the Essential Air Service
subsidy program (under which certain air travel markets are
subsidized by the federal government), Amtrak received only $27
per person.
Federal spending on other modes literally dwarfs our
investment in rail, and spending on other modes has been
increasing over the last 20 years, while spending on passenger
rail has remained flat or declined. Meanwhile, the U.S. ranks
among the bottom of all major industrialized nations in terms
of support for rail travel.
Nonetheless, I do believe that Amtrak must be able to meet
the next century as a financially efficient and independent
entity. On this, I think we can all agree. And Amtrak has
committed to achieving this goal. In this day and age when not
just every dollar counts, but every cent, I believe we are
rightly placing the burden of proof on Amtrak. Amtrak certainly
faces enormous challenges. The GAO and the DOT IG have both
identified challenges that I believe Amtrak must overcome in
order to become self-sufficient. We must address these issues
forthrightly.
But there are some positive signs as well. Moody's Investor
Service has issued a high credit rating to Amtrak, based on the
expectation that the service would become self-sufficient.
Standard and Poors issued a positive report about Amtrak's
performance as well. In addition, Amtrak has developed an
impressive service guarantee, under which passengers who are
not satisfied may receive vouchers for free travel. And Amtrak
recently reported that August 2000 capped its best summer ever!
Nearly 2.1 million passengers rode Amtrak in August, a 21-year
high. As a result, Amtrak set a record for ticket revenue last
month.
Amtrak will testify here today that it will indeed achieve
operating self-sufficiency by 2003. There are critics who will
question the numbers and Amtrak's financial assumptions, and I
believe that Amtrak must convince us. After all, as I have
said, this Committee put Amtrak on this track in 1997.
This is certainly no time to turn our back on national
passenger rail.
So I look forward to working as a Member of this Committee,
Amtrak, and others to confront these challenges. Once again, I
would like to express my appreciation to the Chair and my
thanks to the witnesses for sharing their insights on the
current standing and the future of Amtrak.
Thank you.
I thank the witnesses. This hearing is adjourned.
[Whereupon, at 11:50 a.m., the Committee adjourned.]
APPENDIX
United Rail Passenger Alliance, Inc.
August 24, 2000
Hon. John McCain,
Chairperson,
Senate Committee on Commerce,
Science and Transportation,
Washington, DC.
Re: Amtrak
Dear Senator McCain:
Thank you for this opportunity to present the views of the United
Rail Passenger Alliance on reorganizing how the United States provides
intercity rail passenger service.
The current scheme involves use of a single, monopoly provider, the
National Railroad Passenger Corporation, known as Amtrak. Amtrak was
formed in 1970 to federalize passenger rail service as part of a
successful federal effort to revitalize our railroad industry. Nowhere
else, however, does America embrace a monopoly service provider, and
Amtrak rail passenger service suffers the same shortcomings as any
monopoly: very high costs, limited output, little or no meaningful
innovation, and no growth.
Amtrak's output is lower and its service network smaller, and its
costs and operating losses are higher, than they were 10 years ago.
Amtrak takes in, on average, more than three-quarters of a billion
dollars a year in state and federal subsidies and will continue to do
so into the indefinite future. Without that subsidy, it would
immediately collapse and all of its operations in every market would
cease. The rate of subsidization will not change, even if Amtrak
reclassifies its losses from one nomenclature to another. The GAO
recently reported Amtrak has over $9 billion in immediate, unfunded
capital needs. Amtrak's subsidies already total nearly $25 billion over
the last 29 years.
For this, we have underutilized but saturation levels of service in
the Northeast. where load factors average just 35 percent, and a
woefully deficient service in 90 percent of the U.S. Amtrak does not
even serve Phoenix or Las Vegas at all. Many huge city pair travel
markets have no rail service between them, such as Dallas and Denver,
Minneapolis and St. Louis, or Atlanta and Chicago.
This does not have to be.
URPA is convinced we could enjoy steady growth in our national
system--on the scale of tripling or quadrupling output in a much larger
service matrix--allowing our interregional passenger train network to
become--like Conrail--a successful private sector taxpaying business
over a five-year transitional period. We can also allow Amtrak to
continue to pursue its high speed rail dream in high density corridors,
free of the distraction of national markets it clearly does not
appreciate or understand.
But we cannot reasonably expect those results from the current
organization, which has experienced only 29 years of unrelenting
financial failure, and a shrinking national service.
URPA recommends that the National Railroad Passenger Corporation be
divided up, on the model of the highly successful breakup in 1984 of
AT&T Corp., into a half dozen autonomous rail service providers, spun
off from Amtrak as the ``Baby Bells'' were spun off from AT&T. These
would include separate entities to own and operate each of our discrete
regional corridor networks, one to take over interregional services,
and leaving the Northeast corridor and its Acela program with the
current Amtrak company and its management. Each entity could then focus
all of its attention on a single business that it understands and
values.
Our detailed analysis of Amtrak and our plan for its reorganization
are attached.* It shows how the regional corridors will operate as
autonomous bodies, how the long distance operation must--and can--grow
by a factor of 3 to 5 times today's scale, and how these organizations
will be empowered to compete with one another for business. Competition
will drive innovation, efficiency and growth in rail passenger service,
just as it does elsewhere in our economy. After the brief transitional
period, the entity operating the long distance interregional trains
like any successful airline will be completely free of any federal
operating subsidy of any kind.
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* The information referred to has been retained in the Committee
files.
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We would be pleased to provide additional information if you wish.
United Rail Passenger Alliance is an independent public policy research
organization focusing on surface passenger transportation systems.
Respectfully Submitted,
Andrew C. Selden,
Vice President--Law and Policy.
______
Prepared Statement of Ross B. Capon, Executive Director, National
Association of Railroad Passengers
Thank you for the opportunity to present these views. Our non-
partisan Association--whose members are individuals--has worked since
1967 towards development of a modern rail passenger network in the U.S.
Recent Amtrak Performance: We are encouraged by ridership and
revenue trends of recent years. We are particularly encouraged by the
public's warm response to the two Acela Regional Boston-New York-
Washington round-trips inaugurated January 31, which include 4-hour
Boston-New York running times. This suggests to us that response to the
faster new trains, and to more frequent Regional services, will be at
the high end of projections. We remain painfully aware that overall
ridership would be much higher except for stiff fare increases in 1995-
96 to cover budget shortfalls. There is a conflict between the goals of
maximizing Amtrak's ability to ease highway and aviation congestion and
of reaching operational self-sufficiency.
High Speed Rail Investment Act: We strongly support the High Speed
Rail Investment Act (HSRIA) and believe that, far from being
inconsistent with the Amtrak Reform and Accountability Act, HSRIA
supports the ARAA. The main goal of the HSRIA is to upgrade
infrastructure that Amtrak already uses, increasing speeds, reliability
and frequency of Amtrak trains and thus improving: their usefulness to
the traveling public, their economic performance, and Amtrak's bottom
line. The benefits are not limited to short-distance corridor trains,
since Amtrak's long-distance trains also use most of the lines to be
upgraded.
By virtue of the requirement of a 20 percent state match, states
will have considerable control over what investment takes place. We
believe that the process through which states determine their
willingness to make investments will be a major force to insure that
the best projects get priority. This is the exact antithesis of the
Amtrak economic nightmares of the 1970s when, for example, a high-speed
turbotrain was effectively ordered to the low-speed, low-ridership-
potential Washington-Parkersburg, West Virginia, route, and no state
contribution was required. (Amtrak service to Parkersburg ended in
1981.)
Although the HSRIA was introduced in November, 1999, just during
the late summer of 2000 there has been a flurry of suggestions about
ways to ``improve'' the bill. We do not have strong views on many of
these details, only a concern that the revision process not kill the
bill as Congress struggles to end its session quickly. It is hard to
get 55 senators and 159 representatives to sign onto roughly the same
piece of pro-intercity-passenger-rail legislation. If the process must
be restarted next year with a substantially different piece of
legislation, and with some of the strongest supporters of passenger
rail no longer on Capitol Hill, it may be a long time indeed before
tangible results are achieved. This delay could mean that any success
or near-success Amtrak might have in reaching its ``operational self-
sufficiency'' goal in FY 2003 could be short-lived. Attaining that goal
is meaningless if Amtrak ``crashes and burns'' within a few years for
lack of ongoing capital investment.
Alternate Funding Methods: If ``substantially different'' means a
funding source other than bonds, success would be even harder to
imagine. Congress has effectively ``fire-walled'' the regular
transportation appropriations process, so that 85 percent of funds are
earmarked for highways, aviation and--to a lesser extent--mass transit.
The remaining 15 percent is barely enough to accommodate the Coast
Guard, the continued use of general funds for portions of the aviation
and mass transit budgets, and ``basic'' Amtrak funding.
Mode-specific trust funds, combined with the firewalls, bias
federal transportation spending towards spending still more on highways
and aviation, even in situations where rail could do the job better. It
smacks of saying that highway and aviation trust fund dollars belong to
the road and aviation lobbies rather than to the people--or that people
are ``drivers'' or ``airplane customers'' when they are really
travelers who use all forms of transportation and, in many cases, wish
that good rail service was available in their own country the way it is
in many foreign countries they visit.
Obviously, we don't agree with the firewalls, but that doesn't
change the reality that they exist. Indeed, efforts to maintain
intercity passenger rail as the sole surface mode not eligible for
Highway Trust Fund spending continue. A 10-year postponement of any
opportunity to change that may be the price that passenger rail pays
for enactment of HSRIA.
Alternate Organization: The Amtrak Reform Council issued ``a staff
working paper'' on August 22. This paper makes the case for placing
Amtrak-owned infrastructure in a separate organization. We doubt the
practicality of this, or the benefits of creating a new infrastructure
organization with an even greater Northeast bias than Amtrak already
has.
Moreover, even in the Northeast, Amtrak does not own the entire
corridor. It is unlikely that Metro North would relinquish ownership of
its New Haven-New York line any more than Amtrak would want to lose
ownership of Amtrak-owned lines. (The Corridor within Massachusetts is
owned by that state.)
Outside the Northeast, corridor ownership has begun to move away
from the freight railroads. For example, the ex-Santa Fe Fullerton-San
Diego line now is owned by the counties. Again, it seems unlikely that
present owners would eagerly relinquish ownership to a new national
organization of any kind, much less a Northeast-dominated one.
Fundamental financing needs would remain no matter how the industry
is organized.
Finally, the suggestion that Amtrak could do fewer jobs better
(i.e., be relieved of, for example, infrastructure ownership) seems to
be sheer speculation. If there are problems in how Amtrak is managing
activities in Chicago or on the West Coast, it does not follow that
relieving Amtrak of Northeast infrastructure ownership means these
other issues will be handled better.
Thank you for the opportunity to present these views.