[Senate Hearing 108-932]
[From the U.S. Government Publishing Office]
S. Hrg. 108-932
FUTURE OF INTERCITY PASSENGER RAIL SERVICE AND AMTRAK
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
APRIL 29, 2003
__________
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Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois RON WYDEN, Oregon
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
FRANK LAUTENBERG, New Jersey
Jeanne Bumpus, Republican Staff Director and General Counsel
Robert W. Chamberlin, Republican Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
C O N T E N T S
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Page
Hearing held on April 29, 2003................................... 1
Statement of Senator Burns....................................... 11
Prepared statement........................................... 11
Statement of Senator Hollings.................................... 3
Prepared statement........................................... 3
Article, dated April 21, 2003, from The Washington Post,
entitled ``Amtrak's Top Gunn; The No-Nonsense CEO Has
Revived a Railroad and Won Respect From Politicians and
Employees''................................................ 5
Article, dated April 26, 2003, from The Washington Post,
entitled ``Amtrak Chief Unveils Five-Year Plan; $8 Billion
Sought to Repair Infrastructure, Trains in Northeast''..... 9
Statement of Senator Hutchison................................... 10
Statement of Senator Lautenberg.................................. 51
Prepared statement........................................... 52
Statement of Senator Lott........................................ 11
Statement of Senator McCain...................................... 1
Statement of Senator Sununu...................................... 54
Witnesses
Dittmar, Hank, Co-Director, Reconnecting America................. 85
Prepared statement........................................... 87
Gunn, David L., President and CEO, Amtrak........................ 38
Prepared statement........................................... 42
Jackson, Hon. Michael P., Deputy Secretary, Department of
Transportation................................................. 11
Prepared statement........................................... 16
King, Hon. David D., Deputy Secretary, North Carolina Department
of Transportation.............................................. 67
Prepared statement........................................... 70
Landes, Alan, Senior Vice President, Herzog Transit Services,
Inc............................................................ 93
Prepared statement........................................... 95
Preliminary List of Contacts for Discussion of Amtrak
Privatization, Updated May 16, 2003........................ 104
Mead, Hon. Kenneth M., Inspector General, Department of
Transportation................................................. 28
Prepared statement........................................... 31
Pracht, Michael P., Chairman, Passenger Transportation Committee,
Railway Supply Institute, Inc.................................. 99
Prepared statement........................................... 100
Winner, John H., President, Harral Winner Thompson Sharp
Lawrence, Inc.................................................. 78
Prepared statement........................................... 80
Appendix
Capon, Ross B., Executive Director, National Association of
Railroad Passengers, prepared statement........................ 111
Kerry, Hon. John F., U.S. Senator from Massachusetts, prepared
statement...................................................... 109
Response to written questions submitted to Hank Dittmar by:
Hon. Ernest F. Hollings...................................... 144
Hon. Frank R. Lautenberg..................................... 146
Hon. John McCain............................................. 141
Response to written questions submitted to David L. Gunn by:
Hon. Ernest F. Hollings...................................... 129
Hon. John McCain............................................. 121
Hon. Ted Stevens............................................. 128
Response to written questions submitted by Hon. Ernest F.
Hollings to:
Hon. David D. King........................................... 131
Michael P. Pracht............................................ 148
Response to written questions submitted to Alan Landes by:
Hon. John McCain............................................. 146
Response to written questions submitted to Hon. Kenneth M. Mead
by:
Hon. Ernest F. Hollings...................................... 119
Hon. Frank R. Lautenberg..................................... 121
Response to written questions submitted to John H. Winner by:
Hon. Ernest F. Hollings...................................... 137
Hon. John McCain............................................. 133
Stoetzel, Jim, Vice President, Contract Operations--Rail, Connex
North America, Inc., letter dated May 5, 2003 to Sharon
Dashtaki, Missouri DOT......................................... 110
FUTURE OF INTERCITY PASSENGER RAIL SERVICE AND AMTRAK
----------
TUESDAY, APRIL 29, 2003
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. The Committee meets today to
hear testimony on the future of intercity passenger rail
service and Amtrak.
During my years in Congress, I have participated in more
hearings and debates about Amtrak than I can count, but hope
springs eternal that today's hearing will mark the beginning of
a bipartisan effort to develop a consensus on how to reform
Amtrak and transition to a passenger rail program that meets a
market demand and provides more value for the taxpayers.
I commend David Gunn for his accomplishments over the past
year as Amtrak's President. Thanks to his leadership, Amtrak
has a credible business plan to carry it through this fiscal
year with a realistic revenue and capital forecast. Mr. Gunn
has been very candid about the mistakes that were made by
Amtrak with the Acela project, the mail and express
initiatives, and the sale and mortgaging of assets to generate
cash. His candor and willingness to deal with problems head-on
has earned him the respect of many traditional Amtrak skeptics.
During a meeting I had with Mr. Gunn last January, he
indicated that Amtrak would need about $2 billion annually in
subsidies to bring equipment in the Northeast Corridor up to a
state of good repair. I asked Mr. Gunn for a 5-year business
plan in order for us to be able to assess what 5 years of
additional subsidies would achieve and the outlook for Amtrak
beyond that period. Mr. Gunn submitted that plan last Friday
afternoon, and we will discuss it this morning.
Amtrak is seeking a total of $8.2 billion in Federal
funding over the next 5 years to operate the current network
and restore equipment in the Northeast Corridor to a state of
good repair. I cannot support an approach which further
postpones reform and calls for operating the same trains over
the same routes with millions more in operating losses and a
continuing need for large infusions of capital from the
taxpayers. But I do hope we can work with Mr. Gunn, the
Administration and my colleagues to develop and enact a sound
reform measure that can address some of the needs Mr. Gunn has
identified while also implementing needed structural reforms.
Let me cite my favorite train, the Sunset Limited, as an
example of where and why change is needed. In 2001, the Sunset
Limited, which operates between Los Angeles and Orlando, lost
$347 per passenger, excluding depreciation. The entire year,
the route carried 108,000 passengers, or less than 300
passengers per day. Greyhound Bus Lines, by comparison, carried
an estimated 1.5 million passengers between points served by
the Sunset Limited, and the airlines carried 4.5 million
passengers between those city pairs. And perhaps what I find
even more startling is that four times as many people flew just
between Los Angeles and Tucson as rode between all points
served by the Sunset Limited. Where is the value in continuing
to fund this train?
Some like to argue that Amtrak is the sole means of public
transportation for small-town America, but except in a handful
of instances, this is not the case. A 1999 analysis for the
Transportation Research Board found that of the 4,000
communities nationwide with a population of between 2,500 and
50,000, Amtrak was the sole means of public transportation for
1.6 percent of those communities, 65 communities. Many more
small communities rely on bus and air service than on Amtrak.
Trains that neither meet a market demand nor provide a
needed public transportation do not warrant millions of dollars
in annual Federal subsidies. Furthermore, given budget
constraints, is it sound policy to continue to fund uneconomic
train routes that siphon off funds that might otherwise be used
to develop economically viable service along short-distance
corridors?
Amtrak began operations in 1971 as a for-profit corporation
and was to be free of all Federal support by 1973. We've been
over and over this history, but it always bears remembering as
we look at these multi-billion dollar requests for subsidies.
Throughout its history, including between 1997 and 2001, Amtrak
led Congress to believe that profitability, or at least
operational self-sufficiency, was achievable. That was in
testimony before this committee. If we're now to conclude that
Amtrak will always run operating and capital deficits, our duty
to the taxpayers is to ensure that service is operated as
efficiently as possible to minimize subsidies. There should be
a fair and open competition for Amtrak from private-sector
companies. I've asked our witnesses to discuss in their
testimony what must be done to foster such competition.
Further, there needs to be equitable cost-sharing between
the Federal Government, the states, commuter authorities on the
Northeast Corridor, and others. Today's twisted policy has
states contributing financial support for some of the most
efficient trains on Amtrak's network, while states pay nothing
for long-distance trains that lose $20 million, $30 million,
$40 million, or even $50 million per year.
I appreciate the witnesses for appearing today. I hope the
testimony will help the Committee develop a reasoned consensus
on the future of intercity passenger rail service and the basis
for legislative change this year.
Senator Hollings?
STATEMENT OF HON. ERNEST F. HOLLINGS,
U.S. SENATOR FROM SOUTH CAROLINA
Senator Hollings. Well, Mr. Chairman, thank you very much
for the hearing. And if nothing's said at all, what we need
do--let me first include my prepared statement in the record.
The Chairman. Without objection.
Senator Hollings. I appreciate it.
[The prepared statement of Senator Hollings follows:]
Prepared Statement of Hon. Ernest F. Hollings,
U.S. Senator from South Carolina
We are facing an important juncture where we must determine how to
preserve passenger rail service in the U.S. and to maintain the
solvency of Amtrak. We need long-term planning and support for
passenger rail to address future passenger growth needs. We can look to
rail to provide transportation alternatives and solutions. As we saw
following the events of September 11, 2001, passenger rail serves our
national security by providing an alternative to highway and air
travel. Furthermore, passenger rail development provides a more fuel-
efficient transportation system thereby providing cleaner
transportation alternatives and helping to reduce our dependence on
foreign oil.
During the past 50 years, strong Federal leadership and funding
were essential to the development of the interstate highway system and
our Nation's aviation system. It is time for the Congress to take the
same strong leadership with passenger rail infrastructure as it did
years ago when it provided funding to the interstate highway and
aviation transportation systems. In the early 1970s when the private
railroads begged the government to relieve them of the unprofitable
passenger rail service, the Congress obliged and created Amtrak.
Between 1971 and 2001, $25 billion was spent on passenger rail. However
during that same time, over $570 billion of Federal funding was
invested in highways and aviation. Only 4.2 percent of the $595 billion
invested in transportation has gone to passenger rail service.
Furthermore, these funding levels do not include spending during
fiscal years 2002 and 2003, when over $48 billion was invested in the
aviation industry and over $60 billion was spent on the highways. Nor
do these levels include funding for the 50,000 employees who provide
security for the aviation industry. The amount of funding that only the
aviation industry has received during the last two fiscal years is
almost double the funding that has been invested in passenger rail over
the last 30 years. If passenger rail is to succeed, it must be a real
Federal priority. We must recognize that, like the highway system and
the aviation system, the passenger rail system cannot operate at a
profit. We must invest in the development of its infrastructure using
Federal dollars to support both capital and operating needs like we
have done in the other modes of transportation.
High speed passenger rail has proven to be effective between
Washington, D.C. and Boston where Amtrak's Northeast Corridor relieves
the pressures of congestion on highways and at airports, and provides a
more balanced system of transportation alternatives. In fact, of the
direct travel between New York City and Washington, D.C., more
passengers travel on Amtrak trains than take the airport shuttles (53
percent versus 47 percent). We are at a crossroads where we need to
determine how we should invest in our passenger rail infrastructure in
the Northeast and replicate its success throughout the rest of the
country.
There are those who argue that we can best achieve success if we
restructure our passenger rail system through privatization.
Privatization initiatives used in other countries are often touted as
holding the secret to Amtrak's future success. However, none of the
privatization schemes in other countries exactly fits the American
situation. We must carefully examine any privatization proposal to
ensure that privatization does not exacerbate Amtrak's delicate
financial situation, or worse, do so at an unacceptable cost to safety
and service.
Furthermore, we must not be led to believe that the privatization
of Amtrak will decrease the Federal cost of passenger rail. Many
countries in Europe and in the Pacific Rim have highly successful and
effective passenger rail systems. But every first-rate passenger rail
system in the world--whether it is public, private or something in
between--has been expensive for the country that uses it. Those
countries with first-rate passenger rail systems have them because they
have chosen to invest the funds necessary to build them and run them.
For Amtrak, we have neglected to furnish a long term, stable
funding source like we did for aviation, highways and transit systems.
In fiscal year 2001, intercity passenger rail received less than 1
percent of all transportation spending. Since the last authorization of
Amtrak in 1997, only $2.8 billion has been appropriated of the $5.2
billion authorized over the last 5 years. Without a major overhaul and
Federal commitment, national passenger rail service will be a thing of
the past.
That is why I re-introduced The National Defense Rail Act, S. 104.
This bipartisan legislation has over 30 cosponsors and is virtually
identical to S. 1991 which was reported favorably by this committee
last year by a vote of 20 to 3. This legislation provides a blueprint
for the future of intercity passenger rail service in the United
States. It provides for the development of high-speed rail corridors,
which are the building blocks of a national passenger rail system, and
it fully funds Amtrak operations. We have a world-class highway system,
a world-class aviation system, and a world-class freight rail system.
It is time that we have a world-class passenger rail system.
Senator Hollings. If nothing's said at all, let's put in
two articles, if you please, Mr. Chairman, April the 21st and
one April the 26th in the Washington Post, about the
outstanding job that David Gunn has done. We're very, very
lucky, because I've been around here now going on 37 years, and
this is the first individual I've really run into that knows
railroads, is working around the clock, has cut the costs and
cut some of those routes that you pointed out about that do not
pay for themselves.
And yet in lauding Mr. Gunn, we've got to give him some
support. We've asked him, in a bill that we passed out of the
Committee--we had a bipartisan series of hearings, a bipartisan
bill--20 to 3, we reported it out. We never could get it up for
consideration. There were always holds on the floor. But within
that measure, we asked for a 5-year plan, and now we have it,
from the best of the best, Mr. David Gunn. I hope we can move
forward and not just turn--and continue, I should say, Amtrak
as a debating society.
When you talk of--you've got somebody on your staff, Johnny
Inkslinger, and he sits down there and maps out miles and how
many passengers and all that nonsense. And, the truth of the
matter, here's a committee, that has funded Amtrak for over 30
years at $500 million a year, not billions--$500 million a year
for 30 years, and this same committee just 3 weeks ago voted
$40 billion--$40 billion--since 9/11, for the airlines. We
could give them another $3.5 billion, $1 billion, for not
knowing how to operate an airline. They're just a bunch of
bums. They're all going broke.
I mean, if you want to get down here and start adding up
miles and what's profitable in cost benefit and everything
else, we can turn it into a debating society, and that's,
unfortunately, what we've done. But then we're going to lose
Mr. Gunn, and then we're not going to have a passenger rail
system in this country.
And that's the fundamental question for the Committee to
decide. If they want a passenger rail system, one,
privatization is totally nonsense; it's out of the question. We
gave it to the private railroads after World War II, and they
begged us in the early seventies, said, ``Yes, you take it,
take the equipment, take the routes. We can't make money on
it.'' We looked the world around, and we haven't found any
passenger rail system that's ever made money. That's not to say
we just throw money away, but the truth of the matter is a lot
of the deficiencies and all that go such to the extreme that
you have to mortgage the railroad station and those kind of
things, and cut out the lights, we're the problem up here.
We've got to get a comprehensive study/conservative plan
for passenger rail. I favor it. It's not going to come through
my backyard, but we need it in this country. I'll go along with
the distinguished Chairman on trying to cut back on waste,
where there are only three or four passengers or whatever it
is, just to satisfy some political interest and that kind of
thing. But, otherwise, let's don't come with all the little
gimmicks because we can't get past Mitch Daniel, Mr. Jackson.
I've worked with Secretary Mineta and with you and with the
Administration, and, like I say, it has been bipartisan. And
once we had a bill, I said, ``Mr. Gunn, you take it. You know
railroads. Tell us what's wrong with the bill and what should
not be in it or what should be added,'' and we did it. And
we've got 32 cosponsors now. We're ready to go with a measure.
But if we want to turn it into a debating society and picky,
picky, picky--I'm quoting the President now about little picky
things--then we could picky, picky, picky this one, too, I
mean, and then not have a passenger rail service.
So I appreciate very much the hearing and the witnesses
here today, and I thank you, Mr. Chairman.
The Washington Post, April 21, 2003
Amtrak's Top Gunn; The No-Nonsense CEO Has Revived a Railroad and Won
Respect From Politicians and Employees
By Don Phillips
The conventional wisdom on David L. Gunn used to be that he was
skilled at fixing broken rail systems but lousy as a politician, a man
who could wipe the graffiti off New York's subways but in time would
always shoot himself in the foot.
But now, as he approaches the end of his first full year as
president and chief executive of Amtrak, Gunn's speed and decisiveness
in getting the ailing national passenger railroad back on track have at
least slowed the Bush Administration's determination to restructure it
into far smaller form. He has won over some longtime Amtrak foes in
Congress and especially among beaten-down Amtrak employees, some of
whom have printed up ``Proud to Be Working Under the Gunn'' T-shirts.
Gunn's warning last summer that Amtrak would shut down, and take
some commuter services with it, unless it got more money left hard
feelings in the Administration and some commuter agencies. But he has
also given Amtrak's many critics what they wanted. The blunt talk,
independence and quick action that got him pushed out of at least three
other jobs earlier in his career may, at least so far, be the biggest
things working for him at Amtrak.
And if people do not like what he says or does this time, he has
said, he can ``just go back to Nova Scotia'' and re-retire.
When Gunn has had it with the battling and begging necessary to
keep Amtrak alive, he wanders down from Amtrak headquarters into the
netherworld of Union Station. When he did it for the first time,
employees in the crew rooms and the tunnels were stunned--some said
they had never even seen the previous president, George D. Warrington,
let alone shot the breeze with him.
``Sometimes,'' Gunn says, ``I just need to go down and see a
train.''
Or, put another way, sometimes Gunn just is not terribly
comfortable acting like a boss even though he has been one so many
times.
Gunn, 66, was born in Boston, the grandson of a ship captain, but
his heart is in Nova Scotia. His family moved to Cape Breton when Gunn
was a small child, and he keeps a home there to which he returns
whenever possible. His Nova Scotia roots instilled an ethic that says
hard labor is one of life's callings.
``Physical work is an honorable thing to do,'' he said. ``There's
no honest job that's beneath you. If you want me to clean toilets, I'll
clean toilets.''
In Nova Scotia, ``stuffed shirts and big shots, they're not
respected,'' he said. ``People are judged on their willingness to break
a sweat.''
Gunn has had a few opportunities to break a sweat at Amtrak.
At least twice, he has been aboard trains that broke down and taken
it upon himself to move passengers' luggage to other trains. He said
his employees were perfectly capable of making the bigger decisions,
and he could help best by doing some heavy lifting.
In January, on a trip up the Northeast Corridor, Gunn took his
first trip aboard Amtrak's private railroad car. Normally, Gunn insists
on riding with the passengers. But on this trip, he and several
officials used the private car to meet and entertain rail officials in
New York State and Toronto.
As the train roared up the corridor, snow swirled around his
railcar's rear platform and coated the huge picture windows. At the BWI
station stop, Gunn hopped up to look for a squeegee and shovel, only
car attendant Lou Drummeter found them first.
``I'll take care of that, Mr. Gunn,'' Drummeter said.
``Oh, I can do that,'' Gunn replied. Drummeter ignored him.
At each succeeding stop, it was more of the same. Drummeter came
back earlier and earlier to take control of the implements, eventually
hiding them so Gunn could not find them.
As Gunn protested even more strongly at a New Jersey stop, the 6-
foot-plus Drummeter looked down at him and said, ``Mr. Gunn, this is my
job security.'' Gunn plopped back into his chair as others in the car
howled with laughter.
``I feel so useless,'' Gunn said.
Early in his tenure at Amtrak, Gunn did away with most of the perks
of his office, selling the executive limousine and SUVs and reassigning
the drivers to the Amtrak police department. He refuses to work on a
computer and will not wear a cell phone. He goes to work by public
transportation.
Despite an affinity for the working man and woman, Gunn can be a
no-nonsense disciplinarian. He listens to subordinates, but when he
reaches a decision, there is only one way: his. Last year, Executive
Vice President Stan Bagley resigned over disagreements on cost cutting,
a blow Gunn took personally because the two had initially hit it off
well. Gunn later said he did not sleep the night after Bagley left.
In mid-March, he caught a conductor smoking on board a train, a
clear violation of the rules. After thinking about it overnight, he
sent a letter to all employees reminding them of the policy and giving
them an unmistakable warning: ``In retrospect, I should have acted more
forcefully and I will in the future.''
A lifelong bachelor, Gunn has, figuratively at least, been married
to railroading and transit. Early in his career, he was effectively
fired from the Santa Fe freight railroad after arguing with superiors
over the pricing strategy for a Chicago-California train, the Super C,
that was his creation. ``They told me, you either shut up or go away,''
he said.
His first transit job was Operations Director of Commuter Rail for
the Massachusetts Bay Transportation Authority, which he chose to leave
after a new governor took office and he felt political pressure to
depart. He went on to manage commuter systems in Philadelphia, New York
and Washington before ``retiring'' in 1999 as General Manager of the
Toronto Transit Commission. He was at home in Nova Scotia when a
headhunter called about the Amtrak job.
Gunn had once turned down the Amtrak presidency. But with a full
career behind him, and after two years sitting at home, he had little
to risk and could not resist one more challenge.
``I miss work,'' he said. Gunn's method of operation is always the
same: Quickly determine how many people it takes to efficiently operate
whatever he has just taken over, then get rid of the rest. Get a handle
on the finances and then start cutting costs. Look for rule breakers
and crooks, and make examples of them. Take symbolic steps such as
getting rid of limousines. Talk straight and be open, even when it
hurts.
A comparison of his first years at Washington Metro and Amtrak are
striking.
Four days after taking over at Metro in March 1991, Gunn announced
plans to cut 320 employees, 29 of them immediately. Three weeks after
he took over at Amtrak last May 15, he announced a reorganization that
would cut 300 management positions and reduce the number of vice
presidents to 20 from 86. At last count, he had eliminated 988 employee
positions, about 4.5 percent of the workforce.
Four months after taking over at Metro, he announced that an
investigation had uncovered mismanagement, impropriety, drug abuse,
favoritism and waste among maintenance employees. At Amtrak, Gunn's
lieutenants paid a surprise visit one night to a repair shop in Indiana
and found some employees sleeping, goofing off and otherwise not doing
their jobs.
His passion for cleanliness won him national attention in the 1980s
when he was president of the New York Transit Authority, where he
largely succeeded in an initially ridiculed campaign to wipe graffiti
off the subways. At Metro, he became popular with passengers partly by
cleaning up buses and trains, and repairing and replacing aging rail
cars. At Amtrak, he ordered a general cleanup that included selling or
scrapping derelict locomotives and passenger cars.
But at Metro, Gunn was considered a loose cannon. He revealed
unpleasantries such as the maintenance investigation and insisted on
complete management independence. Within weeks of taking over, he
announced a reorganization of the staff without telling the board in
advance. Worse, he followed the popular Carmen E. Turner, who knew how
to work within the system. Gunn submitted his resignation in 1993 amid
increasingly public criticism from board members.
Still, even those at Metro who disagreed with his style leave
little doubt that they respect him.
``If Amtrak can be saved, I think David Gunn has the skills to do
it,'' said Washington consultant Beverly R. Silverberg, who resigned as
Metro's chief spokeswoman in 1992 because she thought Gunn was too
negative about Metro's problems.
At Amtrak, Gunn enjoyed the advantage of having no positive image
to defend. Despite insisting for years that Amtrak was on the ``glide
path'' to self-sufficiency, Warrington had been forced to mortgage New
York's Penn Station just to keep trains running.
Auditors for the General Accounting Office and the Transportation
Department's inspector general often shook their heads trying to make
sense of Amtrak's books. In the last year before Gunn arrived, Amtrak's
auditors refused to certify the financial results.
Gunn spent months pushing his financial managers to produce
meaningful, understandable numbers. He now releases a monthly financial
report as voluminous as the Montgomery County phone book.
Those books show that Amtrak, under Gunn, has weathered relatively
well a general downturn in travel that cut deeply into revenue. For the
fiscal year through the end of February, revenue was $62.9 million
below budget. But operating expenses were $58.8 million below budget.
For the first quarter, the figures had been even more dramatic--revenue
$29.4 million below budget but expenses $40.8 million below budget.
Some of the savings can be attributed to job cuts, but much came
one increment at a time. Many of those increments came straight from
Gunn's observations and his tendency to act immediately when he sees
something he does not like.
On one short trip to Florida, for example, Gunn discovered that in
Miami--the terminating point for three Amtrak trains--the railroad was
paying hundreds of thousands of dollars a year to have a switch engine
and crews from CSX Transportation available 24 hours a day. The
engine's main duty was to deliver those trains to a servicing facility
and turn the southbound trains around for the trip back north.
``Why don't we just use the road locomotives to do that?'' Gunn
snapped, referring to the engines that pulled the train down. ``This
isn't rocket science.''
But he has not cut blindly. In fact, Gunn has even rescinded some
cuts.
During a 10-day cross-country train trip, Gunn was bored seeing the
same food every day and ordered that different menus be introduced each
day in a repeating cycle. On another trip, a chef told him that spices
had been axed from the supply lists in Amtrak's dining car kitchens as
a cost-cutting measure. Chefs were generally buying their own spices.
They do not have to anymore.
``It was stupid,'' Gunn said. ``You can't let service collapse. A
dining car obviously spends a lot of money, but you've got to have
it.''
It is a ``myth,'' he said, that sweeping programs make an
organization successful.
``Life is not like that,'' he said. ``You take a lot of little
actions.''
Gunn has long claimed that he does not ``do politics,'' and his job
history seems to bear that out. But that does not mean he cannot be
political when he wants to be.
On June 5, just three weeks after taking his job, Gunn announced
that Amtrak's financial condition was so bad that the system would have
to shut down in July unless it received a $200 million loan within
three weeks.
The Senate Committee on Commerce, Science, and Transportation,
headed by longtime Amtrak critic John McCain (R-AZ), sent along a
series of questions.
The next morning, Gunn handed Joe McHugh, his governmental affairs
vice president, a yellow legal pad with a handwritten letter to include
with the answers to McCain. The letter said that just about every
McCain criticism of Amtrak over the years was true.
After outlining a laundry list of problems he found, he wrote:
``This is not a way to run a railroad and not the way I will run the
railroad. Too many happy words have hidden some very dismal financial
results.''
McCain called Gunn's letter ``surprisingly refreshing.'' With
McCain's support, Congress quickly appropriated $200 million to keep
the wheels turning.
During that same period, Amtrak was negotiating with the Bush
Administration for a temporary loan. Deputy Transportation Secretary
Michael P. Jackson demanded that Amtrak adopt a list of ``reforms'' as
a condition of getting the loan. Gunn found some of the conditions
unacceptable.
On June 21, as the decision on a shutdown loomed, Gunn let drop
almost matter-of-factly that any commuter trains run by Amtrak or that
use Amtrak tracks or facilities would also have to shut down because
there would be no dispatchers, train crews, maintenance crews or even
liability insurance to keep them running. Suddenly the whole political
climate changed. It was not just an Amtrak story anymore.
Cities and states demanded action.
Caught off guard, the Administration granted the loan and dropped
the conditions that Gunn did not like.
Jackson calls Gunn's tactic ``a source of friction'' that
``frankly, has rebounded against him and has not been a positive thing
for Amtrak.'' He said he had told Gunn that the Administration would
find a way to keep Amtrak running, and ``no way was it fair to threaten
a shutdown.''
Nonetheless, Jackson has praised Gunn more in public forums such as
Congressional hearings. ``He's tough and stubborn,'' Jackson says,
``but then so am I.''
The shutdown crisis made many in Congress more aware that some
politically popular but money-losing routes were in danger of being
discontinued, prompting it to pass a fiscal 2003 Amtrak budget with
subsidies of a little more than $1 billion, virtually everything Gunn
said it needed. Administration rhetoric has toned down, and President
Bush has proposed $900 million for Amtrak in fiscal 2004. That is much
less than the $1.8 billion Gunn says it needs but far more than any
Administration has ever proposed.
On the other hand, Gunn's tactics at least temporarily poisoned
Amtrak's relationships with commuter agencies, some of whom have
threatened to look for a company other than Amtrak to run their trains.
Among those agencies was Virginia Railway Express.
However, Pete Sklannik Jr., VRE's operations manager, said that
Gunn has made up a lot of lost ground since then, and that VRE is now
negotiating with Amtrak alone on a new contract.
``The [shutdown] tactic, in a strange way, brought us together,''
Sklannik said. Even as he has been so outspoken on other issues, Gunn
has avoided being dragged into the perennial debate over what to do
about long-distance trains, by simply refusing to say whether he thinks
any of them are needed.
He says it was a ``political decision'' to run them, and only
Congress, through a political process, can decide whether to eliminate
them. He will only say that they account for only a small part of
Amtrak's financial problem, using only $300 million in yearly subsidies
while the Northeast Corridor requires far more money.
The Administration sharply criticized continued operation of long-
distance trains in its fiscal 2004 budget proposal, but that attitude
seems to have been modified somewhat. In a House hearing in early
April, where Gunn and Jackson sat together, Jackson adopted Gunn's
approach, saying he believes the future of long-distance trains is a
political decision.
The Administration has said it wants to place the Amtrak-owned
Northeast Corridor under a ``public partnership'' and turn Amtrak into
a pure railroad operator that would be subject to competition. States
would be expected to pay an increasing share of passenger-train costs.
The Administration principles are generally in line with
recommendations made last year by the Amtrak Reform Council.
Gunn scoffs at the ideas other than greater participation by the
states, which lays the groundwork for another battle with the
Administration.
``He has a vision of the railroad that is not the vision of the
Bush Administration,'' Jackson said.
Jackson said that no matter how well Gunn runs Amtrak, ``I think
Amtrak is still in a crisis,'' and something must be done.
Thomas A. Till, former Staff Director of the Reform Council, said
he thinks Gunn has ``done a very good job of cleaning up a big mess.''
But Till said Gunn's skills will not be enough to save the passenger
train, and he is afraid Gunn's actions may persuade Congress to simply
keep the status quo for a while.
``It would be unfortunate, but it's conceivable, given other
priorities, that we could limp along with a patched-up Amtrak--what
some people call ``kicking the can down the road.''
Gunn now talks less of going home to Nova Scotia. At a 60th
birthday party last year for Amtrak's Media Relations Director, Cliff
Black, Gunn told Black he could not retire for another five years
because ``I'll be here five years.''
``God willing and the creeks don't rise,'' he says, ``I'm not doing
this to be a short-timer.''
______
The Washington Post, April 26, 2003
Amtrak Chief Unveils Five-Year Plan; $8 Billion Sought to Repair
Infrastructure, Trains in Northeast
by Don Phillips
Amtrak President David L. Gunn yesterday unveiled an $8 billion,
five-year passenger train recovery plan designed to halt deterioration
in the Northeast corridor and to repair locomotives and cars.
The detailed plan provides a stark look at the condition of the
infrastructure between Washington and Boston. Among other things, Gunn
said an engineering survey between New York and Washington found that
more than 9,800 of the large steel poles that hold up the lines that
provide power to the locomotive have foundations that are ``in
trouble'' and must be shored up.
Gunn's proposal, which is several thousand pages long, is by far
the most detailed capital plan ever produced by Amtrak, giving exact
budgets and schedules for thousands of projects. It envisions a Federal
subsidy of $1.8 billion in fiscal 2004, gradually declining to $1.5
billion in fiscal 2008 as capital projects come on line and Amtrak is
able to operate more efficiently. The total Federal subsidy would be
$4.5 billion in capital funding and $3.5 billion in operating
subsidies. No new services would be added, unless states pay all costs.
Congress has traditionally slashed Amtrak budgets below requests
over the years. But there are indications that Congress is paying more
attention to Gunn's requests than to those of most of his predecessors.
In the current fiscal year, the Bush Administration requested $521
million for Amtrak, but Congress approved $1.034 billion, just slightly
less than Gunn requested.
Gunn said that without that amount of money, deterioration would
continue, and that would force Amtrak trains to slow down, ending high-
speed rail service in the one place in the United States where it is
now available.
``If the capital plan is under-funded, then the whole thing falls
apart,'' Gunn said at a press conference yesterday.
Gunn said Amtrak spent an average of $1.5 billion a year more than
its revenue between fiscal 1997 and 2002, by borrowing against assets
such as New York's Penn Station. Amtrak now owns almost nothing
outright and has more than $250 million a year in debt, Gunn said.
Deputy Transportation Secretary Michael P. Jackson, who is also a
member of the Amtrak board, said the plan is ``more meticulous,
thorough and thoughtful than has been presented in the past.'' But he
said it is ``incomplete'' because it fails to quantify many issues,
mainly ``vulnerabilities'' such as looming requirements under the
Americans with Disabilities Act. He also noted that Gunn says that new
passenger equipment must be ordered after the end of this five-year
plan, but he did not quantify the cost.
Congressional reaction is expected to come quickly. Gunn will
appear Tuesday before the Senate Committee on Commerce, Science, and
Transportation, and on Wednesday he will address the railroad
subcommittee of the House Transportation and Infrastructure Committee.
Much of the work under Gunn's plan would be concentrated between
New York and Washington, but some of the most urgent individual
projects are north of New York, including the replacement of three
major bridges in Connecticut.
Two bridges in Maryland will need major repair work, including the
bridge over the Susquehanna River at Perryville. The B&P tunnels south
of Baltimore's Penn Station and a tunnel south of Washington's Union
Station also will need major work.
The plan also calls for replacement of dispatching centers and
installation of modern signal and communications systems. The electric
traction system would largely be rebuilt.
However, the electric upgrades do not include a ``constant-
tension'' electric wire structure that would allow 150-mph speeds south
of New York. Gunn said that could be added relatively easily later,
after the structure has been strengthened.
The Chairman. Thank you, Sir.
I think the President's words were ``itty-bitty.''
Senator Hollings. Itty-bitty, that's--excuse me. It's
something like that. Itty-bitty.
[Laughter.]
The Chairman. Senator Hutchison?
STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. Thank you, Mr. Chairman.
Mr. Chairman, I think that we have allowed Amtrak to be
nibbled to death by ducks, and we have starved them, and we
have watched them have different general managers that come in
and say, ``Yes, we're committed to a national system,'' and
then by the end of their time, they're into just having a
Northeast Corridor system for our country. And as I understand
it, the new Amtrak strategic plan is $10 billion over 5 years
to basically redo the Northeast Corridor of Amtrak and, once
again, leave out the rest of the country.
Now, I think we have got to stop just giving Amtrak a
little bit here, making them come and beg for supplemental
appropriations to stay in business, mortgage Penn Station to
keep on operating. That is not ever going to produce a national
railroad. And I really believe in a national railroad. I really
want one.
I want a national railroad that is a skeleton that goes
across the top of America, down the West Coast, across the
bottom of America, up the East Coast, and right down the
middle, from Chicago to Dallas to Houston or San Antonio. I
think that would be a national system, from which you would
have, then, the capability to have a lot of offshoots, have
State help for that, have consortia, have State groups, have
local mass transit feed into these national skeleton systems.
We could have a great system, or we could have a mediocre-to-
pitiful system, or we could do away with it.
And I have come to the conclusion that we should either
have a great system or do away with it. And I don't think a
Northeast Corridor is worth it to the taxpayers of our country,
because it is not a national system.
So I think we need to find out from the experts here if we
can have an Amtrak that is a national system, what it will cost
to do it right, how we can deal with the railroads, some of
which are cooperative and some of which are not. And I want
something different, something bold, and something that has a
chance to succeed.
I've been in Congress 10 years, and all I've seen is just
dribble, dribble, dribble, dribble, and nothing is different.
So, Mr. Chairman, you have said all along that it should be
zero. If I don't see a real chance--and I am the Chairman of
the Surface Transportation Subcommittee, so this is my area of
jurisdiction--if I don't see a chance for a successful national
system, which I really do think we need and which I think would
be very shortsighted to lose, then I'm going to be a convert to
your position.
But I hope that that is not what we do. I hope that we have
a revenue stream. I hope that we have a plan. I hope that we
make a commitment to a national system, because I think we need
that alternative for real mobility in our country.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Burns?
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. Thank you, Mr. Chairman.
In the essence of time, I'll submit my statement. I have a
markup over in Energy here coming up pretty quick, and that's
very, very important to us, too. But I just want to submit my
statement and hear some of the testimony.
Thank you very much.
The Chairman. Without objection.
[The prepared statement of Senator Burns follows:]
Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
Thank you Mr. Chairman, I will keep my statement short and I would
like to welcome the panel.
The daily service provided by Amtrak is a vital means of
transportation to the Montanans along the Northern tier of my state. So
I have many concerns about the future of Amtrak--not only as a service
provider to my constituents but also as a way for the rest of the
Nation to see Montana from a different perspective.
We all agree that Amtrak is an important means of passenger
transportation across our Nation, and in some cases the only means. As
a result, we need to provide Amtrak with the resources to become self-
sufficient and still remain within our budget restraints.
Our Nation's rail service was the first mass transport of
passengers and goods from the East coast to the West coast. It's hard
to imagine that this replacement to the Pony Express and the stagecoach
of the Old West is still one of the most efficient and underutilized
forms of transportation in our country.
Amtrak's financial problems are a barrier to eventual
privatization. If Congress is unable to address those problems now, we
are setting ourselves up for future problems that will dog us until we
do address these concerns.
I look forward to hearing from the witnesses on this matter and I
look forward to hearing from the panel on their thoughts for the future
of Amtrak.
Thank you, Mr. Chairman.
The Chairman. Senator Lott?
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. Thank you, Mr. Chairman, for having this
hearing. I, too, want to hear what the witnesses have to say. I
may have some comments or questions later, but I'd like to
withhold at this time.
Thank you.
The Chairman. Thank you very much.
We have Mr. Michael Jackson, who is the Deputy Secretary,
U.S. Department of Transportation; Honorable Kenneth Mead,
Inspector General, U.S. Department of Transportation; and Mr.
David Gunn, President and CEO of National Railroad Passenger
Corporation.
Welcome to the witnesses. We'll begin with you, Secretary
Jackson.
STATEMENT OF HON. MICHAEL P. JACKSON, DEPUTY SECRETARY,
DEPARTMENT OF TRANSPORTATION
Mr. Jackson. Mr. Chairman, thank you very much for having
me here today. Senator Hollings, members of the Committee, I'm
grateful to have this opportunity to discuss the future of
passenger rail service in America.
I begin with the obvious that has been stated here today,
Amtrak is in a state of crisis. It has been from its very
beginning, and my prepared testimony provides some additional
detail on this, and I shouldn't try to summarize that here
before you. But the punch line is, is that we have this crisis,
that taxpayers are providing huge subsidies, there's a $6
billion capital backlog, a balance sheet laden with debt, a
recent history of near bankruptcies, and more. And so in what
follows, I'd like to talk about the path out of this mess.
Before discussing intercity passenger rail and its future,
I would like to join some of the Members who have spoken to
David Gunn's stewardship in the last year at Amtrak. I think we
have made significant progress. He is doing tangible and
important work to bring business discipline and transparency
into the operation at Amtrak. All that's welcome. The
management team has a daunting challenge, and it has a good
team working against those challenges.
But recent management discipline and the new oversight
authority granted in the new Omnibus Appropriations Act will
not alone get us out of this crisis or alleviate three decades
worth of problems at Amtrak, nor will the problems simply go
away with a liberal dosage of more Federal funds. We have to do
something different. Structural reform at Amtrak is really the
only way to avoid having to return to this committee and to the
rest of the Congress year after year after year with a series
of surprises, ``Oops, we've got this problem.'' This is just no
way to do business. I concur with the Committee's stated views
on that issue, as well.
In June of last year, Secretary Mineta spelled out five
principles for the Bush Administration in what we will argue as
a necessary framework for thinking about reform. Anticipating
Congressional action on authorization sometime this year, the
Administration has proposed funding of Amtrak in fiscal year
2004 at a level of $900 million. I'll repeat today what the
Department of Transportation said in announcing this figure.
This is a budget proposal with a message, and the message is,
we must reform Amtrak, we must look at the structure of how
we're spending money on intercity passenger rail.
Many of the central questions will involve money. Amtrak's
management has produced a first draft of a plan which shows us
spending or needing, just to sustain the system that we have,
some $2 billion annually. There are a number of things that the
Board of Directors have asked David and the management team to
go back and provide additional details about what constitutes
liabilities and risks to this plan which could cause those
numbers to grow and, in some cases, grow very, very
significantly. In addition, at the end of this plan that David
has submitted, as it states, we face a huge investment
potentially in rolling stock if we're going to continue to
maintain the system we have. The trains that Amtrak has are
old, and they will need replacement if we are going to simply
operate with the same business model and the same network and
infrastructure that we have rolling here today. So, there is a
looming substantial investment just on the other side of that
bar graph for the 5 years that you've already seen.
The new authorizing legislation for intercity passenger
rail will presumably also address the interests and the
proposals that we have had placed before the Congress and the
Administration for high-speed rail. For a while, Amtrak tried
to intertwine its future with that of the multiple corridors
around the country that were seeking an opportunity to build
intercity passenger rail. It was a way of providing a political
alliance that might throw enough money to make both of these
entities, or both of these enterprises, possible. We need to
disentangle and understand what we're being asked to invest in
and look at high-speed rail, not to mention Maglev demands on
the Congressional appropriation process.
Some argue that it's inevitable that the Federal Government
has to spend large sums of money to support intercity passenger
rail. That's flawed logic and counsel that we can ill afford.
In fact, Amtrak's core business design suffers from structural
rot. It is bankrupt at the core and we need to look at the
structure of how we manage intercity passenger rail.
Consider, for example, the failed glide-path mandate that
was given to Amtrak in the last reauthorization cycle. What
happened, rather than producing operational self-sufficiency,
is that Amtrak delivered stratospheric debt and pervasive
financial legerdemain. We hocked our access rights to Penn
Station and grew the debt at a significant pace in order to try
to appear to be on this glide path. It was folly, but it was a
result of the structural flaws in the way that we fund and
structure and manage and operate intercity passenger rail. So
rather than producing operational self-sufficiency, we had
these other problems.
Just think for a second about the failure to terminate
long-distance rails. We basically have a network and a grid, a
national grid, that was created more than 30 years ago, and it
is simply not possible, apparently, for Amtrak, as an entity,
as it's currently structured, to be able to address the
question of what routes we should run and how we should price
these in a way that prevents the type of subsidies that we've
discussed here, Mr. Chairman, that you mentioned in your
opening remarks.
I think we have had a fragile political coalition that has
nailed this together. There are obviously other factors that
make it difficult to change. The labor termination costs,
obviously, mean that, in the first year or two, you don't
really find savings. So we have to look at the structure of how
these problems intersect with each other and ask what to do.
In fairness, I believe that many of the Members of Congress
who voted in the last authorization for this reform board, this
reform of Amtrak, thought that they would be delivering a
company that could operate without Federal subsidies. And our
problem, I think, is that we were insufficiently bold and
fundamentally flawed in how we left the structure of Amtrak on
the table at that point.
So this Administration supports an authorization for a
period of 6 years. I think it's going to take us a little bit
longer than the previous term of 4 to get this right. We should
not precipitously jump into a reform that imposes obligations
and burdens that we cannot sustain. But, by the same token, we
cannot do the same thing for the future.
Intercity passenger rail, at the end of a 6-year
authorization period, what would it look like? I'd like to just
dwell for a moment on if we were going to try to reform what we
have today, what would it look like by the time we got to the
end? And in this time, we wouldn't just say, ``Hope you do
something better and operationally self-sufficient, and see you
at the end gate.'' Instead, we would put very specific gates,
demands, and responsibilities on the system, and we would
measure them and hold accountable our transition to a new way
of doing business.
So what does that new way of doing business look like? I
think perhaps that's the most meaningful way for me to dig into
what is, in fact, a very, very complex set of interlocking
problems. First of all, intercity passenger rail would be an
economically viable and meaningful mode of transport
contributing to the overall transportation infrastructure in
America. The Federal role in passenger rail, however, would be
significantly different. It would look much more like the way
that we manage our relations and our investments relative to
the transit industry and operated by the Federal Transit
Administration through its programs than it does today.
The Federal Government would continue to define rail safety
standards and to enforce those standards. We would provide
capital grants to State governments and consortia of State
governments that seek to operate intercity passenger rail.
State government agencies would determine the level of
passenger services needed, the price for such service, and they
would contract with third-party operators, presumably with a
restructured Amtrak operating company to operate at the
beginning and through a significant portion of this
reauthorization period, but ultimately would have the option
for some competition, if the states chose to do so.
For a period of years, the Federal Government would
continue to supply a disproportionate amount of the capital
needed to put our system in a sufficiently good state of repair
to move forward in a coherent fashion. By the end of this
reauthorization cycle, however, by the end of the 6 years, we
would expect that State governments would provide at least 50
percent of needed capital investment for all intercity
passenger rail and any operational subsidies that would be
necessary to continue to operate intercity passenger rail.
The Federal Government would assume, over this period of
time, new and expanded roles, particularly to support the
formation of these corridor-based rail operating entities. The
Administration will request continuation of the type of grant-
making and financial oversight that was provided in the Omnibus
Appropriations Act in 2003. The Department, rather than Amtrak,
would exercise its statutory authority to assign passenger rail
operating rights to a single party--not multiple entities, but
to a single party--at the request of a state.
We don't propose to eliminate intercity passenger rail, but
we do propose a comprehensive structural change to implement at
a prudent pace spanning this 6-year period. Amtrak would be
required to form a pure operating company, one that does,
indeed, make a profit by providing excellent service for its
government customers. It would be irresponsible to eliminate
Amtrak altogether, but it would also be an equal folly to
ignore the fact that what we have is in a persistent and
thorough-going crisis.
One cornerstone of this principle is to continue vital rail
services while we implement these reforms. So I think it's
important to understand that we have to unpack the problem of
the Northeast Corridor in a meaningful way, and we have to look
at the question of how you provide meaningful service around
the rest of the country at the same time. But the ways of doing
that will differ, I believe, because of the fact of the
ownership by Amtrak and the Federal Government's equities in
the Northeast Corridor. So we have to look at both. They're two
related and intertwined problems, but separate exercises from a
business-structuring point of view.
We have to balance the interests of commuter rails and also
of the freight railroads in this provision. If this model is
embraced, I personally think that the Nation will see more,
rather than less, intercity passenger rail, and I think that
effective reform need not eliminate protections afforded by the
Railway Labor Act, the Federal Employers Liability Act, FELA,
and Railroad Retirement. I also think the transition can be
structured in a way to be sympathetic to and supported by
Amtrak's employees as we make this change.
This is a very brief sketch of a very complex topic of
where we end up. I would like to just do one other thing, which
is to say, for a minute, a word about some key institutions
that we would have to create to make this happen.
First is a Northeast Corridor Federal/State compact. I'm
not coming here today with a plan that says, ``Create it this
way.'' The Administration's legislation will not say, ``It must
look exactly like this and perform like this.'' I think we have
to take a more modest step and put in the authorization
legislation language that defines, with clarity and certainty,
a process that will yield a Federal/State compact that can own
and manage this important infrastructure. I don't think it's
going to be easy to do this with a snap of the fingers, but I
think it is possible to tackle problems like this and create
this type of structure. I'd be happy to answer further
questions about what we think that might look like.
I would also, then, point out that, on the State side, we
should stimulate the formation of regional rail-operating
companies in one State and in multiple-state clusters to help
manage intercity passenger rail. And, just like with transit
appropriations and our transit management programs, State
entities that can come to the table with a clear finance plan,
with a plan to be operating in a self-sufficient fashion and
with the disciplined and accounting tools necessary to convince
the government that investment is a fair and prudent act.
At Amtrak, we have to do a number of things to restructure
and organize. We shouldn't do it overnight. We should do it in
a steady and clear fashion. But we should do two things at
least, and start doing those in the first year while
maintaining the core structure that we have for that first
year. And that is to create an NEC infrastructure company
first. This would be a company that would take existing parts
of Amtrak and then, in conjunction with the creation of the new
Federal/State compact to operate the corridor, would provide
the people, the skills, the experience, and the tools to
operate the corridor under contract from the Federal/State
partnership to this legally separate entity. I think we would
start by a gradual division within Amtrak itself, and move to a
separate and freestanding company, a for-profit business at
some juncture during the period of the authorization. And,
finally, we would take a corporation, call it Amtrak
Operations, and make this the vessel to operate, on behalf of
States and coalitions of States, the train service that this
country chooses to make.
It is important, in underlying both of these types of
Federal, State, and private-sector structures, that we realign
the incentives so that the private businesses are paid for by
public entities who decide among multiple transportation
priorities and make modal choices based upon the available
funds and needs.
So, in conclusion, Mr. Chairman, passenger rail is an
important component of our national transportation
infrastructure. Members of Congress committed to passenger rail
need not mistake or fear that the conviction for structural
reform is a Trojan Horse which hides a desire to explode
intercity passenger rail. Quite the contrary, it is one that
intends to make the possibility of intercity passenger rail
work over the long haul.
Some will disparage the call for route and branch reform,
in part, because it's so difficult. The Bush Administration's
proposals do not rely upon a quick fix, nor is the fix an easy
fix, but it is a responsible choice to make structural reforms
now and not to come back before this committee year after year
after year with yet another crisis.
There is, then, much work ahead of us. Secretary Mineta and
his team look forward to providing the flesh on the bones of
this testimony that I've laid out. I look forward to working
with the Committee and answering any questions that you may
have.
Thank you very much.
[The prepared statement of Mr. Jackson follows:]
Prepared Statement of Hon. Michael P. Jackson, Deputy Secretary,
Department of Transportation
Chairman McCain, Senator Hollings, members of the Committee, I
appreciate this opportunity to appear before you today to discuss
Amtrak and the future of intercity passenger rail service in America.
I. Amtrak's Recurrent Crisis
I begin with the obvious: Amtrak is an organization with profound
financial difficulties. Its current budget request to Congress
acknowledges that ``for over 30 years, Amtrak has lurched from one
financial crisis to another.''
Amtrak was created with the illusory expectation that it would soon
achieve profitability. Instead, it became dependent upon ever-
increasing and now unsustainably large Federal appropriations. This
dependency on Federal funds is pegged by Amtrak to be up to $2 billion
annually for the foreseeable future \1\--with Amtrak's FY 2004 budget
request up over 80 percent from the current fiscal year and over 250
percent above FY 2001.
---------------------------------------------------------------------------
\1\ Amtrak has requested $1.812 billion for FY 2004.
---------------------------------------------------------------------------
The Department of Transportation (DOT) expects that each and every
one of Amtrak's 17 long distance trains will this year lose money on a
fully allocated cost basis, even excluding depreciation and interest.
On a fully allocated cost basis including depreciation and interest (a
more accurate measure of overall Federal investment), all of Amtrak's
43 regularly scheduled routes lose money. Ten of its 17 long distance
train routes have a net loss of more than $40 million per year. On a
per passenger basis, the loss for long distance trains ranges from $131
per passenger to $551 per passenger. Counting long distance and
corridor trains together, Amtrak has 25 routes that DOT expects will
this year require a subsidy of over 25 cents per passenger per mile of
travel.
Appendix 1 provides DOT's FY 2003 forecast of passenger revenue and
expenses for all of Amtrak's routes, reflecting the most recent Amtrak
business plan submitted to the Department. Appendix 2 provides more
detail about the Department's implementation of our new statutory
authority to require in FY 2003 that Amtrak live within its
Congressional appropriation. We will continue to monitor Amtrak's
performance and will provide updates to the Committee periodically
throughout the remainder of the fiscal year.
If anything, these route subsidy figures underplay the true
financial difficulty that faces Amtrak. In order simply to meet
payroll, Amtrak has for years also deferred long-term investment work,
the true cost of which is not fully known. The DOT Inspector General
estimates Amtrak's deferred capital investment backlog to be $6
billion. Last week, Amtrak's Board of Directors received from
management a first draft of staff's estimate of capital and operating
needs for the next five years. The Board has requested that David Gunn
provide additional detail about several considerable risks to the plan.
The draft also identifies, but does not yet cost out, a need for large
capital investments for replacement of old rolling stock within ten
years. One thing is certain at this juncture: the present and future
capital needs of Amtrak are another large potential liability.
In addition, and animated perhaps in part by an aversion to
declaring its failure to meet the operational self-sufficiency mandate,
Amtrak's total debt grew from $1.7 billion in 1997 to $4.8 billion in
2002. Figure 1 illustrates the growth in Amtrak's total debt.
Because of this increased debt, naturally Amtrak's annual debt
service has grown substantially, adding a large up-front cost to its
business plan. Annual debt service requirements (principal and
interest) are forecasted to be $278 million in FY 2004 (up from $111
million in 1997). This means that debt service will consume over 15
percent of Amtrak's requested FY 2004 appropriation of $1.8 billion. In
short, Amtrak has leveraged its assets very aggressively.
As you know, in each of the last two years, the Department of
Transportation was obliged to take extraordinary measures to help
Amtrak avert bankruptcy. We reluctantly allowed Amtrak to mortgage Penn
Station in New York City in the summer of 2001 and provided Amtrak a
$100 million loan under the Railroad Rehabilitation and Improvement
Financing (RRIF) program in the summer of 2002. Last year's RRIF loan
was further augmented by a $205 million emergency appropriation voted
by Congress to prevent a fourth quarter shutdown at Amtrak. That
narrowly averted shutdown not only would have stranded Amtrak's
customers, but also would have affected hundreds of thousands of
commuter rail passengers who rely on Amtrak's commuter support services
and infrastructure.
In what follows, I would like to outline the Administration's
recommendations for passenger rail authorization.
II. Authorizing Intercity Passenger Rail Anew
Before discussing the future of intercity passenger rail in more
detail, I'd like to say a word about the team that is managing ongoing
operations at Amtrak. Since arriving at Amtrak almost a year ago, David
Gunn has worked with the Amtrak Board of Directors to reduce operating
expenses, de-layer management, improve customer service, address the
numerous material weaknesses identified by Amtrak's auditors, instill
financial discipline, and provide Congress and the Administration with
more accurate and timely financial data. David and his management team
have achieved meaningful improvements.
Having represented Secretary Mineta on the Amtrak Board for the
past two years, I have been impressed with David's work and candor,
even when we have occasionally and respectfully disagreed. David has a
daunting task, but he and his team have made progress worthy of honest
praise.
Recent management discipline and new oversight authority, however,
will not alleviate the ongoing crisis of three decades at Amtrak. Nor
will the problems at Amtrak simply go away with a more liberal
application of dollars drawn from the Federal treasury. The status quo
organization cannot stretch to resolve these and other inherent
weaknesses with which Amtrak has struggled to live. Structural reform
of intercity passenger rail is needed.
Principles of Reform. Last June, Secretary Mineta spelled out five
principles that the Bush Administration argues should be part of any
successful reform of intercity passenger rail service. He said we must:
Create a system driven by sound economics.
Establish a long-term partnership between the states and the
Federal Government to support intercity passenger rail service.
Require that Amtrak transition to a pure operating company.
Create an effective public partnership, after a reasonable
transition, to manage the capital assets of the Northeast
Corridor.
Introduce carefully managed competition to provide higher
quality rail services at reasonable prices.
Anticipating Congressional action on authorization later this year,
the Administration proposed funding for Amtrak in FY 2004 at a level of
$900 million. Today I repeat what DOT said when announcing the
Administration's FY 2004 funding request for Amtrak. This is a funding
level with a message: Amtrak must undergo significant reform.
Money Alone is Not the Answer. Many of the central questions of the
authorization will be financial, beginning with consideration of the
enormous annual Federal subsidies--some $2 billion a year over the next
five years--proposed by Amtrak. But even this proposal does not
liquidate Amtrak's capital backlog. Nor does Amtrak's request include
money for the multi-billion dollar high-speed rail projects advocated
by others. In fact, as part of its loan to Amtrak last year, the
Department prohibited further speculative outlays by Amtrak to support
future high-speed rail projects. Amtrak agreed to these provisions.
The new authorizing legislation for intercity passenger rail
service will presumably also address the Federal Government's role and
funding commitments--if any--relative to high-speed rail and Maglev.
When the whole picture is laid on the table, the potential cost is
stunningly large.
Some argue it is inevitable that the Federal Government must
endlessly pay giant subsidies for passenger rail. Around the globe,
they note, passenger rail typically loses money. Amtrak is today a
giant passenger rail system spanning thousands of miles. Ergo, it is
said, the Federal Government surely must spend Brobdingnagian sized
buckets of money for Amtrak.
This is flawed logic and counsel we can ill afford. It fails to
recognize adequately that the vast size of our Nation and its
population distribution make for a passenger rail market in the United
States unlike virtually all other nations.
In fact, Amtrak's core business design suffers from structural rot.
For decades, the Federal Government has embraced perverse incentives
that consistently impel Amtrak to make irrational business decisions.
Consider, for example, the failed experiment in the last authorization
regarding the so-called ``glide path.'' Rather than producing
operational self-sufficiency, Amtrak instead delivered stratospheric
debt and pervasive financial legerdemain. To look at Amtrak's dilemma
more sympathetically, one could say that from the beginning Amtrak has
tried to balance an ill-defined public service mandate with a clear
statutory requirement to operate as a for-profit enterprise, never
satisfying either.
Just take the issue of whether to modify or actually terminate long
distance routes. Even though the evidence shows staggering subsidies
for long-distance rail, Amtrak has not made even modest changes to its
long distance route structure in over 30 years. Why? Because we are
told that the labor protection costs would, for several years, be
equivalent to the cost of continued operations. More importantly, even
raising this issue begins to unravel the fragile political coalition
that has supported Amtrak's ever-growing annual subsidies. Imagine the
impact upon our Nation's economy if other businesses faced similar
structural and political impediments that prevented them from
implementing any service changes.
So, more money alone is not the answer. What to do? In short:
embrace a new business model for passenger rail. And because meaningful
change will be difficult, we should be willing to implement needed
reforms at a deliberate, but measured pace. In fairness, I believe that
many Members who voted for the last authorization of Amtrak thought
they were doing just that. In retrospect, that legislation was
insufficiently bold and fundamentally flawed to the extent that it
relied upon Amtrak to reform itself.
Passenger Rail Authorization. The Administration supports an
authorization period of six years rather than four. This will give us
time fully to implement needed restructuring in one authorization
cycle. Perhaps it is useful to start first with a summary of where we
hope to end up in those six years.
Intercity passenger rail would become an economically viable and
strategically effective mode of transportation supporting numerous
successful rail corridors nationwide. The Federal role in passenger
rail would, however, be reformed and strengthened to mirror much more
closely the current Federal program supporting mass transit.
The Federal Government would continue to define rail safety
standards and enforce them. The Department of Transportation would
provide capital grants directly to states and interstate consortia of
states operating passenger rail. State government agencies would
determine the level of passenger services needed, the price for such
service, and they would contract with third-party operators to provide
long-distance and corridor trains. The same program would apply to
legacy long distance routes, current and new corridor services--at
higher speeds or not. To the extent that states' service choices
require operating subsidization, state governments would be required to
provide that subsidization, no later than a specified date to be
determined but within the new authorization cycle.
For a period of years, the Federal Government would continue
disproportionately to fund the capital backlog for certain passenger
rail projects. By the end of the authorization cycle, however, state
governments would provide at least 50 percent of needed capital
investment for all intercity passenger rail service.
The Federal Government would assume several new or expanded roles,
particularly to support the formation of corridor-based rail services.
The Administration will request continuation of the type of grant
making discipline and oversight that was incorporated into the Omnibus
Appropriations Act of FY 2003. The Department, rather than Amtrak,
would exercise statutory authority to assign passenger train operating
rights to a single party to operate intercity rail in a given corridor.
Of course, such rights would be allocated to Amtrak exclusively in the
first year of the new authorization period, and presumably throughout
much of this transition period.
We do not propose to eliminate Amtrak, but we do propose
comprehensive structural changes to be implemented at a prudent pace
spanning the entire six-year period of the next authorization cycle.
Amtrak would be required to form a pure operating company--one that
does indeed make a profit by providing excellent service for its
government customers. It would be irresponsible to eliminate Amtrak
altogether, but it would be an equal folly not to reform a corporation
suffering such a persistent and thoroughgoing crisis.
One cornerstone objective is to continue vital rail services while
implementing fundamental reform. The future of the Northeast Corridor
(NEC) should be preserved and nurtured by a new governance structure
that can be sustained for the long haul. The Administration will have
very specific proposals about a process to create this new governance
structure, and its ultimate performance characteristics. But we start
from the conviction that, because of the complexity of this matter, the
pending authorization should specify only the process for creating such
a new institution or compact, rather than attempting to impose at the
outset a specific organizational structure. An appropriate mechanism
would then be included within the Congressional legislation that will,
in turn, yield the new governance structure prior to expiration of the
authorization cycle.
We must balance carefully the interests of each of the states
served by intercity passenger rail. The needs of commuter rail systems
and the freight railroads are also essential equities that must be
served fairly by the new partnership formed by the states and the
Federal Government to own and operate intercity passenger rail.
When this model is embraced, I personally think that the Nation
will likely see more rather than less passenger rail service. Effective
reform need not eliminate protections afforded by the Railway Labor
Act, the Federal Employer's Liability Act (FELA) and railroad
retirement. I also think the transition can be structured to make
supporters of Amtrak's employees, ensuring that the reformed businesses
retain good jobs that are more secure.
This is a very brief sketch of what the Administration thinks is
achievable for reforming Amtrak by the end of FY 2009. Without
summarizing all details of the transition path that would yield these
results, it is important to say a bit more about several key
institutions that would make this happen.
The NEC Federal-State Compact. The Administration's proposal would
create a new legal entity, a Federal-State compact to operate the NEC
spine infrastructure under a 99-year lease from the Department of
Transportation. It would likely take at least two years to put the new
organization into place, during which period Amtrak would be required
to begin its own transformation. The new NEC Compact would annually
apply for and receive capital grants from the Department for corridor
investment.
It would have the authority to enter private debt markets to
finance NEC improvements. The NEC Compact would, with the Department of
Transportation, develop a business plan to alleviate the capital
backlog of projects needed to place the NEC in reasonable shape.
For most, if not all of the period of the pending authorization,
the NEC Compact would contract with the NEC Infrastructure Corporation,
an offshoot of the current Amtrak organization (see below) to maintain
and operate the NEC in support of intercity passenger rail and commuter
rail services on the corridor. At the same time, the NEC Compact would
contract with Amtrak Operations to run the corridor trains.
By the end of the authorization cycle, and periodically thereafter
as determined by the new organization, the NEC Compact would be
required to solicit competitive bids to operate the infrastructure and
to operate its intercity passenger trains. Because the Federal
Government would continue to own the corridor infrastructure, it would
continue to play a role in the governance of the compact for the life
of the lease.
State and Regional Rail Operating Companies. The Administration's
proposal would authorize multi-state interstate compacts to operate
intercity rail in areas served by access to freight railroad tracks.
Either individual states or Regional Rail Operating Companies (RROCs)
formed for this purpose could apply for and receive capital grants from
the Department for corridor modernization. They would also have the
authority to enter private debt markets to finance capital
improvements.
The states and RROCs would contract initially with Amtrak
Operations for corridor and long distance rail services. After a
transitional period to be determined, such entities would be required
to solicit competitive bids to operate intercity passenger trains
supported by Federal funds. The Federal role relative to these entities
would ultimately be similar to the Federal Transit Administration's
relationship with local transit authorities. In the transitional
period, the Federal Government would have an additional role of
facilitating the formation of such entities, including perhaps awarding
of organizational funding grants, at the request of states.
Restructuring Amtrak. The initial year of the new authorization
cycle would, in the Administration's proposal, continue the existing
basic legal and operating structure of the National Passenger Rail
Corporation (Amtrak). The Administration advocates immediately
increasing the size of Amtrak's Board by six persons to improve
corporate governance and allow the Board adequately to staff the
Committee structure needed to provide appropriate management oversight.
Some functions, such as management of certain existing principal
and interest payments on Amtrak's legacy debt, would, after a
transition period of at least one year, be assigned to newly created
structures that facilitate the statutory reform. For purposes of this
testimony, I would like to highlight the Administration's
recommendation to create two new organizations from within Amtrak as
currently structured.
NEC Infrastructure. The NEC Infrastructure Company would be a
private company under contract to the NEC Compact to perform
maintenance and manage the capital investment backlog program
on the NEC. Both maintenance and capital work are performed
with its own workforce as well as through the selection and
oversight of contractors. It would be composed largely of the
Chief Engineer's functions and workforce from the old Amtrak.
Amtrak Operations. Amtrak Operations would be a private company
that operates long-distance and corridor passenger service and
maintains passenger equipment under contract to the states.
Service provided is determined solely by the states and all
operating equipment is either provided by the states or by
Amtrak Operations, as negotiated in agreements between Amtrak
Operations and its customers. It would be composed largely of
the intercity train operations and equipment maintenance staff
of the old Amtrak.
As with the NEC Infrastructure functions, Amtrak Operations
would, for a period, still enjoy its current monopoly status to
operate intercity passenger rail service. In time, however,
Amtrak Operations would compete in the marketplace to provide
such services. As such, it ultimately should be entirely
independent of direct Federal Government grants. States or
RROCs operating intercity passenger rail with Federal
assistance would be required to seek competitive bids of
appropriate duration for rail operations.
Having announced today these broad details of the Administration's
approach to the pending authorization of passenger rail, the
Administration looks forward to further near-term dialogue with
Congress and other key parties prior to finalizing details of our
intercity passenger rail legislative proposal in the coming weeks.
Conclusion. Passenger rail is an important component of our
Nation's transportation infrastructure. We stand ready to work with
Congress and the states in the upcoming authorization to create an
intercity passenger rail system that is driven by sound economics,
fosters competition, and establishes a long-term partnership between
states and the Federal Government to sustain an economically viable
system.
Today there are at least two competing approaches to dealing with
the Amtrak problem. On the one hand, serious colleagues believe that
the best way to save intercity rail is to drop back, and spend the next
four years stabilizing Amtrak as it currently exists in the hope that
it can somehow gather enough political support for the substantially
larger investment Amtrak would need to survive. On the other hand, the
Bush Administration, the Amtrak Reform Council and numerous others have
concluded that true structural reforms are needed, and needed now.
Members of Congress committed to passenger rail need not mistake or
fear this latter conviction. It is not advocated by this Administration
as a Trojan Horse aimed at abolishing passenger rail. Instead, it is
animated by a fair desire to make some form of passenger rail service
viable for the long term.
Some will disparage the call for root and branch reform in part
because it is so difficult. The Bush Administration does not propose a
quick fix. Indeed, not even a simple fix. But securing true structural
reform is the only worthy solution for addressing such a persistent and
important public policy dilemma.
There is, then, much work ahead as Congress digs deep into these
issues. Secretary Mineta and his team also look forward to working with
Congress to assess and implement long-term solutions to the recurrent
crises that plagues intercity passenger rail. I would be pleased to
respond to any questions you may have.
Appendix 2.--Managing Amtrak's Financial Performance in FY 2003
In February 2003, the Congress passed the Omnibus Appropriations
Act, which put in place tools aimed at yielding greater financial
accountability at Amtrak. Past Congresses have by law directed that the
Federal Railroad Administration (FRA) provide funds appropriated for
the benefit of Amtrak to the corporation without the oversight and
controls that accompany other such grants made by the Department. The
Omnibus Appropriations Act for FY 2003 provides for oversight with
teeth, placing the relationship between DOT and Amtrak on a footing
similar to the oversight DOT exercises with respect to other
transportation modes.
The Omnibus Appropriations Act provided a total of $1.043 billion
in funds for Amtrak in FY 2003. The law directed the Secretary of
Transportation to disburse Amtrak's appropriated funds in quarterly
grants. Amtrak is to receive a total of $519 million for operating
expenses, $293 million for capital expenses along the Northeast
Corridor Mainline, and $231 million for general capital improvements.
For the first time, however, the law gives the Secretary both the
responsibility and the authority to review and approve Amtrak's
requests for funding. Amtrak must provide a detailed financial analysis
and revenue projections for each of its long distance train routes. We
have gone further and obtained this data for all routes. Additionally,
the law requires Amtrak to provide the Secretary with a detailed
business plan for the entire fiscal year, explaining how it will live
within its appropriation.
I am pleased to report that on April 9, 2003, the Department
approved Amtrak's business plan for the remainder of FY 2003 and
executed the Amtrak grant agreements contemplated by the Omnibus
Appropriations Act. In doing so, DOT unambiguously communicated to
Amtrak and its Board the following requirements: this year there will
be no Federal loans or loan guarantees, no ``creative financing'' by
Amtrak, no gimmicks, no shutdown drama, no threat against commuter
operations, and no kidding--Amtrak will live within the budget that
Congress appropriated. Any financial upside must be allocated to
bolster what will be an anemic year-end cash reserve. Any revenue loss
or additional expense must be offset within budget by requiring
Amtrak's management to make decisions about which expenses to cut or
which capital projects to defer.
We have read the law, and listened carefully to those Members who
have spoken on the new Amtrak appropriation language, and this is what
we understand Congress wants. DOT wants the same. To that end, we will
monitor Amtrak's condition monthly, and will be working with Amtrak to
help it meet the targets laid out in its business plan. DOT will
provide monthly reports to Congress on Amtrak's progress. We expect to
provide Amtrak's fourth quarter grant in early July, but if necessary
at that point we can gate disbursements on a monthly basis to ensure
fidelity to the bottom line of Amtrak's business plan. Let me be clear
about DOT's role under the law. Amtrak itself retains its daily
management responsibilities; DOT will provide oversight and enforce
accountability.
Of course, no plan is perfect, and we fully expect that Amtrak may
need to make minor adjustments along the way. While we think the
business plan is flexible enough to withstand normal business-related
fluctuations in revenue and expenses, in these times it certainly does
not accommodate the effects of any catastrophic terrorist events. At
this time, the Department is not aware of any such credible and
specific threat regarding Amtrak. Barring such an event, we believe it
is possible that, with Amtrak's cooperation, we can accomplish the
objectives you set out in the law.
The following provides more detail about part of this year's Amtrak
grant process.
The Omnibus Appropriations Act for FY 2003. Amtrak's appropriation,
$1.043 billion, is divided into the three categories shown in Table 1.
Acting through the Federal Railroad Administration (FRA), the
Department had already transferred to Amtrak thus far in FY 2003 just
over $407 million in funds that were appropriated under a series of FY
2003 continuing resolutions. Amtrak has allocated those funds to
operations, capital expenses along the Northeast Corridor Mainline and
for general capital expenses. Those funds must be credited against
grant amounts specified in the Act to compute the net amounts remaining
to be obligated this year. That calculation is shown below.
Table 1.--Amtrak's FY 2003 Appropriation
----------------------------------------------------------------------------------------------------------------
Total FY 03 Funding Provided
Purpose Appropriation Through CRs Net Grant
----------------------------------------------------------------------------------------------------------------
Operations $518,607,000 $256,494,000 $262,113,000
NE Corridor Capital 293,082,500 73,285,000 219,797,500
General Capital 231,485,500 77,355,000 154,130,500
----------------------------------------------------------------------------------------------------------------
Total 1,043,175,000 407,134,000 636,041,000
----------------------------------------------------------------------------------------------------------------
As mentioned previously, the Omnibus Appropriations Act for FY 2003
also established a number of specific requirements, in addition to
those normally associated with the making of a DOT grant. Following
preliminary staff discussions with Amtrak, the Department began to
implement the statutory requirements with a letter from FRA
Administrator Allan Rutter to Amtrak dated March 10, 2003, specifying
how we interpreted the new law and detailing the financial and
operating information we would expect to receive from Amtrak. On March
14, 2003, Amtrak submitted its initial Grant Application, which
included its proposed business plan.
FRA staff reviewed the specifics of this plan with Amtrak in
several meetings, both in Washington and in Philadelphia. After these
meetings, Amtrak submitted to FRA a revised grant application and
business plan on March 27, which was subsequently modified slightly and
approved by Amtrak's Board. This revised business plan has been
reviewed by FRA staff as well as staff of the Department's Office of
Inspector General, Office of General Counsel, and Office of Budget and
Programs.
DOT will shortly compile and deliver to this committee a full
package containing the approved Amtrak business plan, the approved
grant agreements, associated documentation and required certifications
by Amtrak and the Secretary of Transportation.
Amtrak's FY 2003 Business Plan. Amtrak's business plan provides
Amtrak's estimates of the revenue and expenses related to its
operations during FY 2003 and the assumptions on which the estimates
are based. The business plan also provides a project-by-project
description of Amtrak's planned FY 2003 capital program, with a
description of each project's goal, the work to be accomplished with FY
2003 funding, schedules and cost estimates.
Compared to Amtrak's initial FY 2003 budget, the current business
plan reflects more conservative assumptions of revenue, lower capital
expenditures, and, most importantly, a contingency fund. Under this
business plan, Amtrak forecasts cash operating expenses (including
interest expense but excluding depreciation and other post-retirement
benefits) of $2.875 billion, of which a portion would be funded by the
Federal grants provided under the Act. The plan also details the
application of the funds designated in the Act to be expended on
capital projects meeting the Generally Accepted Accounting Principles
(GAAP) definition of capital. Finally the plan provides for unforeseen
contingencies by identifying projects that could be deferred if
necessary to conserve funds.
Long Distance Trains. The Omnibus Appropriations Act for FY 2003
requires that the Secretary shall approve funding to cover operating
losses on Amtrak's long distance trains only after receiving and
reviewing grant requests for each specific long distance train route,
and that each such grant request must be accompanied by a detailed
financial analysis and revenue projection justifying Federal support.
As mentioned above, we required such data for all routes and the core
data are aggregated in Appendix 1.
In approving third quarter funding for the current system of long
distance trains, the Department did not endorse, either explicitly or
implicitly, the notion that any particular route is necessary or should
be preserved for the long term. We believe that subject should be
assessed more comprehensively in the coming Amtrak authorization
process. For now, it should be pointed out that the current Amtrak
route structure is largely an historical artifact left over from the
operating decisions made by individual private railroad lines long
before Amtrak existed. We believe that some of those business decisions
of well more than 30 years ago may no longer be relevant or
sustainable, and that decisions on service levels should be made in the
context of a comprehensive strategy for the future of passenger rail
service in this country.
Reserve for Commuter and State-Contracted Service. The Omnibus
Appropriations Act for FY 2003 requires that the Secretary and the
Amtrak Board of Directors shall ensure that sufficient funds are
reserved to satisfy Amtrak's contractual obligations for commuter and
intercity passenger rail service. We have interpreted that requirement
as a direction from Congress that, in the event of budget shortfalls,
Amtrak's commuter and state-supported operations take precedence over
providing other service. We understand that this provision was included
specifically to prevent Amtrak from threatening a shutdown of commuter
and state-supported services, as it did last year.
In the short term, we have determined that the best means to assure
that Amtrak continues to provide these services is to see that Amtrak
has sufficient funds to operate through the end of the fiscal year. To
that end, we have requested and received from Amtrak a commitment to
achieve monthly cash balance requirements that should assure sufficient
liquidity to the end of the fiscal year. If business plan targets are
not met, however, Amtrak has formally certified that it is responsible
to devise and implement alternate actions that will meet these
requirements. There is little margin for error in the months ahead for
Amtrak and its cash balance at the beginning of the next fiscal year
will be low.
Reporting. The Omnibus Appropriations Act provides that no later
than June 1, 2003, and each month thereafter, Amtrak shall submit to
the Secretary of Transportation and the House and Senate Committees on
Appropriations a supplemental report regarding the business plan, which
shall describe the work completed to date, any changes to the business
plan, and the reasons for such changes. We have implemented that
requirement in the grant agreements by providing that Amtrak will
report its actual results in comparison with the revised business plan
on a monthly basis to FRA, using standard reporting templates that FRA
requires for all other recipients of Federal funds.
The grant agreements also provide that Amtrak will notify FRA as
soon as it becomes aware of significant variances from the business
plan for long distance trains, other operating expenses, and various
capital expenses. Amtrak must obtain FRA's prior written approval to
exceed the approved budget for individual projects, and will be
required to provide detailed justification for proposed revisions,
identify the implications of non-approval on operations, and identify a
funding source for the proposed change.
The Chairman. Thank you very much.
Mr. Mead?
STATEMENT OF HON. KENNETH M. MEAD,
INSPECTOR GENERAL, DEPARTMENT OF TRANSPORTATION
Mr. Mead. Yes, thank you, Mr. Chairman.
The subject of today's hearing is the future of intercity
passenger rail service and Amtrak. In the past, I think these
futures have been intertwined to the point of being one and the
same. I hope that this discussion this year does not get bogged
down in, or defined as, simply what to do about Amtrak. That
has not been a fruitful focus in the past. And I'm taking you
all the way back to Graham Claytor, the president of Amtrak,
Tom Downs, President of Amtrak, President Warrington, and now
Mr. Gunn.
I think everyone will be better served by focusing on what
we want passenger rail service in this country to be, how we
are going to produce it and govern it, and how we are going to
fund it. Over the last year, it has been my view that Amtrak's
president, Mr. Gunn, Secretary Mineta, and the gentleman to my
right here, have really worked diligently to improve cost
controls and achieve expense savings at Amtrak, and they've
brought more order to its accounting and financial statements.
But let's not make any mistake about it. These are positive
steps, but they are not going to solve the fundamental problem.
The fundamental problem here is that the current Amtrak model
is broken, and pinching pennies alone is not going to make this
model work. You are not going to be able to save your way out
of the Amtrak issue. What intercity rail needs to be is, first
and foremost, not what it is today. It's the overall approach
to designing, governing, and funding this system, and the
outcome of that process, that's broken and must be addressed in
the reauthorization. The status quo pleases no one. It's going
to require significant increases in funding just to maintain
the status quo, and it will not meet the mobility needs of the
country in the years ahead.
Well, what is the status quo? Well, it's a system that
limps along, never in a state of good repair, and perpetually
one, two, or three steps from the edge of collapse. In the end,
Amtrak, in effect, has been tasked to be all things to all
people, and it's insufficiently funded to be satisfactory to
anyone.
I've been testifying on Amtrak matters for almost 10 years,
5 of them at GAO, 5 of them at the Department, and it seems to
me that some years you could almost just change the date on the
prepared statement and the message would essentially be the
same. This year, I think we're on the brink of doing something
different. Why? Because for the last 2 years, we've come within
days of the collapse of the entire railroad.
The result we have today, though, is a system that's nearly
$5 billion in debt. I have some slides--I think you have some
slides in front of you. It has a cover like this. The slide
shows the overall debt of about $5 billion. And it shows, also,
that the debt service on it is going to consume about $250
million. That's over 25 percent of the budget request for
Amtrak.
This is a system, also, that, except for a handful of
routes, continues to suffer operating losses on all services
offered. In fact, the fully allocated losses on some trains,
including depreciation and interest, comes very close to $500
per passenger. And in 2001 and 2002, Amtrak experienced its
highest operating losses ever, of more than $1 billion. And you
can see that depicted on this chart, too.
And despite incurring record levels of debt since 1997,
which is when they started on the glide path, and also how an
illusion was created that the glide path was being met, that we
were on track, the way that was done was they borrowed against
assets and borrowed money. And that way it looked as though
you're on a glide path. Until the end, there was nothing really
left to mortgage.
Well, despite all this, the system needs about $6 billion
to address the backlog of state-of-good-repair investments. And
I stress backlog, because backlog refers to bringing things
that we already have into a state of good repair, not for
improvements.
The news is not all bad, though. Slide number 3 shows
systemwide ridership and revenue have been on an upward trend
over the last 5 years, reaching record levels in the last 2
years. Both the Northeast Corridor and the Amtrak West
ridership increased about 24 percent between 1997 and 2002.
Intercity ridership has remained essentially flat.
OK, so enough on the numbers and what the status quo is and
so forth. What do we want passenger rail to be? I've gone back
and we've tried to reflect on what's needed to--what do we need
to do to passenger rail if we are to avoid status quo outcomes?
Well, if you're going to avoid status quo outcomes, Amtrak's
going to require, if it remains as it's currently structured,
about $2 billion per year. I think that's a fairly good working
number. And that $2 billion a year is going to go to operating
and capital subsidies for the foreseeable future for just what
you have now.
The Chairman. And that's not counting what would be
required as far as replacement of existing equipment, is that
correct?
Mr. Mead. Yes, sir.
Now, for the last 4 or 5 years of that glide path, people
were talking about trying to get that number of $500 or $600
million that they were giving them down to $200 million. So you
can see, this $2 billion figure is considerably more, by
several magnitudes.
I think change is needed. Otherwise, we're going to
continue to see a continuation of too much system for too
little capital investment. I think for the $2 billion that
would need to be spent on a steady-state Amtrak system, a
refocused Federal program could provide significantly better
service to a greater number of passengers. I think we can get
more bang for the buck. First, though, let me deal with two
other approaches that we have heard. I know they're on the
table.
One is to end completely the Federal role in intercity
passenger rail service and leave all service decisions, all
funding, to the states. That may be appealing, from a Federal
budgetary standpoint, but it ignores the mobility needs of
congested regions of the country, and it places far too great a
burden on already strapped State budgets.
Another option is to reduce the demand on Federal funds by
eliminating all the long-distance trains. There is a myth here.
The elimination of all these long-distance trains might
eventually save you about $300 million or more. That's after
you get to the labor protection and all that. It doesn't come
close, though, to solving the $2 billion problem, and it
ignores the fact that operations outside the Northeast Corridor
have been the glue that has held the system together by a
frayed shoestring. And it is that glue that has been
responsible for pumping millions of dollars into that Northeast
Corridor.
I think a better option for the future of intercity
passenger rail service would have the following attributes.
Federal capital grants, both to the states and the Northeast
Corridor. Improved mobility in short-distance corridors through
higher-speed and higher-frequency service. I think these long-
distance trains could be redesigned as feeder services that
would connect on a once-a-day or more-frequent basis to the
endpoints of the corridors. But in between, you would have more
frequent service.
I think the states need to decide on service attributes and
select the operator. That could very well be Amtrak, but for
the time being, though, I think it would be disruptive and too
complicated to say Amtrak should not have responsibility for
the Northeast Corridor.
For the successful development of higher-speed, higher-
frequency, short-distance corridors, there's going to have to
be a strong partnership between the Federal Government and the
states, and you're going to need a multi-year transition period
that's going to be necessary to develop the institutional
arrangements to pull that off.
Fundamentally, the states would be given more control and
authority. They would not be obliged to look automatically at
Amtrak to make all the calls as they are now. You also would
need a secure Federal funding source so you don't go from year
to year, and 1 year they say, ``Well, here's some money''; the
next year, they say, ``We're not giving you any money.'' You
need something that's stable and continuous. Another thing we
would do is, we would freeze and amortize Amtrak's long-term
debt.
Amtrak requires both operating and capital subsidies that
are greater than its debt, principal, and interest payments. We
are--the Federal Government, that is--in effect, we are paying
the subsidies; and, in turn, we're paying the interest and
principal on this debt. And we have the incongruous situation
today where a government that can borrow money at 4 percent for
10 years is paying 7 percent or more on Amtrak debt of the same
or lesser duration. Penn Station, the mortgage that was taken
out there, I think that's around 9 percent. Because we're going
to pay for that debt anyway, the Federal Government ought to
retire that debt, where it's economic to do so, in one lump sum
appropriation, and clear the decks of this debt.
You've heard of the RRTA, which is the excess Railroad
Retirement Tax Act payments. There has been a continuing
dispute over who should pay those and in what amounts. I think
that ought to be funded through a direct appropriation to the
Railroad Retirement Board and be done with it.
The Chairman. How much is that?
Mr. Mead. I think that's about $160 to $200 million a year.
The Chairman. Per year, forever.
Mr. Mead. Yes, sir.
So it just seems to me that we are at a point with
intercity passenger rail where we're going to have to make some
decisions or we're going to be spending summer after summer
after summer going through Amtrak, a collapse of Amtrak.
That concludes my oral statement, sir.
[The prepared statement of Mr. Mead follows:]
Prepared Statement of Hon. Kenneth M. Mead, Inspector General,
Department of Transportation
Mr. Chairman, Senator Hollings, and members of the Committee:
Thank you for inviting us here today to discuss the Future of
Intercity Passenger Rail Service and Amtrak. In the past, those futures
have been intertwined to the point of being one and the same. Going
forward, that may no longer be the case. We hope that the policy debate
concerning the future of passenger rail does not get bogged down in or
defined as ``What to do about Amtrak''. That has not been a fruitful
focus in the past and all parties, the public, the Congress, and the
Administration, will be better served by focusing on what we want
intercity passenger rail service in this country to be, how we are
going to produce and govern it, and how we are going to fund it. With
those decisions in hand, the role that Amtrak can play in that future
will be more readily apparent.
Over the last year, Amtrak's president and the Department have
worked diligently to improve cost control and achieve expense savings
at Amtrak and have brought more order to its accounting and financial
statements. These efforts need to continue. In addition, the Department
has been given more authority to oversee and control Amtrak's adherence
to its budget, ensuring that it operates within the Federal funding
provided.
Although these are positive steps, they are not going to solve the
fundamental problem: the current Amtrak model is broken and pinching
pennies alone won't make this model work. What intercity rail needs to
be is, first and foremost, not what it is today. By that we are not
singling out any particular aspect of the current system. It is the
overall approach to designing, governing, and funding the system and
the outcome of that process that is broken and must be addressed in
reauthorization. The problems extend beyond funding to questions of who
makes the decisions about and who controls the provision of service,
including commuter services. The status quo pleases no one; it will
require significant increases in funding just to maintain it; and it
will not meet the mobility needs of this country in the years ahead.
What is the Status Quo?
Despite multiple efforts over the years to change Amtrak's goals,
its structure, and its funding, the result always seems to be a status
quo that is the product of inevitable budgetary compromises. These
compromises over the years have produced a system that limps along,
never in a state of good repair, and perpetually one, two, or three
steps from the edge of collapse. These dire straits have been repeated
time and again over Amtrak's history. In the end, Amtrak has been
tasked to be all things to all people, but insufficiently funded to be
fully anything to anyone.
The result today is a system that is awash in debt, nearly $5
billion worth, and which will consume more than $250 million in annual
Federal funding merely to service that debt.
Figure 1
It is a system with a backlog of state-of-good-repair investments
that has reached at least $6 billion. Finally, this is a system that,
except for a handful of routes, continues to suffer operating losses on
all services offered. In fact, the fully allocated losses on some
trains (including depreciation and interest) can exceed $500 per
passenger. For the company as a whole, cash operating losses have
averaged $600 million for the last 6 years and are estimated to range
between $700 million and $800 million over the next 5 years.
Figure 2
But the news is not all bad. Over the last few years, in spite of
manufacturing delays and some early operational problems, the Acela
Express trainsets have been introduced to general acclaim and have
affirmed and improved Amtrak's position as the leading carrier (rail
and air) in the Northeast Corridor (NEC). In fact, systemwide ridership
and revenue have been on an upward trend over the last 5 years, with
record passenger revenue and ridership levels in the last 2 years. Both
NEC and Amtrak West ridership increased 24 percent between 1997 and
2002. However, during this same period, Intercity ridership has
remained essentially flat.\1\
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\1\ Intercity trains are all corridor and long-distance trains that
operate outside the NEC and the West Coast.
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Figure 3
In addition, Amtrak has aggressively pursued other sources of
revenue that are complementary to the provision of passenger service.
These include mail and express service, operation of commuter services,
maintenance services for other railroads, and rental income for use of
its infrastructure. These non-passenger revenues have generally been
increasing as a percentage of total revenue and were about 41 percent
of operating revenue in 2002.
Going forward, if we are to avoid status quo outcomes in which
capital funding is continually starved, Amtrak would require, if it
remains as currently structured, close to $2 billion per year in
operating and capital subsidies for the foreseeable future. Amtrak will
likely require about $750 million per year in cash operating subsidies.
This consists of about $350 million for the operating self-sufficiency
gap that has persisted for the last several years and the approximate
annual costs associated with interest expense ($160 million), excess
Railroad Retirement Tax Act payments ($160 million) and progressive
overhauls ($80 million).\2\
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\2\ Progressive overhauls are annual overhaul costs that are
expensed rather than capitalized.
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To this $750 million, add about $750 million that is required for a
general capital program needed to maintain the current system just in
its current state. Finally, another $500 million could and would likely
need to be spent to begin addressing the system's backlog of capital
investment, about two-thirds of which is in the NEC.
But the current Amtrak system has never generated the necessary
political support to fully fund its operating and capital needs, and it
is not clear that it can do so in the future. Change is needed. If not,
what we are likely to see is the ugly status quo of too much system for
too little capital investment.
So, if the status quo isn't working and is unlikely to be
satisfactory over the next few years, what are our options? Where
should we go with intercity passenger rail service?
What Do We Want Passenger Rail To Be?
Clearly, one possible approach is to end completely the Federal
role in intercity passenger rail services and leave all service
decisions and 100 percent of the funding to the states. While this
approach may seem appealing from a Federal budgetary standpoint,
especially with large deficits looming, it ignores the mobility needs
of certain congested regions of the country and the benefits that
passenger rail may provide. Although these problems exist on local and
regional levels, there is a national economic interest in assisting
mobility that is the foundation for the Department's transit, highway,
and aviation programs.
Another option is to reduce the demand on Federal funds by
eliminating all long- distance trains. Although this might eventually
save $300 million or more (after labor protection and other shut-down
costs are amortized), it does not come close to solving the $2 billion
funding dilemma. Furthermore, in the past, the long- distance trains
have been the political glue that has held together support for
intercity passenger rail and Amtrak. Elimination of these trains,
without a clear plan for improving mobility through a restructured
Federal program, would likely lead to a continuation of a status quo,
limp-along Amtrak.
A System Based on Restructured Federal/State/Private Roles and Focused
on Corridor Services
A better option for the future of intercity passenger rail service
lies in improving mobility in short-distance corridors around the
country (not just in the NEC), and in restructuring long-distance
services to complement these corridor services. It is in short-distance
corridors that the Federal Government and the states should focus their
investments to increase speeds, increase frequency, and improve the
quality of the services offered. For the $2 billion that would need to
be spent on a steady-state Amtrak system, significantly better service
to a greater number of passengers is possible through a refocused
Federal program that gives the states more control and authority.
Partnerships Among States and the Federal Government. For the
successful development of higher speed/higher frequency, short-distance
corridors, there must be a new relationship established between the
Federal Government and the states. An option is a transition to a
Federal passenger rail program that is modeled more on the current
transit program. This transition would likely require a number of years
for institutional arrangements to be developed among the states (such
as multi-state compacts) and for funding arrangements to be completed.
This approach would involve Federal capital grants to the states
for investment in short-distance corridors where states would have a
more defined and consistent role in determining what services are
provided and by whom. The states might choose to contract with Amtrak
to operate these services or seek bids from alternative operators.
States would also decide on the service attributes such as speed,
frequency, and quality.
The NEC is the only corridor that involves more than three states
(nine states). Thus, it will be a challenge to develop a workable
governance, operating, and funding structure. This is likely to be the
case whether this structure is a redefined Amtrak, a Federal/State
Compact, or some other form of organization. If the resulting
organization separates the control of operations from that of
infrastructure, we caution that the recent experience in Great Britain
underscores the dangers associated with establishing a commercial, for-
profit entity to operate the infrastructure. Allowing an infrastructure
company to operate ``like a business'' may mean relinquishing control
over how certain expenses are cut or which capital investments are
made. An infrastructure company that is focused on its bottom line may
make decisions that are in its best interest financially, but they may
affect the safety or efficiency of rail service operations.
States would also take the lead in engaging the freight railroads
in the funding and operations of these corridors. The majority of these
corridor services will operate over the track of privately owned
freight railroads and, therefore, any partnerships must include the
freight rail owners. Productive relationships and dispute resolution
mechanisms need to be forged that assure cooperation in improving the
track infrastructure and timely operation of the improved corridors.
With control comes funding responsibilities and the states should
be expected to provide capital funds to match in some proportion the
Federal grants. Ultimately, these corridors should be self-sufficient
from an operating (not necessarily capital) standpoint, either through
farebox collections or through state and local subsidy. Operating
losses might initially be shared as they are now between the Federal
Government and the states. Currently, states provide about $138 million
in operating support to Amtrak for corridor trains and provide capital
funds on a project-by-project basis.
Secure Federal Funding Sources. The Federal quid pro quo to a
stepped-up state funding role in passenger rail services should be the
elimination of the ``Perils of Pauline'' approach to Federal funding.
Investments in corridor development can proceed most efficiently where
long-term decisions and multi-year investments can be made without the
threat of a shut-down in Federal funding. A secure Federal funding
source will likely be needed to cement this new Federal-State
partnership.
Redesign Long-Distance Trains to Complement Corridor Services and
Minimize Operating Losses. The current long-distance services should
transition to a role of complementing corridor services. This
restructuring can take a number of forms, from the combination of
parallel or overlapping services to the elimination of endpoint service
on routes. For example, on some long-distance trains today,
significantly fewer than half of the passengers travel the entire route
from endpoint to endpoint. These trains could be redesigned as feeder
services that would connect on a once-a-day or more frequent basis to
the endpoints of corridors. By operating in the gaps between corridors,
but not overlapping them, these feeder services could continue to
provide services to coach passengers currently served by the long-
distance trains and do so on more convenient, daytime schedules. This
restructuring can be accomplished over a period of years that would
minimize transition costs and would allow for the growth of the
complementary corridor services.
The alternative of simply shifting the responsibility for
subsidizing the operating losses on long-distance routes to the states
could encounter problems from states in the middle of the route that
choose not to contribute. Restructuring long-distance trains into a
feeder service that connects to the higher speed/higher frequency
corridor services would solve this problem. Because most of the feeder
routes would lie in either one or two states, any decision by the
states not to subsidize and, therefore, not to operate the service
would reflect the perceived lack of benefits to their citizens.
Freeze and Amortize Amtrak's Long-term Debt. Because Amtrak
requires both operating and capital subsidies greater than its debt
principal and interest payments, these obligations are, in effect,
funded by Federal subsidies. This creates the incongruous situation in
which a government that can borrow at 4 percent for 10 years is paying
7 percent or more on Amtrak debt of the same or lesser duration.\3\
Because all current and future (if it were permitted) Amtrak debt would
likely be paid by the Federal Government, Amtrak's ability to incur
long-term debt should be permanently frozen, and all debt that can be
economically amortized immediately should be funded in a one-time
appropriation. This will minimize the cost to the taxpayers of these
outstanding liabilities.
---------------------------------------------------------------------------
\3\ Amtrak pays more for its debt because its default risk is
greater than that of the Federal Government.
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Direct Appropriation to the Railroad Retirement Board of Excess
RRTA. To simplify and clarify future funding of passenger rail
services, any portion of future retirement tax payments for passenger
rail providers that would qualify today as excess Railroad Retirement
Tax Act payments should be funded through a direct appropriation to the
Railroad Retirement Board. This will establish and maintain a level
playing field for all competitors to provide corridor services.
Amtrak's Operating and Financial Performance Since 1997
Today, Amtrak provides intercity passenger rail service over a
network of more than 22,000 route miles and serves more than 500
stations in 46 states. It owns about 730 route miles between Boston,
Massachusetts, and Washington, D.C., and in the state of Michigan. In
other parts of the country, Amtrak operates over track owned by freight
railroads. Many of Amtrak's routes are corridor operations that run
through a maximum of three states \4\ and are generally about 100 to
500 miles in length. Amtrak also operates 17 long-distance trains that
traverse multiple states, include sleeper and dining car service, and
travel more than 750 miles.
---------------------------------------------------------------------------
\4\ The Acela Express/Metroliner and Acela Regional are the only
routes characterized as corridors that have stops in more than three
states. Acela Express/Metroliner stops in nine states and the Regional
stops in six states.
---------------------------------------------------------------------------
Operating Needs. Since receiving in December 1997 \5\ its mandate
to achieve operating self-sufficiency by December 2002, Amtrak has
improved passenger revenues and ridership, up about 39 percent and 16
percent, respectively. However, expense growth has more than kept pace.
Consequently, Amtrak's operating and cash losses have increased and
Amtrak is farther from operating self-sufficiency now than it was in
1997. Amtrak recorded an operating loss of $1.15 billion for 2002,\6\
$352 million more than in 1997. Amtrak's cash loss for 2002 was $631
million, $82 million more than in 1997. (See Figures 2 and 3.)
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\5\ Amtrak Reform and Accountability Act (ARAA).
\6\ Based on Amtrak's Audited FY 2002 Consolidated Financial
Statements.
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To cover the gap between its operating losses and Federal and State
funding, thereby creating the appearance of meeting its ``glidepath,''
Amtrak incurred debt and sold assets. For example, in 2000, Amtrak
entered into four separate sale and leaseback transactions for which it
received $124 million in cash and $791 million in interest-earning set-
aside deposits to be applied against the lease obligations. In June
2001, Amtrak mortgaged a substantial portion of improvements located at
Penn Station in New York for cash proceeds of nearly $300 million. In
2002, Amtrak received a $100 million loan for general capital purposes
from the Department of Transportation as well as $205 million through
supplemental appropriations.
As a consequence of Amtrak's external financing of its cash losses
as well as new train equipment and related maintenance facilities,
total debt and capital lease obligations increased by $3.1 billion,
from $1.7 billion in 1997 to $4.8 billion in 2002, representing an
overall increase of 178 percent (see Figure 4).
Amtrak's annual debt service during this same period grew from $111
million to $233 million. For FY 2004, Amtrak projects its debt service
payments will increase to $278 million. It is also important to note
that Amtrak's heavy debt load was acquired during a period when Amtrak
received Federal operating and capital grants, as well as other Federal
assistance totaling $5.27 billion, or more than $1 billion annually
(see Table 1).
Capital Needs. The $1 billion in annual Federal assistance during
the past 5 years was insufficient for Amtrak to maintain its system in
a steady state. While improvements were made to the north end (New
Haven to Boston) for the introduction of high-speed rail service, and
new high-speed rail equipment and facilities were acquired, the general
state of Amtrak's infrastructure and rolling stock continued to
deteriorate.
The continual deferral of investments needed to renew and replace
infrastructure and equipment has created a huge backlog of capital
projects that threatens current and future service reliability. In the
Northeast Corridor, Amtrak provides service over bridges, through
tunnels, and on electric traction systems that are well past their
useful lives and consequently more expensive to maintain. The high-
speed, high-density, and mix of diverse users (Amtrak, commuter, and
freight) in this operating environment magnifies all types of problems,
especially those related to infrastructure. Amtrak expects that these
problems will continue to grow and eventually require reductions in
service and speed if not soon addressed.
Based on our assessments of Amtrak's financial performance and
requirements over the past 5 years, Amtrak needs approximately $750
million annually for a basic capital program that will maintain its
assets in the current state. However, this amount will not address the
deferred capital investment needs. If the decision were made to keep
the current structure, we estimate Amtrak would need to spend about
$500 million annually for an extended period (perhaps as long as 15
years) on infrastructure and rolling stock to eliminate the backlog of
capital investment.
The length of time and, therefore, total investment are somewhat
indefinite because key decisions need to be made on whether major
assets will be refurbished, overhauled, or completely replaced. For
example, do we completely rebuild or replace bridges and tunnels, such
as the Baltimore tunnels, or do we merely refurbish components and
perform moderate upgrades to extend their useful lives for several more
years? Should we repair selected components of the catenary system from
Washington to New York or should it be replaced in its entirety?
The total magnitude of capital needs will be in the billions of
dollars depending on the future vision regarding desired capacity,
reliability, and trip times in the corridor. One thing we know for sure
is that without major reinvestment, Amtrak or an alternative operator
will experience significant negative effects on its operations,
although neither we nor they can predict with any certainty the timing
or severity of the breakdown.
Amtrak's Financial Performance in 2003. We are encouraged by
improvements David Gunn has made since his appointment as President and
Chief Executive Officer of Amtrak, such as management streamlining and
workforce reductions in the hundreds, and a willingness to provide more
comprehensive operating and financial information to DOT and Congress.
However, positive operating and financial results for 2003 remain
elusive in a difficult travel environment due to the war in Iraq and
heightened terrorism alerts at home. Systemwide ridership decreased a
little less than one percent during the first 6 months of 2003 from
11.5 million to 11.4 million. Some of the additional contributing
factors were a slower than expected economic recovery and poor on-time
performance.
Amtrak's overall operating revenues decreased $117 million while
expenses remained flat for the first 6 months of 2003 compared to the
first 6 months of 2002. This resulted in an operating loss of $666
million, an increase of $120 million over the 2002 operating loss of
$546 million for the same time period. Amtrak's cash loss for the first
6 months of 2003 was nearly $374 million, an increase of about $64
million over its cash loss of $309 million in 2002. We note that
Amtrak's 2003 approved budget included a forecast cash loss of about
$355 million, which means it is off budget by about $19 million. Thus,
despite the fact that events outside Amtrak's control, such as the war
in Iraq and the slump in business travel, negatively affected passenger
revenues, strong oversight by the Department and Amtrak's close control
of operating expenditures this year has enabled it to stay relatively
close to its budget.
Amtrak's current authorization has expired and many questions
remain about the future of intercity passenger rail in the United
States. The question of what kind of system is best for the country is
inextricably intertwined with the question of how much the country is
willing to pay for such a system.
Mr. Chairman, this concludes our statement. I would be
pleased to answer any questions.
The Chairman. Thank you for that upbeat assessment, Mr.
Mead.
[Laughter.]
The Chairman. Mr. Gunn, welcome.
STATEMENT OF DAVID L. GUNN, PRESIDENT AND CEO, AMTRAK
Mr. Gunn. Thank you. After that performance, Nova Scotia
looks very good.
[Laughter.]
Mr. Gunn. Chairman McCain and Ranking Member Hollings and
other members of the Committee, I want to thank you for the
opportunity to appear here today.
Obviously, my perspective on Amtrak is different than my
two colleagues on my right. I tend to view it from the ballast
level; they tend to view it from 20,000, 30,000 feet. And so my
perspective is quite different.
And, when I got here on May 15--and, by the way, I have
written testimony, which I'll submit to the record and I won't
bother reading it, I'll just make a few comments and then we
can get on with discussion.
When I arrived here on May 15 of last year, Amtrak--it
became obvious to me that the company was in serious trouble,
and we actually faced insolvency. And the physical plant and
equipment was in very poor condition. But on top of that, there
were some serious managerial problems. The organization was
poorly defined, and it was top heavy, and it was not focused on
the day-to-day running of the railroad.
So the immediate goal that we had last summer was, first of
all, solvency for Amtrak. I mean, we were faced with a fiscal
crisis, a real one. But the other problem was to get ready for
the future and to put in place the financial controls and the
budgeting systems that would allow us to begin to manage
Amtrak. And we set a goal for ourselves, during that period of
time, to have in place, by October 1, a zero-based budget and
what I call a ``functional organization,'' which is--
``functional'' means, by ``function,'' like transportation,
mechanical engineering--with which to manage the corporation.
Now, we did that. And, so far, the results are--I don't
want to say encouraging. ``Encouraging'' and ``Amtrak'' don't
go together, perhaps. But, actually, expenses in 2002, we
finished 2002 with lower expenses than the prior year, and
we'll finish 2003 with lower expenses than 2002. And we've
also, within the funding that we've been given, we've started
rebuilding wrecked and damaged cars, out-of-service cars. We
should have about 15 back in service by May. We will have--our
track-laying system train will be back in service next month.
So, basically, we think we've been able to make a modest shift
of resources into the process of trying to restore the physical
plant and the equipment for Amtrak.
And, in terms of financial controls, we closed our books
for 2002 6 months earlier than last year, which we think is a
major accomplishment, and we now furnish our board with income
statements, balance sheets, according to GAAP, every month,
about 3 weeks after the close of the prior month. So we've made
some progress.
Thanks to those of you on the Committee, a number of you,
particularly Senator McCain and Senator Hollings, they
advocated that we put together some sort of a 5-year plan to
give you a sense of where we're going. We have done that. We've
prepared a very detailed analysis of what it takes to restore
the existing system, both Northeast Corridor and long-distance
trains, the national system, back to a state of good repair.
It's a very practical, pragmatic, no-frills approach, but it's
based upon a detailed assessment of all of our assets.
For example, substations. I'll use a Northeast Corridor
example. But you go into a substation, you can say, ``It's an
old substation. Rebuild the substation.'' We didn't do that. We
said, ``Go into the substation, and you replace a transformer,
you replace breakers.'' In other words, it's not a complete
rebuilding of the railroad, but it gives you a solid
foundation.
And for 2004, we're requesting the $1.8 billion, and that's
broken down between capital and operating, $1.044 billion for
capital and $768 million for operating. And, in that, we plan
to start repaying the loan to DOT. We want to get that off our
books. And every time I see Michael, he asks me if I'm ready to
pay the loan back. But we do want to pay that loan back.
The plan that we've put forward has no new borrowing, for
the reasons that I think are obvious from Mr. Mead's testimony.
There's no expansion of service. We're just trying to stabilize
the existing system and to try to get the trend of operating
expenses and deficit to be trending downward.
When you look at reform--and obviously, based upon what was
said here, there is a--I think everybody feels we need reform.
The problem is that ``reform'' is not defined, and ``reform''
means different things to different people. And there are a
number of myths that I'd like to just tick off that people
should be cognizant of when they're talking about reform. And
Mr. Mead mentioned one of them. But I'll go through my list of
myths.
First of all, there's a myth that developed among the
states that Amtrak was a source of Federal funding. And it's
not. We were never funded to provide Federal funding for State
actions. In other words, we tried to support State activities
where they wanted to build a corridor, but we were never funded
to do that.
The second myth is that Amtrak can be profitable. I think
that has pretty well been dismissed. But I think that anybody
that thinks that rail passenger service is going to be
profitable is barking up the wrong tree.
Myth three is that the private sector is dying to take over
our services without a subsidy. I think they'll take it over
with a subsidy; but to be a railroad and actually operate on
their own without government investment in either capital or
operating support is a myth.
Long-distance trains, myth four, are the problem. I think
my colleague on my right said that that is not the problem. The
Amtrak problem is much bigger than that.
Myth five, Amtrak labor costs are the problem. Our wage
rates are not the problem. We're not like the airlines. We do
have productivity issues, which we're going to address in the
upcoming negotiations, but it's a very different situation than
the airlines.
Myth six, the Northeast Corridor is profitable. It's not
profitable, and I submit it will never operate without subsidy,
particularly massive capital infusions.
And the last myth is perhaps the most--has been the most
damaging, and that is that there's a quick fix called
``reform,'' and if we just struck the right definition of
reform, we would solve the Amtrak problem. And I would submit
that it's going to be much more difficult and it's going to
require a lot more effort than merely coming up with a quick
reform, and I think that the Deputy Secretary's discussion
indicated that this is a pretty complicated problem.
You're going to turn your attention, Congress is going to
turn its attention, to reauthorization. And what you have in
front of you, what we've tried to give you, what the
management's tried to give you and give the board, is a 5-year
strategic plan which is less than $2 billion a year. It starts
off at $1.8 billion and cycles down to $1.4 billion--$1.48
billion, I think it is. And, by the way, that's not a glide
path; that's just the way the numbers came out.
Because at the end of that period--I think it's within 10
years, not right at the end of the period--you're going to have
to deal with replacing equipment, and, at that point, the need
for capital will grow. But I would say that our plan indicates
that you can stabilize the system and keep it in its current
form for about a $1.5 billion a year after you've brought it
back to a state of good repair. But that's the existing system.
The plan that you have, I think, is practical, it's
pragmatic, and I think that no matter what reform is decided
upon, the items that are in that budget need to be done. If you
look at the details in that project and actually flip through
it, whether you're looking at the cars or the locomotives or
the infrastructure, it is capital maintenance that needs to be
done. And whatever the reform is that comes out of this
process--and I have my own idea as to what it should be, but
whatever it is, the items that we have laid out to be done that
need to be done are real, and they have to be done or we're
going to have some really serious problems.
At the end of the period, if this plan that we have put
forward is undertaken, I think you'll have a railroad that
will--it will run; it won't be a crisis. And assuming we can
maintain the managerial control we have now, it'll be
predictable what's going to happen. You'll have good data. And
we now give you--on a regular basis, we give you, I think, good
reporting. It'll get better as time goes on. But you'll have a
railroad that you can actually reform. If we don't do something
in the near-term, and my focus is near-term, we're not going to
have a railroad to reform.
So I would plead with you to take seriously what we have
put forward as a 5-year plan. It is not an expansionary plan,
but it's what's needed to have the foundation for whatever
comes after.
And are there risks in this plan? Yes. The biggest risk is
under-funding the plan, because if you under-fund the capital
plan, there are going to be physical consequences. And I think
if you look at what's in the plan, that statement will be self-
explanatory.
There's a risk in the plan. We've assumed productivity
gains through our negotiations. I can't guarantee you we're
going to get them, but I think that we should make progress in
that area.
Will the recession continue? You know, a deficit's a
product of expenses and revenue. I think we'll come out of it.
Passenger ridership is growing again. We're taking some actions
that I think will improve the revenue picture.
And the last risk, which I just wanted to put out on the
table, is the risk for the high-speed train sets that we
currently operate. They are still proving very troublesome.
We're making service most days with most trains, but they are
proving troublesome. And I think the consortium, which is
Alstom and Bombardier, that manufactured them--they designed
them, they manufactured them, and they also maintain them,
which is a--they are having a great deal of difficulty with
those trains. And someone said, ``They're not like French wine;
they don't get better with age.''
[Laughter.]
Mr. Gunn. But anyway, we're doing fairly well with them,
and the passengers like them, but they are a very serious
problem and concern for us.
In conclusion, I think the plan that we're giving you for
the 5 years is probably the lowest-cost option, and it's
certainly the least disruptive. And it's the lowest-cost
option, because what it does is it gives you a railroad that
can run, that will have minimal operating deficit--there will
be an operating deficit, but the way we're spending the money,
you will have a more efficient operation--and it'll give you
time for reform, whatever that turns out to be. So I would make
the plea that, over the immediate future, we've got to give
Amtrak some stability, in terms of funding and direction so
that we can get on with the business of trying to keep body and
soul together.
Thank you.
[The prepared statement of Mr. Gunn follows:]
Prepared Statement of David L. Gunn, President and CEO, Amtrak
Chairman McCain, Ranking Member Hollings, and members of the
Committee, I thank you for the opportunity to appear today to discuss
the future of Amtrak, the company's FY04 funding request and the broad
strokes of our five-year capital plan.
When I arrived at Amtrak on May 15 of last year, the corporation
was in serious trouble. Amtrak faced insolvency. Sometime in July, we
would miss our payroll. The physical plant had been allowed to
deteriorate. Heavy maintenance of cars and infrastructure had ceased
several years ago--over 100 cars were wrecked or damaged and out of
service. Fiscal controls were inadequate. We would be unable to close
our books for FY01 until September of the following year. There was no
regular reporting of financial results. The organization was poorly
defined and did not lend itself to effective decision-making. Amtrak's
management was top heavy--84 people had ``vice president'' on their
title. The budget process was ineffective, and there was no control
over staffing. Our credibility as an organization was in tatters.
Our immediate goal in June and July 2002 was to secure funding to
allow us to survive into FY03. However, at the same time, we had to lay
a prefoundation for the future. The Board of Directors and I set a goal
to have in place by October 1 a functional railroad organization, a
zero-based budgeting process, and public reporting of financial and
physical results. We also began focusing on controlling expenses. We
were successful--we secured a loan from DOT and a supplemental
appropriation from Congress that allowed us to make it through the end
of the year and avert a transportation crisis. We entered FY03 with an
appropriation from Congress which was essentially zero based and which
focused available resources on beginning the rebuilding process, as
well as controlling expenses. Highlights of the events of the past ten
months are contained in the exhibits you have before you.
Expenses at the railroad are dropping as the result of many
actions, while maintenance activity is increasing. We have redirected
resources into basic maintenance and restored vital programs. We are
rebuilding wrecked, out-of-service cars and should have 15 cars back in
service by May. To bring our passenger equipment to a higher state of
reliability and utility, we have restored the overhauls of cars
simultaneous with their four-year inspections. On the infrastructure
front, our track-laying system train will be back in service in May
after sitting idle for a number of years, and it will be removing aged
wooden ties and replacing them with concrete ties which creates greater
road bed stability and better ride quality. In addition, concrete ties
last about 3 times longer than wooden ones and so you immediately cut
recurring maintenance costs with each concrete tie you put in. With a
thousand fewer people now versus 12 months ago, we are doing all this
with a smaller budget, and we are doing it effectively. We have a long
way to go, but it is a start.
We have closed our FY02 books, six months earlier than last year
and I will make them available to you very soon. Our Board receives
complete GAAP financials, three weeks after the end of each month--
which you receive as well. Barring forces beyond my control--we plan to
make our budget for FY03, although our cash situation will be perilous.
In any event, we must restore our working capital--a necessary
requirement for any business.
Earlier this year we sent to Congress our Board approved FY04
funding request for $1.812 billion of which $1.044 billion would be
spent on capital investment and $768 million for operating support.
Earlier this month I testified before the House Appropriations
Subcommittee on Transportation, Treasury to this effect. The capital
investment would be used to continue the restoration of our fleet to
improve reliability, service and revenue, fulfill our statutory
mandates, and make critically needed infrastructure investments to the
existing national system and the Northeast Corridor--which we own.
There is no new borrowing assumed in this budget, nor any expansion of
service. We have seen a reduction in our total costs from FY01 to FY02,
and we expect the trend to continue from FY02 to FY03. Regarding the
future, I realize that many are unhappy with Amtrak, and usually every
discussion ends with the call for reform. Unfortunately, there is
little agreement on the nature of reform. What is needed, no matter how
we define this reform, is a detailed plan which deals with the legal,
financial, and physical realities of Amtrak. The progress we are making
so far is the result of a plan--many small steps that already and will
ultimately continue to improve our service and financial results. It
will not make us profitable; it will make us better. There is no
single, simple solution to the Amtrak problem. One cannot be developed
overnight--it will take time and thought. I guarantee you though, the
problem will be a lot easier to deal with if my approach is successful
and the railroad is in a state of good repair.
The only way to bring discipline to large organizations like Amtrak
is to build a tight structure, hire and retain competent managers, and
institute a strict budget process. My philosophy for managing includes
five basic tools:
an organization with minimum layers, individual
accountability for specific functional areas, organization
charts documenting the chain of command and all authorized
positions;
clear goals and objectives;
an operating budget based on monthly staffing levels;
a detailed multi-year capital budget; and
a monthly financial reporting and performance reporting for
specific responsibility centers and projects.
With these five tools in place, you can manage. They also keep you
honest. For too long Amtrak did not have a process that created
internal accountability, and the annual funding provided by Congress
has always left it close to the edge. So it is no wonder why the
problems we have had are both significant and recurring. Even with
tighter management and better financial accounting, there are still big
risks. However, through better management, we will be able to avoid
these recurring financial crises, which divert attention from the real
problems and decisions which need to be made.
Clearly, over the next few years, we must define the reform we want
and develop a detailed plan to achieve it. We have already instituted
several reforms but in considering reform, I would ask you to bear in
mind the following myths that are prevalent in some circles:
Myth No. 1--Amtrak can be profitable.
No national rail passenger system in the world is
profitable. Without public subsidy, there will be no passenger
rail transportation systems in the United States.
Myth No. 2--The private sector is dying to take over our services.
Remember why we were formed. We are what is left of a once
privately run enterprise.
Myth No. 3--Long-distance trains are the problem.
This is perhaps one of the biggest myths. If on a fully
allocated basis you might start to save significant amounts of
money after a number of years. Focusing on this problem is not
going to save Amtrak. This approach is a red herring.
Myth No. 4--Amtrak is a featherbed for labor.
Our wage rates are about 90 percent of the freight industry
and are even lower when compared to transit. Wages are not the
problem; generating a higher level of productivity, that is the
challenge. It is management's duty to seek such improvement.
Myth No. 5--The Northeast Corridor (NEC) is profitable.
The NEC may cover most of its above-the-rail costs, but it
is an extremely costly piece of railroad to maintain.
Railroads, both passenger and freight are extremely capital
intensive. The NEC is not profitable and never will be. Sure,
private groups might be interested in having it, but they would
take it only with the promise of massive capital infusions.
Myth No. 6--There is a quick fix--reform.
The word reform is like catnip to those interested in a
quick fix to Amtrak. If the answer were quick and easy, we
would have solved the problem long ago. What needs to be done
is to tightly manage the company and its finances and begin to
make incremental but critical improvements to plant and
equipment. As I stated before--there is no silver bullet.
At some point, Congress will turn its attention to the
reauthorization of Amtrak, and it will be in this venue that the future
of passenger rail service will be decided. In the year that I have been
here, I have been struck by the amount of attention that Amtrak
generates without real progress occurring in addressing the long-term
funding problems that everyone knows exist. I realize that Amtrak is
partly to blame for this paralysis of action; recurring crises distract
us from the central issues that should be discussed. I know that Amtrak
for too long had been engaged in the charade of pleasing its detractors
by endorsing the concept of self-sufficiency. Let me be clear, however,
that despite the best management that could be brought to this
railroad, without support for a realistic investment over the next few
years, we will always remain on the edge and the problem will grow
worse, risking a real disaster either physically and/or financially.
The lack of a detailed policy will soon produce unwanted consequences.
You have before you Amtrak's five-year strategic plan. I believe it
is both a practical and pragmatic plan that shows what needs to be done
and what can be accomplished with a consistent level of funding from
FY04 through FY08. We will stabilize Amtrak and bring the railroad up
to a state of good repair. If fully executed, our equipment will be in
good condition--and on regular maintenance cycles which means improved
reliability and utilization, and the backlog of critical needs to our
Amtrak infrastructure will be significantly reduced. Regardless of what
policymakers decide is the future for Amtrak or rail passenger service
in the United States, I would argue that the steps outlined in the
five-year plan are essential and would have to be done in any case. The
first down payment on that plan would be in FY04.
Our plan also represents the least expensive and least disruptive
course of action for the Congress. Unfortunately, in the past few
years, a troubling pattern has emerged of creating new oversight
responsibilities as a substitute for a real discussion on the issue.
This is a ``mugs game,'' a distraction with no real benefit to anyone
unless the goal is to interfere with this company reaching fiscal
stability and a state-of-good-repair. Repairing and improving this
railroad is the Board's and my immediate goal and is in everyone's
interest. We have a five-year plan that will accomplish this, and I am
asking for your support and leadership as we move forward. I would urge
you to consider this plan in the broader context of Amtrak's
reauthorization where it really should be done and end this stutter-
step practice of reforming Amtrak through the annual appropriations
process. Whatever you ultimately decide to do, I would argue that what
is proposed in the plan will have to be done in any event and it will
be the least costly option. The railroad must be stabilized and the
asset improved--regardless. Taking these steps will provide clear
guidance, goals and objectives that will help all of us to avoid these
regular and recurring crises that have become so tiresome. If we fail
to take these steps now and address these issues, the results could be
disastrous.
The Chairman. Thank you, Mr. Gunn.
Mr. Jackson, when can we expect to receive a plan and
legislative proposal as you outlined in your testimony today?
Mr. Jackson. We don't have the full details hammered out
yet. We'd like to take this time, after having outlined the
detailed skeleton of what this legislation looks like, to
consult with the Committee. I've already asked Freight Rails
and Labor and others to be invited to the table and to come in
and talk about the fine points of the details. So we expect 2
or 3 weeks' worth of those types of consultations, after which
we'll finalize the draft that we have going and get it up to
you as soon as possible.
The Chairman. Meaning a month, 2 months, 6 months?
Mr. Jackson. No, I would say our shot is less than 2
months, but we will need a little bit of time, I think, to have
the benefit of a consultation and try to see how much consensus
we can build around the details. We'd like to start with this
committee and have those conversations, as well.
The Chairman. Mr. Mead, last week, Amtrak released audited
financial statements for 2002. The statement improved
significantly over the prior year because Amtrak eliminated an
accrual for a retroactive wage increase and lowered
depreciation expense by lengthening the assumed useful life of
its assets. Were those reasonable adjustments?
Mr. Mead. Yes, I think they were reasonable adjustments. I
want to say a word about the financial opinion. This year was
an improvement because they came out with the opinion in April.
You know when we got the opinion last year? It was in
September. If you tried that in most businesses, you get de-
listed from the stock exchange. You ought to be getting your
opinion on your financial statements out not too long after the
close of the financial period to which the financial statements
pertain. And so while April is an improvement, I think you
really need to have that within 2 or 3 months of the close of
the fiscal year.
The Chairman. Several proposals for managing the Northeast
Corridor have been advanced by private-sector companies. Based
on your concerns about establishing a for-profit
infrastructure, do you think we ought to have those proposals
considered?
Mr. Mead. Not for the foreseeable future. That's my
personal opinion. I can't speak for the Administration.
Why do I say that? It's because who, in their right mind,
would take on the Northeast Corridor in its current condition?
You need billions of dollars to bring it up to speed. They're
not going to do--they may take it on, as Mr. Gunn says, they
may take it on if you were to give them these billions of
dollars and get it in a state of good repair. Once you get the
Northeast Corridor in a state of good repair and be able to use
your high-speed trains to really perform at high speed, then
that would be the time that you could play these other options,
such as privatizing, or whatever, on the table, but not before
then, and I don't see that happening in the foreseeable future,
sir.
The Chairman. Mr. Gunn, in 2001, Amtrak retained the
consulting firm McKinsey and Company to perform a strategic
analysis at cost of $10 million. They recommended that Amtrak
operate short-distance and new higher-speed corridor trains on
a for-profit basis, operate long-distance trains on a
subsidized basis, and prepare for privatization. Do you agree
with this McKinsey strategy?
Mr. Gunn. No, I think--well, I had real problems with the
whole McKinsey approach.
The Chairman. You had real problems with what?
Mr. Gunn. With their approach, with the way they dealt with
the company. And, as I said, I view this much more from the
person trying to go from where we are today to a little better
position in the next 12 months, and I think that their
recommendations missed the mark on what some of the internal
problems were with Amtrak, in terms of organizational
structure, accounting, and the like.
They made a bunch of recommendations for reform, which are
added to the ones that you'll hear today, and I don't think
they made--to me, they were not something Amtrak could
implement. Now, they may make sense politically, but, from an
Amtrak-management point of view, there's nothing I can do with
them. What I can do is deal with the reality of the company
that I run.
The Chairman. So we blew $10 million, then.
Mr. Gunn. I wouldn't have spent $10 million--it's actually
$12 million, I think.
[Laughter.]
Mr. Gunn. But I wouldn't have spent the $12 million on
that.
One of the things I've done is to try to basically get rid
of as many of the consulting projects that we had internally--
and I think they're mostly gone. And the 5-year plan that we
put forward is done by people at Amtrak, Amtrak employees, the
people who actually maintain the cars and equipment, and that's
the way I prefer to operate. And if they can't do it, you get
rid of them and get somebody who can. But I don't believe you
pay $12 million for somebody to come in to tell you how you
should run the company.
The Chairman. You've heard me discuss the Sunset Limited.
According to GAO, it lost $347 per passenger in 2001. That's
why I cannot comprehend why you don't believe that long-
distance trains are a part of the problem. But you were quoted
in a newspaper article entitled ``Amtrak Committed to Long-
Distance Trains,'' where you said, `` `Should there be a Sunset
Limited? That's a political decision,' Gunn said in an
interview with a Lake City reporter, but he left little doubt
where he stands on the issue. As long as he is Amtrak's
president, Gunn said, `The Sunset Limited is no more endangered
than the whole system.' ''
Mr. Gunn. Because----
The Chairman. Do you really mean that, Mr. Gunn?
Mr. Gunn. Yes, sir, I do.
The Chairman. So there will be no elimination of any route,
because it's a, quote, political decision?
Mr. Gunn. No, sir. We have eliminated several routes
already. They were the Kentucky Cardinal and the Pennsylvania.
Now, they were put on for mailing express service, they were
not part of the national system, and they have been eliminated.
Well, one train was turned into a New York/Pittsburgh train,
and the piece that went to Chicago was abolished.
No, my feeling is this. I believe in the national network.
I think that the Federal Government has an obligation to
provide a national rail system. I think it's clear that they
provide a national highway system, they provide a national
airline system----
The Chairman. But we don't build highways that aren't used,
Mr. Gunn.
Mr. Gunn. Well, but our trains are actually used. The
Sunset Limited is--I don't want to give you the wrong
impression--it's not an empty train when you ride it.
But my point is twofold. One, we have a national system.
And as the president of Amtrak, I have a choice. I can spend my
time doing the doable--which is what I have been trying to do,
putting in fiscal control, fiscal discipline, driving costs
down--or I can engage in a political debate over--which will
become a political debate--over eliminating long-distance
trains. Now, if I do that, one, I will consumed; two, I don't
believe that I should--I believe in the long-distance network,
so I don't, personally, want to do it; but, second, it won't
save any money.
One of the benefits of the grant process that we have with
DOT now is--we were forced to do a direct-cost analysis of the
trains. When you do that, the Sunset Limited loses about $12
million a year. That's on direct costs. That's what happens if
you just eliminate the Sunset Limited. In order to get that,
you've got to go through the labor-protection costs, which are
going to take--and notification--which is going to take you a
couple of years. So I have a company that--well, actually, this
month, in April, we--at one point, we were down to 3 days'
cash. And if I spend my time fighting a train--pick any long-
distance train--and that becomes the issue, it's strictly the
appearance of the thing; I won't save any money, and I'll be
diverted from doing what I think is paying off and paying
dividends for the taxpayer and for Amtrak and for its
passengers and employees.
The long-distance train network, if you want to save the
money that one of these two gentlemen mentioned, the $300
million that the long-distance network loses, you have to
abolish the whole network, and that is a political decision. I
mean, I really think it would be presumptuous of me to do that.
Plus, I don't believe it should be eliminated.
So I really think that there has to be--if you're going to
eliminate the long-distance trains, you're going to have to
fund them for 2 or 3 years without service, and there has to be
a commitment from the Federal Government because of labor
protection. I mean, that's the facts of life. And there's
nothing that I can gain for Amtrak in the short-run by picking
on routes of the basic national system.
The Chairman. Well, I know of no business model that
doesn't call for the elimination of money-losing parts of their
business, Mr. Gunn, and they--whether it's $300 million or the
$547 million that DOT's announced----
Mr. Gunn. It's the whole system, though, Senator.
The Chairman. Mr. Gunn, you cannot convince me that any
business is run efficiently by keeping the least efficient
parts of their business, particularly when their business is
hemorrhaging money in an incredible fashion. And saying that
it's a political decision, sir, in my view, is an abrogation of
your responsibility, so I'm very, very disappointed.
Senator Hollings?
Disgraceful.
Senator Hollings. Well, Mr. Chairman, come now.
I think that we have had----
The Chairman. No, let's not ``come now.'' We've had
billions and billions and billions and billions of dollars
spent, and we won't even eliminate one route that's subsidizing
$347 per passenger. Let's come now, Mr.----
Senator Hollings. Well, good, and we might do that. I don't
know. I haven't been in specifically on that particular issue.
But I have to say that the testimony that we have had, in
general, is outstanding. And I know my good friend, Secretary
Jackson, has to give the Mitch Daniel structural reform--he's
still studying, and his testimony about structural rot and all,
you have to act like you just came to town. You've been in town
for 2\1/2\ years. I've been beseeching you, on behalf of the
Congress, year in and year out for the last 2\1/2\ years, month
in and month out.
All you've come forward is principles, more study, and
structural reform, and you go right to Mr. Mead, the
controller, and he says it's under-funded. And you go right to
Mr. Gunn, and he says it's under-funded. What he's really
attested to is to stabilize, for the next few years, but not to
really give what--and this is the best testimony we've had--
what Senator Hutchison has said, and that is that we have a
national system.
Now, what we have on course after the 2\1/2\ years, we've
got a bill. I introduced it in January. There are 32
cosponsors. If we had a vote this morning, we could vote it out
of the Committee. I've got enough votes to do that. But the
idea is not political. The idea is to get it done.
And Senator Hutchison is the Chairman, and, Senator, I'll
yield to you. You take over the bill or let's get together with
Mr. Mead and Mr. Gunn and get the 5-year plan and see what
alterations realistically to take care of the concerns of the
Chairman that we're just not throwing the money away and
everything else of that kind. But let's get your bill with our
cosponsors and everything else and let's put something out and
get something done.
You have exactly what I want. I want a national system. And
I'm listening, incidentally, I think it was the day before
yesterday, I heard Secretary Rumsfeld in Iraq or over there
somewhere, and he said, ``We're going to build a railroad over
Iraq.'' And I said, ``Egads.''
[Laughter.]
Senator Hollings. That's the first time I've ever heard
anybody from the Cabinet in this Administration say we're going
to rebuild the railroad. I've been trying to get them to say
so. Of course, the trouble is, he's going to do it in Iraq.
[Laughter.]
Senator Hollings. Let's get it done here in the United
States, Senator, and let's all get together and work this thing
out.
I apologize, Mr. Chairman, I've got another hearing I've
got to attend.
But I want to thank the witnesses, because you've hit the
target. I mean, you all have studied it, and we've been back
and forth on this thing, and we've got the Congressional
support now. They're ready to go. And let's see what changes
Senator Hutchison and others want to make and work together,
and let's get something out.
Thank you.
The Chairman. I thank you, Senator Hollings. And I'm sure
you understand that we'd like to get the--I'm sure Senator
Hutchison agrees--that we'd like to get the proposal from the
Administration, as well as part of this process.
Senator Hollings. Well, our trouble is, as part of the
process we've been waiting for 2\1/2\ years. That crowd doesn't
want to spend money. The OMB says, ``Not a red cent for
Amtrak,'' and that's their position. I mean, we can understand
that, Mr. Chairman, most respectfully.
The Chairman. Thank you, sir.
Senator Hutchison?
Senator Hutchison. Well, thank you, Mr. Chairman. And I
really thank you, as well, Senator Hollings, because I do want
to have a bill, and I want it to meet the Chairman's criteria
and my criteria, which is we do it right or we don't do it at
all.
And I have to say that I am in disagreement with the
statement of the Chairman. By the standard that he just issued
to you, Mr. Gunn, we wouldn't build half the highways that are
Federally funded. We've built highways in West Virginia and
Pennsylvania and Kentucky that have practically no one using
them, or maybe a few people using them, but if you put them to
the test of whether they've paid for themselves with highway
funds, they wouldn't meet the test. In aviation, we haven't
made distinctions. We've deregulated, and many routes have been
eliminated, but we still have other routes that are subsidized.
I mean, I just think you can't put Amtrak to a different test
from the rest of transportation.
We have to make a decision in this country. Are we going to
have public transportation that includes highways for
automobiles and buses, trains, and aviation? I think we do. I
think it is a government responsibility, and I think we need to
do it right, and I think it's part of commerce and business in
our country. And not one transportation system meets the
business criteria that it can make it without any government
spending. They all have government spending.
So why don't we make Amtrak an equal part of our multimodal
system and do it right. That is my first choice. However, if we
aren't going to do it right, I think it is throwing good money
after bad.
I want to bring up another view, because I do agree with
the Chairman that we need to have a bill that has
Administration input, and we do need to have your fleshed-out
details on just what a separate operating unit would produce.
And I think any part of an Amtrak reform has to include either
a privatization option or some requirement from the freight
railroads that they meet a certain standard.
I wonder why the Sunset Limited is losing so much money.
Could it be that they are 6 and 8 hours late because some of
the railroads on the route don't cooperate? Could it be that if
we had the same attention to the other routes and the
cooperation of the freight railroads, that these would be
reliable? Is it any wonder that people who call to make
reservations for the summer and are told that the long-haul
routes may be eliminated in May or June are going to make
alternative plans? And what does that do the revenue of that
line? We never recovered from the last time we said that we
were going to eliminate the routes, and then at the last minute
we come in and we don't eliminate them. But how many
reservations have we lost that we never get back?
So if we're going to give Amtrak a chance, it has to have a
real chance. So let me ask you this question. There is another
proposal out there--I have met with some of the people who are
looking at it--that we would deed the Amtrak lines from the
Northeast to an entity that would issue bonds. It would be a
private entity--public/private--but it would be a private
entity that would issue bonds to upgrade and maintain the rail
in return for which we would have leases that would allow them
to repay their debt, and the leases would be from the Amtrak
operating unit.
Is that something that you think we could pursue to get the
government out of the maintenance operation and into
operational operations, which would put the Northeast Corridor,
hopefully, in a better situation? And there seem to be willing
people to look at this. So I'd like to ask the three of you if
you think that is an avenue that we could pursue if we're going
to really reform Amtrak.
Mr. Jackson?
Mr. Jackson. I think that the right way to think about the
process here is that capital investment and the solution is an
important thing to accommodate a structure to. So is it a
silver-bullet solution? No.
And the word ``privatization'' is, I think the wrong word
to think about, in terms of the corridor, because I believe
that we ought to have a public ownership of the corridor
contracting out to private entities to operate it in the most
efficient fashion. And that would, in our Administration's
proposal, include initially contracting out to the Northeast
Corridor infrastructure company that is peeled off from Amtrak
in due course. But it would also, in due course, accommodate
private-sector investments that would be duly reviewed by the
public entity created to operate this, and I believe that there
is a role for making this operate more effectively with those
types of private-sector proposals to help manage that asset.
So----
Senator Hutchison. Including letting them go into debt in
return for some kind of revenue stream?
Mr. Jackson. I think that we should absolutely----
Senator Hutchison. It would be the repair and maintenance?
Mr. Jackson.--consider those types of proposals. An entity
created to operate the corridor should solicit every creative
financial mechanism that is, you know, out there for assessment
and review.
Senator Hutchison. Mr. Gunn?
Mr. Gunn. I think you've raised a good issue. You mentioned
the freight railroads and the conditions of the freight
railroads. While Amtrak--everybody's focusing on Amtrak--if you
look at what's going on in the railroad industry in general,
they're in very serious trouble, financially. I mean, their ton
miles are going up, their revenue per-ton-mile is going down,
gross ton miles per freight-train hour is dropping, which is
a--what's happening to them is, they're not generating enough
money to pay for the capital they need to operate that plant.
And I think whatever arrangement we make with corridors or
long-distance trains, where you're operating over the freight
railroads, you have companies that are in very serious trouble.
I mean, the----
Senator Hutchison. Well, let me ask you this, then. If
that's the case----
The Chairman. The Senator's time has expired.
Senator Hutchison. Could I just----
The Chairman. Senator Lautenberg?
Senator Hutchison.--finish that thought, please?
The Chairman. The Senator's time has expired.
Senator Lautenberg?
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. Mr. Chairman, I don't know whether
we're distributing time on some formula, but----
The Chairman. We'll have a second round, if necessary.
Senator Lautenberg. Will that include the same amount of
time as the Chairman took in his questioning?
The Chairman. We'll go by the clock, I say to Senator
Lautenberg.
Senator Lautenberg. Yes, the clock was red.
The Chairman. The clock beginning, please.
Senator Lautenberg. Yes, the clock was red, sir, for a long
time, and I'm seeing a little bit red here today myself.
I've known Mr. Gunn a short time, but I've known his record
for a long time. A long time. MTA and other places. And I may
have differed with you occasionally on a policy matter. But I
want to say I haven't seen you do anything disgraceful. Because
you exercised your judgment and you spoke up for it? There's no
disgrace in that, Mr. Gunn. Do it, and do it forcefully.
We're tackling a subject here in a manner that, frankly, I
think, is disgraceful. Give me one example, Mr. Jackson, if you
would, of where going private was an answer to a government
problem. Was it in, for instance, the baggage handlers that
work at the airport? Did we like what government was doing in
those cases, or government supervision was--I'm sorry, private
supervision was doing there?
Mr. Jackson. In the case of baggage handlers, the Congress
decided to make that a public function, but we couldn't have
ever gotten the transition to the private baggage handling,
from the private baggage to the public to work without
substantial cooperation and help from the private sector. We
used smart, good people in both the public sphere and the
private sphere to do the job, and that's exactly what the
Administration is proposing here.
Senator Lautenberg. Well, to me, it is sort of backwards. I
mean, here we're talking about--the other day we talked about
privatizing parts of FAA, and now we're talking about dumping
the whole Amtrak infrastructure. And the fact of the matter is
that no one is looking at the end game here. We see lots of
businesses--and I come from the world and I know what I'm
talking about--that hold onto branches that lose money
constantly because it's part of a total infrastructure for the
company, that they have to supply a service whether they like
it or not. You can't always peel off that which you don't like.
We spent a ton of money on the military, and we saw the
results in Iraq. We saw technology operating as it never has
before, and we saw a really small--except for those families
that had to endure loss of life or loss of health or loss of
well-being. It's because we spent the money. We didn't get a
return on it until quite late in the game. And that's the job
of government; not to throw away money, but to spend it where
you know it's a vital service.
We have essential air service here. New Jersey doesn't get
any essential-air-service benefit, but we do it. New Jersey
sends down--and the Chairman corrected me at a previous
meeting--$1.65 for every dollar we get back from the Federal
Government. The Chairman issued a challenge. The fact is that
the Chairman's reference was to transportation only; I'm
talking about overall funding. Arizona gets $1.15 for every
dollar it sends down. New Jersey sends down $1.67 to get back
its dollar.
We are a United States of America. That means all states.
That means that we all have to help one another, whether it's a
flood or a drought or an earthquake. We all have to help out.
And I'm not begging for help for New Jersey and New York. I'm
saying that a balanced transportation system may benefit some
at one time and others less at another time.
And when we opened the airport here, the Washington
National Reagan Airport, to flights from longer distances, it
wasn't by unanimous consent. It was by a description of the
need to extend the mileage beyond that which originally the
compact had.
Look at the experience of the U.K. Look at the experience
of other countries, and see what happened. Whether we like it
or not, this country is going to have a railroad, and it may
not cover the distance that it covers now. But I assure you,
between the major cities of our country, there is no other way.
In the New York/New Jersey area, it costs $8 billion a year
just for the cost of congestion--lost fuel, lost time, et
cetera. It doesn't go into anybody's pocket that's of benefit.
And so, Mr. Chairman, with all due deference--I have great
respect of the Chairman of this committee--we do differ
occasionally, as may be noticed.
I would ask unanimous consent that my full statement be
included in the record as if read.
The Chairman. Without objection.
[The prepared statement of Senator Lautenberg follows:]
Prepared Statement of Hon. Frank R. Lautenberg,
U.S. Senator from New Jersey
Mr. Chairman,
Today's hearing is immensely important because we will be
considering the present and future status of passenger rail service in
our country. What role should passenger rail service play in a
national, intermodal transportation system? How should we fund it? What
is Amtrak's future?
Amtrak has its fierce defenders and its equally fierce detractors.
I am one of its fierce defenders because I believe that the passenger
rail is a vital component of our national transportation system. In
rural towns across America, passenger rail may be the only option for
intercity travel for many people.
In the Northeast, we rely heavily on Amtrak's high-speed service
between Boston and Washington, D.C. The Northeast Corridor serves
cities with four of the Nation's seven most congested airports: Logan,
LaGuardia, Newark, and Reagan National. Amtrak carries more passengers
between New York and Washington than all of the airlines combined and,
unlike airline passengers, rail travelers are able to stop in Trenton
and Newark, New Jersey, and in other places along the way.
As our cities and suburbs continue to swell with people, our roads
and airports become more and more congested. I think the prudence of
increasing our investment in another way to move people--passenger
rail--has become more and more obvious. But like the salesman often
says, if you don't buy now, the price goes up tomorrow. Do we want to
wait until we back ourselves into a no-win situation? Here in the
Northeast, the first part of the country to become densely populated,
we faced congestion problems long ago, and passenger rail service
became a mainstay.
New President and CEO David Gunn is clearly doing a fine job
stabilizing Amtrak. He has reduced costs and is aggressively trying to
bring the infrastructure and equipment into a good state of repair. He
does not have an easy job, and I commend him for his take-charge
attitude and accomplishments to date.
But it is up to Congress and the Administration to make fundamental
policy decisions about the roles of passenger rail service in general,
and Amtrak specifically. While we should be concerned with its day-to-
day operations and efficiency, we also need to be thinking about the
big picture. Where is Amtrak going to be in five years? Or 10 years? In
this post-9/11 environment we have a new perspective about the national
security interest in ensuring that there is more than one way to get
from here to there, and this includes passenger rail.
Some people claim that privatization is the answer; that the
private sector can do things cheaper, better, and more efficiently.
Privatization is not always the best answer. Sometimes, it's not an
answer at all. I would remind my colleagues that Congress created
Amtrak in 1970 to bail out the private sector because it couldn't
provide passenger rail service at a profit.
Even though Amtrak is a truly national passenger rail service, some
opponents see it as a parochial interest solely in the Northeast. Even
if that were so--and it is not--I will conclude my remarks with the
following observations:
First, we are the United States of America. One of the things that
unite us is our intermodal transportation system. New Jersey doesn't
benefit from programs like Essential Air Service (EAS), but I support
such programs because they help tie in other parts of the country to
us.
Second, on a related note, the Northeastern States serve as an ATM
for the rest of country. We have 21 percent of the Nation's population
but pay over 25 percent of the taxes. In Fiscal Year 2001, for
instance, for each dollar the taxpayers of Massachusetts, New York, and
Delaware sent to Washington, they got back 84 cents in spending. For
Connecticut's taxpayers, the return was 67 cents. For my taxpayers in
New Jersey, it was 65 cents.
All in all, the 60.5 million people who live in the Northeast paid
$496.4 billion in Federal taxes, but received just $386.5 billion in
Federal spending in 2001. That extra $110 billion went to other parts
of the country. What that means is that people in the Northeast
disproportionately paid for the grain subsidies that benefit the
Midwest, the cotton and rice subsidies that benefit the South, and the
hydropower, irrigation, timber, mining, and grazing subsidies that
benefit the Mountain and Southwestern States.
We Northeasterners do this because that is the price of our Federal
system--a system that has worked exceedingly well for all Americans for
over 200 years now. I look forward to hearing from our witnesses today
and I look forward to working with the Members of this prestigious
Committee to come up with creative ideas for ushering passenger rail
service into a new era.
The Chairman. Senator Lott?
Senator Lott. Mr. Chairman, I apologize that I have been in
and out this morning. I'm very interested in this area. And I
have, over the years, discussed this with all three gentlemen
at the table and with the Chairman, and I've had a lot of mixed
emotions. I do think, as others have probably said here, we've
got to make a basic decision. Do we want a national rail
passenger system or not? And if so, are we willing to pay for
it?
I've had to eat my words, because I basically said, when we
passed this program 5 or 6 years ago, to Senator McCain on the
floor, ``We're going to make this thing work. We're going to
make it pay for itself or, you know, we're not going to support
it.'' Well, I'm crawfishing off of that. I admit it.
I don't know. I ask myself sometimes, is it because I'm
romantically involved here? I just love the concept of having a
diverse transportation system that includes a national rail
passenger system. I do think we need it. If we're going to do
it, though, we're going to have to admit what the costs are and
be prepared to deal with that.
I think we've got a good strong leader in Mr. Gunn. I
appreciate the job he's doing. Unfortunately, he tells us the
good, the bad, and the ugly, and we don't like to hear the bad
and the ugly part of it. But I think that's the kind of guy he
is, and he's trying to get the thing straightened out. And I
do, of course, like the Chairman of the Board, John Robert
Smith, of Meridian, Mississippi, who is committed to trying to
do this thing in the right way.
I don't know exactly what Senator Hutchison said, but--and
if this is just going to be a Northeast Corridor, well, let's
just make it a Northeast Corridor and be done with it, decide
how we're going to deal with that. But I don't think my
constituents want that. We want the Northeast Corridor to be a
viable system; but we've seen, time and time again--we do need
it, but I do think there are some benefits to a national
system.
I apologize for not being able to actually ask some very
critical questions at this point, but since I don't exactly
what's been said or what's been asked, I'll defer at this time.
I am going to be looking forward to working with the
Chairman of the Subcommittee and the Chairman of the full
Committee to make some decisions of what we are going to do in
the future. I personally think we need it and need to continue
it, and then I think we need to deal with the realities of what
it's going to cost.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Sununu?
STATEMENT OF HON. JOHN E. SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you, Mr. Chairman.
Let me begin by saying, Mr. Gunn, I think you've done a
good job. I think you've been aggressive. I am at least
familiar with your experience, and it is impressive. I think
you're the right person in the place at this time. And you
began by talking about the things that you've done that are
good, that are strong--better plans, better auditing, better
analysis. You've put together an exhaustive assessment of what
you want to do over this 5-year period with $8 billion, and I
would hope that if anyone were asking the government for $8
billion, they'd have a pretty good plan of how they were going
to spend the money.
But what you are effectively saying is, ``If you give me $8
billion, you can trust me to spend it well, to invest it as
well as possible, and, at the end of this 5-year period, I'll
give you a system that's no longer in crisis and that only
requires a subsidy of a $1.5 billion a year going forward.''
Now, based on current ridership numbers, and even if you
inflate them a little bit, that is an average subsidy of $50
per passenger in the system 5 years from now. Now, that may be
a dramatic improvement over the current situation, but I don't
think that that's really a program that will incite confidence
in the taxpayer or committees that, at the end of the day,
we'll really have something that has a clear sense of purpose
and mission and, arguably, some economic rationale.
Now, I hesitate to use the word ``economics,'' because
everyone might leap to the conclusion that that means we're
talking about having Amtrak be profitable, and this is not a
debate over whether or not we provide some subsidies to
passenger rail at the Federal or the State or even the local
level. We've got transit programs, we've got all kinds of
subsidies out there. Yes, we have a highway program, and we
subsidize small airports and rural airports. This is not a
debate over whether we subsidize the system.
I think, first and foremost, this is a debate and a
discussion over whether or not there's the level of economic
rationale in these figures and in this system today, and
hopefully 5 years from now, that we would expect, as
policymakers, and that the public would expect.
To that point, I think the Chairman's question about these
long-distance routes is very important, and it is not enough
simply to say, ``Well, we believe, in principle, that a
national system is a good idea, it's somehow a good thing, so
we're going to stick by all of these numbers.'' And I won't run
down all of the subsidy levels on the long distance, but they
are enormous. And the Sunset is just the tip of the iceberg.
It's not enough just so say, ``In concept, we think a national
system is good,'' because if you make that statement in
principle, then you're effectively saying, ``Well, we'll
support a national system, no matter what the cost. No matter
what the economic impact on the taxpayer, on consumers, we're
willing to support a national system.'' And I don't think
that's necessarily the position you're taking.
But I think we have to at least look at the economics so
that we understand the scope of the subsidy and what we are
putting the taxpayer on the hook for. And there's no getting
away from the fact, even with this aggressive plan, which we
might say is the best plan we've ever seen for Amtrak, at least
put on the table as a public entity, it still puts the taxpayer
on the hook for $1.5 billion per year in perpetuity, period.
And it doesn't even address the debt situation.
You went through a series of myths. One of the myths you
talked about was the myth of labor costs, that this is a myth
that this is a problem. But then when confronted by the subsidy
rate of $348 per passenger subsidy for the Sunset Limited, your
rationale for not being able to do something about that
specific question were the labor costs and, in particular, what
do you call it--the labor protection that would be required.
You can't say that the labor issue is a myth, that labor is a
problem, but the reason we can't get rid of a route is because
of the labor protection cost. So, you know, I'd like you to
address that point and talk about whether or not these labor
protection costs really are an economic problem within the
system.
You've got time.
Mr. Gunn. Labor protection costs are not a cost unless you
get rid of the train, so that's--obviously, if you're getting
rid of the train, it is a cost. When I was referring to labor
costs, what I said was related to an ongoing operation, and I
said that the problem at Amtrak is not so much the wage rates
is, we have some work rules which I think could be changed and
which will give you greater productivity.
So all I was suggesting is that people will make the
analogy between Amtrak and an airline. Well, it's different,
because our wage rates are very different from the airline
industry. Our problem, in terms of productivity, I would
submit, is much more in terms of work rules. And in the plan
that we've given you, that assumes that we will make
significant progress with our labor organizations in terms of
work rules and productivity.
The labor protection piece is--I mean, that's only a cost
if you're getting rid of the train, so that's why I didn't--it
doesn't affect----
Senator Sununu. Well, I appreciate that, but I think it is
a significant cost. It is an opportunity cost. It's an
obstruction to reform, to evolution, and to modifying the
system.
One final question. I would like to hear a little bit more
about the mortgaging of Penn Station, because there's no other
public entity that I know of that has gone out and basically
borrowed money against public assets. And we can talk about the
interest-rate differential. But, for Amtrak, as an entity, to
go out and mortgage public assets that are, again, owned by the
public, is stunning.
What is the size and the scope of the debt that now exists,
obligations that are held against public assets, like Penn
Station?
Mr. Gunn. Well, first of all, let me just say that that
happened prior to my arrival. I would not have proposed it. I
think it was a bad decision. And we are not mortgaging any
additional assets at this point, and we don't plan to.
I believe they got $300 million for that, wasn't it, Ken? I
think it was $300 million. The debt on Amtrak's books, on our
balance sheet, is $3.7, $3.8 billion.
Senator Sununu. And, to be clear, the 5-year plan that you
have really doesn't address pay-down of that debt, a swap-out
of that high-interest debt, or--it just deals with paying the
legal requirements on principal and interest.
Mr. Gunn. That's right. But, actually, the debt--the
interest rates peak this year, and they'll drop. And if you
look--if I could show you the income statement, you'll see the
interest charges dropping. But it'll be a number of years
before we're really out of that.
The only debt we're repaying, proposing to repay, is to
begin repaying the $100 million loan that we got from DOT last
summer. That--I think we should build that into our budget, at
least in part, to pay that back, and start that in 2004.
Senator Sununu. Thank you, Mr. Chairman.
The Chairman. Senator Hutchison?
Senator Hutchison. Yes, before our time runs out, I would
like to finish a thought with you, Mr. Gunn, and that is, if
the railroads are in bad financial condition and, therefore,
unable to be cooperative with the right-of-way on the track,
would it be worth it to a railroad to donate right-of-way next
to its track, let Amtrak build track so that it would have the
full usage of it, not having to buy the right-of-way, making it
hopefully more economical, and then Amtrak could have total
control of its routes and its tracks? Would that be something
that would be worth looking at? Might it alleviate the
situation with the railroads and give us a chance to have a
system that would be on time and better served?
Mr. Gunn. Well, obviously, the railroads would decide what
they could donate to us, but I think that the cheap--forgetting
for a minute whether they donate or don't donate, the cheapest
solution for giving Amtrak and freight a good ride may well be
something that's less expensive, and that is just adding some
additional sidings and crossovers and so forth.
For example, on the Sunset Limited route, you couldn't
propose building a right-of-way for one train. I mean, that
would be very uneconomic. But you could say, on some of these
routes, that there is a public benefit, for both freight and
passenger, if we can solve some of the bottlenecks and
constraints.
And I would suggest that what you do depends upon the
route. In other words, there are some routes where there's no
room, and so if you want passenger service, you have to build a
separate right-of-way, if you want good, reliable, frequent
passenger service. But there are other routes where you can
make--for example, Portland, Seattle--where you can make
modifications--and if you have a willing railroad--you can make
modifications to the existing track structure and--the layout,
the number of passing sidings, and so forth--and you can
provide the added capacity at a pretty reasonable cost, much
less than building a separate track.
So you have to, sort of, base the solution on the problem
you're trying to solve. There's no cookie--I can't give you a
cookie-cutter answer to that. But there are some areas where
you need more track; other areas, you just need some additional
passing sidings.
Senator Hutchison. But one of the reasons that I believe it
is so important that we make the right decision here is that it
would be impossible to buy right-of-way to build new tracks. We
have to deal with the right-of-way that is already there, and I
don't--I just don't know the cost-benefit analysis to the
railroad, but I think it is certainly worth looking at asking
them for the donation. And maybe you start with what you're
proposing; you look at the worst problems, and you try to do
bypasses on their right-of-way with their consent and see if
that is helpful to them, as well, so that it is a win both
ways. And I think that should be part of any kind of long-term
plan that we would put in place. Because I know the Sunset
Limited or the Texas Eagle or any of these other routes that
are 5 and 6 and 8 and 10 hours late routinely are not going to
have a chance to succeed. So that was my question.
My last question would be to Mr. Mead, back on my original
question. Do you think that either what Mr. Jackson proposed,
contracting out to private companies and let them do debt, or
selling the trackage to a private company, let them issue debt
to maintain, with the return lease that would be to help them
pay for the repairs and maintenance that they're making--would
that be any kind of a feasible alternative?
Mr. Mead. In the Northeast Corridor, I think the tab is
simply too large for the immediate-term. I think in the
immediate-term, there needs to be an infusion of capital to the
Northeast Corridor.
Can you borrow it? The problem with borrowing it is that
the amount that you'd have to borrow--you know, the investors
would expect a return over a reasonable period of time, and
that return would have to come from the people that use the
corridor; either that, or the Federal Government would have to
pay, and it would be a very substantial amount of money.
I think that the concept that you offer is workable once
you are in a reasonably good state of repair. But really
there's no way of cutting it, other than to say that if we want
the Northeast Corridor to be in a state of good repair, it's
going to take some big money.
Senator Hutchison. Mr. Gunn, I would like to ask you to
help us by showing us where bypasses like that might make a
significant difference in the system, and then let's discuss
if, in the overall, that would make a difference in a long-
range plan. I'd like to have that as part of our
considerations.
And I would like to work with you, Mr. Jackson, as well as
the other members of this committee, to have a bold plan in our
reauthorization, and that would be my goal this year.
Mr. Jackson. Senator, if I could just say--and then also to
the point that Senator Lautenberg made--it's important to
understand the Administration is not proposing privatizing the
Northeast Corridor. We are proposing to create a government
entity to manage it in a more coherent fashion and to give us
some stability over the long-haul to manage what is a very,
very important transportation asset.
Senator Hutchison. I understand. There was a difference in
your concept and what I was putting forward.
Mr. Jackson. Yes, ma'am.
Senator Hutchison. But it might work the same way if you
had the private contracting, and they would then be able to
finance in their own way. They'd have to make the business
decision.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Finally, Mr. Mead, I guess I would ask you to comment on
the rather Orwellian situation that labor costs are not a
factor unless you try to impose efficiencies, i.e., cancel a
route, and then labor costs then become a factor. What's the
situation here that dictates that bizarre situation?
Mr. Mead. Well, under the rules, if you are to terminate a
route and the labor on it, they're entitled to be paid a
certain amount of money. I don't have the details of the exact
arithmetic here, but it's very substantial.
I didn't mean to suggest, when I was talking about the
long-distance trains, that that $300 million figure was not a
problem. It is. What I meant to say, absolutely exact, is that
anybody that thinks that getting rid of that $300-million
problem is going to take care of the problem that we have with
Amtrak, that is wrong. And that is what I meant by the $300
million problem.
The labor-protection issue, it's got a lot of dollars
attached to it. It probably would require a change in the law.
The Chairman. My staff tells me we changed the law to make
it 5 years on contracts.
Go ahead, Mr. Gunn.
Mr. Gunn. Just to--what happened was, originally there
were--labor protection was in the law, and Congress, in one of
the reauthorizations----
The Chairman. 1997, I believe.
Mr. Gunn. Yes. It dictated that--or they told Amtrak they
had to negotiate labor protection, which produced the same
result, because we ended up in arbitration. But we did drop the
protection one year.
And the way the protection works----
The Chairman. So it does not require a change in the law?
Mr. Gunn. Pardon?
The Chairman. It doesn't require a change in the law.
Mr. Gunn. No, sir. It's a negotiated agreement.
But labor protection starts with an employee who has 2-plus
years, and they get 6 months' pay; and it goes up in increments
to an employee with 20-plus years gets 60 months, or 5 years'
pay. And it's a little more complicated than that, because it
provides that the employees have to exercise bidding and
bumping rights, which means you not only have the protection,
but you end up with a tremendous amount of movement of
employees throughout the system. So it basically obviates any
savings from taking off a train until you've gone through this.
And it is--looking at our workforce, I mean, our workforce is
probably, average, 15 years. I mean, you're looking at--at 15
years, you're looking on it--if that's the average, it's 36
months, or 3 years.
The Chairman. So you've--not you, but it's been effectively
negotiated that any cost savings which would be dictated by a
reduction in routes would, therefore, be prohibitively
expensive because of labor costs. It's a strange way of doing
business.
I thank the witnesses, and I appreciate the----
Did you want to--go ahead. Go ahead, please. Senator
Lautenberg?
Senator Lautenberg. Yes, thanks very much, Mr. Chairman.
I wanted to pursue something that Mr. Jackson said in his
last remarks, and that is that conceptually when we're looking
at a government-created corporation, who owns the corporation?
The Federal Government?
Mr. Jackson. Well, it would be a--ownership of the
infrastructure would be owned by the Federal Government, by
statute, is what we would propose from the Administration, but
it would be operated and sustained in a compact between the
Federal Government and the states.
Senator Lautenberg. Well, wasn't that where the Government
was going when, in 1970, they stepped in to Amtrak to create
Amtrak as a national passenger rail service company; and the
forecast, as I read it, was that it would get itself on a pay-
as-you-go basis within fairly few years. That was 33 years ago.
Was that a government corporation that then was created?
Mr. Jackson. No, it was intended to be a private
corporation, and that business model failed. That's why I would
argue that what we need to do is put in place a new business
model. We're acknowledging that the experience of 30 years has
suggested that this corridor cannot be operated without the
infusion of some public funds. And so the question is, who pays
those funds, how much are they, and how do you structure that
infusion?
Senator Lautenberg. That's the crystal ball we're looking
at. It's----
Mr. Jackson. Trying to look at it, and David is trying to
give us----
Senator Lautenberg. So what gives you hope that a new
structure, which is so similar to the 1970 creation, will be
any different? Will we be out of the subsidy business, in terms
of the Federal Government?
Mr. Jackson. I don't think so.
Senator Lautenberg. No? Well, what's going to make it
better?
Mr. Jackson. The difference is, is that when Congress
created Amtrak, they thought that Amtrak would be a privately-
owned for-profit company that would come in and, after a very
short period, sweep away all the need for public investment in
the infrastructure and operating subsidies.
Senator Lautenberg. OK, but----
Mr. Jackson. And what we've said is, is that doesn't work,
and so we need to get the Federal Government bolted together
with the affected States and try to find a mechanism that
allows us ownership as a government for the long-haul and
contract out operations, but not the ownership of it.
Senator Lautenberg. Mr. Gunn?
Mr. Gunn. One caveat I'd add to what's being discussed, is
that if, in fact, you're going to set up a separate corporation
for the corridor, you'd better be sure that the operating
responsibility and the maintenance responsibility rests in the
same body. You do not want to follow the British example of
separating track from the people who run the trains. It doesn't
work very well, and the best proof in this country is the
problems we have where we run on somebody else's track, and we,
sort of are living proof of the problems you have.
So if you're going to set up a separate corporation, you'd
better make sure, or I would recommend you make sure, that that
corporation have both operating and maintenance responsibility,
and not separate the two.
Senator Lautenberg. So it'll look a lot like its first
cousin, which is Amtrak now.
Mr. Gunn. That's right.
Senator Lautenberg. Yes. So the prospect of lots of money-
saving and all that and no, or very few, subsidies of a
relatively small amount is not part of that thinking, huh?
Mr. Jackson. Well, I think it will continue to require
subsidies to make the corridor work. As David said in his
testimony, it's a myth that the corridor makes money. It
doesn't. It won't. And so the question is, who pays and how
much? What can we afford?
David has proposed a plan of some $2 billion a year, which
is disproportionately focused on providing the needed Northeast
Corridor operation, but I think that plan has vulnerabilities
which can come back to bite us and not to mention which is the
potential need to recapitalize much of the rolling-stock
infrastructure of the railroad, to look at ADA required,
statutorily required, investments which are not in the business
plan, to look at required investments in other facilities and
to assess the type of vulnerabilities that he mentioned
relative to the Acela fleet, which could be a significant
financial burden.
So we're saying, build a structure. Understand that we want
to try to produce something that will allow us to manage it in
the long-haul.
Mr. Mead. And I think a major difference, Senator
Lautenberg, especially outside the Northeast Corridor, would be
that the states would have much more to say about where those
trains, that we presently know as long-distance trains, where
they go between City A and City B and City C with increasing
frequency, rather than focusing on a cross-country train. And I
think part of the essence behind the proposal is to give
capital grants to States. States would be in the driver's seat,
so you don't have Amtrak making all the decisions for the
entire United States.
Senator Lautenberg. Right, but does that differ from
highway funding, that--it has a much larger revenue base, but
the fact of the matter is that the states are making decisions
in cooperation with the Federal Government about where these
things lead us----
Mr. Jackson. Not, exactly. It looks much more like the way
we do all the rest of transportation--Federal transit grants,
Federal highway grants--where the states are in the driver's
seat of gating the demand for projects and making enough of an
investment in them that they have a financial stake in the
process. Right now, the Federal Government just drives up and
drops Brobdingnagian-sized buckets of cash on the Amtrak and
intercity passenger rail problems. That's not a good enough way
to go forward.
Senator Lautenberg. Right, but if they're being asked to
consider investing in rail service, and over here it's paid for
largely by taxpayer money, and up there it's largely paid for
by taxpayer money, the revenues from those sources go into the
equation. But what's the incentive to go ahead and build
trackage if not enough people take it to where you have a
majority, like you have in the automobile? And it's a question
of whether there's leadership that's willing to say, hey, this
country, in order to get out of the pollution problem, the
congestion problem--the costs for congestion across the country
are some $80 billion a year. Does that ever get reckoned into
the calculation that you have to make on whether or not you
continue to build rail services? And there are lots of
corridors besides the Northeast Corridor that look pretty
appetizing for----
Mr. Mead. But Amtrak has no incentive to really focus on
these other corridors that you're speaking of. What they have--
and the frequency of service in those corridors--what they have
an incentive to focus on is keeping those cross-country routes.
Where I think the contention I would make is that, in between,
the states have cities that they want to have service to. But
right now, Amtrak doesn't have any incentive to do that.
Mr. Jackson. Well, it's worse. Amtrak has every incentive
not to make rational business decisions, as the Chairman was
talking to, so we have to create a structure that imposes some
degree of rationality, and the states and the Federal
Government have to have a partnership to work on that. And
it'll look a lot like the way we do----
Senator Lautenberg. These going-out-of-business sales have
enormous costs.
Thanks, Mr. Chairman.
The Chairman. Senator Sununu?
Senator Sununu. Thank you, Mr. Chairman.
I would just pick up on that point and emphasize I don't
see engaging the states in a partnership as a going-out-of-
business sale. I think it makes good policy sense to have them
participate. I certainly don't believe that there's no
leadership at the State level, or interest in transit, or
intercity train operations at the State level.
Coming from a New England State where there is now some new
and growing service that is, in part, a partnership between
Amtrak and New England Passenger Service, it's headquartered
out of Maine, I think they've done a fair job to start the
service. But it's clearly a partnership where the states are
committed to providing some of the support for both the
infrastructure and the operating subsidy. We'll see how it
goes, but there's clearly an interest. There's leadership at
the State level. And I don't think that the suggestion that the
states don't care about passenger rail should be used to oppose
any proposal that's put forward by the Administration or anyone
else.
Mr. Mead, I want just a little bit of clarification on a
couple of points you made. I appreciate your earlier
clarification, that you weren't trying to dismiss $300 million,
but you did say that $300 million isn't going to solve the
problem.
Two points. First, I look at the allocated loss. On long
distance, I see it as $550 million. We don't need to quibble
about whether it's $300 million or $550 million. It's a
significant amount of money. But if you use, sort of, the
rationale that it won't solve all the problem as a reason for
not entertaining wholesale reform of these long-distance
routes, then you're going to just sit around and wait for the
$1.5 billion silver bullet. Now, I don't think that's where
you're coming from, but I certainly want clarification.
Yes, if you have a $1.5 billion problem, you can't solve it
with just a $300- or $400- or $550-million reform, but that's a
start, isn't it?
Mr. Mead. Yes, sir. And I appreciate the opportunity to
clarify.
Let me take a cross-country route or what we know with the
long-distance route. And take that route--say it's a thousand
miles long. That thousand-mile route goes from point A to
point, say, E. OK? In between points A and E are points B, C,
and D. I'm saying it makes more sense to focus on the traffic
between points A and B and back to A and back to B because
they're from two city locations, and it doesn't make sense to
focus on going from point A to point E. And the states have the
vested interest in that going back and forth from point A and
B----
Senator Sununu. And I don't disagree--that's an important
point that you make. I don't disagree with it, conceptually. I
mean, you seem to be making an argument for the focus on
corridor activity A to B instead of the long-distance activity
A to E, and I think that's very much along the concerns that
have been expressed by the Chairman earlier. But you also said,
in some of your opening comments, that long distance, the long-
distance subsidy, was the glue that held this network together.
Mr. Mead. That's right.
Senator Sununu. Now, it seems to me that the statement you
just made and the concerns about this $550 million operating
subsidy are at odds with, somehow, these A-to-E trains, these
long-distance trains, being the glue that holds the system
together.
Mr. Jackson. Well, Senator, it's even worse. The amount of
glue that you need is a lot more than we're talking about here,
because this gets into--it's not a small point--about how you
define what these trains cost us to run. David's numbers are
avoidable costs. The numbers that I would suggest, that are in
our testimony, that you ought to look at is the fully allocated
contributions, which is depreciation and interest, in which
case long-distance trains are an $826 million idea.
Senator Sununu. And I don't want to get into a--yeah, I
love cost accounting as much as the Chairman does, I'm sure.
[Laughter.]
Senator Sununu. So I don't want to go down that route.
My point was simply that the losses are significant, and I
can understand that policymakers may argue that they want a
full national service out of principle--I talked about that
point earlier--but I'd see no factual basis for the argument
that somehow the long-distance trains are an essential glue
that hold the whole system together and that you can't have
viable, strong corridor service or intercity service without
long-distance trains.
Mr. Mead. You're absolutely right. But the point is, the
political glue is different from the essential glue, and I can
tell you----
Senator Sununu. I appreciate that you did not use the
phrase ``political glue.'' We all get to revise and extend, and
I won't disagree with your final point, and we don't have to go
down the political road at the moment.
Mr. Mead. Can I make one other point on a question you
asked earlier that Mr. Gunn, I think, responded to? Your
question had to do with a payment of the interest on this debt.
Senator Sununu. With the payment of principal and interest,
yeah.
Mr. Mead. Yes. That comes out of a subsidy. You give a $1
billion subsidy to this railroad; about a quarter of it is
going to go to debt.
Senator Sununu. And the reason I brought that up was to
emphasize that at the end of this, you know, thoughtful 5-year,
$8 billion plan, we've reduced the principal only marginally,
if that, the $100 million to transportation, but the interest
rates--it sounds like, contractually, they go down slightly,
but you still have, effectively, the same lump-sum $3.7
billion.
Mr. Gunn. No, it goes down.
Senator Sununu. It goes down to--how much will the
principal be?
Mr. Gunn. I don't have the number in front of me. It goes
down a fair amount, because you're paying principal and
interest.
Senator Sununu. OK. I would really hope that someone in
this room does know, because--what it would be after 5 years.
It's kind of an important issue.
Mr. Gunn. Mr. Mead might know.
Mr. Mead. This 5-year plan we've been studying--by law, we
have to review Amtrak's strategic plans, and this 5-year plan
was dropped on us on, basically, the eve of the Congressional
hearing. It is a very lengthy document, and we really haven't
had time to analyze it. And I would want to get back to the
Committee before standing up and saying, ``Yes, the debt's paid
off.'' And I believe the Department feels likewise on that.
This has been a history with Amtrak, a dropping--we would
issue--for example, we'd have a strategic business plan from
Amtrak, and they would have a $300 million item in there called
``to be determined.'' We report to the Congress and say there's
a $300 million hold here on ``to be determined,'' and they need
to be filled. And then Amtrak will come out with another plan,
and the ``to be determined'' would shift around.
So I want time to review the 5-year plan. I have confidence
that Mr. Gunn has put it together in a meticulous fashion and
so forth, but I need a little time to look over this document.
Senator Sununu. Mr. Chairman, I'm pleased that we've had
this testimony today. It's been thorough testimony and
professional testimony. I don't think we've had as thorough a
look at the system and what the next 5 years might look like,
certainly not since I've been in Congress, which has only been
6 years.
But I must say, this is--at the end of 5 years, it's sort
of the same structure, the same system, the same incredible and
economically fantastic subsidies for certain long-distance
routes. It really doesn't provide any fundamental change in the
system. And while we may feel great about the management team
that we have, I'm concerned that, you know, the bulk of the
Congress is just going to look at this year after year for the
next 5 years, put their finger to the wind, come up with the
right number that seems to sort of enable them to go back home
and say, you know, Amtrak's a good thing. I support it, and I
push for an extra $100 million this year to make sure that we
could sort of keep on track with this plan, but without
addressing the implications, the fundamental implications of
the way this is structured, these enormous cost commitments and
debt service that's been saddled on the current management, and
I'm not very optimistic.
Thank you, Mr. Chairman.
The Chairman. Mr. Gunn, you should be allowed the
opportunity to respond. Please go ahead.
Mr. Gunn. Thank you, sir.
First of all, its $722 million worth of debt is paid off
during this period.
I would just like to say that obviously there's a----
The Chairman. Would you repeat that again?
Mr. Gunn. I said during our plan----
The Chairman. Yes.
Mr. Gunn.--it includes the paying--debt-service principal
is $722 million. In other words, the plan that we've given you
includes paying off the debt that shows up in the----
Senator Sununu. You take it from $3.7 billion down to
approximately $3 billion.
Mr. Gunn. That's still a lot of money.
But what I would like to say is--make a plea. You know, I
view this from, as I said, a slightly different perspective
than my compatriots here, and I have a--there's a sense of
urgency that I feel, in terms of the physical conditions on the
plant and equipment that we operate with. And it's clear to me
that defining the plan for reform is going to take some time.
It's going to be--it isn't going to happen quickly. And what I
would say--the risk we run--and I think everybody agrees, we
run some things that should be preserved. Now, I think they all
should be, but that's my personal opinion.
The Chairman. You think--would you repeat that? You think
that every route ought to be preserved.
Mr. Gunn. I said that's my personal opinion, that the
national----
The Chairman. Well, your personal opinion matters when you
are the head of the organization, Mr. Gunn. That's quite a
remarkable statement.
Mr. Gunn. I believe there should be adjustments in them,
but that the basic structure should be maintained.
But having said that, my plea is that the--we're going to
lose the system if we don't have some stability over the next
few years while this reform is put into place, whatever it is.
So we do run the risk of losing the high-speed operation on the
Northeast Corridor, as well as we run the risk of driving the
operating deficit through the roof by having the equipment in
bad shape.
So my plea is that we've got to focus on the reality of the
situation as well as the goal of reform, and I--that is my
plea, that we have to preserve--at least some of these services
have to be preserved, and it is going to take money, and what
is shown in this plan are the specific steps that you have to
take to do that.
And it is--I think it's a conservative plan. I mean, I
think it's--Ken will look at it, and I'm sure he'll have some
comments. But it's a very, very pragmatic plan. It's not a
flight of fancy. And we did try to cover all our bases,
including repayment of debt.
So that's my plea.
The Chairman. Well, Mr. Gunn, we appreciate the work you're
doing. We know it's very difficult. We think you have been very
forthcoming about the realities of the difficulties that Amtrak
faces.
But I must say, it's almost an oxymoron to say you want
stability--i.e., maintain business as usual--while reforming. I
don't see how those two match up. Reform means eliminating
waste and inefficiency, and if you want, quote, stability,
which means, in your personal opinion, you want to keep every
route and every practice, then I see nothing but an unending
hemorrhaging of red ink.
So, look, I understand one of the reasons why you're having
to say it, because you would alienate a certain constituency by
canceling certain routes. But you've got to step up. You've got
to step up and impose efficiencies in this organization. And to
say that, quote, maintain stability--i.e., status quo--and
reform at the same time doesn't get it.
And I speak from a many, many year perspective on this
issue and many, many, many hearings on this issue where we've
had Amtrak people come before this committee saying that they
want to maintain stability. Well, that stability has cost the
taxpayers billions of dollars.
You can respond if you would like. Please.
Mr. Gunn. Yes, sir.
Well, my point would be that if you told me that by--at the
end of 5 years, we're going to have all the long-distance
trains gone, we could obviously take the steps necessary to
realize the----
The Chairman. Let me just correct you again. I'm not saying
eliminate all long-distance routes. I'm saying eliminate waste
and inefficiency wherever it exists. And there's a compelling
argument that when you're having to run a route that's
subsidized $347 per passenger, it seems to me at least that
should be scrutinized rather than tell a reporter, quote,
``that's a political decision.''
Mr. Gunn. Well, but whatever the route structure is going
to look like, and forget whether it's all of them or just half
of them or one train, to get those savings, you have to make a
conscious decision that you're going to fund the termination
cost. I mean, that's a fact of life that we may not like it,
but it is a fact of life.
The Chairman. You have said in your testimony you will be
having negotiations with labor, just like the airlines are
having negotiations with labor, as we speak, to change a lot of
the featherbedding rules that have come into being. You act
like you are a helpless bystander, Mr. Gunn.
Mr. Gunn. No, not on----
The Chairman. You are not.
Mr. Gunn.--not on the work-rule issue.
Mr. Sununu. May I ask a question about----
The Chairman. Those are negotiated, Mr. Gunn.
Mr. Gunn. I agree that the work-rule issue is a priority
for the board and for management. My point is----
The Chairman. Of which I think you are a part.
Mr. Gunn. But that's our priority. I agree with you, that
those should be a focus. My point on the labor protection is,
you don't--if the goal is to get rid of trains, I suspect that
the negotiation to get rid of labor protection would be pretty
tough.
The Chairman. The goal is not to get rid of trains; the
goal is to get rid of waste, inefficiency----
Mr. Gunn. And that's----
The Chairman.--overlapping management to make it an
operation. And to say, again--we're talking past each other,
obviously, Mr. Gunn--but for you to say, it's a, quote,
political decision and say that you won't--don't want to get
rid of a single route means that you--it seems to me you're not
committed to that proposition.
Senator Sununu. May I ask a question just at this point?
The Chairman. Go ahead.
Senator Sununu. I just want to be clear. Don't you believe
that if you made a decision to eliminate a route that was being
subsidized to the tune of $200 per passenger--do you have any
concern that Congress would somehow refuse to provide the
funding necessary to cover the 2-year or 3-year or whatever the
termination cost might be? Do you have any reason to believe
that having made a tough decision, that Congress wouldn't
provide you with the appropriation necessary to fulfill
contractual obligations?
Mr. Gunn. The history of this corporation is that that's
happened, for whatever reason. I mean, when we--we're to the
point, this month, where we had 3 days' worth of cash left,
where our working capital, our ratio of--current ratio was .29.
I mean, the fact of the matter is that we now have a--the
Northeast Corridor, which almost everyone seems to think should
be preserved, is in a state where it needs massive amounts of
capital to bring it back to a state of good repair. I mean,
that's the fact. So----
Senator Sununu. But that doesn't really answer my question.
My question was, what evidence do you have to believe that--if
you made an important managerial decision, that Congress
wouldn't provide funds to support that? And I understand that
you have capital costs and these other costs, et cetera, but,
you know, we've----
Mr. Gunn. You can't fund us in isolation. In other words,
you don't fund a bit and a piece of the budget. That doesn't
work that way.
Senator Sununu. That's my point exactly. So, you know, you
make the decision, you have certain costs, certain termination
costs, and you'd say to Congress, ``I've made the tough
decisions, I've enacted these reforms, and here's what it's
going to save in the long-term, and here's what it costs in the
short-term.'' I mean, I think that's among the most powerful
arguments that you can make. But you've answered the question.
I appreciate it.
The Chairman. I thank the witnesses. I'm sure we'll be
seeing you again. Thank you very much.
[Laughter.]
The Chairman. The next witness is the Honorable David King,
Deputy Secretary of the North Carolina Department of
Transportation; Mr. John Winter, President of Harral Winner
Thompson Sharp Lawrence; Mr. Hank Dittmar, who is the Project
Director of the Great American Station Foundation; Mr. Alan
Landes, who is the Senior Vice President of Herzog Transit
Services; and Mr. Michael Pracht, who is the Chairman of
Passenger Transportation Committee.
Please come forward.
I want to thank the witnesses for their patience.
Obviously, this has been a very interesting hearing. So I'd
like to begin with Mr. King, Honorable David King, who is the
Deputy Secretary of the North Carolina Department of
Transportation. Again, I appreciate the patience of the
witnesses, and we'll begin with you, Mr. King. Mr. Secretary.
STATEMENT OF HON. DAVID D. KING, DEPUTY SECRETARY, NORTH
CAROLINA DEPARTMENT OF TRANSPORTATION
Mr. King. Thank you, Mr. Chairman.
My name is David King, and I'm representing 24 states who
collectively comprise the States for Passenger Rail Coalition.
We've been in existence for several years, and our mission has
been to try to establish a Federal partnership for rail
infrastructure investment that mirrors the Federal investment
in other modes of transportation.
Collectively, our states have committed, in the past or in
the future, up to $4 billion already, so the State contribution
is already there. In the time allocated this morning, I'd like
to make several points and then make a modest proposal, which I
believe to be consistent with most of what we have heard as a
group as we've talked to other stakeholders and most of what we
heard earlier this morning.
First, there are numerous examples of successful
partnerships between State DOTs and Class I railroads on rail
infrastructure investment--those investments have been made
with companies like Norfolk Southern, CSX, Burlington Northern
Santa Fe, the Union Pacific, and so forth--for projects that
benefit passenger rail primarily, but also have a significant
freight benefit, and that is why the freight railroads have
participated in those partnerships.
Second, there is a significant amount of business community
support for the kinds of corridor investments that States are
interested in. The Chicagoland Chamber has been very vocal and
busy in the Greater Chicago area for the Midwest service that
you probably are aware of that would connect Chicago with a
number of hub cities in the Midwest, upper Midwest. And
chambers such as Eugene, Oregon; and Cleveland, Ohio, have been
very active and energized. And I'm very proud of the work of
the Southeastern Economic Alliance, which is a 15-chamber-based
group led by the Atlanta Chamber that has been very supportive
of the kinds of corridor investments we want to make in the
Southeast with the leadership of the Atlanta Chamber. These
chambers and business leaders are involved because they think
it's in their economic interest to be involved in supporting
intercity rail passenger service as another mode to get around
on the short-distance trips in the Southeast and nationally.
Third, there is a history of State DOTs being in the
infrastructure business. As has been referenced earlier, we
have collectively built an interstate highway system on a
Federal/State partnership model. States know how to do project
planning through the National Environmental Policy Act process,
and you cannot underestimate the amount of time and effort it
takes to go through that process in order to be ready to build
projects that meet Federal environmental and community impact
standards.
And we've got a number of projects which are ready to go
today. A recent report by the American Association of State
Highway and Transportation Officials documented over $17
million worth of work that needs to be done over the next 6
years.
Fourth, there's an economic case to be made for these
corridor investments. And I should parenthetically say that
while a lot of the discussion in the first part of the morning
is about a national system, yes or no or how much, most State
effort is focused on the corridor level. In my case, it's
Atlanta to Washington. In the Gulf Coast States, it's Central
Texas to Atlanta or Jacksonville. On the West Coast, I think
those systems are obvious. And I've already mentioned the upper
Midwest and the Chicago system. So we're really not talking
about the national connectivity issues that you spent a good
deal of time on this morning.
The economic case is that these are short-haul trips in the
sub-400-mile market connecting, to use Mr. Mead's example, the
``A''s and the ``B''s, and the ``A''s and the ``C''s, and not
necessarily the ``A''s and the ``E''s. In the case of the
Southeast Corridor, the Atlanta-to-Washington market is
probably an air market for most people. However, between
Atlanta and Greenville-Spartanburg, between Greenville-
Spartanburg and Charlotte, between Charlotte and Greensboro,
and Raleigh and Richmond, you've got a number of trips that are
not good air trips and are ideal rail trips.
Finally, there is public support. Poll after poll documents
that. In one recent example, the Ohio State University poll
found that 80 percent of all Ohioans favored developing high-
speed rail. And, importantly, and this is remarkable to me,
twice as many Ohioans favor high-speed rail development as
those who favor expanding highways and airports.
Finally, our proposal, a modest proposal, and it may not
pass Senator Hutchison's test of being bold enough, but in the
interest of getting something on the table, we propose that the
Swift Rail Development Act be reauthorized and extended in its
reach to include a deployment category, authorizing funds for
new infrastructure equipment and stations, using a combination
of tax-credit bonds and general funds. We further propose that
U.S. DOT set up a $500 million equipment pool that would allow
an economic order of off-the-shelf high-speed rail equipment
that is capable, fully compliant with the Federal Railroad
Administration requirements, and a proven technology that will
buy minutes and buy reliability and buy safety for us just as
surely as improving track and signals will; that the U.S. DOT
administer these programs based on economic viability, and the
states are perfectly prepared to meet the economic test and be
subjected to economic criteria; that those projects that would
be proffered would be completed with their environmental and
preliminary engineering work and that they have the support of
the host railroads. And we think we can deliver projects in
those categories.
Finally and quickly, we have in our written testimony,
which I hope will be entered into the record, Mr. Chairman----
The Chairman. All will be, thank you.
Mr. King.--suggested that the U.S. DOT be directed to
develop mechanisms for the transfer of certain passenger
terminals and associated rail facilities currently owned by
Amtrak to shared access areas so that it would facilitate
competitive proffering of proposals by multiple operators in
certain corridors without blockages being--be able to put into
the system via Amtrak's control stations. We would ask that the
Congress direct U.S. DOT to develop a methodology to assess and
allocate costs for public access to privately owned rail
corridors, which is where we will be in the short-term--we will
be sharing corridors with the private Class I railroads--and
that we look at reform of liability in a surgical manner that
allows us to control our cost of insurance.
All of those things set a context which allows a more
efficient Amtrak, which is disciplined by the forces of
competition, and we think will provide a better service and we
could go shopping among Amtrak and other operators for superior
service to what we have today.
Thank you, Mr. Chairman. We look forward to working with
the Committee subsequent to today, hopefully to develop, based
on the all the ideas that you've heard today, something that
might allow us to move forward.
[The prepared statement of Mr. King follows:]
Prepared Statement of Hon. David D. King, Deputy Secretary,
North Carolina Department of Transportation
Mr. Chairman, my name is David King, I serve as Deputy Secretary
for Transit in the North Carolina Department of Transportation and
Chairman of the States for Passenger Rail Coalition.
States for Passenger Rail Coalition
The States for Passenger Rail Coalition is a grass roots
organization of state departments of transportation. North Carolina is
one of 24 states in the coalition. Our growing membership is drawn from
around the country and includes states with existing passenger rail
service as well as those in the planning and development stage. Large
states and small states, we span the continuum of partisanship, varied
interests and geography. A map of the Coalition members is attached. We
are quite a diverse group and we are a national group. Our strength is
that we are a bottoms-up initiative, created and supported by the
states because we share a common goal.
Included for the docket for today's hearing is a copy of the States
for Passenger Rail Coalition's National Passenger Rail Policy
Statement, adopted August 25, 2002 and a copy of a January 27, 2003
letter from the Coalition to the Chairman and Ranking Minority Member
that included recommendations for establishing an intercity passenger
rail funding program as well as recommendations for Congress to
consider in determining the ongoing operating funding needs for Amtrak.
Following the tragic events of September 11, 2001, many citizens
had their first travel experience with our national rail passenger
system and they were glad it was available. They also have first-hand
knowledge that our national rail passenger system is in need of major
capital investment in order to assure reliability and to have travel
times that are auto and air-competitive. Rail passenger service is now
a national security issue as well as a mobility and economic
development issue.
One of the lessons learned over the past few years as we have
endeavored to improve rail passenger service is the value of taking
incremental steps to improve existing infrastructure. Many of our
nation's bold new rail passenger initiatives have fallen by the wayside
as economic analysis determined that they were not the best investment
of public dollars, or when they could not muster the requisite
political will to succeed.
By contrast the States for Passenger Rail Coalition can now point
to numerous examples of public private partnerships that yield real-
world results. Progress is being made through programs of State, local
and private investments in:
California, Washington State and Oregon in partnership with
Burlington Northern Santa Fe
Wisconsin and New York in partnership with the Canadian
Pacific
New York, Florida, Virginia and North Carolina in
partnership with CSX Transportation
Delaware, Ohio and North Carolina in partnership with
Norfolk Southern
Oregon and Illinois in partnership with Union Pacific
These are all very real projects that add capacity and reliability,
and enhance the safety of our national rail network of freight and
passenger services. The projects also provide employment and create
jobs at a time when public investments are needed to energize our
economy.
Not only are the Class I railroads now acting in their own
enlightened self interest, increasingly our broader business leadership
has joined the public efforts to improve the rail mode. For example,
the Southeastern Economic Alliance (SEA) is formed of 15 chambers of
commerce advocating for a business-oriented approach to high-speed rail
development in order to accommodate our projected growth, and ensure
the Southeast performs as a cohesive economic region.
The SEA has completed an independent analysis of the business case
for high-speed rail development in the Southeast. Their analysis is
consistent with the Federal High Speed Ground Transportation for
America report and numerous state studies which concluded that public
investment is necessary to upgrade existing infrastructure and that
reliable, high quality, travel time competitive rail passenger service
connecting cities with economic interests will allow operators of such
services to make a profit.
A similar effort has been undertaken by The Chicagoland Chamber of
Commerce, which has organized the Midwest Business Coalition for High-
Speed Rail representing chambers in the nine states that are a part of
the Midwest Regional Rail Initiative.
Grass roots organizations around the Country are beginning to
coalesce in support of development of improved intercity passenger rail
service. Examples include the Eugene Area Chamber of Commerce in Oregon
that has developed their own report on the benefits of increase
passenger rail service and its impact to the local business community.
The Chamber has used this piece when visiting the Legislature and they
have been active in spreading the word on the positive benefits for
Eugene. The Cleveland Chamber of Commerce and other Ohio economic
development groups are working with the State to analyze, in greater
detail, the economic impact of constructing the Ohio & Lake Erie
Regional Rail--Cleveland Hub system.
Our business leadership is not motivated because they are merely
fans of rail transportation, nor do they simply advocate for more
government. Rather, their impetus comes from a hard-nosed business
analysis that our current transportation system has a serious weakness,
and that weakness hampers our ability to compete in world markets.
States Are Ready To Move Forward, Now
I want to assure the Committee that many states are ready to begin
implementing a high frequency, high-speed rail passenger network now.
States are making innovations in highway-railroad crossing safety,
passenger equipment design and manufacturing, and in railroad signaling
systems. States renovate existing and construct new multi-modal
stations and help attract new development to our inner cities. States
are making investments in commuter, intercity and high-speed rail
systems that serve state, multi-state and national interests. States
make these investments in concert with local communities and commuter
agencies, with Amtrak and the freight railroads, and with adjoining
states. However, the Federal Government should not expect the states
alone to build a national high-speed rail system. States need Federal
leadership and a strong Federal funding partner to more fully undertake
this task.
Development of a high quality, high-speed intercity passenger rail
network can help mitigate congestion. Development of high-speed rail
transportation will help stimulate economic growth by creating new jobs
and by increasing mobility. Development of a national system of high-
speed rail is predicated on having a program of public-private
investment that includes the active participation of states and the
Federal Government.
Our State Departments of Transportation (DOTs) are experienced and
capable of constructing large-scale projects. The DOTs, in partnership
with the freight railroads, have the capability to plan and manage a
major, new program of rail infrastructure improvements using existing
relationships. No new laws would be required to implement this program.
Many of our member states have completed preliminary engineering
and environmental work and are ready to begin projects now. Many States
have available ``shelf plans'' for incremental high-speed rail
development and are investing significant state and private funds now;
but we need a viable Federal funding partner to continue and expand
such efforts.
The Intercity Passenger Rail Transportation report recently
released by the American Association of State Highway and
Transportation Officials' (AASHTO) Standing Committee on Railroad
Transportation (SCORT) fully documents state passenger rail development
initiatives and activities. The AASHTO SCORT report identifies $17
billion in state sponsored intercity passenger rail projects needing
funding over the next 6 years and $60 billion in needs over the next 20
years. The report also demonstrates that states are active participants
in such projects, with over $4 billion invested or currently committed
to these projects.
Investments in Rail Make Economic Sense
Our needs are not without an economic argument. For example:
The Ohio and Lake Erie Regional Rail--Cleveland Hub Study suggests
that the rail system could create a $1 billion increase in Ohio
property values and increase the state's annual income by $256 million.
An economic and fiscal impact analysis conducted for North Carolina
reported that the investment to develop and operate high-speed rail in
North Carolina would:
Enhance tax revenues in an amount nearly equal to the
construction cost outlay, with the majority of these enhanced
tax revenues recurring.
Operating revenues would exceed the total of operating and
maintenance expenses thus providing a basis for profitable
operation.
Create 30,000 construction and 19,000 long-term jobs
yielding billions in income over the useful life of the
project.
Help leverage and attract significant additional economic
growth.
The Public Supports Rail Investment
While we do not recommend a program based on polling, it is
instructive to consider the following recent data:
A Washington Post survey indicated that a substantial
percentage of Americans would increase Federal funding for
improved rail passenger service.
In a survey of ten major cities more than sixty-five percent
of the respondents felt that investment in high-speed rail
passenger service was an appropriate use of public monies.
In a recent poll of rural, suburban and urban households in
North Carolina and Virginia, the majority of the respondents
believed that high speed rail would help reduce air pollution
and reduce traffic congestion, and be more relaxing than travel
by either automobile or air. Nearly seventy percent responded
that they would use a high-speed rail service.
A majority of residents of South Carolina indicated a
favorable response for development of high-speed intercity
passenger rail service.
Seventy-seven percent of Wisconsin residents surveyed in a
statewide poll stated they were likely to use the train if the
planned nine-state Midwest Regional Rail high-speed network
becomes available to them.
An Ohio State University poll found that eighty percent of
all Ohio adults support the state's efforts to develop
passenger rail service, and twice as many Ohioans favored
developing high-speed rail services than expanding highways and
airports.
A public opinion poll in New York State revealed that
eighty-two percent of registered voters believe that having an
improved and modernized intercity passenger train service
throughout New York State is just as or more important than
having good highways and airports. The same poll showed that
seventy-seven percent of registered voters would support or
strongly support investment of State funds to improve intercity
passenger train service for trips of 75 miles or more.
The States for Passenger Rail Coalition Proposal
Support for Rail Transportation Security
The States for Passenger Rail Coalition support the rail
transportation security provisions of the National Defense Rail Act,
Senate 104. Already states are working with the Transportation Security
Administration, the Federal Railroad Administration, Amtrak, the
freight railroads and armed forces as well as state emergency response
teams to identify threats, develop training and coordinated responses
to protect our national security. The States urge the Congress to
expeditiously adopt legislation to help address the security needs of
the rail industry.
Support Modest New Capital Investment
In light of the substantial and long term intercity passenger rail
funding needs highlighted by AASHTO and others, the States for
Passenger Rail Coalition proposes that initial capital funding should
be provided immediately to ``ready to go'' state sponsored projects
that will demonstrate nationally the benefits of enhanced intercity
passenger rail service.
To accomplish this, the States for Passenger Rail Coalition asks
that the Congress amend the Swift Rail Development Act of 1994 (49
U.S.C. 26101 et seq.) and extend its authorization to include a
deployment category and authorize capital funding for new
infrastructure, equipment and stations.
The States for Passenger Rail Coalition recommends that Congress:
Authorize $500,000,000 in tax credit bonds and $100,000,000
in general funds in Fiscal Year 2004
Authorize $600,000,000 in tax credit bonds and $200,000,000
in general funds in Fiscal Year 2005
Authorize $700,000,000 in tax credit bonds and $250,000,000
in general funds in Fiscal Year 2006
The Secretary USDOT would approve tax credit bonds projects that
are economically viable, have completed the requisite environmental and
preliminary engineering work, have the support of the host railroad and
where non-Federal matching funds are available.
This re-authorization of the Swift Act would provide the means for
the Federal Government to partner with the states and the freight
railroads to make sorely needed infrastructure investments. These
large-scale construction projects require contract authority to enable
multi-year programming. This program will help accelerate projects in
states with emerging corridors where the planning work has not been
completed.
Further, the States for Passenger Rail Coalition recommends that
Congress:
Authorize the USDOT to create a pool of twenty-five, Tier I
compliant, non-electric, tilt-equipped trainsets with
locomotives. The equipment pool would be acquired and
administered in association with the states and it would
provide a significant new public-private partnership
opportunity. Authorize $500,000,000 in general funds to acquire
and manage the equipment pool. States will be responsible for
the on-going operations, maintenance and associated costs.
Increase guaranteed funding for grade crossing safety
improvements under Section 1103(c) to $30,000,000 annually for
fiscal years 2004, 2005 and 2006. These funds would be in
addition to the ``Section 130'' grade crossing safety program
over which this committee has jurisdiction.
Provide Federal funding to fully develop mechanisms for the
transfer of passenger terminals and associated rail facilities
currently owned by Amtrak into shared asset areas serving
intercity passenger rail, commuter rail, local transit and
other uses. A Federal agency such as USDOT or a consortium of
Federal, state and local agencies could assume ownership. This
would relieve Amtrak of the non-Amtrak operating costs
associated with these facilities, provide for enhanced revenue-
sharing opportunities and provide a financial basis to address
capacity and efficiency improvements necessary for a world-
class passenger rail system.
Washington Union Station provides a good example where this
approach makes sense. USDOT would be authorized $300,000 in
general funds to fully develop mechanisms and future costs to
implement this section.
Direct the USDOT to conduct such studies as may be necessary
to develop a method to assess and allocate the relative costs,
impacts and public and private benefits, including those
accruing to freight railroads, resulting from this program of
infrastructure investments.
Direct the USDOT to conduct such studies as may be necessary
to develop a method to assess and allocate the costs of public
access to privately owned freight rail facilities, taking into
consideration the value of both the public and private
investments in and use of the facilities.
Liability is a major concern of all parties, and an
equitable and fair solution is needed. Amend the Amtrak Reform
and Accountability Act of 1997 (Pub. L. 105-134, Chapter 281,
Section 28103) to cover all defendants. This action will
protect the public while also significantly reducing insurance
costs to the operators of commuter and intercity passenger rail
services.
The States for Passenger Rail Proposal Brings Together the Interests of
Many Diverse Groups
A new Federal program, in partnership with the States, of
investment in improved passenger rail passenger service is consistent
with:
Secretary Mineta's principles to create an intercity
passenger rail system that is driven by sound economics,
fosters competition, and establishes a long-term partnership
between states and the Federal Government to sustain an
economically viable system.
The National Governor's Association Rail Transportation
Policy (EDC-16) which states that . . . ``the most critical
need is a new, separate, stable, and dedicated Federal funding
program to fund capital investments--infrastructure and
equipment--to maintain and enhance regional passenger rail
service. . . .''
The American Association of State Highway and Transportation
Officials (AASHTO) Standing Committee on Railroad
Transportation (SCORT) Intercity Passenger Rail Transportation
report findings that investment in rail is justified,
especially in corridors, and that . . . ``most importantly,
what is needed is a strong Federal-funding partnership.''
The American Public Transportation Association's principles
for funding rail passenger service which state, in part, . . .
``a similar commitment [to that made by the Federal Government
in aviation and highways] is necessary in the rail passenger
service industry, especially given national security needs, and
the growing need to complement air and roadway service. . . .''
The Association of American Railroads by partnering to make
grade crossing safety improvements, advocating for liability
reform, and calling for an independent and objective assessment
of reasonable and customary fees in exchange for public access.
The Coalition of Northeastern Governors (CONEG) policy
statements on the need for a strong and consistent Federal
partner in providing policy leadership and sustained funding
for intercity passenger rail, and its report entitled The
Northeast and Mid-Atlantic States: Investors in Intercity
Passenger Rail That Serves the Region and the Nation.
The U.S. Conference of Mayors, which has identified
development of high-speed passenger rail service as a top
priority.
Amtrak President David Gunn's recent assertion that he
planned to present the Administration and the Congress with a
five-year capital plan that brings the railroad up to a state
of good repair and which includes an appendix of state-led
capital investments in improved intercity passenger rail.
The High-Speed Ground Transportation Association's
Principles for High-Speed Train Development to provide Federal
financial support by . . . ``preserving the existing network of
passenger rail service and developing new services in
partnership with state and local government, the private sector
and Amtrak as appropriate in each corridor. . . .''
In addition to this new Federal state partnership to invest in
improved intercity passenger service, the States for Passenger Rail
Coalition strongly endorses the AASHTO Statement on Stability for
Intercity Passenger Rail, adopted February 24, 2003. This statement
calls on the Congress to provide short-term stability for at least two
years by providing operations and capital funding required for Amtrak,
and to provide leadership in the policy debate so that the long-term
viability of our national rail freight and passenger system can be
assured.
Taken together these legislative proposals form the basis for a new
future for intercity passenger rail. We are proposing to achieve this
future on an incremental basis, creating the pre-conditions for a
competitive marketplace, allowing Amtrak to accelerate its transition
to a true operating company, and strengthening the national
transportation system.
Thank you for the opportunity to present these proposals.
Supplementary Information
States for Passenger Rail Coalition--National Passenger Rail Policy
Statement
1. Passenger rail service is essential to the nation
An enhanced intercity passenger rail system is an important
mobility alternative, especially for regional corridors, in the
face of increasingly congested highway and aviation systems.
The events of September 11 and their impact on
transportation reinforce the importance of passenger rail
service as an essential part of the national transportation
network.
States support investment in new passenger rail systems and
incremental improvements in regional passenger rail corridors
to expand ridership, with increased speeds, and additional
frequencies on routes.
2. Federal funding in partnership with states is essential for
passenger rail
States have taken, and will continue to take, a lead role in
the planning and development of new, expanded and enhanced
regional passenger rail corridor services. However, the states
cannot fully program and implement these systems without a
Federal-state funding partnership similar to existing highway,
transit and aviation programs.
The most critical need in this partnership is a dedicated
Federal funding program to fund capital investments--
infrastructure and equipment--to maintain and enhance regional
passenger rail service.
Given a strong Federal funding mechanism, the states are
willing to provide a fair cost-share for capital investment in
new, expanded and enhanced regional passenger rail services.
Some corridor services are expected to achieve operational
self-sufficiency upon full implementation. At the same time,
the states will need transitional operating support from the
Federal Government while plans and projects are being built and
during start-up periods for new services.
Long distance train service provides interconnectivity among
regional corridors and essential services to communities along
the way. Federal participation in long-distance interconnected
routes shall be 100 percent.
3. States need to assume key institutional roles in passenger rail
development
The states need to play a significant role in the
implementation of any future Federal funding program. In
particular, states seek a strong role in project selection and
project management that builds on the expertise already
developed in this area.
States have partnered with Amtrak for the operation,
development and financial support of existing corridor
services. The states have a large stake in the successful
restructuring of Amtrak, and need to be closely involved in
these discussions.
Partnerships also must be developed with the Nation's
freight railroads to address their concerns.
______
States for Passenger Rail Coalition
January 27, 2003
Hon. John McCain and Hon. Ernest F. Hollings,
Commerce, Science, and Transportation Committee,
Washington, DC.
Dear Senators McCain and Hollings:
The States for Passenger Rail Coalition (SPRC) represents 23 state
departments of transportation and is devoted to promoting and enhancing
intercity passenger rail service in the United States. This year will
be critical for U.S. transportation policy as the 108th Congress will
address both the reauthorization of the Transportation Equity Act for
the 21st Century (TEA-21) and the reauthorization of Amtrak funding.
Our coalition strongly supports the inclusion of a multi-year
funding program for intercity passenger rail equipment and
infrastructure in the reauthorization of TEA-21. SPRC also seeks full
and stable Federal funding to support a national, interconnected,
intercity passenger rail network. The coalition seeks a continued
Federal funding partnership to address passenger rail operating costs
in recognition of the emerging budgetary crises facing virtually all
states.
We suggest that Congress consider the following in developing an
intercity passenger rail capital funding program for inclusion in the
TEA-21 reauthorization package:
The capital program should provide Federal funding to states
for passenger rail infrastructure and equipment improvement
projects.
The intercity passenger rail capital funding program should
be modeled on existing Federal-state funding partnerships in
Federal highway, transit and airport programs. The Federal-
state cost share should be consistent with other modes and not
place passenger rail development at a disadvantage.
The passenger rail capital program should be structured in a
manner that will not adversely impact funding for the other
existing modal programs.
The program should be structured to provide a significant
role for the states in such areas as project selection, project
development, and project management.
Congress should also address the ongoing operating funding needs of
a national and interconnected intercity passenger rail network. In
doing so, we suggest Congress consider the following:
Current Amtrak operations should not be allowed to suffer or
collapse because of short term funding needs.
Congress should provide at least $1.2 billion in funding for
Amtrak during FY 2003 to prevent a short-term financial crisis
that will adversely affect current operations.
Congress should provide a Federal-state operating cost-
sharing program for state supported routes as it structures the
Amtrak Reauthorization package.
This Federal-state operating cost-sharing program should
include a transition period for states to make necessary
budgetary adjustments.
These recommendations by the states to the 108th Congress are based
on the recognition that intercity passenger rail development is an
increasingly important strategy for mobility and economic development.
An enhanced passenger rail system is an important mobility alternative
for regional corridors in the face of increasingly congested highway
and aviation systems.
The mobility provided by enhanced passenger rail service has
significant state economic development benefits. Rail service provides
increased regional access for state population centers and tourism
destinations and supports downtown development around passenger rail
stations. The introduction of passenger rail service provides an
additional public transportation option for communities without
commercial air service. The events of September 11 and their impact on
transportation further reinforce the importance of passenger rail
service as an essential part of the national transportation network.
Federal funding for passenger rail is needed to respond to real
mobility needs identified by states in all regions of the country. In a
survey of its members, the American Association of State Highway and
Transportation Officials (AASHTO) has documented $17 billion in capital
needs for state sponsored intercity passenger rail improvement projects
over the next 6 years and nearly $60 billion in needs over the next 20
years. Many states have already completed engineering studies and
required environmental documents. These projects are ready to proceed
and only lack a Federal funding partner.
Virtually all Federally designated intercity passenger rail routes
connect major city pairs in multiple states. From the public policy
perspective, Federal funding is justified for interstate passenger rail
transportation, much like the interstate highway system. Unfortunately,
passenger rail is the ``orphan mode'' at the Federal level. There is no
dedicated Federal funding program for intercity passenger rail like
that which exists for highways, urban transit and airports. To help
remedy this problem, the states are willing to pay their ``fair share''
for passenger rail development in a Federal-state partnership modeled
after these existing Federal transportation infrastructure development
and improvement programs. The Federal Government should continue to be
responsible for projects of national interest that are beyond the
financial means of individual states.
Adequate and stable funding for intercity passenger rail operations
must be provided. In these times of budgetary constraint at the state
level, there are limits to what states can contribute. It is important
that Amtrak Reauthorization include explicit provisions for a Federal-
state operating cost sharing program.
These recommendations only provide a broad outline of the Federal
funding needs for intercity passenger rail development in the United
States. The states wish to work closely with Congress as it proceeds
with structuring the details of both TEA-21 and Amtrak Reauthorization.
Sincerely,
David King,
Chair,
North Carolina DOT.
Ken Uznanski,
Vice-Chair,
Washington State DOT.
Randall Wade,
Secretary/Treasurer,
Wisconsin DOT.
The Chairman. Thank you very much.
Mr. Winner?
STATEMENT OF JOHN H. WINNER, PRESIDENT, HARRAL WINNER THOMPSON
SHARP LAWRENCE, INC.
Mr. Winner. Yes, good morning, Mr. Chairman.
Thank you for inviting me to address the Committee today
regarding the future of Amtrak and intercity rail services in
the United States.
I believe that both freight and passenger rail
transportation are vital to the U.S. economy. And I should
point out that I use Amtrak's Northeast Corridor services
regularly. And it has been my experience, as a passenger, that
the Amtrak's train service there is very good.
Now, you've asked me whether there are alternatives to the
existing structure of intercity passenger services in the
United States and whether private companies would be willing
and able to operate these kinds of services. And the short
answer to those question is yes. One need not look outside the
United States to see some of the alternatives. State and local
governments have been providing commuter services using a wide
range of public and private service providers.
But if you look beyond the United States, there's a variety
of approaches to providing intercity passenger rail services,
some of them relying on private companies, and some using State
entities. In Europe, in particular, governments are facing the
increasing costs of rail passenger transport by adopting new
methods and structures to provide rail passenger services
through private enterprise in a competitive framework.
Now, there are a lot of private companies that have
experience and the skill needed to operate intercity passenger
trains. For example, in the United States, major railroads--
CSX, BN--there are a lot of them--they operate thousands of
trains each day, and they're more than qualified to be private-
sector operators of passenger services, and some of them are
already doing it.
In addition to that, there are a lot of other private
companies providing such operations. We'll hear from Herzog,
who operates three services--could be four--here shortly.
There are a number of others. Connex, with some 30,000
employees and annual revenues of $2.5 billion, operates part of
the EuroStar TGV train. Connex U.S. is part of a team that has
recently won the bid to operate commuter services in Boston.
And National Express Group is an example, with 30,000 staff and
annual revenues of about $2 billion, operates in Australia and
it also has bus operations in the United States. There are a
lot of companies like this operating passenger service,
including the Go Ahead Group, Virgin Trains, VIA, which is the
largest urban transport provider in France. Together, companies
like these operate thousands of trains every day, and I'm
certain that many of them, given the opportunity to operate
profitably, would be willing and able to provide intercity
train services in the United States. This does not imply, of
course, that all, or even any, U.S. passenger trains can be
operated without government support of some type.
Now, Americans commonly ask me, ``Why can't the United
States have the kind of trains they have in Europe?'' And
they're often surprised to find that many European rail
services are provided by these private operators I have just
been talking about. One would think that in the United States,
the home of free enterprise and the largest market economy in
the world, private enterprise would be a preferred method for
providing public services where it's economically feasible.
Now, most reform proposals involve obtaining greater value
for money from intercity rail passenger subsidies through some
form of contracting out or franchising train services. Rather
than discuss all the different kinds of methodologies here, I
would like to limit my discussion to the use of the private
sector to provide these kinds of services.
There are lots of reasons to involve private-sector
operators for intercity rail transport. Using private operators
to replace Amtrak on some routes could have these benefits.
First of all, there would be a more transparent determination
of the costs and of the ridership of each of the services, so
you could find the really uneconomical trains. Generally
speaking, what we've found around the world is that private
operators provide better service quality and they're more
customer-oriented.
We have improved efficiency and productivity. Productivity
improvements of something like 40 percent are common when we
see these things. Lower costs. Cost reductions typically are in
the range of 20 percent. Surprisingly enough, there is improved
safety. Contrary to popular belief, private-company operation
of train services generally results in a greater emphasis on
safety. Even in the U.K., train safety measures have improved
threefold from pre-reform periods. One of the major public
benefits of private participation is the ability to employ
private rather than public capital. Private entities take the
risks and enter into their own debt.
U.S. intercity rail passenger services operate in a complex
environment with a lot of stakeholders and competing interests.
And while there are a lot of benefits from greater private-
sector involvement, there are likely to be some problems, as
well. We've already heard about the labor and union
difficulties. There's a potential for increases in railroad
retirement costs if employment shifts out of Amtrak into
something else. That needs to be addressed. There's a much more
complicated operating environment, which could impair rail
freight services, and that will require some close consultation
with the private freight railroads.
There's a potential challenge to private property rights
for the infrastructure owners that will require some fairly
delicate handling, because that is the basis of competition for
the private railroads.
There's still a problem of coordinating an integrated
national network, if there is one. It'll be more difficult if
you employ a lot of different private operators. In a mixed
public-private program, you have to work to get the incentives
right. That's a problem they had in the U.K. where the
incentive programs encouraged the wrong kind of behavior.
Amtrak has changed greatly since its founding in 1971.
While it's met the objective of lifting the burden of
passengers' losses from freight railroads, it's also required
more than $26 billion in government subsidies. If intercity
passenger services are to continue, rolling stock assets must
be replaced, infrastructure must be renewed, and all of these
things represent a significant investment. And currently, too
little money pays for too many services and too little
investment.
A reform of Amtrak is overdue. The recommendations for
restructuring developed by the ARC last year are a place to
start. The approach talked about today by Transportation
Secretary Jackson is also a very good place to start. More
rapid involvement of the private sector is a reasonable course
of action. One thing is certain; if you wish to rely on the
private sector to own and operate intercity rail passenger
services, I think many private companies would be interested in
participating.
Thank you.
[The prepared statement of Mr. Winner follows:]
Prepared Statement of John H. Winner, President,
Harral Winner Thompson Sharp Lawrence, Inc.
Good day Mr. Chairman and members of the Committee. Thank you for
inviting me to address the Committee regarding the future of Amtrak and
of intercity rail passenger services in the United States. My name is
John H. Winner. I am President of Harral Winner Thompson Sharp
Lawrence, Inc., a management consulting firm specializing in the rail
industry. We have worked worldwide with commercial railways, transit
authorities, transport industry investors, industry suppliers,
financial institutions, and governments on strategic, financial, and
operational issues related to rail transportation. I have over 30 years
experience in the rail industry and have managed rail passenger and
freight assignments all over the world. My work has taken me to many
countries in Western, Central and Eastern Europe, South America, the
Asia-Pacific region, the former Soviet Union, the United Kingdom,
Canada, and, of course, the United States.
I want to state at the start of my testimony that I believe that
both freight and passenger rail transportation are vital to the U.S.
economy. I use Amtrak's northeast corridor services regularly. It has
been my experience, as a passenger, that Amtrak's Acela service is
excellent. It provides what an intercity rail passenger service
should--comfort, speedy service, reduced congestion and air pollution,
safety, convenient mobility. Such services have the potential to reduce
the need for more public investment in highways and airports.
The Committee has asked me whether there are alternatives to the
existing structure of intercity passenger services in the United States
and whether there are private companies willing and able to operate
such services. The short answer to these questions is ``yes.'' One need
not even look outside the United States to see some of these
alternatives: state and local governments have pursued many different
ways to provide commuter services using a wide range of public and
private service providers. Beyond the United States, we find a variety
of approaches to providing intercity passenger rail services--some
relying on private companies and some using state entities. In Europe,
in particular, governments are facing the increasing costs of rail
passenger transport by adopting new methods and structures to provide
rail passenger services through private enterprise in a competitive
framework.
Many private companies have the experience and skill needed to
operate intercity passenger trains.
In North America, all major railroads (CSX, BNSF, UP, NS,
KCS, CN, CP), multi-billion dollar enterprises operating
thousands of trains each day, are more than qualified private
sector operators. Some of them already operate commuter
services.
Connex, a subsidiary of Vivendi, is one of the largest
private passenger transport groups in the world with some
30,000 employees and annual revenue of some $2.5 billion.
Connex-U.S. has recently won a bid to operate commuter services
in Boston.
VIA GTI is the largest urban passenger transport supplier in
France and provides urban and suburban rail passenger services
throughout Europe.
National Express Group, which employs about 30,000 and has
annual revenue of more than $2 billion, operates part of the
EuroStar TGV service, intercity passenger services in the U.K.,
urban and commuter services in Australia, and has bus
operations in the U.S.
FirstGroup, with some 45,000 employees and $2 billion in
revenue, operates intercity, urban and suburban services
internationally.
Ariva, with 15,000 staff and revenue of about $2 billion,
provides intercity and suburban services in the U.K. and The
Netherlands.
Stagecoach, with 32,000 employees and more than $2 billion
in revenue, operates intercity services in the U.K. and has
rail equipment leasing operations.
Throughout the world, many other private companies provide
intercity train services.
Together these companies operate thousands of trains each day. I am
certain that many of them, given an opportunity to operate profitably,
would be willing and able to provide intercity train services in the
United States.
This does not imply that all, or even any, U.S. intercity passenger
trains can be operated without government support. Indeed, very few
intercity rail passenger services are privately operated and financed.
But, public support of privately provided goods and services is common
in market economies. Many public services are provided by private
companies operating at a profit, including garbage collection, highway
maintenance, sewer and water services, toll roads, air traffic control,
and commuter-rail services. Private companies provide security
services, build F-16s, build and operate mass-transit systems, and
provide a wide range of other products and services that are often not
profitable without the government as a customer. Public funding and
private operation of intercity rail passenger services should not be
considered unusual.
People commonly ask: ``Why can't the United States have the kinds
of trains they have in Europe?'' They are often surprised to find that
many European train services are provided by private companies. They
would probably be surprised to find that European governments are
working desperately to introduce private sector participation in
intercity rail and freight services as a means to control costs,
increase rail market share, and introduce the use of private capital to
fund rail services. They might also be surprised to find out how much
European taxpayers pay to subsidize some these services and the
infrastructure over which they operate.
One would think that in the United States, the home of free-
enterprise and the largest market economy in the world, private
enterprise would be the preferred method for providing public services
where economically feasible.
Private Operation of Intercity Passenger Trains
Intercity rail passenger services require a number of different
activities--developing schedules, determining the price of a ticket,
marketing and advertising the service, taking reservations, providing
equipment, operating stations, providing on-board staff, driving the
train, cleaning and repairing stations and rolling stock, . . . etc.
Private train services can separate and group these activities many
different ways. Private participation is often improperly lumped under
the term ``privatization,'' but should generally be categorized across
a range encompassing contracting, franchising, and privatization. The
differences between categories may be defined by how many activities
are performed by the private sector. Here is how I would define the
activities within these categories.
Contracting
In contracting, private company is hired to perform some of the
activities associated with providing public services, such as providing
drivers, on-board staff, and perhaps station staff. Typically,
scheduling, reservations, marketing, advertising, and most asset
ownership remain with the government agency.
Usually, the service has an image which is separate from that of
the operator and managed by the government agency. A contractor
typically operates the train, provides and manages on-board and station
staff, and may be responsible for cleaning stations and rolling stock,
servicing equipment, collecting ticket revenue, and, perhaps managing
some customer service functions (lost and found, help, complaints,
etc). An operating contract covering these kinds of functions is
typically short term--say two to four years. The length of the contract
depends on startup costs such as employee recruitment, training, and
any equipment or facilities needed. Contracts with larger startup costs
are typically left for longer periods.
Contracts are competitively bid and the government agency pays the
contractor for providing the specified services, so a low bid generally
wins. A contractor generally takes on only limited ridership and
transportation revenue risk. It is not being asked to build the
service, just to operate it properly. Examples of contracting include
Herzog's operation of the Trinity Railway Express in Dallas, and the
operation of MBTA commuter services by Connex in Boston.
Franchising
Franchising usually means that a private company provides operating
services like a contractor, but will also provide and manage more of
the soft aspects of train service--scheduling (though a minimum
schedule may be specified in the franchise agreement), marketing and
branding, advertising, additional customer service functions, station
appearance, perhaps reservations, and the condition of rolling stock.
The government agency retains overall ownership of the ``right'' to
provide rail passenger services. In many cases, a franchise operator
has some ability to set prices, if only for premium services. In some
cases, the franchise will include a requirement to make some capital
investment--rehabilitating stations, modernizing rolling stock, maybe
even provide new rolling stock. A private franchise operator takes not
only the risks associated with operating the service, as does a
contractor, but also takes ridership and revenue risks, and the risks
associated with investments.
Franchising usually has higher startup costs, more investments, and
involves greater risks than contracting, so the length of franchise is
likely to be longer. Generally, the greater the investment required,
the longer the franchise term. In the U.K., franchises are typically
for seven years, with options for negotiated two- to four-year
extensions. In some cases, where the capital investment requirements
were high, the franchise term has been longer--15 to 50 years. Some
franchises have been sold; companies have actually paid governments for
franchise rights. But often the franchise bid is negative--the
franchise operator is paid to develop and operate the franchise.
U.K. train services, commuter and long-distance train services in
Argentina are examples of franchising of train services.
Privatization
Privatization usually means that all or most aspects of an
intercity passenger service are sold, including the ``right'' to define
and provide the service and to determine the prices charged. The
private operator has all the rights, obligations, and risks of any
other private business, including the ability to fail or to make a lot
of money. A private company usually must buy (or lease) the rolling
stock necessary to provide services and has to arrange for access to,
or ownership of stations, and all the other infrastructure needed.
There is usually no guaranteed government payment for privatized
intercity passenger service although private companies do contract with
government entities to provide some services that are not commercially
viable.
Examples of privatization of long-distance passenger trains include
the sale of intercity passenger services in Australia; The Ghan and
Indian Pacific trains are the most notable. In this case, only the
services and equipment were sold, not the infrastructure. The Japanese
National Railway was privatized in three vertically-integrated
passenger services. The privatization process was quite complex and
involved settlements with excess staff and transfer of prior debt. The
three Japanese private rail passenger companies currently operate
profitably.
There is room for a lot of overlap between these categories. In the
case of Amtrak, the most likely alternatives fall between contracting
and franchising. Amtrak's intercity passenger services are unlikely to
be privatized--they lose too much money--although Amtrak could be
liquidated, its assets sold and government could buy-in whatever
passenger services it determined were in the public interest. \1\
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\1\ Many questions arise about what happens to Amtrak's operating
rights on private freight railroads in this case. It should be noted
that many state governments and local communities have negotiated
access arrangements with private freight railroads for the operation of
commuter services without recourse to Amtrak's rights.
---------------------------------------------------------------------------
Why Involve Private Service Providers
Amtrak is a private corporation under the current statute (but it
is largely, though not entirely government owned). It is charged with
operating intercity passenger services. It is considered by some to be
a failure, by others to be the last chance for intercity rail passenger
services. Over Amtrak's life, it has received some $26 billion in
subsidies. Many are concerned that the subsidy has not been well spent.
Several proposals for reforming or changing Amtrak have been
discussed. The Amtrak Reform Council (ARC), in a study authorized by
Congress, published a comprehensive plan last year. Most reform
proposals seek to obtain greater value-for-money from intercity rail
passenger subsidies. Rather than discuss all the potential reform
methodologies here, I will to limit my discussion to the use of private
companies to provide such services.
Many benefits arise from the involvement of the private sector in
intercity rail transport. Generally, as the use of private companies
moves from simple contracting towards franchising, more activities come
under competitive pressures and the benefits increase. These benefits
do have real impacts. Using private operators to replace Amtrak
operation of some or all of its services could have these benefits:
Greater Transparency
Competitive tendering provides transparent determination of train
costs. The most uneconomic services are easily identified and
eliminated, reducing subsidy costs. This usually results in better
choices about what services to provide and often a better split of
payment responsibility between customers, and local, state and Federal
Governments.
Improved Service Quality
Private companies are usually more sensitive to market and customer
requirements. Service quality and ridership typically increases.
Ridership increases in the U.K. were significant (up by about 36
percent since the start of reforms) after decades of decline.
Improved Productivity and Reduced Costs
Competition tends to drive down costs. Increased patronage on the
best services, elimination of the worst services, better use of assets
and resources, and the use of fewer and less expensive employees all
tend to reduce costs and increase productivity. On average, cost
reductions of around 20 percent from all sources are typical, but
results vary greatly. Productivity improvements are generally greater,
in the range of 35 to 40 percent.
Improved Safety
Contrary to popular perception, safety is not typically sacrificed
as private companies become involved in passenger train services.
Private train service providers are usually under increased safety
scrutiny and are at least partially privately insured for many safety-
related issues--so a lack of safety costs them money. In the U.K.,
notwithstanding the adverse publicity from a few major accidents, rail
passenger safety has improved by a factor of three since reforms in
1994; U.K. rail services are now among the safest in Europe. Safety
improvements have also been recorded in Japan and Australia.
Increased Use of Private Capital
Finally, longer-term agreements (either contract or franchise)
permit greater use of private capital for providing assets for
passenger services, particularly rolling stock. Debt associated with
such assets is taken on by private companies and investors, rather than
by government.
What Problems Might Arise?
U.S. intercity rail passenger services are operated in a very
complex environment with many stakeholders and competing interests.
While there are many benefits from greater involvement of the private
sector, some difficulties are also likely:
Labor Dislocations
Competition for contracts and franchises will improve the
productivity of intercity passenger services. Work rules are likely to
be different; wage rates for some activities may be lower. Unless
passenger services are increased, fewer employees will be required.
Employees and railway labor unions are likely to resist, disrupting
service and reducing ridership. Many governments have acted to reduce
the impact of outsourcing on employees by guaranteeing incomes for
existing employees. Such guarantees can be expensive.
Increased Railroad Retirement Costs
Amtrak and its employees participate in the railroad retirement
program, the special rail industry version of social security. The
program is already considerably more expensive than social security for
employers. A significant reduction in the number of employees involved
in passenger services would increase the contributions needed from
private railroads. Private railroads would likely want to be relieved
of these increased costs.
Increased Complexity in Managing Infrastructure
The operation of rail services is a complex business involving
thousands of delicate tradeoffs between investments and operating
decisions and day-to-day management of the balance. Coordinating the
business is difficult (as evidenced by the trouble the industry had in
absorbing mergers and dealing with weather-related problems). While
some rail lines already have multiple operators, additional new
operators could further complicate operations, disrupt freight
services, and cause harm to railroads and the public. Individual rail
freight carriers may seek some assurances that they would not have to
deal with many different private operators. This could complicate
competitive bidding practices.
Limited Infrastructure Capacity
Since deregulation in 1980, private freight railroads have worked
diligently to match assets and operating costs to business levels, but
they continue to have had difficulty earning their cost of capital and
attracting investors. One result is significant pressure to reduce
railroad investments. On many railway lines, available capacity is
closely matched to the amount of traffic. One of the expected benefits
of using private companies to operate passenger services is to make
those services more attractive, thus increasing intercity passenger
traffic. But, some railway lines will not have sufficient capacity to
permit additional passenger trains without affecting freight services.
An increase in the number of passenger trains should be accompanied by
offsetting investment to increase line capacity or freight service will
deteriorate.
Potential Challenge to Property Rights of Infrastructure Owners
Private railroad companies are concerned about being required to
permit additional operators on infrastructure they have built and
maintain for their own services. There is concern that the precedent of
being forced to give a private operator access to their infrastructure
will reduce their ability to prohibit others from accessing their
lines. The ability to control access to their private network is
essential to maintaining profitability. This problem should be
addressed if private railroads are to agree to private operation of
passenger services across their lines.
Liability Issues
Currently, Amtrak indemnifies private railroads from some of the
significant liabilities associated with the operation of intercity
passenger trains. Any use of private operators should address these
liability issues.
Disintegration of Network
Introducing a number of private companies into the national rail
passenger system, either as contractors or as franchise operators,
could make development and coordination of an integrated national
network difficult. Setting up contracts for and coordinating services
between many operators is a difficult task. Such a system can sacrifice
flexibility in many ways (for example, moving equipment between
services, now quite easy, is more difficult when it must be negotiated
between private operators). If an integrated national network is
desired, a national reservation system should be maintained (though
that, too, can be contracted) and a government body responsible for
developing strategy and planning is likely to be necessary.
Should Amtrak Be Changed?
Amtrak has changed greatly since its founding in 1971. While it has
met its objective of lifting the burden of passenger losses from
freight railroads, it has also required more than $26 billion in
government subsidies. Amtrak covers only about 70 percent of its
operating costs from revenue. In the future, many of its rolling stock
assets must be replaced and northeast corridor infrastructure must be
renewed and upgraded to take advantage of the high-speed train
technology used in Acela services. The investment needed to maintain
and renew Amtrak's assets will be significant--billions of dollars.
Currently, too little money pays for too many services and too little
infrastructure investment. Amtrak, with its current structure, cannot
fix these problems.
Faced with burgeoning financial requirements, the Committee has
wisely decided to reexamine U.S. passenger rail service, including what
services should be provided, how they should be funded, and how they
should be provided. I have outlined options for providing passenger
service. A range of viable alternatives to Amtrak current structure are
used in the U.S. for commuter rail services and internationally for a
full range of metro, commuter and intercity rail services. I have also
shown that many companies including Connex, Herzog, and some U.S.
freight operators already provide some passenger rail services. Many
other firms are active in Europe, Australia and other parts of the
world.
The Committee has a choice between trying to improve the efficiency
of Amtrak within the current structure, or adopting a new structure
that harnesses private enterprise and competition to a greater degree.
The private enterprise/competition alternative has the potential for
significant cost savings and better customer service. But, by
increasing transparency and removing many decisions from the political
sphere, it would likely spark changes that have political as well as
economic consequences. Key among these are the potential for reduced
employment in the intercity passenger rail sector, and increased
complexity in interactions with private railroads. The ``improve-
Amtrak'' alternative would give government greater control over
politically-charged issues such as railway employment and route
adjustments but would have less potential for efficiency improvement.
Amtrak was designed in the last century on the model of a European-
style monopoly state railroad. It would not be designed the same way
now. Many governments have come to realize that private sector
participation in intercity rail services can have great benefits.
Today, even European governments are reforming their monopoly state-
owned rail systems and introducing competition in an effort to improve
rail market share and productivity, and to reduce the demand on public
resources.
Reform of Amtrak is overdue. The recommendations for restructuring
Amtrak developed by ARC are certainly a place to start, along with the
similar approach outlined today by Deputy Transportation Secretary
Jackson. More rapid involvement of the private sector is a reasonable
course of action.
One thing is certain: if you wish to rely on the private sector to
own and operate intercity rail passenger services, many private
companies will be interested in participating.
The Chairman. Thank you very much.
Mr. Dittmar?
STATEMENT OF HANK DITTMAR, CO-DIRECTOR, RECONNECTING AMERICA
Mr. Dittmar. Mr. Chairman, thank you for the opportunity to
appear today.
I'm Hank Dittmar, Co-Director of Reconnecting America,
which is an independent initiative to define a new national
approach to intercity travel in this new century. We believe
that passenger rail can play a significant part in our Nation's
transportation system if we redefine the role that intercity
rail plays in that network, we provide stable levels of capital
funding, create incentives for connecting our separate air,
rail, and bus networks, and remove regulatory barriers that
prohibit coordinated planning, integrated approaches to
delivering intercity transportation services.
When Amtrak was created as a publicly owned, private
corporation in 1971, it was saddled with an impossible set of
conditions. These have been outlined by previous witnesses. On
top of these familiar problems is a problem not unique to
Amtrak, the failure of United States transportation policy and
practice to approach transportation service delivery in a
network manner. Each mode--air, rail, bus, and automobile--is
presumed to operate independently and to compete with one
another for customers and scarce resources. The failure to
network the transportation system with both public and private
components is increasingly leading to system and market
failures within each industry. These failures are increasingly
threatening continued improvements in our economic
productivity.
Finding a solution to Amtrak's dilemmas involves tackling
this problem head-on. All other solutions are suboptimal at
best involving only damage control. Whether private entities or
quasi-public entities operate Amtrak, or whether infrastructure
and operations are separated is likely to matter little unless
a fundamental shift in the role of passenger rail is also
accomplished in the context of the ongoing rationalization of
the airline industry and of freight transportation.
The elements of a solution are beginning to emerge across
the country. As States are taking on partnership roles in
intercity passenger rail, cities and airport authorities are
creating travel ports linking air, rail, and bus into one
convenient facility, and private operators are experimenting
with inter-modal code sharing, airport express-bus operations,
and integrated rail/bus scheduling. The next step is to take
these promising examples and build a coherent Federal policy
framework that allows a replication at the national level. That
policy, with respect to passenger rail, should move toward a
national network of short- and medium-distance routes
interconnected with intercity bus and aviation for the long-
haul trips.
The map that I showed there plots--we actually decided that
in the midst of debate over structure, somebody ought to look
at actually where travel demand is, so we went to the 1995
American Travel Survey and plotted all intercity travel between
city pairs. And we found--also having analyzed the official
airline guide, we found that about half of all intercity travel
is under 500 miles in length and that a lot of the biggest
demand corridors are actually demand corridors that can be
reasonably served by intercity travel, intercity rail, if it's
focused on the 100- to 400-mile distances.
So we believe that the proper role for rail is to build on
these State partnerships that Mr. King spoke about and to focus
on making inter-modal connections between rail and bus at
airports and at downtown travel stations.
And we've also submitted with the testimony, Mr. Chairman,
an analysis of the 54 top airports in the country and the
reality and the possibility of making inter-modal connections
between bus and rail at each of those airports.
The key actions to make this kind of national network a
reality are the following. First, as I said, we need to focus
intercity rail primarily on short- and medium-distance routes,
and we believe a national network can be devised that meets
Senator Hutchison's concerns of being a national network, but
that also meets our concerns of operating efficiently in the
market where rail does the most good. We believe Congress
should create a dedicated capital program making these kinds of
service improvements, with funding provided through States who
partner with the national operators.
Second, we should provide for an essential transportation
service program. The same debate that we've heard earlier today
about the costs of providing rail service in less dense parts
of the country rages every time we talk about the essential air
service program, and raged back in the fifties when we talked
about connecting our interstate highway system. Let's just
acknowledge that, in fact, there is a level of connectivity
that people need, but let's operate it in an inter-modal
manner, and try to do so in a way that provides service to the
less dense parts of the country in the most efficient manner.
Third, we believe we can create a last-mile inter-modal
connections program which would provide funding for making that
difficult last mile or two miles take place. This funding would
be available to local entities, State entities, and it could be
provided from a number of different inter-modal sources to
really focus on making the connections between freight rail and
passenger rail in key corridors, making the connections between
airport and rail and bus at key travel ports.
Finally, we should move to eliminate barriers to inter-
modal thinking in all of our legislation, requiring, for
instance, aviation master plans to take account of surface
transportation needs, opening up for competition not just for
the provision of rail service, but for code-sharing between bus
and rail and between airport and rail as is done in Europe. And
this may require legislation to empower this with the Surface
Transportation Board.
Mr. Chairman, thank you for the opportunity to be here
today. Intercity passenger rail is an essential part of a
forward-looking national transportation policy. At the same
time, we need to reform the way we approach passenger rail,
just as we need to rethink the way we approach other
transportation modes. An authorization that provides stable
multi-year capital funding, promotes partnerships with States
and private entities, creates incentives for inter-modal
integration with intercity bus and aviation, and refocuses
Amtrak on primarily serving a national network in short- and
medium-distance travel would be a big step in the right
direction.
[The prepared statement of Mr. Dittmar follows:]
Prepared Statement of Hank Dittmar, Co-Director, Reconnecting America
Chairman McCain and members of the Committee, thank you for the
opportunity to appear today to discuss Amtrak, and the future of
passenger rail in this country. I am Hank Dittmar, Co-Director of
Reconnecting America, an independent initiative to define a new
national approach to intercity travel for this new century. We believe
that passenger rail can play a significant part in our Nation's
transportation system, if we redefine the role that intercity rail
plays in that network, and if we provide stable levels of capital
funding, create incentives for connecting our separate air, rail and
bus networks together, and remove regulatory barriers that prohibit
coordinated planning and integrated approaches to delivering intercity
transportation services--both passenger and freight.
Intercity passenger rail can play several important roles in an
integrated long distance travel network: it can relieve airport and
highway capacity in congested corridors, it can provide an important
alternative in case of system disruption, and passenger rail is more
energy efficient and climate friendly than either short haul air
transportation or travel by automobile. The public supports an expanded
intercity rail program. A 2001 national survey by the United States
Conference of Mayors found that 69 percent of those polled supported an
expanded higher speed rail program in the Nation. It is ironic, though,
that even as support for intercity rail grows, and its importance to
the Nation is increasingly recognized, Amtrak's future seems less
secure than ever. The reason goes back to Amtrak's creation.
Amtrak was never meant to succeed, and it has fulfilled that
expectation. When Amtrak was created as a publicly owned private
corporation in 1971, it was saddled with an impossible set of
conditions. These conditions included:
An expectation that it could operate without public subsidy,
something the private railroads had failed to do with passenger
service, and something no passenger railroad in the world has
succeeded at;
An inherited set of routes that served the major population
centers of the 1880s, and that the private railroads had failed
to succeed with, once lucrative mail contracts were transferred
to the airlines;
A political expectation that all of the cities on the
network would continue to receive service, regardless of
population density;
A franchise allowing Amtrak to operate on freight railroad
rights of way at incremental cost, something the private
railroads believe causes them to lose money on each Amtrak
train;
A board that often lacked the necessary expertise to support
the Corporation's challenging mission;
Annual appropriations battles for general fund revenues for
both capital and operating uses, placing them at a severe
disadvantage when compared with aviation, highways and transit,
all of which enjoy the protection of a trust fund and multi-
year funding.
On top of these familiar problems is a problem not unique to
Amtrak: the failure of United States transportation policy and practice
to approach transportation service delivery in a networked manner. Each
mode--air, rail, bus, automobile--is presumed to operate independently,
and to compete with one another for customers and scarce resources. The
failure to network the transportation system, with both public and
private components, is increasingly leading to system and market
failures within each industry, and these failures are increasingly
threatening continued improvements in our Nation's economic
productivity.
Finding a solution to Amtrak's dilemmas involves tackling this
problem head on. All other solutions are suboptimal at best, involving
only damage control. Whether private entities or quasi-public entities
operate Amtrak, or whether infrastructure and operations are separated
is likely to matter little, unless a fundamental shift in the role of
passenger rail is also accomplished in the context of the ongoing
rationalization of the airline industry and of freight transportation.
That we are experiencing a crisis in intercity transportation at
this time can be demonstrated by citing a few examples:
The continuing problem of metropolitan congestion, resulting
from the concentration of commute travel on the Interstate
network, threatening its viability for the intercity
transportation of passengers and freight;
The ongoing decline in the number of airline passengers and
the related series of airline bankruptcies, resulting in a
restructuring of the hub and spoke system in a way that leaves
many small and medium sized cities with little or no air
service. According to the Air Transport Association, air travel
under 250 miles is down over 25 percent, trips between 250-500
miles are off 15 percent through the second quarter of FY 2002,
while longer trips are off less than 5 percent.
The continuing high levels of subsidy for Amtrak's long
distance trains, along with a crisis of unfunded infrastructure
on the Northeast corridor.
The shrinking of the railroad network, and the finding by
the Surface Transportation Board since its founding in 1996
that the private railroad industry has failed to make back the
cost of capital in a highly capital intensive industry.
These are not new problems, but they are reaching a tipping point
where government action is needed to ensure stable and reliable
interstate commerce. I do not believe that the proper response is a
series of continued episodic bailouts of Amtrak, the airlines, and the
road industry, however. Rather, the country needs to integrate our
systems and rationalize the market through a combination of: continued
deregulation, removal of barriers to intermodal investment, dedication
of capital resources, and a new vision for intercity travel the scale
and scope of President Eisenhower's Interstate system. This time,
instead of routes within a system, it should be connections between the
systems.
Unless this happens, many cities will be cut off from the long
distance travel network, forcing more long distance trips onto highways
and further degrading the performance and reliability of that
overstressed system. Reliable freight transportation enabled
improvements in logistics and the creation of the just in time
manufacturing system. These developments have been key to the large
gains in productivity that have enabled economic growth over the past
two decades.
These gains in productivity are being eroded as highways become
more congested, especially in corridors where highway capacity cannot
be added, as airport congestion and airline restructuring erode both
the performance and the accessibility of the aviation system, and as a
lack of reliable connections between ports, airports, highways and rail
networks in metropolitan areas diverts freight onto highways, rendering
its on-time arrival less and less predictable.
The elements of a solution are beginning to emerge across the
country as states are beginning to take on partnership roles in
intercity passenger rail, cities and airport authorities are creating
``travelports'', linking air, rail and intercity bus into one
convenient facility, and private operators are experimenting with
intermodal code sharing, airport express bus operations, and integrated
rail-bus scheduling. The next step is to take the promising examples
that are emerging, and build a coherent Federal policy framework that
allows their replication at a national scale.
Some of the promising developments that are emerging around the
country include:
Innovations In Surface Transportation Modes: The distance from 100-
400 miles is the most effective market for intercity bus, commuter rail
and intercity rail. When airport access, waiting, security and transfer
times are taken into account, bus and rail become cost and time
competitive within this range. Three kinds of markets exist for rail
and bus in these distances: for airport access in lieu of an auto trip,
from city center to city center in substitution for an air journey, or
to substitute for the spoke portion of a hub and spoke journey or for
an auto trip.
Across the country we have seen several success stories for
intercity rail in these kinds of markets. They stand in marked contrast
to the overall performance of intercity rail, and typically they
involve partnerships between Amtrak and the state, wherein the state
invests in equipment, track and station improvements and provides
service subsidies. For example, the recently inaugurated service
between Boston and Portland, Maine created a new rail market
compensating for a loss of airline seat capacity from Portland of 26
percent from 2000-2001.
Other partnerships are occurring on the West Coast. In California,
increasing rail service on the Capitol Corridor rail line--to nine
trips each way daily between Sacramento and Oakland, CA--increased
ridership 40 percent between 2000 and 2001 and freed up both air and
highway capacity. Capital Corridor ridership exceeds a million riders a
year now. More Amtrak service improvements supported by the State of
California resulted in record ridership levels on other California rail
corridors. The California experience also points up the value of
intercity bus links with rail, where buses are scheduled to meet trains
to transport passengers to communities not reached by the rail network.
Another important step is improved equipment and service quality.
Introduction of the sleek Talgo trains in the Pacific Northwest in 1999
boosted ridership between Seattle and Portland and reduced travel time
by more than a half-hour. The state-railroad partnership (the states of
Oregon and Washington and Amtrak and BNSF Railroad) is planning steady
improvements to track and terminals to increase speed and frequency
with the goal of carrying quadrupling ridership from the 2001 level of
565,000 annually by 2016.
Turning Airports into ``Travelports'': The idea is to turn airport
terminals into travelports where rail, bus, and urban transit would be
added to the traditional mix of aviation, parking and rental cars. By
making selected improvements to provide more reliable service options
via other modes of travel for short- and medium-distance passengers,
airport capacity will be freed for the higher-value, longer air trips.
This kind of system is also more redundant, in the positive sense that
travelers are presented with more options when regular service in a
single mode is interrupted. A more redundant system is also an
investment in economic security to ensure continued movement in the
face of natural or man-made disasters. The value of this was clearly
shown in the Northeast Corridor in the hours and days following the
September 11 disaster; many studies also documented the ability of rail
transit to provide continued service in the wake of the California Loma
Prieta and Northridge earthquakes.
This solution also provides a way to address the revenue problem
airlines confront as business travelers respond to declines in service
by seeking low fare, no frills carriers by providing an increase in
value. There is still a place for carriers that provide services that
people value at a higher price. The only question is how much these
services can take advantage of intermodal integration. Linking European
planes with trains has been focused on business travel markets, like
Frankfurt-Stuttgart or Paris-Brussels. By offering downtown access on
fast train connections, airlines can charge high-yield fares for high-
quality service, about the only alternative to today's focus on low
fare, low yield strategies.
Conventional wisdom says the European experience cannot be
replicated here, because distance between cities is greater, and
because it is too difficult to make the air rail connection happen. We
looked at intercity travel in the United States and found the distance
between most metropolitan travel markets is within that range. For
instance, the distance from Chicago to Detroit is 284 miles, from Los
Angeles to San Francisco is 400 miles, Portland to Seattle is 187
miles, from Dallas to Houston is 250 miles, and from Miami to Orlando
is 234 miles. The fact is that half of scheduled commercial air trips
are less than 500 miles and almost that many are less than 400 miles in
length.
In fact, innovative airport rail and bus connections are being
made, and we have begun at Reconnecting America to assess the potential
at key airports around the country. Table 1 is an evaluation of the
potential for connecting the surface rail and bus networks with the
aviation network at 54 key airports around the country. * Our analysis
reveals that it is feasible, and that many cities are in fact trying to
make the connection, despite numerous institutional, financial and
legal barriers. A few examples serve to illustrate the very real
potential.
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* The information referred to has been retained in Committee files.
Newark International Airport: the Newark Airtrain connects
the airport with NJ Transit and Amtrak's Northeast Corridor at
a new Newark Airport station, where ticketing and check-in
facilities are available. Continental and Amtrak are now code-
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sharing.
Ted Stevens International Airport, Anchorage: a new station
and covered pedestrian connection has opened recently between
the airport and the Alaska Railroad.
Burbank Municipal Airport: the Burbank Airport is directly
served by the Metrolink Commuter Rail, with ten daily trips and
the Amtrak's Pacific Surfliner with four daily trips. Amtrak's
Coast Starlight passes through the station but does not stop.
San Francisco International Airport, where a four station of
the BART regional rail system to the airport will terminate in
a joint BART and Caltrain commuter rail station at the airport.
The station, which will open in late June 2003, will also
accommodate a future high-speed rail line which is on the
statewide ballot for approval this November.
Baltimore Washington International Airport: a light rail
line from Baltimore directly serves the terminal, and a bus
shuttle connects with the BWI rail station, which is served by
Amtrak and the MARC commuter service. This is one of the
fastest growing stations in the Amtrak system.
Key West International Airport, Florida where an intermodal
terminal connects air service with Greyhound bus service and
with an Amtrak thruway bus. There are some 21 air bus
connections in the country, but many airports actively
discourage bus terminal facilities.
In addition to these examples, airport intermodal projects are in
the planning and development stages at Chicago's O'Hare International
Airport, with a commuter rail and possible Amtrak connection and a
direct high quality transit express connection in the works; at
Providence's T.F. Green Airport, with a combined rail station and
rental car facility, and at Miami International Airport, where an
intermodal station is planned. Notably, Dallas/Fort Worth International
Airport, following the success of the Metroplex's light rail and
commuter rail investments, is planning to connect both systems directly
into the airport. And our discussions reveal that there is some active
planning around this concept at most if not all major hubs.
The key actions needed are the following:
Focus Intercity Rail Primarily on Short and Medium Distance
Markets: Recognition that the restructuring of the airline hub
and spoke system away from shorter distance spokes creates an
opportunity for intercity and commuter rail and intercity bus
to serve markets between 100-400 miles. Amtrak should cease to
be primarily an operator of long distance train routes, and
should instead focus on the short- and medium-haul markets
where it can be competitive with both highway and air travel.
Two interesting examples of underserved markets for passenger
rail are in the Southwestern United States, where the Los
Angeles to Las Vegas corridor and the Phoenix to Los Angeles
market are prime candidates for rail service. Exhibits 1 and 2
depict the densest markets for intercity travel in the United
States with two threshold levels, according to a GIS based
analysis of the American Travel Survey conducted by the Center
for Neighborhood Technology. Congress should create a dedicated
capital program for service improvements in intercity corridors
linking city pairs under 400 miles that serve markets in excess
of a minimum threshold of total one-way trips per year by all
modes. Funding could be provided to states on a matching basis
to encourage the creation of partnerships between Amtrak and
state governments.
Provide for An Essential Transportation Service Program: In
order to create a truly national Interstate Highway Program, as
well as a National Plan of Integrated Airport Systems, Congress
has always subsidized transportation facilities and service in
less dense corridors with funds derived from more densely
populated areas. Such subsidies have been justified in terms of
equity, in terms of the economic benefit to smaller
communities, and in terms of national connectivity. They have
also been widely criticized for economic inefficiencies, overly
high per passenger subsidies, and diversion of funds from
higher priorities. It is likely that as long as there is a
Federal system and a United States Senate, these arguments will
continue. At the same time, though, it should be possible to
reduce costs, increase accountability and provide improved
service to the rural areas of the West and the Great Plains by
pursuing an intermodal approach. Instead of individual
programs, Congress should create an Essential Transportation
Service program, distributed to the states, which would allow
the subsidization of rail service, intercity bus service, or
air service based upon a finding of cost-effectiveness as
measured by population provided accessibility, frequency and
convenience. The program would need to recognize that air
service is point-to-point service, while rail and bus can serve
entire corridors, often on a multi-state basis. The aviation
reauthorization legislation recently sent to Congress by the
Bush Administration takes a good first step in this direction,
by reforming the Essential Air Service program to provide for
ground transportation services at short and medium distances.
Create a ``Last-Mile'' Intermodal Connections Program: This
would be a new intermodal funding category, funded by a series
of modal funding sources with authorizations of $1.5 to $2
billion per year to fund projects to eliminate bottlenecks and
make intermodal connections. Direct grants, loans and credit
enhancement would all be funded. Eligible projects would
include: intermodal terminals at airports and downtown hubs
incorporating intercity rail and bus and local transit, and
connections to the system; similar terminals and connections at
ports, intermodal freight bottleneck relief in congested
metropolitan areas and key corridors, and incentive grants for
merged information, baggage handling and ticketing. Freight
bottleneck relief projects should demonstrate an enhanced rate
of return for the freight railroads.
Eliminate Legal Barriers to Intermodal Passenger
Transportation Services: Current airport, highway and transit
statutes all act to inhibit creative action by states and
metropolitan regions seeking to make airport intermodal
connections. The barriers are fiscal, institutional, and
regulatory. The first action is thus to act to untie the hands
of airport proprietor, metropolitan planning agencies, state
departments of transportation and transit agencies seeking to
connect their airports to the surface transportation network.
If necessary, Federal laws should be modified to allow
alliances and mergers between intercity carriers in different
modes, to encourage air-rail or air-bus and bus-rail networks
to merge.
Intermodal Policy and Planning: Build on the metropolitan
planning capacity being funded for highways and transit by
requiring rail and aviation plans to be coordinated with the
metropolitan plan and the state plan, as appropriate. We
applaud the Administration's recommendation in their Aviation
reauthorization proposal to link proposed aviation investments
with the metropolitan surface plans. Their proposal also
includes a provision to create an intermodal information
demonstration, which is an important and essential part of an
integrated, networked approach to intercity travel.
Mr. Chairman, thank you for the opportunity to be here today.
Intercity passenger rail is an essential part of a forward-looking
national transportation policy. At the same time, we need to reform the
way we approach passenger rail, just as we need to rethink our
approaches to other transportation modes. An authorization which
provides stable multi-year capital funding, promotes partnerships with
states and private entities, creates incentives for intermodal
integration with intercity bus and aviation, and refocuses Amtrak on
primarily serving short and medium distance travel would be a big step
in the right direction.
The Chairman. Thank you very much.
Mr. Landes?
STATEMENT OF ALAN LANDES, SENIOR VICE PRESIDENT, HERZOG TRANSIT
SERVICES, INC.
Mr. Landes. Mr. Chairman, I want to thank you for the
opportunity of speaking before the Committee.
Herzog Transit Services, headquartered in St. Joseph,
Missouri, operates 88 passenger trains a day in the U.S. and
provides a wide variety of services related to the passenger
and railroad operations, freight railroad operations. Herzog
believes that a key to reform of Amtrak and the intercity
passenger rail service is to maximize the role of the private
sector and introduce competition as quickly as possible into
the national system.
Amtrak operates a number of intercity trains commonly known
as 403(b) services through contractual obligations with States.
Recently, Amtrak requested many States to substantially
increase their subsidy on these trains. Missouri responded by
announcing a competitive bid and requested a request for
proposal to operate one of these trains known as the Missouri
Mule. Herzog prepared a bid for this service, but Amtrak's
refusal to negotiate access to facilities and services
essential to operate the route made it impossible to prepare a
compliant bid. Additionally, once Herzog announced its
interest, Amtrak dramatically and artificially lowered its
subsidy requirement from $8.9 million to $6.4 million. Using
these unfair tactics, Amtrak succeeded in keeping competitors
out of the bid process in Missouri.
Herzog believes that a fair competitive-bid procedure, to
be directed by the states, but with DOT oversight, should be
implemented immediately to prevent a repeat of this situation.
The States would determine when and if they wish to solicit
competitive bids. DOT would establish the guidelines for
competitive bidding. They would monitor, but not control, the
procedure and report to Congress in conjunction with the
Federal Railroad Administration/Amtrak grant process required
by the Omnibus Appropriations Act for fiscal year 2003.
As soon as possible, senior authorizers and appropriators
from Congress should encourage Amtrak to voluntarily cooperate
in the fair competitive-bid procedure. If Amtrak refuses to
cooperate, they should be compelled to do so through the next
item of intercity passenger legislation to clear Congress.
Four major areas must be addressed in the construct of a
fair competitive-bid procedure. Number 1, so long as Amtrak
receives taxpayer subsidies, certain Amtrak facilities and
services should be made available at incremental cost to other
state-qualified passenger rail operators. Rolling stock
currently used on services being bid should be made available
at fair-market lease or purchase value. Amtrak must cooperative
on through-ticketing arrangements. Negotiations must be
conducted with clarity, and disputes should be resolved by
binding arbitration by the FRA Administrator.
Number 2, alternative operators or the states would need to
negotiate access charges with the railroads. Privately owned
railroads must retain the right to approve private sector
bidders who wish to conduct train operations over their
property. Amtrak's fee for access privilege should be
transparent and public, which will establish a benchmark for
private sector competitors to negotiate from.
Number 3, intercity passenger-rail liability-insurance
coverage should be combined into a common-pool policy. This
pool could be managed by the FRA or a qualified nonprofit
industry association. Each operator qualified by a State would
pay a premium into a common insurance pool.
Number 4, in connection with its grant-making authority,
the FRA should direct Amtrak to reorganize its accounting in a
transparent fashion that separates the direct costs for each
route, and allocates indirect cost and overheads by the route,
and requires Amtrak to account exactly like a private company.
The FRA and Congress should monitor this process carefully and
make public reports.
Finally, implementation of a 403(b) fair competitive-bid
procedure, we have outlined as the next step necessary to move
forward with the U.S. passenger rail reform process.
I want to thank you.
[The prepared statement of Mr. Landes follows:]
Prepared Statement of Alan Landes, Senior Vice President,
Herzog Transit Services, Inc.
I am Al Landes, Senior Vice President of Herzog Transit Services
(Herzog), headquartered in St. Joseph, Missouri. Herzog operates 88
passenger trains a day in the United States. We also provide a wide
variety of services related to passenger and freight railroad
operations, including train dispatching, maintenance and overhaul of
rolling stock, station operations, and construction and maintenance of
railway track and related infrastructure. We are not alone in the
private-sector rail passenger business. Around the world private
companies are successfully operating thousands of passenger trains
daily under contract to government authorities.
As a rail passenger service operator we have closely followed the
debate on reform of Amtrak and intercity passenger rail service.
Currently Amtrak holds a de facto monopoly on American intercity rail
passenger service. The results are not good. We believe one key to
reform is to maximize the role of the private sector and introduce
competition as quickly as possible into the national system.
Major restructuring of intercity rail passenger service along lines
proposed by the Administration and others will take a long time. A
program to introduce competition to selected Amtrak operations can
begin now under existing law. In fact, the process has already begun.
Today Amtrak operates commuter rail services as well as shorter
distance intercity trains through contractual obligations with the
states. These shorter distance intercity trains are commonly known as
403(b) \1\ service. Recently, Amtrak requested many states to
substantially increase their subsidy on these trains. The State of
Missouri responded by announcing a competitive bid and issued a request
for proposal to operate one of these trains, the Missouri Mule. Herzog
prepared a bid for this service. We learned that under current
conditions a private company cannot bid against Amtrak's uncooperative
government-subsidized monopoly and win. In the case of Missouri,
Amtrak's refusal to negotiate access to facilities and services
essential to operating the route made it impossible to prepare a
compliant bid. Further, once Herzog announced its interest, Amtrak
dramatically and artificially lowered its subsidy requirement from $8.9
to $6.4 million. Amtrak succeeded in keeping competitors out of the bid
process in Missouri. They did not bother to put in a bid themselves,
perhaps not wanting to give the competitive process any credibility.
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\1\ 403(b), a term originally coined in now-repealed legislation,
is still in common use to refer generally to intercity passenger rail
service that is funded in some part by state government(s).
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Herzog has learned a hard lesson. But we are not discouraged. We
intend to press on and are continuing discussions with Missouri and
other states on creating a mechanism to put the 403(b) bid procedure on
a level playing field. We believe much can be done without a change in
law. We know many states are frustrated and want to introduce the
element of competition into state subsidized intercity passenger
service. However, if this procedure is to be made to work, we need
strong direction from both Congressional leaders and the U.S.
Department of Transportation. New procedures that apply in a
standardized manner across the board to 403(b) state-subsidized service
are needed. We believe a ``Fair Competitive Bid Procedure,'' to be
directed by the states, but with DOT oversight, should be implemented
immediately. The States would determine when, and if, they wish to
solicit competitive bids for 403(b) service. DOT would establish the
guidelines for competitive bidding. They would monitor (but not
control) the procedure and report to Congress in conjunction with the
Federal Railroad Administration/Amtrak grant process required by the
Omnibus Appropriations Act for fiscal year 2003. As soon as possible
senior authorizers and appropriators from the Congress should encourage
Amtrak to voluntarily cooperate in the Fair Competitive Bid Procedure.
If Amtrak refuses to cooperate they should be compelled to do so
through the next item of intercity passenger legislation to clear
Congress.
To create a Fair Competitive Bid Procedure for intercity passenger
service under current law there are four major areas that must be
addressed. The first is Amtrak's control of taxpayer provided
facilities, equipment and services. The second is access to track owned
by private freight railroads. The third is liability. Fourth is
Amtrak's ability to raise or lower its bid to any level by using its
Federal subsidy. The following are our proposals.
I. Access to Amtrak Equipment, Facilities and Services
To create a Fair Bid Procedure for state-subsidized 403(b) service,
Amtrak must make taxpayer-subsidized assets available on a fair basis.
So long as Amtrak receives taxpayer subsidy Amtrak facilities,
equipment and services should be made available at incremental cost \2\
to state-qualified operators. We suggest Amtrak be required to engage
in ``quick fuse'' negotiation so bidders can meet state deadlines at
the request of the state on behalf of any qualified applicant. Disputes
between Amtrak and a qualified bidder should be resolved by binding
arbitration by the FRA Administrator. The following is what we learned
from the Missouri experience and our proposed resolution of each issue.
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\2\ Note that we are not asking for forced access to freight owned
track at incremental cost--only access to Amtrak facilities. Since
Amtrak has access to private facilities at incremental cost, there is
ample justification to give private operators access to taxpayer-
provided Amtrak facilities at incremental cost. This is especially true
as competition will inevitably introduce efficiencies and lower the
taxpayer subsidy.
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Locomotives and Passenger Cars. The RFP required the winning bidder
to provide train sets sufficient to run the service. We scoured the
private marketplace and arranged to acquire locomotives and passenger
cars. However, passenger rail rolling stock is a complex and expensive
capital item, typically with significant custom modifications. The
market for this equipment is tight and ordering, manufacture and
delivery of new or refurbished rolling stock is typically a multi-year
process. Access by bidders to the rolling stock currently providing the
service can best ensure continuity and quality of service.
--Proposed Resolution: Because Amtrak locomotives and passenger
cars in 403(b) service have been acquired with significant
public subsidy they should be made available to alternative
bidders by Amtrak at a fair market lease or sale value. The FRA
Administrator should arbitrate the negotiation upon request by
the State or state-qualified bidders.
Access to Stations. The RFP required access to passenger stations
along the route. Herzog readily negotiated access to city-owned
stations. Amtrak owns the critical St. Louis Station. When Herzog tried
to negotiate access to that station Amtrak informed us they could not
negotiate access in a timely fashion to meet the bid deadline \3\
therefore Herzog was unable to submit a compliant bid.
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\3\ Amtrak put on the table numerous issues that would require
resolution before station or track access could be provided. These
included appraisals of the property as the starting point of the long
process necessary to determine an appropriate price for station and
track access. In a major understatement, Amtrak concluded in a letter
from Gil Mallery, Vice President of Planning and Business Development
dated March 21, ``. . . we cannot guarantee that these discussions
could be completed in a time frame adequate for you to meet the RFP's
timetable.'' The Mallery letter is attached as an exhibit.
--Proposed Resolution: At state request, Amtrak should make
stations and facilities available at incremental cost in a
``quick fuse'' negotiation conducted in a timely enough manner
to not impede the bid process. Negotiations would be arbitrated
if necessary by the FRA Administrator at request of the state
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or one of the bidding parties.
Establishment of Maintenance Facilities. The RFP required the
operator to provide a maintenance facility for rolling stock. Herzog
identified an excellent vacant Amtrak property that included an
abandoned building adjacent to the St. Louis station. Amtrak responded
that the site had been identified as a possible future maintenance
facility ``and must be reserved for that use.'' \4\ Herzog was able to
identify alternative, although less desirable property.
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\4\ Mallery letter of March 24.
--Proposed Resolution: At state request Amtrak should either
provide access to maintenance facilities and property at
incremental cost or make the property available by lease or
sale at fair market value. The only exception to this would be
if Amtrak had a legitimate current alternative use for the
property in question for intercity passenger service as
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determined by the FRA Administrator.
Cooperative Through Ticketing Arrangements. A condition of the RFP
was cooperation with Amtrak to implement a through ticketing system.
The need was to make the transition between service providers seamless
for the riding public for whom the Missouri Mule service would only be
a part of their rail journey. Amtrak would not cooperate on this issue,
stating, ``We do not make this system available to any third parties.''
\5\ This made it impossible to submit a compliant bid as it would have
kept the Missouri Mule out of the national network. This alone could
doom the operation.
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\5\ Ibid.
--Proposed Resolution: Amtrak must cooperate with any state-
designated intercity passenger rail operations bidder on
through ticketing arrangements. Disputes should be subject to
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binding arbitration by the Administrator of the FRA.
II. Track Access
Herzog recommends that a 403(b) Fair Competitive Bid Procedures
mechanism be established with no change in Amtrak's current incremental
cost access to privately owned infrastructure. Privately owned
railroads must retain the right to approve private sector bidders who
would conduct train operations over their property. We recognize that
this will provide Amtrak with an enormous advantage. However, as long
as Amtrak holds the right of mandatory access at incremental cost over
private property, their fee for that privilege should be transparent
and public. This will establish a benchmark for private sector
competitors to negotiate from.
We believe this would be a successful formula. It grants the
freight railroads great leverage in the process. It assures owner
railroads need only negotiate with responsible and safe bidders while
improving their rate of return from passenger service.\6\ 403(b) Fair
Competitive Bid Procedures will give the track owners an opportunity to
prove once and for all that they will cooperate in a process that will
permit world-class passenger service over privately-owned lines without
forced government access.
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\6\ Currently there are many examples of privately negotiated
arrangements which permit commuter passenger trains to operate over
freight railroad-owned track and permit mixed freight and passenger
train operations. Making the Amtrak forced access fee transparent will
help level the playing field for the bidders, for the states seeking
bids and will be an advantage to the freight track owners. The
difference between the Amtrak number and a privately negotiated number
is a market mechanism for publicly identifying subsidy Amtrak has been
receiving from freight railroads. For example, Herzog operates
passenger trains over Union Pacific owned line in California. This
access agreement was negotiated by the commuter authority and the
number is not public. Herzog would wager that the access fee is higher
than comparable Amtrak incremental access fees by more than one hundred
percent.
---------------------------------------------------------------------------
III. Liability
To create a 403(b) Fair Competitive Bid Procedure an additional
issue of insurance needs to be addressed. The Amtrak Reform Act
established liability at $200 million per accident. Amtrak has
negotiated a nationwide policy of insurance coverage, supported with
taxpayer dollars. It is difficult but not impossible for a smaller
private-sector operator to obtain specific coverage for a limited
operation.
--Proposed Solution: Intercity passenger rail insurance
coverage could be combined into a common pool policy. This pool
could be managed by the FRA or a qualified non-profit industry
association. Each operator qualified by a state would pay a
premium into the common insurance pool.
IV. Amtrak Bid Procedures
In the Missouri case, as soon as Herzog made its interest in
bidding for the service known, Amtrak suddenly lowered its request for
state subsidy. This proves competition works! However, if its original
request was based on justifiable real numbers, its suddenly lowered
request merely shifts the subsidy from state to Federal taxpayers. The
ability to do this alone gives Amtrak complete control of a bid
process. It is impossible to know Amtrak's real cost or to separate out
the subsidy in a bid environment. Given this, it is impossible to
compete fairly against a taxpayer-subsidized company. Amtrak has in
fact candidly admitted that they cannot bid against private companies
without Federal money.\7\
---------------------------------------------------------------------------
\7\ ``Our existence is dependent upon Federal funding and therefore
our ability to be in existence and be able to bid on these contracts is
because of Federal aid.''--Amtrak Vice President Cliff Black, Argus
Urban Transport Solutions, March 24, 2003, page 4.
--Proposed Solution: In connection with its grant-making
authority, the FRA should instruct Amtrak to reorganize its
accounting in a transparent fashion that separates the subsidy
and requires Amtrak to account exactly like a private company.
The FRA and Congress should monitor this process carefully and
make public reports. This solution may require future
---------------------------------------------------------------------------
legislation.
Conclusion
Despite the fact that Amtrak`s failure to cooperate made it
impossible to bid in the Missouri situation, we want to make it clear
that Herzog is in this game for the long run. Railroad passenger
service is our business and we won't be dissuaded from competing in our
market. We have asked the State of Missouri to extend the Amtrak
agreement for the shortest possible time and ultimately to reopen the
competitive process. We understand the great frustrations that states
like Missouri, California, New York, North Carolina, and Michigan have
had in trying to preserve their intercity passenger service. If a
403(b) Fair Competitive Procedure can be established, even without
changes in the present law, Herzog will be an aggressive bidder in the
field.
In all of the public tumult over the near bankruptcy of Amtrak, an
essential fact has been lost. That is the stunning success of rail
passenger service in America. Commuter authorities are running 20 times
more passenger trains every day than Amtrak runs intercity passenger
trains. Transit ridership grew by nearly 20 percent between 1997 and
2001 and forty-seven of the top fifty metropolitan areas are pursuing
rail investments.\8\ Further, by this time next year, nearly 40 million
passengers a year will be riding on trains operated by private
companies in the United States. The Herzog operations move 2.5 million
passengers per year in Southern Florida, 1.4 million per year on the
Trinity Railway Express in Dallas and 922,000 per year in California.
The Connex operation in Boston will move 37 million passengers
annually. Around the world, hundreds of thousands of passengers are
carried daily on thousands of privately operated trains. This is the
successful American and worldwide experience on which we have the
opportunity to build. We need to draw lessons from this experience to
apply to the reform of Amtrak and to realize the restoration of world-
class passenger service across the United States. The next step in this
reform process is implementation of the 403(b) Fair Competitive Bid
Procedure we have outlined.
---------------------------------------------------------------------------
\8\ ``Stay the Course.'' Surface Transportation Policy Project.
Page 11, March 2003.
---------------------------------------------------------------------------
National Railroad Passenger Corporation
Washington, DC, March 21, 2003
Vice President Corporate Development,
Herzog Companies,
St. Joseph, MO
Dear Ray:
I am responding to your letter of March 11, 2003 to David J. Carol
regarding Amtrak's willingness and ability to provide various services
to potential providers of Missouri state-supported rail service.
We are certainly willing to begin discussions with Herzog and any
other potential providers of Missouri state-supported rail service. We
should begin discussions as soon as possible given the Missouri RFP's
short timetable. In particular, we feel it is important to explain to
you all the issues that have to be resolved in order to provide access
to our station and track facilities. For example, in order to define an
appropriate price for station access, it will be necessary to obtain an
appraisal of the property as a starting point. Although we will
endeavor to work as quickly as possible to resolve the many issues
surrounding access to the facilities, we cannot guarantee that these
discussions could be completed in a timeframe adequate for you to meet
the RFP's timetable.
With respect to your request to use Amtrak's reservations system,
please note that we do not make this system available to any third
parties. With respect to your inquiry about the abandoned building and
vacant property adjacent to the Amtrak station, please note that it has
been identified as the site for a future maintenance facility for the
Midwest Regional Rail Initiative and must be reserved for that use.
Please contact David Carol as soon as possible to schedule a
meeting to discuss access to the Amtrak station and track facilities.
Sincerely,
Gil Mallery,
Vice President, Planning and Business Development.
The Chairman. Thank you, Mr. Landes.
Mr. Pracht?
STATEMENT OF MICHAEL P. PRACHT, CHAIRMAN,
PASSENGER TRANSPORTATION COMMITTEE,
RAILWAY SUPPLY INSTITUTE, INC.
Mr. Pracht. Good afternoon, Mr. Chairman. Thank you for
this opportunity to testify.
My name is Mike Pracht, and I'm here today in my capacity
as the Chairman of the Passenger Transportation Committee at
the Railway Supply Institute. My personal background includes
25 years in private sector rail transportation business around
the world. I'm privileged to be here on behalf of the RSI
today, which represents approximately 400 companies, 150,000
employees, and approximately $20 billion in annual revenue.
I believe this country is on the verge of a national
transportation crisis. Gridlock and winglock will only worsen
in this process. We must develop an integrated and balanced
national transportation network that includes air, road, and
rail working together in cooperation rather than in
competition. Such a balanced transportation system will
leverage the strengths of each mode.
We have ignored, or perhaps failed to recognize, the
importance of rail in this inter-modal mix. Think of the
proverbial three-legged stool and the obvious instability
created by a single shorter leg.
I would like to offer my written statement for the record
and summarize the following four points.
The Chairman. Without objection.
Mr. Pracht. First, this nation must stop fueling the
longstanding and counterproductive competition that has existed
between air, road, and rail. We must recognize that real inter-
modal cooperation offers more competitive alternatives to
passengers and shippers, and relieves an already overly
stressed system. Using higher-speed rail to connect city pairs
between one and 400 miles will provide greater reliability and
safety to the motorists and a more productive alternative to
the flyer. The airline industry could take advantage of more
suitable and best-mode feeder connections that would carry
greater numbers of people more efficiently, freeing up both
gates and airspace to be used more economically. French,
German, and Japanese airlines, as transportation providers, all
use high-speed rail connections interchangeably with express
aircraft to provide an overall travel experience that is
seamless, comfortable, and superior.
Second, this vision for America will not come from the
private sector alone. Transportation systems consist of two
basic parts--a cash-intensive operating organization and a
capital-intensive infrastructure. When put together, there is
simply not enough ridership, real estate, or other sources of
revenue to provide a viable private sector business case to
cover both capital and cash requirements. The solution lies in
net new investment coming from both public and private sectors.
If the Federal Government is willing to invest in the
infrastructure, the private sector will invest in the
operation.
Third, it is counterproductive to continue to combine the
historical and politically charged debate over Amtrak with a
meaningful discussion of intercity passenger rail. One has
little to do with the other, and linkage is detrimental to
both. RSI is a strong supporter of Amtrak. We are encouraged by
David Gunn's straight-talking style and cost-cutting results.
Fourth, RSI appreciates this committee's leadership. We
would like to propose a new Federally chartered corporation,
similar to Fannie Mae, that would enable capital investment in
rail infrastructure projects not otherwise eligible for
transportation trust funds under TEA-21. The Rail Finance and
Development Corporation, or RFDC, would issue Federal tax-
credit bonds to support higher-speed rail, inter-modal
terminals, access to seaports and airports, short-line
improvements, urban relocations, and increased freight-rail
capacity.
As with similar proposals, bondholders would receive
Federal tax credits in lieu of interest, with a sinking or
escrow fund established to guarantee repayment of the
principal. To be effective, the RFDC would require significant
financial resources and state match to support eligible
projects and public/private partnerships. We would propose $50
billion in authority to be spread over the first 6 years.
In conclusion, Mr. Chairman, public investment in
transportation has historically produced economic stimulus. The
whistle-stop economies of the 19th century and the interstate
highways of the last century offer compelling examples. We
encourage the Congress to support balance and equity in the
reauthorization of both TEA-21 and AIR-21. Rail needs to become
a vital part of the national transportation investment program.
It is time for the Federal Government, the states, and all
of us in the transportation sector, including the rail
industry, to come together with the cooperation, purpose, and
resolve to provide the leadership it will take to move this
vision forward.
Thank you, again, for this opportunity to testify, and I
look forward to answering your questions.
[The prepared statement of Mr. Pracht follows:]
Prepared Statement of Michael P. Pracht, Chairman,
Passenger Transportation Committee, Railway Supply Institute, Inc.
Good morning, Mr. Chairman and distinguished members of the
Committee. Thank you for this opportunity to testify. My name is Mike
Pracht, and I am here today in my capacity as Chairman of the Passenger
Transportation Committee of the Railway Supply Institute (RSI). My
personal background includes more than 25 years of private-sector
experience in the rail transportation business, in senior management
positions, at Siemens (from Germany), Ansaldo (from Italy), and Union
Switch & Signal (a former George Westinghouse company) from the State
of Pennsylvania.
It is a privilege to appear before you today on behalf of RSI,
which is the successor of two historically significant trade
associations, the Railway Progress Institute (RPI) and the Railway
Supply Association (RSA). Our new consolidated association represents
over 400 companies from around this nation; large and small, public and
private, with approximately 150,000 employees who generate in excess of
$20 billion in annual revenue. These companies manufacture and lay the
rail; build the locomotives, tank, freight and passenger cars; design
and install the signal and telecom systems; and provide financing,
after-sales service and maintenance to the entire North American
mainline market. Many of these companies, or their predecessors, have
distinguished histories, and contributed their expertise in the
previous millennium when rail investments were considered in the
context of the national interest and economic growth.
I serve with passion at RSI because I believe that this country is
on the verge of a national transportation crisis. Gridlock and winglock
are both at epidemic proportions that will only worsen if left to
historical trends. The solution to this problem lies in our collective
ability to develop an ``integrated and balanced'' national
transportation network that includes air, road and rail, in cooperation
rather than in competition. Such a balanced transportation system will
leverage the strengths of each mode to improve overall mobility and
provide better economic results in a more environmentally friendly
fashion. We have ignored, or perhaps failed to recognize, the
importance of rail in this intermodal mix. Think of the proverbial
three-legged stool and the obvious instability created by legs of
different sizes.
My testimony will concentrate on four basic points that RSI
believes the Committee should consider in developing a balanced
transportation policy to support higher-speed passenger rail
development in the United States.
A Balanced Approach is Essential
This nation must stop fueling the long-standing, unnecessary and
counterproductive competition that has developed between air, road and
rail. We must recognize that ``real'' intermodal cooperation offers the
benefit of more competitive alternatives for passengers and shippers;
much needed strain relief for an already overly stressed system; and
better economic and environmental return on capital investment.
Expected future growth highlights the challenge:
From 2000 to 2025 the U.S. population will grow 23 percent
to 346 million people.
U.S. commercial emplanements are expected to double to 1.2
billion per year by 2025.
Total road miles traveled will grow 70 percent between now
and 2025 to 4.6 trillion annually. This compares with just 1.3
trillion vehicle miles annually on essentially the same
Interstate Highway system back in 1975.
Current plans to increase both air and ground capacity only simply
cannot keep pace. Federal investment in rail infrastructure, together
with state and private sector partnerships, must be part of the
solution.
Using higher-speed rail to connect city pairs of between 100-400
miles would benefit the traveling public by providing greater
reliability and safety to motorists and a less costly and more
productive alternative for fliers. Residual benefits would result from
increased capacity at airports and interstates paying much-needed
dividends to both in the process.
Specifically, the airline industry could take advantage of more
suitable ``best-mode'' feeder connections that would carry greater
numbers of people more efficiently. More optimized use of gates,
runways, and airspace would reduce delay, increase capacity and safety
and improve cost-to-revenue ratios. The airlines would benefit from
better returns on seat revenue; the airports from better returns on
gate revenue; the Federal Aviation Administration from fewer blips on
the radar screen; and the traveling public from a more user friendly
system.
On the highways, investment in rail will produce additional
capacity, and reduce congestion (and road rage). Rail will enable more
productive alternatives for interstate commuters and shorten rush
hours, reduce lost time and help improve demographic balance and
sprawl.
In summary, we must promote a balanced transportation system. To do
so we must balance our investment.
The Federal Government Must Lead
Federal leadership paved the way for our extensive interstate
network, and fostered our comprehensive aviation system. Higher-speed
passenger rail requires the same commitment--results will not come from
the private sector or the states alone.
The reason is fundamental. Rail transportation systems consist of
two basic parts, a cash-intensive operating organization and a capital-
intensive infrastructure. Both components represent very different
Return-On-Investment (ROI) models and present very different investment
scenarios. When put together, there is simply not enough ridership,
real estate, or other potential sources of revenue to produce a viable
private-sector business case to cover both the up-front capital needs
and the longer long-term cash and ridership risks. It is reasonable to
expect the private sector to invest on the operating side because
predicted financial models are consistent with traditional risk-
tolerance levels and expectations. This is unfortunately not the case
on the infrastructure side where a longer-term investment and risk-
tolerance philosophy is necessary. Such a longer-term business case,
however, is also where the Federal Government has historically invested
in partnership with the states resulting in impressive and quantifiable
economic returns on initial capital investment.
Experience in high-speed rail investment in Europe and here in
municipal transit markets have translated into significant increases in
both business and tax revenues. Each dollar invested in transit capital
programs yields $3 in private-sector sales and profits. This creates
both short- and long-term jobs along the right-of-way, benefits
residential and commercial construction, and stimulates regional retail
and service economies. Return revenues to all levels of government
increase through permit fees, sales/income taxes, and a more generally
robust economy.
The solution lies in net new investment coming from both public and
private sectors. If the Federal Government, supported by the states, is
willing to invest in the infrastructure, the private sector will invest
in the operation. Other industrialized nations have learned that public
investment in ground transportation is simply good business that makes
sense for stakeholders and beneficiaries alike.
Amtrak's Future Must Be Addressed Separately
It is counterproductive to continue to combine the historical and
politically charged debate over Amtrak with a meaningful discussion of
intercity passenger rail. One has little to do with the other, and
linkage is detrimental to both.
We must first determine what benefit higher-speed rail will provide
to our overall transportation network and how its integration with
existing modes will be best achieved. We must then identify state and
regional stakeholders with the most pressing needs and ability to
implement projects that produce the most favorable returns.
Only after considering these issues can we consider how these new
corridors should be operated. For such new operations, Amtrak should be
considered a competitor among equals. Amtrak will bring advantages,
including its current access to the freight rail system and long
expertise with intercity passenger operations. Other prospective
entrants, particularly where dedicated rights-of-way are envisioned,
might offer different approaches that could be considered.
RSI is a strong supporter of both Amtrak and public investment in
rail. Our member companies are suppliers to Amtrak and vested
stakeholders in Amtrak's future. We are encouraged by David Gunn's
straight talking style and cost-cutting results. We applaud the steps
he has taken to instill discipline, financial credibility, and private-
sector performance measurements.
RSI's Proposal for a Rail Finance and Development Corporation
RSI appreciates the Committee's previous efforts to promote Amtrak
and higher-speed rail, and leadership in reporting significant
authorizing legislation in the last Congress. As a complementary way to
accelerate the development of higher-speed intercity rail, RSI offers a
different approach for the Committee's consideration to establish a
dedicated source of Federal funding for rail.
RSI's concept builds upon previous legislative efforts to authorize
tax-credit bonds for higher-speed rail, such as the High Speed Rail
Investment Act, considered in the last Congress. RSI's proposal
broadens this idea by enabling these tax-credit bonds to be issued
through a private, non-profit, Federally chartered corporation, the
Rail Finance and Development Corporation (RFDC) for capital investment
in rail-related infrastructure not generally eligible for surface
transportation trust fund expenditures under TEA-21.
RFDC would provide financial support for capital projects that:
Develop higher speed intercity rail corridor passenger
services, including infrastructure and equipment;
Provide efficient rail access to ports;
Provide efficient rail access to intermodal terminals:
Provide high frequency rail access to airport terminals;
Provide increased capacity on the Nation's rail freight
network designed to enhance security, reduce congestion and to
improve air quality and efficiency;
Support the capital needs of short line and regional
railroads for infrastructure improvements to serve rural and
smaller communities and accommodate 286,000-pound freight cars.
Support relocation and/or consolidation of rail lines and
facilities in urban areas.
By embracing all forms of rail investment through this initiative--
not just higher-speed rail--RSI believes that our national goal of a
balanced intermodal transportation system can be realized.
The RFDC would be modeled on existing Federally chartered entities
such as Fannie Mae, and governed by a Board of Directors appointed by
the President. RFDC's function and authority would be subject to the
oversight of the Congressional committees of jurisdiction. Specific
criteria to be included in the RFDC's authorizing legislation would
govern project eligibility, selection, state match, financing and
repayment obligations. Bondholders would receive Federal tax credits in
lieu of interest; a sinking fund based on state match (and other
contributions as required) would be established to guarantee repayment
of principal.
To be effective, the RFDC must have significant financial
resources, and RSI suggests granting initial authority to issue up to
$50 billion over a six-year period in Federal tax credit bonds to
states and public/private partnerships to finance eligible rail-related
capital projects. This represents a substantial investment, but the
need for mobility is substantial. RSI looks forward to partnering with
interested stakeholders and working with the Committee to develop this
concept more fully. Our nation requires Federal leadership in rail
development, and an entity such as the RDFC would enable this to
happen.
In this context, RSI notes that balance and equity also requires
elimination of the present discriminatory and unfair 4.3 cents per
gallon deficit reduction tax and rail and barge diesel fuel.
Investments should be made to even the playing field, and enable users
to choose the most effective and efficient mode to provide needed
mobility.
Conclusion
In conclusion, Mr. Chairman, public investment in transportation
has historically produced economic stimulus. The whistle-stop economies
of the 19th century and the interstate highways of the last century
offer compelling examples. We encourage the Committee and the Congress
to support balance and equity in the reauthorization of both TEA-21 and
AIR-21. Rail needs to be a part of the national transportation
investment program. It is time for the Federal Government, the states,
and all of us in the transportation sector--not just the rail
industry--to come together in cooperation, and with purpose to provide
the leadership it will take to move this vision forward.
Thank you again for the opportunity to testify. I look forward to
answering any questions you may have.
The Chairman. Thank you, Mr. Pracht.
Mr. Landes, Mr. Gunn stated in his testimony that it's a
myth that the private sector is interested in taking over
Amtrak's services. You wouldn't agree with that statement, from
your testimony, but are there other companies, in addition to
Herzog, that have expressed interest in operating trains or
managing equipment and maintenance or taking on some of the
Northeast Corridor infrastructure?
Mr. Landes. Yes, Mr. Chairman, there are. I think they
talked about the Boston service that was recently procured.
You've got Connex, you've got Bombardier, you've got Alstom.
All of them are prepared to provide a variety of services,
including ourselves. And I think, as we've demonstrated
throughout this country, wherever competition is allowed to
happen, you know, people will come and participate. And you
probably have a myriad of other companies that, given the
opportunity, would avail themselves of it. There just really
hasn't been that much, particularly at the Federal level. And
so, yes, I think you would see a lot of people getting in line.
The Chairman. Would you do me a favor and submit, for the
record, a list of those organizations and what they would--to
your knowledge, they'd be willing to do?
Mr. Landes. Yes, sir.
[The information referred to follows:]
Preliminary List of Contacts for Discussion of Amtrak Privatization
Originally compiled by Mercer Management Consulting, Inc.--Updated May
16, 2003.
------------------------------------------------------------------------
Contact Description
------------------------------------------------------------------------
ALSTOM TRANSPORT Major global supplier of rail
Francis Jelensperger products, services, and systems.
Senior Vice President, North
America
353 Lexington Avenue, Suite 800
New York, NY 10016 Phone: 212-557-
7265
------------------------------------------------------------------------
BOMBARDIER TRANSPORTATION Leading global supplier in the rail
Pierre Lortie equipment, manufacturing, and
President and COO servicing industry.
1101, rue Parent
Saint-Bruno, Quebec J3V 6E6
Canada
Phone: 450-443-8984
------------------------------------------------------------------------
CONTINENTAL AIRLINES Major international air carrier.
David Grizzle
Senior Vice President of
Corporate
Development
1600 Smith Street
Houston, TX 77002
Phone: 713-324-2966
------------------------------------------------------------------------
CONNEX NORTH AMERICA Subsidiary of Vivendi Environnement,
Jim Stoetzel operator of passenger rail
Vice President, Contract franchises in the U.K. and
Operations elsewhere.
Two Central Street
Georgetown, MA 01833
Phone: 978-352-8820
------------------------------------------------------------------------
CORUS RAIL U.K.-based international supplier in
Jon Bolton the rail infrastructure,
Managing Director manufacturing, and servicing
54 Route de Sartrouville industry.
78230 Le Pecq, France
Phone: 33-1-30-15-67-25
------------------------------------------------------------------------
DEUTSCHE BAHN AG German national railway.
Dr. Klaus Vornhusen
Corporate Strategy
Potsdamer Platz 2
10785 Berlin
Germany
Assistant: Ms. Simone Kloss
Phone: 011-49-30-297-61520
------------------------------------------------------------------------
GNER (GREAT NORTH EASTERN International provider of multimodal
RAILWAY) transportation services; operator of
Christopher Garnett U.K. passenger franchise.
Vice President
Rail Subsidiary of Sea Containers
Ltd.
Main Headquarters, Station Road
York YOl 6HT
Phone: 44-1904-522-200
------------------------------------------------------------------------
GREAT SOUTHERN RAILWAY Long-distance passenger train
Stephen Bradford operator. Operates three Australian
Chief Executive Officer trains: the Indian Pacific (4,352
502 Albert Street km. Sydney-Adelaide-Perth), the Ghan
East Melbourne VIC 3002 (Sydney/Melbourne-Adelaide-Alice
Phone: +61 3 9668 8803 Springs), and the Overland
Fax: +61 3 9668 8891 (Melbourne-Adelaide).
------------------------------------------------------------------------
HERZOG TRANSIT SERVICES U.S. company providing a full range
Raymond V. Lanman of services to transit agencies in
Vice President the management, operations and
Corporate Development maintenance of commuter, regional
600 S. Riverside Road and light rail passenger systems.
St. Joseph, MO 64507
Phone: 816-233-9001
------------------------------------------------------------------------
KAWASAKI RAIL CAR, INC. U.S. arm of leading manufacturer of
Yuichi Yamamoto, President light rail, subway, and high-speed
Motokatsu Yoshizawa, Manager, rail cars.
Contract Administration &
Marketing
29 Wells Avenue
Yonkers,NY 10701
Phone: 914-376-4700
------------------------------------------------------------------------
NATIONAL EXPRESS GROUP Leading international public
Richard Goldson transport group in rail, bus, and
Rail Development Director airports; operator of U.K. passenger
75 Davies Street franchises.
London W1Y 1FA
Phone: 44-207-529-2057
------------------------------------------------------------------------
OSTERREICHISCHE BUNDESBAHNEN Austrian national railway.
Magister Karl Zoechmeister
Head of Passenger Division
Praterstern 3
1020 Wien
Austria
Assistant: Ms. Joksch
Phone: 011-43-1-93000-32042
------------------------------------------------------------------------
PORTERBROOK LEASING COMPANY International specialist in rail
Paul Francis equipment and infrastructure leasing
Managing Director and maintenance; one of the U.K.
Burdett House ROSCO's.
Becket Street
Derby D61, 1JP
Phone: 44-1332-262-454
------------------------------------------------------------------------
RAILWAY SERVICE CORPORATION Consortium of operators and
Scott Spencer investment banks formed to provide a
President private-sector solution for Amtrak
604 South Bancroft Parkway long-distance services.
Wilmington, DE 19805
Phone: 302-354-3577
------------------------------------------------------------------------
RATP INTERNATIONAL Operator of the Paris Metro and of
Maurice Simony the RER (Regional Express Network),
CEO the suburban train network of Paris.
54 quai de la Rapee
F-75599 Paris Cedex 12
Phone: 00-33-1-44-68-46-99
------------------------------------------------------------------------
SCHWEIZERISCHE BUNDESBAHNEN Swiss national railway.
Mr. Peter Grossenbacher
Corporate Planing Passenger
Division
Brueckfeldstrasse 16
3000 Bern 65
Switzerland
Phone: 011-41-512-203480
------------------------------------------------------------------------
SNCF PARTICIPATION Holding company for subsidiaries of
Armand Toubol, Chairman SNCF, the French national railway
Mireille Faugere, CEO (Sistra, SNCF International,
Phone: 33-1-53-25-84-36 Keolis).
------------------------------------------------------------------------
The Chairman. Thank you.
Mr. King, what was North Carolina's experience in
contracting out equipment and maintenance for the Piedmont and
Carolinian service? And were you surprised at some of the
conditions that Amtrak imposed?
Mr. King. Mr. Chairman, we had been relatively displeased
with the level and the quality and the cost of maintenance
service for equipment, which the State of North Carolina, in
this case, owns. And we also own the property and the
facilities in which it's maintained. Amtrak supplied a
contractor, and we did not think they were responsive to the
kinds of quality and cost-control measures and inventory
control that we thought were appropriate.
We worked with Amtrak for a couple of years to develop an
RFP to get another bid for those sorts of services and expected
Amtrak to bid along with others. At the--24 hours or so before
the RFP was to be received, or the proposals were to be
received, Amtrak told us that they would not be bidding. We got
a couple of responsive bids, both of which we considered to be
high-quality bids. We chose the lower cost of the two and then
went through a period of crisis for about 90 days, during which
Amtrak continued to impose conditions basically related to
liability and risk management, then ended up raising our costs
through our contractor, which turned out to be Herzog, by
imposing additional insurance costs which had not been
anticipated.
So, yes, we were surprised and dismayed with the
difficulty. However, I can report on the good-news side that
after a year of experience with the private contractor, we are
well pleased and think we still made the right move.
The Chairman. Thank you.
Mr. Dittmar, are there instances when intercity passenger
rail service connecting major cities to airport could avoid a
need to expand or build new airports? I'm thinking specifically
of the problem of Chicago O'Hare, which we continue to wrestle
with at this committee, say, could be interconnected to
Milwaukee. Is that part of the scenario that you envision?
Mr. Dittmar. I think there are--as I say in the written
testimony, there are three cases for making airport/rail
connections, and the first is to provide access to a secondary
airport to relieve a congested airport, and that would be the
case of Milwaukee. The second would be to provide feeder
service from outlying locations where it's not really efficient
to provide it by air service, and that might be the case of
Madison to Chicago. And the third is making a direct high-
quality linkage between the airport and the downtown rail hub.
And the example, the best example, is, unfortunately, not in
this country; it's the Heathrow Express, which is about 15
pounds and 15 minutes to Paddington Station, and there are----
The Chairman. What about Denver?
Mr. Dittmar. Denver, sadly, failed to make such a
connection, but I think there is a great opportunity to
actually feed the Great Plains and my State of New Mexico,
incidentally, to the Denver airport. I have to drive from Las
Vegas to New Mexico, to Albuquerque, fly to Denver for every
flight. And so the potential of having a high-quality bus
connection or perhaps, in the future, a rail connection would
actually end up saving me time.
The Chairman. Well, maybe you could go to Phoenix.
[Laughter.]
Mr. Dittmar. I always do when I travel to the West.
The Chairman. But I do have some sympathy for--that the
time you take to get to a major airport far exceeds the time to
get to your destination.
Mr. Dittmar. And since--if I might add--since we looked at
what's happened since September 11 and since the airlines have
gone into their financial crisis, my closest airport is Santa
Fe, and it has lost 65 percent of all flights in the last year.
And so we're seeing a bailing out of the airlines from those
short- and medium-distance routes.
The Chairman. And we also see incredibly high prices from
those smaller airports, as well, for obvious reasons, although
not so obvious to the person that has to pay more for that
short flight than the long one.
Mr. Dittmar. You can't fault the airlines for making a
business decision. The question really is, is there a more
efficient way to provide the access for the traveling public
from those smaller communities?
The Chairman. Mr. Pracht, you state that higher-speed
passenger rail requires Federal commitment because there's not
enough ridership, real estate, or other potential sources of
revenue to produce a viable private-sector business case to
cover both up-front capital needs and longer-term cash and
ridership risk. If the private sector and the states aren't
willing to invest in projects because of the level of risk,
what's the argument for having the Federal Government do it?
Mr. Pracht. Well, I think it's the infrastructure side, Mr.
Chairman, that I'm referring to. I think the infrastructure
will require substantial capital investment, as has been the
case, for example, with our highways and with our air-traffic
control system and airports. And I think if that infrastructure
can be put in place, and if assistance can be provided by both
Federal and State government, the private sector can pick up
the balance. And I think the returns in dividends will be
there.
The Chairman. I thank you. I thank the witnesses. We have a
vote on the floor. I appreciate your patience today. I'm sure
you enjoyed the spectacle, and we appreciate very much your
involvement in this issue, which is obviously a very, very
important one and also of which yet we have been unable to
achieve consensus for many years. We thank you for being here
today.
This hearing is adjourned.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. John F. Kerry,
U.S. Senator from Massachusetts
Mr. Chairman I want to thank you for holding this hearing and thank
the witnesses for coming to testify. We are here today to discuss
Amtrak and the future of intercity passenger rail in America.
Throughout my tenure in the Senate I have strongly supported Amtrak
because I believe it is in the best interests of our nation to maintain
a viable national rail system. An effective and efficient rail system
provides a transit alternative for millions of people, lowering our
dependence on highways and airports and reducing energy consumption and
pollution. It is essential that we maintain a comprehensive and diverse
transportation infrastructure, both to sustain economic growth and aid
national security. Indeed, it is more important than ever to raise the
Federal investment in our national rail system in light of the dramatic
effect the September 11 terrorist attacks had on our aviation system.
Let me begin by addressing Amtrak's financial situation. Much has
been made of Amtrak's poor financial state over the past few years.
Those opposed to subsidized passenger rail service point to mounting
debt, poor management, and high labor costs as reasons to forgo
nationalized passenger rail and concentrate solely on building more
highways and runways. What they neglect to mention is that the
government spends significantly more on our highway and aviation
systems than on passenger rail, and that Amtrak is left to operate a
national rail service--traversing forty-six states and employing 22,000
workers--on a shoestring budget of just slightly more than a billion
dollars. In contrast, the Federal Government spent nearly $32 billion
for highways and $15 billion for aviation in 2002. Although most of
this money comes from fuel taxes and ticket and security taxes that are
collected into a trust fund, it still amounts to a government subsidy,
regardless of whether one views the taxes as ``user fees.'' Amtrak does
not benefit from such financial assistance, and because the
Administration and its Congressional allies dislike the railroad it has
been underfunded to near bankruptcy.
As an aside, I'd like to help debunk the myth that high labor costs
and union pressure have led to Amtrak's poor financial status. Labor
costs are not responsible for Amtrak's financial decline. Rather,
Amtrak's financial instability can be traced to three decades worth of
minuscule government assistance and questionable management by past
administrators. The fact is, Amtrak employees have gone without a
general wage increase and a new contract for three and a half years,
and they have sacrificed a lot to help keep the railroad functioning.
We need to ensure that Amtrak's budget is large enough to include wage
increases for current employees, allow both parties to draw up a new
contract, and attract a larger workforce if we can successfully expand
service over the next decade.
Mr. Chairman, the ongoing debate over Amtrak's budget is absurd.
Last year, Amtrak President David Gunn came to Capitol Hill and stated
that unless Amtrak received a minimum of $1.2 billion for FY 2003 the
railroad would go bankrupt. The President then proposed a budget of
$521 million, which was obviously inadequate. The Senate then failed to
pass an Amtrak reauthorization bill and what ensued last fall was a
dramatic series of events that necessitated an emergency supplemental
appropriation and a loan from the Department of Transportation (DOT) to
keep Amtrak from going bankrupt. This is no way to do business.
There is no question that Amtrak suffered from poor management and
was less than candid about its financial dealings in years past, and I
certainly don't support throwing money at a broken system. However, I
think David Gunn has done a sound job managing Amtrak with limited
resources and that under his leadership the railroad is headed in the
right direction. Since he took the helm as president, he has submitted
detailed cost analysis and budget plans to the Congress outlining his
vision for an efficiently run, cost-effective railroad. Just last week,
Mr. Gunn unveiled a five-year, $8 billion recovery plan that would fix
Amtrak's deteriorating infrastructure while allowing it to operate on a
reasonable budget. The plan calls for an operating budget of $1.8
billion for FY 2004, a figure which would gradually decline to $1.5
billion once the railroad's infrastructure has been upgraded. The
Senate included $1.8 billion for Amtrak in its FY 2004 budget
resolution and I hope that both house of Congress agree to this level
of funding during the appropriations process. Senator Hollings has also
introduced a reauthorization bill that would provide $4.5 billion
annually for operations, infrastructure improvements, and high speed
corridor development over the next five years. I strongly support
Senator Hollings' bill and I urge my colleagues to support it as well.
The time has come to reach a consensus on this issue. Let's be
clear, passenger rail is inherently unprofitable. Whether it's Amtrak,
or a private company operation, national passenger rail will require
government support. Amtrak was created in the early 1970s because
private operators could not make a profit and were unwilling to
continue offering passenger rail service. There is not a national rail
service in the world that exists independent of public subsidies. We
need to accept this fact and move on.
In closing I want to reiterate my belief that a larger Federal
investment for Amtrak is both necessary and appropriate. The effects of
a Federal commitment to passenger rail are indisputable; a larger
investment means more jobs, less pollution, economic growth, and a
dependable transit alternative to driving or flying. The amount of
money we spend on rail represents a fraction of what we spend on
highways and on the aviation system. In my view, it is inexcusable that
among the industrialized countries the world's wealthiest and most
innovative nation has the most neglected national rail system. We
should upgrade the network, improve the infrastructure, establish more
high speed corridors, and make Amtrak a practical choice for every
American. In short, I believe that maintaining a strong, vibrant
national rail system is good public policy and will instill a sense of
pride among Americans. Thank you.
______
Connex North America, Inc.
Georgetown, MA, May 5, 2003
Ms. Sharon Dashtaki,
Missouri DOT,
Jefferson City, MO
Dear Ms. Dashtaki:
Thank you for the opportunity to submit comments and suggestions
relative to MoDOT's recent RFP for the operation of intercity rail
passenger service between St. Louis and Kansas City, MO. While Connex
did not submit a proposal in response to this RFP, we did:
Obtain and carefully review all of the documents associated
with this process
Have a representative at the Pre-bid meeting
Carefully consider all of the elements required to submit a
responsive proposal
While we ultimately decided that it was not possible for us to
submit a responsive proposal for this procurement, we do remain
committed to pursuing these types of passenger rail contract
opportunities whenever and wherever they become available if the terms
and conditions allow for true competition and for successful service
operation and contract compliance.
Simply, those factors were not present in this circumstance. Any
time an agency is bidding an existing service, every effort must be
made to create a truly competitive environment, a level playing field,
or the incumbent operator will have too great an advantage. A common
basis and equal footing must be established for all qualified proposers
to have access to necessary facilities, equipment, systems and
infrastructure. Adequate time must he provided for the preparation of
well thought out service proposals, value-added enhancements and
realistic, fair cost proposals. Finally, the operating environment must
be developed that will permit mobilization, transition and safe,
successful operation after service assumption by the new contract
operator.
Again, many of these factors did not exist and there was not
sufficient time to develop alternative solutions.
As stated earlier, however, Connex is dedicated to this type of
contract opportunity and remains very interested in the future of
Missouri's intercity rail passenger service. Connex's core business is
the operation of passenger transportation services under contracts to
local, regional and national authorities. We have more than a century
of experience in operating public transportation services under
contract, with emphasis on safety, punctuality, market research,
demanding customer service standards, extensive staff training and a
knowledge of local and regional requirements.
Connex is the largest private passenger transportation company in
Europe with over 40,000 employees operating contract passenger
transport services on behalf of over 700 local, regional and national
authorities worldwide. Connex operates a vast network of road, rail and
maritime transportation services in a wide variety of institutional/
contractual relationships in North America, Europe, Australia, the
Middle East and Latin America. Within this global network, Connex today
operates 25 passenger rail systems running over more than 2,500 route
miles of rail network. In all, Connex operates approximately 7,000
trains a day, as well as 16,000 buses, and transports over one billion
passengers a year safely and reliably. Connex is the only contract
operator in the world providing a complete range of public
transportation services, including intercity, commuter and regional
passenger rail, light rail, heavy rail, trolley, bus and taxi.
In addition to this international experience, Connex is the
majority owner of the Massachusetts Bay Commuter Railroad Company
(MBCR) and has been selected by the Massachusetts Bay Transportation
Authority (MBTA) to operate and maintain the sprawling Boston commuter
rail system beginning on July 1, 2003. This commuter rail service
provides 462 weekday trains on 13 lines encompassing almost 400 route
miles, employs over 1700 unionized and management railroad employees
and carries almost 150,000 daily passengers. Mobilization activities
for this assumption of service are well underway and a July 1 service
transition date from the current operator, Amtrak, to MBCR is on
schedule.
If you have any questions about Connex's experience and
qualifications or would like additional information about Connex,
please let me know.
Thank you again for the opportunity to submit these comments.
Sincerely,
Jim Stoetzel,
Vice President, Contract Operations--Rail.
______
Prepared Statement of Ross B. Capon, Executive Director,
National Association of Railroad Passengers
The National Association of Railroad Passengers is a non-partisan
organization funded by dues and contributions from approximately 16,000
individual members. We have worked since 1967 to support improvement
and expansion of passenger rail, particularly intercity passenger rail.
We strongly support Amtrak's request for $1.812 billion in fiscal
2004. While we appreciate that the Bush Administration's request for
$900 million is 73 percent higher than its $521 million request for
FY03, $900 million would be a 14 percent cut from what Amtrak received
in FY03, is only half Amtrak's request for FY04, and is less than the
$1.1 billion in annual Federal funding which Amtrak averaged during FY
1997-2002. Looked at another way, $900 million is 40 percent below the
inflation-adjusted average for 1982-1984. More importantly, we
understand that even the fiscal 2003 level of $1.05 billion would be a
``shutdown'' level if repeated in fiscal 2004.
Amtrak's 2004 request of $1.812 billion is meant to start to make
up for funding shortfalls from the early 1990s--and, most immediately,
to prevent serious deterioration of Northeast Corridor speeds,
reliability and economic performance.
In light of constraints placed on the appropriators' ability to
fund all transportation needs while dealing both with tight budget caps
and firewalls protecting most non-rail spending, it is important for
the authorizing committees to advance legislation that provides funding
outside normal appropriations.
I. Specific Concerns Regarding Amtrak's Financial and Operational
Status
Continual questions over Amtrak's near-term survival hurt its
public image and in some cases ability to sell tickets. We hope a
period of stable funding and of David Gunn's management will overcome
that. It is also important that the impending expiration of the terms
of existing Amtrak board members not trigger yet another crisis.
Eliminating routes offers no savings the first few years, and only
limited savings thereafter. While arbitrated labor protection
provisions make it hard to eliminate service and to close entire shops
and terminals, those provisions do not interfere with ongoing
operations. Indeed, most Amtrak employees are entitled to just five
days' notice--and no severance. That is true for the New Orleans signal
tower employees whose jobs are to be abolished because switches are
remotely controlled from Chicago.
Like most observers, we are impressed with Mr. Gunn's work to date.
For specific examples, see section VII.
Amtrak needs all the freight railroads, not just some of them, to
handle its trains expeditiously. Amtrak pays incentives for good on-
time performance. At BNSF's operations center in Fort Worth, it seems
clear that BNSF places value on earning those incentives. In the huge
control room, one of several huge screens displaying company data is
devoted to various measures of BNSF's on-time performance for Amtrak.
Some of Amtrak's greatest difficulties are with Union Pacific. This
partly results from UP efforts to address deferred maintenance on
former Southern Pacific lines, which are largely single track. There is
hope. Union Pacific Chairman and CEO Dick Davidson, Railway Age
magazine's ``Railroader of the Year,'' is quoted in their January issue
saying, ``We do want to be a good partner with Amtrak, and we're doing
our best to get our railroad upgraded on the Amtrak routes and work
with them to improve performance.''
Years of underinvestment played a major role in creating today's
financial and operational status. We welcome an emphasis on getting
today's system to a state of good repair, but still more time is
slipping by without meaningful expansion of service in this country.
Capital funding for passenger-rail infrastructure will be needed
whether it passes through Amtrak or not.
Even expansion ideas that should be relatively simple appear
stalled right now, including service to Florida's East Coast and on the
Los Angeles-Las Vegas route. Relatively minor capacity constraints--
such as single track between Albany and Schenectady and east of the
Cleveland station; and no place to store a train in Cleveland--cause
big headaches for Amtrak scheduling and preclude consideration of some
simple expansion ideas like Buffalo-Erie-Cleveland extension of an
Empire Corridor train. Rerouting Amtrak's Texas Eagle onto Trinity
Railway Express tracks between Dallas and Fort Worth would speed up the
schedule, eliminate back-up moves and reduce Amtrak's contribution to
congestion at the major freight junction just south of Fort Worth
station, and let Amtrak stop at Centreport/DFW Airport station.
All trains that serve Chicago would provide faster, more reliable
service if track investment projects there are implemented.
Some service changes are positive--dining car menus and restoration
of checked baggage service in many places (see section VII). But Amtrak
also faces a shortage of sleeping and dining cars. Checked baggage
service is gone from much of the Northeast (including Providence and
New Haven, effective April 28) and Amtrak's unboxed bicycle service has
been reduced. Even if an entire baggage car cannot be justified, a way
ought to be found to provide some form of this service for travelers
who need it.
II. Capital Investments Needed to Return the Amtrak System To A ``State
of Good Repair''
It is important to get Amtrak back to a ``state of good repair,''
and support what we have seen of Amtrak's capital plans. Moreover,
Amtrak is not unique in the need for capital; this is true for large
and small freight railroads, commuter, grade crossing safety, and
security needs. A possible funding source for railroad capital
investment is described in the next section. Congress has a
responsibility to address the lack of balance in a transportation
policy that provides assistance to highways and aviation but not
intercity passenger rail.
Amtrak-owned rolling stock and facilities should be renewed and
maintained to a particular standard. Investment should go beyond ``good
repair'' to ``improvement,'' such as catenary renewal that allows
better running times Washington-New York, and perhaps expedited Metro
North catenary work to get New York-Boston running times closer to
three hours.
We support intermodal links that complement the rail network. There
are opportunities for airport stations on today's network that are not
yet fulfilled, such as Milwaukee, Oakland and Providence. BWI's plans
for a needed fixed-guideway link between the Amtrak station and the air
terminal--much publicized a few years ago--appear to have been shoved
to the back burner. Overall, intermodal links are progressing, but too
slowly in part because--for all the verbal attention that has been paid
intermodalism--getting Federal funding remains a challenge.
III. Long-Term Viability of the Existing Amtrak Business Model
One's perspective on the long-term viability of the existing Amtrak
business model depends on whether one agrees with DOT Deputy Secretary
Michael Jackson's recent testimony that ``the Federal Government must
work with our state colleagues to configure and then transition to a
system . . . whereby the Federal Government provides specific capital
investment in passenger rail infrastructure, while states assume any
needed operational subsidy obligations. Again, we recognize that this
cannot happen overnight.''
It appears inconsistent to argue simultaneously that the Federal
Government should end operating grants (albeit at some undetermined
future time) while stating that ``passenger rail is an important
component of our Nation's transportation infrastructure.''
We think increased state funding of operating grants for short-
distance trains generally is unlikely until after (a) the Federal
Government has created a genuine investment partnership with states
which gives them an incentive to make substantial capital investments
in the tracks such trains use; and (b) realization of at least some
operating efficiencies as a result of such partnerships. Even this may
depend on states recovering from what an April 21 New York Times report
called ``their worst financial crisis since World War II.'' The story
said just 14 states and Washington, D.C., ``have balanced budgets,
while five states face budget gaps that are more than 9 percent of
their total budgets. Four states face gaps of more than $1 billion.''
Alan Abelson, in his Barron's column for April 28, wrote. ``According
to Stephanie Pomboy, who puts out the feisty and provocative economic
newsletter MacroMavens . . ., the states are facing their worst budget
crisis in history . . . As Stephanie observes, a conservative estimate
is that the collective state budgetary shortfall this year will run $70
billion . . .''
We agree with Amtrak that the operating grants for the national
network (a.k.a. long-distance) trains should remain a Federal
responsibility. However, those trains will benefit from corridor
investments, since national network trains either use corridor tracks
or connect with corridor trains.
One could shut down the entire national network, and the Northeast
Corridor would still require in excess of one billion dollars a year.
At that point, however, there would not be adequate political support
to secure that funding.
What is needed is a new funding source for rail capital investment.
We have no problem with ownership of the Northeast Corridor passing
to the U.S. Secretary of Transportation, though we favor Amtrak
retaining control of dispatching to the same extent that is true today.
Also, we think--in the event of conveyance to DOT--Amtrak and its
engineering people must have strong representation in the capital
programming needs and the Amtrak operations people must have strong
representation in the construction/renewal program to protect train
operations and ensure a safe environment for the work to be done.
We oppose conveyance to private ownership, an approach that proved
disastrous in Britain. We thought conveyance to states unworkable even
before fiscal crises enveloped them.
The only important basis for our conditional support of conveyance
of the Northeast Corridor to DOT is the possibility that it would be
easier to address the Corridor's significant capital investment needs
if the Secretary was accountable for funding the maintenance and
improvements to the Corridor to ensure that it is safe and reliable for
high-speed train operations.
An ownership change might also help reduce Amtrak's own, arguably
unfair image as a ``black hole'' for money. For example, the New York
City tunnels need $1 billion in safety improvement work, yet about 90
percent of the passengers using those tunnels are New Jersey Transit or
Long Island Rail Road commuters. With the present ownership, however,
that one billion dollars becomes a major contributing factor to
Amtrak's black hole image.
With the highway and aviation systems under considerable stress,
and with appropriators complaining that the new subcommittee structure
has further reduced their ability to support ``non-firewalled''
programs like Amtrak, it is perhaps naive to think that changing
ownership of the Northeast Corridor will solve its funding problems. We
need a source for increased investment in rail infrastructure.
We commend to the Committee the concept of a Railroad Finance and
Development Corporation, which the Railway Supply Institute has
endorsed. This Corporation would address capital needs relating to
high-speed rail in general, as well as to needs of freight short lines,
and specific projects of importance to Class One railroads such as in
Chicago. The corporation would sell bonds, eliminating fears many have
about having Amtrak sell bonds, and the reluctance of some states to
sell bonds. Of course, labor issues still would need to be addressed.
But, as a matter of good tax policy, the bond approach would result in
real construction projects in the railroad industry that will have many
potential stimulative aspects that will improve the economy (such as by
alleviating congestion in other modes and--as in Chicago--on the
railroads themselves), create jobs, and have a ripple effect in the
supply industry and those industries that provide component parts.
In addition, for budget purposes, it scores better than anything
else Congress can do in this area. Every $100 in bonds sold results in
only a $30 budgetary cost to the government (tax revenue loss).
The Corporation is envisioned as a private, non-profit, Federally
chartered entity authorized to issue tax-credit bonds for capital
investment in rail-related infrastructure not generally eligible for
transportation trust fund expenditures under TEA-21. As endorsed by the
Railway Supply Institute, the corporation would provide financial
support for capital projects that:
Develop higher speed intercity rail passenger services,
including infrastructure and equipment;
Meet the backlog of capital needs on the Northeast Corridor
infrastructure;
Provide efficient rail access to ports;
Support development of intermodal terminals, transloading
facilities and rail access thereto;
Facilitate high frequency rail access to airport terminals;
Enhance capacity on the Nation's rail freight network
designed to enhance security, reduce congestion, improve air
quality and improve efficiency;
Support the capital needs of short line and regional
railroads for infrastructure improvements to serve rural and
smaller communities and accommodate 286,000-pound freight cars;
Support relocation and/or consolidation of rail lines and
facilities in urban areas.
Financing: Modeled on existing Federally chartered entities such as
Fannie Mae, RFDC would be authorized to issue up to $50 billion in
Federal tax credit bonds to states and public/private partnerships to
finance eligible rail-related capital projects. Specific criteria to be
included in the RFDC's authorizing legislation would govern project
eligibility, selection, financing and repayment obligations.
RFDC would establish a principal sinking fund to secure payment of
the principal at maturity. A 20 percent non-Federal match, contributed
by state, localities. or other project participants, would form the
primary basis of the sinking fund for each bond issuance, supplemented
by additional Federal contributions as may be required.
Governance: The corporation would be governed by a Board of
Directors appointed by the President. RFDC's function and authority
would be subject to the oversight of the Congressional committees of
jurisdiction.
The authorizing committees already have a long list of rail needs
that they have been unable to fund through the authorization process
because no matter how much is authorized there is no room in
transportation appropriations to fund these needs out of the 30 percent
of funds left over after guaranteed spending programs are addressed.
IV. Impact of Amtrak on Commuter Rail Operations
We are glad that the Administration ``determined that the best
means to ensure that Amtrak continues to provide [commuter] services is
to see that Amtrak has sufficient funds to operate through the end of
the fiscal year.'' We fear that a literal reading of the Omnibus
Appropriations Act could lead to an immediate Amtrak shutdown if Amtrak
were forced to ``firewall'' in advance enough funds to guarantee
commuter rail operation.
Just as highways derive much of their economic effectiveness from
the fact that they serve many different users, so also is common use of
many tracks and facilities by Amtrak and commuter rail a source of
economic effectiveness. An Amtrak shutdown would undo this economic
effectiveness, with diverted traffic adding to highway and road system
congestion, and depriving commuter rail and transit systems of revenues
from connecting Amtrak passengers.
The best way to protect commuter rail reliability--and indeed to
protect the significant contribution that Amtrak makes to the economy--
is to ``see that Amtrak has sufficient funds to operate'' next fiscal
year and the year after that.
V. Public Wants More Travel Choices, Not Fewer
Although public support for passenger rail was well established
before September 11, 2001, as reflected in polls discussed near the end
of this statement, the 9/11 catastrophe focused and energized public
interest in having more transportation choices, not fewer, and thus in
retaining and improving our national passenger rail network.
Because of the combined impacts of the ``airport hassle'' factor
and fear of flying, people who formerly flew to avoid four-hour ground
trips now accept ground trips of about eight hours in order to avoid
flying. Ironically, the majority of those trips are by car, even though
plane travel remains far safer than driving.
Where good train service is offered in such markets, business is
thriving even in the face of a weak travel and tourism industry. The
public--by its purchase of tickets--has shown that it will ride
conventional-speed services in large numbers in many markets. Such
trains need not come anywhere near the speed of a TGV; they need only
be reasonably fast and reasonably frequent to be attractive to many
travelers.
During the first seven months of Fiscal 2003 (October-April), the
following services posted travel increases in the face of extraordinary
weakness in the travel and tourism markets. The percentages shown are
increases in passenger-miles compared with the year-earlier period.
(The passenger-mile--one passenger carried one mile--is the standard
measure of intercity travel.)
Chicago-Grand Rapids +30.7 percent
New York-Pittsburgh Pennsylvanian +21.1 percent*
Boston-Portland Downeaster service +12.5 percent
Pacific Surfliner (Primarily San Diego-Los Angeles-Santa
Barbara) +10.6 percent
Chicago-New Orleans City of New Orleans +9.7 percent
San Joaquin Valley Service +7.6 percent
New York-Charlotte Carolinian +7.2 percent
Chicago-Carbondale Illini +7.1 percent
Chicago-Quincy Illinois Zephyr +6.7 percent
Sacramento Area-Bay Area-San Jose +6.5 percent
Chicago-Seattle/Portland Empire Builder +5.9 percent
Chicago-St. Louis +5.8 percent
[* Primarily the result of restructuring the train to run at
``passenger-friendly'' rather than ``freight-friendly'' times.]
Reflecting the relationship between an aging population and
interest in alternatives to driving, the American Association of
Retired Persons in its new ``Public Policies 2003'' states, ``Congress
should support nationwide passenger rail service that is integrated and
coordinated with regional, state and local passenger rail [and should]
establish a dependable funding mechanism that insures continuing
passenger rail service.''
VI. Analyzing Route Financial Performance
DOT Inspector General Kenneth Mead, in February 27, 2002, testimony
before the House Appropriations Subcommittee on Transportation, called
operating grants needed for long-distance trains (what we call national
network trains) ``chump change'' compared with ``the annual capital
subsidy required to continue operating'' Northeast Corridor trains. He
said national network operating losses are only about 30 percent of NEC
capital requirements.
We offer the following comments about methods of measurement:
First, the passenger mile--one passenger traveling one mile--is the
standard measure of intercity travel. Trip lengths vary widely and use
of the passenger-mile reflects that. Consequently, ``loss'' per
passenger-mile (or, preferably, the relationship between revenues and
costs) are more meaningful ways to measure the relative efficiency of
Amtrak's routes. To illustrate how results can differ, the FY01 numbers
in the Amtrak Reform Council report showed that the Southwest Chief had
the fifth best operating ratio but the fifth worst subsidy per
passenger.
Second, the absolute numbers that have been widely quoted, though
they exclude depreciation, are based on fully allocated costs
(including, for example, a share of the Amtrak CEO's expenses) and thus
exceed savings that might be realized by discontinuing a specific
route.
Third, the Sunset Limited in particular has been hampered by
exceedingly poor on-time performance on Union Pacific tracks, as
discussed in Section I.
Finally, our Association strongly believes that the existing
network is a skeletal foundation, from which the system should grow.
Thus, the only purpose for ranking routes would be to identify where
special actions might be needed to improve performance, not to identify
routes for discontinuance.
We question the relevance of the planning process used to
restructure the Northeast rail freight network in the 1970s. That
network was very dense and arguably overbuilt, so that it was easy to
take out countless miles of track without harming major markets. The
Amtrak network by contrast is skeletal. The ability to take out
individual routes without collapsing the system is severely limited
because of the interrelationships among the routes in terms of shared
revenues (connecting passengers) and shared costs (common facilities).
VII. Examples of Improved Efficiency at ``Gunn's Amtrak''
David Gunn and his key people have impressive knowledge specific to
railroading and to budget discipline, which appears to be paying off
already.
Some changes are visible to passengers, including the now-
consistent, dining-car requirement that sleeping-car passengers sign
their names and room numbers. Meals are included in the sleeping-car
charge, but not in coach fares. Reinstitution of the signature
process--and an audit (comparing dining car checks with passenger
manifests)--aims to determine more accurately food/beverage revenues
and costs and to help eliminate abuse (e.g., coach passengers getting
free meals).
The on-board snack bars are getting the ability to issue printed
receipts to passengers which show just what was purchased and for how
much. This improvement--long taken for granted by managers at most food
outlets ``on the ground''--enhances Amtrak's ability to monitor
inventories and to make sure that the company gets all the money due to
it.
A new frequency--the 10th Acela Express on the New York-Boston
run--was added January 27 without increasing crew costs. The New Haven-
Springfield got more frequent service April 28, thanks to more
efficient use of crews and equipment. On the same basis, Amtrak added a
Chicago-Milwaukee frequency last October.
Amtrak on February 10 transformed the Pennsylvanian, formerly a
secondary, coach-only Chicago-Philadelphia train with an ``express-
friendly/passenger-unfriendly'' schedule serving both endpoints at bad
times. The train now runs New York-Pittsburgh on a passenger-friendly
schedule. March and April financial results showed dramatic improvement
from year earlier figures.
Amtrak restored seven-day-a-week staffing and checked baggage
service at about 20 stations on April 28, most of which lost it a year
ago. We believe this reflects a recognition that last year's action was
done in haste and needed rethinking. Among the affected stations:
Salinas and San Bernardino, Cal.; Champaign, Ill.; Meridian, Miss.;
Columbus and La Crosse, Wis.; Greenville, S.C.; Houston, Tex.; and
Pasco, Wash. Little Rock was added to this list effective May 23.
Amtrak is fixing, scrapping or selling equipment that has been out
of use, realizing that there is a cost to the indefinite storage of
such equipment. Elderly, costly-to-maintain coaches have been kept in
service (especially on the New York-Philadelphia Clockers) while modern
equipment that needed only minor repairs was sidelined; Amtrak is
undertaking those minor repairs.
Amtrak is making good use of sizable inventories left over from
previous projects cut short by funding problems. For example, Amtrak
has found orange upholstery to use when overhauling coaches with worn
upholstery of the same color. The end result may not be the color one
would have chosen for the new century, but it is clean and new--and did
not require any new purchase.
Amtrak is covering a lot of old carpeting with plastic, which is
easier to clean and doesn't hold dirt, odor, or splashed coffee.
Amtrak's organizational structure has been flattened by elimination
of the Eastern and Western general manager positions, so that the seven
divisional general superintendents now report directly to the vice
president of operations.
Amtrak announced January 24 that it would close its Chicago call
center, the smallest of its three centers, at the end of December. Even
if the number of agents added at empty desks in Riverside and
Philadelphia equals the number of agent positions eliminated in
Chicago, Amtrak expects to save $3 million a year in management,
facility and technology costs. Any net reduction of agents--such as
might be possible because of the continuing migration of business to
the Internet--would increase the savings. Chicago reservation bureau
employees have the right to ``follow their work,'' but employees who
reject this option are not entitled to severance (labor protection)
payments.
Appendix I. Polls Indicate Public Support for Passenger Rail
Polls over the years have consistently shown public support for
faster, more frequent, and reliable passenger trains, including two
national polls last summer. A poll conducted by CNN/Gallup/USA Today
near the height of Amtrak's June, 2002, cash crisis (June 21-23) found
that 70 percent of the public support continued Federal funding for
Amtrak. Similarly, The Washington Post found that 71 percent of
Americans support continued or increased Federal funding for Amtrak
(August 5, 2002, article reporting on July 26-30 poll).
An October 27, 1997, nationwide Gallup Poll sponsored by CNN and
USA Today asked whether ``the Federal Government should continue to
provide funding for the cost of running Amtrak, in order to ensure that
the U.S. has a national train service, or the Federal Government should
stop funding Amtrak, even if that means the train service could go out
of business if it doesn't operate profitably on their own.'' Favoring
continued funding were 69 percent of respondents, with 26 percent
against (and 6 percent other responses). State-specific polls also have
been positive.
Wisconsin: A poll by Chamberlain Research Consultants of Madison,
released by the Wisconsin Association of Railroad Passengers in June
2002, indicated that:
77 percent of Wisconsin residents ``support a nationwide
system of passenger trains with increased routes, frequencies,
and shorter travel time.''
76.6 percent said they would use the trains if the planned
nine-state Midwest Regional Rail network becomes available to
them.
54.3 percent responded positively to this question: ``If
Federal funding is available for improving intercity passenger
rail services, Wisconsin may try to attract these rail
improvement funds by pledging to pay for a portion of the
project with state money as we do now with highway and airport
projects. Is this something you favor, oppose, or neither favor
nor oppose as a way to raise money to develop passenger rail
services in Wisconsin?''
The survey, which was conducted over a week-and-a-half ending in
mid-February, took place as the future of Amtrak and the need for a
nationwide rail passenger service was being debated by Congress, and as
Wisconsin state government wrestled with its most serious financial
crisis ever. More information is available at http://www.wisarp.org.
Ohio: The Ohio State University Center for Survey Research (OSU-
CSR) released a poll (``Tracking Ohio'') on March 8, 2001, which found
that 80 percent of Ohioans want the state to develop passenger rail
service. The following question produced a 74 percent positive
response: ``If Ohio had a modern, convenient and efficient passenger
rail network, do you think it would improve the quality of life in Ohio
or would it have no effect? About two-thirds (65 percent) of
respondents said state money should be used to attract Federal
passenger-rail funding to Ohio, if such Federal funding were available.
More than half (53 percent) said the best way to relieve road traffic
congestion is to ``improve all forms of transportation including mass
transit and high-speed rail.'' The statewide poll was conducted by
telephone January 2-31, 2001, as part of the OSU-CSR's monthly Buckeye
State Poll. The margin of sampling error was no more than +/-4.3
percent.
New York: In 1998, the Marist College Institute for Public Opinion
(Poughkeepsie) released results of a poll it conducted of New York
State registered voters regarding state investment in intercity rail
passenger service (trips longer than 75 miles one way). Findings: 82
percent believed that having modernized intercity passenger train
service is at least as important as having good highways and airports
(of this figure, 12 percent felt rail service was even more important);
87 percent favored an increase in government spending for intercity
passenger train service. The poll was based on approximately 600
responses with a margin of error of no more than +/-4 percent. It was
commissioned by the Empire State Passengers Association and the Empire
Corridor Rail Task Force.
Appendix II. Benefits of Amtrak and Passenger Trains
In crowded corridors, passenger trains represent vital people-
moving capacity and help relieve air and road congestion. This benefit
will grow over time as travel demand continues to grow while airport
and highway construction face more intense local opposition and ever-
tighter limits on funding and sheer availability of land.
Amtrak is far safer than auto travel,
During inclement weather, Amtrak is safer and usually more reliable
than airplanes and buses. Amtrak was the only thing going in the
Northeast in this year's President's Day storm.
In most cities, Amtrak helps mass transit, downtown areas and
transit-dependent people by serving--and increasing the visibility and
economic viability of--transit-accessible downtown locations. Amtrak
feeds connecting passengers to transit. Amtrak shares costs with
transit at joint-use terminals and on joint-use tracks. Positive
impacts have been observed even in small cities with minimal Amtrak
service. Mayor John Robert Smith of Meridian, Miss., on Amtrak's New
York-Atlanta-New Orleans run (one train per day in each direction),
says property values have tripled in recent years around the railroad
station, site of a relatively new intermodal terminal.
By contrast, new airports intensify energy-inefficient suburban
sprawl and stimulate auto-dependent development. This leads to the
social costs of getting transit-dependent people to work, or the need
to address the consequences of their not working.
Amtrak is important to those who cannot fly due to temporary or
permanent medical problems, and to those for whom physical and
financial considerations rule out driving long distances, for example,
seniors and students. (The editor of Frequent Flier, forced by doctor's
orders to take the train to Florida, wrote a favorable column about the
trip.) Indeed, some of those medical problems have come about as a
result of flying.
Amtrak serves many communities where alternative transportation
either does not exist, is not affordable or only serves different
destinations. Trains can make intermediate stops at smaller cities at
minimum cost in energy and time. This is apparent in corridors--where
benefits go to such cities as Jefferson City, Lancaster, Trenton,
Kalamazoo, Wilmington, Bloomington/Normal and Tacoma. It also means,
for example, that the Empire Builder can stop at eight small cities in
Washington (plus Seattle and Spokane); ten in Montana plus, depending
on the season, East Glacier Park or Browning; and seven in North Dakota
without compromising the train's appeal to those riding between Chicago
or Minneapolis and Seattle or Portland. Similarly, the California
Zephyr serves five Colorado points (plus Denver) and five points each
in Iowa and Nebraska. (The Southwest Chief serves yet another Iowa
point, Fort Madison.) Also, Amtrak serves 16 North Carolina points.
[Here is an example of long-distance travel that I encountered on
the Southwest Chief: a mother and her 14-month-old child rode from
Garden City, Kans., to Barstow, Cal. The family was moving to
California; the husband was driving the U-Haul; the wife and child were
on the train ``so the move would not be so traumatic'' for the child.
They did not consider the plane because they felt it would be too
cramped for the child. Also, airfare out of Garden City was
prohibitive.]
Amtrak is part carrier (like United and Greyhound) and part
infrastructure. Thus Amtrak provides important passenger-moving
capacity, unlike airlines and bus companies. In much of the Northeast
Corridor and a few other places, Amtrak is the rail equivalent of the
air traffic control system, airport authorities and airlines. (Among
the ``other places'': the Chicago terminal, part of the Chicago-Detroit
line and the track between Albany, NY, and the Massachusetts state
line.) Elsewhere, Amtrak is the only carrier with legal access to
freight railroads' tracks--a quid pro quo for relieving the railroads
of their passenger-train obligations in 1971.
Amtrak's national network trains are transportation ``melting
pots.'' Intercity travelers by all modes had an average annual income
of $70,000. The comparable figure for travelers on Amtrak's national
network trains is $51,000. [This is 1999 data inflated to 2002 and thus
probably good for 2003 as well.] However, the majority of passengers on
these trains ride coach. Surveys available to us six years ago
indicated that, for 30 percent of coach passengers traveling over 12
hours, average income was less than $20,000 (for 11 percent, it is less
than $10,000). Obviously, most standard- and deluxe-room sleeping car
passengers have considerably higher incomes and pay much higher fares.
Nonetheless, anyone who characterizes these trains as land versions of
cruise ships should try walking the coaches, especially at night.
Trains, especially on longer trips, offer a form of social contact
almost lost in this country today--the opportunity to meet and relax
with total strangers that one may or may not ever see again.
Amtrak over much of its network enables one to enjoy gorgeous
scenery in total comfort. Some examples: the Connecticut and California
coastlines, the Hudson River in New York, the Colorado Rockies, the
mountains of Vermont and northern New Mexico, Glacier Park in Montana
and West Virginia's New River Gorge.
Amtrak uses only 79 percent of the energy airlines use to move a
passenger a mile, and only 22 percent of the energy general aviation
uses (to do the same). This statement is based on the following 2000
data from the Oak Ridge National Laboratory's annual Transportation
Energy Data Book (Edition 22, published September 2002) and available
online: Amtrak 2,902 British thermal units per passenger-mile; Airlines
3,666; General aviation 12,975. Amtrak is much less polluting than
airplanes. (Energy efficiency is a good proxy for air pollution).
Thanks to a growing array of connecting buses available with train
travel in a single ticket transaction, Amtrak puts people on intercity
buses who would not otherwise have considered using them. ``Thruway''
is Amtrak's copyrighted name for connecting buses that can be booked
and ticketed through Amtrak's reservation system. Thruways first
developed in a big way in California, where the state underwrites an
impressive network of dedicated, feeder buses. Elsewhere, depending on
the situation, Amtrak or the private bus companies themselves bears the
financial risks for many Thruway runs.
Appendix III. Subsidies
Mr. Jackson's April 10 statement notes that ``highways, transit and
aviation are, unlike rail, funded by true user fees and also by state
investments. Even the most ardent rail supporters evince little
interest in a new Federal passenger rail ticket tax.''
This statement requires two important modifications--recognition of
the huge amount of ``non-user'' public funds (and related policies)
that support highways and aviation, and of the support inherent in how
the user fees are handled.
General Funds
A total of $34 billion in 2001 highway spending came from non-user
sources in all levels of government (while $10 billion in highway user
payments went to ``nonhighway purposes'' Table HF-10, Highway
Statistics 2001).
In FY 2003, general-fund support for FAA Operations jumped by $2.2
billion (from $1.1 billion to $3.2 billion) and thus supported 46
percent of the total cost of $7.0 billion. At the same time, the trust
fund (user payment) contribution likewise fell by $2.2 billion (from
$6.0 billion to $3.8 billion).
Federal Matching Funds--Nothing for Intercity Passenger Rail
It is generally acknowledged that an effective capital investment
program fosters operating efficiency. Federal policy, however,
encourages states and local governments to invest in highways and
aviation, where Federal funds cover 50-80 percent of project costs, and
not on railroads, where Federal funding generally is zero. Completely
irrespective of the merits of any given project, it is difficult for
states to devote scarce resources to rail projects that generate no
Federal support, particularly when that means passing up Federal funds
for road and aviation projects.
User Fees and Tax Policies
We recognize that, if only for symbolic purposes, a ticket tax is a
possible component of a rail funding program. However, at least in the
early stages, it would be no ``silver bullet''. If Amtrak is
successfully setting fares to maximize revenue, an additional surcharge
could cause revenues to fall. Alternatively, if the ticket tax payment
is removed from Amtrak's income, then the operating loss grows by a
like amount and must be made up from some other Federal payment, with
no net gain (and more work for accountants).
A mode-specific trust fund system insures massive continued
investment in the modes that are already dominant, regardless of
whether they are the best solution for tomorrow's transportation
problems, and regardless of the needs of the users paying those taxes.
A large proportion of them are soon-to-be senior citizens who will
place greater value on non-automobile travel choices.
User fees clearly do not cover environmental and other external
costs associated with highways and aviation.
The savings associated with financing an airport project with tax
exempt, government-backed bonds rather than with commercial loans
sought directly by the airlines is substantial. The various sources
available to fund airports, like the mode-specific trust fund system,
help reinforce the dominance of modes that are already dominant whether
or not they offer the best solution for today's transportation
problems.
"_____
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
Hon. Kenneth M. Mead
Question 1. The Office of the Inspector General had planned to
conduct a review of the designated high-speed rail corridors in the
United States, focusing on demand studies, expense projections,
estimated capital requirements, and proposed implementation schedules.
The review would also evaluate the implications these projects would
have on Amtrak and the options for restructuring passenger rail
service. I understand that this review unfortunately is now on hold.
Why have you postponed conducting this review?
Answer. Our Status Review of the Designated High Speed Rail
Corridors was put on hold last summer when we were tasked with
oversight of certain conditions included in Amtrak's Railroad
Rehabilitation and Improvement Financing Program (RRIF) loan. We did
not have sufficient resources to adequately perform both tasks
concurrently. We have since completed most of our work on the RRIF loan
conditions and hired an additional staff economist with a background in
high-speed rail.
Question 1a. When do you expect to begin this review?
Answer. We restarted this review in May 2003, and plan to issue a
report to the Secretary and Congress by the end of 2003. Our report
will cover each of the current, ten high-speed rail corridors.
Question 2. In your testimony, you cautioned against any plans for
Amtrak that call for the separation of the infrastructure from the
operating side of the railroad. You cited the disastrous experience in
Great Britain after that country allowed a for-profit entity to operate
the infrastructure. Has the DOT IG conducted any studies of
privatization schemes used in other countries and how these plans could
be applied to Amtrak?
Answer. No, we have not conducted any studies of our own on
privatization schemes used in other countries. We have, however,
reviewed the results of some studies conducted by others. These formed
the basis for the points made in our testimony.
The experience in Great Britain shows that an infrastructure
company that is focused on its bottom line may make decisions that are
in its own best interest financially, but which may affect the safety
or efficiency of rail service operations. We do not want to encounter
the same problem.
It should also be noted that Amtrak estimates its capital needs
will be more than $5 billion over the next 5 years. This level of
investment does not include system upgrades or high-speed rail
investment and is likely at the low end of what will need to be spent
on the U.S. passenger rail infrastructure regardless of which structure
is deemed appropriate. Changing the ownership or organizational
structure will not eliminate the need for this funding.
Question 3. You stated in your testimony that the elimination of
Amtrak's long-distance trains will not save the company enough money to
make a meaningful difference in its financial health. The elimination
of these trains, however, would cause the railroad to lose the
``political glue'' that has supported intercity passenger rail and the
national economic interest in assisting transportation in all of its
forms. In other words, passenger rail in the U.S. would lose a lot more
than long-distance service. How do you believe that this loss of
``political glue'' would affect other aspects of Amtrak's operations?
Answer. Amtrak is primarily dependent upon Federal subsidies to
cover the capital needs and operating losses across its entire system.
These subsidies are the result of a broad base of Congressional support
from members in many States across the country. In the event long-
distance trains were eliminated, this broad base of support, or
``political glue,'' would likely deteriorate in a substantial manner.
It is uncertain whether Amtrak would be able to garner enough support
to fund the capital needs and operating needs of other corridor
services around the country.
Question 3a. What kind of effect would the elimination of one or
two long-distance trains, perhaps the worst financial performers, have
on the national passenger rail system?
Answer. The elimination of one or two long-distance trains would
not materially change Amtrak's train operating expenses initially due
to labor protection payment obligations. In addition, Amtrak's overall
overhead expenses would probably not be significantly reduced by the
elimination of just one or two routes, though there would likely be
some savings.
FRA estimated Amtrak's 2003 avoidable operating costs, excluding
consideration for labor protection obligations, for Amtrak's long
distance trains at $85 million (this excludes two long distance routes
with positive contributions on an avoidable basis). The highest annual
per train avoidable operating loss was about $13 million.
Question 4. Do you believe that passenger rail can be made to be
profitable without substantial government subsidies?
Answer. No, I do not. Substantial capital subsidies will be
required for any foreseeable passenger rail system in this country.
Passenger rail may be operationally self-sufficient if it is time and
cost competitive with auto and air over distances of up to 500 miles.
However, this would require major improvements to existing
infrastructure or new technology, both of which will require
substantial government subsidy. Also, new agreements with freight
railroads will have to be forged.
Question 5. Of the many reform proposals you have heard about in
recent years, are there any that you believe could have some merit for
the future success of Amtrak?
Answer. I believe that transitioning Amtrak to a system that is
more directly linked to State decision makers would lead to more
success for Amtrak. Amtrak's route structure needs to be responsive to
today's travel environment and the best way to achieve this is through
developing higher-frequency, higher-speed corridors. These corridors
can be connected by less frequent corridor feeder services to maintain
a national network as a third alternative to air and auto. FRA
estimates only 20 percent of the passengers on Amtrak's long-distance
trains travel from end-point to end-point. The remaining 80 percent
travel on intermediate portions of the long-distance routes.
As we see it, the corridor/feeder concept will retain service to
most, if not all, current stations. In fact, it may increase service to
many stations and allow for more desirable daylight connections between
corridors. In addition, the decisions concerning which services should
be offered along with part of the funding responsibility will lie with
the states.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Hon. Kenneth M. Mead
Question. What actions are the Department of Transportation taking
to ensure the safety of the 117,600 daily travelers who use the Amtrak
tunnels under the Hudson River? What steps must be taken to address
remaining needs of the tunnels?
Answer. The Department is working closely with Amtrak and the Long
Island Railroad (LIRR) to implement a Tunnel and Life Safety Program
with a projected total cost of nearly $900 million. Over the next 5
years, investments will include construction of three major ventilation
structures, installation of a fire standpipe system, and other
ancillary projects. Amtrak plans to contribute $179 million to these
projects through 2007 ($3 million of which is from New Jersey Transit
(NJT)) and LIRR will contribute $184 million. \1\ Amtrak received $100
million in the Department of Defense appropriation which was signed
into law on January 10, 2002 specifically for these projects. The scope
and completion of the remainder of these projects is dependent on
future appropriations.
---------------------------------------------------------------------------
\1\ Amtrak revised its agreement with NJT so that no additional NJT
money will be contributed to the tunnel project in future years. The
revised agreement calls for Amtrak to match NJT funding for projects
elsewhere on the Corridor with equal expenditures on the tunnel
project.
---------------------------------------------------------------------------
While Amtrak and the other users of the Penn Station New York river
tunnels have been investing in the life-safety program since 1976,
their efforts have focused on prevention, such as keeping track,
signals, and equipment in a state of good repair rather than emergency
response. Since the terrorist attacks on September 11, 2001 the focus
of investment has shifted and about $22 million has been spent
installing new lighting along with emergency directional signs and
location mile markers in all 6 tunnels. In addition, new fire-resistant
cross passage doors have been installed. Contracts have been awarded
for the standpipe construction and ventilation projects with completion
projected in FY 2005 and FY 2007, respectively.
Additional projects necessary to complete the program include
short-range projects totaling $81 million and long-range projects
totaling $453 million. However, funding sources for the remaining
projects have yet to be identified.
______
Response to Written Questions Submitted by Hon. John McCain to
David L. Gunn
Question 1. Amtrak's press release on the five-year plan states
that ``Amtrak will not undertake new train services unless any
operating loss is fully covered by the state or states it serves.'' If
this standard is appropriate for new service, which I believe it
clearly is, why not apply this standard to all of Amtrak's operations?
Amtrak's current statutory mandate is to ``operate a national rail
passenger transportation system.'' 49 U.S.C. 24701. Discontinuing all
trains that incur operating losses not reimbursed by states would be
inconsistent with that mandate, since it would eliminate all Amtrak
service outside of the Boston-to-Washington Northeast Corridor and a
few short corridors elsewhere. Decisions about whether to change
Amtrak's statutory mandate are policy decisions that are appropriate to
consider as part of a comprehensive discussion on the scope, size and
expectations of intercity rail passenger service in the United States.
States provide significant funding to support the operation of
individual short distance routes because short distance trains provide
direct and easily identifiable benefits to individual states. Outside
of the Northeast Corridor, short distance trains generally serve, and
therefore primarily benefit, one or at most two states. Their schedules
are geared to local markets, and most of their passengers are making
intrastate trips.
By contrast, Amtrak's 16 long distance trains are part of a
national multi-state network. Individual long distance trains travel
through as many as a dozen different states, carry passengers destined
to all of the 46 states that Amtrak serves, and are scheduled to serve
the major endpoint cities at which they connect during daylight hours
(which means that some states on each train's route are served only at
night).
Because long distance trains serve national needs, they provide
much more limited and varying levels of benefits to the individual
states through which they operate than do the short distance Amtrak
trains that receive state support. Elimination of Federal support would
result in the demise of the long distance train network currently
operated by Amtrak, because states would not assume the Federal
Government's historical role of supporting interstate long distance
trains. The best evidence of this is that, in Amtrak's 32-year history,
no state has ever offered to fund the operating losses of an Amtrak
long distance train, even when faced with the loss of all Amtrak
service.
It also bears noting that states that support Amtrak short distance
services today are hard pressed to continue even their current levels
of support. When Amtrak sought to increase state support for short
distance services last year, we were advised by a number of states that
they were simply unable to pay more. Amtrak's new policy of requiring
all states to pay the full direct operating costs of state supported
services, and the fiscal crises that nearly all states currently face,
have led a number of states to advise Amtrak that they may have to
discontinue existing state supported services by the end of this year.
Question 2. The new five-year plan includes capital funding for
replacing the Thames and Niantic bridges in Connecticut; refurbishing
200 miles of catenary on the Northeast Corridor, replacing Amtrak's
dispatching centers in Boston, Philadelphia, and New York; and
performing life safety work in the New York Penn Station tunnels. How
much of the capital burden will be borne by the commuter authorities
such as New Jersey Transit and the Long Island Railroad, which operate
the majority of the trains on the Northeast Corridor?
Answer. Capital investments from Northeast commuter agencies are
projected at $428 million over the five-year plan, or approximately 19
percent of total estimated cost of infrastructure improvements in the
Northeast.
With respect to the specific projects referenced, it should be
noted that commuter trains do not operate over the Thames River Bridge,
and that only one commuter train per day operates over the Niantic
River Bridge.
Question 2a. Will the capital requested for the next five years be
sufficient to complete all of these projects, or will some additional
capital still be needed in subsequent years?
Answer. The capital requested covers the estimated costs of
completing the specific major projects identified in Amtrak's strategic
plan by the end of FY 2008 with the following exceptions:
As indicated in the strategic plan, the New York Tunnels
Life Safety program will continue beyond FY 2008.
The planned replacement of the Portal River Bridge over the
Hackensack River in Northern New Jersey in partnership with New
Jersey Transit is expected to start in FY 2008 but will be
completed in subsequent years.
As indicated in the strategic plan, normalized capital expenditures
on other projects will continue to be required after FY 2008.
Question 2b. In the past, the DOT Inspector General has criticized
the millions of unsubstantiated cost savings assumed in Amtrak's
business plans. What cost savings are assumed in the latest five-year
plan and can you account for how all of the savings will be achieved?
Answer. The operating cost savings projected in Amtrak's business
plans will reach their maximum level--$120 million on an annualized
basis--in FY 2008, the final year of Amtrak's five-year plan. That
amount equals less than 4 percent of Amtrak's projected operating
budget in that year. We believe that cost savings of this magnitude are
achievable, given the inefficiencies in Amtrak's current operations due
to the deteriorated condition of its infrastructure and equipment
(which the capital program will address) and Amtrak's current work
rules (which Amtrak intends to address in pending labor negotiations).
Because Amtrak will continue to provide regular and detailed reporting
on its financial performance, and DOT now provides funding to Amtrak
through a grant-making process that requires Amtrak to submit detailed
financial information, Congress and Amtrak's financial overseers will
know whether Amtrak is on track to achieve this target.
Question 2c. Assuming Congress approved the $8.2 billion request,
after the next five years, how much Federal support would Amtrak need
on an annual basis?
Answer. As indicated in Amtrak's Strategic Plan, the required level
of Federal support will decline to approximately $1.5 billion in FY
2008, the fifth year of the plan. Given that the plan will restore much
of Amtrak's infrastructure and equipment to a state of good repair,
Amtrak anticipates that its annual need for Federal support will remain
at approximately that level, adjusted for inflation, for the
foreseeable future following FY 2008 if Amtrak continues its current
level of operations. Over time, some fluctuations may occur due to the
potential need to replace certain major infrastructure assets on the
Northeast Corridor, and major increases will be required when a
significant portion of Amtrak's existing equipment fleet needs
replacement.
Question 2d. What does Amtrak's long-term debt amount to at the end
of your five-year plan?
Answer. At the end of the five-year plan, FY 2008, Amtrak's long-
term debt balance, including the current portion of long-term debt, is
projected to be $3.1 billion. Excluding defeased leases the balance is
projected to be $2.2 billion.
Question 3. DOT just completed an analysis showing that the long
distance trains lose $547 million on a fully allocated basis, excluding
depreciation and interest. Whether the savings is $300 million, as you
have indicated, or $547 million, that seems like real money to me.
Don't you agree?
Answer. There are several different ways of measuring the financial
performance of long distance trains:
On a fully allocated basis, excluding depreciation and
interest but including a share of common costs that benefit
other trains and that would remain even if all long distance
trains were discontinued, Amtrak's long distance network's
losses are forecast to be approximately $547 million a year.
On an avoidable cost basis, which includes only costs
estimated to be eliminated (based upon a 2002 study) if all of
Amtrak's long distance trains were discontinued, losses are
estimated to be approximately $300 million a year. This is the
approximate amount that would be saved in the sixth year
following the discontinuance of all long distance train
service. (During the first five years, these savings would be
offset in large part by labor protection costs and other
shutdown costs.)
Using the Department of Transportation's definition of
avoidable costs, it is projected that, in FY 2003, the
aggregate net avoidable losses of the 17 individual Amtrak long
distance routes will be $68 million. This lower figure, which
does not take into account the cost of labor protection during
the first five years after discontinuance or other shutdown
costs, reflects the fact that the elimination of individual
long distance routes would produce relatively small savings
because many shared costs incurred for the benefit of the
remaining long distance trains would still be incurred.
We agree that these amounts are ``real money.''
Question 4. You have stated that over the long-term, eliminating
the long-distance trains would only save $300 million on a fully
allocated basis. But does this include needed capital investments to
keep the trains in operation?
Answer. The $300 million in avoidable costs associated with
continuing all long distance trains does not include capital costs.
Question 4a. How much capital would your five-year plan invest in
long distance trains to improve stations, equipment and other capital
items?
Answer. Direct capital investment for long-distance service is
estimated at approximately $800 million over the five-year period,
primarily for fleet and facilities.
Question 5. As required by the Fiscal Year 2003 Omnibus
Appropriations Act, Amtrak recently submitted a report on actions to
reduce the financial burden of the long distance trains on the Federal
treasury. How much will the actions cited in the report reduce needed
Federal subsidies?
Answer. As indicated in the report, Amtrak projects that the
actions specific to long distance trains that are detailed in the
report will reduce Amtrak's subsidy needs in FY 2004 and subsequent
years by approximately $17 million when compared to the level of
subsidies that would have been required had these actions not been
taken. It should be noted that Amtrak's FY 2003 budget reflects the
projected savings/revenue increases (approximately $6 million) that
Amtrak expects will be realized from the implementation of certain of
these actions during FY 2003. As noted in the long distance report and
the strategic plan, Amtrak is also taking other actions, not specific
to long distance trains, to reduce its Federal subsidy needs.
Question 5a. What is Amtrak doing to reevaluate the strategy for
the long distance trains? Have you, for example, considered modeling
the long distance trains after the Alaska Railroad, which markets
vacation packages that include a train ride?
Answer. Amtrak has recently initiated a number of pricing actions
and promotions to make its long distance trains more attractive to
leisure travelers during a period when there has been an unprecedented
decline in leisure travel by all modes. They include increasing
Amtrak's group discount from 5 percent to 20 percent, and promotional
discount programs to encourage ticket purchases during the off-peak
winter and early spring periods. These actions have generated
additional revenues and ridership on long distance trains. Long
distance train ridership was up 19 percent in April compared to a year
ago.
Unlike most of the travel industry, Amtrak has chosen to retain
travel agent commissions for long distance trains (while eliminating
them for short distance trains) in order to encourage travel agents to
promote Amtrak to high revenue customers looking for a ``cruise-type''
experience. Dining car menus have been revamped so that passengers
traveling on longer trips will have different choices of entrees each
day. Amtrak offers dozens of vacation packages that, for a single
price, combine a train trip with other travel services such as hotel
accommodations; sightseeing tours, rental cars, and travel by other
modes. These packages are described in Amtrak's ``Amtrak Vacations''
brochure, a copy of which is attached.
Amtrak has also eliminated most of its express cargo business, and
reduced the volume of mail that it carries on long distance trains, in
order to improve financial performance, shorten travel times, and
eliminate delays due to mail and express car switching at intermediate
stations.
Question 6. As you know, several states are considering or have
considered competitively bidding corridor service. A representative
from Herzog testified about his company's experience in trying to bid
to operate service between St. Louis and Kansas City. It appears that
Amtrak initially informed the state of Missouri that the required state
subsidy for the ``Mules'' service would rise from $6.2 million to $7.9
million but that when the state indicated it would bid out the service
rather than agree to pay $7.9 million, Amtrak miraculously found a way
to reduce the subsidy request by $1.5 million, to $6.4 million, or only
a $200,000 increase. How was Amtrak able to justify this reduction?
Answer. The allegation that Amtrak lowered its price to the State
of Missouri for operating passenger rail service between St. Louis and
Kansas City when Amtrak became aware that the State planned to bid out
the service is not correct.
At Missouri's request, Amtrak provided the state in November of
2002 with a preliminary cost estimate of $6.8 million to $8.9 million
for operating the ``Mules'' service in FY 2004, depending upon the
level of services Missouri selected, with the caveat that the actual
cost would be based upon Amtrak's uniform Route Contribution Analysis
(RCA) costing methodology, which was then under development. The
reduced Amtrak cost estimate to which the question refers was formally
communicated to Missouri on December 20, 2002, when Amtrak sent letters
to all states that fund state supported services advising them of the
payments from states that would be required under RCA. Because RCA
eliminated inequities in the payments made by the various states, some
states' projected payments decreased while others' increased.
Herzog did not announce its interest in operating the Missouri
service until January of 2003, and Missouri did not issue its RFP until
March of 2003. The reduction in Amtrak's projected charges to Missouri
was communicated to the state before these events occurred. This
reduction resulted from the application of a new, uniform, costing
methodology for all state-supported trains, and had nothing to do with
the Missouri's subsequent decision to bid out its service.
Question 6a. If Amtrak is able to use its Federal subsidy to cover
overheads, how can there be fair and open competition with the private
sector?
Answer. The current statutory scheme is not intended to create
``fair and open competition'' between Amtrak and private entities that
wish to operate selected intercity rail passenger services currently
operated by Amtrak. In particular, other parties do not possess
Amtrak's essential statutory rights to require freight railroads and
regional transportation authorities to provide access to their rail
lines and facilities for intercity rail passenger service, and to base
payments for such access upon incremental cost (with any payments above
incremental costs based upon quality of service).
It bears noting, however, that some of the other parties who have
expressed interest in operating intercity rail passenger services enjoy
significant labor cost advantages over Amtrak, because they limit
themselves to intrastate operations and therefore are not obligated to
pay the significant railroad retirement taxes that Amtrak pays.
Question 6b. Why did Amtrak deny Herzog the ability to tie into
Amtrak's national reservation system? Given that the government
subsidizes Amtrak, why shouldn't Amtrak's reservation system be
available to any operator of intercity passenger service?
Answer. Herzog approached Amtrak about the possibility of using
Amtrak's reservation system less than three weeks before Herzog
apparently planned to submit a bid that was premised upon access to
Amtrak's system. Amtrak had never sold access to its reservations
system to third parties and, until Herzog's request, has had little
occasion to ever consider doing so.
While Amtrak does not object in theory to the potential use of its
reservations system by other intercity rail providers, there are a
number of complex issues that would have to be resolved and negotiated
before this would be possible. This could not have been accomplished in
the context of a last minute request on the eve of a looming RFP
deadline. It is extremely doubtful that the inability to resolve this
minor issue had any bearing on Herzog's decision not to compete for the
operation of the Missouri service, given that much more significant and
costly issues, such as the cost of access to freight railroads' tracks,
remained to be resolved when Herzog decided not to bid.
Question 7. Several states, including California, Oregon, and
Washington have invested significant state dollars to develop higher-
speed rail corridors. Yet the entire $2.8 billion cost of the Northeast
Electrification project and the Acela train sets was borne by the
Federal Government. Why should the Northeast Corridor states
essentially get a ``free ride''? Shouldn't intercity rail service be
funded the same way for all the states?
Answer. Intercity rail should be funded the same way for all
states.
Amtrak has long taken the position that the Federal Government
should provide funding for capital investment in rail corridors around
the country, as it has done for the Northeast Corridor. Amtrak has
supported a number of proposals over the years to create a Federal-
state partnership for investing in new and existing rail corridors and
believes that the full economic, transportation and environmental
potential of these corridors cannot be achieved without such Federal
investment. The Northeast Corridor demonstrates the power and benefits
of Federal rail investment--the regional economy and transportation
system genuinely depend on Amtrak and commuter rail service operating
on the Northeast Corridor. This success can be duplicated elsewhere and
Amtrak continues to support enactment of a Federal-State rail capital
partnership program. Even the Administration, in testimony before your
Committee, indicated that this is a likely approach as part of their
plan for intercity passenger rail.
With respect to the particular examples referenced in the question,
it should be noted that the Acela trainsets were paid for with private
financing.
Question 8. According to your testimony, you consider it a myth
that the private sector is interested in operating intercity services.
In light of your statement, how do you account for the MBTA's
(Massachusetts Bay Transportation Authority's) new contract with
Connex? North Carolina's contract with Herzog for equipment
maintenance? The state of Missouri's effort to contract out the
``Mules'' service? California's current study of the merits of
contracting out its intercity service?
Answer. The ``myth'' is that the private sector will operate
intercity rail passenger services without subsidy. This will not
happen.
The MBTA contract involves a publicly subsidized commuter rail
service, not an intercity service. Many companies, including Amtrak,
compete for profitable commuter rail service contracts. It bears noting
that the new operator will be charging the MBTA considerably more than
the MBTA was paying Amtrak, which had been operating the MBTA service
but decided not to compete for the new contract.
What private companies are uniformly not interested in doing is
providing intercity rail passenger services without guarantees of
significant governmental subsidies that are sufficient to assure them
of a profit. The reason is that intercity passenger rail operations are
not profitable, as the freight railroads learned to their great
detriment prior to the formation of Amtrak.
Question 9. The Northeast Corridor is a valuable regional asset,
used by Amtrak, commuter authorities, and freight railroads. Amtrak
accounts for about 56 percent of the train-miles on the Corridor but
operates less than 20 percent of the daily trains. The commuter
authorities have access to the Northeast Corridor on an incremental
cost basis. How much do you estimate the commuter authorities are
underpaying for the use of the Corridor.
Answer. Under current statutory law and administrative decisions,
most commuter authorities using Amtrak's Northeast Corridor properties
are only required to pay the incremental costs attributable to their
use. Commuter authorities are ``underpaying'' Amtrak for their use of
the Northeast Corridor only in the sense that they would be required to
pay more if Congress changed the law to require them to pay Amtrak on
the basis of fully allocated costs (as freight railroads do for their
use of the Northeast Corridor) or some other methodology that required
higher levels of payments. During the last Amtrak reauthorization
process in 1997, Amtrak supported proposed legislation that would have
required commuter railroads using the Northeast Corridor to pay fully
allocated costs; however, this legislation was rejected by the
Railroads Subcommittee of the House Transportation and Infrastructure
Committee.
Amtrak has not attempted to project the extent to which commuter
railroads' payments would increase if they were required to pay fully
allocated costs. Because of the magnitude of the costs involved, and
the number of Northeast Corridor users among which specific cost
components would have to be apportioned, making such a calculation for
the entire Northeast Corridor would be a major undertaking. However,
there is no question that, under a fully allocated costing methodology,
commuter railroads operating over the Northeast Corridor would be
required to pay significantly more for both capital and operating costs
than they do today.
Question 10. If the commuter authorities paid their ``fair share''
on the Corridor, how much would Amtrak's capital needs be reduced in
the five-year plan?
Answer. The extent to which Amtrak's capital needs would be reduced
would depend upon how ``fair share'' was defined, and upon the
willingness and financial ability of the commuter authorities to bear
the increased capital (and operating) costs they would be required to
pay if they wished to continue to operate over the Northeast Corridor.
Question 11. What steps, in your view, would need to be taken to
manage the Corridor through an interstate compact?
Answer. The steps that would need to be taken to manage the
Northeast Corridor through an interstate compact are difficult to
predict in the absence of any specifics as to how that compact would be
organized and operated. If the compact takes the form that is
described, in very general terms, in the Administration's recent
Congressional testimony, the issues that would have to be addressed
would likely include the following:
A. Restrictions in Financing Agreements to Transfer of Northeast
Corridor Assets and Rolling Stock
Almost all of Amtrak's rolling stock is subject to long-term tax
leases, and many of Amtrak's principal Northeast Corridor assets,
including the maintenance facilities and adjacent property for the high
speed trainsets, are subject to either long-term tax leases or long-
term bond financed leases. The specific structures of the financing
vary, but there are certain common elements that would need to be
addressed in the context of a transfer of Amtrak's assets to an
interstate compact. For example:
1. Amtrak itself does not have title or legal ownership of many
of these assets. As a result, Amtrak does not have the
unilateral legal right to dispose of or transfer the asset to
another entity.
2. Under most of its financing, Amtrak is subject contractually
to one or more of the following covenants:
a. a prohibition against transferring the subject asset;
b. a prohibition against Amtrak's disposing of all or
substantially all of its assets;
c. a requirement that Amtrak maintain its corporate
existence.
If Amtrak breaches one of these covenants, such breach would
result in an Event of Default, which could result in one or
more of the following consequences: a foreclosure and taking of
possession of the asset by the lienholder; an acceleration of
all the remaining amounts of indebtedness incurred by the
financing.
3. Numerous Amtrak financings contain cross-default provisions
such that an Event of Default under one financing could trigger
an Event of Default under other financings, with the attendant
consequences of acceleration of indebtedness, foreclosure, and
possession of the collateral.
In short, in order to effectuate a transfer of ownership and
leasehold rights to the NEC facilities and equipment, it would be
necessary:
to negotiate with Amtrak's lenders/lessors to obtain their
consent to the transfer, which could require payment of
consideration including potential loss of bargained for tax
benefits and/or a Federal guarantee of Amtrak's $3.9 billion
indebtedness;
to pay the full amount owed under any financing as to which
consent could not be obtained; and
Finally, under certain of the leases, Amtrak has specific
obligations, not transferable to other parties without the lessor's
consent, to maintain the Northeast Corridor.
B. State-Owned Portions of Northeast Corridor
If the compact was to operate the entire Northeast Corridor, the
state-owned portions of the Corridor in Massachusetts and Connecticut,
which total over 100 miles, would have to be acquired from these
states.
C. Valuation of Northeast Corridor Properties
If the formation of a compact results in a conveyance of the
Northeast Corridor to DOT by Amtrak, the valuation of the corridor and
its assets will have to be ascertained. There are likely to be disputes
involving various stakeholders (e.g., Amtrak's common stockholders)
over the amount of the consideration to be paid by DOT and whether and
to what extent they are entitled to share in that consideration.
D. Provisions of Other Agreements
In addition to the financing agreements referenced above, various
other agreements to which Amtrak is a party contain restrictions on the
transfer of contractual obligations or assets without the consent of
the other party that would appear to be implicated by the creation of
the compact.
E. State Laws and Constitutions
The statutes and/or constitutions of some of the affected states
would, unless amended, likely preclude some states from taking certain
of the actions that would likely be necessary to create and operate the
compact.
F. Northeast Corridor Operations and Control
The joint control of the Northeast Corridor by the Federal
Government, eight states, and the District of Columbia would obviously
raise complex operational and control issues. These issues include:
what ``voting rights,'' or veto powers, each state would
have;
how the financial contributions of individual states would
be determined;
what would happen if the members of the compact were unable
to agree upon the priority and scope of capital projects,
operational and control issues, and each state's financial
contribution;
what would happen if some states chose not to participate in
the compact, or failed to provide the full amount of the
funding requested of them;
whether the Corridor would continue to be maintained to the
levels required for Acela Express operations at speeds of up to
150 mph, and who would bear the additional capital and
operating costs required to maintain track to these levels
(which are not required for commuter train operations); and
what entity would have operating control over the Northeast
Corridor, and responsibility for its safe operation.
G. Labor Agreements
The creation and operation of the compact would raise a number of
significant labor issues, including:
who would be the employer(s) of the employees performing
work currently performed by Amtrak;
whether existing labor agreements would transfer;
whether the Railway Labor Act and the Federal Employers
Liability Act would apply to all employees; and
whether all employees would be covered by Railroad
Retirement and Railroad Unemployment (and if not, how the
resulting shortfalls in these funds would be addressed).
H. Environmental Consideration
One very important consideration would be determining
responsibility for, and apportioning the cost of, the potentially
significant environmental liabilities on the Northeast Corridor. In
particular, because most of the Corridor has been electrified and
operated with electric equipment since the 1930s, there is PCB
contamination at a number of sites that predates Amtrak's acquisition
of the Corridor in 1976, but for which Amtrak has borne many of the
environmental cleanup costs to date because it is the current owner of
the Corridor.
______
Response to Written Questions Submitted by Hon. Ted Stevens to
David L. Gunn
Question 1. What, if any action has Amtrak taken to effect, or
otherwise to address, the mandatory October 1, 2002 redemption of its
common stock?
Answer. The National Railroad Passenger Corporation (Amtrak) has
two classes of stock, preferred and common. Amtrak's preferred stock is
completely owned by the United States Government through the U.S.
Department of Transportation. Under the Rail Passenger Service Act (49
U.S.C. 24304), Amtrak was required to issue to the Secretary of
Transportation preferred stock equal to the par value of all Federal
operating payments and most Federal capital payments received
subsequent to October 1, 1981, as well as capital and certain operating
payment received prior to that date. On September 30, 2001 and 2002,
109,396,994 shares of preferred stock were authorized for issue at the
par value of $100--all of which were issued and are outstanding. All of
the issued and outstanding preferred stock are held by the Secretary of
Transportation for the benefit of the Federal Government.
The Amtrak Reform and Accountability Act of 1997 resulted in
significant modifications to Amtrak's capital structure. Prior to the
Act, dividends were to be fixed at a rate of not less than six percent
per year and were cumulative; no dividends, however, were ever
declared. The 1997 Act abolished the voting rights and liquidation
preference of the preferred stockholder. The 1997 Act established that
no additional preferred stock is to be issued by Amtrak in exchange for
Federal grants. According to an independent audit, at the time of
enactment of the 1997 Act, the minimum undeclared cumulative preferred
dividend in arrears for all series issued and currently outstanding was
$5.8 billion.
The company also authorized to issue 10,000,000 shares of common
stock at a par value of $10. Of the 10,000,000 authorized, 9,385,694
were issued and are outstanding. The common stockholders, four
predecessor railroads to Amtrak, have voting rights for amendments to
Amtrak's articles of incorporation proposed by the Board of Directors.
The 1997 Act also required Amtrak to redeem, by the end of Fiscal Year
2002, at fair market value, the shares of common stock outstanding.
Amtrak has held meetings with the owners of the common stock to
discuss the redemption of their shares, but there has been no
resolution of this matter between Amtrak and owners of the common
stock. It is Amtrak's position, based on the current debt load and
annual losses of the company, that the common stock has little or no
value. Nevertheless, in an effort to comply with the 1997 Act, Amtrak
has made an offer to redeem the stock at a cash price of $0.03 per
share. In a letter dated November 2, 2000, counsel for the four common
stockholders rejected Amtrak's offer as inadequate. Amtrak has no legal
authority to compel the stockholders to redeem their shares.
In my testimony, I indicated that when I arrived at Amtrak on May
15 of last year, the corporation was in serious trouble. Amtrak faced
insolvency. Sometime in July 2002, we would have missed our payroll.
The physical plant had been allowed to deteriorate. Heavy maintenance
of cars and infrastructure had ceased several years ago--over 100 cars
were wrecked or damaged and out of service. Fiscal controls were
inadequate. We were unable to close our books for FY01 until September
of the following year. There was no regular reporting of financial
results. The organization was poorly defined and did not lend itself to
effective decision-making. Amtrak's management was top heavy--84 people
had ``vice president'' on their title. The budget process was
ineffective, and there was no control over staffing. Our credibility as
an organization was in tatters.
My immediate goal in June and July 2002 was to secure funding to
allow us to survive into FY03. However, at the same time, we had to lay
a prefoundation for the future. I set a goal to have in place by
October 1 a functional railroad organization, a zero-based budgeting
process, and public reporting of financial and physical results. We
also began focusing on controlling expenses. We were successful--we
secured a loan from DOT and a supplemental appropriation from Congress
that allowed us to make it through the end of the year and avert a
transportation crisis. We entered FY03 with an appropriation from
Congress which was essentially zero based and which focused available
resources on beginning the rebuilding process, as well as controlling
expenses.
While we would be willing to continue to discuss this matter with
the owners of the common stock and discuss the redemption of the
shares, Amtrak believes this issue can only be resolved in the context
of reauthorization legislation because, as noted above, Amtrak does not
have the legal authority to condemn the common stock in question or
otherwise compel redemption. I must be candid and inform you that my
immediate attention is focused on stabilizing the railroad to ensure
the safety of our workers and our passengers. Once the railroad is
stable--and its condition and operational reliability is restored--I
can turn that same attention to the resolution of this matter.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
David L. Gunn
Question 1. In your testimony you stated that Amtrak train
employees earn only about 90 percent income of their freight railroad
counterparts. You also stated that you believed that management changes
could result in Amtrak employees performing their duties more
productively. What management changes could be made to enable Amtrak
employees to function in a more productive and efficient manner?
Answer. I have already instituted changes within Amtrak to enable
greater efficiency and productivity amongst our employees. In June of
2002, one month after I became Amtrak's President and CEO, I announced
a re-organization and streamlining of the company through the
elimination of the business units, centralization of Amtrak's overall
business functions, elimination of nearly 300 positions, and reduced
the number of vice presidents by two-thirds. This took effect in
November of 2002 to coincide with the beginning of the fiscal year. I
have since also instituted monthly budgets based upon monthly staffing
plans as well as new organization charts for the company. These tools
will better enable me to control our number of positions and monitor
our workforce budget. Finally, I have put in place a management leave
tracking system that will reduce employee absenteeism. Improving the
efficiency and productivity of this railroad is of paramount importance
to me and I will continue to search for ways to better serve these
goals.
In addition, we have worked hard to organize our back shops to
perform real production work. At Beech Grove, we have organized the
workforce into larger gangs to give us more flexibility to shift
workers to projects reducing slack time and will have tried to enhance
our progressive maintenance program by changing out components prior to
lifecycle expirations. This should help us to begin to get ahead of
enroute failure and bring more reliability to the fleet. With regard to
infrastructure, we have, for instance, put the Track Laying Machine
back in service and have replaced over 26 miles of wood ties with
concrete, undercut, resurface, and where necessary replace worn rail
with new. As of today, this is a much more efficient use of manpower
than doing small projects here and there. Rebuilding the railroad in
this manner also builds employee morale.
Question 2. Amtrak must provide employee benefits to employees who
suffer a loss of income due to the discontinuance of train service. You
stated that this benefit is part of bargaining agreements made with
Amtrak employees. Can this aspect of the bargaining agreements be
changed?
Answer. Congress directed Amtrak in its last reauthorization (1997)
to negotiate substitute conditions for C2 labor protection under the
terms of the Railway Labor Act. Following this requirement, Amtrak
began negotiations with rail labor with the terms for the new labor
protection ultimately decided through binding arbitration. Therefore
Amtrak cannot change these bargaining agreements. Congress could
directly address the C2 labor protection issue in Amtrak's
reauthorization by legislating over the collective bargaining
agreements and mandate specific labor protection thresholds.
Question 2a. What effect would there be on Amtrak employee morale
and productivity if this benefit were eliminated from collective
bargaining agreements?
Answer. Amtrak cannot speculate on employee morale and/or
productivity as it pertains to the potential elimination of C2 labor
protection.
Question 3. Your 5-year strategic plan addresses current
infrastructural needs. What do you foresee as Amtrak's 10- and 15-year
strategic goals?
Answer. Amtrak is currently focused on two strategic goals:
returning plant and equipment to a state of good repair, and improving
financial and operational performance. Under Amtrak's five-year plan,
the majority of Amtrak-owned assets will be in a good state of repair
by FY08; remaining projects will be completed in the subsequent five-
year period. There will always be the need for capital investment.
While the plan does not call for any new initiatives or service unless
funded, any future passenger rail development or restructuring will
require that the existing railroad is stabilized as called for in
Amtrak's plan. There is obviously a great demand and need for improved
and expanded intercity rail passenger service in the United States. The
extent to which that need is met, and the role that Amtrak will play,
will depend upon the decisions made by policymakers over the next few
years.
Question 4. We are watching very closely the transition at the MBTA
where a private enterprise will replace Amtrak as the operator of
Boston commuter trains. I understand that Amtrak did not bid on the
MBTA contract, even though Amtrak has contracted with the MBTA for
several years. How much did MBTA pay you?
Answer. The MBTA paid Amtrak $177 million for the final year of
commuter rail service.
Question 4a. How much will they be paying the new entity?
Answer. According to newspaper reports, the new company will be
paid $1.07 billion over a five-year period or annualized $214 million
per year over five years.
Question 4b. When does your contract expire?
Answer. June 30, 2003.
Question 4c. What is the new company's financial position?
Answer. Amtrak does not have any knowledge of the new company's
financial position.
Question 4d. Is the new company considered a rail carrier for
purposes of RRTA?
Answer. According to newspaper reports, the new company is
considered a rail carrier for purposes of RRTA.
Question 4e. Why didn't Amtrak bid?
Answer. Amtrak found many of the terms of the Request for Proposals
issued by the MBTA unacceptable from a business and risk perspective.
For example, the Request for Proposals required the operator of the
service to fully indemnify the MBTA against all injury claims,
environmental risk and to operate the service on a fixed price basis
for a lengthy period (at least five years) with little provision for
cost adjustments even if there were major increases in insurance,
utility, or other costs. For those reasons, we chose not to bid.
Question 5. One of the witnesses at the hearing testified that
Herzog withdrew its bid to operate the Missouri Mules after Amtrak
lowered its subsidy requirement to operate the trains from $8.9 million
to $6.4 million. The implication seemed to be that Amtrak engages in
tactics that create an unfair bidding atmosphere, thus preventing any
competitors from winning contracts away from Amtrak. Why did Amtrak
lower its subsidy requirement for the Missouri Mules? Do you believe it
would be an appropriate business practice to reduce the price Amtrak
charges to operate a train just to avoid a bidding war with a private
competitor?
Answer. The allegation that Amtrak lowered its price to the State
of Missouri for operating passenger rail service between St. Louis and
Kansas City when Amtrak became aware that the State planned to bid out
the service is not correct.
At Missouri's request, Amtrak provided the state in November of
2002 with a preliminary cost estimate of $6.8 million to $8.9 million
for operating the ``Mules'' service in FY 2004, depending upon the
level of services Missouri selected, with the caveat that the actual
cost would be based upon Amtrak's uniform Route Contribution Analysis
(RCA) costing methodology, which was then under development. The
reduced Amtrak cost estimate to which the question refers was formally
communicated to Missouri on December 20, 2002, when Amtrak sent letters
to all states that fund state supported services advising them of the
payments from states that would be required under RCA. Because RCA
eliminated inequities in the payments made by the various states, some
states' projected payments decreased while others' increased. All of
this information, costing breakdowns and methodology, was made public.
Herzog Transit Services did not announce its interest in operating
the Missouri service until January of 2003, and Missouri did not issue
its RFP until March of 2003. The reduction in Amtrak's projected
charges to Missouri was communicated to the state before these events
occurred. This reduction in cost resulted from the application of the
new, uniform, RCA costing methodology for all state-supported trains,
and had nothing to do with the Missouri's subsequent decision to bid
out its service. See letter attached to the back of these responses
from Amtrak President and CEO, David Gunn, to Representative Graves (R-
MO) for further details.
Question 6. Because Amtrak is a public entity, its finances and
contracts are available for public consumption. Is there public
availability of the same information of private entities who are
bidding against Amtrak for a contract to operate a train?
Answer. In many situations in which Amtrak is competing for a
contract, much more Amtrak financial and business information is
publicly available than is available for other bidders which gives our
competitors certain advantages.
Question 6a. Do you believe Amtrak is competing on a level playing
field when bidding against other bidders on contracts to operate
trains?
Answer. As stated above, the public availability of information
about Amtrak is advantageous to other companies that are competing
against Amtrak for contracts to operate rail services. In addition,
some companies that bid against Amtrak are not considered a
``railroad'' for purposes of the Railroad Retirement Tax Act and the
Railroad Unemployment Tax Act, and therefore pay significantly lower
payroll taxes. Amtrak has an advantage where existing equipment is
available. Also, Amtrak has a legislative advantage regarding access to
freight carriers.
Question 7. Many proponents for privatization of Amtrak argue that
private companies can operate the railroad more efficiently and for
lower costs than Amtrak. Do you believe a private entity can make a
profit at operating Amtrak without the benefit of significant
government subsidies?
Answer. No, that is a myth. The private sector cannot operate
intercity passenger rail service without significant government
subsidies. Rail passenger service has not been profitable since the end
of World War II. Amtrak was formed because the private railroads were
losing too much money providing intercity passenger rail service. As
information, no national passenger rail system in the world is
profitable.
Question 8. In your testimony, you cautioned Congress against
viewing reform of Amtrak as a ``silver bullet'' that will quickly fix
Amtrak. You seem to be saying that massive reform is not needed; only
tighter management of finances and critical improvements to plant and
equipment. Of the many reform proposals you have heard in the past
year, are there any that you believe could have some merit for the
future success of Amtrak?
Answer. Any successful reform proposal will have to include a
significant source of capital funding to enable the railroad's
infrastructure and fleet to be returned to a state of good repair and
make funds available to States for corridor development. S. 1900 does
provide such funding. Absent such an infusion of capital, Amtrak, or
anyone trying to operate rail passenger services, will continue to live
hand to mouth, if at all.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
Hon. David D. King
Question 1. The Administration has proposed that states should
contribute a greater share to the support of intercity rail, as much as
50 percent. Other modes of transportation, such as highway and
aviation, typically are based upon only a 20 percent state match of
Federally appropriated funds. Do you think that a 50/50 match scheme
for passenger rail, in contrast to the 80/20 plans used for highway and
aviation funding, is a fair way to provide proper support for intercity
passenger rail?
Answer. An investment of Federal resources in improved intercity
passenger rail can be used to leverage significant state and private
resources in a program of infrastructure improvements that can improve
both intercity passenger and freight services. By authorizing funding
at less than an 80 percent Federal share, the current Federal
transportation program provides a disincentive for states to invest in
rail since states can receive more Federal funds for state dollars by
matching highway, aviation or transit program funds.
The States for Passenger Rail Coalition (SPRC) supports a national
interconnected intercity passenger rail network. However, states should
not, nor are they in a position to, fund long-distance service. This is
a Federal responsibility. States are willing to invest in a system of
improvements to support existing and new passenger rail corridor
services that benefit their state, and to partner with adjoining states
in developing projects that serve their mutual interests. While
projects of regional and multi-state interest are possible, these
projects will require Federal assistance.
Improvements to the management and operation of our system of long-
distance trains are crucial, but it should be acknowledged that the
national network of intercity passenger rail services serves as an
important link between corridors, offers critical access in some areas,
and is the base upon which ``new corridor service'' will be developed.
Question 1a. Do you believe it is feasible for States to provide
this type of funding with their current state of financial deficits?
Answer. In June 2002, Secretary Mineta requested that the National
Governors Association (NGA) consider and advise him on the
Administration's principles for investment in intercity passenger rail.
One of the principles requested that States begin directly funding the
national system operating through their state. The NGA adopted policy
statement EDC-16 at their February 2003 Annual meeting. The policy
states, in part, `` . . . States have partnered with Amtrak for the
operation, development, and financial support of existing corridor
services. The states have a stake in the successful restructuring of
Amtrak and need to be closely involved in these discussions. States
should not be forced to bear the historically Federal responsibility
for continuing intercity passenger rail service should Amtrak be unable
to continue as an operating entity . . . .''
Question 2. On the Piedmont line, the passenger train that operates
daily between Charlotte and Raleigh, the State of North Carolina owns
the equipment. What was the initial investment made by North Carolina
to purchase this equipment?
Answer. North Carolina's passenger equipment pool was created for
an investment of $7.5 million. This figure includes an approximate cost
to rehabilitate and place it into service of $750,000 to $1 million per
car. Our initial locomotive power was developed in the same manner,
which we supplemented through investment in new locomotives at a cost
of $4.6 million in 1998. In addition to the trainsets themselves, North
Carolina has made significant investments in the mechanical facilities
to support their daily operation, as well as investments in acquiring
the railroad and in building or rehabilitating all active passenger
stations.
A spreadsheet detailing investments by States in intercity
passenger rail service is attached.
Question 2a. What would it cost to lease the same equipment?
Answer. Generally an equipment lease seeks to recover 10-12 percent
of the cost of assets that have a useful life of 15 years.
Passenger equipment is not available in the marketplace. In fact,
the lack of equipment is a major problem for any entity seeking to
develop or operate service. The States for Passenger Rail Coalition has
provided testimony recommending that a national pool of passenger rail
equipment be established. This equipment pool would be a cooperative
venture involving states, or interstate compacts and authorities, and
the Federal Government, and it offers opportunity for both the
financial markets and for equipment manufacturers. Without such an
approach, it is unlikely that a single state will be able to make much
progress in the area of acquiring new rolling stock.
Question 3. The Administration proposal calls for states to form
compacts for the support and operation of intercity passenger rail
between those states. North Carolina now enjoys passenger rail service
that connects to much of the deep South and all of the states on the
Eastern Seaboard. What success do you believe North Carolina would have
in forging a compact with neighboring states for the continuation of
passenger rail?
Answer. The Amtrak Reform Act of 1997 provides authority for States
to form interstate high-speed rail compacts. Legislation (Railroad
Infrastructure Development and Expansion Act for the 21st Century,
RIDE-21) introduced in this session of the Congress acknowledges the
role the compacts may play in implementing improved intercity passenger
rail services. Many states are critically examining alternative forms
of governance that could be a means of implementing new services.
No states are considering the formation of compacts to continue the
existing national intercity passenger rail network. Should the Congress
not fund the national network of intercity passenger rail services, we
believe the National Rail Passenger Corporation would be forced to
cease operations.
States are working cooperatively in a number of regions around the
county to plan and develop improved intercity passenger rail service.
These initiatives are characterized by market driven city pairs with
strong economic linkages. Many of the long distance trains connect
regional corridors although the network of long-distance trains does
not serve all states equally well.
The Midwest Regional Rail Initiative (MWRRI) is an example of
states working together to develop a comprehensive plan for integrated,
interstate passenger rail service in 100 to 400 mile corridors. The
MWRRI plan does not envision the states having any role in supporting
long distance trains. Even focusing on short to medium distance
corridors, the MWRRI states have not reached a consensus on either an
institutional approach or cost allocation formula for the
implementation of the plan at this time.
The MWRRI proposes that the service be provided through a contract
with a provider, presumed at this time to be Amtrak. There has not been
a decision as to how the states will share capital or operating costs
and/or revenues of the proposed service. The MWRRI planning experience
suggests that cost allocation among states is both a complex technical
and political issue that will be difficult to resolve without Federal
involvement. However, there are several institutional alternatives
being considered for the future implementation of the plan. These
alternatives range from creation of an interstate compact as authorized
in the Amtrak Reform and Accountability Act, to each state contracting
for its individual service. The number of different railroads over
which the proposed service will operate complicates the decision-making
process. These same issues have been identified in the Ohio and Lake
Erie Regional Rail--Cleveland Hub Study--a multi-state study just to
the east of the MWRRI
The number and diversity of states involved in most long distance
corridors makes interstate agreements for these services highly
unlikely. For example, the Empire Builder Service from Chicago to
Seattle crosses seven states over multiple railroads. It is hard to
envision cost sharing arrangements that would be acceptable to states
as diverse as Illinois, North Dakota and Washington State.
While North Carolina does ``enjoy'' service as a component of the
national system, this service is not designed to serve North
Carolinians; rather it is designed for the New York to Florida and
Louisiana markets. States should not be expected to fund services they
do not plan, into which they do not have management input and that are
not optimized for their citizens.
In addition, there are a number of states that have constitutional
or statutory provisions that negatively impact their ability to
subsidize intercity rail passenger service.
Question 3a. What would North Carolina's options be if other states
in the South or on the Eastern Seaboard are not able to forge a working
compact, thus disrupting North Carolina's rail connections to more
distant destinations?
Answer. Cease interstate service, and likely cease intrastate
services also. About 50 percent of all intercity rail passengers in
North Carolina use the national system for interstate travel. Of the
single interstate train the state sponsors, approximately 60 percent
use the service for interstate purposes.
The cobbling together of the Atlantic Coast states to recreate
Amtrak's NY to FL services would quickly break down over cost
distribution and service issues. In addition, intrastate services would
be in jeopardy. Over half of the trip which originate in North Carolina
using one of our state-supported trains have a destination in another
state.
Direct State Investments in Improved Intercity Passenger Rail, 1996-2002
[Actual expenditures of State money, as estimated and reported by the
states. Excludes matching funds from Amtrak, the Federal Government, and
freight railroads]
------------------------------------------------------------------------
State expenditure, (millions
of dollars)
------------------------------------------------------------------------
California $871.6
Washington State 87.6
Oregon 3.1
Illinois 153.7
Michigan 52.0
New York State 111.6
North Carolina 118.9
Virginia 80.1
------------------------------------------------------------------------
Totals $1,478.6
------------------------------------------------------------------------
Based on these numbers, it is fair to report the states' cash
expenditure over the past five years at approximately ``1.5 billion.''
(Updated March 6, 2003.)
______
Response to Written Questions Submitted by Hon. John McCain to
John H. Winner
Question 1. Having listened to the testimony of Deputy Secretary
Jackson, how would you characterize the Administration's plan in terms
of the categories of contracting, franchising, and privatization you
discuss in your written statement?
Answer. Deputy Secretary Jackson described reforms that, if
implemented, would, over time, eliminate Amtrak's monopoly in intercity
rail passenger services. These reforms would allow all forms of private
sector participation described in my testimony to be applied to
intercity passenger services.
As I understand Mr. Jackson's testimony, over a six-year reform
period, a part of Amtrak would be restructured into a train operating
company. As an operator, Amtrak would obtain contracts for the
operation of intercity trains from States and Regional Rail Operating
Companies. At some point, these contracts would be opened to
competitive bidding, introducing the competition for contracts
discussed in my testimony.
The Deputy Secretary did not describe the Administration's vision
of the future intercity passenger train environment in detail. From the
description offered, however, some trains could be franchised. It is my
expectation that some named long-distance trains (e.g., the Coast
Starlight) and high-speed rail services could be franchised.
Franchising is typically associated with better marketing and customer
service because train services are more closely matched to market
demands since the franchise operator assumes some revenue risk. If the
franchise agreements are long enough, such agreements could be used to
introduce improved, upgraded, or even new rolling stock.
Once Amtrak gains experience as a train operating company, it could
be privatized to compete with other train operating companies for
intercity, suburban, and metro operating contracts and franchise
opportunities. To me, it would be illogical to maintain a majority
government owned enterprise in a competitive marketplace.
Question 1a. Do you think the Administration has thought through
all of the critical issues for instituting reform?
Answer. Reform of intercity rail passenger services in the United
States will be a complex undertaking. Developing a system that
encourages local and state participation in train services, breaking
the current Amtrak monopoly, dividing Amtrak into different companies,
introducing competition and private participation, and dealing with the
problems that might arise with increased private participation, all in
a politically charged environment, will be very difficult.
It is unlikely that anyone could foresee all the problems that may
arise. But that should not be an excuse for delay. Perfect solutions
that please everyone do not exist but, the framework described by
Deputy Secretary Jackson is a reasonable place to start. Adjustments
should be made over time, as the process unfolds.
Question 2. In your testimony, you discuss some of the challenges
to be faced in transitioning to a new model for passenger rail service.
One area in particular that you highlight is the problems that will be
faced by infrastructure owners in dealing with multiple operators on
their rail lines. While the prospects of problems are real, in your
opinion are they insurmountable?
Answer. No, the problems associated with multiple operators on rail
lines are well known to the rail industry. There are many privately-
owned rail lines with multiple operators. The map below shows, in red,
U.S. rail lines with multiple freight operators as recorded by the
Federal Railway Administration in 2002. The red lines represent about
20 percent of the rail network in the United States. On some red lines
there are actually several operators--more than two, sometimes as many
as four or more. Clearly, having multiple rail operators on a rail line
is not unusual. Private railroads have been negotiating access rights
to track for a long time.
However, high-speed, high-priority passenger trains consume a lot
of rail line capacity and many lines are near capacity. As new
passenger trains are introduced, given a higher priority, or their
speed increased above that of other trains on the line, some investment
in line capacity is likely to be required. Investments and schedules
should be the subjects of negotiations with infrastructure owners.
Question 2a. What steps could be taken by Congress in restructuring
passenger rail service in the United States to minimize the disruption
to other rail operations?
Answer. Several steps will minimize disruption in other rail
operations:
Reform of Amtrak may cause some labor strife. Labor actions
should not be allowed to affect private rail services.
A mechanism should be developed to indemnify infrastructure
owners from excess liability claims related to passenger train
operations on their lines.
Train operating companies should have reasonable access to
insurance.
The effect of reforms on railway retirement contributions
should be clearly understood. It may be necessary to create
some method to compensate the fund for changes in Amtrak
employment or contributions so that private railroads are not
adversely affected.
Inspector General Ken Mead discussed how some of these problems
might be mitigated. For example a direct payment to the Railroad
Retirement Board would cover excess payments burdens of private
railroads. Deputy Secretary Jackson also discussed a Federal/State
grant approach to funding infrastructure improvements, similar to the
way in which highway and transit systems are funded. This might be an
effective way to handle capacity investments necessary for increased or
enhanced passenger services.
A process should be developed for resolving capacity limitations
and commercial conflicts between private property owners and
governmental units, at all levels, who seek to run additional passenger
trains. The process should include some mechanism for financing line
capacity improvements and a system for specialized review of conflicts.
Question 3. Are these same problems faced when new commuter
operators enter the market, and if so, how do the freight railroads
deal with them in that context?
Answer. The commuter rail passenger services market is dynamic and
is the fastest growing area of rail passenger services in the United
States. New commuter services are being implemented with many different
arrangements. Some of the problems discussed above must be faced when
new commuter operators start service, but not all.
Most expansion of commuter rail services has occurred over the
infrastructure of private railroads. The parties have freely negotiated
terms that are mutually satisfactory and services have expanded as a
result. Some private railroads have shifted operations and sold
infrastructure for commuter rail passenger services to local
authorities. Others have reached agreements covering service
conditions, investments, and liability protections and codified these
agreements into commercial contracts.
On the other hand, in a commuter operation, the scope of problems
is limited to a region or a relatively short stretch of line. Railway
retirement is not usually an issue; the use of an operator, other than
the infrastructure owner or Amtrak, is often not considered; and the
role of operator is often not subject to bid. Clarification of the role
of Amtrak, ownership of Amtrak's right-of-access, and insurance and
liability issues would ease the formation of new commuter and intercity
routes funded by local authorities and other government bodies seeking
to expand rail passenger services.
Question 4. What do you believe are the next steps to take
regarding Amtrak's future and that of intercity passenger rail in the
United States?
Answer. The first step should be to get started with legislation
that will irreversibly eliminate Amtrak's monopoly on intercity rail
services and restructure Amtrak. Amtrak should become a train operating
company and ownership of Amtrak's assets (stations, rolling stock, and
track) transferred to a body that will manage access to them. This
should start quickly. The legislation must recognize the rights of
Amtrak's minority shareholders.
Amtrak's board could take some of these steps today. It should
create an accounting structure and system that clearly identifies
operating costs by train service and separates the cost of
infrastructure maintenance and renewals on the northeast corridor. It
should also form an infrastructure subsidiary to manage ownership of
the northeast corridor property.
Question 5. How long do you expect restructuring to take?
Answer. The restructuring process is likely to take 6 to 10 years.
Congress should not wait for the perfect plan because during the
restructuring process, economic life will continue to evolve and
conditions will change. It is likely that any legislation will be
modified as the process proceeds; that is the typical experience in the
restructuring of complex public entities. The evolution of intercity
passenger services in the United States will be stunted and distorted
until Amtrak no longer has a monopoly on them.
Question 6. Can you describe how restructuring has been implemented
in other countries?
Answer. Books have been written about railway restructuring in
other companies; I have spent the last 25 years helping other countries
restructure their rail industries. So it is difficult to describe
briefly how passenger rail restructuring has been implemented in other
countries. Two things that I have learned is that monopoly rail systems
distort transport markets and that government-owned railway enterprises
are enormously difficult to change. Governments all over the world have
already, are now, or are planning to restructure their state-owned rail
systems. Each country has taken a unique approach, tailored to its own
particular circumstances. Some examples:
Europe
Countries of the European Union are in the throes of reform now and
have been since the mid 1990s. The EU has taken a deliberate approach
and agreements have been difficult to achieve between countries with
private railroads (e.g., Switzerland) and those with a tradition of
strong state support for state-owned railroads (e.g., France and
Germany). The EU has required at least accounting separation of rail
operations from infrastructure as a means to improve transparency. Most
national railways are being restructured along lines of business--
infrastructure, intercity passenger, local passenger, and freight.
Once-large engineering and maintenance departments are being separated
and many engineering services are now contracted in. Operation of local
and regional passenger trains is increasingly contracted or franchised
to private operators. Rail freight transport is on the cusp of very
significant restructuring as new EU competition laws require access to
state-owned infrastructure for any EU-approved rail service provider.
In most of Europe, freight and passenger services lose significant
amounts of money. Each EU country is using a different approach to
restructuring, but the effect of all approaches is to increase
competition and break up integrated state rail enterprises. For
example, in France, the government moved rail infrastructure, and
almost all debt (some $26 billion) from the French national railway
(SNCF) to the newly formed French Railways Infrastructure Authority
(RFF) in 1997. Between 1997 and December 2001, debt had climbed to
nearly $40 billion and some resolution was needed. The French
government formed the High Council on Railway Public Service (CSSPF) to
control the development and evolution of the rail sector and provide
recommendations for resolution. In January 2002, the government
transferred responsibility for planning and financing local passenger
transport to regional authorities. EU competition policy requires that
contracts for local service must be competitively bid. Railway labor
unions have objected to the split of SNCF operations and infrastructure
and caused significant unrest. Outsourcing of local services is set to
increase, and freight services will be subject to competition from
other rail operators. Conventional intercity passenger ridership and
rail freight traffic have dropped significantly in response to
increased unreliability. SNCF and RFF are both under significant
financial pressure. But, the ultimate fate of restructuring in France
has yet to be decided.
The German National Railway, the DB, was established as a private-
sector company in 1994. In the process, it separated infrastructure
from transport organizations (with DB AG as a holding company), opened
the rail network to third parties with payment of trackage charges,
made the Federal Government responsible for rail infrastructure
investment, and transferred the responsibility for suburban passenger
transport to the states. These reforms have had some salutary effects
on costs: DB employment declined by 30 percent and many light density
lines were dosed. Suburban and commuter service patronage have
increased 33 percent. But despite a full-cost road pricing scheme for
German motorways and higher fuel prices, financial performance of the
holding company has deteriorated and further reform will be necessary.
The restructuring process in Europe has been underway for many
years and it is likely to take many more years. As European rail
systems become more market oriented, restructuring is likely to
continue in a long process of creative destruction characteristic of
market economies.
The U.K.
Much has been discussed about the complex railroad restructuring
process that has taken place in the United Kingdom. The British
Government ended a moribund vertically-integrated state monopoly rail
system by privatizing the entire system. The process was complex and
fraught with difficulty; some of the problems have been well reported.
However, good aspects of the restructuring process are often overlooked
in critical reviews of the U.K. privatization process. These include
stimulation of rail services--passenger ridership is up more than 36
percent over the reform period; a doubling of the number and kinds of
passenger services offered; freight traffic is up more than 42 percent;
and private investment in rolling stock has increased significantly. A
little noted feature of the reform of British Rail is that rail
passenger safety has improved by more than a factor of three.
While the U.K. reforms were criticized as being overly complex,
they were bold and have been successful in many ways. While the
government is taking new steps to adapt regulations and reforms to
changing conditions and to weaknesses in the original restructuring
process, it is not re-nationalizing rail services. One of the
characteristics of rail reform in most countries is that restructuring
processes must be adjusted over time to take into account new issues
that arise in a now dynamic rail industry. Dynamic change was not
characteristic of the pre-reform industry.
Latin America
Rail restructuring has also been proceeding for many years in Latin
America. While most Latin American railroads were built by private
enterprises, during the 1960s virtually all were nationalized. By the
beginning of the 1990s, nearly all state-owned Latin American railroads
had fallen on hard times, with track in bad condition, rolling stock
out of service and poorly maintained, and rail freight and passenger
services spiraling downward. At the same time, government subsidy
requirements were spiraling ever upward.
With high deficits, growing demand for public monies, and limited
availability of funds, restructuring was the only mechanism remaining
to sort out railway problems. Again, restructuring has been different
in each country but most Latin American countries have used
contracting, franchising, and privatization as restructuring
mechanisms. By the beginning of the new millennium, there were no
significant publicly-operated freight railroads remaining in Latin
America and many suburban passenger railways and metros had also been
transferred to private operation.\1\
---------------------------------------------------------------------------
\1\ ``Changing Railway Structure and Ownership: Is Anything
Working,'' Louis S. Thompson, Railways Adviser, The World Bank. 2002.
---------------------------------------------------------------------------
Japan
The largest restructuring occurred in Japan with the breakup and
partial privatization of the old Japanese National Railways (JNR). The
deterioration of JNR did not occur suddenly and there were at least six
attempts to reform JNR since 1964. It is difficult to summarize the
complex transitions that took place, but some $200 billion in debt was
transferred to a government Settlements Corporation, along with excess
staff. Three major rail passenger corporations, JR East, JR Central,
and JR West, were established and privatized.
Since privatization, the three companies have been generally
profitable. Labor productivity has trebled (and is now about five times
the comparable labor output of EU railways), fares have been stable,
and government subsidies have been transformed from payments of about
$5 billion annually to positive income of some $3 billion a year in tax
payments from the private companies. Investment in infrastructure and
rolling stock has continued to grow while service quality and
reliability has improved significantly.
There are several lessons to be learned from the reform experience
of other countries. First, restructuring is a complex, multi-year
process. Second, restructuring works best when it is based on planning
by impartial, expert groups insulated from political pressures. Third,
resolution of labor issues is a critical component of restructuring
processes.
World experience shows that many different restructuring methods
can work and that all forms of contracting, concessions, and
privatization are useful means to accomplish restructuring. World
experience also shows that publicly-owned monolithic and monopoly
railways operating behind government-constructed barriers to
competition are a recipe for the demise of rail services.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
John H. Winner
Question 1. In your testimony, you propose that certain sectors of
the passenger rail industry could be franchised as a form of
privatization. Franchises could run the gamut, from franchises to
market passenger rail to larger franchises to rehabilitate stations or
modernize rolling stock. Franchises call for higher start-up costs and
greater risks, but the franchisee stands to make more money if it is
successful. You note that the U.K. franchised train services. When the
U.K. tried to wean its rail franchisees from huge government subsidies,
the franchisees were forced to make operating cuts that led to customer
dissatisfaction. Several franchisees went bankrupt. The franchises were
transferred to other companies, but with a substantial increase in
subsidy level. Today, the number of franchisees has been cut by half,
and passenger rail service in the U.K. requires a higher level of
government support after privatization than before. In the state of
Victoria, Australia, three of five passenger rail franchisees have been
abandoned because of financial losses. In Argentina, when the national
government withdrew all subsidies, no private company stepped in to
provide passenger rail service because it could not be profitable
without subsidies. Passenger rail service disappeared in Argentina.
With the background knowledge of so many franchise failures in
other countries, one has to question the motivation of a private entity
seeking to enter the rail passenger business as a franchisee. Is it
because it genuinely expects to earn a profit due to its stellar
management and efficiency, or because it expects to benefit from a
significant government subsidy that will roll in year after year
regardless of the entity's management abilities?
Answer. Franchising is one of several methods that may be used to
involve the private sector in providing intercity rail passenger
services. Private companies will participate if they have an
opportunity to earn a return on their investment of capital and labor;
returns expected would be related to the level of risk. Since intercity
rail passenger services can rarely be operated profitably (including
investments for rolling stock and infrastructure), it is unlikely that
any intercity rail passenger services would be offered in the United
States if there were no payments from government entities or agencies.
The U.K. railway restructuring process was very complex and will be
debated for a long time. Franchising involves risks and some U.K.
franchises failed. Even so, many of the outcomes of that restructuring
have been very good. Intercity rail passenger travel grew about 36
percent, freight services grew 50 percent, the number of daily trains
nearly doubled, stations were improved, subsidies declined by
200-300 million a year for over four years, there was a
surge of new private investment in rail passenger rolling stock, and
rail safety improved considerably. On the other hand, the increase in
daily train services resulted in a shortage of qualified staff and
congestion on the rail network, and increased congestion caused
deterioration of on-time performance. Today's higher government
payments for rail services in the U.K. are primarily for infrastructure
investments necessitated by underinvestment in the past, the need for
new capacity, and promised line upgrades.
Franchising in Argentina was successful in helping to restructure a
rail system consistently costing the government more than $1 billion a
year while producing little transport output for the economy. That loss
was replaced by income from freight concessions and taxes paid by
franchise operators, and a limited and defined subsidy payment for
passenger services. As a result of restructuring, commuter ridership
soared, freight transport increased for the first time in decades, and
private investment poured into rail rolling stock and infrastructure.
Intercity rail passenger services were not contracted, franchised, or
otherwise subsidized by the national government; states elected not to
subsidize them either. Therefore, intercity passenger services ceased.
When the economy of Argentina collapsed recently, all companies were
adversely affected, many closed--some rail franchises were among them.
When a franchise fails, the franchised assets return to the government.
Question 1a. A bidding process for franchises would likely foster
competition between private companies to win the bid. However, what
about the franchise system would generate competition once the
contracts are all awarded?
Answer. In most places franchises are awarded in a competitive
bidding process and competition arises during the bidding process. If
there is only one franchise, once the franchise is awarded, there is no
further competition between franchise operators until the end of the
franchise. If there are multiple franchises, there is usually a great
deal of competition between operators to improve performance of their
underlying franchise. Most franchise contracts are written with
performance targets and bonuses for improved schedule performance,
reduced customer complaints, increased ridership, and other measures.
Most rail passenger services also have a great deal of competition from
other modes--automobile, air, and bus. In fact, it was the rise of
inexpensive and convenient highway and air travel that ultimately made
intercity rail services unprofitable.
Question 1b. Wouldn't franchising a certain segment of the rail
passenger industry to a private entity just be, in effect, exchanging
one monopoly (Amtrak) for another?
Answer. A franchise is not likely to become a monopoly for several
reasons. First, the term of a franchise is limited and there is
competition for the franchise each time the term is up. Second,
performance criteria are usually written into a franchise agreement. An
operator who does not meet those criteria loses the franchise. If a
franchise operator does a poor job, or goes out of business, the assets
revert to the government and the franchise can be awarded again.
Contrast this with the present situation. Under existing law,
Amtrak's franchise is never up--it is a monopoly. If Amtrak does a poor
job, there is not much that the government can do about it.
Contracting and franchising are more flexible than government
ownership. The process is usually not politicized and operator changes
occur as a part of a natural process. Franchise periods vary, depending
upon the investment required (investments may be for equipment, station
improvements, or for branding and advertising). Some are two to three
years; others, which have larger investment requirements, are for
longer periods--say, seven to ten years.
Finally, there is usually a lot of competition for rail passenger
transportation services; automobiles, buses, airlines, carpools, and
even taxis compete with rail transportation. Most franchise agreements
give the operator an incentive to increase ridership, usually by
improving customer service. So, even if a single franchisor has a de-
facto rail monopoly for some period of time, it must still create a
loyal customer base and compete with other transport modes. Amtrak has
done this in some places, particularly the northeast corridor. Yet,
even here, where Amtrak has its greatest market power, it commands only
about 35 percent of the market between Washington and New York, hardly
a monopoly.
Question 2. You say that in North America, all of the major freight
railroads are qualified to be private-sector operators. I cannot argue
with that statement; but it is also a fact that Amtrak, a government-
operated national passenger rail system, was created 30 years ago
precisely because these freight railroads did not want to engage in the
passenger rail business.
Answer. When Amtrak was created, the nation's railroads were in
financial distress. Many had gone bankrupt or were on the verge of
bankruptcy, particularly in the eastern part of the United States.
Private railroads had been required to provide passenger services for
many years under a regulatory system that encouraged cross-
subsidization of rail passenger services by rail freight services.
However, competition from trucking, boosted by completion of the
interstate highway system and deregulation, greatly reduced the ability
of private railroads to charge freight prices high enough to continue
cross-subsidies. Privately-owned railroads could not continue to engage
in a money-losing passenger rail business.
Amtrak was created to relieve railroads of this burden. Railroads
made significant contributions of capital and equipment to start Amtrak
in exchange for relief from passenger transport losses. It is through
these investments that many private freight railroads continue to be
minority shareholders in Amtrak.
Question 2a. Do you know of any specific major U.S. freight
railroads that have expressed an interest in operating passenger rail
in this country?
Answer. Several U.S. freight railroads currently operate rail
passenger trains. These services are almost all commuter or suburban
services in major cities and are operated under contract for local
transit authorities. In the past, at least one U.S. freight railroad
was involved as an operator of commuter services in Buenos Aires,
Argentina. Some freight railroads have indicated that they would want
to operate passenger trains that travel over their rail lines should
Amtrak fail.
Question 3. You specifically mentioned particular private entities
that you believe are good examples of rail privatization that has
worked, including Connex, National Express, and Arriva. In fact, Connex
was the first rail company in the British system to be stripped of its
franchise because of long delays, dirty trains, and other operational
problems. The British government wound up bailing out the rail operator
to the tune of 58 million. Similarly, the British
government had to raise 115 million ($165M) to bail out
another private rail operator you mentioned, National Express, that was
facing crippling losses and projected little chance of ever returning a
profit by the end of its franchise. Arriva, which you cite as being
staffed with 15,000 employees, was forced to cut 160 trains in Britain
because of problems it had with recruiting and retaining train
operators. With so many demonstrated failures in other countries, what
would make you think that somehow the experience would be different in
the United States?
Answer. Franchising has worked very well in many markets; there are
more successful train operating companies in the U.K. than failures.
Franchise operations in Argentina worked well until the collapse of the
economy. Experience with private operation of rail passenger services
throughout much of Europe has been positive. Private operation of
passenger and freight services has been expanding successfully
throughout the world and there are now a number of large international
operators with a great deal of experience.
Under the proposals that have been discussed, a rail operating
company arising from within Amtrak would also compete in the market.
Further, there are a number of U.S. rail companies with a great deal of
experience operating successful train services. With the world's
largest market-based economy; experience in contract, franchise, and
private operation of train services; a fully developed legal and
contract system; and many private railroads, the U.S. has the right
environment for any effort to inject private participation into
intercity rail passenger services.
When rail markets in the U.K. were restructured, no private rail
operating companies existed in that market. Government-owned British
Rail had a monopoly on both passenger and freight rail services, so a
competitive market had to grow from scratch. Given the much greater
experience with privately-operated rail services in the U.S. and the
number of different operators already in the U.S. market, contracting
for rail operating services and franchising rail operations is more
likely to be successful here than in other markets.
Question 4. Japan's privatization of passenger rail service is
touted as one of the best-managed railroad transportation systems in
the world, but it began with a $300 billion investment by the Japanese
government. Although Japan is about the size of California, $300
billion represents well over 11 times the amount spent by the U.S. on
supporting Amtrak in the past 30 years. Today, Amtrak is $5 billion in
debt and has $6 billion in backlog of state-of-good repair investments.
If $300 billion were invested in Amtrak's infrastructure and
operations, do you think the railroad could then be profitable?
Answer. The restructuring and eventual privatization of parts of
the Japanese National Railway (JNR) was a significant achievement.
After World War II, JNR was converted from a government ministry to a
state-owned corporation. It was also forced to provide employment to
returning servicemen, bloating its workforce and driving up pension and
wage costs. Japan also constructed many branches to serve smaller
communities. Rail tariffs were controlled and kept quite low, causing
JNR to operate at a loss. Pensions, investment and operating loses were
financed by debt. As the Japanese economy recovered and personal wealth
grew, many interstate-type highways were constructed and rail market
shares fell rapidly while JNR debt continued to climb. Even
construction of high-speed lines (Shinkansen) and introduction of
Bullet-Train services starting in 1964 did not improve JNR's financial
position. Restructuring Japan's rail system was complex and took many
years. As part of the restructuring, some $200 billion of JNR's $340
billion debt (all guaranteed by the government) was transferred from
the government-owned company to a new government-owned Settlements
Corporation. The Settlements Corporation also assumed responsibility
for excess employees and assets. The remaining portion of JNR debt was
transferred to the operating companies that were eventually privatized.
The investment of billions of dollars did not help JNR become
profitable. It took a restructuring process that injected private-
sector financing and incentives into the operation of the railway.
While investing $300 billion into rail passenger infrastructure and
rolling stock in the U.S. would certainly provide many high-speed lines
and upgrade most rolling stock, it is unlikely that this alone would
allow Amtrak to operate profitably. If that investment were not counted
as Amtrak debt, and if passenger revenues were not expected to renew or
replace those assets as they wore out, then it is possible that some
Amtrak routes and services could be operated profitably.
Question 5. The American passenger rail system is partially
privatized in that most of the rail infrastructure over which Amtrak
operates is privately owned. If we franchise passenger rail operations
to private rail operators other than Amtrak, large freight railroads
that own thousands of miles of track over vast portions of the United
States may have to deal with a number of private operators on their
track. How would you suggest we convince the freight railroads to allow
these other railroads to operate over their tracks?
Answer. Many private rail lines currently have multiple operators.
The map below shows U.S. rail lines with multiple operators, including
Amtrak. Amtrak operates few intercity passenger trains on most private
rail lines (two trains per day--one in each direction--is typical on
many miles of private rail line outside the northeast corridor), so the
issue of multiple operators on any one line may not be an important
issue for many freight railroads. In any case, access, train priority,
required speeds, liability, insurance and many other issues should be
settled with private railroads in the process of negotiating access
agreements. Private railroads are experienced in negotiating access
agreements, although some arbitration or settlements process may be
needed for disputes that cannot be settled through negotiation.
Significant increases in rail passenger services or speeds across
private railroad lines are likely to require investments in new
capacity. (See previous ``U.S. Rail Lines with Multiple Operators''
map.)
______
Response to Written Questions Submitted by Hon. John McCain to
Hank Dittmar
Question 1. How did Reconnecting America come to the conclusion
that passenger rail service should focus on short-distance corridors
connecting densely populated urban areas?
Answer. Our conclusion can be more accurately stated in the
following way: we believe that intercity passenger rail can serve an
important role in an interconnected network with aviation and intercity
bus, primarily serving shorter and medium distance markets of up to 400
miles in length. We do not recommend a disconnected corridor based
approach, but rather an interconnected national hub and spoke system.
We reached this conclusion as a result of evidence that shows that
intercity rail can compete effectively with short haul air service in
terms of time and cost, and when service is upgraded, can compete
effectively with the automobile over the same lengths. One advantage of
intercity rail is that it does in fact serve linear corridors, and thus
may link multiple city-pair markets of 100-400 miles. A good example is
the California Corridor, which links numerous metropolitan markets
between San Diego and Sacramento.
Question 2. Your proposal, which focuses each mode of
transportation on the markets where each has a natural economic
advantage, certainly seems like common sense. But Congress doesn't
always seem to use common sense in establishing policy. As a practical
matter, how do we transition from the Amtrak of today to the corridor
network you recommend?
Answer. First off, we do not solely recommend a corridor network,
we recommend an interconnected national network of aviation, intercity
rail and intercity bus, with rail routes principally serving short and
medium distance markets.
In resolving this issue it is important to balance appropriate
government action and public investment with actions to remove barriers
that inhibit the market from acting to maximize intermodal services.
States, regions and localities need to be given the flexibility to use
Federal transportation funds to make intermodal connections, and
Federal regulations and agency practices that prevent intermodal
operators from emerging need to be eliminated. At the same time, we
need to recognize that short and medium distance travel markets are the
best growth opportunity for intercity rail service, and that the
appropriate way to encourage service improvement in these corridors is
to create a Federal grant program for states and regions which
incorporates principles of shared investment and benefit with the
private sector.
The second major step would be to recognize that the debate about
Amtrak service in less populated regions is not principally a debate
about market demand, it is a debate about the merits of pursuing a
national system that connects the fifty states. As President Eisenhower
said when he proposed the Interstate Highway System, ``we are a United
States.'' We therefore believe that the most appropriate approach to
moving forward with a reform vision is to provide for an Essential
Transportation Service program, which provides subsidies for less dense
areas to be connected into the national system, and which allows for
air, intercity rail or intercity bus subsidies and which recognizes
that rail provides not just point to point service but a collection and
distribution function along a linear corridor. Such an approach would
perhaps provide the same level of service to rural areas, but might
interconnect with nearby metro areas and major airport hubs rather than
providing cross-country service.
The key political problem in envisioning a new role for Amtrak as
part of an interconnected national system is that the beneficiaries of
the existing long distance routes are unlikely to support changes to
their existing service (however marginal that service benefit is)
without some guarantee that the replacement system will not result in a
loss of access. Perhaps this is why Amtrak President David Gunn calls
system changes political in nature.
Mr. Gunn's position would seem to stake out a role for Amtrak as an
operating company, with route decisions being left to Congress. This is
obviously not a workable situation, nor is the Administration's idea of
turning the operating problem entirely over to the fiscally strapped
states, One possibility would be to create a separate, small planning
and finance authority for intercity passenger services, with the
responsibility of transitioning to an intermodal network over time. It
is important to make these changes gradually so that rural communities
do not lose transportation access as the Nation moves from the existing
structure to a national network of medium distance rail routes
interconnected with aviation and bus at key travelports. The Surface
Transportation Board or the Air Transportation Stabilization Board
might be obvious candidates to be restructured to serve this role, much
as public utilities commissions have overseen essential utility
services.
Question 3. You mention in your statement that the Downeaster,
between Portland, ME and Boston, created a new rail market compensating
for the loss of airline seat capacity. But Greyhound argues that the
subsidized rail service and Amtrak's low-fare policies are a
competitive threat to bus service. Does it make sense for Congress or
the states to subsidize Amtrak service to the detriment of bus
companies that do not receive Federal operating or capital subsidies?
Answer. The Downeaster is an excellent example of the way that
intermodal planning at the state and the metropolitan level can be
improved. We believe that markets like the Portland to Boston corridor
can be well served by an integrated rail-bus schedule, with both modes
operating from the same stations, and with intercity rail serving high
demand peak periods with higher capacity trains, and bus service
filling out the schedule throughout the rest of the day. In such a
scenario, each mode would do what it does best.
As to the questions of subsidy, we think the question of unhealthy
competition arises primarily as a result of a failure to network the
systems, and that an integrated network would be fiscally more
sustainable for all the modes.
Question 4. The States for Passenger Rail Coalition is arguing for
a large new high-speed rail program. But, based on your
recommendations, is speed the issue or should Congress be looking at
the development of conventional or high-speed rail, depending on the
distance between major city pairs?
Answer. The States for Passenger Rail Coalition argues for both
``investment in new passenger rail systems and incremental improvements
in regional passenger rail corridors to expand ridership, with
increased speeds, and additional frequencies to expand routes''
according to their National Passenger Rail Policy Statement, adopted
August 25, 2002. Reconnecting America generally concurs that intercity
rail funding programs should support both approaches, with the
preponderance of investment probably going to upgrade speeds, safety
and comfort on existing rail alignments, most often in a shared
investment arrangement with a freight railroad. The rail network does
not well serve some key intercity corridors, however, and in those
cases new alignments, technologies and services may be the best
solution.
Question 5. Would your organization support applying the Federal
Transit Administration's process of evaluation and ranking to new
intercity rail passenger service?
Answer. Reconnecting America would generally support the adoption
of rational processes for evaluation and ranking of proposals for new
intercity transportation services, so long as they are applied on an
intermodal basis, and take into account the different characteristics
of each mode and they are related to a clear statement of goals and
objectives at the national level. It is problematic, for example, FTA
process has been used to ration limited Federal transit New Starts
funding, but that no similar requirement has been imposed for new
highway capacity projects in metropolitan areas.
If our Interstate Highway system and our Essential Air Service
program had to meet the same standards in terms of demand, density and
patronage that intercity passenger rail has to meet, the highway and
aviation systems would look a lot different today.
Enclosed for the Committee's review is a map that we produced which
shows average daily traffic on the highway network. The map clearly
demonstrates that the Interstate and National Highway System
designations in many parts of the country are established for reasons
of connectivity, rather than reasons of population density or demand.
That is why we have argued for clarity in terms of the policy rationale
for these services through the creation of an Essential Transportation
Service program for small community air service, intercity bus service
and intercity rail service for smaller communities. Such a program
should have ranking criteria that embrace both point to point services
and corridor service to multiple cities and towns, with the ultimate
objective being to connect at a hub to longer distance travel by air
and rail.
Question 6. I would like to ask you a few questions that bear more
on your position with the Great American Station Foundation. Does it
make sense, in your opinion, to have Amtrak turn over all stations to
the states or municipalities? Are station ownership, maintenance, and
commercial development more appropriately a local function than an
Amtrak function?
Answer. The most important issue from a national perspective is to
move from viewing these facilities as serving single modes, whether
they begin as train stations, as airports or as bus depots. Rather they
should be seen as ``travelports,'' serving as the nodes which link air,
rail and bus service into an interconnected national network. Standards
need to be developed specifying appropriate interconnections for
differing sizes of communities, so that a downtown station in one
medium sized community near a large hub may connect local transit,
intercity bus and passenger rail, with a dedicated and integrated rail
and bus connection to the large hub airport in the nearby metropolitan
area. Incentives need to be developed to promote joint funding and
operation of these facilities, no matter who owns them, and the ``Last
Mile Connections Fund'' would provide a vehicle to ensure the final
connections get made.
Outside of the Northeast Corridor and Chicago Union Station, Amtrak
owns very few of the stations it serves. The primary client of the
Great American Station Foundation's efforts to assist with station
revitalization as intermodal facilities has been local authorities--
either municipalities or local governments. In some cases the private
railroads still own stations, and lease them to local authorities. In
every case, the problem has been one of providing technical assistance
with planning, finding incentives for intermodal coordination, and
overcoming barriers to shared use, such as the FTA policy prohibiting
their funds from being used in facilities that include private
intercity bus carriers. These barriers exist no matter who owns the
stations: many municipalities will not welcome private bus operators,
for example, and may tend to favor transit use over Amtrak use of the
stations they own. Airports tend not to want to threaten parking and
rental car operations, and see transit, Amtrak and buses as potential
competitors. Seeking solutions that help to remove these ownership
biases as well as the policy barriers at both state and Federal levels,
such as allowing airports to charge PFCs for arriving bus and rail
passengers, will help to solve the situation.
Divesting Amtrak of the ownership of those stations it does own
would need to be accompanied with some provision for the new owners to
fund the upkeep and operating obligations that would accompany the
stations, and perhaps this could be accomplished through some sort of
short and medium term funding, declining over time, with the
opportunity to make ongoing revenue from the development of air rights,
adjacent land, and leasing of space in the stations.
Question 7. Do you recommend, and is it possible, for Amtrak and
Greyhound not only to develop shared intermodal stations but also to
share station employees?
Answer. We think that shared use and operation of intermodal
facilities is critical to a successful intermodal network, and this
applies not just to Greyhound and Amtrak but also to local transit and
aviation. Particularly in small and medium sized communities, where
Amtrak has cut staffing at stations, sharing ticketing and baggage
service may be the only way to adequately serve customers. There are
numerous ways to accomplish this objective:
through third party contracting for station operations and
maintenance, with each operator maintaining its own ticketing
operation;
through management of the station by one of the operators,
with ticketing and baggage handled by each operator; and
in small stations, with a travel agent or municipality
acting to sell tickets on a commission basis, with the station
owner handling maintenance.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
Hank Dittmar
Question 1. You have stated that continued episodic bailouts of
Amtrak, the airline industry and the highway industry are not the way
the Congress should approach interstate commerce. Instead, you suggest
deregulating all transportation industries, including passenger rail,
and open them up to intermodal investment groups.
Answer. My testimony called for a sustained increase in public
investment in intercity rail, along with the removal of government
barriers to intermodal investment in airport-rail-bus connections by
airports, transit authorities and states. I contrasted the current set
of bailouts with a national intermodal policy that sought to provide a
more fiscally stable, environmentally sustainable and consumer friendly
intercity travel system through integrated investment in air, rail and
bus. Deregulation was not in fact the central recommendation of my
testimony. It was instead the following:
``We believe that passenger rail can play a significant part in
our nation's transportation system, if we redefine the role
that intercity rail plays in that network, and if we provide
stable levels of capital funding, create incentives for
connecting our separate air, rail and bus networks together,
and remove regulatory barriers that prohibit coordinated
planning and integrated approaches to delivering intercity
transportation services--both passenger and freight.''
Intercity transportation cannot operate without public subsidy,
whether it is air transportation, highway transportation or intercity
rail. We need to quit kidding ourselves that it can, and recognize that
Amtrak has been hamstrung by the lack of a dedicated, stable funding
source, especially when compared to aviation and highways, which have
their own trust fund and dedicated funding source. Accordingly I called
for multiyear capital funding that promotes partnerships between the
states and Amtrak, a Last-mile Intermodal Connections program to
promote intermodal investment in air-rail-bus connections and in shared
benefit passenger-freight rail corridors, an Essential Transportation
Services program to subsidize intercity air, rail and bus
transportation in rural areas. Amtrak needs to reform and update its
route structure, operating philosophy and funding partnerships to
reflect the market demands of a 21st Century America, as the route
structure of the 19th Century does not serve us well. To suggest such
changes does not imply a lack of support for continued investment in
Amtrak, merely a desire that increased investment in Amtrak yield
maximum benefits.
Question 1a. Are you aware of any investment groups that are
willing to invest billions of dollars like the United States Government
to operate an efficient and viable passenger rail system?
Answer. No, and Reconnecting America has never suggested that
investment groups were willing to take on the task of operating an
efficient and viable passenger rail system. There is increasing
evidence that private freight railroads are willing to work with the
public sector to make shared benefit, shared investment improvements in
rail corridors that improve the performance of both passenger rail and
freight. This is a welcome development, as it creates a key opportunity
for getting past the current concern that the freight railroads have
with improved intercity service. Congress should facilitate such
investments, as your legislation does. Capital grants to states to
improve rail service could promote investment by requiring a state
match, either of operating subsidy or capital.
Question 1b. Do you believe that privatizing passenger rail would
be a profitable undertaking?
Answer. No, and Reconnecting America has never recommended the
privatization of passenger rail. We do support enhanced collaboration,
code-sharing and scheduling between Amtrak and private bus operators,
as takes place in California. Similarly, if regulatory barriers are
removed, I believe that code-sharing, integrated luggage and ticketing
and information between Amtrak and air carriers, such as exists in
Europe, can help Amtrak capture a new passenger market: that of acting
as the medium distance spoke in the hub and spoke network. At the same
time, there are many private companies who are willing to take on some
aspects of passenger rail services on a contractual basis including
food services, equipment maintenance and in some cases operations.
While there is a role for greater private contracting in the provision
of some aspects of rail service, there needs to be a national operator,
with national branding, ticketing, standards, safety and operations
oversight and information, and that operator will require public
subsidy as do passenger rail operations worldwide. Public private
partnerships need to be properly aligned so that the public interest is
preserved as the private sector is engaged in spheres where it excels.
Question 2. The events of September 11th showed how vulnerable our
transportation system is to terrorist attacks and our need for
alternative means to travel across our great Nation in a timely manner.
Amtrak provided that service. However, you stated that Amtrak should
eliminate long distance service.
Answer. Perhaps I was unclear in my statement, as I do not believe
that Amtrak should eliminate all long-distance service. What I said
was:
``Amtrak should cease to be primarily an operator of long
distance train routes, and should instead focus on the short
and medium haul markets where it can be competitive with both
highway and air travel.''
It is recognized worldwide that the most effective markets for
intercity rail are markets between 150-400 miles, and these are the
growth markets for intercity rail passenger services internationally,
including in the United States. This does not rule out a role for long-
distance trains, particularly those that effectively combine pairs of
cities within those distances. At the same time, however, it is clear
that air travel provides more speedy service across longer distances,
and that the scheduling issues associated with long-distance trains
often prevent them from effectively serving shorter distance markets
along these routes.
We need to recognize that there are many reasons for Federal
investment in transportation, and that connectivity is a key reason. As
President Eisenhower said when introducing the Interstate Highway
legislation, ``We are a United States,'' and if demand and cost-
effectiveness were the only criteria, we would not have built
Interstate highways across the Great Plains or the Great Basin.
Attached to my answers is a map depicting Average Annual Daily Travel
on the Interstate highway system, derived from DOT statistics. It
clearly demonstrates that this issue is not unique to Amtrak, but
confronts us with respect to highways as well. Yet we have made such
investments in both highways and air service, and have done so for good
reasons. The answer is to provide subsidies for train service in less
populated corridors, in tandem with and coordinated with subsidized air
service and intercity bus service. Such subsidies could be offered
through a new Essential Transportation Service program rather than the
current program dedicated only to aviation. The creation of an ETS
program would resolve a policy muddle, because these routes would be
provided for national connectivity and rural transportation purposes,
and not because they offer competitive service quality in a congested
corridor.
Question 2a. How do you believe American citizens would have
traveled across the United States in the days after the attacks had
Amtrak not been able to provide long distance service?
Answer. Amtrak indeed provided an important service to the Nation
in the days after the September 11 attack, and the system redundancy
and reliability that is added by a national rail system as part of an
interconnected national transportation system is vital. The role of
passenger rail could be enhanced if rail, air and bus were
interconnected at ``travelports'', allowing seamless transfer between
long-distance flights and rail and bus feeder service. Amtrak should
operate a national rail network composed primarily of medium distance
routes, interconnected with one another and with intercity bus and air
service at major hub locations, including many important travel markets
that are not served or are poorly served by the current Amtrak system.
In the end, this would provide a better service for the citizens of the
country than either the disconnected corridor vision promoted by some
or the existing long distance train network Amtrak operates today.
While Amtrak might still need to operate some long distance trains,
many parts of the country would be better connected by medium distance
routes interconnected with other rail service and with bus and airline
service at major hub locations. In the coming months, we hope to
publish a map depicting such a reorganized structure.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Hank Dittmar
Question. Your ``Reconnecting America'' initiative proposes
essentially that we make better use of our Nation's transportation
infrastructure to take advantage of the efficiencies and benefits that
suit each particular mode of transportation. For instance, one example
of an intermodal connection is in New Jersey, where travelers can take
an Amtrak train and connect at Newark Airport to flights leaving to
Europe or to the West Coast. But there doesn't appear to be any Federal
program designed to provide funding for these types of projects. From a
policy standpoint, how can we as a government make it a priority to
encourage this type of efficiency among the many modes of
transportation?
Answer. The Newark Airport Air-Train project is an excellent
example of the kind of intermodal connections we should be pursuing as
a matter of government policy. It provides a convenient connection for
air passengers arriving at Newark to destinations on Amtrak throughout
the Northeast corridor as well as destinations throughout the Tri-State
region via New Jersey Transit, and the connection to Penn Station.
While the Newark project proves that these kinds of connections can be
made, our review of the Newark experience as well as others in San
Francisco, Portland, Oregon, and Providence, Rhode Island reveals that
each project has had to invent its own funding sources, overcome
significant obstacles, and deal with funding barriers in law and
regulation that inhibit a systems approach to passenger transportation.
In our view, without significant policy changes, it will continue to
require persistent genius to succeed at these kinds of ``travelport''
projects.
For our vision of an interconnected system to become a reality,
then, we believe a number of Federal actions are necessary. First,
Congress should create a ``Last-Mile Intermodal Connections Fund'' to
finance these kinds of network connections for both passengers and
freight. Such an Intermodal Trust Fund could be financed with funding
sources that come from each mode, and would be used to provide a
Federal share, of up to 50 percent to attract other investment in air-
rail-bus terminal projects at airports, rail station intermodal
projects in downtowns, and port intermodal center projects for freight.
Second, Congress needs to adopt policy and planning provisions
calling for such an interconnected approach in state and metropolitan
transportation plans, airport system plans and airport master plans, so
that at a minimum these plans recognize the modal investments in each,
address potential overlap or impact and consider the efficiencies from
potential intermodal investments. These provisions need to be
accompanied with enhanced funding flexibility for states and regions,
eliminating the legal and regulatory barriers that inhibit Federal
modal funds from being used for intermodal projects. Three key
examples:
Expanded eligibility to use Passenger Facility Charges for
ground access improvements off airport property, provided it is
accompanied with authority to charge PFCs to arriving intercity
rail and intercity bus passengers, along with charging a modest
surcharge for arriving transit and commuter rail passengers at
travelports. The House passed aviation bill makes a modest step
in this direction.
Flexibility to use National Highway System funds to make
capital investments in intercity passenger rail and freight
rail corridors, provided it is a shared investment scenario and
the project relieves a NHS corridor.
Flexibility to use Federal Transit Administration funding
for intermodal facilities for projects that benefit both
intercity bus and intercity rail, along with local public
transit.
______
Response to Written Questions Submitted by Hon. John McCain to
Alan Landes
Question 1. I was surprised that your testimony recommends other
train operators negotiate access with the freight railroads, while
Amtrak should be permitted to retain its right to access the rights-of-
way of the freight railroads at incremental cost. Do you take this
position because you believe that even if you have to pay more for
access, you will still be more competitive than Amtrak? (In other
words, will the benefits of competition offset higher charges to access
the rights-of-way of the freight railroads?)
Answer. My testimony related to state-supported services operated
under contract to Amtrak [formerly 403(b) services]. This position was
taken to allow competition for these services immediately without any
changes in Federal law. The position also recognizes the freight
railroads' opposition to other operators having access to their rights
of way at the ``incremental cost'' basis that Amtrak enjoys.
If the other issues raised in my testimony (access to government
subsidized Amtrak facilities and equipment at a fair price and
liability and insurance) are addressed, it may well be that
efficiencies introduced by other operators could more than offset the
cost differential for track access fees based on fully-allocated costs
to the track owner.
Question 1a. How much of a difference do you estimate there is
between what Amtrak pays the freight railroad and what you have to pay
through negotiation?
Answer. Herzog does not possess documentary evidence of what the
incremental cost is that Amtrak is paying the freight railroads. Part
of our testimony was the suggestion to require Amtrak to make this
available. In the proposal prepared for the State of Missouri, which
was not submitted for the reasons stated in our testimony, we assumed
that the access charge negotiated by the Altamont Commuter Express
Authority with the Union Pacific for the Stockton to San Jose commuter
rail service would be a good approximation of the cost for other
operators. We understand this to be approximately $6.13 per train mile.
The best information we have regarding Amtrak's cost is that the State
of Missouri pays Amtrak approximately $2.90 per train mile for access
to the UP between Kansas City and St. Louis. The difference, of course,
represents a subsidy from the freight railroads to Amtrak.
Question 1b. If we are truly to have fair and open competition,
shouldn't the same rules apply to all potential operators, including
Amtrak?
Answer. Yes, but the freight railroads are very reluctant to grant
other operators access at the rates Amtrak is currently paying. Indeed,
Amtrak's performance may cause interference with freight operations at
the same time the track owners are under compensated. We would not want
passenger to undercut the substantial public benefits of congestion
relief, energy savings and safety derived from the rail alternative to
truck. While we are not suggesting what Amtrak should or should not pay
to the freight railroads, it may be that allowing the freight railroads
to recover more than incremental costs would bring about track owner
cooperation and result in the improvement of rail passenger service in
this country.
Question 2. I have been concerned that freight railroads will
prevent an operator other than Amtrak from operating over their rights-
of-way even if the operator is willing to negotiate higher access fees.
How can Congress protect the interests of the freight railroads while
also ensuring that they do not make the price of access so high as to
make the service prohibitively expensive?
Answer. As mentioned in my answer to Question 1, it may be that
Congress could charge the Surface Transportation Board with
establishing criteria to serve as the basis for the negotiated access
fees. This could serve as a template for negotiation. We believe that
the negotiated access rates will generally settle at a number that
makes the service affordable. We have been involved in such arms length
negotiations many times. Herzog operates affordable and successful
commuter rail service at negotiated rates in 3 locations. Connex North
America is operating the MBTA commuter rail routes at privately
negotiated access fees. The Burlington Northern Santa Fe also has
negotiated rates with the Chicago Metra and the Seattle Sounder as does
CSX does with MARC in Maryland and CSX and NS do with VRE in Virginia.
Speaking as a potential qualified operator, Herzog is prepared to
negotiate directly with the freight railroads for access to track and
facilities or this could be done by the states. Whether it is the
states or a qualified operator, a specific process needs to be
prescribed that allows the negotiations of a reasonable cost to be
accomplished within a reasonable timeframe that would allow qualified
operators to timely respond to the states. If negotiations fail, the
process should spell out a binding arbitration procedure.
In some cases the cost to the infrastructure owner of providing the
access will be so high that accurately calculated access fees may be
prohibitive. As mentioned previously, freight rail companies depend
upon their track to conduct business, increasingly in direct
competition with other modes. Congestion of lines is a critical issue
and infrastructure capacity is limited in most areas. In such a case,
the public parties seeking to maintain the service would need to enter
into a dialogue with the track owner to determine what improvements to
track, signaling, etc. would be necessary to bring the infrastructure
or other operating systems to a level that would permit an acceptable
access fee. The parties would then need to agree to a mutually
satisfactory mechanism to implement those improvements. This is the
kind of ``win-win'' situation that can lead to expanded passenger rail
service. However, it will be important that Congress make the funding
available for rail infrastructure expansion as a part of the
Transportation Efficiency Act reauthorization.
Question 3. You testified that Amtrak refused to allow Herzog
access to its national reservation system? What justification did
Amtrak give for taking this action?
Answer. In a letter to Herzog dated March 21, 2003, Amtrak stated
that ``we do not make this system available to third parties.'' Our
request to Amtrak was to use the reservation system for ``through
ticketing'' for which there appears to be precedent. Amtrak has
arrangements with Greyhound to issue ``through tickets'' for Amtrak
passengers who begin or continue their journey on Greyhound buses to or
from destinations served by Amtrak to or from destinations not served
by Amtrak. We frankly believe that the flat Amtrak rejection was simply
an excuse to help assure we could not prepare a bid that was compliant
with the Missouri requirement for through ticketing.
Question 4. I understand that Herzog operates a maintenance
facility for the state of North Carolina. Did you encounter similar
problems in bidding for the maintenance contract or taking over the
maintenance operation?
Answer. Yes. Amtrak operates intercity service in the North
Carolina supported by the state. Amtrak subcontracted the equipment
maintenance for this service to a company called Dymac. At the request
of the State Amtrak issued an RFP to possibly replace Dymac. After
months of work Herzog submitted a response to Amtrak's RFP. For
undisclosed reasons and much to the dismay of Herzog and the State,
Amtrak abruptly cancelled the process after reviewing responses. The
State then removed the equipment maintenance from Amtrak's scope of
work and directly issued a new RFP to which Herzog was the lowest
responsible bidder. The State's RFP included insurance requirements
identical to those in the original Amtrak RFP, all of which were met by
Herzog. After the contract was awarded to Herzog and only two weeks
prior to the commencement of the service, Amtrak notified the State
that it required a substantial increase in insurance coverage levels
and without them Amtrak would discontinue the operation of the service.
This action by Amtrak caused a significant increase in cost to the
state. In Herzog's view, it was an attempt by Amtrak to scuttle the
contract award to Herzog.
Question 5. Mr. Gunn stated in his testimony that it is a myth that
the private sector is interested in taking over Amtrak services.
Obviously, you would not agree with this statement. Could you please
provide the Committee with a list of other companies that have
expressed interest in operating trains, managing equipment maintenance,
or even taking on responsibility for the Northeast Corridor
infrastructure?
Answer. There is a great deal of private sector interest. There is
also a great deal of private sector experience as articulated in Mr.
Winner's testimony. For months, Mr. Gunn has been asserting that
``private sector interest in passenger service is a myth.'' Mr. Gunn's
myth is a myth. He is flat wrong.
Attached is a preliminary list we have compiled. It is an expanded
version of a list originally compiled by Mercer Management Consulting,
Inc. and made available to us. The National Railroad Contractors and
Maintenance Association (NRC) is surveying its membership as well as
some additional firms in Europe. We expect to have an expanded list
ready for you within a month.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
Michael P. Pracht
Question 1. Would this plan in effect generate a steady revenue
stream available for rail infrastructure?
Answer. Yes, our proposal is to provide $50 billion in revenues for
railroad infrastructure over a fixed period of time. This would
generate a dependable and reliable source of capital investment funding
for both freight and passenger needs.
Question 2. Would it supplant the annual appropriations required of
passenger rail now?
Answer. No, this proposal is designed to address capital
infrastructure projects for all railroads and would not take the place
of annual appropriations for operating needs for intercity passenger
rail.
Question 3. What effect would this plan have on transportation
congestion, including freight rail, highways and aviation?
Answer. The American economy continues to lose billion of dollars
each year as a result of traffic congestion. The most cost effective
way to expand capacity and reduce congestion is on the Nation's
railroad infrastructure. The American Association of State Highway and
Transportation Officials (AASHTO) estimates total freight rail capital
investment needs of $175 billion to $195 billion over the next twenty
years, but the private rail industry will only be able to provide up to
$142 billion. The remainder would require public investment. If
railroads were unable to meet the estimated demands for freight
movement, billions in additional highway investment would be required.
If these capital needs are met and railroads are able to attract a
continued share of growing freight traffic the Nation would save the
country $17 billion in reduced congestion and highway investment costs
from 2000-2020.
Question 4. Would the investment be earmarked only for rail, or
could it be used to improve intermodal terminals, as well as improved
access to airport terminals and ports?
Answer. Our proposal is designed to provide infrastructure funding
for railroads, if intermodal terminals and access to airport terminals
and ports include rail connections, then they would qualify.
Question 5. Would the plan support only heavily used transportation
corridors in crowded urban areas, or would rural communities benefit
from the investment as well?
Answer. We expect that a proposal of this nature should be
accompanied by project qualification standards, which should be
established by Federal policy makers. There is no reason why rural
communities should not benefit from these investments if they meet the
standards.
Under the plan you propose, the government investment would not be
confined to passenger rail, but freight rail would also be
eligible for funding.
Question 1. How do you respond to those who would say that it would
be inappropriate for taxpayers to invest in what is really a private
asset?
Answer. The type of rail infrastructure investment we are proposing
is designed to provide a public good that would reduce congestion,
improve air quality, and provide a more efficient and balanced national
transportation system. Without such an investment, the government would
be limited to investing in transportation infrastructure that would be
more costly and less efficient. In addition, unlike other
transportation investments, investing in railroad infrastructure places
the burden of maintenance on the railroad, not the government.
Question 2. How would you allay fears by freight railroads that
huge government investment in their infrastructure could essentially be
interpreted as a sale of the infrastructure to the public?
Answer. Under our proposal, the railroads will not benefit from
direct grants from the government. This would fall into the category of
a government incentive for private investment in transportation
infrastructure. There are numerous examples where the government uses
the tax code to encourage certain activities that benefit the private
sector. This case is no different because the government gets a public
benefit in exchange for offering such an incentive. There are also many
examples where government already provides direct funding for rail
infrastructure improvements that are designed to achieve a public good.
All our proposal would do is establish an environment where states and
the railroads could join in public/private partnerships to accomplish
objectives that are in the interest of the taxpaying public. Railroads
will have the option of not participating if they so desire. This
concept in no way is designed to replace the significant investment
already being made by private railroads. However, it is designed to
provide an incentive for private railroads to undertake projects that
are in the interest of the public and that otherwise may not get
funded.
Question 3. Would the infrastructure currently owned by the freight
railroads remain in control of the freight railroads? Who would own and
control infrastructure improvements outside of the freight rail system,
such as access to airport terminals and equipment for high-speed
passenger rail?
Answer. Our proposal does not assume any transfer in ownership of
existing railroad property that may be improved and expect that it
would remain fully in control of the freight railroads.
With respect to infrastructure outside the existing freight system,
we anticipate that any ownership decision would be made by the public/
private partnership, which could include ports, states or the freight
railroads. With respect to passenger rail access to air terminals and
the necessary equipment for providing the service, we believe that
those advocating the improvements should make the ownership and
maintenance responsibility decision.