Testimony

• Mr. David Gunn

  President and CEO

  National Railroad Passenger Corporation -- Amtrak
  Read statement

  Testimony

  Mr. David Gunn

  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 #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 #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 #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 #4 - Amtrak is a featherbed for labor. · Our wage rates are about 90% 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 #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 #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 rail passenger 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.

• Honorable Michael P. Jackson
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  Testimony

  Honorable Michael P. Jackson

  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 -- with Amtrak’s FY 2004 budget request up over 80 percent from the current fiscal year and over 250 percent above FY 2001. 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 FY2003 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. Figure 1 Amtrak Short-Term and Long-Term Debt (Source: U.S. DOT Inspector General) 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 FY2003. 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 FY2009. 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 1 FY 2003 Amtrak Revenue, Expense and Contribution/(Loss) Allocations

• The Honorable Kenneth Mead

  Inspector General

  U.S. Department of Transportation
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  Testimony

  The Honorable Kenneth Mead

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Witness Panel 2

• Honorable David D. King
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  Witness Panel 2

  Honorable David D. King

  Click here for a PDF version of Mr. King's testimony. Click here for a PDF version of National Passenger Rail Policy Statement. Click here for a PDF version of Transportation Equity Act.

• Mr. John Winner
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  Witness Panel 2

  Mr. John Winner

  Click here for a PDF version of Mr. Winner's testimony.

• Mr. Hank Dittmar
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  Witness Panel 2

  Mr. Hank Dittmar

  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 2001-2001. 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. · 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-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 & 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 multiyear 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.

• Mr. Alan Landes
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  Witness Panel 2

  Mr. Alan Landes

  Click here for a PDF version of Mr. Landes' testimony.

• Mr. Michael Pracht
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  Witness Panel 2

  Mr. Michael Pracht

  SUMMARY STATEMENT OF MICHAEL P. PRACHT CHAIRMAN, PASSENGER TRANSPORTATION COMMITTEE RAILWAY SUPPLY INSTITUTE RSI represents more 400 companies that employ approximately 150,000 people and generate in excess of $20 Billion dollars in annual revenue supplying all facets of the rail industry. 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. We have ignored 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. A Balanced Approach is Essential – Real intermodal cooperation offers the benefit of more competitive alternatives for passengers and shippers. Using higher-speed rail to connect city pairs of between 100-400 miles would benefit the traveling public by providing greater reliability, safety and capacity in both the aviation and highway modes. Airlines in Europe and Japan all use high-speed rail connections with code-share, through ticketing, and baggage handling. Investment in higher-speed rail will also benefit users of the Interstate system. We must produce a balanced transportation system, and balance our investment. The Federal Government Must Lead – Higher-speed passenger rail requires federal commitment because there is 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 risks. Net new investment must come from both the public and the private sectors. If the federal government, supported by the states, invests in the infrastructure, the private sector will invest in the operation. 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. RSI strongly supports both Amtrak and investment in intercity rail, and applauds David Gunn’s straight-talking style, policies and achievements. Rail Finance and Development Corporation (RFDC) – RSI proposes that the Congress create the RFDC, a private, non-profit, federally chartered corporation similar to Fannie Mae, to issue up to $50 Billion in tax-credit bonds over a six-year period for rail-related infrastructure not generally eligible for transportation trust fund expenditures under TEA-21. Eligible investments would include higher-speed intercity rail;, rail access to ports, intermodal terminals, and airports; increased freight rail capacity; short-line infrastructure needs; and rail line relocation. RSI’s proposal is substantial, but the need for mobility is substantial. Public investment in transportation has historically produced economic stimulus. It is time for the federal government, the states, and the entire transportation sector – not just the rail industry – to jointly move a balanced vision forward. 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 dollars in annual revenue. These companies manufacture and lay the rail; build the locomotives, tank, freight and passenger cars; design and install the signal & 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 & environmental return on capital investment. Expected future growth highlights the challenge: · From 2000 to 2025 the U.S. population will grow 23% 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% 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.