SPEAKERS CONTENTS INSERTS
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THE PROPOSED EXPANSION AND RENEWAL OF RAIL SAFETY USER FEES
PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
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TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
SEPTEMBER 14, 1995
Printed for the use of the
Committee on Transportation and Infrastructure
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BUD SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska
WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HERBERT H. BATEMAN, Virginia
BILL EMERSON, Missouri
HOWARD COBLE, North Carolina
Page 3 PREV PAGE TOP OF DOCJOHN J. DUNCAN, Jr., Tennessee
SUSAN MOLINARI, New York
WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
Y. TIM HUTCHINSON, Arkansas
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
JACK QUINN, New York
TILLIE K. FOWLER, Florida
VERNON J. EHLERS, Michigan
SPENCER T. BACHUS, Alabama
JERRY WELLER, Illinois
ZACH WAMP, Tennessee
TOM LATHAM, Iowa
STEVEN C. LaTOURETTE, Ohio
ANDREA SEASTRAND, California
RANDY TATE, Washington
SUE KELLY, New York
RAY LaHOOD, Illinois
BILL MARTINI, New Jersey
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JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
ROBERT E. WISE, Jr., West Virginia
JAMES A. TRAFICANT, Jr., Ohio
PETER A. DeFAZIO, Oregon
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
PETE GEREN, Texas
GLENN POSHARD, Illinois
BUD CRAMER, Alabama
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
PAT DANNER, Missouri
ROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
JAMES A. BARCIA, Michigan
BOB FILNER, California
EDDIE BERNICE JOHNSON, Texas
BILL K. BREWSTER, Oklahoma
KAREN McCARTHY, Missouri
Page 5 PREV PAGE TOP OF DOCFRANK MASCARA, Pennsylvania
THOMAS C. SAWYER, Ohio
GENE TAYLOR, Mississippi
SUBCOMMITTEE ON RAILROADS
SUSAN MOLINARI, New York, Chairwoman
SUE KELLY, New York, Vice-Chairwoman
SHERWOOD L. BOEHLERT, New York
JAY KIM, California
BOB FRANKS, New Jersey
JOHN L. MICA, Florida
JACK QUINN, New York
SPENCER T. BACHUS, Alabama
BUD SHUSTER, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
BARBARA-ROSE COLLINS, Michigan
JERROLD NADLER, New York
NICK J. RAHALL II, West Virginia
WILLIAM O. LIPINSKI, Illinois
BOB CLEMENT, Tennessee
JAMES L. OBERSTAR, Minnesota
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Claussen, Pete, President, Gulf and Ohio Railways, on behalf of the Regional Railroads of America
Harper, Edwin L., President and CEO, Association of American Railroads
Itzkoff, Donald M., Deputy Federal Railroad Administrator, Federal Railroad Administration, accompanied by Mark Lindsay, Chief Counsel, and Vicky McCully, User Fee Officer, Federal Railroad Administration
Loftus, William E., President, The American Short Line Railroad Association (ASLRA)
Wilson, Tom, Board Member, Southern California Regional Railroad Authority, on behalf of the American Public Transit Association, accompanied by Daniel Foth, Executive Director, Commuter Rail, APTA
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Blute, Hon. Peter, of Massachusetts
Page 7 PREV PAGE TOP OF DOC Lipinski, Hon. William O., of Illinois
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Harper, Edwin L
Itzkoff, Donald M
Loftus, William E
SUBMISSIONS FOR THE RECORD
Itzkoff, Donald M., Deputy Federal Railroad Adminstrator, Federal Railroad Administration :
Response to question from Rep. Clement
The Effectiveness of the Federal Railroad Safety Program
Problems with the AAR Performance Standards Proposal
AAR performance standards proposal, May 5, 1995
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AAR power brake proposal, April 3, 1995
Performance Standards at WorkFRA Examples
ADDITION TO THE RECORD
Railway Labor Executives' Association and the United Transportation Union, statement
THE PROPOSED EXPANSION AND RENEWAL OF RAIL SAFETY USER FEES
THURSDAY, SEPTEMBER 14, 1995
U.S. House of Representatives,
Subcommittee on Railroads,
Committee on Transportation and Infrastructure,
The committee met, pursuant to notice, at 2:18 p.m. in room 2154, Rayburn House Office Building, Hon. Susan Molinari (chairman of the subcommittee) presiding.
Page 9 PREV PAGE TOP OF DOC Ms. MOLINARI. Good afternoon, ladies and gentlemen. I'd like to call this hearing to order.
We have to move rather expeditiously here this morning, and I know that makes all our witnesses extremely unhappy. We have another markup of the full Committee downstairs, and we have to leave here at approximately 2:55. So I want you all to put on your best New York accents and speak quickly.
Let me welcome all of you here today on the issue of considerable importance, I know, to all segments of the railroad industry and its customers. The Committee markup, again, as I said, hopefully will not last more than a half an hour, if we have to go downstairs, but I'd like to see if we can maybe get all of our witnesses in before that.
In light of these time constraints, I'd ask that members and witnesses be as concise as possible, and wherever they can, submit written material for the record and just high the high points in their oral remarks.
Let me just say briefly, rail safety user fees were first imposed in fiscal year 1991. That action was taken by the Energy and Commerce Committee, which had railroad jurisdiction at that time. Even then, the hearing record in that committee reflected grave concerns expressed by the industry regarding the inequity, competitive handicap, and the financial burden of these fees.
My own inclination, if we weren't limited by the budget resolution, would be to terminate the fees entirely. That may not be feasible, given our Committee's reconciliation assignment. However, there may be some opportunities here to lighten the burden, reduce the inequities, particularly for the small business segment of the rail industry, and also to make the process for all more predictable and more accountable.
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At this point, I'd like to recognize the gentleman from Illinois, our ranking member, Mr. Lipinski.
Mr. LIPINSKI. Thank you, Madam Chairman.
Madam Chairman, without objection, I will insert my statement in the record.
Ms. MOLINARI. Without objection, so ordered.
[Mr. Lipinski's prepared statement follows:]
Ms. MOLINARI. Mrs. Kelly, do you have an opening statement you'd like to offer at this time?
Mrs. KELLY. No, I don't, thank you, Madam Chairman.
Ms. MOLINARI. Thank you, Mrs. Kelly.
Mr. CLEMENT. Yes, ma'am.
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Thank you, Madam Chairwoman. I first want to commend you for calling this hearing on the renewal and expansion of rail safety user fees as part of the Reconciliation Bill. Some may want to call it a user fee, but let's call it what it is, a special tax supposedly used to reimburse the Department of Transportation for the cost of rail safety activities.
The catch, however, is that this tax flows directly to the general fund of the United States Government. None of the revenue generated by this special tax is used to benefit railroads or programs administered by the Department of Transportation. These taxes place a considerable financial hardship on freight railroads, particularly on the short line and regional railroads that serve local and rural America.
I'd like to remind my colleagues that while we are asking short line and regional railroads to pony up to the bar, at the same time, the House and Senate have proposed legislation to zero out a small assistance program for these railroads which has become a critical factor in whether smaller communities and smaller shippers have access to the national rail system and the economic future that such access ensures.
The program I speak about today is the Local Rail Freight Assistance Program. This program provides matching fund grants through the states to short line and regional railroads. The funds are used primarily for rehabilitation of track and bridge structures that these small carriers inherited from the major railroads which sold them the properties. In most cases, the grants are one-time events, and represent the seed money that the small carriers need to achieve safe and efficient operating conditions.
Page 12 PREV PAGE TOP OF DOC I've introduced H.R. 2205, with Congressman Bachus, which authorizes this program at a modest $25 million per year. The bill is supported by five members of this subcommittee on a bipartisan basis. Passing these taxes while eliminating the Local Freight Rail Assistance Program is a double whammy for short line and regional railroads. In my opinion, it is a receipt for disaster which should be and can be avoided.
Madam Chairwoman, I want to work with you and your staff to address reauthorizing the Local Freight Rail Assistance Programs while we consider the ICC Sunset Act. Thank you.
Ms. MOLINARI. Thank you, Mr. Clement.
Mr. KIM. Thank you, Madam Chairwoman.
I'd like to welcome Mr. Tom Wilson today. He is going to be one of our panelists. And Mr. Wilson is a board member of Southern California Regional Rail Authority, which governs the Metrolink commuter rail service in Southern California. He also serves on the Board of Orange County Transportation Authority and the City Council of Laguna Niguel. Under Mr. Wilson's guidance, Metrolink has become one of the Nation's fastest growing commuter rail systems we have in California. Over 18,000 passengers a day use Metrolink. It's growing every day.
I would also point out that Metrolink does not receive, does not receive, any Federal operating subsidies.
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Again, I'd like to thank Mr. Wilson for coming today, and welcome him here.
Ms. MOLINARI. Thank you, Mr. Kim. Maybe we can offer Mr. Wilson a job on Amtrak's board of directors with that record.
Mr. BACHUS. Thank you. I'll ask this to Mr. Itzkoff or anyone else that cares to answer. We got a memorandum from Ms. Molinari announcing this meeting. And the last paragraph of that memorandum says, a key condition to enactment of the fee legislation in 1990 was the proviso that the Secretary was to report within 90 days of each fiscal year the amount of fees collected, the impact of the fees on the financial health and competitive position of the rail industry, and the total cost of other Federal safety activities for competing modes of transportation included in the portion of such activities defrayed by user fees.
Now, my question deals with that proviso. Has the Federal Rail Administration completed its statutory mandate to study the impact of safety fees on different modes of transportation?
Mr. ITZKOFF. Ms. Chairman, would you prefer that I proceed to my statement first?
Ms. MOLINARI. Yes, we were just getting to opening statements. I'm trying to move this hearing, but not quite
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Mr. BACHUS. Do you deal with that, or do you deal with the fact that you all want additional
Mr. ITZKOFF. I would do that following my summary of my
Ms. MOLINARI. Spencer, I think you raised one of the most important issues that are here before us today, and that's the non-compliance with the Federal statute. I thank you for bringing that up.
Mr. BACHUS. And I hope you will address that in your opening statement.
Ms. MOLINARI. Thank you, Mr. Bachus.
Mr. Itzkoff, please, if you would, identify the people that are with you. You are the Deputy Federal Railroad Administrator, and we welcome you here this afternoon.
TESTIMONY OF DONALD M. ITZKOFF, DEPUTY FEDERAL RAILROAD ADMINISTRATOR, FEDERAL RAILROAD ADMINISTRATION, ACCOMPANIED BY MARK LINDSEY, CHIEF COUNSEL, AND VICKY McCULLY, USER FEE OFFICER
Mr. ITZKOFF. Thank you, Chairwoman Molinari.
Page 15 PREV PAGE TOP OF DOC Members of the subcommittee, it is my privilege to be here on behalf of Secretary Peña and the Department of Transportation to discuss the railroad user fee program and the Administration's legislative proposal to extend Federal railroad user fees. Federal Railroad Administrator Jolene Molitoris is out of town today due to a previous commitment, and I regret that she cannot be here before you today.
With me is Mark Lindsey, who is FRA's Chief Counsel, and Vicky McCully, who administers FRA's user fee program. I will briefly summarize my prepared statement.
In 1990, Congress directed the Secretary to establish a program of user fees to be imposed on railroads, subject to the Federal Railroad Safety Act of 1970, to cover costs incurred by FRA in administering that Act. The law requires the Secretary to impose the fees fairly on rail carriers using reasonable criteria, but not based on revenues. The statute also requires the Secretary to submit an annual user fee report to the Congress, and provides that authority to assess and collect user fees expires on September 30 of this year.
In 1991, FRA conducted an extensive rulemaking proceeding with participation by the railroad industry which resulted in first an interim user fee allocation process and following a second round of notice and comments, a final user fee regulation. The agency considered a number of options for assessing this fee, and in the process held several open meetings with extensive participation by the railroad industry.
The final rule, a combination of train miles, road miles and employee hours, reflects a careful and dedicated effort to select an allocation basis that fairly distributes the user fee responsibility across the railroad industry.
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In July, the Secretary forwarded proposed legislation to the Congress that would, one, eliminate the statutory sunset date for the user fee program; two, repeal the annual reporting requirement; and three, expand coverage of the user fee program to include hours of service enforcement activities. We are also proposing that the activities of the safety law division of the Office of Chief Counsel be covered under the program.
Continuation of the user fee in fiscal year 1996 was included in the President's budget request for this year, and is reflected in the budget resolution approved by Congress in July.
Given the severe constraints affecting the Federal budget, the Department believes that the railroad user fee program is a reasonable method for allowing the railroad industry, which benefits from the Department's safety oversight, to share the cost of the program. One of the four principles guiding the Department's fiscal year 1996 budget submission was that those Federal programs ought to pay for them to the maximum extent feasible, and that DOT should be user-supported as much as possible.
The Department's user fee program also recommends elimination of the railroad user fee annual report. This is consistent with the President's program for reinventing Government, by eliminating reporting requirements that don't any longer serve a sound purpose. We think this is particularly true of the user fee report. The statute requires us to address two main issues, one, the impact of fee collections on the financial health of the railroad industry; and, its competitive position related to each competing mode of transportation; and two, the total cost of Federal safety activities, including the total costs defrayed by federally imposed fees.
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However, adequate data are not available to prepare a meaningful analysis to address either of these issues. First of all, with respect to the Class II and III railroads, they are no longer required to submit financial data to the Interstate Commerce Commission or the FRA, and therefore we are precluded from analyzing the impact of the user fee on short line and regional railroads. We do not believe that the railroad industry would support a reporting requirement that would enable us to facilitate the user fee report.
Second, available data does not exist within the Department in a consistent format that would allow meaningful comparison of the total costs of Federal safety activities among the modes or the percentage of those expenditures that are recovered through user fees. The available data are not sufficiently disaggregated to permit a meaningful mode of comparison, nor is there any conformity among agencies as to the composition or definition of safety expenditures.
The fact is that because we have been unable to statistically show a competitive impact on the railroad industry, we have not submitted the corrective legislation that is identified in the statute. Notwithstanding the lack of consistent data, we support efforts to avoid inequities among modes and are working with the Department's Office of Intermodalism to improve our ability to do so.
I would also like briefly to mention that following enactment of the legislation continuing the user fee program, we intend to revisit the issue of how user fees are allocated among the large and small railroads under the current formula. As part of the Clinton Administration's regulartory reform and customer service initiative, FRA has held a series of public meetings around the country to gather issues of concern to FRA's customers.
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Consistently, small railroads have requested the agency to evaluate the impact of user fees on their operation. Accordingly, with the Administrator's emphasis on a partnership approach, we intend to hold a roundtable discussion of the issues at which all parties could voice their concerns and ideas in an informal setting, leading to a constructive dialogue. Any changes to the existing program would be adopted through a rulemaking process, with opportunity for notice and comment from the railroad industry and other interested parties.
Ms. Chairman, I have not included this in my submitted statement, but I did want to take this opportunity to address very briefly some of the points that are raised in the testimony submitted and the written statement by the Association of American Railroads (AAR), which you will hear from later. We will provide you with a more complete response following the hearing for the record.
In that testimony, the AAR characterizes FRA's safety program as contributing, ''nothing to the railroad industry safety performance.'' It goes so far as to say that our program is counter-productive. We are disappointed in these assertions, because we believe it completely belies the progress and cooperation that has marked significant advances in the industry's safety performance and leading to benefits for the American people.
I want to be clear that we have completely re-invented the safety program since Administrator Molitoris took office in this Administration. We have re-invented our program for enforcing existing rules, through a safety compliance plan for each railroad, in which we are working cooperatively with labor and management to identify safety problems and develop plans for their solution.
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Second, we have proven that rules can be negotiated, not dictated, and that is clear from our progress on the track side worker safety rule, which we have agreed on recommendations in. We are re-evaluating our entire rulemaking process to move toward a safety advisory committee, and that, we believe, will have proven results.
Examples of how well our cooperative approach is working include producing a training video on locomotive inspections in partnership with a union and a major railroad, and R&D cooperation underway with the AAR at the Transportation Test Center in Pueblo, CO.
Now, AAR asserts that Government activities can be said to be counter-productive in the inspection area. I wish that we did not have a need for inspection. However, in the track area, I note that there were 947 accidents last year that were related to track. And the leading causes of many of these accidents were issues that were covered by our regulations.
The same is true with equipment. Many of the 293 train accidents last year due to equipment failures were caused by defects that are covered in our regulations.
Notwithstanding that, the AAR's performance standard emphasis focuses on replacing all of our existing rules with a benchmark that would focus just on train accident rates, and employee casualty rates, and not have any enforcement actions for 2 years following the initiation of such a program. We think that that is counter-productive to the kind of focus on specific performance measures that have been introduced by President Clinton. And we believe that the continued enforcement efforts that we are taking are an important link in the industry's increased safety performance, as well as providing benefits to the American people.
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I think that when you look at the complete decline in alcohol and drug-related accidents since the institution of regulations in that area in the mid-1980s, and the same thing in the safety appliance area back in the beginning of the century, you can see that there is a link.
We are pushing forward on a fast track to move toward a performance-oriented solution. We are working in partnership with our industry partners. But we are always mindful of the health and safety of the workers out on the properties and the general public and the passengers traveling on the railroads. This, we believe, is a legitimate function of Government.
Thank you very much. I'll be pleased to answer any questions.
Ms. MOLINARI. Thank you very much.
Mr. LIPINSKI. Mr. Itzkoff, before we get into railroad business, I have to ask you, what's your ethnic heritage with that kind of name? Is that Russian?
Mr. ITZKOFF. That is Russian, three of my four grandparents are from Russia, yes.
Mr. LIPINSKI. Well, we got that straightened up. I'm good at that. When you come from those ethnic neighborhoods in Chicago, you get to learn that stuff very quickly. Do you have any of those people in New York?
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Ms. MOLINARI. No, we don't have a lot of ethnics in New York City.
Mr. LIPINSKI. One other thing before we start, I hope no one speaks ''New York'' because I won't understand a word of it.
Mr. Itzkoff, later this afternoon, Mr. Harper from the AAR will testify that the railroad industry is entirely responsible for its improved safety record, and that the Federal Railroad Safety Program is not responsible for any of it. That strikes me as unlikely, and you have taken issue with it.
Could you elaborate on the reasons why you think the Federal Railroad Safety Program is effective, which you already did in your unprepared remarks?
Let me ask you a question. From what I understand, the railroads themselves police the safety aspects of what's going on here? I mean, do you have any investigators that go out and check on the road beds or any other safety aspects of the railroads?
Mr. ITZKOFF. Every day, we have inspectors that are out there on the properties. Two-thirds of FRA's 722 employees are in the field in our 50 regional offices in the five major disciplines. That is their focus.
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Now, we cannot check on every road, every piece of equipment, every mile of track, all over, all the time. Instead, what we do is a sampling, which is intended to enable the industry to enforce its own guidelines, and the Federal safety standards. Many times we have been criticized for paperwork violations. But that simply is an indication of whether a railroad has in fact complied with the level of inspection activities that are required by law. So that is a significant function that we have sought to improve.
I want to be clear: we have re-invented our safety program to move toward a customer focus that deals with these customers who, in many cases are compelled to be our customers, but nevertheless, we need to work with them in partnership. That is why we're moving forward on initiatives like the customer safety action plan.
We will go to each railroad and say, in this year we have found significant problems in the area of track and equipment and we have a plan that together we will develop in cooperation with labor and the regional inspectors. And here are your performance goals. And if you meet those, we will monitor your performance against the plan and will not go out and expend our resources in a way that is contrary to that. I think that has had much success.
We have also done partnerships, I think, in a significant way, including training videos, doing those together, having a cooperative information dialogue. So all of these things are part of how we're re-inventing what we're doing in traditionally, what has been in the past, a somewhat militaristic approach that has characterized the railroad industry, and improving on that to bring that in line with the kind of streamlined, efficient, effective, Government that is the Administration's desire through the National Performance Review.
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Mr. LIPINSKI. How many inspectors did you say you have?
Mr. ITZKOFF. Four hundred and fifty-six.
Mr. LIPINSKI. Four hundred and fifty-six. They take care of the entire United States of America?
Mr. ITZKOFF. We have 456 inspectors to cover the whole 48 continental states.
Mr. LIPINSKI. Who handles Alaska and Hawaii for you?
Mr. ITZKOFF. Well, Hawaii, I'm not sure we have much of a presence over there.
Mr. LINDSEY. No railroads.
Mr. ITZKOFF. Right.
Mr. LIPINSKI. You mean they don't have many railroads in Hawaii?
Mr. LINDSEY. I guess there is one that I think is confined to a pineapple plantation, and
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Mr. ITZKOFF. It's a little tourist train.
Mr. LINDSEY. Alaska we kind of handle ourselves.
Mr. LIPINSKI. I always wondered how they could have all those interstate highways in Hawaii when they don't connect to any other state.
Mr. LIPINSKI. Thank you, Madam Chairman.
Ms. MOLINARI. It could be suggested that the Committee has to take a field trip there to determine just that.
Mr. LIPINSKI. Let's do it quick, though, Madam Chairman.
Ms. MOLINARI. Right. If there's press in the room, I'm just kidding.
Mr. Itzkoff, part of the concern that we all have, and people who are going to be following you in testimony chart this out for us, is that every year there's an increase in the user fees, and not necessarily commensurate with an increase in the actions of the FRA. And so I think the rail industry, and particularly members of Congress, have a serious concern that we're using these user fees to offset other spending. Can you respond to that?
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And let me ask you another questions. What would the Administration's response be to passing a user fee continuation, but capped, so that we can make sure that it does not become a temptation?
Mr. ITZKOFF. Well, first of all, we are mindful of the fact that the user fee revenues are in the President's budget request and are in the budget resolution. And so if a continuation of the user fees is not enacted by Congress, there will have to be a corresponding offset of $46 million in the fiscal year 1996 budget, with similar sums in the years beyond.
We also in that vein have sought to make the authority permanent, because we believe that the initial 5-year trial period has shown that the program is workable and that the allocation formula is reasonable. So I think that as we move forward with this, the user fee program is something that is part of the overall projections and that is how we view it.
Ms. MOLINARI. Do you have any documentation that can show us sort of the dollar for dollar that's taken in to the dollar that's expended in real safety programs?
Mr. ITZKOFF. Well, again, there is no direct account that has been established by Congress that specifically correlates to the annual expenditures under the budget of the FRA's Office of Safety. For fiscal year 1996, we're proposing an expansion of the user fee program to cover the hours of service, enforcement activities which we believe was a technical oversight that Congress meant to include but did not in the original legislation in 1990, as well as the activities of the Office of Chief Counsel, Safety Law Division, which also has a significant role in the safety enforcement area.
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Because the receipts go directly into the general treasury, we do not have a specific linkage in that fashion under the current law.
Ms. MOLINARI. But you wouldn't have an objection, I presume, based on your testimony, if we required that linkage in annual audit?
Mr. ITZKOFF. I'm sorry?
Ms. MOLINARI. I said, based on your prior testimony, then, I presume you wouldn't have a problem if we created a linkage for you?
Mr. ITZKOFF. We would have to evaluate that and get back to you on that proposal.
Ms. MOLINARI. Okay, I'd appreciate that, if you would, as soon as possible.
Let me just ask one more question, and that is, if you would go a little bit into the line of questioning raised by Mr. Bachus, and then I'd appreciate it if he would follow up. And clearly, part of the problem is that we are asked to make a very important decision here regarding the life of some rails based on the continuation of a user fee.
And the law mandated these annual reports to determine what the impact of these user fees have been on these rails, and yet, you have stated that you don't have the capabilities to do that kind of analysis. We think that analysis is very important, particularly if you are asking us to make this permanent.
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And I would submit to you that it is not my intention if we do go along with this to in any way, shape or form to allow that to happen with the FRA breaking the law in the future, and to incorporate that into the law. I think that analysis for business is very, very important. So when you respond back to my first question, I'd also like you to think about how you can comply with the law if we include that in the future authorization.
Mrs. KELLY. Thank you.
Mr. Itzkoff, I'm just simply wanting to go on record with you as saying that I totally agree with the Chairwoman's concept that your Department has been asked to do something, it needs to be meaningful. This Congress means to re-invent Government. The President is talking about re-inventing Government. The way we do it is making it meaningful. What I just heard, your response, if I understand what you said correctly in response to her question, these fees are going into the general fund.
You also listed two things that you said that the fees go for, hours of service enforcement, and they go to the Office of Chief Counsel. If I were a railroad, I would feel that the fees were being used to work against me instead of for me, if I read that correctly. Now, you can answer that and tell me whether or not I'm reading that correctly. But I think the public does need to know what these fees go for, how they are used and what effect they have on the railroad. And please feel free to answer me if you'd like.
Page 28 PREV PAGE TOP OF DOC Mr. ITZKOFF. With respect to the issue of the amount of the fees, I would like to distinguish between the amount and the direct revenue flow. The amount of the fees is set by the annual budget for the FRA's safety office, which is part of our appropriations request and considered through the appropriations process, which is spelled out in great detail. And we'd be pleased to provide further information for you on that, if you would like.
I'm just saying that under current law, the way it is set up is that there is no specific safety account that directly funds the amount that is required under the statute to be collected, which is equal to 105 percent of the FRA's safety budget. So that is just the way the current law is set up today.
I can understand the frustration that is clear in the testimony with regard to the fees being equated to safety activities that railroads feel may work against them. But I hope that our safety operations are in fact constructive in a partnership that we are all sharing that moves forward in a way that's in the interest of the American people.
Mrs. KELLY. That's one of the things I think needs to be clarified in the reports. Thank you.
Ms. MOLINARI. Thank you, Mrs. Kelly.
Just as a follow-up, then, what does the Bureau of Transportation Statistics do? Isn't there a Bureau of Transportation Statistics? Can't they get some of that information for you?
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Mr. ITZKOFF. BTS is part of the Department that is charged with compiling the statistics and review in an intermodal fashion.
But the problem has been that within the modes, there is not an adequate way currently to distinguish in a highway expenditure, such as widening a highway lane, to determine what portion of that is safety-related, and what portion of that goes for commerce-related activities or congestion mitigation. Similarly, when a harbor is dredged, what portion of that is safety, and what portion is commerce-related.
To date, the Department has not found it cost-effective to provide that kind of statistical breakdown. And because we in the agency do not have access to those statistics, it has not been possible for us to comply with the statutory mandate in the reporting requirements.
Mr. LINDSEY. If I could elaborate on that for a second, too, in some of these cases, in looking at them, like the examples Mr. Itzkoff gave, it's not clear that if some other element of the Department maintaining that statistic made a cut that the cut would be real. Using either of those examples, there isn't any particular basis on which the person keeping the statistics could assure you or us that they had done that correctly or even come close.
Ms. MOLINARI. Well, I mean, yes, except it would give us more information than we have today, and certainly from a Capitol Hill perspective, we have other agencies like GAO that can analyze those reports for us. And somebody like Glen here
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Ms. MOLINARI.is looking for a little something more to do.
Mr. ITZKOFF. If we could get that information from the subcommittee, then, we would be pleased to incorporate it into our report.
Ms. MOLINARI. All right, all right.
Mr. KIM. No comments.
Ms. MOLINARI. Mr. Mica from Florida, welcome.
Mr. MICA. Thank you, Madam Chairman.
I don't want to beat a dead horse, but God forbid I should wish OSHA as a regulator over anybody. But, and I know examples of some railroads, not exactly mom and pop operations, but they're billed in excess of a half a million dollars on some of these user fees. And I think you'd have people running up the steps of the Capitol tearing out the members of Congress if we were imposing a half a million dollar OSHA inspection or regulatory fee.
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So it seems a little bit unfair to be imposing this. I hate to again beat these drums. But you've heard the panel, and I want to join the chorus, Don. I'm sorry, but we have a little bit of a problem with that. Can you see what I'm talking about with OSHA?
Mr. ITZKOFF. Well, I hear definitely what you're saying, Congressman. I would note that pipelines pay user fees, which was the basis for the institution of user fees in the railroad industry. Moving outside the transportation realm. I know that there are inspection fees related to the Department of Agriculture, and indeed user fees imposed as part of the Federal Communications Commission licensing process.
We believe user fees are consistent with the concept that those that benefit from particular services ought to pay for them as much as possible, and it is a fact that enhanced safety in a particular mode does benefit that mode, and the American people generally. So that really is where we've been.
Mr. MICA. Well, one of the problems I have, I guess in 1990, Congress passed the FRA to report annually on the cost of the Federal safety activities for other modes of transportation, including a portion defrayed by Federal users. And DOT really hasn't fulfilled that requirement. But in a 1992 submission to Congress, DOT said that the merits of performing such a study would provide ''limited'' if any benefits. If DOT hasn't fulfilled the statutory mandate, why should this subcommittee or Committee go along with the agency's proposal to extend the user fees?
Mr. ITZKOFF. As I mentioned, the problem for us in preparing the report is that one, the impact on the Class II and III railroads is not assessable because we do not have statistics on financial performance of Class II and Class III railroads.
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And secondly, with regard to the competitive evaluation within the modes, we have not been able to make a case based on the lack of statistics that the railroad industry's competitive position has been harmed by the imposition of user fees.
I believe that in our fiscal year 1994 compilation of statistics, we talk about the user fee amount being .1 percent of revenues and .93 percent of net railway operating income. That being the case, it has been difficult for us to correlate that with a net negative competitive impact in order to recommend the changes that are outlined in the statute.
Mr. MICA. So do I interpret that as a firm commitment that if we extend and expand those fees, it should get us that information?
Mr. ITZKOFF. That would have to be accompanied by an appropriate ability for us to get the information and incorporate it into the accounting systems in the Department enabling us to do so.
Mr. MICA. Well, I thank you, and yield back the balance of my time.
Ms. MOLINARI. Thank you, Mr. Mica.
Mr. BACHUS. Thank you, Ms. Chairman.
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Mr. Itzkoff, we're being asked, first of all, to expand the coverage of the fee, right, to expand the fee? And I think it would be fair to assume that if we expand the coverage, then that means the fee will probably go up, is that correct?
Mr. ITZKOFF. The fee, in the President's fiscal year 1996 budget, is projected to increase to a total collection amount of $46 million, yes.
Mr. BACHUS. But you're expanding the things you're going to do with the fee?
Mr. ITZKOFF. No. We are, have been, doing what we've always been doing; that is, we do enforce hours of service violations and oversee enforcement activities today. The safety lawyers in the Office of Chief Counsel have been prosecuting and working with railroads in the enforcement area and have been up to this time. We are just remedying, I think, what was the intent in 1990 to equate the user fee collection with the total costs each year of the FRA safety program.
Mr. BACHUS. But weren't you prohibited from using these fees for Hours of Service Act enforcement?
Mr. ITZKOFF. Again, because of the way the statute is laid out, that the collection goes directly to general treasury receipts, we have continued to receive directly the budget in the fiscal year process, independent of the direct income stream from the user fees.
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Mr. BACHUS. Well, have you been using these fees to have hours of service enforcement? You're asking for permission to use the fees for that enforcement. Have you been doing that in the past? Now, the statute says that you won't use those fees for those purposes, doesn't it?
Mr. ITZKOFF. I would have to say, Congressman, that we are enforcing the Hours of Service Act and our attorneys in the safety law division are performing their functions. But that is provided for in the annual budget approved by Congress.
Mr. BACHUS. Not out of these fees?
Mr. ITZKOFF. The user fee is deposited directly into the general treasury. Under existing law, there is not a direct correlation to a separate fund.
Mr. BACHUS. I understand what you're saying, but by this statute, you're not supposed to use these fees except for a specific purpose. And one of those purposes, my understanding is, you're not supposed to use the fees for the Hours of Service Act enforcement. And you want to expand that fee to allow you to use those fees for two other activities. Is that correct? You want to expand the coverages of the fees?
Mr. LINDSEY. May I elaborate on that?
Mr. ITZKOFF. Let me defer to the lawyer who's here, my Chief Counsel, to answer that.
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Mr. LINDSEY. If I can try that from a slightly different tack, Congressman, what the law said originally was that the fee was to cover all of the FRA's activities under the Federal Railroad Safety Act. And our understanding from the people on the Committee at the time that was passed was they intended to cover all of the costs of the rail safety program. And simply did not recite the Hours of Service Act, because in the course of drafting the provision, they didn't realize they hadn't included it.
Mr. BACHUS. Okay. But now you want to start doing that, use the fees for that purpose, also?
Mr. LINDSEY. Well, it serves as an offset. We really don't run the program out of the fees. It simply offsets the appropriation with which the program is run, sir.
Mr. BACHUS. All right. You want to make the fees permanent, and you want to, you want to delete all reporting requirements?
Mr. ITZKOFF. We are proposing, yes, that the fee authority should be made permanent until such time as Congress desires otherwise, and that the report, in its current format, is not helpful, and therefore it ought to be eliminated, yes.
Mr. BACHUS. You know, you said, your written testimony said that the reporting requirements do not serve a sound purpose. How did you make that determination?
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Mr. ITZKOFF. Well, again, Congressman, because only the Class I railroads report data directly to the ICC about financial performance, we have no way of assessing the competitive impact of the fees on short line railroads.
Mr. BACHUS. I understand that you have difficulty getting the data. But you said the reporting requirements serve no sound purpose. Now, the purposes of the reporting are to, I think you testified, the purposes are to determine the impact of the fees on the financial condition of the railroad. If you think
Mr. ITZKOFF. If we could deliver, yes, if we could deliver you a report that met the statutory requirements.
Mr. BACHUS. Well, I understand that. But what I'm saying, Congress said you can collect these fees, but you have to tell us what impact collecting these fees has on the financial soundness of the railroads.
Mr. ITZKOFF. Right.
Mr. BACHUS. Now, isn't that a sound purpose, to say, don't collect these fees over and above a level that affects the financial condition of the railroads? Isn't that a sound purpose?
Mr. ITZKOFF. We just can't make a definitive conclusion in that regard if we don't have access to the financial data, and I think we have been reluctant to impose another reporting burden in contravention to the Paperwork Reduction Act to tell all the Class II and III railroads to report their annual costs, their annual revenues, their net operating profits. That would enable us to assess the impact of the fees.
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Mr. BACHUS. Well, but the statute, I mean, Congress made the determination that you would report to us every year the impact of the fees collected on the financial health of the railroad industry and the competitive position of the railroads to other modes of transportation. I mean, Congress has already made a determination and passed a law and said, you will report to us. You know, if you're going to collect these fees, you will determine these things.
Well, I mean, do you feel like you can
Mr. ITZKOFF. We have to bear in mind the Congressional directive always, and we have endeavored to comply, but absent the ability to understand the specific financial impact, it has not been possible to do so.
Mr. BACHUS. Well, let me ask you this. Don't you think the burden ought to be on Government before it collects a fee to, if Congress says in collecting this fee make sure you don't hurt the railroads' financial conditions and that you don't affect their competitiveness with other modes of transportation; don't you think that that maybe ought to be a part of the burden that you overcome before you collect the fees?
Mr. ITZKOFF. If the Committee were to give us the authority to require the short line railroads to report on their annual financial performance, then we could make that kind of conclusion and provide it.
Mr. BACHUS. Well, now, you mentioned in your testimony that you surveyed the smaller railroads. Couldn't you survey them about the financial impact of the fees?
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Mr. ITZKOFF. We are constrained by the Paperwork Reduction Act and the desire of the President to eliminate reporting requirements. So I think that absent a specific directive in that regard, it will be difficult to make a mandatory requirement.
Mr. BACHUS. No, what I'm saying, we have asked you
Ms. MOLINARI. Okay, Spencer, I'm going to have to ask you to start to wrap this up.
Mr. BACHUS. You do survey the smaller railroads, you made mention on page 9 that you, well, on page 4 and 5, you say you survey them to get data. Couldn't you survey them and ask them what impact the fee has on their ability to operate?
Mr. LINDSEY. We could, and each time we conduct such a survey, we have to get permission under the Paperwork Reduction Act to conduct that. And there's also an information collection budget for the Executive Branch.
Mr. BACHUS. Let me just quickly ask
Ms. MOLINARI. I really want to make sure that Mr. Clement gets a chance to ask questions, please.
Mr. BACHUS. It's my understanding that the Clinton Administration has proposed that these fees go to welfare reform expenses, is that correct?
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Mr. ITZKOFF. That was under last year's budget reconciliation proposal.
Mr. BACHUS. Well, has anything changed?
Mr. ITZKOFF. Under the fiscal year 1996 proposal, we are simply saying that the fees will be part of the overall general budget.
Mr. BACHUS. Not to the Federal Railroad Administration?
Mr. KIM. Madam Chair, can I have unanimous consent to just make a 10-second statement?
Ms. MOLINARI. I can't, Mr. Kim, because Mr. Clement's been sitting here just as long as all of us, and I haven't given him an opportunity to ask a question. I can come back to you, though.
Thank you, Mr. Bachus. Mr. Clement.
Mr. CLEMENT. Mr. Itzkoff, I tell you what I'll do. For the record, I'd like for you to just submit the answers to these questions for the record.
Mr. Itzkoff, how successful has the Local Rate Freight Assistance Program been for short line railroads? And the second question, has the Federal Railroad Administration conducted any analysis in the impact to short lines if the LRFA program was zeroed out and the user fees are allowed to continue?
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Mr. ITZKOFF. We will provide that for the record.
Mr. CLEMENT. All right.
[The referenced document follows:]
Ms. MOLINARI. Thank you.
Mr. Kim, do you want to make your statement real quickly?
Mr. KIM. I would just like to make the statement, I'm against the expansion of this user fee in the name of safety. I think it has very little to do with safety.
Ms. MOLINARI. Thank you very much, Mr. Kim.
Also, if I can just ask you, too, in providing us with all these written responses, if you can include in that, we didn't have enough time, but get a little bit more into detail of your ideas for the performance-oriented solutions, if you have any paperwork or background on that as to where your thinking is going on that, and how much leverage and leeway we can give the rails.
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Thank you very much.
Mr. BACHUS. And I'd like permission to submit some additional questions.
Ms. MOLINARI. By all means. We'll keep the record and submit additional questions.
Ms. MOLINARI. Mrs. Kelly also.
We have to go for a vote. We also have a full Committee markup next door at 3:15. I've been advised, however, they are thinking that we may not have roll call vote. So to those who wish to continue their participation in this hearing, we're going to reconvene in about 15, let's make it 10 minutes, and the full Committee is going to come get us if a roll call vote takes place. So you have your option as to which transportation room you'd like to be in.
Thank you very much.
Mr. ITZKOFF. Are we excused?
Ms. MOLINARI. Yes, you are.
Page 42 PREV PAGE TOP OF DOC Ms. MOLINARI. I appreciate your patience. That was our last vote of the afternoon, so there will be no more interruptions.
I'd like to welcome and introduce Mr. Tom Wilson, Board Member, Southern California Regional Rail Authority, and the man about whom Mr. Kim was so effusive in his praise. Thank you for being here with us this afternoon.
TESTIMONY OF TOM WILSON, BOARD MEMBER, SOUTHERN CALIFORNIA REGIONAL RAILROAD AUTHORITY, ON BEHALF OF THE AMERICAN PUBLIC TRANSIT ASSOCIATION, ACCOMPANIED BY DANIEL FOTH, EXECUTIVE DIRECTOR, COMMUTER RAIL, APTA
Mr. WILSON. Thank you, Madam Chairwoman.
This is my first trip to Washington, DC and into these hallowed halls. I'd like to thank Congressman Kim for his kind remarks and also to thank you, Madam Chairwoman, for that Amtrak offer. But my plate's very full, so I'm afraid I'll have to turn you down.
In the interest of time, and as you have requested, I have edited these comments to summarize some of my remarks.
Madam Chairwoman and members of the subcommittee, I appreciate the opportunity to testify before this subcommittee on behalf of the American Public Transit Association, better known as APTA. I'm joined today by my technical expert, Mr. Daniel Foth, Executive Director-Commuter Rail, for the American Public Transit Association.
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It's extremely hot right now, Madam Chairwoman, in California, especially in Orange County due to the bankruptcy, where I reside, but I notice the Washington air is quite wet (Humid). I do serve as the mayor pro tem of the City of Laguna Niguel in Southern California. I'm a member of the Board of Directors of the Southern California Regional Railroad Authority, and serve on the Board of Directors of the Orange County Transportation Authority.
The SCRRA is a joint powers authority of the counties of Los Angeles, Orange, San Bernardino, Riverside and Ventura. We operate the new Metrolink commuter rail system serving these areas. Next month, just 5 years after inception and 3 years since operations began, the Metrolink system will serve six lines totalling 420 miles. It has the fastest ridership growth of all commuter rail systems in our Nation. The SCRRA contracts all aspects of its service with the private sector in order to keep operating costs as competitive as possible.
The Southern California Regional Railroad Authority and APTA appreciate the opportunity to testify against the permanent extension and expansion of a temporary $46 million annual tax on the Nation's freight and commuter railroads. This tax is described as a safety user fee. APTA believes that this tax has very little to do with safety.
APTA represents the U.S. commuter rail operators who are covered under the Rail Safety Act administered by the Federal Railroad Administration, otherwise known as the FRA. Commuter rail operations account for over $300 million passenger trips and close to 20 percent of the total transit passenger miles traveled each year. Other APTA members include representatives of all areas of the transit industry and include transit systems, metropolitan planning organizations, state departments of transportation, or DOTs, consultants, suppliers, manufacturers, financial institutions, contractors, academic institutions and public interest groups.
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APTA is opposed to this tax on passenger and freight railroads for the following three reasons. First of all, the tax is discriminatory against the passenger and freight railroad industry. The rail safety user fee was imposed on the railroad industry by the Budget Reconciliation Act of 1990, as you have stated, as a deficit reduction measure. Other than the pipeline industry, no other freight or passenger transportation mode pays a similar safety user tax. Thus, freight and passenger railroads have been unfairly singled out vis-a-vis other freight and passenger transportation modes.
Secondly, the tax has little to do with the cost of FRA's safety enforcement process. The Administration has proposed the tax be increased to offset other Federal budget items, such as welfare reform. Welfare reform has little to do with safety enforcement. In addition, without DOT's competitive impact analysis, the Administration's budget recommends the extension and escalation of railroad safety user fees by $6.5 million, or a 17 percent increase to $43.5 million annually.
Since the Administration was seeking to use the rail safety user fee monies to fund its welfare reform plan, it is unclear if the Administration is counting the user fee monies twice: once to offset FRA's costs and again to finance welfare reform. To the extent the funds would be used to finance welfare reform, it becomes clear that the safety user fee cannot be justified on any programmatic basis, and must be seen as nothing more than a discriminatory tax.
And third, and last, the tax unduly burdens publicly-owned commuter rail systems. Significantly, DOT's user fee report did find that the imposition of user fees ''may adversely affect rail passenger operations.'' Apparently, the only modal impact that DOT attempted to study is commuter rail passenger systems. DOT correctly noted that this tax has a negative impact on commuter rail systems.
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This is the only Federal tax on state and locally-owned commuter rail systems. Other taxes, including fuel taxes, are not levied on other publicly-owned transportation operations, including buses, light and heavy rail systems. All of the commuter rail service in the United States is provided either directly by or under contract with public agencies which are either state or local entities.
The imposition of user fees on publicly-owned commuter railroads increases the cost to commuter rail service and operations which has a direct financial impact on consumers and state and local governments. For example, the cost of this tax to the Southern California Regional Railroad Authority is $65,000. Given an average fare of $4.10, it would take 15,854 new passenger trips each year to pay this tax. That would be adding perhaps one more day to the year to pay the tax.
According to DOT's own analysis, even if the commuter railroads raised fares in response to user fee assessments, the combination of revenue gained from the fare increase and the revenue lost from the decline in ridership would result in revenues falling short of the total assessments, thus adding to operational deficits.
The DOT user report goes on to state what many commuter rail operators already know to be true, namely, that it is often not feasible to raise fares. As a result, the report notes, user fee charges would likely be absorbed into these railroads cost bases, increasing deficits until such time as costs rise to the point where fare increases are imperative.
Page 46 PREV PAGE TOP OF DOC Given the arguments just noted, along with those raised by our freight railroad partners, we are asking that the Committee resist the proposed expansion/increase and allow the current tax to sunset as scheduled under current law. APTA urges the Committee to support a sunset of this tax.
However, if this tax is to remain in place, we feel that commuter rail systems should be exempted. One and a half million dollars in user fees paid by the commuter railroads for fiscal year 1993 represented less than 5 percent of the $35 million in user fees assessed. If the user fee were to be extended, but the public agency commuter railroads exempted, the impact on user fee collections would be minimal, with no impact on the Federal budget.
Public agency commuter railroads provide vital passenger transportation services while relying on significant subsidies. As the Committee is well aware, the transit industry is facing operating assistance cuts of 44 percent and cuts to capital funding as well. The public interest is not served by forcing public agency commuter railroads to pay out their Federal and local subsidies back to the Federal Government. APTA believes that the public interest is not served by forcing public agency commuter railroads to pay their Federal and local subsidies back to the Federal Government.
Madam Chairwoman, we appreciate your consideration of our views on this subject, and we would be most happy to respond to any additional questions that you might have at this time. Thank you very much.
Ms. MOLINARI. Thank you very much, Mr. Wilson.
Page 47 PREV PAGE TOP OF DOC I think we will start with Mr. Kim.
Mr. KIM. Thank you, Madam Chair.
I do have a comment and question, also. I was real surprised to find out that Southern California alone would pay $65,000 of this annual safety user fee. This is shocking. I didn't know that.
And this Metrolink, I was mentioning a while ago, do you have any data on what kind of user fee tax you are paying under this Metrolink service we have?
Mr. WILSON. Yes, Congressman Kim, that is the $65,000 that we're paying. Metrolink
Mr. KIM. Metrolink alone is $65,000?
Mr. WILSON. Yes, sir.
Mr. KIM. Madam Chair, this is absurd. And I have to agree with Mr. Wilson's statement a hundred percent, I think it's not right that we charge this tax. I mean, this, we call it a user fee, but it sure looks like a tax and sounds like a tax, it must be tax. I think we should eliminate or at least, as Mr. Wilson suggested, sunset it. I think it's an excellent idea.
I was wondering why only public agency commuter rail agencies should be exempted. I think it should apply to all the railroad businesses as well.
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Thank you, Madam Chair.
Ms. MOLINARI. Thank you, Mr. Kim.
Mr. Wilson, would you like to respond or did Jay say it all for you?
Mr. WILSON. Well, I appreciate the Congressman's remarks, and I agree totally with him.
Ms. MOLINARI. Thank you.
I'd like to introduce Congressman Jack Quinn from New York, thank you for being here with us.
Mr. Wilson, let me just ask you one quick question. I'm sort of curious about the impact of the fees on commuter authorities, and Amtrak would be basically the same thing, since we tax you and then subsidize you. How does this wash relative to your agency in terms of the subsidy that you receive vis-a-vis the tax you have to pay? Is it a wash for you?
Mr. WILSON. The Metrolink system does not receive any Federal subsidies as it runs in Southern California. So it's not a wash.
Ms. MOLINARI. Okay. I was not aware of that.
Page 49 PREV PAGE TOP OF DOC Then you won't miss it when we cut it this year.
Mr. WILSON. That's right.
Ms. MOLINARI. Mrs. Kelly.
Mrs. KELLY. At this time, I have to say that Jay Kim asked all my questions. Thank you very much.
Mr. WILSON. Thank you.
Ms. MOLINARI. Thank you very much, Mr. Wilson. I appreciate your making the trip here. And certainly, we are extremely mindful of the difficult situation that is before you, the challenge before you in terms of making mass transportation work at a time when costs continue to increase. And the last thing we want to do is to add to that burden by increasing the tax on you. We know you're in a very difficult position and we're grateful for the job that you do.
Mr. WILSON. Well, thank you very much for those sentiments.
Ms. MOLINARI. Thank you.
Mr. WILSON. And Washington has been very hospitable. I thank you.
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Ms. MOLINARI. Thank you. We're glad you're enjoying it.
Our third panel will be Mr. Edwin Harper, President and CEO of the Association of American Railroads, Mr. William Loftus, President, American Short Line Railroad Association, Mr. Pete Claussen, President, Gulf and Ohio Railways. Gentlemen, thank you all very much for being here with us this afternoon.
Mr. Harper, you're up first.
TESTIMONY OF EDWIN L. HARPER, PRESIDENT AND CEO, ASSOCIATION OF AMERICAN RAILROADS; WILLIAM E. LOFTUS, PRESIDENT, THE AMERICAN SHORT LINE RAILROAD ASSOCIATION (ASLRA); AND PETE CLAUSSEN, PRESIDENT, GULF AND OHIO RAILWAYS, ON BEHALF OF THE REGIONAL RAILROADS OF AMERICA
Mr. HARPER. Thank you, Madam Chairwoman.
Madam Chairwoman, members of the subcommittee, thank you for the opportunity to oppose the Administration's budget decision to expand and extend on a permanent basis an inequitable and unjustified $46 million annual tax on the Nation's railroads to pay for Federal Railroad Administration, FRA, programs. It's important for the Committee to understand at the outset that this is not a dispute between the industry and FRA's leadership.
Indeed, Administrator Jolene Molitoris and the industry share many of the facets of a vision to improve safety through a collaborative process, involving all interested parties and based on an analysis of underlying facts and risk-based performance standards.
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It is, however, a dispute between a new approach to move Government safety regulation into the 21st century and an obsolete, business as usual, regulatory regime that does not enhance safety. The tax is termed a user fee, but the semantics belie the facts. Office of Management and Budget policy seeks to charge regulated industries to recover costs from those ''Federal activities that convey special benefits to recipients beyond those accruing to the general public.''
However, to show special benefits, the Administration must show meaningful linkage between the railroad industry's excellent safety record and FRA's regulation. That linkage cannot be shown because the micromanagement command and control philosophy that permeates rail safety regulation has not been the driving force behind the industry's safety achievements.
In fact, it is the railroads, their employees and managers who are the achievers. AAR urges Congress to reject the Administration's effort to continue this discriminatory railroad-only tax, and assist FRA in reorienting its role to bring it in line with modern safety techniques by making risk-based performance standards the norm.
Performance standards have been a bipartisan centerpiece for regulatory reform of the Bush Administration and the Clinton Administration. Performance standards set a level of safety that assures public safety and provides each individual railroad the flexibility to use cost effective, innovative techniques in its own operations to obtain the levels set. The acceptable level of safety is determined after assessment of the probability and potential severity of various risks.
Page 52 PREV PAGE TOP OF DOC The actual level of safety achieved by the industry since the Staggers Act of 1980 is shown in the two charts that we have before you. The Staggers Act, and John Wetzel will change the charts so you can see both of them, the Staggers Act revitalized the rail industry and made possible subsequent capital expenditures in excess of $50 billion to improve track, signals, equipment and information systems.
The charts show overall safety achievements in cutting both the train accident rate and the employee injury rate in half. Derailments are down 57 percent. The last 3 years were the safest in railroad history and 1994 the safest ever.
By its excellent safety record, the railroad industry has provided a persuasive case study supporting the decision by the last two Administrations to push for performance standards as a matter of sound public policy. The railroads' record gives tangible proof that the railroads know how to allocate and deploy the appropriate resources to achieve safe operations.
The Administration cannot point to Federal regulatory activity that significantly accounts for the railroads' remarkable safety achievements. For example, since Staggers, the rate of accidents from rail-related defects has dropped 59.5 percent.
The result did not come from Federal inspections and enforcement of unnecessary and counter-productive regulations. The improvements came from private initiatives, notably a massive substitution of welded rail for the old jointed rail technology, improved metallurgy and new rail grinding techniques.
Page 53 PREV PAGE TOP OF DOC The same story can be told with respect to equipment. The rate of accidents from brake failures has been reduced by the industry by 77 percent since Staggers, from wheel failures by 77.5 percent, from axle and journal bearings, 60.7 percent. The overall rate of accidents from all equipment-related causes has fallen over 70 percent.
The Administration cannot cite FRA activities which explain these sharp declines. But industry initiatives discussed in AAR's written testimony do explain it. They range from AAR's improved repair track air brake test to accelerated removal of components based on old technologies, such as control valves and straight plate wheels, as well as required use of improved products.
Congress should reject the proposed tax and correct a failing system by requiring risk-based performance standards that can forge a link between Government regulation and actual safety performance, and help achieve the regulatory renaissance envisioned by Administrator Molitoris and desired by all of us.
Once that system is in place, Congress can determine what special benefits are being received by the rail industry, and what costs can be fairly assessed. In the meanwhile, do not tax the industry to pay for an anachronism.
I'd be pleased to answer your questions. Thank you.
Mrs. KELLY [assuming Chair]. Thank you very much, Mr. Harper.
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Mr. LOFTUS. Thank you, Madam Chairman.
I, too, appreciate the opportunity to testify today and commend you and the Committee for holding a hearing to investigate the impact of these fees. No hearing was ever held in either the House or the Senate when these fees were imposed as part of a deficit reduction package enacted during the previous Administration.
Since then, no budget committee, no authorizing committee, and no appropriations committee has ever held hearings to assess the inherent unfairness of the special tax that these fees represent. So this scrutiny is long overdue, and again, we thank you for opening this issue.
The ASLRA railroad members are small business. Sixty percent of our member railroads have annual gross railroad operating revenues of less than $1 million. According to a survey we conducted in 1994, the average revenue per carload for a switching and terminal railroad is $100, for a local railroad, $222, and for a regional railroad, $576, versus the Class I railroad average revenue per carload of $1,330. Again, that is gross revenue per carload.
The user fee assessment is a significant burden to these small companies and takes money off the bottom line, money which could be better spent on maintaining track and facilities, buying or leasing cars, serving shippers, and paying employees. Again, as Ed has said, these fees are not safety user fees at all, but are instead an unfair tax on the railroad industry.
Page 55 PREV PAGE TOP OF DOC The American railroad industry is the only transportation mode that provides and maintains its own rights of way. With this safety user fee tax imposed, railroads achieve the dubious distinction of also being the only transportation mode in this country to pay directly for their own Federal safety regulation.
And please understand, this is not a service to the railroad industry. Unlike some programs where Federal inspectors replace the need for an industry to provide its own quality and its own safety inspectors, in the railroad industry each company has its own quality and safety inspection program for safety and regulatory compliance.
Also, I think it's important to note that these fees are not scored against FRA appropriations, but go straight to the Treasury's general fund. In fact, these railroad safety user fees were targeted by the Administration to be used as an offset for welfare reform costs in 1994. The FRA safety inspection user fee assessment in the railroad industry has grown every year, from $32 million in 1992, the first full year of the tax, to the $40.6 million that is being billed in 1995 and the $46 million being proposed for fiscal year 1996.
The growth pattern in these assessments does not demonstrate economy in Government, which deficit reduction is supposed to be all about. We just keep paying more each year. In fact, DOT is proposing to expand the fees to include payment of the costs of lawyers assigned to enforce civil penalty. That's salt in the wound, when you have to pay the salaries of Government lawyers who are assessing and collecting $7 million to $12 million in civil violation fees annually. Not only is the annual escalation of the fees contrary to reduced Government spending, expansion of the program would add greatly to this already bad public policy.
Page 56 PREV PAGE TOP OF DOC I want to again emphasize that the financial drain is a serious problem for the smaller railroads, which in many cases are preserving service on branch lines with low traffic volumes, and must watch every penny in order to remain profitable and stay in service. The margins simply are not there to support paying non-productive costs. We hope to provide the subcommittee with more specific data based on a survey we are presently conducting.
DOT recognizes the disproportionate impact on smaller railroads in its 1994 report to Congress on the impact of safety user fees, an issue that the Chairwoman and others discussed earlier with Mr. Itzkoff. The DOT reported in that report to Congress, and I quote, ''Unlike Class I railroads, the smaller carriers, particularly the Class III carriers, do not serve broad geographic areas or carry a wide range of commodities. This limits their ability to recover user fees from markets where diversion would be minimal.
For most of the small railroads, the major commodity handled is grain, which has a very limited rate or price elasticity of demand. This generally sensitive aspect of grain and other competition stems from the short haul nature of small railroad operations. Therefore, attempts by smaller carriers to raise rates to cover the costs of user fees would have a relatively severe impact on traffic levels and net operating revenues. To minimize their traffic losses, many of these smaller railroads may absorb the fees.'' And FRA expressed the same concerns in a news release last week.
Payment of $4.1 million in a special safety tax, which is what we would be paying in 1995, is a particularly bitter pill for the small railroad to swallow this year, since funding for the Local Rail Freight Assistance Program appears to be in jeopardy for the coming fiscal year. And we are fighting to get the program reauthorized for future years.
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Representative Bob Clement of this subcommittee and Representative Bachus, with several co-sponsors from this subcommittee, introduced H.R. 2205 in August to do just that. Mr. Clement's bill is pending before the Committee and I urge your support.
In the meantime, losing funding for the LRFA program takes needed dollars enhanced by state matching funds out of rail infrastructure projects. Continuation of these safety inspection user fees past their scheduled sunset date would just compound an already bad situation.
We're all aware, and we understand your concern and the difficulty that you face in trying to reconcile budget programs. The budget reconciliation process requires revenue replacement if a revenue producing program is reduced or terminated. Unfortunately for the American taxpayer, corporate or individual, that means essentially that once a revenue program is in place, the Congressional budget process requiring revenue replacement perpetuates its continuance no matter what arguments of fairness or need are raised against it.
We hope this subcommittee chooses to reverse that dictum and terminate the special tax masquerading under the guise of safety user fees. Saying that, and I hesitate to offer any alternative courses, but Mr. Wilson of course did, in terms of the interests of the commuter railroads. And I can subscribe to his concerns. But we do have a suggestion if you are unable to totally repeal the tax.
And I suggest the subcommittee consider limiting the damage to the industry and recognizing the true purpose of the tax. You can do so by setting an annual cap on the tax at $36.5 million over the next authorized period. We are not proposing a reduction in the FRA appropriation. Setting a cap on the fees affects only the Treasury receipts and does not reduce FRA's budget. Remember, these funds are never scored against FRA budget authority or outlays. The FRA safety program is just a surrogate for generating general funds to the Treasury.
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In setting the statutory cap on the fees, we also ask that you exclude by statute the non-Class I railroads from payment of the fees in order to recognize the minimal impact these small railroads have on rail safety statistics and to relieve the economic burden imposed on them.
Freezing the tax at the $36.5 million level sets the amount at the first full year amount produced in 1990, and of course, that is the real purpose of this tax. Also at the $36.5 million level, you would not increase the payments of the Class I carriers and Amtrak and the commuter carriers.
A cap on the fees and exclusion of small railroads would have no safety impact. Safe railroads annually record less than 1 percent of the total number of train accidents and reportable injuries. Relieving small railroads of the disproportionate economic hardship these fees impose would correct, to some extent, the unfair treatment of rail carriers. Full repeal of the special tax would be the best decision.
Now that you have the ability to call an end to a very bad program of unfair taxation, we urge you to do so. Let these fees expire at the end of the month. If you decide that termination of the program is not feasible at this time, we urge you to limit the payments of the large railroads to what they are currently paying and to exclude the small carriers from paying the special tax.
Thank you, and I'll be prepared to answer any questions.
Page 59 PREV PAGE TOP OF DOC Mrs. KELLY. Thank you, Mr. Loftus.
Mr. CLAUSSEN. Thank you, Madam Chairwoman.
I'm Pete Claussen. I'm from Knoxville, Tennessee. And I'm President of Gulf and Ohio Railways, which owns and operates seven local railroads in the Southeast.
I'm here today representing Regional Railroads of America, an organization of 154 regional and local railroads. Our members operate more than 17,000 miles of track in 44 states.
Ed Harper and Bill Loftus have addressed the basic unfairness of this tax, and I concur in their remarks. I would like to emphasize why elimination of this tax is so important to my segment of the industry. Most RRA companies were formed following railroad deregulation in 1980. And most operate over lines that were marginal or money-losing properties of Class I railroads. Many of these lines were headed for abandonment.
These new railroads share a number of characteristics. The majority of them serve rural America, where the large railroads can no longer serve the local customers profitably. They began operations with costly rehabilitation requirements that must be met quickly to win back traffic. Bankers treat us as risky ventures. Our loans have high interest rates and short terms. And as a result, virtually every dollar we earn in our start-up years must go toward rehabilitation and debt service.
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The railroad safety user fee robs cash from these critical purposes. And as such, could not be more harmful to our young businesses. Ironically, with regard to rehabilitation dollars, the safety user fee takes away from the very investment that makes our railroads safer.
To be sure, we have regional railroads that have made it through these difficult first years, and have become successful. But some have not, and some are marginal. And for them, this tax is a difficult burden. The Missouri and Northern Arkansas paid a 1994 user fee equal to 25.8 percent of its net income. The Toledo, Peoria and Western, a 303 mile railroad serving approximately 45 small towns in central Illinois, has huge rehabilitation needs and is in trouble with its debt payments. Its 1994 safety user fee equaled 12 percent of its net income.
The Columbus and Greenville, the major railroad serving one of the poorest rural areas in the country, the so-called Delta area of Mississippi, paid a 1994 user fee equal to 18 percent of its net income. The Crystal City Railroad, which was trying to preserve 55 miles of track near Cotulla, Texas, paid a user fee equal to 10.6 of its 1994 net income. It couldn't make a go of it, and was abandoned in 1995.
Fifteen our of 154 members lost money in 1994, the majority of these still in their start-up years. In two of those cases, the railroads would have had a positive net income but for the safety user fee. For all of our companies, the safety user fee has the same impact as an increase in our corporate income tax.
In my own case, for instance, the safety user fee effectively raises my marginal Federal income tax rate by 1 and a half percentage points. I doubt very much this Congress would be so cavalier about a point and a half increase in the corporate tax rate for all small businesses, yet this is what the Congress is doing to our small businesses.
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In 1992, the Federal Railroad Administration conducted a survey of rehabilitation needs of Class II and III railroads. Eighty-four Class III railroads responded. Their combined 1992 safety user fee equalled 22.81 percent of their combined net income.
Undoubtedly, the railroads responding to this survey were those having the most difficult time generating enough income to fund rehabilitation. And that drives the percentage up. But then that's precisely the point. Those most in need are hurt most by this tax.
This is not just a matter of railroad economics. Our agricultural shippers in particular deal with price-sensitive products. I have attached an example that could be repeated by hundreds of shippers on our rail lines. Quincy Soybean Company of Arkansas is served by the Arkansas Midland, a relatively new regional railroad operating over lines that were headed for abandonment. As the chart shows, just pennies per bushel has a tremendous impact on sales. The Quincy Soybean Companies of the world depend on the railroad's ability to offer as low a price as possible.
As my colleagues have said, this fee has nothing to do with railroad safety. It has a lot to do with bringing more revenue into the Federal Treasury. The disconnect between the fee's stated and actual purpose is most evident when one considers its tremendous growth, from $32.1 million in fiscal year 1992 to $46.2 million requested for fiscal year 1996. The Clinton Administration claims as one of its major accomplishments the downsizing of Government.
Just a few weeks ago, the President announced that the goals outlined in Vice President Gore's Reinventing Government initiative were well ahead of schedule, and would probably be exceeded. Last week, the Washington Post reported that the Washington subway system was in danger of losing significant revenue because the President's downsizing success could eliminate some 60,000 riders.
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How is it, then, that a fee that is supposed to pay for the cost of a service is not only completely unaffected by this downsizing, but moving in the opposite direction? Did the Vice President's initiative skip the Department of Transportation? If the Administration has made Government more efficient and less costly, we should benefit from that. We are not, because this fee has nothing to do with its ostensible purpose. We are simply an easy target for the Government's budgeteers.
I have emphasized that local and regional railroads are the alternative to abandonment. In preparation for this presentation, I requested a computer search of the Congressional Record for the late 1970s and early 1980s. That search turned up countless Floor speeches about the need to avoid rail line abandonments, with eloquent references to the importance of railroads to local economic development.
A similar review of the public records at the Interstate Commerce Commission reveals that hardly a single abandonment application went unnoticed by Congressmen and Senators who provided their written concern over the economic consequences of individual abandonments.
While we appreciate your past concern, I am here to tell you that once the abandonment application is filed, it is usually too late. The line has been neglected, the cost of rehabilitation is too great, the customers are gone. We are the alternative to abandonment. And you can help us succeed by eliminating this unfair and counter-productive tax.
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Ms. MOLINARI [resuming Chair]. Thank you very much, Mr. Claussen.
Let's start with the questions. All right, Ms. Molinari suggests I start with myself.
I have one question to ask the three of you, gentlemen. And that is, if we were able to make sure that these fees were able to come back to you in some way designated for rail safety, would they be used for capital investment, like welded rails, rolling stock, how would they be used? And I don't know if that's a stupid question or not. But I'll let any one of you out there answer it.
Mr. HARPER. Well, I am not quite sure I understand the proposal you have in mind, but I think the historic record in terms of what the railroads have done shows that they've invested. When the Staggers Act really changed the landscape of the railroad industry, and for the first time in years, the railroad industry began to rise from death's door financially, railroads invested tens of billions of dollars. We invest almost $8 billion a year right now in track and infrastructure, the basic ingredients of safety in the railroad industry.
So I think our record speaks for itself in terms of what we do with our funds. We are a very capital-intensive industry. In some businesses, the revenues represent maybe a turning of capital twice. In our industry, we would be lucky if we approached turning the capital once in terms of revenues equaling capital invested.
Page 64 PREV PAGE TOP OF DOC So it's a very capital-intensive industry. I think you can almost guarantee that part of any additional funds that we have will be re-invested in plant and equipment. And the record is clear that those kinds of investments produce a better safety record.
And overall, this allocation of resources is really what the whole hearing is about. The old regulatory regime forces resources away from where you get the biggest bang for the buck in terms of creating safety, creating a safer environment. That's where we want to allocate the resources, not to inspections and rules that don't make any sense, that don't promote a safer environment.
Mr. LOFTUS. From the standpoint of the smaller railroads, I think it would be pretty much what Mr. Claussen and I had said, we'd be doing what we need to do most, and that's maintenance, ties, rail replacement, ballast, essentially track work, some repair of equipment. In a sense, what we're saying by paying in $4.1 million userfees in 1995, that's money that we would be using just in our normal course of maintenance. It just does not get spent.
Mr. CLAUSSEN. I concur, of course, that money would most likely, would certainly go into plant. But I would make an observation. And that is, that the tax falls on everyone. But the needs are not distributed so evenly. And I can give you a good example. Gateway Western 2 years ago sustained tremendous flood damage in the Midwestern floods and required an enormous amount of dollars to restore its operation. It paid $63,000 in user fees at the same time. The need and the fees are sometimes radically different.
Page 65 PREV PAGE TOP OF DOC Mrs. KELLY. Thank you very much.
Ms. MOLINARI. Thank you, Chairwoman Kelly.
If you couldI'm not that familiar with how this all works. You pay your percentage to the Department of Transportation, and then do they come back to you with a checklist of things that your business is required to do, or is your only contact the inspectors that come in?
Mr. HARPER. There is a formula that essentially generates a tax. The tax does not go to the Transportation Department, it goes to the Treasury Department. And what you have is an ongoing program of Federal railroad inspectors, and they have a checklist, and they go down the track, and you can wind up with some funny situations, if there wasn't a clear misdirection of safety activity.
For example, right now, we have many covered hopper cars coming back from Mexico. The hatches on the cars are often left open by the shippers in Mexico. They get to the border, and there's an FRA inspector there who says, wait a minute, the hatch is open, you cannot move the car until the hatch is closed.
Well, the railroads have a rail safety operating rule that brakemen, the train workers who are there with the train, are not allowed to climb on the cars and close the hatches. So we have a kind of a catch-22, they have to go find a carman to come climb the car and close the hatches before we can pull the train.
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Now, that's a reasonable example, I think everybody would agree. But those are the kinds of misdirection of resources that we think are inherent in this rail safety tax. And why we want to move to an entirely different regime, and I think the Administrator, Don Itzkoff, and the leaders of the FRA, have got the idea, and they're moving in the right direction.
But there is a tremendous iceberg below the surface, of these regulations that have accumulated over many, many years, some of them imposed by the Congress. It's an old regime that the Administrator is stuck with, and we would like to see that changed and move toward performance standards.
Mr. LOFTUS. In a procedural sense, they've just billed everybody as of August 1. I'm interested in seeing Tom Downs write a check back for $1,913,838 as you're all struggling with what is going to be the operating deficit. But they bill us, and we send the checks to FRA, which then of course sends it to Treasury, Federal Reserve. We don't send the check to the Federal Reserve directly, it goes to FRA.
However, in compliance, and that I think is the point of your question, is that we are the ones who do the compliance. We do all the compliance, whether our own rules or FRA rules. That's done daily. What the FRA inspectors do, and you know there's 480 of them or something like that, which obviously are just spot-checking, a good part of their whole function is reading our paperwork. Because we keep paperwork on hours of service. We keep paperwork on track inspections and track repairs. We keep paperwork on equipment repairs. And they come in and they'll go through all our records and look at that.
Page 67 PREV PAGE TOP OF DOC In addition, they may spot-check track and so forth. But it's largely looking over our shoulder what we're doing. And that's the point. We are not getting meat inspections from the Department of Agriculture and things like that. We are doing it, they're just looking at what we're doing. They don't replace it, there's no added value in this process of us paying fees for them to look at essentially what our records show.
Ms. MOLINARI. Okay. What is the basic, then, I guess what I'm trying to struggle with here is, clearly the argument that you're all making, and I think wonderfully so with these charts in particular, is that left on your own, it's good business for you to do what you can to upgrade your system, and in response to Mrs. Kelly's question, to take that money and to upgrade.
However, in America, we do like to have some system of checks to make sure that you are doing that. But a large portion of that money is not going to just the inspectors to come in and check your rails and check your cars and check your paperwork. That would be a nominal amount compared to what the overall industry is paying in user fees, is that not correct?
Mr. LOFTUS. Very much so. Essentially what we're doing is probably 10 or 15 times what the FRA people are doing. And again, they're really just looking, they're a check system, as you say.
And as Ed says, none of us are complaining or saying that that FRA should not have some oversight function. But where the deficit reduction process all of a sudden latched on to this oversight process and then used it in 1991, and over $40 million in 1995, as strictly a means of adding new revenue sources.
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And now it's become institutionalized, where it supposedly has some safety meaning. And it has no safety meaning whatsoever. Without the safety user fees, if we don't have them, FRA's budget is going to go on its own merits, not whether it has a safety user fee.
Mr. HARPER. Right. One of the things we're endeavoring to do here is to open up the debate as to what is the nature of the safety program. Because as Bill says, we just get a bill.
Ms. MOLINARI. Right.
Mr. HARPER. And the bill keeps escalating. And I think the prospect is that that bill will continue to grow very much. But there's no critical look at what's being done. And look at the facts, for example, it's railroad employees that really do the inspections. And we think that you ought to look at how do you generate results like that? How does that happen? It happens by allocating resources to where you're going to get some real safety results.
And thus, we propose a performance based measure. We say all right, decide what you really want to get out of this. You don't care what the geometry of the wheel is or what color the wheel is. What you want to know is, is any employee being hurt, is the public being endangered, are there going to be train derailments?
And we think that if we can achieve the proper level of safety, that's what we ought to be after. That's what the program ought to be designed to do, not to say, well, I've got a checklist here and I've got to check this off, whether it's relevant to achieving improved safety or not.
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Ms. MOLINARI. And I'm fascinated by this, so if I can just have one more question, to sort of get into this. If we were, explain to me how that works, if we were to go to performance based, how do we make sure, as the Government, that you're not going to cut corners on safety in order to make yourselves in the positive column, or just to spend it someplace else?
Mr. HARPER. As a general proposition, what we have in mind is to say, okay, here's the level of safety that we want to achieve. If a railroad doesn't achieve that level of safety, let's have more inspections. If they achieve that level of safety, reduce the number of inspections. Because you're getting what you want in the public interest, and that's safety. That's fundamentally the idea.
Ms. MOLINARI. Okay.
Mr. CLAUSSEN. I'd like to make an observation. In the command and control kind of system, the assumption is that the controller is dealing with someone who is not complying, who doesn't have an interest in complying. Well, it's very much the reverse. Accidents and injuries are very, very expensive. And the industry does everything it can to avoid them.
And it is simply not a situation where you need to have somebody reviewing what you're doing in that regard as much as it is a situation where you need someone to cooperate with you and help you improve those systems.
Page 70 PREV PAGE TOP OF DOC Ms. MOLINARI. Good point. Thank you, sir.
Mrs. KELLY. Thank you very much.
Mr. MICA. Thank you.
A couple of questions. The Deputy Administrator mentioned that there are other examples where fees and safety inspection fees are imposed by the Government, for example, gas lines, I think he mentioned, and meat inspections and things of that sort. How do you respond to his argument, Mr. Harper?
Mr. HARPER. It's very much a patchwork situation as you look at the transportation industry. Let me, since he mentioned pipelines, in pipeline, the only inspection fee is for pipelines carrying hazardous materials. And I'm afraid I'm not familiar enough with the pipeline industry to know whether or not the Federal inspector replaces somebody from the industry who would otherwise do that inspection.
So in fact, you may be displacing the expenditures of the company's money to inspect the pipeline. I don't know the answer as to how that works.
In the area that's more directly competitive, and that would be the trucking industry, two of the major trucking safety programs are paid for with general revenues of the Treasury, not out of the highway trust fund. So some truck safety programs are paid for out of the highway trust funds, but well over $50 million are paid for out of the general funds of the Treasury. So it's very much a patchwork situation.
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So in the railroad industry, we feel that we are disadvantaged. We have this unique situation where we're the only transportation mode asked, in effect, to cover the full costs of a safety program which we think is, shall we say, much less than 100 percent effective.
Mr. MICA. I'm not that familiar with how the tax is imposed, but is this also on any type of commuter rail or other passenger activities, rail activities?
Mr. HARPER. It is levied, as Mr. Loftus pointed out, on passenger programs.
Mr. LOFTUS. It's levied
Mr. MICA. Same basis?
Mr. LOFTUS. Same basis. The three data, the data they use is data that's already being reported to FRA. So it's consistent, and it's official data. Train miles, road miles and employee hours worked. And the formula is built on that.
And I would have to say in answer to Mr. Itzkoff, he talked about, when we put it into effect, we had no ability to argue the fairness of it, we did have extensive hearings at FRA as to try to achieve some balance in how it is allocated. The larger railroads pay about 40 percent, well, more than that. We pay, small railroads pay about $4 million to $5 million, commuters pay $4 million to $5 million, and the larger railroads pay the rest.
Page 72 PREV PAGE TOP OF DOC Mr. MICA. Well, you had said that, I guess I've got the chart here, the different classes and the percentages that they pay. And you said that yours was an unfair burden. Well, first of all, I know your choice would be to eliminate the tax. But is there some other way that these fees could be assessed, or is there fairness in the formula that has been developed to date if it's continued?
Mr. LOFTUS. You could. They have talked about eliminating the fees on very small railroads. In fact, in pipelines, none of the small pipelines pay it. If you're a pipeline and you are, the formula comes up and shows that you are the minimum payment, you don't pay it. They don't bill you. I think it's probably administratively wise not to bill all of them and it's costing you more to bill them than to do it.
The minimum in the small railroad issue here is $500. Some of those people in the regular formula would be paying $25, $15, $30. But because there's a minimum, they all pay $500.
The issue is really one, of course, again, of the fairness of the whole thing. But you could redistribute the formula, and you could put more on the large railroads. But that just attacks the fairness of it.
The approach that we're arguing in terms of at least an alternative, by putting a cap on it, and excusing the smaller roads, or excusing anybody that you think would be justified to be excused, by putting a cap on it, you are not taking what we would pay and distributing back over our colleagues in the larger railroads, or the commuters. You'd be capping them at what they pay today.
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And that is essentially, would follow whoever could pay, or who would have, the ability to pay, to help in deficit reduction. In 1991, this was a 5-year guaranteed, we won't have it again. We're here saying, where is the revenue to replace it. But again, a cap, from our proposal, would free us of the payment of it. It would not increase the payment of the other participants.
Mr. MICA. Well, you know, Don was just with us, the Deputy Administrator, and he probably would want to take credit, if you look at this chart, after they imposed the fee, see a dramatic drop-off on on-duty employee injuries. What does industry, again, attribute this success to, Don's fees and the Congress' fees, or something you've done?
Mr. HARPER. Well, we would not attribute it to the fees imposed by the FRA. In the details of the written testimony that we have submitted, there are a number of things that we think have been critical factors in that. I think that we could write a couple of Ph.D. dissertations trying to find cause-effect relationships here.
But some of the things are very clear in terms of the tremendous investment that has taken place. The substitution of welded rails for the jointed tracks, where the tracks were bolted together, that in itself made a big difference in the number of derailments.
Mr. MICA. So it wasn't all these inspectors at the Mexican border dealing with the hatches?
Page 74 PREV PAGE TOP OF DOC Mr. HARPER. No, that was just one more example of misguided use of Federal resources, perhaps, in the inspection program.
Mr. MICA. I thank you. Mr. Harper, you won't have to elaborate, but I will go back to your written testimony. And I yield back the balance of my time. Thank you.
Mr. LOFTUS. I might add, though, that if all that is true, Congressman Mica, and we produce such a great result, we should be benefitting by not paying all these user fees.
Mr. HARPER. I guess the other thing is the activities of the FRA were the same before and after the fees were imposed. So, we don't like user fees.
Mrs. KELLY. How did we guess that?
Ms. MOLINARI. Excuse me, Madam Chair, I was remiss in the beginning to ask unanimous consent that the testimony of Congressman Peter Blute be added to the record.
Mrs. KELLY. So ordered. Thank you.
[Mr. Blute's prepared statement follows:]
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Ms. MOLINARI. Thank you.
Mrs. KELLY. I want to thank you all for your testimony, for being here today. I just want to make one comment that seems to come through to me from all of your testimony. And that is that it appears to me that on the basis of what the FRA, what these fees are about, the railroads are really being charged twice. You're being charged overhead to pay for the FRA, and you're being charged again if they find something that you've done wrong and you have to pay a fine. Is that correct?
Mr. HARPER. Yes.
Mrs. KELLY. Thank you. I just wanted to get that clear in my own mind.
Thank you very much. Thank you all for being here today. Thank you, Madam Chairwoman.
[Whereupon, at 4:21 p.m., the subcommittee was adjourned, to reconvene subject to the call of the Chair.]
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