Segment 2 Of 2 Previous Hearing Segment(1)
SPEAKERS CONTENTS INSERTS
Page 13 PREV PAGE TOP OF DOC Segment 2 Of 2 OVERSIGHT OF AMTRAK
Thursday, October 28, 1999
House of Representatives, Committee on Transportation and Infrastructure, Subcommittee on Ground Transportation, Washington, D.C.
The subcommittee met, pursuant to notice, at 10:02 a.m. in room 2167, Rayburn House Office Building, Hon. Thomas E. Petri [chairman of the subcommittee] presiding.
Mr. PETRI. The subcommittee will come to order.
Today we are conducting an oversight hearing on Amtrak. Almost two years ago Congress enacted the Amtrak Reform and Accountability Act of 1997, and at that time Amtrak was in dire financial straits and the possibility of a bankruptcy loomed.
The purpose of the reform law was to lift many of the statutory requirements that had prevented Amtrak from operating like a business and to provide the tools Amtrak needed to turn itself around and become free of the need for Federal operating subsidies.
The reform law also created the Amtrak Reform Council, a Congressionally-and Presidentially-appointed independent body charged with overseeing Amtrak's financial progress.
In December of this year, or any time thereafter, if the Amtrak Reform Council determines that Amtrak will not meet operating self-sufficiency by budget year 2003, the Council must submit a restructuring plan to Congress, and Amtrak and the GAO must submit a liquidation plan. Congress is then required to vote on these proposals.
Obviously, the stakes are quite high if Amtrak does not meet its financial targets. Under the reform law, there are many actions that Amtrak can take that it never before had the ability to do. For example, prior to 1997, Amtrak's route structure was dictated by Federal statute and remained essentially unchanged since 1971. Given the dramatic demographic shifts that have taken place in this country over the last 25 years, it is hard to imagine that a route system that had been virtually frozen in place for a quarter century could make the most sense from a business standpoint.
Page 14 PREV PAGE TOP OF DOC Segment 2 Of 2 Under the reform law, Amtrak has the ability for the first time to make any route changes it deems appropriate. Also, prior to 1997, Amtrak was required by Federal law to pay up to six years full salary and benefits to any worker who was either laid off or even asked to take equal employment more than 30 miles from his residence. Clearly, this was a powerful impediment to efficient workforce management.
The reform law repealed this onerous requirement and required Amtrak and its employees to negotiate terms for severance pay like any other private sector company.
We are looking forward to hearing of the progress that Amtrak has made in reaching agreement on this important issue.
Perhaps these many restrictions that had been in place for so many years contributed to the fact that Amtrak, in spite of its thousands of hard-working employees, had one of the least-productive workforces in the world. According to the World Bank, only two railroad systems in the world have lower productivity per employee than AmtrakPoland and Romania.
Finally, the reform law also included dramatic changes in Amtrak's capital structure and corporate governance requirements, created a new board of directors, and today it is our honor to hear from the chairman of that board and his vice chairman, Governor Tommy Thompson and former Governor Mike Dukakis.
The reform law eliminated the Department of Transportation's preferred stock liquidation preference and voting rights and also required Amtrak to redeem its common stock by the end of 2002. We will be hearing today from an expert on corporate governance matters, Mr. Frank Goldstein, who will discuss some of the issues and options available relating to Amtrak's new corporate structure.
We will also be hearing from the General Accounting Office, the Department of Transportation inspector general, and the Amtrak Reform Council, all of whom have conducted extensive analysis of Amtrak's financial condition.
Page 15 PREV PAGE TOP OF DOC Segment 2 Of 2 Our final panel includes rail labor, the Association of American Railroads, the National Association of Rail Passengers, and the American Passenger Rail Coalition.
This should be a truly enlightening hearing, and we look forward to all of the witnesses' testimony.
With that I yield to our senior democrat, Congressman Nick Rahall.
Mr. RAHALL. Thank you, Mr. Chairman.
This is the first hearing of the Ground Transportation Subcommittee that has been dedicated solely to the railroad issue, and I do look forward to today's panel. But before discussing the issue at hand, I would like to discuss another issue, since all of the relevant parties are in this room today, and that is the so-called ''cram-down'' issue, or however you want to describe it, but it is haunting us in the background and it does haunt the proper implementation of rail labor law.
I've made my position clear in the past in regard to any abrogating of collective bargaining agreements, which, in my mind, is simply against the American way, and I will not support.
So I would once again urge those parties that are in the room today, both rail labor and management, to continue negotiations, and I would hope that there is an understanding reached on this issue before too long.
As to the matter at hand in today's hearings, I am not in the position that providing subsidies to support intracity passenger railroad service is necessarily bad. If Amtrak can become free of operating subsidies in fiscal year 2003 that is fine, all the better. I do congratulate them on the recent revenue reports and economic figures just released.
But if for some reason that is not the case, then I, for one, will not be party to any effort to completely pull the Federal plug.
The Federal Government subsidized intercity bus service in this country in small and large communities alike. The Federal Government helps build and operate light transit systems from D.C. to Los Angeles. In all of this fiscal year, we will spend $5.8 billion in Federal funds for mass transit in this country. So I fail to see the distinction and I fail to see how we can support operating bus service in a small community but somehow we cannot provide support if needed for a worthy endeavor such as Amtrak.
Page 16 PREV PAGE TOP OF DOC Segment 2 Of 2 I also want to note that, while the majority originally proposed for this hearing to focus solely on Amtrak's current financial situation, I asked that other matters be included on the agenda. I did this because just putting on the green eye shade and looking at the bottom line ignores what Amtrak is really all about and what it can become and issues involving Amtrak which the railroad really does not have any direct control over, especially outside the northeast corridor.
Many people and many Members of Congress have a particular Amtrak line that they are concerned about that runs through their District. In my case, it's the Cardinal, which runs between Washington, D.C.'s Union Station and Chicago's Union Station via southern West Virginia.
Amtrak finally learned that the New River Gorge of West Virginia was quite an attraction, and when it stopped running the Cardinal through the dead of night, ridership began to pick up.
Now there are only two ways that you can traverse the beauty of the New River Gorgeeither sitting on the edge of a raft negotiating raging white water rapids, or in the relative luxury of the Cardinal.
Amtrak allows the elderly, the infirm, and those that do not particularly relish the possibility of getting sucked down a class five rapid with the ability the enjoy the wonders of the New River Gorge. That is a part of what I mean when I agency what Amtrak is really all about.
And looking just at the bottom line ignores Amtrak's real assetthe working men and women who operate and maintain its tracks and its trains.
Making railroads run is no easy jobany railroad, for that matter. It's no easy job, and I salute the employees for Amtrak for all they have had to withstand. This, to, is what i mean by what Amtrak is really all about. It's hard workers.
Page 17 PREV PAGE TOP OF DOC Segment 2 Of 2 So, in conclusion, Mr. Chairman, what Amtrak can become in the future involves addressing a tangled web of projects and programs from the Acela Express Service in the northeast to the hostage situation it finds itself in with the freight railroads on the track.
As Thomas Jefferson once noted, ''I much prefer the dreams of the future than the history of the past.'' Let that dream, in this case, be a viable Amtrak serving the American public now and in the future.
Governors, we welcome you to our hearing today.
Mr. PETRI. Thank you. Do other members have opening statements?
Yes, Mr. Blumenauer?
Mr. BLUMENAUER. Yes. Just to comment briefly, I strongly associate myself with the comments of Mr. Rahall, but it also seems to me important to note that our friends at Amtrak represent the cheapest way to buy additional capacity in many of our Nation's airports and highways. The tradeoff then is not just for rail and giving passengers those choices, but it also provides a balanced transportation system, and both of these governors are well aware of that. I appreciate their being with us today, and I hope that we will be flexible in terms of meeting the Nation's transportation needs through supporting an intermodal system.
Mr. PETRI. Thank you.
Additional statements by our chairman, Mr. Shuster, and Mr. Oberstar will be made part of the record of this hearing.
Now we turn to our lead-off witness, the governor of the great State of Wisconsin, Tommy Thompson. He's my constituent, too, so I have to be a good boy. And he's accompanied by his vice chairman, Governor Dukakis, and George Warrington, the executive chief of the Amtrak system.
Page 18 PREV PAGE TOP OF DOC Segment 2 Of 2 TESTIMONY OF HON. THOMAS G. THOMPSON, GOVERNOR OF WISCONSIN AND CHAIRMAN, AMTRAK REFORM BOARD, ACCOMPANIED BY HON. MICHAEL DUKAKIS, FORMER GOVERNOR OF MASSACHUSETTS, AND VICE CHAIRMAN, AMTRAK BOARD OF DIRECTORS, AND GEORGE WARRINGTON, EXECUTIVE CHIEF, AMTRAK
Governor THOMPSON. Thank you very much, Congressman Petri.
Let me just say, on behalf of all the people of Wisconsin, we are very proud of you and the job you do as chairman of this subcommittee and also your work in Congress. All of you on this panel, we thank you so very much for giving us this opportunity to come and testify, because we have been looking forward to this great opportunity for some time.
I happen to be appearing today in my role as chairman of the Amtrak Reform Board, an entity that you and Congress brought into existence 17 months ago when the Senate confirmed me, Vice Chairman Michael Dukakis, and Mayor John Robert Smith of Meridian, Mississippi. The United States Secretary of Transportation also serves as a member, as do Governor Linwood Holton, Amy Rosen, and Sylvia de Leon.
I am here today representing the entire board, along with Michael Dukakis, and all of the board members are with us here today. I am very pleased to tell you that every one of them is passionate about railroad service and making Amtrak successful in this country.
Let me also recognize the president and CEO of Amtrak, George Warrington. He, of course, is one of the best decisions our board has been able to make when we selected George to run this company last December. He's the right man for the job, and he has been working like gangbustersand I want to underscore thatlike gangbusters to get this company headed in a market-driven, customer-focused direction.
Let me first answer the question that has got to be foremost on your minds. Amtrak will operate free of operational subsidies in fiscal year 2003. The pieces are coming together, and I am very proud to be able to tell you that Amtrak is operating more like a private sector enterprise. In fact, next year, in fiscal year 2000, Amtrak will be receiving more private sector investments than public sector fundingmore private sector investment than public sector funding for the first time.
Page 19 PREV PAGE TOP OF DOC Segment 2 Of 2 Fiscal year 1999 has just ended, and for the second straight year in a row the corporation's bottom line met or exceeded our business plan.
Ridership grew by 2 percent. Every year for the last three years we've increased ridership. Overall revenues were a record $1.83 billion, with core revenue growth of 8.2 percent over the previous year.
Passenger-related revenues grew by 5.8 percent, led, of course, by the strong performance in the northeast corridor.
The corporation grew its profitable commercial business lines and held core expenses below plan levels.
All of these factors have been able to contribute to Amtrak beating its own business plan by $8 million.
The point for today, however, is that last year Amtrak's board set a specific goal. We have been measuring ourselves against that goal, that business plan. We are ahead of our glide plan for self-sufficiency by the year 2003, and we've exceeded that goal by $8 million.
In his testimony, Mr. Mead will tell you that we can make it; that it is possible for Amtrak to be able to reach operating self-sufficiency by the year 2003. I am here to tell you and the board is here to tell you we will make it.
Those are the headlines. Amtrak's financial numbers are strong. Why is Amtrak experiencing this turn-around? It is simple. The Reform Board has established for Amtrak a clear-cut mission: deliver performance, not promises.
Much of this positive performance in the marketplace is being driven by the implementation of the Amtrak Reform and Accountability Act that you all passed. The reauthorization bill has demonstrated that the Congress and the country want a national passenger rail system. It has recognized rail as an essential component of the balanced transportation systemand I appreciate you saying thatfor mobility, accessibility, congestion relief and, yes, economic growth.
Page 20 PREV PAGE TOP OF DOC Segment 2 Of 2 This legislation gave my colleagues and myself on the board of directors the tools we need to be able to empower management to turn this company around, and, yes, restore a vibrant and viable national passenger rail system to America.
The legislation said, ''Operate this system like a business and make this business grow,'' and that is exactly what we are doing.
I want to give you several examples.
Amtrak is employing a number of valuable strategies to achieve operational self-sufficiency. One includes the soon-to-be-completed market-based network analysis. This initiative involves extensive analysis of the entire Amtrak system, and potential additions to the system based on market research of consumer demand.
For the first time, Mr. Chairman and Members, in 28 years we are asking, ''Where do the customers want to go? What kind of amenities do they want? How many frequencies are optimal? And what routes are for the best?'' And, based on that, we are determining what the network should look like for Amtrak.
For the first time, Amtrak will define a national system in market terms. This assessment will create a viable rail system by driving expansion and equipment acquisition to accommodate the best and most-profitable rail service in America.
I mentioned at the outset the impressive growth and new revenue services outside of the passenger arena. Amtrak has expanded the development of business alliances, and investment partnerships to be able to generate revenue which supports basic rail service. We've also had numerous new business partners, such as Hertz, Capital One, Dobbs, Pepsi, Motorola, Microsoftjust to name a fewwhich allow Amtrak to leverage its strength and team up with some of America's best-known companies.
I think it is significant that they want to team up with us, as well. Just yesterday, we were able to sign a new long-term agreement with ExpressTrak to enter the refrigeration express business. This partnership is going to allow us to carry perishable goods on the back of our long-distance trains, significantly improving our financial performance.
Page 21 PREV PAGE TOP OF DOC Segment 2 Of 2 The growth of our mail and our express business has also been very strong. In fiscal year 1999, mail and express totaled $98 million, which was an 18 percent increase over the previous year and a 40 percent increase since fiscal year 1997.
And on the express side, we just signed a ground-breaking agreement with BNSF, the freight railroad that provides transportation service to one of their largest customers, UPS.
The agreement benefits all three of us. UPS gets better service, we get better on-time performance for our customers, and we and the freight rail share the revenues. That is the free enterprise system.
These are concrete private sector partnerships.
Let me close, Mr. Chairman and Members, by telling you, however, that we are still going to need Congress. We are going to continue to need support in terms of capital funding in order to continue on this tremendous track to success. We are going to be operational self-sufficient, but we are also going to have to have an infusion of capital in the future.
Like the highways, the airlines, and the ports, we, too, need to be supported in the building and the maintenance of our national infrastructure. Many governors and States around the country recognize that need and they have pledged their support to you and to us300 million just this past year alone by States contributing to the improvement of Amtrak.
In fact, just this week, Mr. Chairman, 21 States from around the country gathered in Milwaukee, Wisconsin, for the first High-Speed Rail Corridor Coalition meeting21 non-northeast corridor States interested in developing high-speed rail corridors. And they are looking for a partnership with the Federal Government.
So you have the country's support. The Nation's governors, mayors, and legislators are all calling on Congress to help us. Help us support a national passenger rail system, one that America can really be proud of for the 21st century.
Page 22 PREV PAGE TOP OF DOC Segment 2 Of 2 So, as you consider the remarks of all the witnesses here today and you consider your role on this committee and Congress and what you can play in shaping the transportation system of this country, I urge all of you to think seriously about making your commitment to Passenger rail a real one with meaningful capital investment funds to bring about meaningful change for America.
Thank you, Mr. Chairman. I will be more than happy, after Governor Dukakis' testimony, to answer any of your questions.
Mr. PETRI. Governor Dukakis?
Mr. DUKAKIS. Thank you, Mr. Chairman.
Let me also echo Tommy's words. It is a great pleasure to be with all of you. We've had an opportunity, I think, to meet many of you personally and very much appreciate your support and cooperation and the tools you've given us to do the kind of job that Governor Thompson has described.
Let me say that Tommy has been a terrific chair, a terrific chair. I think I reflect the feelings of
Mr. PETRI. This partisanship is unaccustomed here.
Mr. DUKAKIS. He's a big government Republican and I am proud of him.
Mr. DUKAKIS. But I want to say that, because his leadership really has been extraordinary, and this has been one of the best organizations I've ever worked with. This is a terrific board. We get along. We like each other. We work hard. We are very committed. And I think you are seeing the results of that already in the relatively brief time that we've worked together.
Let me just add two or three additional points briefly to Governor Thompson's testimony.
Page 23 PREV PAGE TOP OF DOC Segment 2 Of 2 As you know, the Amtrak Reform and Accountability Act mandated that a new board be created to steer Amtrak in a businesslike way toward operational self-sufficiency. The board that we have in place is, I think, well-suited for that task.
Besides our Acela serviceand, by the way, the Acela regional service will be ready to go by January of 2000. I am sorry about a brief delay in our express service, but, as you know, we have been doing extensive testing of this equipment and we are not putting it on the road until we are absolutely sure it is going to work terrifically well, but you should know that we have been testing the new train sets in Rhode Island, and we hit 168 miles an hour the other day, so you are going to love these new trains. I think they are a forecast of things to come, we hope, well beyond the northeast corridor.
But one of the things that we have been focusing on is customer service. Last year we sent about a dozen senior managers out to ride the trains, talk to the crews and the customers about what works and what doesn't.
It was an eye-opening experience, Mr. Chairman, and launched the largest service retooling initiative in our company's history. As a result, every manager at Amtrak has gone through an extensive service standards training program. All of our front-line employees have also been given a rigorous session on customer service. And, while training is at the center of this initiative, we are also improving our hiring and evaluation process and offering incentive programs to employees.
The real winner, obviously, will be the customerthe guest who is on board our trains, because, after all, if the service is not up to expectations, we are going to be offering a refund voucher for future travel. That may be the first time any railroad company in the world has done that. We are going to do that.
All of these efforts and innovative initiatives would not be possible without a dedicated, professional workforce.
Page 24 PREV PAGE TOP OF DOC Segment 2 Of 2 As I think you know, we inherited a collective bargaining situation which was in tatters. We had contracts that hadn't been negotiated for up to three or four years. I am happy to announce to you today that we have come to agreement with 99 percent of our unions, and those contracts include substantial productivity improvements. We set a goal of $20 million in productivity improvements, and we are three-quarters of the way there. So this is real and you should feel good about it.
Let me touch on another point, as well, before I wind up with my particular interest in high-speed corridors.
There will be some testimony today about the MBTA contract. That happens to be near and dear to my heart, needless to say, since I was the governor who negotiated with Amtrak to take over our commuter rail service from a private operator who couldn't do the job.
Let me say that, in terms of service, commuter rail service in the greater Boston area has been terrific97 percent on-time performance, ridership is going up steadily at the rate of 8 or 9 percent a year. We've just opened up two new commuter rail lines. You can't get into the parking lots at 7:00 in the morning. Amtrak has done its job and done it well.
There are a lot of ways, Mr. Chairman, to try to measure railroad efficiency, and I don't want to spend a lot of time with you on that. Let me say, however, that in 1995 the Federal Transit Administration did an analysis of commuter rail efficiency and concluded that Amtrak's commuter operating costs were more efficient, based on operating expense per vehicle, and less expensive than 15 of 16 commuter rail operators measured in the survey. We know our business. I can guarantee you that our bid reflected the true cost of maintaining the MTBA fleet.
While I think the Commonwealth of Massachusetts has made a serious mistake in doing what it is doingand I hope it isn't going to jeopardize what has been superb service over the course of the past several years since Amtrak has been operating it. I can assure you that we will be right back in there competing for that contract as time goes on.
Page 25 PREV PAGE TOP OF DOC Segment 2 Of 2 Finally, let me address briefly what I think is the most exciting aspect of our work, especially as we look to the future, and that is high-speed rail corridors outside of the northeast.
You should know that we are now deeply involved with governors, with mayors, with the business community, with a broad coalition of public and private interests in seven different regions of the country, and we are deeply involved in planning and in some cases engineering high-speed corridors in those regions. They include the southeast corridor between Washington and Atlanta; the Gulf Coast corridor; several intercity corridors in Californiaas a matter of fact, we will be putting new trains in the Los Angeles/San Diego line in Novembera very exciting nine-corridor; nine-State midwest regional rail system, which Governor Thompson has been deeply involved in; the Cascade service, which is already underway and is showing dramatic improvements in passenger usage in the northwest; the Empire corridor from New York City to Buffalo, where New York State has really stepped up to the plate with a substantial contribution; the Philadelphia-Harrisburg Keystone corridor, which hit the million passenger mark this past year and ridership is skyrocketing.
I should add to the seven corridors, Mr. Chairman, the fact that we've just been hired by the State of Florida to take a very hard look at the possibility for high-speed rail service in densely-traveled and populated corridorsMiami, Orlando, Tampa, Jacksonville.
Of course, we are going to need the support of the freight railroads, as all of you know, if we are going to be successful in this effort. The overwhelming majority of the track over which Amtrak will be developing these corridors is owned by the freight railroads. They must be our partners or it won't work for any of usthe host railroad, Amtrak, or, most importantly, our passengers.
Why? Because higher speed and more frequent rail passenger service will require increased capacity on these freight lines and close cooperation in dispatching and operating both freight and passenger trains.
Page 26 PREV PAGE TOP OF DOC Segment 2 Of 2 But what is so exciting for Tommy, me, and the members of the board about is that there is, as he said, such tremendous support for what we are developing on the part of governors and State legislatures and a real willingness to put substantial State, as well as Federal, dollars behind this effort. States simply can't tolerate the growing congestion on their highways and airports. They understand better than any of us how crucial fast, modern rail passenger service is to their future and the future of their metropolitan areas. They also understand that transforming these corridors into modern, high-speed rail passenger systems will cost a fraction of what it would cost to add equivalent highway or airport capacity, even if it were possible to do so. In most cases, it isn't.
I am a democrat, as all of you know. Tommy is a republican. There are at least 29 governors all across this country, republicans and democrats, alike, who are deeply and actively involved in this.
So we are anxious to work with you. I think it is the most exciting development in the transportation scene that we've seen in a long time. It is going to require a modest but steady infusion of Federal capital funds to match State contributions, but I believe we can do that, working with you and working with the governors of the States.
I know that we all look forward very much to unveiling a detailed plan for your review and discussion and participation, we hope within the next few months. A great deal of work is going into this. All of us are deeply and actively involved.
Mr. Chairman, we look forward to working with you and, again, appreciate the opportunity to share these thoughts with you today.
Mr. PETRI. Thank you. Thank you both.
Mr. Warrington, are you going to make a statement, or are you just accompanying?
Page 27 PREV PAGE TOP OF DOC Segment 2 Of 2 Governor THOMPSON. I think he is just accompanying us, but he is here to answer any of your questions that Mike and I can't answer.
Mr. PETRI. Okay.
Governor THOMPSON. So Mike and I will take the credit of answering the easy questions, and then we turn it to George for the hard questions.
Mr. PETRI. All right.
Mr. Rahall, do you have any questions?
Mr. RAHALL. Thank you, Mr. Chairman.
Thank you, Governor Thompson and Governor Dukakis for your testimony. It is certainly refreshing to hear your words about each other and to see the manner in which you've worked together and see the positive results that working relationship has created.
As you know, earlier this year the House voted in an overwhelming fashion to cut the Amtrak Reform Council's budget by almost one-half, although the funding was ultimately restored in the final version of the appropriate bill.
I think the vote clearly indicates that there is some dissatisfaction with the Reform Council. My question to you then is whether Amtrak's board of directors is experiencing difficulties with the Reform Council, such as undue and unnecessary interference with your work. What are your comments about the Reform Council's business?
Governor THOMPSON. No, we have had no interference with the Amtrak Reform Council. We want to work with them, like we want to work with all of our partners.
This board has reached out to just about every conceivable group. We sat down and had dinner with the freight railroads and asked how we can improve services together. We met several times with the Reform Council and asked them how we could be helpful. We have submitted all the information they requested and will continue to do so.
They have been set up by this Congress and, as long as they are in existence, we want to work with them and cooperate with them and give them the information they need.
Page 28 PREV PAGE TOP OF DOC Segment 2 Of 2 We are reaching out to partnerships all over this country, and that is what is making this Amtrak board so exciting to be on. We are all working together to make this a viable operation, and we will continue to do so as long as Mike and I are on this board.
Mr. RAHALL. Governor Dukakis, do you have any comments?
Mr. DUKAKIS. Well, Nick, let me say this: we see the Council, the GAO, the DOT Inspector General, all of you, your staffs as people not only that we have to work with, but who can help us to do better. There's nothing defensive about this board, believe me.
Here, again, it's one of the reasons why it has been such a pleasure to be a part of this, because we've worked closely with the IG. It is important for us to analyze them and to respond strongly and positively to them. We've also worked to develop a good relationship with the Council.
Gil Carmichael, by the way, is the Nation's most passionate advocate of high-speed corridors and has been extremely helpful in helping us as we develop this plan that we are going to be sharing with you shortly.
The last thing in the world we need is combat here. We've got a lot to do. We need as much input from everybodyincluding, by the way, yourselvesas we can possibly get. But I don't think you will find anybody on this board who is putting up walls and being defensive about this.
We are very anxious to be responsive and to build good relationships. So far, we've had a pretty good relationship with the Council.
Mr. RAHALL. Let me ask you about your relationship with the unions now, if I might.
You noted that you have agreements in place with 12 of the unions, and that these negotiations have attained good work rule changes.
Page 29 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. DUKAKIS. Right.
Mr. RAHALL. Were these work rule changes also beneficial to the workers? In other words, what type of changes have been instituted?
Mr. DUKAKIS. Well, George can give you more detail about this than I can. Suffice it to say that, working with our unions, we set a significant goal$20 million, in factin savings as a result of productivity improvements. We have productivity councils.
As you know, this was not a good situation when the new board came on. Any organization that has got pending collective bargaining negotiations that have been going nowhere after three and four years just isn't doing its job.
I think, Tommyand perhaps George wants to talk about thisI think we feel very good about this and I hope our unions feel good about it, because they know that if we don't succeed they don't succeed.
So I think we have been able to build a very good relationship, and both Governor Thompson and I, from the day we got on the board, said, ''Look, one of the first things we've got to do is deal with this problem, get serious about wrapping up these negotiations and building a good working relationship, which also saves the company money.
I think we have been able to do that.
Governor THOMPSON. Congressman, before George answers, I'd just like to say that we've reached an agreement with all of our unions except one small one, and Mike and I and other board members have sat down with all of the union leaders and we've told them, ''We are in this together, we are partners. We can't be successful unless you help us.''
I think if you talk to the labor union officials that are going to testify here today and the other ones across America, they are going to tell youI would predict they will tell you--that there is a new-found partnership between management, the board, and the employees, and that people are really pulling together.
Page 30 PREV PAGE TOP OF DOC Segment 2 Of 2 There's new excitement out thereexcitement by passengers, excitement by the employees, and you can tell excitement by the democrat and a republican that never agreed on a damn thing when we were governors. But now, we are passionate about doing this. And that is the enthusiasm we are finding all over America for this.
I am pretty excited about it.
Mr. RAHALL. George?
Mr. WARRINGTON. Yes, Congressman, most of our focus has been around seeking cooperatively, with all of the labor organizations, agreements which give us flexibility and productivity without eliminating jobs.
As a practical matter, we have identified lots of opportunities to accomplish that mission. I will give you a good example.
Three years ago, our reservation call centers, where we handle all of our ticketing transactions, were considered the laughingstock of the transportation and travel service industry. This past March, we won an award as the best reservation call sales center in the travel industry, and we did it because we sat down with organized labor and worked on flexibility provisions and the opportunity to use part-time employees to cover a good number of those hours. This saved us money, and did not eliminate a single job. As a matter of fact, we hired up additional employees around these flexibility provisions and invested TRA and capital funding in smart technology.
The end result is we've got a workforce that is well-trained and flexible. Organized labor is very happy, and our customers are getting much better service.
We were working very cooperatively with organized labor to find those places where we can work together to improve productivity and flexibility and not put people out of work.
Mr. RAHALL. Very quicklyI noticed my time is up, Mr. Chairman, if I can just ask one more. These agreements are all up for re-negotiation by the end of this year, is that right, with all the unions?
Page 31 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. WARRINGTON. Yes, sir.
Mr. RAHALL. Thank you, Mr. Chairman.
Mr. WARRINGTON. But, you know, we have to start re-negotiating in January again. But so far the relationships have been excellent.
Mr. PETRI. Mr. Franks, any questions?
Mr. FRANKS. Mr. Chairman, thank you very much.
Mr. Chairman, I want to remove any ambiguity or confusion about the reason I am here today. I am a strong advocate of this railroad, of the leadership of this railroad, both its board and its president, George Warrington, but, gentlemen, I am going to use this as a forum to just put on the table
Governor THOMPSON. Please.
Mr. FRANKS.some of the issues that we are going to be hearing about during the course of today's hearing.
You gentlemen are very bullish, and I think that gives us all some inspiration, some level of confidence that the guys who are running the railroad, who have to make it run every day and have to improve service delivery every day say we are on the right path and we can get this job accomplished, so that heartens me to an extent.
And I say ''to an extent'' because there are going to be other folks on other panels coming forward today who are going to be loaded with reams of empirical data.
Governor THOMPSON. Right.
Mr. FRANKS. Empirical data that they will interpret in a manner, I suggest, different from the spin that you guys have tried to put on the same data.
I have some legitimate concerns about whether, when we say we are ''on plan'' means we are likely to meet the goal of operating without a Federal subsidy in 2003.
The plan stillyou guys give me the numbers. George, we made plan last year by $8 million better than the plan called for.
Page 32 PREV PAGE TOP OF DOC Segment 2 Of 2 Governor THOMPSON. That is correct.
Mr. FRANKS. But we lost money.
Governor THOMPSON. That is true.
Mr. FRANKS. We lost $900 million.
Governor THOMPSON. That is $925 million, to be exact, $575 million of cash.
Mr. FRANKS. Okay. We lost how much two years ago and how much last year?
Governor THOMPSON. We lost more last year than we did the year before, but a large amount of that is depreciation which is a non-cash cost.
If you take into consideration our 5-year plan, Congressman Franks, that is going to make us self-sufficient by the year 2003. It's a glide path. We have met our goals each time, and we haven't changed our accounting at all. It's the same accounting that Amtrak has used for years. It's one that the inspector general will talk to you about later on this morning.
With regard to our glide path, we are ahead. We beat it last year, we beat it this year by $8 million, and we are going toI am confiden meet our goals. That glide path will get us self-sufficient.
But, at the same time, I want to be very candid with you. We are going to have to have capital in future or we will not be able to sustain that.
Mr. FRANKS. Governor, the people will tell us today, I suspect, that your own glide path is so back-end loaded that it's unrealistic; that you are going to save such an enormous amount of money in the final two years of the plan that
Governor THOMPSON. Those same people said we couldn't meet the first year. They also said we weren't going to make it the second year. And they are the same ones that will say we won't make it the third year and they will say we won't make it the fourth year and we certainly can't make it the fifth year.
Page 33 PREV PAGE TOP OF DOC Segment 2 Of 2 All I can tell you, if I was a Doubting Thomas, I would look at the experience, look at the fact that we have met our goals and have exceeded them for two years in a row.
Now, they would have some more credibility if we didn't make those commitments or made those goals the last two years, but we have.
That is my answer to them. We will never be able to convince them.
Mr. FRANKS. I want to get into one other area because I know George wants to say something, but some of these same critics are telling us that the wheels are falling off our Acela service, literally and figuratively.
Governor THOMPSON. I want to
Mr. FRANKS. And the delay in the implementation of the service is going to disrupt our revenue projection from Acela service, which was a key feature of next year's plan.
Governor THOMPSON. I really am happy you raised that question because I want you to know that
Mr. FRANKS. Better me than someone else, Governor.
Governor THOMPSON. Yes. I appreciate that, Congressman.
You know, last week we hit 168 miles per hour in Rhode Island, one of the fastest times that a railroad has ever been operated in America, and we did that.
The thing this board said, if we are going to have high-speed trains, let's make darned sure that it is safe and that it is dependable, and when we were not sure that the tests were completed to our satisfaction, management and the board said, ''Better to delay it and do it right.''
This is the new board. Sure, we could have put something out there and it might have failed. It might have operated one or two days and then it might have failed. But we said no, we want to be darned sure that it is safe; that it is efficient; that it is on time; and, that it is going to be dependable.
Page 34 PREV PAGE TOP OF DOC Segment 2 Of 2 That is why we delayed it. We sat down with Bombardier and Alston, who are manufacturing our trains, and they indicated that they had some problems with truck hunting and some wheel wear, and we wanted to make darned sure those problems were taken care of before we put it in service. That is why the delay was there.
I can assure you that when we operate the Acela the wheels will not fall off. The wheels will be rolling very rapidly and will be going from New York to Washington, D.C., in less than two-and-a-half hours and will beat the pants off the commuter airlines.
Mr. PETRI. Mr. Clement, any questions?
Mr. CLEMENT. Thank you, Mr. Chairman.
I want to congratulate you, Governor Thompson, Governor Dukakis, and your members of the board, as well as President Warrington. I am very pleased about your numbers that have come in, having the highest revenue total in Amtrak's 28-year history. I've supported Amtrak, still supporting Amtrak.
I am from the State of Tennessee, and we'd like to have Amtrak service. As you all know
Governor THOMPSON. And we'd like to give it to you.
Mr. CLEMENT. As you know, in previous years Amtrak has gotten criticized for serving parts of the country, but a lot of parts of the country are under-served or no service at all.
If we are going to have Amtrak service serving the entire United States, we need to move in that direction.
I am still concerned about that, and I am very pleased about these numbers, and I know I've met with the board in previous years and former presidents, as well.
What hope can you give places like Tennessee? And I realize we are not the only ones without it, but there has been criticism in the past that Amtrak has run trains for political reasons rather than for economic reasons, and we think, for economic reasons, we could improve even more your bottom line.
Page 35 PREV PAGE TOP OF DOC Segment 2 Of 2 Governor THOMPSON. To answer your question, Congressman, we've done something that Amtrak has never done before. You weren't here when I testified earlier and explained that a little bit.
We've gone through a market-based Network analysis of every viable passenger route, of every railroad. We've made a survey of our passengers, our employees, our profitability, our ridership, on every line in the country. That is never been done. That shows you how dedicated we are to operate this like a business.
We are going to look at what are the most optimal routes. Maybe we are going to have to change some. Maybe we are going to have to put more cars on some. Maybe we are going to have to put fewer cars on some.
We will be looking at Tennessee. We looked at Oklahoma and Fort Worth, Texas. We opened that up this year for the first time in twenty years that Amtrak has operated between these two cities.
I am here to report to you that our ridership on this new service is up beyond our projections, and that is exciting.
So we are going to have this market-based network analysis completed by December of this year, and I can assure you at that time we will be more than happyas Mike Dukakis has so passionately indicated, to sit down with you. We want to sit down with other Members of Congress and discuss how we can do a better job. And we will look at Tennessee to see what is profitable and what we can do to expand our service.
Mr. DUKAKIS. Mr. Chairman, can I add a word or two to that?
Mr. CLEMENT. Yes, sir.
Mr. DUKAKIS. As you may know, we are working collaboratively with the FRA and Bombardier on a much more powerful high-speed locomotive which will be non-electric and use tilt technology. So the prospect of much higher speeds on improved track are really very promising.
Page 36 PREV PAGE TOP OF DOC Segment 2 Of 2 But what seems to be happening is that, as we get close now to inaugurating our new northeast service, other parts of the country, for various reasons, are taking a look at this.
All of the sudden, the southeast says, ''Hey, we've got serious problemsWashington/Richmond, Richmond/Charlotte, Charlotte/Atlantaand they do in every one of those metropolitan areas that will not be solved unless we have high-speed rail in that corridor.
The Gulf Coast, Governor Bush of Florida killed the Fox plan but now wants ushas hired us to go in there and begin to take a serious look at this kind of service.
The midwestnine States are collaboratively putting the so-called ''Chicago hub plan'' together, which will connect Chicago by high-speed rail with each of the major cities in the midwest.
You know, I teach three months of the year at UCLA in the winter time, it's a great arrangement. I recommend it to any of you when you leave office. I am spending a lot of my out-of-classroom time out there in the winter working with our folks, governors and legislators out there on the west coast on this kind of thing.
So if we can develop with you all the kind of national high-speed corridor plan that we are talking about, then I think you are going to find that Tennessee begins to become very much a part of this.
Let me say one more thing: in all of these cases, the States are going to have to be our partners. The Oklahoma service didn't get underway without a substantial commitment on the part of the State, and the same is true with these other corridors.
So we see this high-speed corridor plan as being a Federal/State sharing plan in which the States, if they are serious about this, step up to the plate with a substantial State match, and if we can do that
Page 37 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. CLEMENT. And, Governor Dukakis, we understand that, you know. We are going to need funds from the Federal, State, local, as well as the private sector.
President Warrington, would you comment on that, as well. And then I know we've got to move on, Mr. Chairman.
Mr. WARRINGTON. Yes. Governor Thompson touched on it, but I will tell you, what we are doing for the first time in 27 years is looking at every single existing route and service that we run, every conceivable reconfiguration of those routes and every potential city pair that exists out there, then overlaying on top of it the market demand based upon frequency travel times, on-board amenities, and mail and express opportunities.
If you to back to the 1950s and you look at the Profit & Loss for all of the private railroads that were operating passenger service before they were all basically disposed of, what you find is 45 to 50 percent of the revenue attributable to passenger service that made those operations profitable was for mail and express business on the tail end of those passenger trains. Amtrak lost that for many, many years. We are working very, very hard to reestablish that, and that could be as much of a driver around train service demand as passenger demand and passenger business.
What the market-based assessment is doing is taking a look at every conceivable city pair, every conceivable route, and aiding us in making a determination about which routes make commercial sense for passenger business on the presumption we run a superior service with consistency across the system and overlay on top of that the mail and express opportunity.
Tennessee may be an opportunity for that. There are large shippers in that area. We do a fair amount of mail business from both Kentucky and Tennessee and right now that we arrange to truck it. In fact, there may be opportunities to substitute those trucking agreements with rail services.
Page 38 PREV PAGE TOP OF DOC Segment 2 Of 2 We are taking a clean sheet of paper around those opportunities, and I can't tell you today what the results are, but we are being honest and we are being deliberate about it.
Mr. CLEMENT. Thank you very much.
Mr. PETRI. We have a vote on the journal, and I think what we will do, unless someone has a better idea, is to have Mr. Pease for five minutes, and then we will still have six minutes to get to the floor. We will recess and come back at 11:15.
Mr. PEASE. Thank you, Mr. Chairman.
I just have a few observations, then I want to yield my time to my colleague, Mr. Franks from New Jersey.
First, I wish to associate myself with the remarks of my colleague from Oregon, Mr. Blumenauer.
I believe strongly that we have a fiscal responsibility here to partner with Amtrak to make sure that it is successful in meeting its fiscal goals, but that we have a broader responsibility to the entire transportation system in the entire United States. How this fits as part of that system may or may not lead us to a conclusion that the current fiscal plan of absolute individual responsibility is the appropriate one. I am reserving judgment on that, and we will want to hear from you about it.
But I know, from a personal experience, for instance, with Amtrak in my District in LaFayette, Indiana, Amtrak partnered with usalthough the major lifting, I have to tell you, was done by CSX and Norfolk Southernin an effort to consolidate all of the various rail lines in that community into one corridor and direct grade separations so that, when that project is completed in a year-and-a-half or so, all rail lines through the city will go through one corridor, completely grade separated from roads and streets, which improves travel time, which improves efficiency, which improves air quality. I mean, it has been a wonderful partnership.
Page 39 PREV PAGE TOP OF DOC Segment 2 Of 2 Amtrak, though it wasn't in a fiscal position to help, as CSX and Southern were, was an active partner in that, and I think that is an example of how we can do very well in the future.
My personal experience with Amtrak was many years ago, going to Raton, New Mexico, where Amtrak provides the service for about a third of the 20,000 kids who go every summer to Philmont Scout Ranch in the mountains of northeast New Mexico.
It was a wonderful experience. They still depend upon it. It makes it possible for a lot of kids from the eastern United States to have an experience in the western United States at a reasonable rate and to take all the gear that they have to take, and they would have trouble taking in cars and airplanes, with them. So I am grateful for that. I look forward to working with you. I yield the time to Mr. Franks.
Governor THOMPSON. Thank you, Congressman.
Mr. FRANKS. Thank you, Mr. Pease. Just one question. I thank you for yielding.
The dilemma that Is employee ahead of us stems from some of the comments we've already heard from member of the panel, and it is to be expected that folks who represent local constituencies will want to gain access to the great service that we are lucky enough to have in the northeast.
Governor THOMPSON. Yes.
On the other hand, we set a very tough goal for you folks to meet by 2003.
Governor THOMPSON. That is true.
Mr. FRANKS. George talked about the historic effort that the railroad is making at evaluating the competitive nature of these routes.
George, is there any way that this process will yield a conclusion that maybe we shouldn't be running the kinds of service that we are running today between a variety of points in the country, or are we only opening the door to the potential of additional service that will be run by Amtrak?
Page 40 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. WARRINGTON. No, I thinkwe haven't seen all of the results of the work yet, and we will definitely have all of the results by December.
If I was going to speculate, I would tell you that we will probably have a national system that is similar to today's system, but with a greater reach and the likelihood of a number of re-routings of trains to serve different markets than today for either passenger demand or mail or express business.
We will have a very clear picture of what makes sense commercially and what doesn't make sense by the end of the year.As a result, the system will need to be reconfigured somewhat. There will need to be new services, and we will have to alter some of the services we are operating today.
I will give you a good example of one of those opportunities, which will end up being a win-win all around and improve the bottom line.
The Crescent runs today between New York and New Orleans. The likelihood is that we can do much more mail business on the Crescent between New York and points south and points west. There may be opportunities, toofor example, split that train in Mississippi and send a section west over the Kansas City Southern, open up reach, more connectivity to the Oklahoma service and the Texas Eagle, generate a load of mail business between Atlanta and Dallas, and improve the overall operating performance of that train.
We have been directed to run a national system. Before we start dismantling that system, our mission is to stretch and pull, to the greatest extent possible, to find revenue streams, commercial opportunity, and passenger demand in whatever markets we can to improve the overall operating performance of that system. In other words, to grow the system and make it strong, rather than nickel and dime ourselves into a shrunken system that ends up behaving like a downward spiral because you loose connectivity and frequency. One day you wake up and you basically don't have a system that you are proud of.
Page 41 PREV PAGE TOP OF DOC Segment 2 Of 2 We will have very clear answers to your question by the end of the year.
Mr. FRANKS. Mr. Chairman, thank you.
Mr. PETRI. Thank you.
The subcommittee will recess until 11:15.
Mr. PETRI. We might as well get back in order. The subcommittee will resume. We have an ambitious schedule of witnesses, in addition to our Amtrak board chairman, the governor of Wisconsin, so we might as well try to use our time as productively as possible.
Mr. Horn, do you have any questions?
Mr. HORN. No, Mr. Chairman.
Mr. PETRI. All right. Let's see, Mr. Filner, would you like to come up here?
Mr. FILNER. Yes. Thank you, Mr. Chairman. I thank you and Ranking Member Rahall for arranging this important hearing. It is clear that all of us want to take part in making Amtrak stronger. We are all strong supporters of Amtrak and its hard-working employees, and we want to make sure that the system works, so we thank you. Your energy and enthusiasm, governors, I think go a long way in helping us have the confidence that that is going to occur.
I appreciate Governor Dukakis' mentioning of the San Diego/LA route. I am going to ask another question about that, but we see that in southern California as exceedingly important to helping us deal with the transportation issues that we have. It has been a great success. People talk about the northeast corridor, but I think they are going to be talking about the southwest corridor certainly in the future.
I want to raise two issues with you, if I may, one being the California situation, the other the issue of safety, in general, and worker fatigue, in particular.
Page 42 PREV PAGE TOP OF DOC Segment 2 Of 2 I know that Amtrak has a particularly good worker safety record, and your unions and yourself have worked hard to keep that safety up.
But I think we've had some recent accidents which demonstrated the need for certain reforms in the industry, and that is particularly true of accidents involving fatigue, where simple lack of adequate rest hampers a worker's ability to properly and safely conduct the job.
We know that alertness is critically important. We restrict airline pilots to 100 hours a month of work. We restrict truck drivers to 260, vessels on the sea to 360, and yet railroad workers are limited, if I can put that in quotes, to 432 hours a montha big different between that and the other means of transportation. I think it is a recipe for disaster, and we have come close to that in San Diego.
Earlier this year, in San Diego, just north in the Delmar area, fatigue caused an accident that could have been deadly. It was not. Instead, two commuter trains sideswiped each other instead of colliding.
I am told that the Amtrak and labor representatives have determined that the accident was fatigue related. It took, by the way, a lot of probing by a local TV station to get some of that information.
I know you've taken the steps now to improve the sleeping arrangements for workers, to make sure that they receive adequate rest between shifts, but it is an important problem and we have legislation pending before this committee. Mr. Oberstar's bill, 2450, has major changes that I am supporting. Mr. LaTourette on this committee has H.R. 3091, which requires, again, 72 hours of consecutive rest between a worker's shift. And these are important, I think, efforts to help that.
So I want to ask you, one, now that in San Diego we've determined that fatigue was a factor, what steps are you taking system-wide to make sure that other situations do not occur? Do you have a position yet on the Oberstar bill, the LaTourette bill, on safety reform? And I would also like to give Governor Thompson, after maybe the president says something about safety, a chance to enlighten us again on how California, and especially southern California, which is so historically reliant on the automobile, and how, if we are going to advance economically and environmentally together, we need Amtrak and its service there.
Page 43 PREV PAGE TOP OF DOC Segment 2 Of 2 So I thank you for your appearance here this morning.
Mr. WARRINGTON. Yes, Congressman, we have worked very closely over the last, I'd say, six months or so with the Brotherhood of Locomotive Engineers around the matter of fatigue. As a matter of fact, we have formed a committee with labor to review all of our long-distance train routes and make determinations about which routes have potential problems like that associated with them, particularly during the hours between shifts that run between roughly 11:00 to midnight and 6:00 in the morning. Together, we are making judgments about how we deal with each of those situations, and whether that situation may warrant a second engineer up in the locomotive. That is number one.
Number two, we have had under contract Cicadia Rhythms Technology to aid us in developing a plan for all of our workforce, particularly our locomotive engineers, around sleep deprivation and the proper kind of rest techniques associated with each of the jobs that we have.
I would say that we are probably one of the leaders, number one, in terms of working with labor, and in terms of attacking this issue to make sure we are erring on the side of doing the right thing.
Mr. FILNER. Do you have a position on that legislation that I referred to, the railroad safety reform acts?
Mr. WARRINGTON. I am told we don't have a position right now, but we will certainly take a look at it.
Mr. FILNER. Yes. I hope that other railroadsthe experience that you are having with cooperation and looking at these studies has transferred to other railroads in our Nation, and that they seriously look at this issue.
Anecdotal evidence tells me we could have made those sleeping arrangement changes in San Diego a lot earlier. I mean, engineers had told me a long time about that lack of just comfortable ability to sleep.
Page 44 PREV PAGE TOP OF DOC Segment 2 Of 2 And I hope that you take some of this anecdotal evidence that many of us collect as serious. It's not just that we are being political or anything else; our evidence suggests some reality at some point.
So I thank you for those efforts, and I hope that we can see these nationwide, and not just on Amtrak.
Mr. Thompson, again, the energy that you bring to this job and Mr. Dukakis brings are very important, and we need cheerleaders like you for southern California, so I hope you might give us some more cheerleading on how we are going to move toward more reliance on rail in the future.
Governor THOMPSON. Well, first off, I thank you for the question, Congressman Filner, and I want you to know that Governor Dukakis has just done an outstanding job in California promoting Amtrak. He will speak more specifically about that in a few minutes.
I just wanted to point out a couple of things.
Mr. FILNER. Is he going to require safety helmets?
Governor THOMPSON. I wanted to point out something that really hit me, and I've been talking about this for some time, Congressman.
We took the board and management, to California earlier this year. For the first time, the Amtrak board went to California to hold a public hearing. And Governor Gray Davis came, and one of his staff people came and testified.
It's something that I think is so important to understand. This woman got up, and she says, ''Members of the Amtrak board, I want you to know by the year 2020 California is going to have 19 million more people. That means there will be 45 million people living, residing in California by the year 2020. Now, there's no way that you are going to build enough highways or site enough airports to be able to handle that population growth.''
Page 45 PREV PAGE TOP OF DOC Segment 2 Of 2 The only salvation, truly, is high-speed trains and Amtrak, and they encouraged us that we really need to get our high-speed corridors up and operational as soon as possible.
I use that population growth just to point out the tremendous need for passenger rail service in America, and specifically in California. Amtrak is dedicated to give California the best passenger rail system that we possibly can.
I want to point out something that Mike Dukakis has been talking about here today, and that is the State of California has contributed millions of dollars to upgrading our rolling stock and improving our services in conjunction with Amtrak. The San Diegan service is going to have new train sets that we are going to put in operation relatively soon which will expand and improve service. Very soon, we are going to enter into a partnership between the Union Pacific Railroad, and the cities of Los Angeles and Las Vegas about a new passenger rail service that we will start later on this year.
These things are just some of the things we have that we are working on that will improve Amtrak. But the person that has really spearheaded this for us on the board has been Governor Dukakis, and I'd like him to answer more detail what you just asked.
Mr. FILNER. We have adopted Governor Dukakis in California. He teaches there one quarter of the year, so he has become a Californian.
Governor THOMPSON. Well, let me tell you, you've got a jewel.
Mr. DUKAKIS. Thank you. It's a great lifethree months and Californiaand they are the right three monthsand nine months in New England. How can you beat it?
Mr. PETRI. Living in Wisconsin.
Mr. DUKAKIS. Well, that is true, too.
I am trying to stay out of tanks and stay on trains. On the other hand, as I often say these days, I've never thrown up all over the Japanese Prime Minister. So here we are.
Page 46 PREV PAGE TOP OF DOC Segment 2 Of 2 [Laughter.]
Mr. DUKAKIS. Just a couple of things.
First, what is going to be happeningwhat is already happening in Californiayou know, Kitty and I were just out there for a conference at UCLA over the past weekend, six miles an hour on the 405 at 3:00 in the afternoon. I mean, it's wild. It's crazy. Something has got to give here.
So we are working very closelyand, by the way, the woman who was with us was Lynn Shank, the governor's chief of staff, who is a great supporter of this. She, as you know, is now working for Governor Davis and was at our board meeting.
We are now deeply involved, through Amtrak West with the State in at least four corridors, and possibly five. One, obviously, is LA/San Diego, and, more accurately, Santa Barbara/LA/San Diego. The second is San Jose/Sacramento. The third is the San Joaquins. And the fourth is LA/Las Vegas.
The Davis Administration has indicated that, of this proposed $16 billion in infrastructure spending that is seriously being talked about in Sacramento, fully $4 billion will be committed to rail.
And if working with you, Mr. Chairman, we could develop some kind of a matching program, which would double the State investment with a Federal match, I mean, that is the kind of investment that will really give you first-class service.
Now, in the meantime you should know the State High-Speed Rail Authority has its own plan, and whether or not California decides to embark on that is up to the people of the State of California. But we have been working very closely with them so that these particular corridors which we are talking about can proceed right now. By the way, it was Jim Mills that suggested that we go to work on those particular corridors.
So we are deeply into them. We are already committing monies that you have provided us through TRA to some of those corridors. Without it, I don't see how California can function if, in fact, you are going to have as Tommy says, 50 million people by the year 2025. That is where you are headed.
Page 47 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. PETRI. Thank you.
Mr. FILNER. Thank you.
Mr. Coble, any questions?
Mr. COBLE. Thank you, Mr. Chairman.
It is good to have these two fine governors here, but I don't want to overlook Mr. Warrington. Good to have you, as well, Mr. Warrington.
The chairman, in his opening statement, gentlemen, indicated that Amtrak has the third-lowest productivity recordthat is, passenger kilometer miles per employeeand he furthermore told us that Poland and Romania beat us out, so we are third to Poland and Romania.
What, if anything, is being done to correct that, gentlemen?
Mr. WARRINGTON. I can't evaluate those comparisons, Congressman. What I can do is stack our collective bargaining agreements up against U.S. industry, both freight and commuter, and I will tell you that, from a wage point of view, our employees earn less than their counterparts in the freight industry. As a matter of fact, in our last round of negotiations the outcome was about 90 percent of the freight industry wages, number one.
Number two, as we discussed earlier, we offset 20 percent of the cost of those wages with flexibility and productivity improvements.
And, as a practical matter, I would stack up our agreements against virtually all of the providers in this country, and they will stand out quite well.
Mr. COBLE. So it perhaps is not as dismal as it may appear?
Mr. WARRINGTON. I will assure you that it is not at all dismal. Also, I have to say that organized labor attached to Amtrak has been cooperative, supportive, and fully recognized the importance of flexibility and productivity so that we can get where we need to get to by 2003. They have been extraordinarily responsive.
Page 48 PREV PAGE TOP OF DOC Segment 2 Of 2 It isn't easy, but there is a collective will to do the right things here, and there is also a recognition that Amtrak management wants to work closely with labor and labor wants to work closely with management to make this happen by 2003.
Mr. COBLE. Very good. Thank you, sir.
Now, I just stumbled across
Governor THOMPSON. Congressman?
Mr. COBLE. Yes, sir?
Governor THOMPSON. In the recent contracts we negotiated, we also reached an agreement with the unions, with the employees, we will pick up 20 percent of the costs of the increases through productivity and rule changes, so this is part of the new contract, the new direction, the new boardto increase and improve the productivity. And the employees have come along and they have exceeded what we had put in the contract, which I think answers your question directly.
Mr. COBLE. It does. It appears you all are on top of this.
Now, fellows, let me say something to you that distresses me. I just stumbled across this information fairly recently. In my home State, North Carolina, I am told that the State comptrollerand that is probably the treasurer or the auditor, probably the State treasurerhas refused to pay bills from Amtrak for State-supported passenger service on the grounds that Amtrak's invoices are, to use the words that were told to me, so messed up the that State treasurer fears being liable under State law if he pays the invoices in their current form.
You all may recall that section 206 of the 1997 reform law gives the States access to Amtrak's records, accounts, and other necessary documents to determine the amount of any payment to Amtrak required of the States.
Mr. Warrington, are you equally on top of this one? Strike that. Is what I just said to you accurate?
Page 49 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. WARRINGTON. I am not aware, personally, of a problem with North Carolina around invoices. I assure you that I will personally straighten it out.
Mr. COBLE. If you could get back to us on that, I would appreciate that.
Mr. WARRINGTON. Absolutely.
[The information follows:]
Mr. Coble, we have contacted the state of North Carolina and have asked them if there were any outstanding bills which have not been paid by Amtrak. We were assured that, as of October 30, 1999, our accounts were paid and they were not sure as to why the Comptroller's office would have indicated that there was money due to them from Amtrak. Therefore, Governor Thomson's response to your question at the hearing was correct.
If there are any other issues related to our relationship with the state of North Carolina, we would be happy to provide answers to them as well.
Mr. WARRINGTON. I will tell you, Congressman, that we have a terrific working relationship with Governor Hunt, Secretary of Transportation David King, Pat Simmons and all of the folks who are interested in expanding Amtrak service in North Carolina. They are terrific partners, and if there are any issues around invoices or paper processing and documentation by Amtrak, I will get to the bottom of it, myself.
Mr. COBLE. You will let me know about it?
Mr. WARRINGTON. I will let you know, personally.
Governor THOMPSON. Congressman, if I could quickly answer that, at the present time, we have no outstanding receivables from North Carolina. All were paid this summer. So we have none.
Page 50 PREV PAGE TOP OF DOC Segment 2 Of 2 I would like to quickly point out that, as George has indicated, Governor Hunt has invited Amtrak down for several seminars with other governors and other people in southeastern United States. Also, several of your wonderful people from North Carolina were in Milwaukee this week enjoying our hospitality up there and pushing for high-speed trains in North Carolina. I had a chance to meet several of them. I just wanted to point that out that we are working very hard to improve a rail passenger service in North Carolina with your fine Governor Jim Hunt.
Mr. COBLE. Thank you, gentlemen.
When the red light illuminates, our Wisconsin chairman becomes uneasy. I see the red light is on, so I back off.
Mr. PETRI. Mr. Borski.
Mr. BORSKI. Thank you, Mr. Chairman.
Mr. Warrington, let me start with you, if I may.
I think I heard earlier that you said something to the effect of the reservation call center is now the best in the industry.
Mr. WARRINGTON. Yes.
Mr. BORSKI. Where is that call center located?
Mr. WARRINGTON. I believe it's in your District, Congressman.
Mr. BORSKI. Maybe that was a wise move by Amtrak, and I am delighted to hear that.
I wanted to focus my time, if I could, on capital. Governor Dukakis and I have talked about this on several different occasions. I want to talk about it in the context of the passenger rail service in the world. I don't know of any that operate on their own, and I am delighted to hear of the great successes you are having in your operating expenses, but what about your capital needs? Will they be met for the next five years?
Page 51 PREV PAGE TOP OF DOC Segment 2 Of 2 We have big money problems here, as I am sure you know. As a matter of fact, today we will be talking about a potential 1 percent across-the-board cut in all of domestic spending.
This committee, particularly, has been enormously successful in a bipartisan fashion on protecting the gasoline revenues, if you will, potentially from these budget cuts. If that happens, perhaps you would even get hit with a bigger cut.
So I guess my question is: do you have enough capital to make the job work? And how do we get it for you?
Mr. WARRINGTON. As you know, we received from the Congress just over $2 billion in Taxpayer Relief Act funds two years ago. Frankly, those funds will be fully depleted by 2001. We have invested them wisely and will continue to invest them wisely, and they are in large measure going to enable us to get where we need to go by 2003 in terms of return on investment and improving our operating efficiency.
We have been very straight, very forward, and very up front over the last two years about the fact that the TRA fund will expire. The unfortunate situation, conceivably, here is that we will get to a point by 2003 where we have made extraordinary progress from both a revenue and expense point of view and get us poised and positioned to really take off, rather than just live on the edge of our seat.
Unless we fix the capital needs problemand you will hear later today from Ken Mead and others about the desperate long-term capital needs that we have if we want to build a railroad that we can all be proud of.
If we are going to do that and not just live on the edge of our seat; not slip backwards in the face of all the progress we will have made by 2003, that problem needs to be fixed.
And later this year, when we articulate what the market-based national network ought to look like; what the economic benefits are that flow from high-speed corridor development around the country; when we see next spring what a terrific service package we are going to have in the northeast corridor that could be modeled all across this country; what we are going to find is that there is a price tag that goes with it. You get what you pay for. And, as a matter of public policy, we are all going to have to step up to figuring out a way to solve that problem. Otherwise, all of this time, energy, effort, money, and investment of making this enterprise work will erode.
Page 52 PREV PAGE TOP OF DOC Segment 2 Of 2 Governor THOMPSON. Congressman Borski, I would like to quickly point out that the money we used we have invested it very wisely under the TRA account. In fact, we put $30 million in the new information technology system that was the basis for your reservation system in Philadelphia, which turned out to be the best in the transportation system.
So we are investing the money. We have about $1.1 billion left. As George has pointed out, we will have spent it by the beginning of 2001.
It seems to me it would be a real waste to work this hard to become operationally self-sufficient and then not have the capital to proceed in the future.
This board and the management of Amtrak want to be very candid and up-front with the Congress. We can become operationally self-sufficient, but we will need an infusion of capital in order to develop the high-speed corridors, and continue to operate the national passenger railroad system the way that it should be operated.
Mr. DUKAKIS. Mr. Chairman, could I add just a word to that?
Just to go back to my opening statement, that is why we expect to have, by the end of the year, a plan which we would like to share with you, perhaps informally for starters, which will take a look at this railroad post-2001 and 2003. We want to work very cooperatively with you to determine exactly what this railroad is going to need on an ongoing basis annually in the form of capital investment with a capital ''C.''
If we can come to some agreementand, again, with an appropriate State matchthen I think we can not only guarantee you that we will be operationally self-sufficient by 2003, but for the long-term we will be comfortably self-sufficient. I believe this because these corridors are going to make money. Then we will have some profits to plow back into the system.
So we are going to begin to share that with you, and we should put the finishing touches on this plan of ours by the end of the year. We would then look forward to working very closely with you to see how much and how we would identify these needs.
Page 53 PREV PAGE TOP OF DOC Segment 2 Of 2 I can tell you this: whatever the final number is, it will be a fraction of what we are spending on highways, airports, and other forms of transportation.
Mr. BORSKI. One quick follow-up, if i may, and that is: what about the rest of the world? What about your capital needs as compared to what the French do or the Japanese do or others? That might be helpful.
And the second piece of thisand you don't necessarily have to answer it, but I know that Amtrak was looking, at one time, for potentially getting a little bit of the gasoline tax, and I expect that that would be very, very difficult to try to get done politically here.
I am curious if you have thought at all about any other user fee specifically to passengers. Is it worth looking at something similar to what we do with airline passengers and have a ticket tax that is supposed to go back into the aviation industry or a passenger facility charge of some sort that, again, goes directly to a particular airport.
I don't know if you've thought of that at all and I don't need an immediate answer, but it might be something you want to think about.
Governor THOMPSON. Congressman, the first thing we have to do is we have to develop our market analysis, which will be done soon. At the same time, we are developing our capital needs plan, and we have to develop that before we actually determine the revenue that we need and how we are going to raise that revenue. But we want to work in cooperation with you and your staffs in Congress and come up with a plan, but it is going to need a sizeable amount of infusion of capital.
Mr. DUKAKIS. Mr. Chairman, if i could just respond to your first point very quickly.
You know, other systems pull hundreds of millions of dollars both into the operating and capital side. I am only speaking for myself, but I think there is a lot to be said for the discipline of an approach to this over the long run where you contribute capital and we've got to make an operating profit.
Page 54 PREV PAGE TOP OF DOC Segment 2 Of 2 Now, no other railroad in the world does thatI mean no other passenger railroadbut so be it.
I think we can assure you that, with what I've called a relatively modest infusion of capital funds on a regular, ongoing basis, we can make a comfortable operating profit.
My own sense is that this is an important element of discipline for us, and I think when we propose our plan to you that will be very much a part of it.
Mr. PETRI. Mr. Duncan?
Mr. DUNCAN. Thank you, Mr. Chairman. I have just one brief question.
I, like, I suppose, most of the people on this subcommittee, would like to see more rail service of all typesfreight, passenger, and so forthbut a later witness in this hearing today will testify at one point, and he says this, ''One freight railroad calculates that its subsidy to Amtrak, as compared to fair market prices paid by other railroad users, exceeds $40 million per year.''
I would just like to see, is that accurate or close to being accurate? If it is, then that is just one railroad. What do you estimate is the total subsidy paid by all of the private railroads in this country to Amtrak?
Governor THOMPSON. Mr. Duncan, I can't answer that question because I've never been privy to those figures. I don't think they are accurate, but I can't say absolutely they are not. But I can tell you that the Amtrak board has set out to develop a whole new partnership with the freight railroads, and we've done that. We've sat down, had dinner, discussed how we can work in cooperation.
I don't think that there has ever been, in the history of Amtrak, a better working relationship than there is today with the freight railroads, evidenced by the fact that we've just entered into a new contract with the Burlington Northern-Santa Fe Rail and UPS, in which we are going to be handling the UPS parcels for the BNSF Railway and we are going to be sharing both profits and revenue.
Page 55 PREV PAGE TOP OF DOC Segment 2 Of 2 We've started new partnerships with freight railroads on so many different avenues, and we are just starting to scratch the surface.
I would say if those figures were accurate beforewhich I don't think they wereI would say that in the future the freight railroads are going to be here lobbying for Amtrak because they are going to be making money off of Amtrak with our new kinds of contracts, our mail and express in particular.
We entered into a contract yesterday in which we are going to be handling produce, refrigerated produce. Nobody ever, ever expected Amtrak to get into that, and that is an $8 billion business that we are starting.
All we want is just $1 billion of it. We don't want to be greedy. We just want a small portion of it.
So we are developing many different kinds of business transactions with the freight railroads that I think they are going to testify later today that they are supportive, and also appreciate the new cooperation that has started.
Mr. DUNCAN. Okay. Thank you very much. Very good answer.
Mr. WARRINGTON. Yes. Let me just say a couple of things.
Number one, we pay the freight railroad industry for basically the privilege of operating over their territories across the country about $80 to $90 million a year, and that is to cover the incremental costs associated with our trains operating over their routes.
I think the long-term issue here is that the industry is saturated with demand and congestion. Amtrak's long-term plans around expansion of service and high-density corridors will require investment arrangements with the industry in capacity and mitigation in order to enable our trains to operate both faster and perhaps more frequently in rights-of-way and over freight railroads. But that is going to require a genuine partnership and a willingness by Amtrak, for the first time in our history, to make conscious decisions to partner in modeling operations together over 20 years around demand for freight and passenger service.
Page 56 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. DUNCAN. Okay. Thank you very much.
Mr. PETRI. We've been joined by the dean of our committee, the gentleman from Minnesota, Mr. Oberstar.
Mr. OBERSTAR. Thank you very much, Mr. Chairman. Thank you for holding this hearing. I think it is a very opportune moment to have a progress report on Amtrak, and I want to congratulate Governor Thompson for the splendid job and enthusiasm he brings to this task.
Governor Dukakis, they are still waiting for you up in Virginia, Minnesota.
Mr. DUKAKIS. Tell them I love them.
Mr. OBERSTAR. You can come back any time.
Mr. DUKAKIS. If all the people in the United States had had the good judgment of the people in Minnesota, I'd be here in the
Mr. OBERSTAR. It would be a different picture. Yes, that is right. They are still waiting for you. Just don't come back and run against me.
Mr. OBERSTAR. Tommy, you are really doingit's great to see your enthusiasm. You are wonderful.
Governor THOMPSON. Thank you.
Mr. OBERSTAR. Mr. Warrington, I appreciated the opportunity to visit with you just recently.
I have several rather focused questions I'd like to pursue.
GAO and the Inspector Gneral will discuss, if I read their testimony accurately, that treating progressive overhauls as capital expense runs contrary to generally accepted accounting principles.
Page 57 PREV PAGE TOP OF DOC Segment 2 Of 2 Could you respond to that question, since you probably won't have an opportunity to come back later and respond to that?
Mr. WARRINGTON. Generally accepted accounting principles require us to book those costs as operating costs, and generally accepted accounting principles and our auditors also enable usand completely legitimatelyto cover the cost of those and apply the cost of those overhauls to our capital program, and since the beginning of time we have booked them as operating expenses and we have included those costs for progressive overhauls within our capital program, and that is an allowable expense. It is an allowable expense and charge in the capital program. It also has to be displayed as an expense on the operating side of the ledger.
Mr. OBERSTAR. I think you need to be very precise and very clear about that matter, because this question of the flexibility of the capital account was a major point of contention as we were putting together the Amtrak reform legislation and funding that Senator Roth crafted for us.
There is concern that loss of the commuter rail contract in Boston will be a detriment to the operating successoperating financial success of Amtrak in the northeast corridor. Would you comment on that? Was there a fair competition?
Mr. DUKAKIS. I addressed that in my opening statement, and I don't think you were here at that point. There's no question that we've lost the contract. I think it was the wrong decision for the Commonwealth, and I've said that to the governor, but they made that decision.
We have very serious doubts about the ability of the private contractor to do the job that we are doing at the price that they've bid. And, as I pointed out to the members of the committee, I was governor when we had a private operator, and they were doing such a bad job we took it away from them and contracted with Amtrak, which has done a superb job. They have 97 percent on-time performance, ridershipI think I mentioned to all of yougoing up steadily at the rate of 8 or 9 percent per year. It has just been terrific. So we will see whether or not that, in fact, is a credible bid.
Page 58 PREV PAGE TOP OF DOC Segment 2 Of 2 Operationally, these folks are supposed to take over by spring. I think there are growing concerns on the part of the current State administration as to whether or not they are going to be able to do that.
In the meantime, our job is to continue to operate the system. This is just the mechanical part of it. So that raises interesting issues, because we will no longer be doing the mechanicals on equipment that we are operating.
Now, how all of this is going to turn out, I don't know, but we have told the current State administration that we are prepared to continue to work with them, and if it doesn't work we will be right there and we will keep doing what we are doing, but we will see. The next three, four, five months are going to be interesting.
Mr. OBERSTAR. One of the factors, if I understand it rightly, is that this bidder is not considered a railroad under the terms of the Railroad Retirement Act, and, therefore, does not contribute into the railroad retirement fund, which may be a factor.
Mr. DUKAKIS. That is a part of it. The fact that they apparently intend to hire non-union labor to do the car cleaning, that is 110 employees, is another. Well, I mean, I guess they are free to do that, but we don't and won't, and that raises important questions.
I think I am correct, George, in saying that this organization that won the bid has never done anything close to this or even approaching it, and George may want to talk about another situation where similar problems are developing.
Mr. OBERSTAR. I don't want to dwell further on that point. I want to raise two other issues, if I may, Mr. Chairman. My time has run out, but, nonetheless
Governor THOMPSON. Congressman, could I just interject one thing
Page 59 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. OBERSTAR. Sure.
Governor THOMPSON.because I want to make sure that you understood George's answer on the progressive overhauls.
Progressive overhauls are required by GAAP accounting, and our auditors have recorded those as operating expenses, according to GAAP. But Congress has directed for six years in appropriation bills the use of capital dollars for progressive overhauls.
I want to be specifically clear that Congress has given us the authority in various appropriations bills, and for six years we've been doing it.
Mr. OBERSTAR. Well, I have concurred in that view, but there are others who don't.
Governor THOMPSON. Yes, I know.
Mr. OBERSTAR. Do I have it right that Chiquita Banana owns 53 percent of Amtrak's common stock?
Governor THOMPSON. I believe they do.
Mr. OBERSTAR. And that
Governor THOMPSON. That was the old Penn Central Railroad, and two other railroadsthere were four railroads that received stock in Amtrak when Congress and the country took over the old Penn Central Railroad, and the common stock is the only thing that was given to the railroads. The preferred stock, which controls it, is completely controlled 100 percent by the Secretary of Transportation of the United States.
Mr. OBERSTAR. Now, one individual, Carl Lindner, has 30 percent of Chiquita Banana; therefore, has controlling interest of the common stock of Amtrak. And since in the Amtrak reform we eliminated the rights of DOT, the preferred stockholder, this one individual has a lot to say aboutmore than DOT about the future of Amtrak. That is, any evolution of Amtrak is subject to one person's approval.
Page 60 PREV PAGE TOP OF DOC Segment 2 Of 2 If there were to be, for example, any change in the articles of incorporation, that one individual, not the Secretary of Transportation, has the power.
Mr. WARRINGTON. Yes. We were directed by Congress in the Reform Act that
Mr. OBERSTAR. It's not anything that you folks did. It was what Congress did. But the result is a very curious one.
Mr. WARRINGTON. Yes. Congress has also directed us to seek to redeem that stock, and we have communicated with all those parties, the four or five railroads and holders of that stock, recently, and sought to establish a communication and a meeting around executing Congressional intent.
Mr. OBERSTAR. Well, I urge you to proceed with that.
I was going to raise the question of the technology, the trucks, the wheel hunting, but you and I have discussed that, Mr. Warrington, and I am confident you are on track to resolving it, and I've talked with Bombardier.
One final issuethe high-speed midwest passenger rail corridor that you and Rudy Perpich and others years ago have advocated. The study is complete, with a $3.5 billion projected cost and nine-plus-billion-dollar in benefits. We are working to get the Administration to put some money into the fiscal year 2000 budget, which they are now working on. There have been some initiatives. I think the governor of Delaware has initiated some correspondence with the Administration on this.
Are you organizing the midwest governors to do the same?
Governor THOMPSON. Yes, we have.
Mr. OBERSTAR. You going to get Governor Jesse to help on this?
Governor THOMPSON. I certainly hope so. I think he is, and I think he will.
Page 61 PREV PAGE TOP OF DOC Segment 2 Of 2 I testified a little bit earlier, Congressman Oberstar, that we had 21 States in Milwaukee this week, and George Warrington and Jolene Molitoris and myself spoke to them about high-speed trains and high-speed corridors across America, and we also have the midwest rail initiative.
Governor Ryan of Illinois has passed a bill setting aside money. So has the governor of Michigan, John Engler, and so have I. And we are going to have nine States, and we will be able to expand high-speed corridors? Hopefully, in the near future from Chicago through Milwaukee and Madison up to Minneapolis-St. Paul we will see this happen. We are pushing very hard on that. In fact, Michigan, Illinois, and Wisconsin right now are looking at the potential of forming a consortium and putting money in to buy some rolling stock.
So we are moving along, and we certainly need your help. We hope that you will encourage Governor Ventura also to be excited about it, as you and I are.
Mr. OBERSTAR. I was scheduled to meet with him a week ago, but he turned ill. But we are still on track to talk about this and will.
Thank you very much, Mr. Chairman.
Mr. PETRI. Mr. Horn?
Mr. HORN. Thank you, Mr. Chairman.
Governors, it is good to see both of you. You both have a great reputation over the years in how you've run your States.
I noted you said this high-speed train in the case of California would generally be from Los Angeles to Las Vegas. Now, I am a native son of California and I represent the second-largest city in LA County, which is the city of Long Beach, and I guess I am a little worried about the gross domestic funds of the State of California going into Las Vegas, Nevada, is not my idea of progress in the economy. But we do need high-speed trains.
Would that also go on to a city such as Phoenix, which is very much like Los Angeles in many ways, and a very vibrant city with great industries going there and part of the biotech and the electronic industry, and there's tremendous communication between southern California and Phoenix, and we think maybe there would be a potential, if you've looked at that, to get to Phoenix more than to get to Las Vegas.
Page 62 PREV PAGE TOP OF DOC Segment 2 Of 2 Governor THOMPSON. Well, we are looking at Phoenix, and we certainly want to do that, Congressman Horn.
I would like to allay your fears about money from California. Most of the money is coming from Las Vegas and the State of Nevada for this rail service. You are just going to reap the benefit of it, but you are not going to have to pay the cost of it, because most of that money is coming from the State of Nevada, sir.
Mr. HORN. That is fine. They will build the railroad and ye shall come, and ye shall come with pocketbooks and leave without them.
Mr. HORN. Having worked my way through college in Reno, Nevada, a wonderful town, I saw many a Californian come and poured out of their cars to try and get the Standard Oil Company of California to give them a free tank of gas and get back to the California line.
But I worry about something like that.
Mr. DUKAKIS. Congressman, if I may add a word, believe me, our plans will involve far more investment Santa Barbara/Los Angeles/San Diego than it will in Las Vegas. And, as Governor Thompson said, most of the money is coming from
Mr. HORN. Well, we need a high-speed train up the Central Valley.
Mr. DUKAKIS. You certainly do.
Mr. HORN. Which is a very vigorous part of our economy.
Mr. DUKAKIS. You bet.
Mr. HORN. And up the coast, also. And I hope we would get that. I am a great believer in the railroads, and I think you are all doing a wonderful job to turn Amtrak around.
Page 63 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. DUKAKIS. We are working hard on all of those corridors, and that is where our heavy investment is going to be going. It's both business and government in Las Vegas that is putting most of the money in the LA/Las Vegas run.
Mr. HORN. Well, they are putting it in with a good, greedy reason.
Mr. DUKAKIS. Indeed.
Mr. PETRI. Thank you. I just have a few
Governor THOMPSON. Congressman, can I
Mr. PETRI. Sure.
Governor THOMPSON. I want to make one thing straight to Congressman Oberstar.
The common stock owner has no say in the running of the corporation, and we are in the process of reviewing our articles of incorporation and amending them. We are going to be coming back to this committee for help in the future on that, and we certainly need your advice on how to do that, but you raise a valid question. I just want you to know that under the articles of incorporation of Amtrak, the laws, and the preferred stock, this one individual has no say in the operation of the railroad.
Mr. OBERSTAR. Thank you very much for that further clarification. I understand that. But to change the articles of incorporation would require the approval of the one common stock holder, who is the biggest element. And, secondly, the change that we wrote in the law requires Amtrak first to pay back the past accumulated dividends to the preferred shareholder, DOT. That is about $6 billion. We set Amtrak up for failure on that account.
Governor THOMPSON. That is true. That is essentially correct.
Mr. OBERSTAR. So come back and let's see if we can change that language. Then you can be on track.
Page 64 PREV PAGE TOP OF DOC Segment 2 Of 2 Governor THOMPSON. And we thank you and I personally thank you for your support of Amtrak, Congressman Oberstar, and we will be back to you, the chairman, and the other members of this committee. We want to work very closely with you and cooperatively, and we will continue to do so in the future.
Mr. PETRI. A number of Members who either couldn't attend or who attended but had to leave had questions that they asked if they could submit in writing, and we will hold the record open, if it is all right, for that purpose.
Let me just ask one or two questions. First, I'd say that, despite your optimism and enthusiasm, you are laying your reputations on the line, in a sense, to provide leadership and accept this very difficult challenge. You don't have to do it. So we appreciate what you are attempting to do, and it will be a tremendous accomplishment if you are able to turn something that was, in effect, put in protracted bankruptcy and receivership around into a viable and growing national asset, as I think our country would like to see happen if it can realistically be done.
But a few questions. First, for the last three years, the Administration has requested only a little over half the annual appropriations authorized in the Amtrak reform law, yet Amtrak has not, as is its legal right, told the Congress it needed more funding than the administration requested. Is there a reason for that? Could you explain why you haven't come forward and ask what we've authorized you to request?
Governor THOMPSON. Congressman, it was the type of thing that you got from a new board and a new President. We thought about it, but we thought that we should just be thankful that we got this second chance to save Amtrak and to improve it.
We now have got our plan up and operational and we are doing, I think, quite well, considering. But we are requesting the Administration for the extra money in this upcoming year. In fact, Governor Carper, who is a former member of this board, and myself have sent a letter out to governors, and we have over half the governors now that are submitting their names to this asking the Administration for more money in the appropriation bill, so we are doing that.
Page 65 PREV PAGE TOP OF DOC Segment 2 Of 2 But we just thought, you know, the first two years that we didn't think we should come over at that time, but right now I guess we are just a little bit more aggressive and bold, so we are going to be asking for more.
Mr. PETRI. There have been a number of press reports about some new legislative proposals to provide additional funding for Amtrak, including one suggestion that there be a $100 billion bond program created for Amtrak to fund selected high-speed corridorsexcuse me, $10 billion, not $100 billion, but still big money.
Governor THOMPSON. That is the Senator Lautenberg bill, and he's going to announce it at 1:00 this afternoon, and we are going to be there, Congressman.
Mr. PETRI. Has the Amtrak board considered that proposal, or
Governor THOMPSON. Yes, we have, and we felt we should be there and support it.
Mr. PETRI. Very good.
Are there other questions?
Mr. PETRI. If not, we want to thank you both for being so generous with your time, and the record will be held open for additional questions.
Governor THOMPSON. On behalf of Governor Dukakis, George Warrington and the board, Congressman Petri, I would like to personally thank you for having this hearing, giving us the opportunity to tell our story and get a chance to know the members of your committee better.
As Mike has so eloquently said earlier, we want to work with you. We want to work with Congress. It's in the best interest of this country to have a good national passenger railroad system.
Page 66 PREV PAGE TOP OF DOC Segment 2 Of 2 You said it best, Tom. We don't need to do this. Mike and I and the other members of the board have plenty of other things to do, but we are dedicated and we are passionate about it and we are going to do everything we possibly can to make it successful, but we can't do it without the help of our management team, our employees, and Congress, and the States. That is why we are reaching out to everybody saying, ''Be our partner in this. We want to operate it, but we want you to be on board and supporting us to make it successful.''
Mr. PETRI. Thank you.
Mr. DUKAKIS. Mr. Chairman, could I add simply that we are having a hell of a lot of fun, too. I mean, it's a great challenge and, as you can tell, we are into it. We think it is critical for the future of the country and we've got a great board and doing our best to build a very good relationship with all of you, and we are enjoying this.
Mr. PETRI. Thank you.
Mr. DUKAKIS. So weep no tears for us. We are having a good time, and we look forward to working with you.
Mr. PETRI. Thank you. Thank you all.
The next panel consists of Ms. Phyllis Scheinberg, who is the associate director for transportation and telecommunication issues of the General Accounting Office; Ken Mead, a familiar face before this committee, the inspector general of the United States Department of Transportation; and Tom Till, who is the executive director of the Amtrak Reform Council.
We will start with Ms. Scheinberg.
Let me just say in fairness, we were a little bit generous with time, in view of the interests of the Members and the opportunity to fully explore the leadership's responses. We will try, in light of the number of panels before us, to enforce the five-minute rule a little more strictly here on out.
We will start with Ms. Scheinberg.
Page 67 PREV PAGE TOP OF DOC Segment 2 Of 2 TESTIMONY OF PHYLLIS F. SCHEINBERG, ASSOCIATE DIRECTOR, TRANSPORTATION ISSUES, RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE; KENNETH M. MEAD, INSPECTOR GENERAL, UNITED STATES DEPARTMENT OF TRANSPORTATION; THOMAS A. TILL, EXECUTIVE DIRECTOR, AMTRAK REFORM COUNCIL; AND FRANK GOLDSTEIN, PARTNER, BROWN AND WOOD, LLP
Ms. SCHEINBERG. Thank you, Mr. Chairman, members of the subcommittee. I appreciate the opportunity to testify today on Amtrak's overall financial condition, its progress in becoming free of operating subsidies, its use of Taxpayer Relief Act funds, and its need for capital investment.
In summary, Amtrak's overall financial condition improved in fiscal year 1999; however, Amtrak has made relatively little progress over the past five years in reducing its need for Federal operating subsidies.
Amtrak faces many challenges in meeting the Congress' direction that the railroad be free of operating subsidies by the end of 2002.
There are four points I'd like to make.
First, Amtrak's overall financial condition improved last year. Its net loss, revenues less expenses, was $907 million. That was $23 million less than in the previous year and better than Amtrak had hoped to achieve.
My second point is that Amtrak has made only limited progress in reducing its reliance on Federal operating subsidies, and Amtrak faces considerable difficulty in achieving this goal.
For example, one of the business plan actions involves realigning Amtrak's route structure to better meet customer demand. Although Amtrak is only now completing its market-base network analysis, its business plan of a year ago estimated the realigned network would generate $105 million by 2002.
Page 68 PREV PAGE TOP OF DOC Segment 2 Of 2 We consider Amtrak's route structure to be a critical issue. As we reported last year, the business decisions that Amtrak makes regarding the structure of its route system will play a crucial role in determining its long-term viability.
We reported that during fiscal year 1997 a number of Amtrak's routes lost large sums of money. In particular, 13 routes each lost more than $30 million. On 14 of its routes, Amtrak lost more than $100 per passenger, and fewer than 100 passengers on average boarded Amtrak intercity trains and connecting buses per day in 13 States.
There are other aspects of Amtrak's business plan to reach operational self-sufficiency that have no firm basis. For example, the current business plan contains $161 million in financial improvements as place-holders for cost savings and other reforms that Amtrak has not yet defined.
On a positive note, Amtrak's budget gap fell by $18 million last year. However, much more progress must be made to meet the statutory goal of operational self-sufficiency. In the next three years, Amtrak must reduce its budget gap by almost $300 million. This needed reduction is nearly four times what Amtrak was able to achieve in the previous five years.
My third point regards the Taxpayer Relief Act funds. The Taxpayer Relief Act provided Amtrak with about $2 billion for capital improvements and equipment maintenance. As of May 31st, Amtrak reported spending over $1.2 billion of these funds. Amtrak reported spending over half of this money for capital improvement projects related to intercity passenger rail, including for the Acela high-speed rail program.
Amtrak has also reported spending about a third of these funds on equipment maintenance. However, because Amtrak applies TRA funds to a pool of equipment maintenance expenses, rather than to individual invoices, Amtrak has not identified specific expenses for equipment maintenance that TRA funds were used for.
Page 69 PREV PAGE TOP OF DOC Segment 2 Of 2 My fourth point is that capital investments will continue to play a crucial role in supporting Amtrak's business plans and ultimately in maintaining its viability. However, Amtrak does not have a current capital plan, so it is unclear at this time what its total capital needs are and how it plans to fund those needs.
From discussions with Amtrak, we have identified some of its short-term capital needs. These include $800 million to complete the Acela high-speed rail program, and over $400 million for capital debt payments.
In addition, Amtrak will require capital funding to conduct environmental remediation projects and to buy new equipment for its planned mail and express service. For example, Amtrak estimates it will need an additional 1,500 pieces of equipment for mail and express expansion.
Amtrak has identified funding sources for only a portion of all of its short-term capital needs. In addition, a significant but unknown capital investment will be required to meet Amtrak's long-term capital needs. This includes bringing the northeast corridor up to a state of good repair, which Amtrak and the FRA estimated could cost about $7 billion.
Meeting these needs is crucial, because maintaining the corridor in a state of good repair affects trip time and operational reliability.
Many other long-term capital needs exist, as well.
In conclusion, the Congress gave Amtrak until the end of 2002 to reach operational self-sufficiency, and Amtrak has made relatively little progress towards that goal.
In addition, Amtrak has substantial unmet capital needs. The stakes are high. If Amtrak does not reach operational self-sufficiency, it must submit plans to the Congress for its own liquidation.
Mr. Chairman, that concludes my statement. I will be happy to answer any questions.
Page 70 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. PETRI. Thank you.
Mr. MEAD. Yes, sir. Thank you, Mr. Chairman.
I'd like to quickly summarize our statement.
Based on our assessment of Amtrak's 1999 strategic plan, which we are required by law to perform, we think it is still possible, albeit quite difficult, for Amtrak to achieve operating self-sufficiency by 2003, but we think they can do it.
This is going to depend greatly on Amtrak filling a $690-odd million gap in its 1999 strategic plan.
Moreover, high-speed rail in the northeast corridor must begin as soon as prudently possible so that Amtrak can begin to realize the anticipated revenues.
I'd like to talk for a moment about first, operating results; second, outlook for financial performance; third, the impact of delays from high-speed rail; and, four, capital funding.
1999 operating results are clearly positive in several important areas. System-wide passenger revenue grew and system-wide ridership grew. But Amtrak's test for self-sufficiency pivots on its cash losses, which, despite all this, were $569 million last year, $907 million when you count depreciation.
Some risks to self-sufficiency: we've identified $692 million in projected revenue increases and cost reductions that we think are at risk of not being achieved between 2000 and 2002. Over half of the $692 million represent so-called ''place holders'' for the intended benefits.
It is important that these place holders be defined. If they aren't, Amtrak will be forced to use its capital money to cover operating losses, and every dollar spent on operating losses is a dollar taken away from capital projects.
Page 71 PREV PAGE TOP OF DOC Segment 2 Of 2 Delays in high-speed rail: Amtrak is going to have to find about $40 million that it estimates it won't get because of forgone revenue associated with the delay. The current delay is expected to be about six months.
I have been around for a while and have watched the Federal Aviation Administration. I've seen some delays that go well beyond that six-month period, so I don't think that, in itself, is dispositive.
What is really going to be critical, though, is the realization of revenues from high-speed rail once the ramp-up is complete and it becomes fully operational. The $41 million in revenue forgone is minor in comparison to the $692 million we've identified as at risk in the strategic plan.
Just on a cautionary note, I know Amtrak is going to face significant pressures to put high-speed rail in service. We think it is important that, before they do that, they make sure it is going to be reliable, consistent service so they don't alienate potential passengers. The long-term consequences of starting up service that is unreliable could be very severe. So I'd rather see a little more delay until we are certain that it is going to be reliable. That is just a cautionary note. It's not to suggest in any way that Amtrak would do otherwise.
Finally, capital funding: it is important to recognize in this discussion that when we say ''operating self-sufficiency by 2003,'' that is quite different from saying ''capital self-sufficiency.''
The law requires Amtrak to cover its operating expenses. It is silent on what is going to happen in 2003 in terms of capital. It doesn't say Congress is going to provide capital. It doesn't say they won't. It's simply silent.
Now, Amtrak said in 1995 that it was going to provide the Congress with a long-term capital plan detailing what its capital needs were on the south end of the Northeast Corridor. Four years have gone by and you don't have it. It's going to be very difficult for the Congress or the Administration to reach conclusions about how to deal with Amtrak's capital issues until it knows what its capital requirements are.
Page 72 PREV PAGE TOP OF DOC Segment 2 Of 2 Thank you. That concludes my statement.
Mr. PETRI. Thank you.
Before we turn to Mr. Till, several members of the committee have suggested that we might invite Mr. Frank Goldstein, if he'd care to. There's another chair there. He could come up and we might save a little time by asking four people questions instead of three and combining the two panels in that way.
Mr. TILL. Thank you, Mr. Chairman.
I will make a brief summary of my remarks and submit the statement for the record.
I was asked to be a witness today because Mr. Carmichael, the chairman of the Council, and Mr. Paul Weyrich, the vice chairman, were both unable to attend, and they asked me to present the testimony of the Council.
Upon arriving, I found another excellent reason that made me happy to be here, and that is that in the statement of the witness for the Transportation Trades Department I was happy to find that my salary is $148,000, which is more than that of a Congressman. I can assure you that as soon as this hearing is over I plan to contact the Council staff's paymaster, which is the Federal Railroad Administration, and try to make sure that I can collect a substantial amount of back pay which they obviously owe me, so I want to thank Mr. Moneypenny for that help.
Let me get to the substance of my testimony at this point, Mr. Chairman, and talk about some views that were expressed concerning the Amtrak Reform Council a little bit earlier this morning.
Page 73 PREV PAGE TOP OF DOC Segment 2 Of 2 I want to assure you that, from working closely with all the Council members over the last eight months, that the Council knows that the Congress wants improved rail passenger service in the United States. That was the purpose of setting up the Council, and that is the mission on which we are embarked.
The Congress also wantsand we understand this very clearly, whether we talk to people in this body or in the Senate of the United States, the other bodya national rail passenger system, and so we are operating within that context.
The Council is focusing on its mission of improving Amtrak. Our relations with Amtrak are good, they are cooperative, and they are constructive.
We are now in the process of formulating and the Council has preliminarily reviewed, the Council's first letter of recommendations to Amtrak on improvements in its operations, and we will be transmitting that to Amtrak in the near future.
We have worked closely with the States. We are involved very intensively in working with the States in their relationship with Amtrak through the field hearings that we have been holding.
We know of the problem of overhead costs, which I will address briefly later, that relate to Amtrak's operations in States all over this country. We have been very active, through the good offices of Gil Carmichael, the chairman of the Council, in setting up meetings at the highest levels of the United States Postal Service and the United Parcel Service in order to ensure that Amtrak begins to assess its opportunities for improving mail and express revenue on a strategic basis rather than a piece-by-piece basis.
All of these will be documented in the report that the Council will submit to the Congress in January. There was no report last year. As you know, then-acting chairman Paul Weyrich advised the Congress that there was nothing to report, and so there was no point in going through the exercise in submitting a report that didn't have anything substantive to offer. I can assure you this year will be different.
Page 74 PREV PAGE TOP OF DOC Segment 2 Of 2 Let me get into some substantive issues with regard to the Council's investigations and analyses.
From a financial standpoint, there has been an excellent detailed financial analysis presented by the inspector general and the General Accounting Office, and I would simply say that our understanding is that the plan is, indeed, ahead of its goal as of the end of the fiscal year by about $8 million.
This $8 million achievement of being over goal is not due to Amtrak's core passenger rail operations, however, because they are behind plan in that area.
Regarding Acela, I would simply like to say that it is unlikelythe Council believes it unlikelythat losses will be covered by savings, and if Amtrak wanted to claim that having Acela come into operation on time would be a plus, would be profitable, then we find it hard to escape the conclusion that having Acela introduced late would be unprofitable.
With regard to Amtrak's operational performance, we are concerned about the level of overhead cost. We believe that a marketplace is developing that is being demonstrated by Amtrak's difficulties in winning the MBTA contract and in the cost constraints it is being forced to operate in, or is likely to be operating, in in the midwest, and we think this is healthy and it is good for Amtrak.
We think there are service quality problems that need to be addressed. Amtrak has started on this, but more work is needed.
And, finally, I'd be happy to answer any questions concerning the emerging corridors, whose development the Council fully supports.
Thank you, Mr. Chairman, for your time.
Mr. PETRI. Thank you.
Mr. Goldstein, we are particularly appreciative of your being here today as a witness. I know that you are not appearing on behalf of any particular organization, you don't have a client you are able to bill hours to for this. This is a pro bono effort on your part and an act of citizenship, and we thank you for the time you've put in and look forward to your testimony.
Page 75 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. GOLDSTEIN. Thank you, Mr. Chairman.
As you have just said, I am a lawyer in private practice with a law firm here in the District of Columbia, and I have no connection to Amtrak, and, to the best of my knowledge, nor does anyone else in my firm.
I have been asked to take a look at the statutes relating to Amtrak's possible transition to a self-sufficient private company. In that regard, I have submitted a number of comments in my written testimony. I will speak generally about two things this morningthat is, I will speak a little bit about the capitalization of Amtrak and a little bit about matters relating to corporate governance as it would affect Amtrak as an independent corporation.
Let me turn quickly to the capital structure in reference, I think, to the comment made by Congressman Oberstar. There are some issues, unquestionably, related to the capital structure of Amtrak, the dynamics between the common stock holders and the preferred stock holder and the public interest.
In our review at our firm, we did not see any insuperable problem to resolving these issues, on the one hand. On the other hand, there are probably two ways in which the issues can be resolveda cooperative way, in which the interested parties, the common stock holders, the preferred stock holder, which is the Department of Transportation, and Congress work together, or an uncooperative way in which one party tries to have its way in connection with how these issues get resolved, because they do require changes in the structure that now exists, and I will speak to that in just a moment.
There is an interplay here between the Federal statutes and the District of Columbia corporation code, because the statutes, the Federal statutes, specifically say that Amtrak is to be governed by the District of Columbia Corporation Code, except to the extent that the Federal statutes supersede it expressly, so those two organs of governance must work in some sort of cooperative spirit, also.
Page 76 PREV PAGE TOP OF DOC Segment 2 Of 2 I am going to now speak a little bit about the capital structure. I am not going to do this in great detail, because I don't think I can really do justice to it in five minutes, but I want to point out some of the important aspects that I think need to be addressed.
As has been said earlier, the Reform Act mandates that Amtrak redeem the existing common stock, and that it be redeemed in December, 2002, at fair market value.
On the other hand, the articles of incorporation of Amtrak provide that, as long as there is any preferred stock outstandingwhich there is, and it is owned by the Department of TransportationAmtrak may not redeem common stock unless all of the accrued and unpaid dividends on the preferred are paid.
Those dividends evidently total in excess of $6 billion.
The Reform Act changed various rights of the preferred stock. It eliminated the preference in liquidation of the preferred stock. It did not, however, affect the continued accrual of the preferred stock's annual cumulative dividend. The charter wasn't changed, and that provision is not inconsistent with the District of Columbia law.
However, from what I've heard today and from what I am sure all of you know, the possibility of redeeming the preferred stock with dividends accrued in excess of $6 billion is extremely unlikely by that point in time. And so the question is: what do you do about the requirement of a common stock redemption?
Dividends do not have to be paid and say that it has been superseded by Congressional mandate.
My written testimony examines a number of possibilities based on the assumption that you would do something about the preferred stock.
The easiest solution is simply that it is possible for the Department of Transportation to transfer the preferred stock at nominal value. It could even transfer it back to Amtrak, and thereby waive its right to the accrued dividends. That is certainly legally permissible and is a simple option, because that does not require a vote of the common stockholders.
Page 77 PREV PAGE TOP OF DOC Segment 2 Of 2 I review in my written testimony other possible alternatives that do require a vote of the common stockholders, all of which may well be obtainable, because anything that the common stockholders could achieve might well be in their best interest, if you look at Amtrak's current financial condition and its likely financial condition in 2002. In a liquidation scenario, the common stock holders would probably not receive any benefit, so that it is all quite possible.
So if you care to review the various alternatives that require a stockholder vote, you are certainly welcome to do so, and I'd be pleased to respond to questions now or later about that. You may also take a look at the alternative of Department of Transportation turning back in its shares.
Briefly, to finish up, I do think, in terms of if Amtrak becomes a self-sufficient company, attention must be given to the place of incorporation. The District of Columbia has a provision that does not permit a railroad to be incorporated in the District of Columbia; therefore, we would have to choose another jurisdiction, or it may well be that the District of Columbia could be persuaded to change this law.
Finally, if this were really a self-sufficient private corporation, the governing law would be something that I think all of the directors would be most interested in. The District of Columbia law is not among the most favorable in respect of protection of directors of public corporations. Some attention would have to be paid to that by means of either re-incorporating in another jurisdiction or persuading the D.C. Council to enact more-favorable laws regarding protecting directors, although the directors always have some possibility of protection of insurance that could be purchased on their behalf.
In any event, there are lots of complications to the transitions, but, as I said at the outset, I don't think there are any insuperable problems if that event were to occur.
Page 78 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. PETRI. Thank you.
Mr. RAHALL. Thank you, Mr. Chairman.
I have a question for you, Mr. Till. As you may have heard, I directed a question to Governor Thompson earlier that clearly there is some dissatisfaction within the House with the Reform Council, as I am sure you are aware of the funding cut vote and then later restoration.
Later today we are going to hear testimony from the AFL-CIO which I believe lists some of the reasons for this dissatisfaction. Specifically, just to list what they allege, the Reform Council has a bias toward the elimination of Amtrak. It has no credible plan of action. It is a year behind in submitting an annual report to Congress. It only recently hired an executive directoryourself, I assume. There's also an allegation that there are conflicts of interest questions involving Council members.
These are troubling questions, as evidenced in the vote of the House of Representatives, and I would appreciate you giving a response. I am sure we will hear this later on today.
Mr. TILL. I'd like to respond in two ways, Mr. Rahall.
The first is to indicate that there's no substance behind those allegations. Those people who watched the operations of the Council in the year 1998 saw a lot of commotion, a lot of confusion, and a lot of difficulty.
This is what I hear as 'hearsay evidence' on the operations of the Council. I was living in England at the time working for the European Bank for Reconstruction and Development. That is the reasonthe difficulties that they had in terms of trying to bring on a staff or contractors and getting sufficient monies in order to have some operations, largely because of the turmoil surrounding the Council's basic mandate, which was part of the Amtrak Reform and Accountability Actthat the Council had a very difficult period of operations in 1998. I believe that has been completely turned around.
Page 79 PREV PAGE TOP OF DOC Segment 2 Of 2 In terms of a late report, I believe that I tried to address that in my preliminary remarks. Mr. Weyrich wrote to the Congress and said, ''Look, we haven't done anything substantive in 1998. We don't think there's any point in pretending we are going to submit a substantive report. We will report at the end of next year.''
We will send you a report. The council will be sending you a report in January of 2000 indicating our operations for this past year.
I commented, hopefully with some humor, on the allegation regarding my salary, which is an inaccurate statement. It was part of Mr. Andrews' statement on the floor of the House in putting forward the amendment to cut our budget, and I had advised his office by fax that that was inaccurate, and we never got a response to that fax.
With regard to the issues regarding secrecy, conflict of interest, and the like, I think I would be best advised to refer that question to Ms. Scheinberg, because the General Accounting Office looked into those issues at the specific request of Mr. Andrews, and I don't know exactly where they are, but I think she could advise you in terms of where they are in looking into those issues.
Mr. RAHALL. Ms. Scheinberg?
Ms. SCHEINBERG. Sure. Congressman Andrews wrote to GAO with some questions about the Amtrak Reform Council, and our office of Special Investigations did do a review and has completed its investigation and reported back to Congressman Andrews.
Specifically, the Congressman asked about conflict of interest of the Amtrak Reform Council chairman, and GAO found no conflict of interest.
Also, Congressman Andrews asked about whether or not the Council's fiscal year 2000 budget request was sent to the Congress without approval of the Council's membership, the Council members, themselves, and what GAO found was that there had been no vote taken. There was a March 1999, executive session and there was no vote taken at that session on the budgetthe budget was raised at the session, but there was no vote taken on whether or not it should go forward to the Congress.
Page 80 PREV PAGE TOP OF DOC Segment 2 Of 2 There seems to be a difference of opinion among the Council members who were in this executive session as to whether or not they gave the chairman the authority.
So, basically, we have completed this investigation and briefed the Congressman.
Mr. RAHALL. Thank you.
I have no further questions, Mr. Chairman.
Mr. PETRI. We have a vote on the House floor, so we are going to have to take another break, and we will recess until 1:00.
Mr. PETRI. I know other people have commitments later this afternoon, and we have another panel. I will ask a couple of questions, and hopefully by thenI know Mr. Rahall was intending on coming back promptly. He may have some more questions, too.
Ms. Scheinberg, you mentioned on the first page of your statement that Amtrak has spent some $427 million of its $2.2 billion tax refund payment on maintenance of equipment, but that, because of the way Amtrak pools its funds, Amtrak is unable to identify specific expenses that the funds were used to cover.
Is this practice of pooling funds consistent with generally accepted accounting principles?
Ms. SCHEINBERG. Mr. Chairman, as you know, we have been asked by the committee to look at this whole issue of how Amtrak is spending its Taxpayer Relief Act funds and whether or not Amtrak's expenditures are consistent with the law.
This work is still underway, but so far, regarding the legality or the acceptance of this practice, if Amtrak is spending the funds on qualified expenses, then the practice appears acceptable. So, the answer to your question is yes, it is acceptable. But the bigger question that we are looking at is whether or not the funds are being spent in accordance with the law, with the Taxpayer Relief Act, itself.
Page 81 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. PETRI. Thank you.
Mr. Mead, GAO has testified that Amtrak included some $105 million in financial improvements in its business plan resulting from the realignment of its network, even though the results of market-based analysis so far as network realignment are not yet available.
Can you give us any idea at all as the how they could estimate a dollar figure when they don't have a plan?
Mr. MEAD. I guess the direct answer to that question is no, because that is one of the points we were trying to make in our testimony: these place holders are showing up in the strategic plan. In the case of the market-based network analysis, it's $105 million, but a market-based network analysis is not yet complete. We do not know what judgments Amtrak is going to make as a consequence of the market-based analysis. Until they do and come up with concrete measures, it truly is a place holder that I wouldn't take to the bank.
Mr. PETRI. On page three of your testimony, you state that the delay of Acela service will result in the loss of $41 million in net revenue that Amtrak had included in its business plan. What was your assumption about the timing of the initiation of that service so as to make the $41 million estimate? It would help us to know, if it would delay it further, what the implications might be.
Mr. MEAD. That estimate is very sensitive to the start-up of high-speed rail. With the delay of approximately June 1st, that would be one train set and a full ramp-up of all train sets by the end of calendar year 2000.
You go beyond that, and the $40 million revenue forgone figure increases and it begins to increase substantially.
Mr. PETRI. Thank you.
Mr. Till, you noted in your testimony that MBTA has now selected another contractor to replace Amtrak in providing maintenance services for their computer rail operation. Are there any costs to MBTA of selecting another equipment maintenance contractor in lieu of Amtrak?
Page 82 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. TILL. Our understanding, Mr. Chairman, is that the estimated costs that have been set aside or expected to be set aside for 13C costs are about $30 million, so that would mean that that would raise the cost of it to from $175 million to $205 million.
Mr. PETRI. And this is a question one of my colleagues who rides Amtrak regularly I think was going to submit for the record, and she may do it in any event, and I think it had to do with her sense of the condition of the track and going to high-speed without a first-rate road bed and whether that really might be an underlying problem with this equipment, and that is that several years ago the GAO estimated the deferred maintenance on the New York/Washington segment of the northeast corridor, the amount needed to bring it into a good state of repair was more than $4 billion, yet none of their Amtrak strategic business plans to date have set aside any funds to address this deteriorated infrastructure.
Will the Reform Council look at this issue as part of its analysis?
Mr. TILL. Absolutely, Mr. Chairman. I think that it is extremely critical that the whole issue of deferred maintenance and of normalized replacement costs for the wear and tearthe annual wear and tear on the northeast corridor be included.
I think the Council would be interested in seeing almost a separate set of financial statements for the actual operation of the fixed plant of the corridor, because that would help to distinguish between what the profits and losses are of Amtrak's train operations on the corridor and the revenues that come to the fixed plant of the corridor from freight operations and commuter operations, to distinguish all that from the actual cost and revenues associated with the corridor operation, itself.
I think that would be an extremely critical insight and allow people to distinguish between train operations and fixed plant operations.
It would be like judging the financial operations of a turnpike in terms of its revenues and its operating expenses, and that would be very helpful in terms of understanding the financial operation of the corridor.
Page 83 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. PETRI. I think I've exceeded my five.
Mr. Rahall, any further questions?
Mr. RAHALL. No, Mr. Chairman.
Mr. PETRI. If I could then ask one or two more questions, Mr. Goldstein, as I understand your explanation, for Amtrak to redeem its pre-1997 common stock by December 2, 2002, as required by the reform law, the company must first address the more than $6 billion in unpaid dividend obligation due to the Department of Transportation, and Amtrak must also avoid making any stock redemption payments that would render the company insolvent.
Would simply having the Department of Transportation turn it its preferred stock and thus waive the unpaid dividend claim be the simplest way of addressing the problem without legal complications?
Mr. GOLDSTEIN. It might be, and it might be that it need not turn in all of the shares, but such amount of shares as it necessary to ensure that it would be able to be in compliance with those rules.
In other words, if there were some amount of dividends that could be paid, that amount of shares could be retained to pay those dividends, but the shares could be turned in as one possibility, and that is a relatively simple possibility, in order to ensure that you could then proceed to redeem the common.
Mr. PETRI. Thank you.
We do have a number of additional questions, and if it is all right we will keep the record open and submit them in writing and look forward to your helping us complete a record for this hearing.
Thank you all very much.
The final panel consists of Mr. Ed Hamberger, who is the president of the Association of America Railroads; Mr. Charles Moneypenny, legislative director of the Transportation Workers Union of America; Mr. Ross Capon, who is the executive director of the National Association of Rail Passengers; and Ms. Harriet Parcells, who is the executive director of the American Passenger Rail Coalition.
Page 84 PREV PAGE TOP OF DOC Segment 2 Of 2 We will start with Mr. Hamberger.
TESTIMONY OF ED HAMBERGER, PRESIDENT, AND CEO, ASSOCIATION OF AMERICAN RAILROADS; CHARLES MONEYPENNY, LEGISLATIVE REPRESENTATIVE, TRANSPORT WORKERS UNION OF AMERICA, AFL-CIO, ON BEHALF OF THE RAIL LABOR DIVISION, TRANSPORTATION TRADES DEPARTMENT, AFL-CIO; MR. ROSS B. CAPON, EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF RAILROAD PASSENGERS; AND HARRIET PARCELLS, EXECUTIVE DIRECTOR, AMERICAN PASSENGER RAIL COALITION
Mr. HAMBERGER. Thank you very much, Mr. Chairman.
I have a statement submitted for the record. I have an oral statement which is even shorter than that, but let me make it even shorter than that, if I could make just a couple of quick comments.
Number one, I think the statements made by Chairman Thompson and George Warrington really go right to the heart of the relationship between Amtrak and the freight railroads as we look toward the future. We are looking for cooperation. They detailed a number of working agreements that class one freight railroads have entered into with Amtrak. Those will continue, and I just want to emphasize and underscore their comments that we are looking forward to an era of cooperation between freight railroads and Amtrak.
Number two, I went into some detail in my written statement about the history and how we got to where we are. Congressman Duncan mentioned that in one of his questions. And that information is there just so that the committee, which has changed over the years, has that in front of it as you take a look forward into future rail policy.
We are not here asking for any change. We not expect nor do we seek any change in the relationship that is in existence right now. But, as you look forward, I think it is important to understand how the deal was struck in 1970.
Page 85 PREV PAGE TOP OF DOC Segment 2 Of 2 And, number three, I think it is important to emphasize to the committee that there have been changes in the real world since 1970 in terms of capacity, in terms of traffic, not only in passenger but freight railroads, as well.
Again, as you look forward to formulating rail policy, both passenger and freight, we hope that you will keep in mind the changes that have occurred and the role that freight railroads play in the Nation's economy and in keeping our economy competitive on world markets.
Let me just end there and be ready to answer any questions.
Mr. PETRI. Thank you, sir.
Mr. MONEYPENNY. Thank you, Mr. Chairman.
My name is Charles Moneypenny. I am a legislative representative for the Transport Workers Union of America. I also appear on behalf of the Rail Labor Division of the Transportation Trades Department. AFL-CIO's 13 rail union affiliates collectively represent some 20,000 Amtrak workers. On their behalf, I express our appreciation for allowing us the opportunity to testify today on the future of America's national passenger railroad, Amtrak.
Amtrak currently serves 44 States and the District of Columbia, providing service to 20 million passengers in the northeast corridor, alone, which connects Washington, D.C., to Boston. Amtrak carries more than 11 million intercity passengers and 100 million commuters.
Today, Amtrak is a critical component of our Nation's intermodal transportation system. It provides an indispensable, affordable, environmentally-and ecologically-friendly, energy efficient mode of travel for passengers across the country. In fact, for thousands of Americans, Amtrak provides the only affordable alternative to the automobile, and it offers vital transportation services for the elderly and the disabled.
Page 86 PREV PAGE TOP OF DOC Segment 2 Of 2 For too long, though, Amtrak has had to struggle with inadequate resources, focusing on survival instead of improvement. Rather than investing in the future, Amtrak has had to delay maintenance, defer purchase for trains and equipment, eliminate jobs, cut wages, and tolerate declines in quality of service.
For the employees of Amtrak, this has meant fewer jobs in a less-desirable environment with wages well below those paid to workers in the commuter and freight sectors.
However, Amtrak employees have remained dedicated to the promise of a brighter future for Amtrak. Improvements at Amtrak, indeed, the continued viability of Amtrak, itself, would not be possible but for the consistent dedication of Amtrak's 20,000 employees.
Year after year, Amtrak employees have taken the brunt of Amtrak's financial hardships. Between 1981 and 1998, Amtrak workers earned less than the national rate in order to help Amtrak through a difficult financial crisis.
As a result of the sacrifices Amtrak workers have made in the form of real wage and benefit concessions and changes in work rules, Amtrak now captures the largest percentage of revenue from the fare box of any intercity passenger rail service in the world, yet Amtrak workers remain the lowest-paid unionized workers in the industry.
Rail labor supports a balanced transportation investment policy that supports Federal assistance to all modes of transportation. As such, we continue to advocate for adequate funding for Amtrak. We support full funding for Amtrak in fiscal year 2001 at the authorized level of $989 million.
This is especially essential as we move into the next century. Our national passenger rail system must be able to rise to the challenges of growing transportation demands.
I would now like to turn my attention to the matter of the Amtrak Reform Council. Rail labor has been concerned about the ARC since its inception. The performance of the ARC during its brief existence has made it clear to us that our fears are well-justified.
Page 87 PREV PAGE TOP OF DOC Segment 2 Of 2 While the mission of the ARC was very specifically and narrowly defined by Congress in the Amtrak Reform and Accountability Act of 1997, the ARC has carved out an ideological agenda for itself which we believe extends far beyond what Congress intended.
I believe Mr. Rahall made reference to much of that, so I won't read it to you again.
I would suggest Mr. Till is righthe does not make $148,000 a year. I believe he has to scuffle by on $125,000 a year. I think his salary and benefit package come to 148. We will correct Mr. Andrews on your behalf, Mr. Till.
Mr. Chairman, the Amtrak Reform Act intended that the ARC make positive recommendations to improve Amtrak. Instead of reaching out to help partner a solution, the ARC has demonstrated a definite bias toward the elimination of Amtrak. We believe that calls into question the very credibility of the ARC as a legitimate oversight body.
Rather than read the rest of it, in the interest of time, I will just answer any questions that you folks may have.
Mr. PETRI. Thank you.
Mr. CAPON. Thank you, Mr. Chairman. I will not repeat the various reasons that Mr. Moneypenny cited for why we need a rail passenger system. We obviously agree with him.
The second and third sections of my written statement refer to the problems that CSX and Norfolk Southern have experienced since they took over the parts of Conrail, and to the problems Amtrak has experienced over its life with respect to consistently friendly personnel and the need for management to support them adequately.
Page 88 PREV PAGE TOP OF DOC Segment 2 Of 2 I think 'a long way to go, but we are hopeful' is the right way to describe both situations. I've seen a very positive letter from Norfolk Southern Chairman Goode to the head of Amtrak, and I have worked with the Amtrak people that are working on the service quality issues, so a long way to go, but we expect they will get there.
Obviously, Norfolk Southern must 'get there' very quickly, or a lot more than Amtrak passengers will be in trouble.
One point I think should be made clear that was not in the railroad's statement: the payments that Amtrak makes to the railroads include not just incremental costs, but also incentive payments in most cases when a certain level of on-time performance is achieved. Incentive payments are above incremental cost.
On page five of my statement, there are two changes that I made and gave to your staff and to the reporter before the hearing.
I state that we support full funding of the $989 million authorized for fiscal year 2001, and I thank the committee for providing this authorization. I want, in my spoken remarks, to express the concern that enactment of AIR 21 would leave the appropriators with no room to do that.
In the third full paragraph on my last page I wanted it to read, ''We believe that the network currently operated is smaller than acceptable, and we would like to see certain new routes added.''
I am pleased to note that the Surface Transportation Board last week provided a decision on Maine service that Amtrak plans. This decision amounts to a green light for starting the Boston/Portland service next year.
I thank you very much for your time.
Mr. PETRI. Thank you.
Page 89 PREV PAGE TOP OF DOC Segment 2 Of 2 Ms. PARCELLS. Mr. Chairman, members of the committee, thank you very much for the opportunity to appear before you today to present our business association's perspectives on the progress at Amtrak, the positive developments we see taking place at Amtrak, and the many benefits the Government's investments in Amtrak yield for the Nation.
APRC is a national association of railroad equipment suppliers and rail businesses. Members of this committee know the importance of creating a seamless intermodal transportation system and have been at the forefront of writing Federal legislation to help bring this about, and we thank you for that.
Amtrak is an essential part of the Nation's intermodal transportation system, providing efficient and affordable transportation for millions of Americans each year.
Amtrak is moving in the right direction. Under the leadership of the Amtrak Board of Directors and Amtrak President and CEO, George Warrington, Amtrak is taking strategic actions to reduce its operating cost, improve customer service, and generate increased revenues through increased ridership and new public and private partnerships and business ventures.
You heard a lot about those this morning, so, even though they are part of our testimony, I won't go into it.
I did want to clarify one point. In our testimony on page two we pointed out some of the indications of the success of implementing these strategies. In our second bullet, we said the overall revenues in fiscal year 1999 totaled $1.8 billion, which is correct, and last year Amtrak announced that it had surpassed one billion in passenger revenues. The word ''passenger'' had been deleted from that bullet. This year they have even surpassed that.
I'd like to just quickly address the economic benefits that the Nation yields from its investments in Amtrak. The Nation's investments in Amtrak are not merely the provision of capital to the railroad, but they are a source of economic activity that filters through the Nation's economy. The railroad equipment supply industry generates approximately $12 to $14 billion in annual sales and employs over 150,000 people.
Page 90 PREV PAGE TOP OF DOC Segment 2 Of 2 Renewed interest and investment in intercity passenger rail and rail transit by States and cities nationwide is fueling a resurgence of the U.S. railroad manufacturing and rail equipment supply industry. These investments are creating jobs and other economic benefits for communities and States.
Just by example, Amtrak's investment in the Acela high-speed rail service for the northeast corridor, with a 70 percent buy-America participation, generated contracts with over 70 suppliers in 23 States. More than 10,000 construction and manufacturing jobs were created in the process.
Our association has just done an analysis of the benefits that the rail supply industry is contributing to the northeast region of the country. Our analysis was included in the coalition of Northeast Governors' rail publication that just came back from the printer, and I will be distributing that to members of the committee. We will be doing similar analyses for other regions of the country.
As you heard, States are working together and with the FRA and Amtrak for improved passenger rail service and the development of high-speed rail corridors around the country. We strongly support that. These are cost-effective investments.
Over the past two years, Amtrak has been funded at levels substantially below the levels that this committee authorized in the Amtrak Reform and Reauthorization Act, and we would urge Congress in the coming fiscal year to appropriate the full authorized level of $989 million, which will put Amtrak in a much stronger position to partner with the States in the development of these corridors.
We also support legislation that gives States the right to use flexible surface transportation funds for intercity passenger rail.
Thank you, Mr. Chairman, members of the committee.
Mr. PETRI. Thank you.
Page 91 PREV PAGE TOP OF DOC Segment 2 Of 2
Mr. RAHALL. Thank you, Mr. Chairman.
Mr. Chairman, let me start by saying how pleased I am to see representatives of both rail management and rail labor in the same room togetheras a matter of fact, sitting next to each other. I would make a motion that we lock the doors at this time and get the cram-down issue settled.
Mr. RAHALL. Ed, in your testimony you discussed all the good that the freights are doing for Amtrak, but obviously everything is not so rosy. In effect, outside of the northeast, the freights hold Amtrak hostage to problems they are experiencing, which seems to have been aggravated in the wake of recent mergersand this is something that Mr. Capon touched upon.
For example, in the spaghetti-like tangle of rail lines that radiate from Chicago, Amtrak's Cardinal at least routinely gets delayed, at times excessively. In fact, just last week the ''Huntington Herald Dispatch''Hunting, whateverreported that the Cardinal was blocked by the Union Pacific in a particular bad section of town, 69th Street and Holstead, to be precise, and a robbery occurred.
So my question is: what are the freight railroads really doing to facilitate the passage of Amtrak over their tracks, especially in the aftermath of the Norfolk Southern and CSX acquisition of Conrail?
Mr. HAMBERGER. Mr. Rahall, that is a matter that I just happened to take a look at, thinking that that issue might come up. The Cardinal, in particular, there was a meeting between several of the class one railroads, the Chicago Belt Railroad, Amtrak representatives just in the last two weeks, and a determination was made that there is a single line in Indiana, a single track that was being blocked by some local freight traffic, although Amtrak was being given priority, as is, of course, the statutory authority.
Page 92 PREV PAGE TOP OF DOC Segment 2 Of 2 There was nowhere to move the freight train that was regularly scheduled there. That has been, through a negotiation, removed from that line, has been re-routed, and that should open up, in the short term, anyway, the Cardinal, and facilitate the Cardinal move east from Chicago.
Those discussions are ongoing among that group of people to see if there are other ways to facilitate movement through Chicago
If I might, let me just say that the industry, as a whole, is taking a look at Chicago. You indicated that it is a spaghetti-like arrangement there that has grown up over the years.
We have, in the past six months, put together a team to take a look at Chicago, to increaseto improve the protocolsthat is to say, to give the Belt Line a little bit more authority to hold traffic out so that trains don't come in and the crew doesn't die in the log blocking the main line coming into Chicago.
We have put together a plan for the winter for Chicago, and just recently have now put together a longer-term planning process to address the fact that oftentimes it takes six or seven switches to get from one side of Chicago to the other. So that is the Chicago-specific issue.
But, in general, the railroads recognizethe freight railroads recognize their statutory obligation to give Amtrak priority service.
Mr. RAHALL. Thank you.
You may have heard my opening comments when I referred to the increased ridership on the Cardinal ever since five years ago or more at my suggestion Amtrak changed their operating hours from the dead of night to daylight so that the beauty of the New River Gorge could be viewed. And, by the way, that is the beauty of it right over there on our wall. That is the New River Gorge Bridge. And you can even see the CSX track over which the Cardinal travels in that picture.
Page 93 PREV PAGE TOP OF DOC Segment 2 Of 2 What is missing is the Cardinal traveling over it. I am sure probably the reason is that it is delayed in Chicago
Mr. RAHALL.by the CSX or Union Pacific. So I look forward to working with you, Ed
Mr. HAMBERGER. You sir.
Mr. RAHALL.and continuing our leadership in resolving this matter.
Mr. HAMBERGER. I would hope that it was the photographer who got there late and the train had already gone through.
Mr. RAHALL. Mr. Moneypenny, let me ask you a question. You heard and referred in your testimony to my earlier questions of the Reform Council, and you did respond on the salary issue. I would like to ask if there's anything else you have that you'd like to respond to what Mr. Till had to say.
Mr. MONEYPENNY. Yes, I do. Yes, I do, Congressman.
Let me thank you also for your comments on cram-down. We are glad that there are some folks up here who think that a contract is a contract.
On the Reform Council, I read the Reform Council's testimony as closely as they read mine, and I noticed that on page five they make reference to the MBTA commuter rail contract in Massachusetts. I am very familiar with that. That is my home local. That is where I come from.
There were some things Mr. Till didn't tell you about that contract. He didn't tell you, for instance, that Chairman Carmichael has a business interest in the company that got that contract. He didn't tell you that the savings which they anticipate come from, among other things, as Mr. Oberstar pointed out earlier, taking people out of the pension system they paid into for years, the railroad retirement system.
Page 94 PREV PAGE TOP OF DOC Segment 2 Of 2 Amtrak is not allowed to get out of the railroad retirement system. They are at a 15 to 20 percent disadvantage in bidding on contracts as long as non-railroad entities can come in and bid against them.
He didn't tell you that they intend to cut the wages of every single employee who works there, that they intend to conduct background investigations of employees who have worked there for 20 or 30 years to see if they are somehow fit to continue doing the jobs they already do.
He didn't tell you that they intend to break our unions. I think it is very significant that they put this into their testimony. I think it really is the vision of what ARC sees as Amtrak's futurebreaking unions, stealing pensions, destroying seniority, putting management and labor at war with each other.
Now, if that is a vision that the Congress shares, then they ought to continue to fund the ARC. But if you believe, like we do, that labor and management ought to work together, then perhaps the ARC ought to find another waythose who work there ought to find another way to make a living.
Mr. RAHALL. Do you have any suggestions what we in Congress should be doing?
Mr. MONEYPENNY. I think you were halfway there in this last session, Congressman Rahall.
Mr. RAHALL. Okay. Thank you.
Mr. MONEYPENNY. Thank you.
Mr. PETRI. It was interesting to hear that the institution of train robberies still continues in West Virginia.
Mr. RAHALL. No, the robbery was in Chicago.
Mr. PETRI. Oh, I thought it was in Huntington.
Page 95 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. RAHALL. Never.
Mr. PETRI. All right. Chicago. That is different. That has been a problem.
I have a couple of questions for Mr. Hamberger and some of the others on the panel.
There was some reference made to the pension program in other testimony, and I wonder if you could comment on this. When we were considering the Amtrak reform legislation, the Railroad Retirement Board provided us with a variety of estimates, and these included the following: Amtrak and its employees pay about 10 percent of the cash taxes going into the railroad retirement system currently, and an Amtrak failure would involve substantial payroll tax increases, both for retirement and for unemployment taxes on the remaining railroads.
How does the freight railroad industry view this perhaps unwilling financial connection between Amtrak and the other railroads?
Mr. HAMBERGER. I am not sure I caught the question. If the question is if we believe that Amtrak employees should be exempt from the railroad retirement system, the answer to that is no.
Mr. PETRI. No. The question is, you have a stake in the retirement system
Mr. HAMBERGER. Yes.
Mr. PETRI.and its health, and you are paying a lot, yourselves, into it, or your employees are.
Mr. HAMBERGER. Yes.
Mr. PETRI. And so it Amtrak.
Mr. HAMBERGER. Yes.
Mr. PETRI. And, given that situation, doesn't that create an incentive on your part that should be recognized, even though it is not necessarily in all these contracts and things, for keeping Amtrak alive and trying to help it prosper so that the burden of the pension funds doesn't fall entirely on the remaining railroads.
Page 96 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. HAMBERGER. Thank you. Yes is the short answer, and I think that that is reflected in both my statement today and in the statements of Governor Thompson and of President Warrington, that we are trying to work together to have a cooperative, collaborative approach in the future.
It would be a disaster if the Amtrak employees were exempted from the Railroad Retirement Board payments. As you indicated, it is a substantial payment. It is a pooled arrangement, pay as you go, and if those revenuesI believe it is about $360 million a yearwere taken away from the Railroad Retirement Board on an annual basis, it would certainly cast into doubt the ability of the Board to continue to fund the benefits that approximately 700,000 railroad retirees now enjoy.
Mr. PETRI. And if they weren't exempted, but if they stopped existing
Mr. HAMBERGER. Exactly.
Mr. PETRI.the same result.
Mr. HAMBERGER. Same thing. That is correct.
Mr. PETRI. You may not need to comment on this, but we are trying to get some information for the committee in this area.
One of the issues raised in discussions about possible restructuring of Amtrak is the status of Amtrak's compulsory eminent domain-style access to the use of freight rail's tracks. Some have argued that these are rights that can be transferred or sold, not just delegated to a subcontractor.
Does your association have a legal position on this issue? And, if you do, or if you care to develop one, could you share a summary of it with us for the record?
Mr. HAMBERGER. My general counsel wanted to come to this hearing, but I said, ''Gosh, I will handle it.''
Page 97 PREV PAGE TOP OF DOC Segment 2 Of 2 Let me just say I don't know if we have a legal position on that, but, as a public policy position, that, too, would be a disaster.
This agreement was hammered out in 1970. The agreement was to have certain obligations removed from the freight railroads in exchange for certain other benefits to Amtrak.
The purpose of my testimony today was to put all that in context, so that as you go forward the committee would realize that it was a give-and-take at that time, and that to extend and expand that kind of access we think would throw into doubt our ability to continue to serve our freight customers.
Mr. PETRI. Thank you.
I'd like to raise with Mr. Moneypenny the issue of
Mr. HAMBERGER. If I might just say, I'd like to reserve the ability to respond more fully to that question for the record.
Mr. PETRI. Yes.
Mr. HAMBERGER. Thank you.
Mr. PETRI. There is a normal human instinct which we all have to sort of shoot the messenger. I guess old kings used to do that, and that discouraged people from telling them the truth.
I wonder if there isn't an element of that in the criticism of the Amtrak Reform Council.
You go to many of their meetings. I think you are an alternate member of it. If this impression is wrong, correct it, but, well, I am sure there are surface critics, or at least skeptics of Amtrak. There are also strong partisans of Amtrak, or people who have a great attraction to the idea of rail passenger service in the United States and want to figure out how to make it viable.
Page 98 PREV PAGE TOP OF DOC Segment 2 Of 2 Isn't there a function to be served in trying to get the messenger, who was appointed by Congress to report to us, to do a good job, rather than kill it? I mean, someone is going to be reporting. The fight is not going to go away, or the concern. If these people can be turned into allies, isn't it possibly an opportunity for selling something to Congress rather than just a threat to Amtrak's survival?
Mr. MONEYPENNY. We recognize our responsibility
Mr. PETRI. I am sure you've considered all that, but I'd like to hear your reason why trying to do itit's not going to make the criticism go away. It's just going to destroy a credible vehicle for trying to move this whole process forward.
Mr. MONEYPENNY. We recognize our responsibility to try to work with anyone to mention trying to forge the sort of alliances you talk about. The specific MBTA situation in Boston, when the chairman of the Council is trying to break the union, it makes it a little bit more difficult to try to have that sort of alliance.
I would also add that when you put people on the Council like Mr. Vraneck, who before he was appointed to the Council wrote a book calling for the elimination of Amtrak funding, it gives us reason for skepticism.
When you have someone like Wendell Cox, who has written several screeds for conservative think tanks calling about the elimination of Amtrak funding, it gives us pause as to whether or not they have the best interest of Amtrak at heart.
Now, had Congress decided to appoint an Amtrak Elimination Council, I'd show up and nominate those two guys, but that is not what you folks did. You looked for an Amtrak Reform Council.
To the extent there are credible people on there who are looking for ways to reform Amtrak, you know, we don't have high fives with Amtrak management every day, far from it, but we recognize that the Nation needs a national passenger rail system and we think that Amtrak is doing the best they can on most days, and those who are professed enemies of it probably shouldn't be in a position of pretending they are trying to reform it.
Page 99 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. PETRI. Well, isn't it fair, thoughI mean, you can go through the full list of members of this Council and you will find members on the other side, as well. I know my own State's Mayor Norquist has a great interest in promoting and trying to figure out some way of making rail viable, Bruce Chapman out in the Cascadia region, and I think Mr. Carmichael certainly is knowledgeable about the industry and eager to try to help it to survive and be prosperous. So it's a mixed bag, as you would probably want in any credible Council, isn't it?
Mr. MONEYPENNY. We think we have a responsibility to point out the biases of those who have them, and I think we have a responsibility to continue doing that. And if that means that the ARC loses credibility as a result of that, then they probably ought to lose credibility as a result of that.
Mr. PETRI. Okay. Are there other questions? Mr. Duncan, any questions?
Mr. DUNCAN. No.
Mr. PETRI. If not, we thank you very much, and this hearing is adjourned.
[Whereupon, at 1:39 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]