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72–382 PS












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APRIL 25, 2001

Printed for the use of the

Committee on Transportation and Infrastructure


DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-Chair
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
STEPHEN HORN, California
JOHN L. MICA, Florida
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SUE W. KELLY, New York
JOHN R. THUNE, South Dakota
RICHARD W. POMBO, California
JIM DeMINT, South Carolina
ROBIN HAYES, North Carolina
ROB SIMMONS, Connecticut
HENRY E. BROWN, Jr., South Carolina
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SAM GRAVES, Missouri
MARK R. KENNEDY, Minnesota
BILL SHUSTER, Pennsylvania

NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
BOB CLEMENT, Tennessee
ELEANOR HOLMES NORTON, District of Columbia
BOB FILNER, California
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
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BILL PASCRELL, Jr., New Jersey
JAMES P. McGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania
BRIAN BAIRD, Washington
MICHAEL M. HONDA, California
RICK LARSEN, Washington


Subcommittee on Railroads

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JACK QUINN, New York, Chairman

THOMAS E. PETRI, Wisconsin
HOWARD COBLE, North Carolina
JOHN L. MICA, Florida
JIM DeMINT, South Carolina
ROB SIMMONS, Connecticut
  (ex officio)

BOB CLEMENT, Tennessee
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
BOB FILNER, California
RICK LARSEN, Washington
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  (ex officio)



    Gamble, Patrick K., Presidnet and CEO, Alaska Railroad Corporation, accompanied by Johne Binkley, Chairman of the Board, Alaska Railroad Corporation
    Griffin, Donald F., Assistant General Counsel, Brotherhood of Maintenance of Way Employes

    Hamberger, Edward R., President and CEO, Association of American Railroads

    Lindsey, S. Mark, Chief Counsel and Acting Deputy Administration, Federal Railroad Administration, accompanied by Joanne McGowan, Director, Freight Programs Division, Mark Yachmetz, Associate Administrator, Railroad Development, and Joseph Pomponio, Senior Attorney
    Millar, William W., President, American Public Transportation Association

    Szabo, Joseph, Illinois State Legislative Director, United Transportation Union

    Turner, Frank K., President, American Short Line and Regional Railroad Association
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    Blumenauer, Hon. Earl, of Oregon
    Clement, Hon. Bob, of Tennessee
    Cummings, Hon. Elijah E., of Maryland
    Miller, Hon. Gary G., of California
    Nadler, Hon. Jerrold, of New York
    Oberstar, Hon. James L., of Minnesota
    Rahall, Hon. Nick J., II, of West Virginia
    Young, Hon. Don, of Alaska


    Boyd, Byron (submitted by Joseph Szabo)
    Gamble, Patrick K
    Griffin, Donald F

    Hamberger, Edward R

    Lindsey, S. Mark
    Millar, William W

    Turner, Frank K

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    Hamberger, Edward R., President and CEO, Association of American Railroads, response to a question from Rep. Quinn concerning recent historic data on the proportion of railroad investment that is directed to infrastructure

    Lindsey, S. Mark, Chief Counsel and Acting Deputy Administration, Federal Railroad Administration, supplemental statement


    Letter to Dan L. Crippen, Director, Congressional Budget Offixce, from Rep. Quinn and Rep. Clement, May, 10, 2001, and response, May 25, 2001

    Kansas City Southern Railway Company, Warren K. Erdman, statement

    National Railroad Passenger Corporation, Joe McHugh, Acting Vice President, Government Affairs, statement

    Quinn, Hon. Jack, a Representative in Congress from New York, U.S. Department of Transportation memorandum concerning RRIF Administrative Procedures, June 23, 2000


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House of Representatives, Committee on Transportation and Infrastructure, Subcommittee on Railroads, Washington, D.C.

    The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2167, Rayburn House Office Building, Honorable Jack Quinn [chairman of the subcommittee] presiding.

    Mr. QUINN. The subcommittee will come to order.
    Good morning, everyone.
    Today's hearing will explore a range of issues affecting rail transportation policy through infrastructure. Over the last decade or more we have seen much greater integration of different forms of transportation. Often freight will travel by water, truck, and rail as part of its journey to its ultimate destination. But one weak link in this chain can slow down and congest the transportation network entirely. Frequently, that choke point is due to outdated or inadequate infrastructure
    In my own district in Western New York, for example, a single highly congested railroad bridge has proven to be the source of great delay and frustration among rail shippers and short line railroads. All interested parties have concluded that the best way to relieve the congestion and to improve service in the region is to fix the existing bridge or construct a new one. However, that type of project requires—as in the business in general—some serious capital funding.
    Lack of funding is a dilemma that plagues the entire railroad industry and is hampering service throughout the country. Certainly our witnesses today can address what they see as a critical link and a weak link the current network and offer some possible solutions.
    When this committee helped enact the Transportation Equity Act for the 21st Century in 1998, we made a number of improvements to the way the Federal Government addresses surface transportation needs. One major breakthrough for rail was the expanded direct and guaranteed loan program for rail and rail intermodal infrastructure. Of course, we are talking about TEA-21 creating the $3.5-billion fund named the Railroad Rehabilitation and Improvement Financing Program.
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    The potential users of this program are not just railroads, large and small, but all transport-related entities that connect with the rail network. That means that ports, rail truck-loading facilities, commuter rail, passenger rail, and a variety of others are eligible.
    We are now nearing 3 years since the enactment of TEA-21 and not a penny of the loan funds have been put to actual use to benefit any of these interests. The committee has established repeatedly, on a very bipartisan basis, that this hasn't been timely and a good implementation of the loan program. I believe 3 years is long enough to wait and we hope that the new Administration, as well as Secretary Mineta—who spoke to us just a few short weeks ago—will do as much as possible, as soon as possible, to take corrective action.
    Our smaller short line railroads are among those Congress intended to benefit from the loan program. In fact, $1 billion of the $3.5 billion is reserved for smaller railroads. But now there is a new threat to the smaller carriers who provide one out of every ten tons of traffic of our Nation's rail network. That threat is much heavier cars which are being adopted for understandable reasons of efficiency by major rail carriers. Unless the smaller railroads get help soon in upgrading their roadbed, bridges, and other infrastructure, they will be literally cut out from our increasingly interconnected transport network.
    These small carriers have struggled for a long time with the marginal track they inherited from some of the larger carriers. But the new heavier cars are a burden they simply cannot or could not be prepared to address alone.
    That is the reason why myself, along with my partners, Mr. Clement and Mr. Bachus, introduced H.R. 1020, the bill named the Railroad Track Modernization Act of 2001. It would have to be a non-Federal match of about 20 percent and rail labor would benefit from both the Davis-Bacon Act and the New York Dock Labor Protection provisions. It is our hope that H.R. 1020—which Chairman Young has now cosponsored—can be marked up in the next few weeks and we can get assistance and this program enacted and funded as soon as possible.
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    We have a wide range of witnesses this morning: railroads large and small, rail labor ports, commuter rail, and Federal Government witnesses. We look forward to hearing from all of them.
    I would yield to Mr. Clement at this time for any opening remarks.
    Mr. CLEMENT. Thank you, Mr. Chairman. It is good to see so many people here today. I am looking forward to hearing from the panelists as well.
    I appreciate your comments. I agree with everything you have said. I ask that my statement be accepted as if read.
    Mr. QUINN. Without objection, your prepared statement will appear in the record.
    Mr. CLEMENT. And I will summarize my statement. Today the Railroad Subcommittee will take up the state of our Nation's railroad transportation infrastructure. Chairman Quinn and I share a deep concern about the health of this industry and have recently cosponsored legislation to provide funds to help the Nation's short line and regional railroads rehabilitate their tracks.
    America's railroads form the backbone of our multimodal transportation network and are key to the economic vitality of our Nation. Yet, while producing roughly 40 percent of the Nation's freight output and supplying many of the most basic and necessary commodities to our power plants, chemical manufacturers, and agricultural industries, many of the Nation's railroads face an acute crisis in the form of antiquated, dilapidated infrastructure.
    How to address this problem is the subject of today's hearing. I hope we can develop common ground from which to support the work of America's railroads.
    This issue now comes to the forefront because of the class one adoption of the 286,000-pound freight car as the industry standard. These heavier cars cause additional stress on an already weak system of track, bridges, turnouts, and roadbed. A recent study concluded that nearly $7 billion is required in order for smaller railroads to safely and efficiently accommodate these new 286,000-pound cars. Without such investment, the low-density feeder network will be effectively cut off from the larger railway system because of its inability to handle this traffic.
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    Partly in response to this problem, Congress authorized the $3.5-billion Railroad Rehabilitation and Improvement Act under TEA-21, which established a loan program to help carriers address their infrastructure needs. With H.R. 1020, we will go further in securing the viability, safety, and efficiency of our railway system by granting the necessary funds for vital improvements.
    The passage of this bill will greatly benefit our railroads and the Nation as a whole. By securing the future of regional and short line railroads, we help maintain a critical traffic source for the class ones, and additional capacity to handle the increasing car loads that railroads are experiencing. Further, as the United Transportation Union—America's largest rail union—will note today, small and regional railroads help to secure the future of railway workers by increasing railway shipments, paying into the railroad retirement system, and providing jobs on routes which would otherwise have been abandoned.
    Also, as we look toward new passenger and commuter initiatives nationwide, better infrastructure on our smaller lines can help to open new venues for such services. With the passage of H.R. 1020, we can take a large and critical step toward insuring a truly multimodal transportation system, which can move America through the 21st century with efficiency and safety.
    I look forward to the testimony, comments, and ideas of our witnesses today and trust that together we can find a way to keep America's railroads moving. I appreciate Chairman Quinn, Congressman Bachus, and many on this committee that are already cosponsoring this legislation. In order for us to have a total concept, if you want to look at it that way—where we are not pitting one group against another group—where we are working together for the best interest of the consumers and the shippers and the railroad industry. We truly are in the 21st century and we are talking about the future of transportation in our country.
    Thank you.
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    Mr. QUINN. Thank you, Bob.
    The Chair yield to Mr. Coble at this time for an opening statement.
    Mr. COBLE. Mr. Chairman, I have no prepared statement. I will just say that you and the distinguished gentleman from Tennessee have very accurately addressed the issue.
    Mr. Chairman, I have one short line railroad in my district and I think there are two short line rails that are connectors. So I am well aware of the problems these short line railroads face. I am well aware of the contribution they make to our society. And I hope that we will make it clear that the investments in the short line railroads are sound investments.
    Mr. Chairman, I apologize to you. I have two other meetings simultaneously going on, so I will not be able to stay for the entire hearing. But I thank you for conducting this hearing today.
    Mr. QUINN. Your apology is accepted, Mr. Coble. I appreciate it very much.
    The Chair recognizes with gratitude for his advice, counsel, and experience the ranking member of the full committee, Mr. Oberstar.
    Mr. OBERSTAR. Thank you very much, Mr. Chairman, for those kind words, and for your leadership on these rail issues. It is good to have someone who really has his heart in the subject matter leading the committee's efforts. And you really do have your heart in railroading.
    The focus of this hearing on the condition and investment needs of the freight railroads, couldn't be more timely. Railroads are facing the most serious crisis since the 1970s when nearly one-third of the Nation's railroads were in bankruptcy.
    While there will be discussions about the impacts on the class Is and the short lines, there will be consequences for whatever we do here for Amtrak and commuter rail services as well.
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    What is clear—and hopefully this hearing will help to underscore this issue—is that the railroads are absolutely vital to the Nation's economic health. More so than any other mode of transportation. If our airlines shut down, vacations would be disrupted and businessman might have to do conferences by fax and telephone, we could eventually adapt. With the railroads shut down, the economy quickly grinds to a halt.
    Railroads produce 40 percent of the Nation's freight transportation. That is more than all the trucks, all the pipelines, all the barges, and all the ships that move in our inland waterways and our intercoastal waterways. They move coal to power our energy plants. They move agriculture to serve our grocery stores and put food on our tables. They move the chemicals and the raw materials necessary to manufacturing as well as finished goods such as automobiles and other heavy equipment that come out of our manufacturing sector.
    They take trucks off the Nation's highways, making our highways safer and giving them a longer life.
    Railroad traffic, measured in revenue-ton miles, is one and one-half trillion ton miles, an all-time high. But the infrastructure supporting that output is shrinking. Class Is have been abandoning track ever since we deregulated the railroad industry with the Staggers Act of 1980. The mileage has fallen 50 percent to below 100,000 miles. Put another way, we are moving twice as much freight on half the track that we started out with before deregulation. The Norfolk Southern just recently announced it will abandon another 3,000 miles of right-of-way.
    There is a lot of expectation that the short lines will pick up some of that slack. There are about 550 short lines in this country and they have about 50,000 miles of track. That is 550 short lines with half the track of the class Is. Ninety percent of the freight that the short lines carry is eventually transferred to class Is.
    These smaller railroads—as the gentleman from Tennessee alluded to just a moment ago—inherited road and track that otherwise would have been abandoned, was in bad shape, and needs a tremendous amount of investment to bring it up to standard. With the 286,000-pound cars now on the rails, that track is not in shape to accommodate the traffic expected to use it. And many of those Class IIs and IIIs don't earn enough money to maintain the infrastructure they need and to build new lines.
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    So as the gentleman said, something like $7 billion, according to recent studies, is needed to upgrade the short line's tracks, just to get them up to standard, so they can handle those heavier cars safely. Many of those short lines thought, initially, that they could be non-union operations. By eliminating unions, they believed they could become profitable. But they found in the process that labor wasn't the problem. They had insufficient capital to support their infrastructure needs.
    This legislation that the committee leadership—with the exception of me—has introduced is a move in the right direction. With just a few more adjustments, I will be able to support this legislation. Although $1 billion over 3 years will help the small railroads address their infrastructure needs, it will not address all their problems. If we can get the small short line railroads to a profitable position, they will be able to generate the revenue they need to maintain their track.
    Some of the ideas we have discussed at one time or another may come together by the time we are ready to more this legislation, such as moving the 4.3-cent deficit reduction fuel tax into a trust fund from which we will have a revolving source of revenue for all the railroads to address their infrastructure needs. It is a very attractive idea if we can address some of the issues.
    But in this era of extraordinary railroad traffic growth, there are also consequences for commuter rail and for high-speed rail. As railroads reach capacity, service delays develop, there is less room to accommodate high-speed passenger trains, and less room to accommodate commuter rail. We are having a serious discussion about that matter in my own State of Minnesota. As we attempt to carry out the directive of TEA-21 to develop high-speed rail corridors to relieve congestion at the Nation's major airports and congested areas, we are running into this rail capacity problem.
    How can you accommodate both freight and passenger service on the same track? If agreement can't be reached when there is a dispute between Amtrak and freight, the Surface Transportation Board is authorized to resolve the dispute. It seems to me that we ought to be able to work out something less cumbersome and more speedy to resolve the conflicts between freight and commuter railroads that have developed and will continue with the shrinkage of available rail line, the growth in freight traffic, and the growth in passenger rail service demand.
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    So without going into further detail, I think that we ought to be able to develop a mechanism to resolve disputes that the railroads cannot work out with commuter operators and with high-speed rail service operations. There is room in America—and there is a need in this economy—to continue to move increasingly greater volumes of freight on the Nation's rails and increasingly greater numbers of passengers.
    The nostalgia for rail passenger service is enormous in this country. No matter where I travel, people gang up at railroad museums. They demand that we put money into improving rail passenger service. We can accommodate both if we will just put our heads together to do it.
    Thank you, Mr. Chairman.
    Mr. QUINN. Thank you, Mr. Oberstar.
    The Chair recognizes Mr. Bachus.
    Mr. BACHUS. Thank you.
    I would like to say to the panel that is going to testify, if you go to my home State of Alabama, the capital of Alabama, Montgomery, is pretty close to the center of the State. If you drive from Montgomery due south to the Florida State line, 20 years ago you would have crossed four rail lines. They were all class ones. Today, you cross one short line railroad, which used to be a class one. They abandoned it 20 years ago. It is an old L&N track. That track is in sad shape.
    People say, okay, there are no rail lines down there except one short line. What does that mean? You have eight counties that have no rail service or have a short line, which means the chemical plants are gone, the paper plants are gone, fertilizer operations are gone. If they want to attract an industry, they can't promise rail service.
    So we have basically written off that whole part of the State to any industry that needs rail. The sad part about that is that I don't think in the next 100 years we will build a new rail line in there. It basically means that when you drive from the capital of Alabama south to the border you have one short line railroad that serves four of those eight counties, it is in sad shape, and in the next 5 years it may be abandoned.
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    What we are doing, basically, is abandoning that region of our State to rail service. That is not good for the big railroads, that is not good for the small railroads. That is not good for anything.
    On that one short line railroad, there are 3,800 jobs that are dependent on that short line railroad. And I am taking one small region of one small State.
    You talk about 10 percent of the car loads, but what you are probably talking about is one-third of the country. We probably already lost rail service to 40 percent of the country. The short lines that are now in existence—many of them struggling—probably cover another 20 percent of the country. I am not sure that the Federal Rail Administration or the Federal Government—if they have been aware of the situation, they really haven't cared to do anything or be a strong advocate for saving those lines.
    I want to commend Chairman Quinn. It is not just about saving some railroad tracks. It is about saving 20 or 30 percent of our country, counties that would have no rail service and would not be able to attract certain type of industries or employ certain people in certain industries. About half or two-thirds of this is already irreversible.
    But certainly we have the initiative and the imagination to come in at this late date and save what little is left. If we don't, we are basically going to be a country where you don't have rail service in probably two-thirds of the country. Within 30 or 40 miles of most areas of our country there will be no rail service.
    That is tragic if we are to have a comprehensive coverage of rail. And if we ever get to the point where we decide that we are not going to let trucks of a certain size run on our highways, or gas prices are so high the rail is really much more effective—it already is, but it gets even more so—still if you don't have a rail line, it really doesn't matter.
    What a class one may say right now is, You don't have to build in that county. You can go to a county that we serve. but that is a solution for the class ones right now. It certainly is not a solution for a county that has no rail service.
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    We have cities in Alabama with populations of 20,000, 30,000, and in one case 80,000 people that don't have a rail line. It is time that this Congress stood up and basically tried to help save what little remains of our rail infrastructure.
    Thank you, Mr. Chairman.
    Mr. QUINN. Thank you, Mr. Bachus. We appreciate your comments and your work on the committee. We really do.
    The Chair recognizes Mr. Rahall for an opening statement.
    Mr. RAHALL. Thank you, Mr. Chairman.
    Mr. Chairman, as you and many members of this committee and those in attendance today know, I have been intimately involved in a number of rail issues since the Deregulation Act of 1982. I stood behind President Jimmy Carter when he signed the legislation into law in the White House. And ever since I have been working to ensure adequate protections for captive shippers of commodities across our country.
    I do want to commend this committee for today's hearings. It is very important that we look at the railroad infrastructure, that we have a very health, safe, and viable rail industry in this country so that so much of our economy can continue to prosper.
    Coming from the coal fields of southern West Virginia, I know very acutely the relationship between the transportation of our coal and a very strong rail industry. Today, though, I would like to focus on one of the purposes of today's hearings, which you mentioned in your opening statement, the Railroad Rehabilitation and Improvement Financing Program.
    It was 3 years ago this month that the House passed in a bipartisan fashion that masterpiece of legislation written by this committee known as TEA-21. In TEA-21, Congress specified that the RRIF Program would provide for direct and guaranteed loans up to $3.5 billion to rehabilitate and improve our Nation's railroads. At least $1 billion of these funds were designated to benefit small short line and regional railroads.
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    Yet the FRA has allowed nearly 3 years to elapse since TEA-21 was enacted and not a single loan has been given. The reason for this is that the FRA has written regulations that are contrary to congressional intent spelled out in TEA-21.
    Back in 1999, when I was ranking member of the Ground Transportation Subcommittee, I joined with Chairman Shuster, ranking member Oberstar, and Ground Transportation Chairman Petri in writing to Secretary Slater, OMB Acting Director Jack Lew, and FRA Administrator Molitoris about this. After 2 years, it is still unresolved.
    We were most troubled when FRA's proposed regulations stated that the Government should be the lender of last resort and that applicants must provide at least two rejection letters from commercial lenders who refused to finance the loans. In the final rule, FRA did reduce that to one rejection letter instead of two. In my opinion, that is still unacceptable.
    In TEA-21, Congress did not specify that an applicant must document rejection by a private lender in order to get a loan under RRIF. Congress did not envision the RRIF Program as being carried under the terms of commercial lending, especially since many applicants might not be able to attract sufficient private capital. Instead, the congressional intent was that these rail infrastructure improvements will benefit the public good. When these loans are made to improve our railroad system and keep tracks viable, that enhances the transport of interstate commerce and provides for a strong economy.
    Today I want to make it very clear that I am very displeased with FRA's disregard of congressional intent. FRA is mandated to execute the law as written by Congress, not to reinterpret them if they disagree with a particular provision. I ask that the FRA rescind that harmful, unnecessary, administrative requirement.
    However, we have no guarantee that FRA will do so. Back on February 6th of this year, I introduced H.R. 517, the Railroad Rehabilitation and Improvement Financing Program Correction Act of 2001. H.R. 517 is written to ensure that applicants can get a loan according to the terms of TEA-21 without having to demonstrate prior rejection by a commercial lender.
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    Mr. Chairman, in light of FRA's lack of cooperation to date in rescinding that aspect of the rule, I respectfully ask, of course, that you bring my legislation before this subcommittee for consideration. After all, we will hear today from the short lines about their need for infrastructure improvement in order to safely move the new 286,000-pound railroad cars. Yet at the same time they have been effectively blocked by FRA from getting the RRIF loans.
    This makes no sense and we must correct this unnecessary problem.
    Thank you, Mr. Chairman.
    Mr. OBERSTAR. Would the gentleman yield?
    Mr. RAHALL. I would be glad to yield.
    Mr. OBERSTAR. I am glad the gentleman raised that point because I raised it with Secretary Mineta at our congestion hearing. I pointed out the delays that frustrated all of us on this committee under the previous Administration. The Secretary did commit to address this matter. I think we ought to have a meeting with him on this as soon as possible.
    Mr. RAHALL. I second that. I appreciate the gentleman from Minnesota bringing that up. I am sure that Secretary Mineta will work with us on that.
    Mr. QUINN. I thank both the gentleman. And I think, as Mr. Mineta responded to a number of questions that day from many of us on the panel over those two and a half or three hours, I think we want to give him enough time to get himself situated there. But I don't know of another priority that all of us seem to agree on in a bipartisan way than that issue. Hopefully, he will be ready for us just as soon as possible.
    Thank you, Mr. Rahall.
    Mr. RAHALL. Thank you, Mr. Chairman.
    Mr. QUINN. Thank you, Mr. Oberstar.
    The Chair will recognize Mr. DeMint for an opening statement.
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    Mr. DEMINT. I have no statement, Mr. Chairman.
    Mr. QUINN. Mr. Baldacci, any opening statement?
    Mr. BALDACCI. Just very briefly, Mr. Chairman.
    I want to thank you for the hearing and the ranking members and the senior members for their comments in regards to the RRIF Program and delaying those badly needed funds to rail lines.
    I represent a district, which is the largest physical district east of the Mississippi, that is very natural resource laden. It is very important, in order to be able to move goods, as Representative Bachus was talking about, and being able to continue to have thriving communities, that we are able to get our goods to market. We have several short line rail lines that are going to be much in need of repair. These funds are going to be critical to their financial viability.
    There are some issues in the legislation that need to be resolved. But I think it is very important that we advance this legislation. I am supporting this legislation and look forward to working with the chairman as we try to get this money and resources out to these rail lines. As we look to expand trade in Canada, as we look to develop the Northeast Corridor, and the importance of being able to ship safely freight and people as we look to relieve some of the congestion that our airports—especially along the east coast—have caused with the diminishment of air services—if this is supposed to be a viable option, then we need to have one that is effective in getting those resources out.
    Many of the States' resources have gone into refurbishment. This 80/20 match program that is called for will hopefully relieve a lot of the financial stress on the State and at the same time being able to make those repairs.
    I want to thank the chairman for the legislation and the hearing and look forward to working with him and other members on the markup of that.
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    I yield back the balance of my time.
    Mr. QUINN. Thank you, Mr. Baldacci. We will look forward to your help.
    The Chair recognizes Mr. Platts for any opening remarks at this time.
    Mr. PLATTS. Thank you, Mr. Chairman.
    I just would echo the many statements of previous speakers on the importance of our rail infrastructure, certainly to the economic vitality of our Nation and our local communities, and also just to the quality of life of our citizens as they drive the highways. Also in the sense of how important the rails are to letting freight be transferred over the rail as opposed to having to build more highways and congest the existing highways.
    As one who commutes pretty much every day from York, Pennsylvania to here, less congestion on the highways through better use of our rail system would be very welcomed by me.
    I look forward to the testimony of our panelists.
    Thank you, Mr. Chairman.
    Mr. QUINN. Thank you. We appreciate your involvement.
    Mr. Larsen, any opening remarks?
    I would like to thank you, by the way, for your helping me co-chair the last hearing. You did an adequate job in Mr. Clement's absence.
    Mr. CLEMENT. I concur.
    Mr. LARSEN. And anytime I can accommodate Mr. Clement, I will be glad to do so.
    No statement, Mr. Chairman.
    Mr. QUINN. Accommodate, not replace.
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    Mr. LARSEN. Exactly. I chose my words very carefully, Mr. Chairman.
    Mr. QUINN. I sincerely thank you for that last hour of that hearing. I appreciate it.
    Mr. Moran has joined us but does not wish to make an opening statement.
    Mr. Nadler?
    Mr. NADLER. Thank you, Mr. Chairman.
    I would like to thank the committee and the Chair for holding this hearing regarding infrastructure policy affecting especially class two and class three railroads.
    This is an issue of particular importance to the area I represent. Most people don't think of New York City or Manhattan or Brooklyn when they think of rail freight, and that is just the problem. East of the Hudson River in New York and Connecticut, we suffer from a particularly acute lack of freight transportation. This region, which includes all of New York City, Long Island, Westchester, and Putnam Counties in New York and most of the State of Connecticut is almost totally dependent on trucking. Rail freight accounts for about 2.5 percent of the freight in the region.
    We thus suffer from extreme levels of pollution, congestion, and a higher cost of living standard because of the higher cost of consumer goods and also depressed economics in the region because of the higher cost of transportation.
    There are many reasons for this lack of rail service, one of which is the inability of smaller railroads to make the necessary capital-intensive improvements. For example, east of the Hudson many smaller railroads operate properties once owned by Conrail. When Conrail was broken up, these properties were given in illogically segmented segments to multiple carriers. This is one of the reasons we have a rail system that handles very little traffic.
    It is often difficult, obviously, for smaller railroads to expand their business, create capital, and modernize their system. We must note that the Nation's railway system was built with private funds in the last century. It desperately needs modernization, but Wall Street will not allow private capital to undertake extensive projects whose return will not be seen in the short term.
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    The Government must take a proactive role in assuring a rail system adequate to meet the needs of a first-class economy in the 21st century, and I might add, an economy that offers modal choice to the shippers so as to maximize efficiency and competitiveness in the regional economy.
    I am very pleased that the committee is addressing this problem here today. H.R. 1020, the Railroad Track Modernization Act, will help railroads stay competitive by providing direct assistance for infrastructure improvements.
    I look forward to working with my colleagues toward the final passage of this bill. I also look forward to using this hearing and subsequent proceedings in this committee to improve the Executive Branch's implementation of the Rail Infrastructure Loan Program enacted in TEA-21, which thus far has not been used at all. I hope this program will be made efficient and existent so that smaller railroads can take advantage of its intended benefits.
    Thank you, Mr. Chairman, for holding this hearing, so that we can more closely examine the challenges facing our Nation's class two and class three railroads.
    Mr. QUINN. Thank you, Mr. Nadler, for your comments. I also want to thank you for your work 3 years ago, when TEA-21 was put together, to make certain that railroads weren't forgotten in the big bill. I am glad to see you back with us today.
    The Chair would recognize the vice chairman of the subcommittee, Mr. Ferguson, for an opening statement.
    Mr. FERGUSON. Thank you, Mr. Chairman.
    I want to thank you and the ranking member for holding this hearing today. And I certainly want to thank our panelists. Mr. Lindsey, it is good to see you again. I thank the panel for their testimony. I look forward to reading it.
    Unfortunately, my schedule is going to prevent me from remaining for the rest of this hearing. But I did want to come and offer a couple of thoughts.
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    Certainly, as you well know, my district in New Jersey has more rail line than any other district in our State. We live in one of the most congested areas of the most congested State in the Nation. So all our transportation issues—but particularly our rail transportation issues—are of particular importance to me.
    Our railroad system serves as an environmentally friendly and efficient way to move freight in our country today. Our rail network relies on a vast number of smaller systems joining together to form a national network. Our class one, class two, and class three railways have a symbiotic relationship. All of our railways must be able to handle all freight cars, regardless of weight, size, or class. We cannot afford to have a fragmented rail network.
    Currently, some of our class two and class three railways cannot handle the new 286,000-pound rail cars and this disrupts our network. In TEA-21, we created a loan program to specifically help our rail network and upgrade some of our older tracks. As we have heard, not a single loan has been approved under this program since the enactment of TEA-21 in 1998.
    This committee has questioned whether the requirements for the loan program have a statutory basis. In addition, we have also questioned if the loan requirements have been subject to public notice and comment as a part of FRA rulemaking procedures. It does not help anyone to make a loan program where the loans are not able to be procured.
    On April 6th of this year, the leadership of this committee wrote to Secretary Mineta expressing concern regarding the complete stagnation of the rail loan program. My colleague, Mr. Rahall, has also introduced legislation to expunge the lender of last resort requirement in the published regulation and the full recovery collateral requirements in the DOT-OMB memorandum. These efforts have been to no avail.
    I am hopeful today that we can find some answers and hear some answers as to why not a single loan has been approved since the implementation of TEA-21 and what we can do to fix this problem.
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    Another issue which will be crucial to our rail network is the ability to successfully run some of our commuter rail in conjunction with our freight rail. While I recognize that freight railroads have the right-of-way on most of these tracks, we have seen that agreements can be forged between freight and commuter rail. In my district in New Jersey, this has already happened and it has been a vital resource to help alleviate congestion. These agreements will ultimately lead to less congestion on our roads as well and hopefully to more investment in our rail network.
    Again, I appreciate the panel being here today. I look forward to reading your testimony. I apologize that I will have to step out because of my schedule. But I certainly want to thank the Chairman the ranking member of this committee in addition to the ranking member of the full committee for being here today. I appreciate your leadership and the opportunity to be here.
    Thank you very much.
    Mr. QUINN. Thank you, Mr. Ferguson.
    I think that is the end of our opening statements.
    Mr. Lindsey, just before we begin, I would like to take care of some housekeeping here.
    I would like to ask unanimous consent that the record be held open for the usual 30 days to allow supplemental written submissions and answers to any follow-up questions from any of the members today.
    Without objection, it is so ordered.
    I would also like to ask unanimous consent to include in today's record a memorandum dated June 23, 2000 from DOT to OMB. Without objection, that is so ordered.
    [The referenced document follows:]

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    Mr. QUINN. Mr. Lindsey, you are here with the rest of the team. We welcome you all to the witness table this morning.
    So that we may get to some questions, we would like you to begin your summarization of about 5 minutes or so right now.
    Mr. LINDSEY. Thank you, Mr. Chairman.
    We are pleased to be here today to report to you on rail infrastructure needs and the role of the RRIF Program in meeting these needs. I certainly want to commend the committee for creating the RRIF Program in the first place as part of TEA-21. It is a wonderful tool that we are delighted to have. We think in time you will see the payoffs from that tool that you anticipated in creating it.
    Accompanying me today are Mark Yachmetz, who is the Associate Administrator for Railroad Development. To my left is Joanne McGowan, who is the Director of the Office of Freight Programs for FRA. To her left is Joe Pomponio, who is the attorney who drafted the RRIF Program rule and who does the legal work for the program.
    I brought them with me today because I understand that the committee wanted us to bring all the folks from FRA who can tell you what has gone on in the development of the rule and the implementation of the RRIF program. Among the four of us, I think we know all that folks in the FRA know. We don't necessarily know what people elsewhere in the Executive Branch do, but we can certainly tell you about all that occurred in FRA.
    For us, RRIF is a very important program that offers unparalleled opportunities for implementing a wide variety of railroad projects and meeting some of the critical capital investment needs of the rail industry. Under the RRIF Program, direct loans and loan guarantees are available for projects to acquire, improve, or rehabilitate intermodal or rail equipment or facilities, including track, components of track, bridges, yards, buildings, and shops; to refinance outstanding debt incurred for those purposes; or to develop or establish new intermodal or railroad facilities.
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    Increasingly, the transportation system is becoming interwoven together and to have capital available, particularly to the smaller railroads, to make those connections and to maintain the infrastructure is very, very valuable.
    One creative feature of the RRIF Program that is of particular note is the opportunity for someone to pay a credit risk premium. Normally, when the Federal Government, under credit reform, makes financial assistance available, it is necessary either for there to be an appropriation supporting what the Credit Reform Act refers to as the subsidy cost of the financial assistance, or it has to come from some place else.
    With the RRIF Program, you created the opportunity for either the recipient of the financial assistance or someone else who benefits from it to pay that credit risk premium. At the same time, however, that introduced some complexities to getting the program off the ground because it was necessary to calculate the credit risk premium.
    At FRA, we tried to implement the program very quickly. Immediately after the law was signed, we retained Ernst & Young to help us create the tools for calculating credit risk premiums and worked hard to get a rule out as quickly as we could handling those complexities.
    Nevertheless, implementation of the new program incorporating this innovative feature required thorough discussion throughout the Executive Branch. That, and the resolution of other issues, certainly delayed getting the rule out, I know to the great frustration of many members of this committee and certainly to our own as well.
    We recognize that an extended time has passed and the staff at FRA is committed to working hard to implement the program as rapidly as possible.
    During the period between the issuance of the final rule on July 6th of last year and its effective date in September, we had an extensive outreach effort that included seminars in Philadelphia, Portland, Oakland, Atlanta, Dallas and Des Moines. FRA also participated in the Transportation Research Board's National Conference on Transportation Finance in Scottsdale, Arizona and its innovative finance workshop during its annual meeting in Washington, D. C.
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    During the first several months after the rule became effective, 19 railroads came in for pre-application meetings. In the last week alone, three more have come in, for a total of 22 thus far. Of those, four have moved to the stage of having actual completed applications before us. And of those, two have had their financial advisors complete the financial analysis on their applications to support it in a matter that would enable us to go forward.
    We have completed the analysis of the first of those, which is a $100-million direct loan to the I&M Rail Link and we anticipate that we will finish the review of that loan very quickly. We think that is on the cusp of coming out.
    Another railroad, the Arkansas & Missouri Railroad, has submitted its financial advisor's analysis and we are very close to finishing our analysis of that one. We hope the other two who have applications before us will shortly complete their financial advisor's work, and these too will be moving.
    Our anticipation is that once the first loan is out and railroads can see what was involved, what finally got approved, and what it cost, then we will have many more applications than we have before us now. Understandably, for small businesses looking at a relatively complex program, I think there has been a certain amount of hesitancy.
    But we hope that will be cured by letting people see a real transaction come out, which we hope will happen in the very near future.
    Several members of the committee have referred this morning to the needs of the railroad industry for capital of this sort. Those needs really do exist. Since the passage of TEA-21, there have been a couple of studies worth noting that emphasize that need. One conducted by AASHTO of 200 railroads indicated that they have a 10-year need of approximately $2.25 billion. We did another study with the Short Line and Regional Railroad Association of all their members that indicates approximately $6.7 million would be necessary for all the railroads to upgrade their facilities in order to accommodate the new 286,000-pound freight cars. So the need is acute.
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    Fundamentally, Mr. Chairman, I think we are on the cusp of doing what it is you want us to do. We at FRA are eager to do it.
    Thank you very much for having us here this morning. We are prepared to answer whatever questions the committee may have.
    Mr. QUINN. Thank you, Mr. Lindsey. And thank you for the summary so that we can get to questions.
    I would like to suggest to the rest of the members of the subcommittee that due to the interest in this topic, we may try to go through a second round of questioning for members if we don't get all the way there before we get to the second panel, depending on what happens with our votes here this morning.
    Mr. Lindsey, I want to go on the record right away and run the risk of summarizing what my colleagues have said here this morning and what you heard a few weeks back, that we are here to help you. It's plain and simple.
    Sometimes when these kinds of programs get started in the U.S. Congress, it is the Legislative, and this is the Executive, and somebody else has a problem. To summarize what you heard this morning and a few weeks ago, we are here to help you do what it is you need to do to spend this money, if I may take that liberty with my colleagues. So we want to do that. That is the first thing.
    Second, I felt that I put the Secretary, Mr. Mineta, on the spot a little bit with a question of mine a few weeks back when he was here. Maybe those questions should be more directed to you this morning, and I think they will be. We appreciate your candor.
    It is good to hear that a couple of these loans are on the cusp of happening.
    If I was an applicant and walked in the door today for a loan, how long do you think it would take before I saw some money?
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    Mr. LINDSEY. I think that would depend on the complexity of your deal, how quickly you could retain a financial advisor, and he could do his job.
    And let me add another note on that. There is in the legislation an investigation charge that FRA can charge, but we lack the authority to spend that money to do things similar to what a financial advisor is now doing. What we have done instead is have the railroad hire its own advisor to evaluate it in ways satisfactory to us and submit that analysis to us. And that process is taking a substantial amount of time.
    As an example, in the I&M deal, which was a fairly complex one, the financial advisor was retained in mid-December. He turned in his report March 6th. So perhaps that serves as a bit of a framework.
    Mr. QUINN. And you are hoping that if we get some of these loans out, railroads will see that it is possible to get it done and then it might be worth their time and effort and money to get it done.
    Mr. LINDSEY. Yes, sir. And by the way, in the I&M application, we took about 3 weeks after that to analyze that deal and prepare the paperwork associated with that loan.
    Mr. QUINN. Thank you very much.
    You know about the memo I mentioned and introduced into the record of June 23, 2000 between DOT and OMB? Are you familiar with that?
    Mr. LINDSEY. Yes, sir, the memo between Jack Basso and Michael Deich?
    Mr. QUINN. Yes. It seems to me that that was never subject to any kind of notice or comment or anything else. I don't want to say that the rules were changed, but some suggestions were made. Some hurdles might have been added to this.
    Any reason, from your perspective, why that was done?
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    Mr. LINDSEY. I guess it is not uncommon, Mr. Chairman, for OMB to give departments direction on how they expect us to implement various programs. I think that they would put this in that category.
    Mr. QUINN. Mr. Clement?
    Mr. CLEMENT. Mr. Lindsey, as the presumed administrator of any capital grants established under the program created by H.R. 1020, how can the FRA ensure that the delays and difficulties experienced with the RRIF Program will not similarly plague these new grants? Do you have any specific ideas that could be included in the legislation to help ensure that the process is efficient?
    Mr. LINDSEY. Yes, sir, a couple of them. One would be to involve the States in that small recipients are not terribly accustomed to dealing with many of the requirements that go with Federal financial assistance. We have found in the Local Rail Freight Assistance Program (LRFA), for example, it was very helpful to these recipients to have the State get the money directly from FRA and then for the State to deal directly with the railroad because the States are very accustomed to dealing with the Federal grant requirements. The States can help the recipients a great deal. That might be one way of doing it.
    Mr. CLEMENT. In your testimony, you reported that you have met with 19 prospective applicants with $500 million in potential projects. Given that $3.5 billion is available and that the program has been in the wings for quite some time, does this relatively small amount suggest problems with perceived accessibility to the funds?
    Mr. LINDSEY. Possibly, sir. I think there may be a couple of things entailed there. Number one, it is a complex program and I think many of the smaller borrowers are a little concerned about that and would rather see somebody bigger go through it first and see how it works. I also think that some of the smaller ones have been hoping that a bill like H.R. 1020 would get passed and they could get financial assistance in grant form rather than a loan. I think both of those are elements of it to some degree.
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    Mr. CLEMENT. Can FRA provide an estimate of the increased public monies required to finance investment in the other modes if the traffic now carried by the short lines and regional railroads were forced to close because they could not meet their 286K infrastructure needs?
    Mr. LINDSEY. I don't have such an estimate, Mr. Clement, but we would be happy to try to devise one. We might well be able to come up with at least a rough one, sir.
    Mr. CLEMENT. I would like to see what you could come up with.
    Mr. LINDSEY. We will be glad to do that.
    Mr. CLEMENT. Thank you, Mr. Chairman.
    Mr. QUINN. Would the gentleman yield on your time?
    Mr. Lindsey, as you make note of Mr. Clement's last question, I want to get back to your answer to his question that going to the States might be a way to do that.
    Tell me why that wouldn't add more bureaucracy to this problem? Why would it streamline the process to go to the States when we assume that the short lines know their business the best, they know what they need, they know what they want, and they know what their problems are?
    Mr. LINDSEY. Mr. Chairman, the railroads know their business very well, but relatively few of them are accustomed to dealing with the sorts of requirements that come with OMB circulars detailing what one has to do as a recipient of Federal financial assistance. That is the place where the States can help them a great deal.
    In our previous experience in Title 5 programs, it has worked pretty well. The short lines were not unhappy with the role of the States and did not complain that it really slowed things up.
    Mr. QUINN. Thank you.
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    Thank you, Bob, for your time. I really appreciate it.
    Mr. Young, would you like to be recognized for an opening statement or questions at this time?
    Mr. YOUNG. Mr. Chairman, I do thank you.
    First of all, I will submit for the record my written statement.
    Mr. QUINN. Without objection, your prepared statement will appear in the record.
    Mr. YOUNG. I would also at this time like to thank you for holding these hearings.
    For those who may be interested, when you first took over this chairmanship at my wishes, our goal was to make sure that H.R. 1020-type legislation would become a reality. This is for those who might oppose this. I suggest that you don't oppose it because I believe very strongly in the short lines and their ability to complement the long lines and to get rail transportation to where I think it ought to be, which is in the front of the bus.
    I am also a little bit concerned because in TEA-21 we had about $3 billion that were to be utilized for rail improvement that has not been utilized. My theme song has been the relieving of congestion. One of the ways we can do it is to utilize the rails in a much better fashion.
    Our Alaskan railroad is a unique situation. It is a short line that contributes tremendously to the State of Alaska in the ability to move freight and people. I am very supportive of our legislation. Again, for those who might think about opposing this, I would suggest that you reanalyze your position because we are going to pass this legislation. We are going to get this short line activity on track—and I don't say that tongue-in-cheek—as it should be and on time as it will be.
    Thank you, Mr. Chairman.
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    Mr. QUINN. Thank you, Mr. Chairman.
    Mr. Oberstar?
    Mr. OBERSTAR. Thank you, Mr. Chairman.
    I want to thank Mr. Lindsey and his associates for being here today.
    I would like to come back to an earlier point, just as a point of curiosity. After we enacted TEA-21, you were working with the directive in that legislation?
    Mr. LINDSEY. Yes, sir.
    Mr. OBERSTAR. And you are not telling anything out of school right now.
    Did you consult with OMB? Did the green-eye-shade folk over there come in and look over your shoulder and tell you how to do this?
    Mr. LINDSEY. Not quite that way, sir. We knew that the credit risk premium was required under credit reform. That is the reason we hired Ernst & Young right away because they had the two people who had done the credit reform work at OMB. So we wanted to pass back to OMB in the terms we were confident they believed in concerning how to do this in the hope that that would speed things along.
    I guess the bill was signed about the end of June or the beginning of July. We had an NPRM done, including how to calculate credit risk premiums, by November 30th.
    Mr. OBERSTAR. I remember that very well. I was quite impressed. But then the whole thing just sort of bogged down. I just thought that those folks over at OMB who have never changed—they dig in. They are like frogs. They dig into the mud and they hunker down. Whatever Administration comes on, they will do it their way, no matter what. They surface at the right time to hold things down.
    OMB has very few friends up here on the hill, I will tell you.
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    Mr. OBERSTAR. Mr. Rahall expressed frustration about the two-turn-down requirement, and even one. I don't have a problem with one. I know that is the way the Small Business Administration administers its loan program. An applicant has to show that he has made an effort to get money in the private financial market, the private financial market can't support this particular activity alone, and with Government participation will commit—I think that is appropriate so long as you don't make it too burdensome.
    What I would like to understand—and there are several of us in the Minnesota delegation who would be interested in your response to this issue—you are familiar with the DM&E Railroad attempting to bring new competition, coal service through southeastern Minnesota into power plants in Illinois and elsewhere. But running right through the city of Rochester and right by the world-renowned Mayo Clinic—with the vibration and the noise and 40 freight trains of coal might somehow disrupt oxygen and other services in the emergency room or the operating rooms.
    I am wondering whether a bypass around the city of Rochester would be eligible for funding under RRIF.
    Mr. LINDSEY. Yes, sir, it would.
    Mr. OBERSTAR. Thank you.
    Mr. QUINN. Thank you, Mr. Oberstar.
    Any questions, Mr. DeMint?
    Mr. DEMINT. Thank you, Mr. Chairman.
    I didn't come with prepared remarks, but I have heard a few things and I would like to give a statement and a question.
    I do appreciate your being here and I appreciate the suggestions on how some small carriers might deal with the complexity of getting these loans. On the other hand, that is not really the objective.
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    I would hope that instead of getting these carriers to work with the States and other bureaucracies to deal with the complexity we would come up with ways to make it easier to work with you to get these loans and to take away some of the complexity. So the idea is not so much for us to find out how things are today, but how we can change them and make them work better.
    As our chairman has said, what can we do legislatively or through other kinds of support to make it easier for you to change the rules so that I can go back and tell the folks we are working with what we need to do process their application and explain to them why it is not moving now.
    I would love a response or any ideas you have.
    Mr. LINDSEY. In terms of the existing RRIF Program, I think we are at the place of making that work where people can get loans in a reasonable period of time. And it will probably speed up as people become familiar with how it works. The first few out of the box are always the slowest because we are all feeling our way.
    The suggestions I was making to the chairman and others I was intending toward H.R. 1020 and the direct grant assistance.
    In terms of the RRIF Program, I think we simply have to keep working with those who come in to help them deal with its complexities, and we are trying to do that. So to a constituent who would like one, I guess the best thing I would suggest is to have that constituent call Mrs. McGowan for a pre-application meeting. We will walk that railroad through how to apply, how to retain a financial advisor, and what that financial advisor ought to do, and all the assistance we can provide to help them get the assistance as rapidly as possible.
    Mr. DEMINT. Thank you.
    Mr. QUINN. Thank you, Mr. Lindsey.
    Thank you, Mr. DeMint.
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    Mr. Young?
    Mr. YOUNG. Mr. Chairman, I forgot to ask this question.
    Mr. Lindsey, I take it you are familiar with the DOT-OMB memorandum that is dated June 23rd?
    Mr. LINDSEY. Yes, Mr. Chairman, I am.
    Mr. YOUNG. What is your position on that?
    I just got handed this from my staff. The thing that upsets me the most is that OMB and apparently the Department of Transportation have gone directly against the intent of the law. There was no public notification of this memorandum. There was no public input. There was no hearing, no chance to respond from any section of the legislative side of it. Very frankly, why should a loan be limited to 10 percent of the annual cohort of the loan transaction? I never heard of that before in any type of program.
    This is the thing that frustrates me the most. I am here to solve problems. You are supposed to be here to solve problems and so is OMB. What they are doing is going directly against what this committee tried to do, which is to help the railroads out. What is the rationale and where do you stand on this?
    Mr. LINDSEY. The rationale we were given on it—and we were not part of the direct discussion—was that they wanted to protect the United States against default risk. What they are trying to do is ensure that the loans made are successful and that there not defaults on which the United States ends up—
    Mr. YOUNG. Can you point out in any commercial lending area where the borrower has to pledge collateral to cover the entire interest tail on a loan? I have never heard of that before? What they are trying to do is undo what we did.
    Mr. LINDSEY. I do not think they intended the entire interest tail.
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    Mr. YOUNG. That is what the memo says right here.
    Mr. LINDSEY. I believe it says accrued interest.
    Mr. YOUNG. It says, ''DOT will, to the extent possible, seek to obtain pledges of collateral with a recovery of the value that covers 100 percent of the anticipated principal and accrued interest amount in the direct loan and loan guarantee. DOT may revise the collateral requirements of the RRIF Program based on lessons learned from loans and guarantees already made.''
    I do not like any agency writing something that we did not write. Where do you stand on this? Are you going to go along with that?
    Mr. LINDSEY. I do not think we have a choice, sir.
    Mr. YOUNG. Then OMB has a choice. This was put out June 23, 2000. And you are going to support that position of OMB. So it is our job to change OMB's mind or write a law that sticks it in their ear.
    Mr. YOUNG. And that I will guarantee is going to happen because I do not like it —and I never have. This is the legal body of our Government. It is not some agency. When their interpretation is directly wrong, we will take care of that. I hope you support me in it.
    I am waiting.
    Mr. LINDSEY. I do not think I am allowed to take a position contrary to the Administration's position, Mr. Chairman.
    But I would like to add one note, Mr. Chairman. In possible consequence of getting myself in trouble here, the way we have interpreted what OMB said there on the collateral would not be the full amount of interest due throughout the life of the loan, but by accrued we think they mean that if we give a borrower an interest holiday at the beginning of the loan—which we can do within the flexibility you gave us here—let's say that payments might not start for 3 years or something—the collateral ought to cover the interest that would accrue during that period, so it is a smaller bite.
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    Mr. YOUNG. Again, Mr. Chairman, I have been in this business of borrowing and lending all my life, but I have never seen where you have to have 100 percent coverage plus on a loan. I just don't quite—maybe it is not your fault and I am picking on the wrong horse here. But we will be looking into this very carefully.
    Thank you, Mr. Chairman.
    Mr. QUINN. Thank you, Mr. Chairman.
    Mr. Rahall, do you have any questions at this point?
    Mr. RAHALL. Thank you, Mr. Chairman.
    I hate to belabor this point, but that is what I am going to do.
    Mr. Lindsey, in 1993—just by way of background for the record—the FRA conducted a study of small railroad infrastructure and concluded that ''even when private financing could be obtained, these railroads felt that the terms offered were unsatisfactory, usually offered for not more than 8 years, too short a term for railroad investments that have a much longer productive life.''
    The FRA itself sees by that study—and the reason I brought that out—that small railroads do have a rough time getting satisfactory commercial loans. And 8 years to repay the loan is not possible. Under the RRIF Program, Congress allowed up to 25 years to repay a loan, which is much more realistic for the small railroads to manage.
    In your testimony, you stated that the FRA requirement that applicants supply a rejection letter before getting the RRIF loan is ''a reasonable way to ensure that Federal financial assistance is provided only when it is not available in the private sector.''
    As the committee has noted to the FRA for 2 years, congressional intent was not that the Government should be the lender of last resort. Nor did Congress require private sector rejection letters.
    I know you said in your testimony that a rejection letter ''is not an unusual requirement'' and that ''many other Federal loan programs have a similar one''.
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    By the time the railroads go through the private sector lending process, valuable time is wasted in making timely improvements to our transportation system. So my question is, Why is the FRA insistent on keeping this stipulation in the rule contrary to congressional intent?
    Mr. LINDSEY. At least one idea behind it was to filter out short-term loans that are available and to make sure that the assistance goes to people who need the longer-term money. Of course, as you know, that is most of this need. That is the need that you were trying to reach here, the people who need 25-year money, not ones who could get it done in 5 years.
    I believe that to be part of the reason, sir.
    Mr. RAHALL. What is the other part?
    Mr. LINDSEY. I am not sure I know the other parts.
    Mr. RAHALL. The bottom line here is that the fundamental problem, in my opinion, with the FRA's requirement that an applicant must first be rejected for a commercial loan before getting the RRIF loan is that it simply poisons the well for the sponsors of the project.
    I think you can see where I am coming from on that. Rarely are you going to finance a given project, especially a large multimodal one, from a single source. At times, you may need to mix the RRIF loans with those from commercial sources. The FRA requirement does not recognize this mixture. That is why the FRA should reject or rescind this requirement.
    Mr. LINDSEY. I would note, if I may, that so far the people who have come in have not found it a problem to get such a rejection letter. Apparently, they have gone to banks with whom they regularly deal and have asked whether funds were available on a 25-year basis at anything close to an interest rate like the Treasury rate, and their financiers have told them that it is not and are happy to give a letter saying that they are not about to do that.
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    Mr. RAHALL. Let me just state again the point of the letter I referred to in my opening testimony that Chairman Shuster, ranking member Oberstar, Chairman Petri, and myself wrote to Secretary Slater back in 1999. Again, commercial lenders are not interested in railroad financing. So if you are going to require that rejection from them in the first place, even if it is one letter—which I still find totally unacceptable—it is still going to poison the well and you will not find that as a viable means of financing these projects. It is not going to get them off in the right direction.
    Mr. LINDSEY. Yes, sir.
    Mr. RAHALL. Thank you, Mr. Chairman.
    Mr. QUINN. Mr. Lindsey, you are saying that the people who have come in did not seem to find it a problem to get a rejection letter. My concern is about any number of railroads you haven't heard from because they don't want a rejection letter. Who wants to go through the process? Maybe someone does want to go through the process and maybe it is not hard to get. But I have to guess that there are some applicants that you have not heard from out there because they do not want a rejection letter.
    Is it fair to assume there are a few out there who might be in that category?
    Mr. LINDSEY. Yes, sir, I think it is.
    Mr. QUINN. So where we are trying to bring as many people to this discussion as possible to push the money out as often as possible, I think we have created another stumbling block—if I may, Mr. Rahall, to continue on your discussion—by asking for the rejection letter.
    I want to associate myself with his remarks, if I may.
    Mr. Oberstar?
    Mr. OBERSTAR. If the chairman would yield, the reason that SBA was pushed into insisting on a rejection letter from a supplier of credit in the private financial market was the conservative view that prevailed in the 1970s that we don't want the Government competing with the private sector as a supplier of financing. So you have to show that you cannot get credit in the private market, so this loan will not be competing with private sector financing. I think that is a fairly established principle and one that we ought to apply in this situation, but it need not be burdensome. That can be done very quickly.
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    In the last several years, the SBA has vastly reduced the paperwork with a very simple declaration from a bank saying, ''We alone cannot finance this,'' or ''This is not the type of activity we would normally finance, but with Government participation we will participate in it.''
    Mr. QUINN. I was on Mr. Rahall's time and I apologize.
    Mr. Bachus?
    Mr. BACHUS. Thank you, Mr. Chairman.
    Mr. Lindsey, you have heard about this study saying that the small railroads will need as much as $7 billion to maintain their infrastructure?
    Mr. LINDSEY. Yes, sir.
    Mr. BACHUS. Have you all looked at the problem and assessed how big it is, what the need is, and what the Administration or the Congress ought to be doing to respond to the need?
    Mr. LINDSEY. Yes, sir. And we helped fund that study. We and the Short Line Association did that together.
    Mr. BACHUS. Do you think that is an accurate figure?
    Mr. LINDSEY. Yes, sir. It is as accurate as anybody knows.
    Mr. BACHUS. How much of that do you think the small railroads can raise on their own? How much of that do you think they are not going to be able to supply?
    Mr. LINDSEY. My sense is that they are not going to be able to supply most of it.
    Mr. BACHUS. So we are talking about $4 billion or $5 billion, maybe $6 billion?
    Mr. LINDSEY. Probably $5 billion at least.
    Mr. BACHUS. Is the FRA advocating to the Administration that something be done in this area?
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    Mr. LINDSEY. We are always having discussions within the Administration about possible programs. Right now, the tool we have is this $3.5 billion in RRIF. That will meet a tremendous amount of need, but not all.
    Mr. BACHUS. If it gets out. If it is loaned out.
    Mr. LINDSEY. Yes, sir. We have to make it happen.
    Mr. BACHUS. How much has happened to date?
    Mr. LINDSEY. To date, none. But we are very close.
    Mr. BACHUS. Is there something statutorily that we can do here on the Hill to make it easier? Do you have any recommendations? Change the legislation and the mandate?
    Mr. LINDSEY. No, sir, I don't think we do.
    Mr. BACHUS. Are there provisions in the legislation that have inhibited your ability to loan the money that you feel should not be in there?
    Mr. LINDSEY. No, sir. The factor that has made it most difficult, probably, are the requirements of the Credit Reform Act and what we have to do in order to handle credit risk premiums in the absence of an appropriation.
    Mr. BACHUS. Would you support maybe removing some of those provisions to get this money out?
    Mr. LINDSEY. I guess the alternative, if you did not want credit risk premiums to be involved, would be appropriations or—as is provided in H.R. 1020—the possibility of grants that could be used to pay credit risk premiums. Either of those things would assist.
    Mr. BACHUS. Do you think that H.R. 1020 is a good proposal and one that would support saving our infrastructure on our small railroads?
    Mr. LINDSEY. The Administration has not taken a position yet on H.R. 1020, but I can certainly tell you analytically what I think it will do.
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    Mr. BACHUS. All right.
    Mr. LINDSEY. In this case, it would be very helpful.
    Mr. BACHUS. How can we communicate with the Administration that we have actually a large part of our rail infrastructure that is at risk and the need for this legislation?
    Mr. LINDSEY. You are doing it here today very effectively.
    Mr. LINDSEY. Should you wish to do it further, letters are always happily received and responded to.
    Mr. BACHUS. I hope you will sit down with the Secretary of Transportation and say that this is a real need and this is what is at risk and time is running out.
    Mr. LINDSEY. I am sure he would be happy to have that conversation, sir.
    Mr. BACHUS. We sincerely believe that because we see these communities. We see these rail lines. We see whenever there is a big flood. They come in—as they did in Alabama—and they replaced over 180 highway bridges. But there are two bridges on a short line railroad that are washed out and there is absolutely nothing done to replace those. Yet there is more industry depending on those two railroad bridges on a short line than on most of the highway bridges.
    Mr. LINDSEY. Yes.
    Mr. BACHUS. The short lines cannot compete with that, and they cannot replace those bridges. So basically, every time there is a flood you cut 20 miles at the end of a short line railroad or it basically gets in trouble and you lose a business and the rail infrastructure.
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    Thank you.
    Mr. YOUNG [ASSUMING CHAIR]. Thank you, Mr. Bachus.
    Mr. Nadler?
    Mr. NADLER. Thank you.
    I want to start by complimenting Mr. Bachus for teaching me something that I have no knowledge of, namely, when FEMA comes in after a flood they replace the highway but not the railroad bridges. I would suggest that either administratively or by legislation we ought to mandate that rail bridges be handled the same in the aftermath of an emergency as highway bridges. If they are going to come into a community and fix the highway bridges, why shouldn't whoever does that fix the railroad bridges, too?
    I just wanted to make that comment, and then I have a couple of things.
    Mr. Lindsey, you said that based on the study, there is as much as $7 billion necessary to bring the short line infrastructure up to whatever.
    Do we have any information from that or any other study as to whether loans are sufficient to do that or whether we need grants? In other words, are the short line railroads in a financial condition to undertake the loans, even at favorable interest rates with the advantages of RRIF?
    Mr. LINDSEY. I don't think we have a good crosswalk as to whether all the people who have those capital needs are also able to service loans, but let me cross-check.
    Mr. NADLER. Obviously, it would be very helpful to know that. That would tell us something about the efficacy of how much we need in terms of grants—maybe all of it—as opposed to loans. Maybe 50 percent. We ought to know that.
    Mr. LINDSEY. Yes, sir. Let me check with my colleagues.
    [The information follows:]
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    A 1993 FRA study entitled ''Small Railroad Investment Goals and Financial Options'' found that small railroads face unique problems and difficulties in securing private financing. The report noted that according to the banking industry, it takes an inordinate amount of work to prepare a small railroad loan package, compared to a similar-sized loan for other businesses. Even when private financing could be obtained, loans were usually offered for not more than 8 years. The RRIF Program remedies these problems by providing loan terms of up to 25 years at an interest rate equal to the rate on Treasury securities of a similar maturity. Based on expressions of interest in the rate on Treasury securities of a similar maturity. Based on expressions of interest in the RRIF Program that we have received to date from shortline railroads, we believe small railroads can participate successfully in the RRIF Program.

    Mr. NADLER. Thank you. Not this second, because I have two other questions.
    You said earlier that perhaps it would help if the States were made party to these loan applications because they could help with their expertise in dealing with the Federal Government and in turn would help the short lines.
    Let me suggest strongly to you that that be made optional for the short lines because while there may be State DOTs that can help the short line railroads, there are other State DOTs that never heard of railroads and are hostile to them and only know of highways. I certainly would not want to require a short line railroad to go through a State DOT which might have every interest in sabotaging their application or simply may not know how to handle it.
    Why should a railroad need a financial advisor? Why is the process going to be so complex that you suggest to a short line railroad that they have to have a financial advisor to make the application?
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    Mr. LINDSEY. The heart of the reason behind it is that someone has to get together the detailed financial information to indicate whether or not the borrower is going to be able to pay and how much risk they actually pose to satisfy the requirements of the Credit Reform Act.
    Mr. NADLER. You don't think the FRA might be able to have some people on staff to help short line railroads do that?
    Mr. LINDSEY. Sir, you are looking at us.
    Mr. NADLER. That's it?
    Mr. LINDSEY. Yes.
    Mr. NADLER. You have answered the question.
    The last question I have is, In requirement two of section C, the project eligibility standard states that track eligible for grant funding must be operable at the date of enactment of H.R. 1020. However, the Secretary has the power to waive this requirement.
    In parts of the northeast, at least, Conrail went merrily ahead tearing up lots of tracks that someone is going to have to replace. We are going to have to put them back because they stupidly tore them up and we need them, especially if we are going to go above 2.5 percent rail freight usage.
    Those tracks were obviously not operable on the date of enactment of H.R. 1020. So under what circumstances would you waive that requirement? And why should you have that requirement in any event?
    Mr. LINDSEY. Well, sir, if it is in the statute, we would not have the authority to waive it.
    Mr. NADLER. But it is in the statute. It says that the Secretary has the power to waive the requirement.
    So under what circumstances would the Secretary waive the requirement?
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    Mr. LINDSEY. I have not figured that out yet, Congressman.
    Mr. NADLER. Let me just say, then, that I would certainly hope that they would waive the requirement wherever replacing track that had been torn up is necessary to handle the freight market that is either there or foreseeably there, which is going to be most of the time in the northeast.
    Thank you.
    Mr. YOUNG. I thank the gentleman.
    The gentleman from Florida, Mr. Mica?
    Mr. MICA. Thank you, Mr. Chairman.
    I have a couple of questions, Mr. Lindsey.
    I guess there is great concern about implementation of the Federal credit programs that we had provided for under TEA-21. In your testimony, you said that one of the major problems is compliance with the Credit Reform Act. But in the next sentence you also mentioned resolution of other issues delayed it.
    Did you outline the other issues in response to questions? Or could you provide to the subcommittee what those issues are and the status of each of them?
    Mr. LINDSEY. I will be glad to provide them. I did not mention them.
    Mr. MICA. Could you just tell us? Without issuance of final regulations, we are just spinning our wheels, but could you just give us what those other key issues are?
    Mr. LINDSEY. Surely. And the final regulations are out, Mr. Mica. But it was in the course of trying to get to those that these other issues arose.
    I am not sure that I am remembering all of them.
    Mark, do you have some ideas here?
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    Mr. YACHMETZ. In fact, there has been reference made to a memorandum that went between the Secretary's office and OMB, which laid out a number of these and defined the limits on cohorts and a number of other procedures that were an interest in the discussions in implementing this program.
    That would primarily be the other issues that had to be resolved before we could free up the final rule and move ahead with the program.
    Mr. MICA. Maybe you could detail those for us in a submission to the subcommittee, and anything you see as an impediment to final implementation of what the committee is trying to get and what Congress is trying to get.
    The other thing, too, is that the last Administration did not submit any budget request for appropriated funds, as I understand it, to support TEA-21 provision rail loan provisions. And I understand this Administration has not.
    What is the reasoning?
    [The information received follows:]

    The RRIF Program is a unique federal credit program and resolving the pratical implementation issues associated with certain aspects of the program took more time than anticipated. Normally with federal credit programs, funds are appropriated to cover the risk of a federal loan. Under RRIF, a non-federal entity may provide a credit risk premium in lieu of an appropriation of funds to cover the risk of the loan. As a result, careful consideration had to be given to the development of a credit risk assessment framework to assess the creditworthiness of an applicant and the risk of a project. This is especially important for short line and regional railroads that do not have ratings from Standard & Poor's or Moody's. The issuance of the final rule was also complicated by the statutory provision allowing the refunding of any credit risk premiums not used to mitigate losses.
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    Mr. LINDSEY. I guess we were not privy to the reasoning in the end.
    Mr. MICA. Who was privy?

    Mr. LINDSEY. OMB. My best interpretation from the things that were said—
    Mr. MICA. Did you submit a request?
    Mr. LINDSEY. I am trying to remember each of the ones we did. This last time we did not.
    Mr. MICA. You mean in the Bush budget? Or in the Clinton budget?
    Mr. LINDSEY. In the Bush budget.
    Mr. MICA. You did not?
    Mr. LINDSEY. We did not. And the reason we did not is that we thought the program was working as it is and that we were on the verge of getting loans out. We wanted to get the first of those approved. How the credit risk premium calculation works has to get approved through OMB. Rather than stir the pot again, having gotten final regulations approved, it seemed wise to try to go ahead and make the program work as we had gotten the rules through.
    Mr. MICA. Thank you, Mr. Chairman.
    Mr. YOUNG. Any other questions? Mr. Ferguson, do you have any questions?
    I want to thank you, Mr. Lindsey.
    Mr. Oberstar?
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    Mr. OBERSTAR. I understood we were going to have a second round.
    Mr. YOUNG. Mr. Quinn had not informed me of that. I apologize. Mr. Oberstar, you go right ahead.
    Mr. OBERSTAR. Thank you, Mr. Chairman.
    I just have a brief observation.
    This issue of credit from Federal sources for private activities has long been a subject of dispute between the Budget Committee, the OMB, and the authorizing committees. The Budget Committee, over all its years, has opposed these credit initiatives. OMB has also opposed credit initiatives. We have had great difficulties getting such loan programs going.
    In the case of aviation, where there was a loan program many years ago. In the 1970s it was terminated by OMB for a number of, what I consider to be specious, reasons. So we have to be very careful in crafting this language and also be very careful about getting OMB on board on such legislation. I do not want to see very good and very important ideas torpedoed by the credit-watchers over at OMB and elsewhere.
    Secondly, this legislation does terminate the existing Local Rail Freight Assistant Program. Are you aware of that, Mr. Lindsey?
    Mr. LINDSEY. Yes, sir.
    Mr. OBERSTAR. There are States with available repaid loan funds. What would happen to those States?
    Mr. LINDSEY. I believe, if the LRFA provisions were repealed, it would be necessary for those States to stop reloaning those funds. There are ten States that have a substantial amount of money they are being able to revolve and loan again, so a substantial source of assistance would be cut off.
    Mr. OBERSTAR. Could they be required to pay back previously received funds under the LRFA?
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    Mr. LINDSEY. Yes, sir, they would.
    Mr. OBERSTAR. What about States that are now liquidating their funds pending audits. There are 17 of those States, including the Chairman's State of Alaska. They are not making any more loans, they are closing out their accounts. What happens to those States under this authority?
    Mr. LINDSEY. Let me ask Mr. Yachmetz to address that.
    Mr. YACHMETZ. Mr. Oberstar, they would have to refund to the Federal Government the balances they would be liquidating.
    Mr. OBERSTAR. That is a sobering thought for all of us on this committee. I think we need to be very careful about that provision of the bill, its consequences for at least 27 States, and revisit this issue before we move into a markup. There are also other issues I think need to be resolved before we can usefully move to a markup, but I look forward to doing that.
    Thank you.
    Thank you, Mr. Chairman.
    Mr. YOUNG. I thank the gentleman. I can assure the gentleman that this is what we have hearings for and we will address that issue very thoroughly before this bill gets marked up.
    If there are no other questions—
    Mr. BACHUS. Mr. Chairman?
    Mr. YOUNG. Mr. Bachus?
    Mr. BACHUS. You are talking about H.R. 1020 now?
    Mr. LINDSEY. Yes, sir.
    Mr. BACHUS. Can you suggest some language to us to clear that up?
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    Mr. LINDSEY. Certainly, we would be pleased to provide drafting assistance to do that, sir.
    Mr. BACHUS. Thank you.
    Mr. YOUNG. Now I want to thank Mr. Lindsey and his cohorts again for being before us. You are excused and we will bring up the next panel.
    Mr. LINDSEY. Thank you, Mr. Chairman.

    Mr. YOUNG. The next panel will be Mr. Ed Hamberger, President, Association of American Railroads; Mr. Frank Turner, President, American Short Line and Regional Railroad Association; Mr. Patrick K. Gamble, President and CEO, Alaska Railroad Corporation, accompanied by Mr. Johne Binkley, Chairman of the Board, Alaska Railroad Corporation; and Mr. William W. Millar, President, American Public Transit Association.
    Because I have to leave at 12:00 and Mr. Quinn will be back to welcome Mr. Gamble, General Gamble. The General has been in Alaska and now has taken over newly from Governor Sheffield the president and CEO of Alaska Railroad Corporation. To show how diverse we are, we have Captain Binkley. He runs a big boat on the river. His dad ran one on the river like I did. It shows you are a little diverse.
    What is a captain doing on the railroad board? But the reality is that we look upon transportation in Alaska as a lifeline because we do not have the infrastructure and highways that other States have. So we look at the rail and the water as our main sources of moving heavy tonnage throughout Alaska.
    That is just for the audience's consumption. I do welcome both of you.
    Other than that, we are going to go in the order in which I introduced the witnesses. We will start out with Mr. Hamberger.
    Welcome, Mr. Hamberger.
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    Mr. HAMBERGER. Mr. Chairman, I am glad to be here.
    I do want to take this occasion to say how pleased the railroad industry is that you, Chairman Young, with the support of Mr. Oberstar, reconstituted the Rail Subcommittee. I think it is important to have a subcommittee focusing on—as all the opening statements indicated—the vital link to North America's economy. It is the rail industry. To have our issues focused on by this subcommittee I think is a step in the right direction. A second step in the right direction is to have leaders, such as Mr. Quinn and Mr. Clement, who understand our industry and appreciate its importance, leading the subcommittee.
    I would like to also thank the committee leadership and all the committee members for your support and leadership on H.R. 1140, the Railroad Retirement bill. I am pleased to report to you that as of this morning we have 317 cosponsors in the House of Representatives. We think that might be enough, but not being sure, we will continue to work and try to get more cosponsors for that bill. On the Senate side, I believe we are at about 43 and driving toward similar support in the Senate as we have in the House.
    I want to thank you for holding this hearing today on railroad infrastructure. Railroads are one of the most capital intensive industries in the United States. Indeed, no other major industry spends more on capital expenditures as a percentage of annual revenue than railroads. In 1999 alone, railroads spent $6.6 billion, which is 20 percent of a $33-billion class one industry, to reinvest into the industry. That is more than five times the 3.7 percent national average for all manufacturing.
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    I was reading Mr. Gamble's testimony before the hearing and I noticed that in his written statement he indicates that their internal goal—their internal measure of whether or not enough investment is occurring—is 20 percent. It is not a coincidence that 20 percent is what class Is spent last year. That is the magnitude of the capital requirement to maintain a railroad.
    Specific attention should be directed, however, to the problem that confronts many of the short line and regional railroads which provide essential rail services to thousands of customers in rural areas and small towns. The track of many of these smaller, low-density railroads cannot support the operation of heavier rail cars that railroads require to offer competitive economic service to our customers.
    Consequently, to address this problem, the AAR urges Congress to pass H.R. 1020, which as you know would provide $350 million annually for 3 years to help smaller railroads improve their tracks and aid in the economic development of rural America. In addition, restrictions to implementation of the Railroad Rehabilitation and Improvement Financing Program of TEA-21 should be removed so that Federal loans and loan guarantees can be made available to carry out the goals of Congress.
    History has taught us, Mr. Chairman, what happens when railroad capital needs are not met. During the 1970s, every major railroad in the northeast, as well as several in the midwest, were thrown into bankruptcy. Rail infrastructure suffered enormously because of a lack of capital, and by 1976, 47,000 route miles were being operated under slow orders because of dangerous conditions.
    You will remember at that point that there was up to $20 billion of deferred maintenance—that is a nice euphemism for you, deferred maintenance—and the ICC kept track of a statistic called ''standing derailments'' because a train when not moving would just fall off the track because of the deficient underlying infrastructure.
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    Fortunately, the Staggers Rail Act has changed all that. By freeing railroads from antiquated regulations, Staggers gave railroads the opportunity to earn revenues sufficient to cover their cost of operation and to reinvest both in equipment and infrastructure. And those investments have been huge—nearly $280 billion since 1980—with tremendous results. Productivity has increased 172 percent, the train accident rate is down by 65 percent, traffic is up by 60 percent, but most importantly rates are down by an average of 54 percent.
    Unlike other transportation modes, railroads rely overwhelmingly on private financing—not Government funds—to pay for infrastructure and equipment. This means that major freight railroads must earn enough year after year to internally generate investment funds and to attract capital market funds. Access to capital will remain critically important in the future as the demand for freight grows.
    Anything that threatens the railroad industry's ability to generate capital internally or to attract capital in the capital markets will in fact threaten future expansion of rail capacity. We urge you, therefore, to keep this principle in mind as you analyze various proposals that may come before you in the year ahead that we believe would result in re-regulation of the industry, thereby robbing the industry of the ability to earn those needed revenues.
    To conclude, the freight railroad industry is committed to spending the money needed to improve service, expand capacity, enhance safety, and offer its customers reasonable rates. Congress can assist in this effort by opposing efforts to re-regulate the railroads and by enacting H.R. 1020.
    Thank you.
    Mr. YOUNG. Thank you, Mr. Hamberger. I appreciate that.
    Mr. Turner?
    Mr. TURNER. Thank you, Chairman Young.
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    I am Frank Turner, President of the American Short Line and Regional Railroad Association and I want to thank you for this hearing.
    I would first like to introduce Mr. Pat Laughlin. He is vice president of operations for the railroads that are owned by Bethlehem Steel, one of which is the South Buffalo Railroad that was mentioned earlier today in the hearing. He also represents seven other railroads.
    I would like to compliment the panel for their knowledge of this issue as it pertain to short line railroads. Congressman Bachus spelled out very clearly when he gave some good examples in Alabama, one of which I am familiar with. And I really do compliment the panel for their knowledge of the issue that is brought before the committee today.
    I also would like to underscore Mr. Hamberger's remarks in reestablishing this committee to address the issues of our railroad industry.
    On behalf of our over 400 short line members, I want to thank you and Congressman Bachus for taking the initiative to introduce H.R. 1020. Enacting legislation is critical to the success of the short lines and its 25,000 employees that serve thousands of communities in this country, both large and small.
    Again, you have certainly accurately portrayed the situation as it exists. Basically, it is really brought to light by our 286,000-pound issue with the average weight of a rail car now being 286,000 pounds. This is progress. This brings efficiencies to our class one railroads that we are glad to see come about. However, we do not enjoy those efficiencies as much as they do because our hauls are much shorter than the average class one.
    But I think it has been well stated here today that we need a national rail network that serves both large communities, small communities, and all of America, including rural America, which our short lines reach and for which we have to have infrastructure funding in the way that H.R. 1020 spells it out and the RRIF loan spells it out if we are going to continue.
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    Congressman Oberstar accurately portrayed the condition of the infrastructure. Again, I commend you for your knowledge of this issue.
    Congressman Oberstar, I also want to thank you for your leadership as we solve the support of trade unions in this. You will hear today we do have support from the major unions in our industry. And I thank you very, very much for that. In fact, 82 percent of railroads with employees over 50 employees are represented by unions. The average size of a railroad that is non-union is something like 16 employees. So I think you can say that as short lines have grown, so has membership in trade unions. And we certainly do appreciate them being here and being supportive of our issue today.
    The short lines have saved a lot of railroad jobs and provided a lot of local communities an important tool, as Congressman Bachus pointed out, in developing and attracting new business. We feed our traffic to the national network that would otherwise either move by highway or be forced to go out of business. So the results should be justification enough to pass this bill. If we do not, I think the consequences have already been spelled out and they would be very bad.
    As I mentioned, we have over 25,000 employees in our segment of the industry and we pay over $200 million a year into the retirement taxes. Our failure in the short line industry would be a huge hit to the railroad retirement community.
    As I mentioned, we do serve thousands of rural communities. The only rail connection to this is short line railroads.
    Again, I want to thank our allies in this legislation, the Association of American Railroads, the National Railway Construction and Maintenance Association, and particularly I want to thank the Labor of Brotherhoods, the UTU, the BLE, and the Brotherhood of Maintenance Workers for their active support of this bill.
    When small railroads prosper, the whole shipping public enjoys success. Class ones enjoy greater success and our hard-working Americans in our grain elevators, coal mines, on farms, in ports, and in factories enjoy success. When we succeed, the rural communities we serve can continue to grow and prosper. When small railroads succeed, the people that are close to my heart—being a third-generation railroader—the engineers, the track workers, the dispatchers, and all our employees can continue to be dedicated and proud of an industry entering its third century of service to the American people.
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    Again, I appreciate the opportunity to be here and will be glad to answer any questions.
    Mr. YOUNG. Thank you, Mr. Turner.
    Mr. Gamble?

    Mr. GAMBLE. Chairman Young, thank you very much for that personal introduction for myself and Mr. John Binkley, and thank you for the opportunity for us to present the testimony in support of H.R. 1020 here today.
    In many ways, the story of the capital infrastructure needs of the Alaska Railroad are unique. But in other ways, the bottom line of our story is identical to that of others from whom you are hearing today. There is a proper Federal role and genuine need for Federal capital assistance for our Nation's rail network, both passenger and freight, in order to continue to safely connect all areas of our entire Nation together.
    The Alaska Railroad is not your typical lower 48 class two railroad. In 1985, the Alaska Railroad belonged to the U.S. Department of Transportation. Congress passed the Alaska Railroad Transfer Act of 1983 and sold the railroad to the State in 1985.
    Today, the Alaska Railroad is a State-owned corporation, similar to Amtrak being a federally-owned corporation. The railroad has a seven-member Board of Directors appointed by the Governor. Under Alaska law, our board includes the State Commissioner of Transportation, Commissioner of Economic Development, and also one employee from a bargaining unit. Our railroad has long been fully unionized under both State and Federal ownership and we value our partnership with our union employees.
    The Alaska Railroad is really two railroads in one. We are a class two freight railroad subject to the jurisdiction of the Surface Transportation Board, just like any other freight railroad. While our track does not physically connect with track in the lower 48 or Canada yet, we are part of the North American freight rail system via rail barge connections in Seattle with Burlington Northern Santa Fe and Union Pacific, and in Prince Rupert, British Columbia, with Canadian National.
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    We are a full-service year-round passenger railroad, both short-haul and long haul. The Alaska Railroad's passenger service significantly influences our corporate vision. We carry more passengers each year than the entire population of our State. To put that in a lower 48 equivalent, Amtrak would have to increase ridership over 13-fold for the same proportion of riders to population. Seventy percent of Alaska's population lives along what we call our rail belt. The rail belt is our version of the Northeast Corridor for rail passenger service, except that in Alaska it contains proportionately more people.
    As I said at the outset, since we are full service, the Alaska Railroad is not a typical lower 48 railroad. But in other ways, our funding situation is typical of lower 48 public passenger and class two and three freight railroads where essential Federal capital assistance is concerned. When the Federal Government sold the Alaska Railroad to the State in 1985, it came with a huge backlog of deferred capital investment and maintenance. We have been trying to catch up ever since. We were the Alaska equivalent of Washington Reagan National Airport in the mid-1980s, which likewise had a massive capital backlog from direct Federal ownership days, and was transferred about the same time as us.
    For 10 years after the Federal Government transferred the railroad to the State, we received no regular Federal capital funds, despite being a public passenger railroad, within FTA transit definitions, and providing Amtrak-like service.
    A benchmark we use at Alaska Railroad for railroad capital investment is about 20 percent of revenue. After Federal transfer, however, we could only afford to invest an average of about 6 percent. If the 10 years without any Federal capital assistance had gone on much longer, we honestly don't know where the Alaska Railroad would be today. Largely inoperable, I suspect.
    Fortunately, the Alaska Congressional delegation recognized the problem and stepped in. Beginning in fiscal year 1996, we received our first installment of badly needed capital appropriations for our passenger system. Administered through FRA, it helped us begin to address our massive deferred maintenance and modernization needs. For example, until just recently, our whole system was entirely dark territory—completely out of contact with any rail dispatcher. Keep in mind, ours is a system transporting passenger, freight, and hazardous materials all together along a single track system.
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    Then beginning with TEA-21, the FTA law was clarified, thanks to Chairman Don Young, and we began to receive some FTA formula funds as other State passenger railroads and rail transit systems do.
    I would like to point out, however, that all of our continuing Federal capital funds are legislatively tied to passenger operations. We receive no Federal funds to sustain or upgrade our freight operations. But there is a compelling need in this area, in Alaska, as well as, for other small freight railroads in the lower 48.
    In terms of our passenger operations, we request further equity within the FTA capital funding programs. For example, other State passenger railroads and rail transit systems count 100 percent of their passenger factors for FTA funding formulas. We are allowed to only count 20 percent, despite 100 percent of our passenger system meeting the FTA transit definition. That is because we are the only State passenger railroad where our service is not wholly for an urbanized area as defined by FTA.
    But we hope to solicit support to refine that percentage upward even further out of consideration for our status. We understand this issue is within the jurisdiction of the Highway and Transit Subcommittee.
    In terms of our freight operations, we ask this subcommittee to approve legislation for capital assistance for freight projects of class two and three railroads.
    You have before this subcommittee H.R. 1020, introduced by Subcommittee Chairman Quinn and Ranking Democrat Congressman Clement, and cosponsored by Chairman Don Young and other members. The Alaska Railroad supports H.R. 1020 as a step in the right direction.
    Finally, Mr. Chairman, I note this subcommittee is also considering H.R. 1140, the Railroad Retirement and Survivors' Improvement Act. Our railroad is not under the Railroad Retirement system, since we have always been governmental. But we still support the Railroad Retirement bill for several good reasons. We have many great workers who transfer from lower 48 railroads who would rightfully benefit. And what is good for railroad workers is good for our railroads.
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    Thank you, Mr. Chairman. We will be pleased to answer any questions.
    Mr. YOUNG. Thank you, General. I appreciate it very much.
    Mr. Quinn, would you take over the Chair? I do have to excuse myself and go talk to some of my Alaskan students.
    I thank the panel.
    Mr. QUINN [REASSUMING CHAIR]. Thank you, Don.
    Mr. Millar is next. It is good to see you again.

    Mr. MILLAR. Thank you very much, Mr. Chairman. It is good to see you. I appreciate this opportunity to have been invited to appear before the committee. I look forward to working with you and all the members of the committee during the years ahead to improve all aspects of rail transportation, especially passenger rail transportation.
    There may be people in the room who wonder why the president of the American Public Transportation Association, an organization that primarily deals with rail passenger issues and public transportation issues in general, might be here today.
    If I could summarize what I think I heard you say and what I heard many of the members of the committee say today, what this is really all about is better rail infrastructure for America. And that is certainly something we support and something for which we recognize the need. The jurisdiction of the Transportation and Infrastructure Committee over the years has provided much needed investment in public transportation, and I think that shows a model that might be useful in considering freight activities. As that investment in public transportation has increased, the usage, the utilization, the value to the public and the Nation has increased dramatically.
    Recently we announced the statistics for last year: record ridership in America's public transportation systems of some 9.4 billion rides. A major contributor to that increase was the use of commuter rail. While public transportation in general was up about 3.5 percent, the use of the Nation's commuter rail network was up more than 5 percent. In fact, some 411 million trips were taken on America's commuter rail systems last year.
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    And more growth is projected. There are currently over 3,800 miles of commuter rail service in the country. There are another 134 miles under construction, 300 miles are in design, over 2,300 miles in planning, and some 1,100 additional miles in earlier stages of consideration at this point. Clearly, getting better and more use out of the Nation's rail infrastructure is going to be necessary if we are going to serve the growing needs of America.
    That is going to require a partnership, a partnership not only within government among Federal, State, and local government entities, but also among the various private sector and public sector players here. And I will not take time in these abbreviated remarks to go into that, but we do need to make sure that there is plenty of room for rail freight to grow, as it must for our Nation to prosper, and also for passenger rail service to grow and prosper.
    We believe there needs to be a process put in place to consider the public interest as this very precious and vital right-of-way resource is invested in by the Federal Government and local governments.
    We agree with Secretary Norman Mineta when he called attention to the growing role of commuter rail in easing the Nation's congestion. We think that is essential. He quoted a USDOT condition and performance report that said that some $17 billion in capital funding was going to be necessary per year for public transportation improvement. We believe, as big as that number is, it underestimates the scope of the need. We think that there will need to be more investment in this area and we stand ready to help this committee as it struggles with these very difficult issues.
    Your hearing today on H.R. 1020—let me say that my association does not particularly have a dog in this hunt, or at least not directly. But we commend you, Mr. Chairman and Mr. Clement and Mr. Bachus and many other members of the committee, who are supporting H.R. 1020, who are working to provide additional funding to the short line railroads, who are providing additional funding for rail infrastructure, which as I said earlier will certainly benefit the entire country.
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    We think this is essential. We think the loan program that has been described here earlier today and the difficulties of that loan program need to be worked out. APTA was a supporter of changes to that loan program in the TEA-21 legislation in 1998 and we want to see that program go forward.
    We have other areas of interest we will be working with the committee on over time. We think additional capacity can be obtained by increasing research and development activities and we would be hopeful the committee would be supportive of that. And we have ideas that we would be glad to share with you in that respect.
    So all in all, Mr. Chairman, we are pleased to be here. We are glad to support this effort to increase the investment in rail infrastructure. We think that is good for America, good for our members, and good for all.
    Thank you.
    Mr. QUINN. Thank you, and thank you for joining us today. I think it rounds out a perfect panel. I appreciate all of the testimony on behalf of the subcommittee.
    In terms of the first round of questioning, Mr. Hamberger, just a couple of quick general questions for you, if you do not mind.
    One of the things I have learned with your help—and probably everybody in this room—is how capital intensive your business is.
    We also heard in a hearing a couple of weeks ago here—at least one of the things I got out of it—is that the capital investment in railroads directly results in the efficiency of the overall operation, which brought in the safety issue. We almost could connect the dots that if a railroad is operating efficiently, it can devote as much time and money as is necessary for safety issues as well.
    In your opinion, do you see increased money—like these loan programs—or infrastructure connecting to that safety issue?
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    Mr. HAMBERGER. Absolutely, Mr. Chairman. And again, I think we are here to make sure that the class two and class three railroads have that opportunity to access money to invest. But in general, there is a direct correlation between the amount of money that is invested and safe operations. Track is safer, railroad engines are safer.
    I should have mentioned in my opening remarks Leroy Jones behind me. I mentioned the idea that back in the 1970s the ICC was keeping track of standing derailments. I mentioned that in another forum and Leroy told me that he had experienced one of those and it is somewhat disconcerting to be sitting there and then all of a sudden your engine is on the ground. And that is a direct result of the lack of infrastructure investment and obviously has safety implications.
    Mr. QUINN. Thank you very much.
    And I guess that is one of the things we take from all these hearings, that it is not just whether or not the railroad is healthy financially. There is so much that goes along with that.
    In your written statement, you point out that over the last 17 years railroads have invested about $58 billion in infrastructure and about $25 billion in equipment. That is more than a two-to-one ratio for general purposes.
    Is that pretty much typically what we are looking at in terms of the infrastructure?
    Mr. HAMBERGER. I believe that is right, but our V.P. for Policy and Economics Craig Rockey is about to tell me that is not exactly right.
    Can we submit some data on that for the record?
    Mr. QUINN. Yes. And it is not that I need to know the specifics.
    Mr. HAMBERGER. I think we have that broken down by year.
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    Mr. QUINN. If you don't mind, would you please submit something for the subcommittee to look at?
    Mr. HAMBERGER. Sure.
    Mr. QUINN. Thank you very much.
    Mr. Clement?
    Mr. CLEMENT. Mr. Hamberger, I know we have had discussions before about freight service and passenger service and commuter service and all. What do you think the answer is for the country? I know what Mr. Oberstar said a while ago, and I agree with him. People are clamoring all over the country for commuter service, passenger service, and want us to have a national passenger service. What way does your association believe is the answer to solving those problems between freight and passenger service?
    Mr. HAMBERGER. Let me address that on a policy level as opposed to a very specific legislative answer.
    The answer from a policy standpoint—and I think Bill Millar mentioned it—is that there has to be adequate capacity for freight and adequate capacity for passengers. To me, the whole focus of this hearing is revenue and capital for capacity.
    So I think as you take a look at the reauthorization of TEA-21 that would be an excellent way to try to make sure there is enough capital for commuter rail. It is our view, each of our members works on a case-by-case basis, on a bilateral basis with the sponsoring agency of commuter rail around the country to try to work out protocols to provide that capacity where possible. But it is not always possible. And it is not always possible to provide as many frequencies as a commuter rail agency might like.
    It is counterproductive to provide commuter rail capacity at the expense of freight rail capacity. I think that is the point I was trying to get across in my written statement. I would hope as we lead up to the reauthorization of TEA-21 that we can continue the discussions and try to figure out a way to have enough capital that we do not impede one at the expense of the other.
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    Mr. CLEMENT. Mr. Millar, you heard what I asked Mr. Hamberger. How would you respond?
    Mr. MILLAR. I would start by agreeing with him. Obviously, we need more investment in both the freight side and the passenger side. I would go a step further, though, and point out that there is a unique situation in that when passenger rail interests, which usually have some type of public sponsor involved with them, when a plan emerges through the federally mandated planning process that would suggest that the best and most economical way to improve rail passenger service is by better use of rail freight rights-of-way, the current state of the law is that while the public entity can make that suggestion, while the planning process can show it to be valid, while the whole community can rally around that point, the fact of the matter is that if the freight railroad who owns that particular right-of-way does not wish to discuss the matter, there is nothing that can make that railroad discuss the matter.
    In Mr. Hamberger's written testimony, he correctly says that the best solution is a good discussion—free and voluntary discussion—and sometimes that can result in a successful solution. But the fact of the matter is that there is example after example around the country where that has not been the case.
    So I think there needs to be—as there is in every other facet of life—some ability to review a unilateral decision on the part of the railroads. We have made some suggestions in that area.
    Mr. CLEMENT. You and Mr. Hamberger are familiar with my legislation concerning having the opportunity to appeal. If you are Amtrak, you have the opportunity to appeal to the STB. But if you are a local transit operator today, you have no place to appeal.
    Mr. MILLAR. That is correct, sir. We strongly support the concept embodied in your bill that there ought to be a place for the public interest to be considered.
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    Mr. HAMBERGER. If I might be allowed a point and counterpoint. Mr. Clement, we strongly oppose that bill. And the rationale is that the Amtrak enabling legislation was, as you recall, a result of discussions at that time whereby the freight railroads were relieved of their common carrier obligation for passenger rail in exchange for and some payments made by the freight railroads, by the way—the access and the priority that was given to Amtrak.
    That is not the case here with commuter rail. I would just latch onto a couple of words that Bill just used.
    Number one, he said quite correctly that these are rights-of-way owned by the freight railroads. They are indeed owned by the freight railroads. As Mr. Nadler knows, particularly in New York, real estate taxes are paid on that right-of-way by the freight railroads.
    Number two, the public interest study which says that it is the best and most economical way to provide commuter rail to move people may be correct from the perspective of moving people, but it is not the best and most economical use for the freight railroad to have that right-of-way and that capacity used for passenger traffic.
    Number three, he indicated that there is nothing to force the freight railroads to discuss. I think that is a bit of an overstatement. In case after case, the freight railroads do sit down and discuss. They have, in every case, a vice president assigned to deal with passenger issues.
    It is true that not in every case can they come to agreement. But that is not because the freight railroads are afraid to sit down and discuss or because they do not want to be good citizens. And in your own State, there are continuing discussions. It is not because the freight railroad does not want to be helpful and does not want to be a good citizen, it is rather taking a look at its asset and its obligation to its investors how best to use that asset. And that is, in many cases, to use that capacity for freight.
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    Mr. CLEMENT. Mr. Hamberger, you know in a lot of places in the country people are frustrated now because they really do not think class one railroads are listening, that they do not care, that there is a feeling and mentality within the freight railroads that they are opposed to rail passenger service and they do not want it on their track period. They do not care about scheduling. They do not care about concern for the community. They do not care about the future or the 21st century or whatever. They do not want rail passenger service on their line.
    And there is a strong feeling about that today, it appears. And I have had people all over the country talk to me about it, not just Tennessee. And they want a place to appeal. They are simply saying to the class one railroads that if they cannot get any cooperation or understanding or help or support, let us have some place to appeal in order to try to get some understanding and some help.
    Why is that so unreasonable?
    Mr. HAMBERGER. I understand the frustration, but again it is not a matter of not cooperating or not discussing or not trying to be helpful. It is a matter of a decision made by a private sector corporation on how to use its private property. That is the bottom line. They have to make judgments based on what is good for carrying out their responsibility as a freight railroad.
    I submit to you that the people who are frustrated are frustrated that they did not get the right result, not that our railroads refused to sit down and talk. In case after case—and I believe my testimony has an attachment on that, but perhaps we can expand on that a little bit—where in fact freight railroads are cooperating on a case-by-case basis around the country to work with commuter—
    Mr. CLEMENT. We are going to have an opportunity because Chairman Quinn has already said we will have a hearing on that bill when that time comes. So I want the class one railroads and all interested parties to have the opportunity to testify so we can clarify these issues and better understand.
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    Do we or do we not want in this country rail passenger service?
    Mr. QUINN. The gentleman's time has expired.
    Mr. NADLER. Could I ask unanimous consent to make a comment on what the gentleman—
    Mr. QUINN. Well, I was going to continue with this episode of Crossfire later.
    Mr. QUINN. But the Chair recognizes the gentleman from New York.
    Mr. NADLER. Thank you. I will be brief.
    Mr. Hamberger said that some people are frustrated with the result and that this is private property. I would simply remind you of what Teddy Roosevelt said, which is that every man holds his property subject to the general right of the community to regulate it to whatever degree the public welfare may require it. I think that is certainly true of railroad property, whether it is freight or passenger.
    Now let me turn the scales the other way.
    In many regions of the country, the frustration to some extent may be the fact that freight railroads which control the rights-of-way are not sufficiently willing to cooperate with passenger or commuter railroads in the opinion of third parties. In some areas—such as the area around New York—where Amtrak or the commuter railroads control the tracks and limit freight shipments to a window of 2:00 a.m. until 6:00 a.m., we have the other frustration. It is exactly the opposite. The commuter railroads are unnecessarily, in my opinion, restricting freight movements.
    The truth is that the public interest requires that we have to move both freight and passengers. We in this committee are going to have to do whatever is necessary to make sure that the freight railroads and the commuter railroads cooperate to the extent necessary to maximize the transportation of both.
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    I thank you and I yield back.
    Mr. QUINN. Thank you, Mr. Nadler.
    This may be oversimplifying it—and Bob is right. We are going to have a hearing on this later. But if you grow the infrastructure to capacity, commuter and freight both win and you do not need a referee. That is a little oversimplified.
    I am going to turn to Mr. Bachus for a question on this round now. Before I do, though, if it was the prerogative of the chairman of the full committee to introduce his friends from Alaska, as he did, I am going to take executive privilege and introduce some students from Saint Mary of the Lake Church in Hamburg, New York, in the back of the room, who happen to be from my parish and my school.
    Welcome, gentlemen. This is democracy in action, believe it or not.
    Mr. QUINN. Mr. Bachus?
    Mr. BACHUS. Thank you.
    Mr. Hamberger, I will tell you where I am coming from when I ask this question.
    There are inherent problems with running a passenger train over a freight line. Alaska Railroad does it well. But there can be problems.
    You have outlined in your testimony some of those problems. I am not sure that the average Member of Congress recognizes sometimes the difficulty of doing that.
    I would also ask you or any member of the panel, Do we really want to have most of our passenger operations—particularly in and around cities and metropolitan areas—on a freight railroad, or do we want a dedicated line? The freight railroads sometimes do not run where we want the passengers to go. I think when we utilize freight lines we are sort of doing it on the cheap and we are never going to have a first-class operation.
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    To me, I think we should give much more serious consideration to the building of commuter lines dedicated to that and that alone and not interfere with our freight operations, which benefit the country in their own way.
    I would just ask you to respond to that.
    Mr. HAMBERGER. I appreciate that question and you are absolutely right. It is something that I did not appreciate until a little while ago.
    I was talking with the vice president of operations for Canadian Pacific. He said because of the price of fuel they were going to lower their average speed by 10 miles an hour and they were readjusting their schedules and trying to continue to meet customer demand. But they were lowering their average speed by 10 miles an hour because it is a geometric increase in burning fuel as you increase speed. He said that Amtrak would not like that.
    That does not affect Amtrak's window of operation, but when they lower the speed by 10 miles an hour, that affects the cant of the curve. It will lower the cant of the curve, which means that Amtrak will have to lower their speed. So there are inherent contradictions and conflicts between trying to run a 120-car coal train at 19 miles an hour and a 20-car passenger train at 125 miles an hour, or even 80 miles an hour.
    So there are those operational difficulties. I feel confident you are right, that most Members of this body are not familiar with and it goes beyond just the issues of ownership and capital. It really does get down into operational issues as well.
    Mr. MILLAR. Certainly your point is well taken. And if it is possible to build new rights-of-way in densely settled urban areas, that can be operated simply for passenger service by themselves, that is certainly a preferred alternative. However, in most communities, it is not a practical alternative. And it is not a practical alternative simply because you then wind up taking businesses, you wind up taking homes, or you get into extremely expensive underground construction that makes projects infeasible.
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    But the simple answer is that is certainly preferable. With regard to the operational issues, transportation—no matter what part of transportation you are speaking of—and I see all these wonderful pictures around here of all the different modes—every mode has its own joys and problems and the fact of the matter is that most of the 411 million trips that were taken on commuter rail last year were taken on systems the majority of which mix passenger and freight and do it safely. We have the safest record in the transportation industry.
    So while there are certainly problems—while we would be the first to acknowledge there are problems—fortunately we have many good men and women working in the industry who know how to solve problems and operate systems safely. Working together, we can work out those problems.
    I see the ability to use rail freight rights-of-way as an option, and we need to make sure that that option is not closed in all situations.
    Mr. HAMBERGER. Although Mr. Clement is gone, I would like the record to reflect that it appears to be about 411 million times last year when freight railroads did cooperate with commuter rail to provide service.
    Mr. BACHUS. Let me close by saying that I think most Members of Congress simply underestimate the complexity of running a passenger line. And I will give you an illustration from my district.
    The Southern Railroad—now the Norfolk Southern—goes through the town of Leeds, Alabama and there are six at-grade crossings within about a 5-block area. I have read in the paper that people who are dealing with transportation agencies have said that we want to try to get the speed in five or ten years from Birmingham to Atlanta up to 110 miles an hour on Amtrak. I can tell you that it is dicey at 50 miles an hour through that town.
    What I think our failure is—we build roads that displace businesses and displace property owners at probably less cost. And I think our failure as a country is to—in many areas where instead of utilizing the freight railroad—and that was an on-the-cheap alternative—but if 10 or 15 or 20 years ago we had built a dedicated line in some of these big cities, we would all be better off than we are today.
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    I think we need to break out of that box and take a serious consideration—in our more densely-populated States, particularly on short hauls—to going away from that system and in a dedicated line. You can sometimes build them—they are not as heavy. There are all sorts of considerations.
    I think we miss that, but we are going to have to pay for it.
    Mr. QUINN. Thank you, Mr. Bachus.
    Quickly, Mr. Turner, if I may.
    Mr. TURNER. Yes, sir.
    Mr. QUINN. We talked about the TEA-21. I would like to bring ourselves back a little bit to this loan program we talked about.
    You pointed out this morning that over 3 years—$3.5 billion—we have not really seen any of it used. Whether it is FRA regulations or whether it has to do with that communication, for example, between DOT and OMB, or there wasn't any public vetting of all of that—in a couple of minutes, can you make any recommendations to us?
    Mr. TURNER. Yes, sir. I appreciate that opportunity.
    The first thin is the financial advisor. We have brought somebody onto our staff who has a degree in economics from a very prestigious university and who has done finance studies at Wharton and other prestigious schools. I think he has 25 years of railroad experience. That person was brought as a consultant on our staff to really help our members walk their application through. I think he has established an excellent relationship with the FRA.
    But the problem comes with the financial advisor. This person is as qualified as anybody out there who has come to the railroads for employment as a financial advisor. However, for whatever reason only the FRA can tell you, this person is not allowed to serve as the FRA advisor because he is working with the people who submit the application.
    If we could have this financial advisor that is a consultant to the short lines—who is qualified in every way—serve as a financial advisor, I feel that would begin to break the log jam as we see it. I would really urge the committee to help us get that accomplished. The fees that some of the financial advisors charge causes a concern. There is a pretty high fee for no guaranteed result. That would be number one.
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    Number two, the credit risk premium—I have no idea how that is determined. They mentioned that they had an outside consulting firm to come in and help them with that. I think it would have really helped if we had some input or some understanding as to what went into making the credit risk premium.
    Third is the collateralization, as has been mentioned here today, of the loan. Many of our railroads are fairly highly leveraged and calling for this 100 percent collateralization really makes it appear as though our folks need not apply because they cannot meet that hurdle.
    Mr. QUINN. I will tell you what, Mr. Turner, on the surface of it, if you take a couple of those recommendations, and we take Mr. Lindsey at his word to help us, with Ms. McGowan, with Mr. DeMint's question earlier this morning that we put those kind of people together, it might make this thing go a little easier and quicker.
    Mr. TURNER. Yes, sir, I think so.
    Mr. QUINN. Mr. Nadler, do you have any questions for the panel before we release them?
    Mr. NADLER. Yes, thank you.
    First of all, let me comment briefly.
    Mr. Bachus was talking about building new commuter lines, which—as Mr. Millar said—is certainly preferable in certain areas but are prohibitively expensive, especially in built-up areas. I might suggest or point out that in a lot of areas you do have the freight railroads owning rights-of-way which would be able to handle, say, three or four tracks and they only have one or two tracks there. So you could put another track in the same right-of-way, making some accommodation with the freight railroad, to dedicate a track to a commuter or passenger rail and to dedicate a different track to the freight.
    Number two, you have the Federal Rails to Trails Program, which has preserved certain rights-of-way which might also be useful for that. But the fact of the matter is that originally these rights-of-way were put together by private railroads 100 years ago, 150 years ago, for both freight and passengers. It is only in more recent times that the dichotomy between the speeds and the grades and all the practical problems that you have pointed out have come around.
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    Mr. Hamberger, last year you opposed legislation that would have taken the deficit-reduction fuel tax and used it to finance infrastructure rehabilitation. You are supporting H.R. 1020, which would tap into the general fund for the same purpose. H.R. 1020 will provide only $1 billion over a few years for short lines and regional railroads to upgrade their infrastructures. The estimate is almost $7 billion in pent-up shortfall of the ability to finance.
    Between a $3-billion appropriation and a $7-billion need—not counting the capital need of the class one railroads—which, as Mr. Turner pointed out, are highly leveraged in some cases because they overpaid for assets and mergers—but that is a different question, past tense—
    Mr. NADLER. How would you suggest that we get enough capital funds beyond H.R. 1020, if you do not think we should take some of the deficit-reduction fuel tax and use it for infrastructure purposes? In other words, what is your general comment on financing the infrastructure capital needs of the railroads, short line and Class I, beyond their own ability to do it and beyond the rather limited amount envisioned in H.R. 1020?
    Mr. HAMBERGER. That was a couple of questions wrapped into one, here.
    Mr. NADLER. But it was summarized into one. What do you think—
    Mr. HAMBERGER. The 4.3-cent deficit-reduction fuel tax was enacted for that reason. We have done our civic duty and the deficit is gone, that is money that the Class Is need. As I pointed out in my testimony, we have tremendous capital investment needs as well, and we would like to have that money back.
    Number two, we are supporting H.R. 1020 because we think it is a step. It is unclear to me—having read the study—whether the amount needed is a total of $7 billion. I think that is the outside need, that is, if every class two and class three mile of track was upgraded to handle 286,000 pounds. So it is unclear to me what the real number is. It is probably somewhere south of $7 billion.
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    I think $1 billion is a pretty good step in the right direction. It seems to me, as that number becomes more precisely defined and Congress determines that there should be an extension of H.R. 1020, then that is something we would support at that time.
    Mr. NADLER. But let me just amplify the question.
    That is looking at the short lines only. I tried to also ask about the needs of class ones. The fact is that it is not true that the only infrastructure need is to upgrade to 286,000. We also need to remove a lot of clearances to get double-stack clearances all over the place. The class ones are strapped. There are a lot of capital needs.
    My question is, Across the board, do you have any recommendations for how to deal with the capital shortfalls to have a good freight railroad system in this country?
    Mr. HAMBERGER. I was attempting—apparently unsuccessfully—to avoid that question.
    Our policy right now is that where the investment is for a public purpose that is appropriate for a class one to participate, and we do that in many cases around the country—the Fast Corridor and the Alameda Corridor, for example. There are some members of the association who are a bit more aggressive in their view as to what the appropriate role of public financing would be. We are continuing to discuss that.
    I think within the context of our current policy—I was approached the other day about the Trade Corridor Program that was in TEA-21. I believe it provided something like $700 million over 6 years, which as you know, is a drop in the bucket for what is really needed. I think Alameda alone was $2.1 billion. So those are the kinds of public investments which have collateral benefits because they improve signalization, establish grade crossing separations—those kinds of benefits—but the overarching purpose is a public policy purpose.
    We have no other ideas at this time.
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    Mr. TURNER. I want to get to the first part of your question, Congressman, and say that the first thing that this—the 4.3 went into a trust fund and we found out that wasn't going to work. But I think H.R. 1020 is going to be much better.
    If we were to get the 4.3 repealed and it would go back into our industry, that would mean that $10 million would come back to the short lines that could go right back into infrastructure funding. So that is another $10 million that we would like to see come back into our segment of the industry.
    The second thing is that the cost benefit of capital expenditures is very good. Once we begin this upgrade to 286,000, I think we will see a much more efficient short line industry and we could begin to put some of our money back into our infrastructure, again, with the help of the RRIF, H.R. 1020, and the $10 million from the 4.3.
    Mr. QUINN. Excuse me. I hate to interrupt, but we have another hearing coming in here at 1:00 and we have a panel to go yet.
    Mr. NADLER. I was just going to say thank you.
    Mr. QUINN. Sure, you were.
    I thank the panel.
    Mr. Turner, before you leave, this legislation we are talking about contains a number of provisions protecting worker rights. There were some concerns whether the New York Dock provisions are adequately addressed.
    Can you comment yes or no?
    Mr. TURNER. I think they are.
    Mr. QUINN. And let me thank the full panel for their patience here as we dismiss you today.
    Our third panel will now come forward.
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    We have Mr. Byron Boyd, President, United Transportation Union, and Mr. Donald Griffin, Assistant General Counsel, Brotherhood of Maintenance of Way Employees.
    Byron and Donald, welcome. How are you? It is good to see you again.
    Gentlemen, we thank you for appearing here today. As I mentioned just before you came to the table, we are being moved here in a little bit, unfortunately, for another hearing that is on its way in. So we would ask you to keep your opening statement to about 5 minutes or so. We do have your full written statement for the record. Then once we have done the 5 minutes for each of you, we will entertain any questions.
    Mr. Griffin, would you like to begin?
    Mr. GRIFFIN. Thank you for the invitation, Mr. Chairman.
    I am here representing Brotherhood of Maintenance of Way Employees. And we are supporting H.R. 1020. That position is probably somewhat surprising to a number of people in the room, given the rather contentious history of relations between the unions and the short line and regional railroads.
    In my statement, I alluded to that history. I will not bore everybody with the details of that.
    There was a misguided policy by the ICC in the 1980s and 1990s that resulted in class ones shedding lines. As a result, many long-service railroad employees lost their jobs or had to take jobs with substantially less pay and received absolutely no consideration as a result.
    However, it is the year 2001. The short lines and regionals are in business. We represent a substantial number of employees on those railroads today. The short lines and regionals came to us, expressed the concerns they had with infrastructure funding, and we have been engaged in a dialogue with them over the past year. Now that H.R. 1020 has been introduced, we are very happy to support the bill.
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    There are three points in the bill I want to emphasize that were critical to BMWE's support of this bill.
    The first is a provision in Section 22301(c)(2) that grandfathers grants to those lines that were operated by class two and class three railroads on the date of enactment. We think this is very important. One, it puts the money to the lines that need it, the ones that are being operated today. Second, this provision makes it clear that Federal monies will not be used by class one railroads to shed additional lines. That way we will not have to go through the same parade of horrors that railroad employees went through in the 1980s and 1990s.
    A second important provision would be the employee protective provisions in subsection (f). Hopefully, no employee of a class two or class three will ever have to take advantage of those benefits because that individual will be working and that these grants provided by this legislation will only result in increased work opportunity for maintenance of way employees in the class two and class three railroads.
    The final provision that is very important to us is in subsection (g) in labor standards. It recognizes that collective bargaining is a good thing in the rail industry and sets as the wage rates those wage rates that have been bargained collectively under the Railway Labor Act.
    Those three provisions, Mr. Chairman, we believe are very important and are the basis that allows us to support this bill.
    We are here today on the same side of the table as the short line and regional rail industry. As I remarked at the beginning, that is an unusual position for us. There are other unions that are not yet at the table here and in support of this bill. The short lines have come to us, we are trying to cooperate with them and work together on matters of common interest.
    But cooperation means working together and acknowledging that each side of a dispute has a legitimate interest. Unfortunately, there are still some individual members of the regional and short line industries that have a hostility to unions. It is unfortunate. And unfortunately, it poisons the well in many other areas.
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    Hopefully, we can work past that and at some point we can work together on other areas of common interest.
    Thank you.
    Mr. SZABO. My name is Joe Szabo and I serve as the State legislative director in Illinois for the United Transportation Union. I am here this afternoon representing UTU's president, Byron Boyd.
    With me to make this presentation is Don Dunlevy, who serves as our State legislative director in Pennsylvania.
    On behalf of the United Transportation Union, I appreciate the opportunity to address the committee on the vital needs of infrastructure in our rail industry.
    We are here to support passage of H.R. 1020, the Railroad Track Modernization Act of 2001. This bill is beneficial to our rail industry and therefore to our rail employees.
    H.R. 1020 provides a mechanism for the small railroads in our industry to modernize their track structure in order to continue to serve the businesses located primarily in rural areas on their lines. As their fleet of new railroad cars continues to grow in capacity, the older and smaller capacity rail cars will be retired from the fleet.
    As you have heard from other speakers today, approximately 10 percent of the total rail traffic in the system comes from the short lines and regional railroads. Therefore, about 10 percent of the total employment on class one railroads is directly related to the traffic destinated to or originating on short lines and regional railroads. The constant interaction of rail traffic that flows between the large and small railroads creates one national rail network.
    UTU represents several thousand rail workers that are employed on short line and regional railroads, including employees on the class two Alaska Railroad in Chairman Young's home State. These employees are a very important part of our organization, and we believe that the increased capital investment provided in H.R. 1020 would be good for the jobs of rail workers on our Nation's smaller railroads. Improving track conditions also is always good for the safety of our rail operations. Rail workers and the communities we serve will benefit from this improved level of safety.
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    Almost all short line and regional railroad employees are covered under the provisions of the Railroad Retirement System. We are proud to be a part of the labor-management coalition that is working as one team to improve our retirement system by passing other legislation, H.R. 1140. H.R. 1020 will have a positive effect on our retirement system by stabilizing the existing rail operations.
    We note with approval that this bill is written with the standard labor protections for rail workers and also contains prevailing wage provisions that are important to our rail employees.
    This bill also contributes to the solution of the overall freight transportation problems that this full committee considers. If these small railroads cannot stay in business, the thousands of tons of freight that now move on these railroads will then move in trucks on our highways. The public expense of the accelerated highway deterioration caused by the addition of thousands of truckloads of freight moving on the highway system will then require additional highway construction, repair, and funding.
    There are many rail customers located on these small rail lines that will be required to utilize the larger rail cars to continue their rail services. If these larger rail cars cannot be accepted on the lines where these businesses are located, then there will also be a movement of jobs and people away from rural areas into the urban centers.
    UTU finds this bill to be good public policy that provides stability for our rail industry. This is a win-win solution for workers, railroads, shippers, and communities served by our railroads and the Nation's transportation system overall.
    We will be very glad to answer questions and offer clarification on the testimony.
    Mr. BACHUS. Thank you. Gentlemen, I very much appreciate your testimony.
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    First of all, I want to commend you on looking at this issue and correctly realizing that it is not only best for our country, but it is best on the union men and women to support this bill. One thing that has been bandied about is that only 62 percent of the employees of these railroads are union employees.
    Mr. GRIFFIN. I think it is 66 percent.
    Mr. BACHUS. That is 66 percent who are. That is a significant number of union members that if these railroads die—for the union members on those railroads, it is 100 percent of their job.
    The other thing is that as these become bigger and more profitable, union membership tends to go with that. I think this is a great way of increasing union membership.
    In Alabama, we have steelworkers and ironworkers in my district. I am from Birmingham, which is a steel center. In almost all cases, the factories these rail lines serve, the mines they serve, the cement plants they serve, the paper mills they serve—those are union operations. In fact, I described one county in South Alabama where the only thing keeping their business going is a short line railroad running in there that is on its last gasket.
    The only union employees in that county work for those factories on that rail line. When that railroad dies, the union's presence in that county is gone.
    So that is something think about.
    I appreciate your working with us on this. We want to work together. We do not want this to be a mechanism to do anything to harm union membership on the railroads. My grandfather was a member of the Brotherhood of Locomotive Engineers. The first magazine I ever read was that publication. We did not have enough money to buy anything else.
    Mr. BACHUS. Mr. Griffin, you pointed out that maintenance of way employees are union represented on all but one class two railroad and on many class three railroads. Within those groups, do you see the same trend that Mr. Turner did in his testimony that the larger the small carrier becomes the more commonplace union representation becomes?
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    Mr. GRIFFIN. I think that is correct. As a railroad becomes more established and more financially viable, certainly you can develop a more mature relationship with that railroad and begin to address day-to-day workplace issues. It is not just a question of trying to get past the next financial hurdle. I think that is a correct observation.
    Mr. BACHUS. I gather from your written statement that the provision in H.R. 1020 limiting Federal assistance to smaller railroads and operations on the date of enactment is important to your members.
    Could you elaborate on that for those who may not be familiar with the bill?
    Mr. GRIFFIN. Certainly.
    The provision in subsection (c)(2)—I believe—it says that those entities in operation today—those class two and class three railroads—that need these grants then are the ones who will be the recipients of the grants. Specifically, our concern—as I had mentioned earlier—is that class one railroads very often look to shed lines. Whether those lines are otherwise subject to abandonment is a matter we could debate probably until the end of the earth.
    The point is that this bill does not provide any sort of indirect financial incentive to a class one to shed lines and say to a new operator down the road, If we shed this line off and we haven't really done any work to improve the infrastructure, there are these grants that you can get. Instead this bill directs the money to those operators that are in business today that need the money today to stay in operation.
    Mr. BACHUS. Chairman Quinn has literally 150 high school students out there that he is talking with, and they are all constituents.
    Mr. BACHUS. If they go back home and tell their parents that their congressman wasn't able to meet with them, that is 300 votes.
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    Mr. BACHUS. I want to again emphasize to you—Mr. Turner in his testimony said that some of these little railroads have 15 or 20 employees or 40 employees. I am aware of one of them that is not in my district, the East Alabama. It probably has 40 or 50 employees. But I know one factory it serves has 1,000 union members in it. As I said, it is the biggest union presence in Sylacauga, Alabama. So we might be talking about a small railroad, but they serve a lot of union members.
    Mr. SZABO. Mr. Chairman, we very much want this industry to grow and prosper. As the industry prospers, so do our members.
    Mr. BACHUS. I agree. Again, I just want to thank you. I know there are always internal problems with these things. But I want to commend you on stepping up and doing what is right. And I want to promise you that we will work with you and be sensitive to your concerns.
    At this time, we adjourn. Thank you.
    [Whereupon, at 12:57 p.m., the subcommittee was adjourned, to reconvene subject to the call of the Chair.]