SPEAKERS CONTENTS INSERTS
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75–669 PS
2001
H.R. 2950, THE RAIL INFRASTRUCTURE DEVELOPMENT AND EXPANSION ACT OF THE 21ST CENTURY
(107–49)
HEARING
BEFORE THE
SUBCOMMITTEE ON
RAILROADS
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
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HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
OCTOBER 2, 2001
Printed for the use of the
Committee on Transportation and Infrastructure
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
DON YOUNG, Alaska, Chairman
THOMAS E. PETRI, Wisconsin, Vice-Chair
SHERWOOD L. BOEHLERT, New York
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
WAYNE T. GILCHREST, Maryland
STEPHEN HORN, California
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JOHN L. MICA, Florida
JACK QUINN, New York
VERNON J. EHLERS, Michigan
SPENCER BACHUS, Alabama
STEVEN C. LaTOURETTE, Ohio
SUE W. KELLY, New York
RICHARD H. BAKER, Louisiana
ROBERT W. NEY, Ohio
JOHN COOKSEY, Louisiana
JOHN R. THUNE, South Dakota
FRANK A. LoBIONDO, New Jersey
JERRY MORAN, Kansas
RICHARD W. POMBO, California
JIM DeMINT, South Carolina
DOUG BEREUTER, Nebraska
MICHAEL K. SIMPSON, Idaho
JOHNNY ISAKSON, Georgia
ROBIN HAYES, North Carolina
ROB SIMMONS, Connecticut
MIKE ROGERS, Michigan
SHELLEY MOORE CAPITO, West Virginia
MARK STEVEN KIRK, Illinois
HENRY E. BROWN, Jr., South Carolina
TIMOTHY V. JOHNSON, Illinois
BRIAN D. KERNS, Indiana
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DENNIS R. REHBERG, Montana
TODD RUSSELL PLATTS, Pennsylvania
MIKE FERGUSON, New Jersey
SAM GRAVES, Missouri
C.L. (BUTCH) OTTER, Idaho
MARK R. KENNEDY, Minnesota
JOHN ABNEY CULBERSON, Texas
BILL SHUSTER, Pennsylvania
JOHN BOOZMAN, Arkansas
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
PETER A. DeFAZIO, Oregon
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
ROBERT MENENDEZ, New Jersey
CORRINE BROWN, Florida
JAMES A. BARCIA, Michigan
BOB FILNER, California
EDDIE BERNICE JOHNSON, Texas
FRANK MASCARA, Pennsylvania
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GENE TAYLOR, Mississippi
JUANITA MILLENDER-MCDONALD, California
ELIJAH E. CUMMINGS, Maryland
EARL BLUMENAUER, Oregon
MAX SANDLIN, Texas
ELLEN O. TAUSCHER, California
BILL PASCRELL, Jr., New Jersey
LEONARD L. BOSWELL, Iowa
JAMES P. McGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania
NICK LAMPSON, Texas
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
BRIAN BAIRD, Washington
SHELLEY BERKLEY, Nevada
BRAD CARSON, Oklahoma
JIM MATHESON, Utah
MICHAEL M. HONDA, California
RICK LARSEN, Washington
(ii)
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Subcommittee on Railroads
JACK QUINN, New York, Chairman
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HOWARD COBLE, North Carolina
JOHN L. MICA, Florida
SPENCER BACHUS, Alabama
JERRY MORAN, Kansas
JIM DeMINT, South Carolina
ROB SIMMONS, Connecticut
SHELLEY MOORE CAPITO, West Virginia
TODD RUSSELL PLATTS, Pennsylvania
MIKE FERGUSON, New Jersey, Vice-Chair
DON YOUNG, Alaska
(ex officio)
BOB CLEMENT, Tennessee
JERROLD NADLER, New York
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
BOB FILNER, California
ELIJAH E. CUMMINGS, Maryland
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EARL BLUMENAUER, Oregon
JOHN ELIAS BALDACCI, Maine
RICK LARSEN, Washington
WILLIAM O. LIPINSKI, Illinois
JAMES L. OBERSTAR, Minnesota
(ex officio)
(iii)
CONTENTS
TESTIMONY
Dysart, Mark R., President/CEO, High Speed Ground Transportation Association
Filipovic, Mark, Chair, Rail Labor Division, Transportation Trades Department, AFL-CIO
Hamberger, Edward R., President and CEO, Association of American Railroads
James, Tim, Legislative Director, International Union of Operating Engineers, on behalf of the Building and Construction Trades Department, AFL-CIO
Kennedy, John, President and CEO, Rail Works, on behalf of the National Railroad Construction and Maintenance Association
King, David D., Deputy Secretary of Transportation, North Carolina Department of Transportation, on behalf of the States for Passenger Rail Coalition
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King, Scott L., Mayor, Gary, Indiana, on behalf of the U.S. National Conference of Mayors
Krolicki, Brian, State Treasurer of Nevada, on behalf of the National Association of State Treasurers
Query, James, Executive Director, Public Finance Department, Morgan Stanley
Sullivan, Dennis F., Vice President, Marketing, Plasser American Corporation, and Chairman, Railway Progress Institute's Committee on Passenger Transportation
Turner, Frank, President, American Shortline and Regional Railroad Association
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Blumenauer, Hon. Earl, of Oregon
Clement, Hon. Bob, of Tennessee
Cummings, Hon. Elijah E., of Maryland
Graves, Hon. Sam, of Missouri
Nadler, Hon. Jerrold, of New York
Oberstar, Hon. James L., of Minnesota
Young, Hon. Don, of Alaska
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PREPARED STATEMENTS SUBMITTED BY WITNESSES
Dysart, Mark R
Filipovic, Mark
Hamberger, Edward R
James, Tim
Kennedy, John
King, David D
King, Scott L
Krolicki, Brian
Query, James
Sullivan, Dennis F
Turner, Frank
ADDITIONS TO THE RECORD
American MAGLEV Technology, Inc., Lew Oliver, Vice-President, statement
American Society of Civil Engineers, statement
Congressional Budget Office, financial analysis requested by Chariman Young, of H.R. 2329 with respect to its potential impact on the federal budget over the anticipated 30-year life of the program
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H.R. 2950, THE RAIL INFRASTRUCTURE DEVELOPMENT AND EXPANSION ACT OF THE 21ST CENTURY
Tuesday, October 2, 2001
House of Representatives, Subcommittee on Railroads, Committee on Transportation and Infrastructure, Washington, D.C.
The subcommittee met, pursuant to call, at 2:06 p.m. in Room 2167 Rayburn House Office Building, Hon. Jack Quinn, [chairman of the subcommittee] presiding.
Mr. QUINN. Good afternoon, everyone and thanks for bearing with us. We are a few minutes late with our start this afternoon. We will have some Members coming and going here this afternoon. From some phone calls I understand some are arriving late.
The good news, I suppose, we won't be interrupted with votes for most of the afternoon. So, once we get started, we can go right through there.
Before I begin or offer an opening statement, I would like to yield to the chairman of the full committee, Mr. Young, for any opening remarks he may have.
Mr. Chairman.
Mr. YOUNG. Thank you, Mr. Chairman. I do apologize for the elevator. I understand that it did break down and you were stuck on it. That's the same old story I've used many times when I am late to get home.
Mr. QUINN. Mr. Chairman, when I have seniority enough to be on this floor, I won't have to take an elevator.
Mr. YOUNG. Well done. Anyway, Mr. Chairman, I am pleased the subcommittee will be holding a hearing on H.R.2950, The Rail Infrastructure Development Expansion Act of the 21st Century. I believe that RIDE-21 is a very credible proposal for developing the high-speed passenger rail infrastructure in the United States.
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I am very pleased the subcommittee, especially you, Mr. Chairman, have joined me in introducing the bill.
There is a great deal of interest in this legislation. As Chairman of the Transportation and Infrastructure Committee, I have made easing congestion on our highways and our skies the top priority in this Congress.
I believe that construction of our true high-speed passenger rail system in the United States is an integral piece of that solution. May I suggest, Mr. Chairman, when I say high-speed rail, it also includes such things as mag-lev.
High-speed rail will help reduce congestion on America's highways by connecting urban centers and also provide an alternative to air travel.
I have been developing this bill since mid-summer because it is the right thing to do for the traveling Americans.
However, the tragedies on September 11th and the resulting short-term stoppage of air travel demonstrated even more the need for transportation alternatives. The increase in the amount of time it will now take to clear airport security has added to the time it takes to travel by air, making high-speed rail a competitive alternative in some regional markets.
Simply stated, it is time for the United States to make a high-speed passenger rail a transportation priority. I have believed for a long time that this is a neglected mode of transport, regardless of the spur provided by recent events.
RIDE-21 is not the only proposal before Congress that makes Federal dollars available for the development of high-speed passenger rail. Both H.R.2329 in the House and S.250 in the Senate are intended to address high-speed rail infrastructure needs as well. But those well-intended bills do not adequately address the problems.
There are three significant reasons why these other two proposals will not get our nation any closer to a comprehensive national system of high-speed passenger rail corridors. They do not provide enough funding. They put funding and project control in the hands of Amtrak rather than the States. What little money is provided comes at a too high cost to the Federal treasury.
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Mr. Chairman, I have a detailed statement that I ask to be included in the record.
Mr. QUINN. Without objection it is so ordered.
Mr. YOUNG. However, there is one additional matter that I would like to address. The benefits that RIDE-21 provide for American workers. RIDE-21 will result in an investment of $71 billion in infrastructure investment. That will mean thousands of well-paying jobs for railroad employees and construction workers.
For projects constructed under this bill, we will assure that a competitive wage will be paid. Over the past days, some have raised questions regarding this. I would like to speak to that matter.
Our bill will assure that well over 90 percent of the work accomplished under the bill will require that competitive wages are paid. The remaining work will be mainly maintenance work and small scale improvements.
However, I understand there is still some confusion on this. Therefore, I pledge to work cooperatively in a bipartisan manner to address any open issues in the area of concern.
I am pleased to announce that the building and construction trades department of the AFL have endorsed this bill. It is important that we understand it, as I introduce any bill with those who co-sponsor. I am willing to listen and to work with anyone to solve the problem.
My main goal is to move this legislation and make sure we have a system of adequate transportation to move people to and from destinations in a rapid fashion and in a safe manner.
With that, Mr. Chairman, I yield back the balance of my time.
Mr. QUINN. The gentleman yields back the balance of his time. Without objection, his full statement will become part of this afternoon's record.
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Mr. Chairman, I appreciate your guidance and help with those of us on the subcommittee and your leadership on this issue.
For the record, I would like to begin with an opening statement of a few paragraphs, only to get on the record the focus of today's hearing of H.R.2950, the Railroad Infrastructure Development and Expansion Act for the 21st Century, which will be known as RIDE-21.
The tragic events, of course, of September 11th, 2001, have forever altered our entire transportation system here in our country. Since that date, thousands of Americans have come to depend on passenger rail service as an essential component of the network.
While the traveling public slowly regains its confidence in aviation, passenger demand for rail service will reach an all-time high.
It is our duty to provide the resources necessary to develop high-speed passenger rail service then across the country. H.R.2950 is a substantial step in that direction. It makes $71 billion available for infrastructure expansion and improvements.
The General Accounting Office has reported that Amtrak will need in the range of $40 to $70 billion alone to build high-speed passenger rail in the country. So, this is proposal offers the level of investment necessary to build an entire high-speed rail network, not just individual corridors or specific regions.
This investment is provided through the three components that the chairman of the full committee already outlined a few moments ago. First, RIDE-21 permits States to issue $36 billion in Federal tax-exempt bonds for eligible projects over ten years.
Almost all of our States are very familiar with the bonding method and have used it for years. This mechanism will grant the States the flexibility that they seek in making transportation decisions. We will hear testimony on that later.
One of our witnesses, Mr. King, has previously testified before the subcommittee that States ''should have a deciding role in managing high-speed rail projects.''
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Secondly, the bill increases the amount of money available under the RRIF Program, the Railroad Rehabilitation and Improvement Financing Program, all the way up to $35 billion. That program has been the subject of discussion here in the subcommittee as well as on the full committee.
We also eliminated all of the obstacles that have prevented the program from fulfilling its potential as we have discussed with Secretary Mineta.
Finally, H.R.2950 reauthorizes the Swift Act through 2009, but changes the allocation to $25 million for corridor planning and $10 million for technology development.
I think everybody knows, it is no secret, of my support for Amtrak. We can benefit greatly from this legislation. As the only operator of high-speed passenger trains in the United States, Amtrak will likely be a partner with the States in many of these projects.
I am anxious for the opportunity to discuss the merits of this bill with all of our colleagues, both on the subcommittee and off. Hopefully today's hearing will answer many of the questions and concerns that Members have.
We look forward to hearing from our witnesses this afternoon, two panels.
As a housekeeping item, I would ask unanimous consent that the record of today's hearing be held open for the usual 30-day period to allow post-hearing questions from Members and witnesses' responses.
Without objection, it is so ordered.
I also ask unanimous consent that the Congressional Budget Office study that was commissioned by Chairman Young entitled ''Financial Analysis of H.R.2329, the High-speed Rail Investment of 2001'' be included in the written record of today's hearing.
Without objection, it is also ordered.
Let me also note that because of some of the time constraints we had to limit the number of witnesses appearing today, two full panels. Indeed, at this panel labor and management associations are at the table.
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But the subcommittee welcomes follow-up discussion, follow-up written submissions that may speak to any of the policy issues that we discuss today.
So, we in no way want to limit this discussion, but simply in the interest of time, we had to put two of our panels together.
That concludes any opening remarks I have. I would like to yield now to the Ranking Member of the full committee, Mr. Jim Oberstar.
Mr. Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman, for proceeding with the hearing and moving ahead on this legislation on the general issue of high-speed rail.
As you have articulated, as Chairman Young has expressed, and as all America knows, the events of September 11 have demonstrated the need for a more balanced transportation system that includes high-speed rail.
Yesterday, well over 100 Members of Congress made the trip from Washington, D.C. to New York to observe Ground Zero. The trip up, from the time the brake was released to the time that the brake was applied was two hours and forty-one minutes. I timed it on my triathalon Timex.
The returning was just two hours and thirty-one minutes, non-stop. There was one stop en route North.
Many businesses are now putting their key personnel on Amtrak's Acela between Boston and New York because from point of departure to the destination point, it is less time-consuming than flying. This is also happening for trips between Washington, D.C., Philadelphia and New York.
It is a scene that should be repeated all around America in the high-speed rail corridors identified by the Department of Transportation. The Congress directed DOT to report on those corridors in the TEA-21 study.
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It is against that backdrop and against my experiences over a great many years with TGV and its predecessor that I will present my remarks today, first. I will simply repeat one short vignette. When I was a student at the College of Europe in Brugge, Belgium, I traveled from Paris to Lyon aboard a steam locomotive in 1957. It took four hours and thirty minutes.
When I came back years later as a Member of Congress and chair of the Aviation Subcommittee and inquiring into this new hub that American had established at Lyon for service to the United States, I took the TGV from Paris to Lyon. It took only two hours and one minute.
There were 500,000 rail passengers between those two cities, the two largest cities in France, 288 miles apart, and three million air passengers in 1989. Today there are five million TGV passengers a year and a million air passengers. The TGV is profitable in all of its five major sections in France. It not only covers capital cost, it contributes to repaying capital cost and interest and helps support the balance of the French passenger rail system. We can do no less in the United States. We must develop high-speed rail.
The questions are how to do it and with what funding mechanism. Congressman Houghton and I, with 183 co-sponsors, have introduced legislation to provide tax credits for those who would purchase high speed rail bonds--a tax benefit structure that is generally recognized to be more attractive for bondholders than tax-exempt bonds.
I appreciate the chairman's critique that we didn't provide enough money. As I said at a previous hearing, if we had introduced a bill for $75 or $80 billion in tax credits, I think we would have been laughed out of the House. But since we put it in, people took a look at it and said, oh, that is not enough. We will increase that. We are happy to do that.
I think there is room for both tax-exempt bonds and the tax credit approach that Congressman Houghton and I and, as I said, 183 co-sponsors, both sides of the aisle, have proposed.
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The problem that I find with the tax exempt approach is that the States have had tax-exempt authority for years and haven't used it. There is not a single rail project in America funded by tax-exempt bonds.
You can lift the cap, but many States are well below their cap. If they haven't used it by now, what is to say they will use it if it is raised.
Secondly, the tax-exempt bond approach shifts nearly all of the burden on to the States. We need a national program. We don't need a State-by-State program.
In the Midwest Rail Initiative there are eight or nine States that are ready to go. We need to participate. We ought to share the cost with them.
The tax credit approach will have a Federal share in the cost of roughly 80 percent of the burden and the States, 20 percent. We are not going to get State participation unless there is this kind of sharing. The track record is clear. We need to proceed with the tax credit and the tax-exempt bond issues as well if there are States willing to participate in them.
As for the critique that our proposal is operated through Amtrak, the purpose was to not create another bureaucracy, to not create another funding mechanism or entity that would process the funding for high-speed rail projects, but rather to do it through an entity that already exists. We provided the Secretary of Transportation with the authority to choose which projects will be funded. We also provided to keep options open for companies or organizations other than Amtrak, and have a competitive bid process to operate those projects.
That, I think, is the issue before us and the issue that I hope we can shed some light on in the course of this hearing. On that basis, I look forward to the testimony and to continuing the bipartisan process that we have initiated and, I hope, we will carry this initiative through to conclusion.
Mr. QUINN. Thank you, Mr. Oberstar. Of course, I would only note that I am also a co-sponsor of your legislation with Mr. Houghton as well. We had a news conference here to talk about it not too long ago.
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Mr. Bachus, do you have opening remarks?
Mr. BACHUS. I thank the Chairman. I thank the Ranking Member. I want to make one point as we start this hearing. That is we need an efficient and balanced transportation system in our country. We have subsidized road. We have subsidized air and we have subsidized water transportation. We haven't done that with rail transportation. So, we have unleveled the playing field.
Now, RIDE-21 is an important step in having an efficient and balanced transportation system, but it leaves one thing out. That is the short line railroads.
If we are to have freight railroad transportation to most areas of the country, we have to preserve, and it is an asset that we have now, but we are losing it. We have lost a lot of it and we are going to continue to lose it. If we lose rail freight transportation to half our country, even if we modernize the other half, then we are only halfway there.
This committee passed out unanimously H.R.1020, which was the Railroad Track Modernization Act in May, out of this committee. Now, in this Congress we all know that a piece of legislation that specialized is not going to move unless it is attached to a larger bill.
The one point I want to make is that we are missing, in RIDE-21 it misses a critical component of what we need to do and that is H.R.1020. We need to incorporate 1020 into this bill. When we do it, we will have a more complete solution to what we are trying to address.
If we don't, these heavy cars are going to hit the rail system in the next few years. RRIF doesn't take care of the problem. Only one loan has been approved under RRIF in three years. Often, the railroads that need it the most are the ones that can't qualify. So, we have to have a grant program. We have to have 1020. There is unanimous consent on this Railroads Committee, but we ought to commit ourselves to putting that on the bill.
I have read some of the testimony here today. If you read that testimony, it is very supportive of 1020 and of 1020 being a part of this legislation.
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Thank you, Mr. Chairman.
Mr. QUINN. Thank you, Mr. Bachus.
The chair now recognizes the gentleman from New York, Mr. Nadler. Mr. Nadler, if I may, on behalf of the subcommittee, just before your remarks, I want to thank you for the terrific job on behalf of your constituents as well as everybody at the World Trade Center.
As a fellow New Yorker, I know that you have been extremely busy, your staff, personally you and many, many others from the region. We thank you for that. We offer, again, officially, any assistance we can give to you. Maybe one of the best things we can do is get you some help on the subcommittee. But thanks for doing a great job.
Mr. Nadler.
Mr. NADLER. Well, thank you very much, Mr. Chairman.
Mr. OBERSTAR. If the gentleman would yield, I would like to share in the chairman's heartfelt comments about the New York delegation, especially on the excursion yesterday.
Mr. NADLER. Thank you.
Mr. OBERSTAR. It was very, very profoundly moving and touching. You and your New York City colleagues' comprehensive grasp of the issue is very compelling.
Mr. NADLER. Well, thank you. Thank you, Mr. Chairman, for holding this hearing. I'm going to submit a statement which I prepared. I want to talk adlib.
Mr. QUINN. Without objection, it is so ordered.
Mr. NADLER. Let me start by saying that since I do represent the World Trade Center area I spent most of Tuesday, September 11th trying to get home, from nine o'clock in the morning until six o'clock at night to get back to my district.
It was noteworthy. Although Amtrak was interrupted part of the time, I managed to get home on Amtrak. The planes weren't flying. The bridges and tunnels into Manhattan were all blocked. You couldn't get in by bus. You couldn't get in by car. You couldn't get in on foot.
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The only way to get to Manhattan on September 11th was by passenger rail.
I am very pleased to see this bill. I share in the comments of the distinguished Ranking Member, Mr. Oberstar, and Mr. Bachus.
I want to make a couple of comments in addition, though. I think we have to put some more attention and perhaps into rail freight as opposed to rail passenger. It doesn't get enough attention here.
A couple of days ago there was some evidence of terrorist activity, that people asked for hazmat licenses and so forth. The result of which, the police, the FBI, whoever, security officials, were stopping all the trucks going toward New York.
What that meant was that the efficiency of the highway system for bringing goods into one-twelfth of the nation's population became zero.
Now, if you are a terrorist and you want to starve a good part of this country, all you need is a telephone, a telephone and a bomb threat, apply for a hazmat license and the police will make sure that nothing gets through because they will be inspecting everything, and thank God for that, but that means that nothing gets through. That can really bollix up the economy. It can bollix up military preparations and so forth.
The rail freight system is of necessity for this country's defense, not to mention its economy. Anybody can get behind the wheel of a truck. Anybody can put something, anything in a truck anywhere and the only way of defending against a bomb or any other threat is by examining every truck, which, of course, freezes your highway system.
A train is loaded at one point. You can control what goes on. It is easy to police. Even if someone interrupts the rails, as we found out in Germany and Japan and Vietnam, the rails can be repaired in a couple of hours.
It is a much more reliable system. You don't have to stop everything in order to see what is going on and off. It is the essential means of transportation in this country.
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Because of disinvestment over the last few decades, because of unfortunate decisions by the management of ConRail and some other railroads, we have much too little trackage left. We used to have, I am told, eight parallel lines to get from the Midwest to the northeast. Today we have three; two of which cross on one rail bridge.
The essence of defense of a country is redundancy. If we only had one or two telephone circuits in this country and someone could knock out the telephone system by knocking out one line, what would we say? Ditto for an electricity grid. But we are coming close to that with our rail system.
We have to be very careful about increasing the capacity, not only the capacity, but the redundancy of the rail system, otherwise, it will be very easy in this was against terrorists that we have entered, for a terrorist to create economic havoc. It is amazing how much economic havoc they have created by smashing airports into two buildings and destroying five others, seven buildings altogether.
But the transportation of this system is incredibly vulnerable. There is very little redundancy in it. Knock out one bridge in, I think it is Fostoria, Ohio, and I have a map of it which I got from a rail magazine. I hope the terrorists don't read that rail magazine. It shows exactly where the point of vulnerability is. Knock out that one bridge and two of our three lines serving the northeast from the Midwest are out until that bridge is restored.
As I said, you can shut down the highway system by a few phone calls. Then what have you got?
I suggest to this committee that the new Office of Homeland Security, as a matter of priority, review decisions that were made as business decisions as to how certain lines were allocated in the ConRail breakup, because they were done on a business, not a national security basis.
If the Office of Homeland Security determines that it will be better for national security that we give greater redundancy to reallocate, then he should be given authority to do that. I can make specific suggestions.
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But the fact is that we have, in terms of this bill, we have to make sure that we emphasize rail freight as well as rail passengers. For instance, I noticed one provision in the bill, or at least the summary of the bill. I haven't read that provision of the bill, but in the summary of the bill it says that we are going to have high-speed rail. If it uses freight railroad right of way, that railroad should have to give an okay.
I think we should go further and say that we should not permit that unless the Secretary will certify it will not decrease rail freight capacity. It may be to the business advantage, depending on what kind of deal is made between Amtrak to a freight line to add a high-speed rail some place and decrease freight capacity.
I submit that for the national security of this country that is a wrong decision and should not be permitted. So, I hope that we will re-evaluate this bill. I like it the way it is going.
I associate myself with the remarks in terms of the tax-exempt bonds. But I hope we will give much greater examination and support in here to the freight aspects and to the national security aspects as it relates to the rail freight.
Thank you, Mr. Chairman.
Mr. QUINN. Thank you, Mr. Nadler.
Mr. Boehlert.
Mr. BOEHLERT. Mr. Chairman, mark me down for all of the above, for the reasons that were so eloquently articulated here today. We have to make substantial investments in our nation's rail system.
We have to do well by Amtrak and that is why I am a cosponsor of the Houghton-Oberstar bill. H.R.1020 is a no-brainer. We have to go forward with it. RIDE-21 is critically important. We have to invest substantial amounts of money in our nation's rail infrastructure and our national rail passenger service system.
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That investment is going to pay substantial dividends for America. We are not just spenders up here. We are investors. This is a wise investment for our future.
But I am particularly interested to hear what Mr. King is going to say from North Carolina on the State's interest in the RIDE-21 program because they have had the authority and they have not used it.
Mr. Bachus is absolutely right. Short line railroads are so vitally important to America and we know that. This bill is right on target in terms of saying we have to just invest a lot of money in our rail corridors.
Mr. Nadler, you point out something that is very important that we should all pay attention to. It is a national security issue.
Thank you very much.
Mr. QUINN. Thank you, Mr. Boehlert.
Mr. Borski?
Mr. BORSKI. Thank you, Mr. Chairman. Mr. Chairman, last week you and I were attempting to go to New York to Ground Zero to take a firsthand look. A lot of the trains we were trying to book were full. As a matter of fact, the Acela today, the brand new train on the northeast corridor, between five and seven trains are booked solid every day.
On the Metroliner, between four and six are selling out, coach and first class, every day.
There is little question in my mind that because of the events of September 11th, things have changed and are changed forever. I don't think people will be flying from New York to Washington or New York to Boston as much as they will be looking for rail service.
There is no question in my mind that rail service, or little question, I should say, that rail service won't happen unless there is a significant and major Federal commitment.
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I look forward to hearing our testimony today. I particularly look forward to hearing from Mr. Hamberger as to how these trains at 125 miles an hour are going to run on freight railroad right-of-ways and how everybody is going to be happy.
I look forward to the testimony today, Mr. Chairman. I was delighted to hear you and Chairman Young talk about the bipartisan nature of our committee. We hope to be able to get something through here.
It is rare, however, when Democrats are accused of not spending enough money. I thought that should be noted for the record.
Mr. QUINN. Well, we will give you a couple more weeks and you will change your mind, I am sure, Mr. Borski.
Thank you, Bob.
Mr. Coble.
Mr. COBLE. Thank you, Mr. Chairman. I will be brief. I want to thank you for conducting this hearing today, Mr. Chairman. Clearly the operation and maintenance of a passenger rail system is an important component of our nation's transportation infrastructure.
In July many of you will recall that the committee held a hearing on the status and prospects for Amtrak. A key component of that hearing focused on proposed legislation to provide Amtrak with $12 billion in bonding authority for the development and construction of high-speed routes across the country.
Now, Mr. Chairman, I don't want to rain on anybody's parade, but I am not an enthusiastic supporter of extending Amtrak more control over taxpayer dollars. That is primarily due to the fact that it is my belief that Amtrak has not demonstrated an ability to prudently and wisely manage the billions of dollars previously appropriated to them.
Now, granted, the government and perhaps other entities may have been at fault or may have contributed to some of their problems, certainly prior to 1996 perhaps that may well have been true.
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But since that time, that is when the reform bill was enacted, you will recall, I just believe that most of that responsibility must be laid at Amtrak's feet.
Having said that, I do believe we must explore and invest in passenger rail as a viable transportation alternative. While I have not had the luxury, Mr. Chairman, of reviewing RIDE-21 in great detail, I do believe it is a step in the right direction by putting States in the driver's seat of passenger rail infrastructure decisions.
I look forward to hearing from the witnesses today. I will hope to work with Chairman Quinn and Chairman Young as well as the gentlemen from Minnesota and Tennessee, Mr. Oberstar and Mr. Clement, regarding any proposal for high-speed rail investment considered by this Congress and emphasizing the importance of prudently expending these taxpayer dollars that will actually promote and encourage the development of justified high-speed rail corridors across the country.
Finally, Mr. Chairman, I want to mention David King, the Deputy Secretary of North Carolina's Department of Transportation, who was with us for a previous hearing, you will recall. He is back with us again as a witness. I look forward to hearing from David again.
In conclusion, Mr. Chairman, I want to commend you and the gentleman from Tennessee, Mr. Clement. You all have been not unlike what we say in the rural South as two old mules pulling very ably together as a team. I think that has not fallen on deaf ears or blind eyes.
I thank the chairman.
Mr. QUINN. Thank you, Mr. Coble. I have sure been called a lot worse back in Buffalo than a couple of old mules. I appreciate that, Mr. Coble. Thanks.
Mr. BLUMENAUER. Well, thank you, Mr. Chairman. I have a statement that I would like to submit for the record.
Mr. QUINN. Without objection, it is so ordered.
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Mr. BLUMENAUER. I appreciate the prompt action on behalf of our committee leadership, you, Mr. Clement, Mr. Oberstar and Mr. Young.
There was some recently who testified before this committee that somehow passenger rail service was kind of a curiosity or a novelty. But we have seen, as illustrated by our colleague from New York, that due to the tragic events of September 11th, it is underscoring the essential nature of this service.
If those communities had relied exclusively on single occupant passenger vehicles and airline service, there would be one traffic jam between Washington, D.C. and Boston. Freight wouldn't be moving and people's lives would be even more torn asunder than they are now.
I could not support recent emergency airline legislation because frankly it raised more questions and gaps in my mind.
I hope that this committee can move expeditiously in a way that sets aside the problems that I think some of us saw there in terms of throwing money without a clear idea of exactly where it was going, and without assisting other areas that needed our financial support.
We have before us today, with this piece of legislation and others that have been referenced by Mr. Bachus and Mr. Clement, H.R. 1020 and the High-speed Rail Act. We have the elements that we could put in place to create a comprehensive package that will answer the questions, mobilize broad bipartisan support, and move expeditiously.
At a time when we are concerned about the state of our economy, doing right by our rail infrastructure will provide tens of thousands of direct construction jobs and will lead to revitalization of communities large and small across the country that will keep people moving. It will help harness that particular element of the economic engine at a time when communities desperately need it.
I hope, Mr. Chairman, that we do place particular emphasis on the use of other financing mechanisms. As we have legislation before us here, just limiting the tax-exempt authority is not going to help.
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For instance, in dealing with the unique problems of short line railroads, we have some serious problems in terms of being able to access the credit. I think H.R. 1020 makes a big difference in that regard.
I am hopeful that we will also look very carefully at the criteria that are in RIDE-21. I hope that the application of these criteria will be incremental in nature and recognize the vast discrepancies and challenges that face corridors across the country.
We don't want to leave anybody out of this approach, whether they are east or west, north or south, large or small. I hope that we will zero in on that.
It is sad that the tragic events of September 11th were necessary, perhaps, to focus the spotlight on this issue in a way that our committee leadership and many of our members have been working on. But I think if we are able to build on it so that what happened will lead to better things, it will be a step in the right direction.
I hope, Mr. Chairman, that we will be able to capture the spirit of bipartisanship, set aside potential divisive issues on labor protections and be able to move with dispatch with our best legislation, not just something that will be rushed through.
I know with your leadership, with Mr. Clement, with Mr. Oberstar and Mr. Young that we can obtain that goal.
Thank you, Mr. Chairman.
Mr. QUINN. Thank you, Earl. Thanks very much.
Mr. Simmons, any opening remarks?
Mr. SIMMONS. Yes, very briefly, Mr. Chairman.
I look forward to supporting this bill. I am not a cosponsor yet, but I hope to be. I have a couple of questions that I will place into the record as far as my concerns.
With regard to the requirements, I understand we are looking at bonds to finance projects that involve railroad passenger transportation corridors with an average cruising speed of 125 miles an hour.
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The Amtrak northeast corridor from Boston to New York reaches those speeds in certain areas in Massachusetts and Rhode Island, but only over a four-mile stretch in Connecticut, east of the Connecticut River.
So, I question whether that corridor actually meets this standard and whether this standard would eliminate funding for any additional upgrades for that portion of the northeast corridor. At that time would be an issue that I would put into the record.
Then, secondly, a fourth criteria is that the applicant must eliminate all existing railroad grade crossings. The crossings in Rhode Island and Massachusetts, I understand, have been eliminated on the northeast corridor. But there are six in Connecticut.
Amtrak made a discrete decision some years ago not to eliminate those six, but to provide at-grade crossings that have quad gates, a system that is used in Europe and elsewhere around the world. One of those quad gates has been deployed in West Mystic, which is the Town of Groton.
The other five would be deployed in my hometown of Stonington. It just turns out that all six of these grade crossings are within about ten miles of my house.
Again, I would have to raise the question: Does the existence of these crossings and the fact that they are going to be quad-gated eliminate this project from consideration or, in turn, does passage of this legislation require that those crossings be bridged?
I would question the expenditure for that, when you consider that the sharpest turns between Boston and New York are in Stonington, the sharpest turn, and the trains can't go that fast anyway.
These are a couple of concerns I have about this legislation as drafted. I hope that our panel will address them.
Thank you, Mr. Chairman.
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Mr. QUINN. Thank you, Mr. Simmons. For the record, both of your statements will be included today. Thanks very much.
Mr. Larsen?
Mr. LARSEN. Thank you, Mr. Chairman. I just want to make two quick comments. This type of legislation is even more important for my district because last night United Airlines announced that they were pulling out their four daily trips from Bellingham, Washington to the Seattle-Tacoma International Airport due to the downturn in the airline industry and, of course, due to the impacts of the attacks on September 11th.
So, the only alternative left besides driving from Bellingham south through one of the most congested areas in the country is rail passenger service.
The other point, though, I want to make about this bill, and this is just mainly to get it on record. I am not looking for an answer today because I think I need to address it to my own State's Attorney General. Our State Supreme Court has been very particular and very sticky about extending public credit for private use. I noted in the National Association of State Treasurers testimony there is some discussion about that.
The Washington State Supreme Court has consistently been very sticky about the issue of tax-exempt bonds. Certainly tax-exempt bonds are issued for any number of projects in Washington State at the municipal level, public utility district, port district and so on.
But when it is used directly for private gain as opposed to building a pier, if you will, to generate revenue for a port, there is a fine line that our Supreme Court has drawn.
So, I am just going to take some time to have our own State's Attorney General's Office look into this issue to see how it impacts Washington State. From my understanding, there are other States that might have this problem.
But for Washington State it has just been consistently an issue that the Supreme Court has just been very firm on. So, before I make any sort on this particular piece of legislation, I need to look at the tax-exempt bond issue and how it impacts Washington State to be a full participant in the legislation.
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Mr. QUINN. Thank you, Rick. Thanks for your input.
Mrs. Capito?
Mrs. CAPITO. Thank you, Mr. Chairman. I would like to submit a written statement.
I would like to say passenger rail service is very important to the Second Congressional District of West Virginia, which includes the eastern panhandle.
I look forward to the testimony of our panelist.
Thank you.
Mr. QUINN. Thank you. Your statement is submitted for the record today.
I would like to yield now to Bob Clement who was a couple of minutes late getting here. Bob, do you have any opening remarks before we get to the panel?
Mr. CLEMENT. Well, thank you, Mr. Chairman. I just got back from Russia, Turkey and Italy concerning the great tragedy we had September 11th. I might share with my colleagues, as well as all of you that I had an opportunity to meet with the exiled king of Afghanistan, as well as the field commanders of the Northern Alliance, or we like to call the United Front because they were from all over. The tribal leaders in Afghanistan came out to meet with us as well.
It was a real tragedy on September the 11th, but I hope and pray for all of us that out of that tragedy that many opportunities will present themselves for our great country. One of them would be a national rail passenger service.
We are gathered here today to discuss the merits of the vehicle that will bring us to a national high-speed passenger rail network. Certainly everyone agrees that it will take a lot of money. $71 billion seems like a reasonable figure.
I'm sure that if Mr. Oberstar thought it feasible, he would have suggested something similar.
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Mr. Chairman, I would ask that my formal statement be made a part of the record.
Mr. QUINN. Without objection, your statement will be made a part of the record.
I would like to introduce our first panel. Ed Hamberger, President of the Association of American Railroads; Frank Turner, President, American Short line and Regional Railroads; Mark Filipovic, Chair of the Rail Labor Division, Transportation and Trades Department, AFL-CIO; Tim James, Legislative Director, International Union of Operating Engineers, on behalf of the Building and Construction Trades Department, AFL-CIO; Dennis F. Sullivan, Chairman, Railway Progress Institute's Committee on Passenger Rail and John Kennedy, President and CEO of Railworks, on behalf of the National Railroad Construction and Maintenance Association.
Mr. Hamberger, why don't you begin?
TESTIMONY OF EDWARD R. HAMBERGER, PRESIDENT AND CEO, ASSOCIATION OF AMERICAN RAILROADS; FRANK TURNER, PRESIDENT, AMERICAN SHORTLINE AND REGIONAL RAILROAD ASSOCIATION; MARK FILIPOVIC, CHAIR, RAIL LABOR DIVISION, TRANSPORTATION TRADES DEPARTMENT, AFL-CIO; TIM JAMES, LEGISLATIVE DIRECTOR, INTERNATIONAL UNION OF OPERATING ENGINEERS, ON BEHALF OF THE BUILDING AND CONSTRUCTION TRADES DEPARTMENT, AFL-CIO; DENNIS F. SULLIVAN, VICE PRESIDENT, MARKETING, PLASSER AMERICAN CORPORATION, AND CHAIRMAN, RAILWAY PROGRESS INSTITUTE'S COMMITTEE ON PASSENGER TRANSPORTATION; AND JOHN KENNEDY, PRESIDENT AND CEO, RAIL WORKS, ON BEHALF OF THE NATIONAL RAILROAD CONSTRUCTION AND MAINTENANCE ASSOCIATION.
Mr. HAMBERGER. On behalf of our members, thank you for the opportunity to meet with you today to discuss the Association of American Railroads' view on H.R.2950, the Rail Infrastructure Development and Expansion Act for the 21st Century, RIDE-21.
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AAR member railroads account for the vast majority of rail mileage, employees, and revenue in Canada, Mexico and the United States.
Before providing the committee with AAR's specific views on H.R.2950, it is important to review the relationship between America's freight and intercity passenger railroads.
Although there are numerous commuter rail operators in the United States, Amtrak is the sole provider of intercity passenger rail transportation. Formally known as the National Railroad Passenger Corporation, Amtrak was created by the Rail Passenger Service Act of 1970. Prior to Amtrak's creation, passenger service was provided by the nation's freight railroads.
In return for government permission to exit the passenger business, freight railroads donated intercity rail passenger equipment to Amtrak and helped capitalize Amtrak with significant cash payments. The assistance freight railroads provided Amtrak to help it get started totaled some $200 million, equal to some $740 million in today's dollars.
With the prospect of relief from the hundreds of millions of dollars in annual losses associated with passenger operations, freight railroads agreed to awarding Amtrak guaranteed priority access to the privately owned U.S. rail network, with Amtrak's access fee limited to the incremental costs such as track maintenance, administration and emergency services that freight railroads incur for passenger rail service.
These non-compensatory and preferential access statutory provisions continue to this day. Today, Amtrak owns and operates approximately 730 miles of track, primarily along the Northeast Corridor from Boston to Washington, D.C., and has operating rights over approximately 22,000 miles of track owned by the freight railroads throughout the rest of the country.
Expanded use of passenger railroads in the United States would alleviate highway and airport congestion, decrease dependence on foreign oil, reduce pollution, and reduce injuries and fatalities associated with automobile and truck transportation.
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Freight railroads recognize these public benefits, but urge balance in expanding intercity passenger service. Many of these same benefits inure to the public through the use of railroads to move America's freight.
Thus we emphasize that passenger service must not degrade freight railroads' ability to serve their freight customers.
The AAR is pleased that many of the provisions of H.R.2950 are generally consistent with the aforementioned principles. H.R.2950's high-speed rail tax-exempt bond provisions quite properly recognize that high-speed passenger trains should travel on the railroad equivalent of the Interstate Highway System. Specifically, H.R.2950 recognizes the necessity of dedicated, separate corridors for high-speed passenger train operations and mandates the closure of elimination of grade crossings on those corridors.
The AAR also supports the provision of H.R.2950 that requires sponsors of high-speed rail projects that utilize existing freight railroad corridors to negotiate an arms-length written agreement with the owning freight railroad before bonds to finance the project can be issued.
The written agreement must cover terms of use of the freight corridor, including compensation for such use, as well as assurances regarding the adequacy of infrastructure capacity to accommodate both existing and future freight and passenger operations.
H.R.2950's RRIF program expansion greatly increases the amount of low interest loans and loan guarantees available to the railroad industry from $3.5 billion to $35 billion. This major expansion will help both short line and Class I railroads to continue to provide safe and efficient transportation service that enhances our nation's economic health and global competitiveness.
The AAR strongly supports increased financial assistance for the short line railroad industry and appreciates the efforts of this committee to address those needs by its action in reporting H.R.1020, the Railroad Track Modernization Act of 2001 to the full House.
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AAR strongly appreciates efforts in H.R.2950 to countermand the existing regulations pertaining to RRIF program eligibility, particularly the lender of last resort provisions and the excessive collateral requirements.
These regulatory changes will make the RRIF program substantially more attractive to railroads of all sizes and will lower the cost of capital to the entire industry, which as you know is far more capital intensive than virtually every other U.S. industry.
It must be acknowledged that the expansion of high-speed passenger rail service throughout the United States presents serious challenges. High-speed passenger rail operations require the construction of separate, dedicated tracks and sealed corridors. To seal a corridor, grade crossings must be eliminated either through closure or through the construction of highway underpasses or overpasses. These are exceedingly expensive undertakings and will require firm, continued commitments by the appropriate authorities if high-speed rail projects are to succeed.
In addition, freight railroads have some concerns regarding certain aspects of H.R.2950. First, there is a potential adverse impact on the Railroad Retirement System of new high-speed passenger operators who may not be covered by the Railroad Retirement Act.
Current actuarial assumptions of the Railroad Retirement Board assume steady passenger rail employment. Second, the issue of liability is of great concern to the freight rail industry.
The AAR recognizes that the contract provisions of H.R.2950 give freight railroads the ability to reach agreement with potential operators on issues such as insurance and indemnification. However, the AAR would prefer a clarification of Section 2 of H.R.2950 to include a specific reference to the need for contractual insurance and indemnification provisions. Although this would not address the concern about liability arising from the rail accident on a high-speed corridor not involving freight railroad rights-of-way, it would provide some protection.
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H.R.2950 provides a new opportunity for the development of high-speed passenger rail operations in this country. The AAR and its members stand ready to work with you as you advance this initiative.
Mr. QUINN. Thank you, Mr. Hamberger.
If I could interrupt at this point, I would like to recognize Mr. Baldacci for his opening statement.
Mr. BALDACCI. Mr. Chairman, I have a statement I would like to submit for the record.
Mr. QUINN. Without objection, it will be included in the record.
Mr. Turner?
Mr. TURNER. Mr. Chairman, members of the committee, I appreciate the opportunity to appear here today on behalf of the American Short Line and Regional Railroad Association. ASLRRA represents approximately 500 Class Internet and III railroads that together operate approximately 50,000 miles of track or just under one-third of America's railroad route mileage.
I want to make three points here today on behalf of our association's members.
First, we enthusiastically endorse H.R.2950. It is good for the country's railroad passenger system and railroad freight system. It puts much needed capital money into preserving and enhancing a transportation infrastructure that was important prior to September 11th, and is even more important today.
The fundamental problem facing railroads today is an inability to attract sufficient capital to enable it to effectively compete with its taxpayer subsidized competition.
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For over fifty years the rail mode has been a minor player or excluded altogether from public funding decisions. These decisions helped make the highways and aviation the most efficient way to move people and freight. H.R.2950 begins to level that playing field.
At a time when the country's transportation system is suffering from a lack of money and a lack of confidence, and the movement of goods and people are severely curtailed, a new emphasis on the rail mode is an appropriate and advantageous course of action.
Second, we strongly encourage you to include H.R.1020 in your list of priority legislation that goes to the Floor this session. This bill was unanimously passed out of this committee earlier this year and has 110 co-sponsors in the House.
The Chairman and Ranking Member of the Senate's Surface Transportation Committee have introduce an identical version of the bill in the Senate. This legislation provides much needed grant money to supplement the Federal loan programs that have been enacted to help prepare our rural railroads for the new heavier rail cars that are becoming the standard in the railroad industry. If H.R.2950 is to be the vehicle for addressing infrastructure funding in this Congress, we hope you will make H.R.1020 one of its provisions.
Third, we support the bill's changes to the Railroad Rehabilitation and Improvement Financing Program. We encourage the committee to go further and move the responsibility for processing these loans to an agency of the federal government that is willing to process them.
My primary interests are obviously those of the short line and regional railroads and I would therefore like to concentrate on the portions of the bill that relate to those railroads.
The short line railroad industry is what keeps thousands of rural shippers connected to the national railroad main line network. It does so over track that was largely abandoned by the class I industry and that never generated enough traffic to meet the heavy capital needs associated with maintaining the infrastructure.
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With a lower cost structure and more flexible service, short line companies that bought the track have been able to keep them going. However, the revenue is still not high enough to make up for past years of neglect. Today, small recommendation on the just under one-third of the nation's total railroad miles, but these miles generate only nine percent of the railroad industry's gross revenues.
Today, two factors have combined to bring this situation to a head. First, the advent of the heavier 286,000-pound cars that are becoming the standard of the Class I industry require substantially higher investment in the track.
Second, as the Class I industry puts a greater premium on speed and precisely scheduled operations, the short line railroads must meet these higher standards or be cut off from the national system.
Investigator a year ago, ASLRRA commissioned an assessment by the highly respected rail analytical firm, Zeta-Tech. That study found that our 550 short line and regional railroads need $6.86 billion to upgrade their physical plant to allow for safe and effective long term operation under the new generation of heavy axle load freight cars. I will submit a summary of that study for your review.
H.R. 1020 does not create a long-term program to fix this problem, but instead creates a one-time fix for this problem. In combination with the RRIF program, H.R.1020 provides that infusion of capital that can bring this infrastructure up to a level that reduces operating costs and helps the railroad win back the traffic it needs to invest in the future.
Keeping thousands of rural shippers connected to the national railroad system is important under any circumstances. Today it is even more important. The events of September 11th have caused major disruptions in all our transportation systems. As we sit here today, truckers are lined up for miles waiting for additional inspections and the federal government is surveying all of America's railroads to determine the location of critical infrastructure assets such as bridges and tunnels and how and where we move hazardous materials. Today all of America's transportation infrastructure is under duress and we should be concerned that all of America's transportation infrastructure is up to the task.
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In the short line industry, for instance, 20 percent of all of our customers ship hazardous materials over our lines. The number may well go up as hazardous material shippers in more populous areas face increasing congestion as they try to move their product.
As I indicated, the money provided in H.R.1020 supplements the RRIF loan program created by this committee in TEA-21. Increasing the RRIF authorization to $35 billion will open capital to the freight industry across the board. We very much appreciate the set-aside of $7 billion for Class Internet and III short line and regional railroads.
We also appreciate the provisions in H.R.2950 that attempt to end the bureaucratic snarl that has stopped this loan program in its tracks. The bill ends the so-called ''lender of last resort'' requirement, limits fees that may be required of applicants, addresses the collateral issue and requires that applications be approved or disapproved within 180 days after receiving a complete application.
Very importantly, the bill requires that the criteria used by the Secretary to determine whether to approve a loan be made public. We strongly endorse all of these improvements.
We also want to thank the committee for its understanding that the majority of our short line railroads are very small businesses that should be protected from some of the federal government's more burdensome procedures.
Unfortunately, the problems with the RRIF program seem to involve more than just its governing regulations. The program has been open for business since September 6, 2000. Almost two dozen loan applications have been submitted, and most of those were submitted over eight months ago.
In all that time, the Federal Railroad Administration has only fully processed one loan application. As Mr. Bachus mentioned, it has yet to be funded. I know the leaders of this committee have aggressively pursued this issue with officials of the last two administrations.
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The short line industry frankly doesn't care who processes these loans, and if those currently responsible for doing so cannot do so, we respectively request that the authority be given to somewhat who can.
It will come as no surprise to the committee that we believe the next great commitment to public investment in the 21st Century should embrace the rail mode, just as past commitments have been made to the highways and air travel September 6, 2000. Almost two dozen loan applications have been submitted. Most of these were submitted over eight months ago. In all that time, the Federal Railroad Administration has only fully processed one loan application.
As Mr. Bachus mentioned, it has yet to be funded. I know the leaders of this committee have aggressively pursued this issue with officials of the last two administrations. The short line industry frankly doesn't care who processes these loans.
If those currently responsible for doing so cannot do so, we respectfully request that that authority be given to someone who can.
Thank you.
Mr. QUINN. Thank you, Mr. Turner.
Mr. Mark Filipovic from the AFL-CIO Transportation Trades Department.
Mr. FILIPOVIC. Thank you, Mr. Chairman.
As you stated, I am Mark Filipovic, chairman of the Rail Division of the Transportation Trades Department. I am also the railroad coordinator for the International Association of Machinists and Aerospace Workers.
Rail labor appreciates this opportunity to testify before this is committee. The Rail Labor Division consists of 12 rail unions which collectively represent close to one million active and retired rail workers.
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Gentlemen, you have my written testimony and I will attempt to limit my time just for a brief overview of H.R.2950. Rail labor, like everyone else is still in disbelief of the tragic events of September 11th. We mourn for our brothers and sisters who lost their lives and we are proud of the working men and women who continue to help survivors, victims and their families and the rescue and recovery workers following this terrorist attack.
As we now move forward as a nation to respond forcefully to this horrific terrorist attack, we believe that now is the time to address the nation's economic needs in the aftermath of September 11. As part of that effort, we must dedicate ourselves to rehabilitating and expanding the nation's transportation system to prevent further dislocation to our economy and security.
Amtrak has always been an integral part of our transportation system. Never has it been so clear as it is now. However, as the date indicates, 911, which is an emergency, Amtrak is also at its crossroads.
We ask much of our passenger rail system. It must be all things to all people, yet we do not provide it with necessary resources just to survive. For too long, the debate in this town about Amtrak has been about the passenger carrier's survival.
The fact is that Amtrak has been forced to struggle with inadequate and unreliable resources, forcing it as well as to direct its attention to survival, rather than the improvements and expansion.
Improvements in Amtrak, indeed the continued viability of Amtrak in of itself would not be but for the consistent dedication of Amtrak's over 20,000 employees. Year after year Amtrak employees have taken the brunt of Amtrak's financial hardship. For most of the two decades, Amtrak workers have paid the price for Amtrak's financial woes.
As a result of these sacrifices, Amtrak workers have made, in the form of real wages and benefits, many, many concessions. Amtrak has continued to capture a significant percentage of revenues from the fare box, yet many Amtrak workers remain the lowest paid in the industry.
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If Amtrak is to be prosperous as a viable transportation option, it is critical that its workers be treated fairly, not only by management, but also by the policy makers and others involved with the passenger rail system.
Workers and their unions must be seen as partners in the goal of providing safe, dependable national passenger rail service.
We are pleased to be here today as we continue that debate. That is why we commend the leaders and members of this committee for your commitment to change the tone of the debate. We appreciate your leadership in bringing to the forefront the need to have high-speed passenger rail system in this country and the need to provide the crucial resources to turn this vision into a reality.
When Chairman Young introduced this bill, he stated, ''It is time for the United States to make high-speed passenger rail a priority.''
Mr. Chairman, we could not agree with him more. Rail labor has long supported increased investments to drive a truly, truly high-speed rail system. We were disappointed that Congress adjourned last year without passing a high-speed rail bill, despite overwhelming support in both houses.
We have voiced our support in Congress for Senate bill 250 and Amtrak's bonding legislation. We have spent countless hours with staff trying to help craft high-speed rail legislation that will provide necessary resources while protecting the workforce that operates, maintains and builds our passenger rail system.
Rail labor is still analyzing H.R.2950 and its impact on rail workers. However, Mr. Chairman, we are pleased that you agree that a substantial infusion of capital is essential to create a truly integrated high-speed rail system.
We applaud you and the full committee for introducing the bill that highlights the need for $71 billion for rail infrastructure and development.
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With your bill you have truly raised the stakes and brought home the fact that we really want a national high-speed rail system. We are going to have to put our money where our mouths are.
However, we do have some initial concerns about H.R.2950. Amtrak is unable to compete with other low-cost entities that may seek to provide high-speed rail service. Amtrak, under law, must provide its workers with basic protections that naturally will make the costs higher and its ability to underbid a low-cost, non-union shop unlikely.
We further believe that any work performed as a result of financing under this bill, construction or operation, must comply with basic labor laws such as prevailing wage requirements and the current railroad worker statutes including the Railway Labor Act and the Railroad Retirement.
Mr. Chairman, again, we want to thank you and the Ranking Member, Mr. Clement, and Mr. Oberstar and the leadership in bringing a proper focus to this important role of passenger rail service to our country.
We must bring together the best ideas in separate proposals including H.R.2950, which brings a long-term view to the issues of rail infrastructure investment and long-term financing to our national railroad passenger rail system.
One other point: The Transportation Trades Department will be providing the committee with a more detailed proposal for your consideration. We look forward to working with you and accomplish this long-overdue vision.
Thank you very much.
Mr. QUINN. Thank you, Mark. We look forward to the additional testimony and summary. We said when we began today that it was in their interest to get the two panels together here, and we will have some more requests for information from the subcommittee members.
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Anything else that you have to add is welcome.
Tim James is the Legislative Director for the Operating Engineers and is representing the Building and Construction Trades Department over at AFL-CIO here this afternoon.
Tim, we are glad to have you. Please proceed.
Mr. JAMES. Thank you, Mr. Chairman. It is really a privilege to be here. As you indicated, I am the Legislative Director for one of the larger building trade unions, the Operating Engineers International Union.
I am here on behalf of the 15 construction trades that make up the AFL-CIO's Building and Construction Trades Department.
For those of us in the building trade unions and our members, in very many respects this is the most important committee in the United States House of Representatives for our members. It is this committee, after all, that passes the infrastructure legislation and puts our people to work.
In that spirit, the building trades are here to offer our support, our public support, for H.R.2950, the Rail Infrastructure Development and Expansion Act of the 21st Century.
As many of you know, we have friends on both sides of the aisle in this committee in particular. We in the building trades represent the men and women who build this country's infrastructure, from highways and airports to schools and water treatment facilities, our members have built the physical plant that keeps America's economy functioning in an efficient way.
We have been on the forefront of lobbying and supporting bills such as TEA-21, which have enhanced America's mass transit and highway infrastructure needs.
The building trades in particular are proud to have joined with Chairman Young and Ranking Member Oberstar, as well as the rest of this committee, in advocating the successful passage of many important infrastructure bills that have benefitted this country. Along these lines, we believe that H.R.2950 will not only enhance America's rail system, but it will provide good jobs, both in the short term and in the long term.
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As our country faces an uncertain economic future, the time to seriously upgrade our rail infrastructure and offer Americans more travel options is clearly the present.
In addition, we in the building trades applaud Chairman Young for his leadership on this issue. Our members also support other rail improvement initiatives that have already been discussed, in particular, Chairman Quinn and Ranking Member Clement's H.R.1020, the Short Line Rail Bill.
Equally important, Ranking Member Oberstar's High-speed Rail Investment Act of 2001, H.R.2329 is also an important initiative and we look forward to working with the committee in supporting these various rail infrastructure proposals.
While other panelists undoubtedly will spend considerable time on specific issues unique to the freight rail and high-speed rail industries, our primary concern as building trades men and women is the recognition by the committee that a strong, Federally-sponsored and financed program will begin to address the fundamental infrastructure needs of America's rail industry.
Our expertise is not the rail industry, but rather in building of projects across the range of infrastructure markets. As the building trade unions, we stand ready to do our part, not only in the legislative arena as this process moves forward on these various bills, but we also want to work to address the potentially large construction market needs out there.
Thank you, Mr. Chairman.
Mr. QUINN. Thank you, Mr. James.
Mr. Sullivan. Thanks for your testimony here today. We would like you to summarize in about five minutes or so. Thank you, sir.
Mr. SULLIVAN. Good afternoon. Thank you, Chairman Quinn. My name is Denny Sullivan. I am a Vice President with Plasser American Corporation, which is a supplier of maintenance of way equipment for the rail industry.
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But I am here today in my role as chairman of the RPI Committee on Passenger Transportation. I have submitted written testimony that ask be included in the record.
RPI is an international trade association. Our members supply goods and services to freight and passenger railroads and rail rapid transit systems.
I am pleased to be here today to discuss RPI's views on the RRIF and high-speed rail proposals contained din H.R.2950. I want to commend Chairman Young and you, Chairman Quinn, for introducing this legislation.
High-speed passenger rail can help the country cope with congestion which has been building for some time and continues to build and the shock on our transportation systems of the tragic events of September 11th.
$71 billion for railroad infrastructure and high-speed passenger rail is sorely needed. It will provide for, among other things, emergent technology to increase capacity for freight and passenger operations and to improve railroad safety.
H.R.2950 or RIDE-21 increases the RRIF program from $3.5 billion to $35 billion, which includes $7 billion available for short lines and is also available for freight, Class I regional and short lines and passenger rail projects.
RPI was pleased when Congress enacted TEA-21 which created the RRIF Program. We urge the FRA to promptly issue rules implementing the program, allow railroads to access the funds for the purchase and installation of technology to add capacity and to improve safety.
Enactment of RIDE-21 will continue this objective. It will provide funds for infrastructure upgrades for track, yard, shops, road beds and bridges providing for the movement of 286,000 pound and 350,000 pound freight cars.
It will provide funds to small railroads and commuter authorities for infrastructure upgrades, new technology installation, funds which might never become available from internally-generated funds.
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RPI strongly supports the RRIF portion of RIDE-21 which, among other things, cleared roadblocks that virtually prohibited FRA from issuing loans.
We also support the enactment of H.R.1020, the Railroad Track Modernization Act of 2001, which authorizes $350 million per year for three years for the Class II and Class III railroad infrastructure improvements.
Both of these bills, we believe, are needed to improve and preserve our short line railroad system.
On the high-speed rail issues, RPI is a strong supporter of high-speed rail. We are encouraged by the $36 billion funding levels in RIDE-21. This sends a strong message that the committee wants to bring high-speed passenger rail to this country.
We urge the committee to work with the States to makes sure that State-compact issued bonds will be a viable funding mechanism. RPI believes that a proper balance of Federal and State funding must be found in order to enable and encourage States to issue bonds under this legislation.
On the 125-mile per hour cruising speed and the elimination of all grade crossings, this proposal, of course, is laudable. But these types of systems exist only in Japan, Europe, and on the northeast corridor.
Proposals are being floated for such systems in California and Florida. But other high-speed rail proposals such as the Midwest Regional Rail Initiative contemplate an incremental approach and should not be denied access to bonds.
We believe that funds should be available to increase speeds to 90 miles per hour and above and for advance grade crossing protection systems where grade crossing elimination is not possible.
The Midwest Regional Rail Initiative is ready to move on a 3,000 proposal, 110-mile an hour passenger train speeds. Signal and track improvements are already being made on some lines, Chicago-Detroit, Chicago-St. Louis, for example.
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Procurement of new passenger equipment awaits funding. The MWRRI access to these bonds is essential to the success of the project. The economic stimulus a high-speed rail bill would give the railroad supply industry cannot be over-emphasized.
We are a $20 to $25 billion per year industry. We employ 150,000 people in a good year. Last year was a very painful one for us. Passenger railroad initiative remained on the drawing board. Freight railroads have reduced capital spending due to the economic conditions that exist in the country. We have had lay-offs in the supply industry and several companies are on the brink of bankruptcy.
Cash infusion provided by this legislation will spur economic recovery and allow us to increase employment levels.
I think it would be helpful to the committee to know a few of the time frames the industry can provide to provide these products for high-speed rail. Our maintenance way machinery is plus or minus a year. Signals, two to three years to design, build, install and test equipment. Train control technology, many lines are already equipped for this technology and it can be added to other lines.
High-speed trains, two to three years design to revenue service. Grade crossing safety, the bill envisions the right-of-way with no grade crossings. Again, this is highly desirable, but in the event this is not possible, new technology such as four quadrant gates, longer approaches and advanced start systems can be employed.
Finally, the Buy America Act has helped save the domestic car industry and component suppliers and we believe any legislation should be subject to Buy America provisions.
Thank you, Mr. Chairman. We would be glad to answer any questions you may have.
Mr. QUINN. Thank you, Mr. Sullivan. We are going to get to questions as soon as our friend, Mr. Kennedy, has a chance for his five minutes or so.
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Mr. Kennedy?
Mr. KENNEDY. Thank you, Mr. Chairman, and members of the committee. I am John Kennedy, President and Chief Executive Officer of Railworks Corporation, one of the largest railroad construction and maintenance contracting organizations in the nation.
I am here today as the representative of the National Railroad Construction and Maintenance Association, or NRC. Together, we are comprised of 200 companies who serve the operating railroads and their shippers throughout the United States.
My formal testimony looks at H.R.1020, the Rail Modernization Act that has been reported by this committee to the full House of Representatives. We are thankful for that.
It then compares H.R.2329, Amtrak's $12 billion bond program, and H.R.2950, the $71 billion Young-Quinn bond and loan program. I can summarize by making three points.
First H.R.1020, the Railroad Modernization Act, together with an accompanying appropriation, should be enacted this year. Our contractors work closely with these small companies. The rapid deterioration of track and bridges is very real. We know that a quiet emergency exists in the light density rail sector.
We strongly urge this committee to do everything in its power to see that the Rail Modernization Act is included in any economic stimulus package, transportation appropriation or omnibus bill adopted at the end of this Congress.
Second, the NRC endorses H.R.2950, the Rail Infrastructure Development and Expansion Act for the 21st Century, more commonly known as RIDE-21. We believe it is a bold approach with none of the problems of the alternative Amtrak bond approach.
Third, we respectfully oppose H.R.2329, the Amtrak Bond Bill, as it is currently written. Our concerns are deep. This legislation hands Amtrak control of planning, funding and management of a major national high-speed rail program.
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There is no requirement that construction and rehabilitation projects funded from the bonds be subjected to competitive bidding. Amtrak already competes with our private members for third-party contracts. Handing them $12 billion and control over projects will give the company the financial capacity to acquire large amounts of maintenance of way and rail construction equipment and transform itself into a contracting juggernaut.
One of the cruel ironies of this proposal is that our NRC companies, many of them small and medium-sized businesses, would see their own hard-earned tax dollars being used against them to fund a government-subsidized competitor.
This single flaw could threaten the very survival of our member companies. The on-track construction and rehabilitation projects, some members of the NRC are interested in providing contract rail passenger operations in the emerging corridors.
Under H.R.2329, provisions effectively kill private sector competitors. It is our position the States should be given the option to competitively bid rail passenger operations on corridors where they have financial participation.
In testimony before the committee on July 25th, Congressman Sam Graves outlined a series of amendments to H.R.2329. The Graves amendments cure the problems with H.R.2329. We will support the bill if the Graves amendments are incorporated. The Graves amendments do four things:
One, provide the States with the option of issuing the high-speed rail bonds as an alternative to Amtrak.
Two, provide the States with the option to manage the projects.
Three, assure open competition for construction projects just as is done for Federally-funded highways or transit construction funded by the Highway Trust Fund.
Four, provide the States with the option to permit non-Amtrak operators to compete for new or enhanced rail operations for projects funded by the States and bond revenues.
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In the final analysis, we believe RIDE-21 is the best approach to high-speed rail. RIDE-21 contains none of the problems of the Amtrak bond bill. Under RIDE-21 the States will be responsible for issuing the bonds and debt and managing the projects.
Dollar for dollar, the cost to the Treasury is much lower. In RIDE-21 competitive contracting for construction projects is not an issue. The normal rules of bid competition would apply. The States would have the option of bidding passes or operations.
RIDE-21, together with H.R.1020, the Rail Modernization Act, is the best answer for the future of railroading in America.
I thank the committee for the time.
Mr. QUINN. Thank you, Mr. Kennedy.
Let me on behalf of the full subcommittee thank all of you for your testimony here this afternoon. It is an interesting group to have suppliers and contractors, union members as well as the short line and AAR at the table together talking about this bill.
This is the way the subcommittee and the full committee intend to proceed on all of these matters.
Bob Clement and I have decided to yield our time for questions, but a couple of quick observations before I go to Mr. Bachus.
One is that from all of you here it sounds like what maybe we need is an omnibus railroad bill here where we take the Railroad Retirement Bill as a cornerstone, we add H.R.1020. With all due respect, Mr. Kennedy, since Mr. Oberstar is here, we will add H.R.2329 and today's bill. Maybe that is the route we ought to take as we get toward the end here, seriously putting together a lot of these things.
Mr. BLUMENAUER. Second.
Mr. QUINN. All those in favor?
Mr. BLUMENAUER. Aye.
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Mr. QUINN. Wait until we get Don Young back here. I can't do this. I don't think I am allowed to do that without him.
Seriously though, from all of you, we appreciate your input, not only on the bill here today, but all of the railroad issues you have discussed with us over this past year that I have been the Chairman on the subcommittee. There must be a way we can put some of these things together.
Also, I want to inform this panel and others that are here, as well as the subcommittee, on Thursday this week, Bob Clement, my partner and I, will be briefed from various groups on the security issue as it relates to the rail business, on Thursday morning.
We will be reporting back to the subcommittee members as well as the full committee members on the findings that we receive Thursday, later this week.
But thank you all for your testimony.
With that, I would like to yield to Mr. Bachus for opening questions for this panel.
Spencer, do you have anything?
Mr. BACHUS. Thank you.
Mr. Kennedy, I think in your prepared remarks you talked about a problem with the 125-mile per hour high-speed rail corridors, saying 110-miles was more reasonable? Was that you, Mr. Sullivan?
Mr. SULLIVAN. Yes, I mentioned that.
Mr. BACHUS. That is only in the ultimate corridor design, is it not?
Mr. SULLIVAN. My suggestion was that this legislation ought to reduce that to 90-mile an hour and above for the incremental approach which is being used in many of these corridors throughout the United States, namely the Midwest Regional Rail Initiative.
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Mr. BACHUS. I guess what I am saying, ultimately, do you agree that the corridor design ought to get up to 125-miles per hour? Maybe it shouldn't. I mean I am just asking.
Mr. SULLIVAN. Yes. I agree that ought to be the ultimate goal, to continue to increase the speed and more importantly to reduce the scheduled running times between cities. But the investment of money takes an incremental approach, particularly on existing railroads.
That speed has to be brought up incrementally to maybe 90. For instance, to get above 79 miles an hour you need to have a secondary signal system.
Mr. BACHUS. Yes. Was that the Midwest Regional Rail Initiative that you mentioned that used that approach?
Mr. SULLIVAN. Yes, sir. I believe so.
Mr. BACHUS. Mr. Turner, you know it is remarkable to me, and several members mentioned it, that it has taken a long time to get the RRIF loan program off the launching pad. I think members of your association are frustrated, Members of Congress are frustrated.
At least out of one Member's frustration, I have looked at this. I know they keep saying this is a dispute between FRA and DOT concerning how the loans are processed. That is one thing we are getting. Are you hearing that, too?
Mr. TURNER. Yes, we hear the same thing, Mr. Bachus.
Mr. BACHUS. I have great respect for the people over at FRA but if they can't resolve this dispute, I am considering at least, and I would talk to the other members, some legislation. One of the possibilities I have been exploring is moving responsibility of the program to the Department of Agriculture.
The reason is they have a long history of processing this kind of loan under their Business and Industry Loan Program. This also makes some sense to me, although Mr. Nadler, I mean there are these projects that will be in New York City, but a great many of them are in rural areas.
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Just because of their expertise in dealing with this kind of thing, how would the Short Line Association and maybe the American Association of Railroads, do you all have any initiative reaction to moving the RRIF Program to the Agriculture Department?
Mr. TURNER. Well, Mr. Bachus, let me say first that as far as the FRA, we have many good friends with the FRA just like you do. In most cases they work very closely with us. In fact, they helped fund some of the studies that we did on heavy axle in Zeta-Tech that I mentioned.
But we are completely frustrated with the RRIF loan. As far as saying that we would like to go to the Department of Agriculture, we really don't have a preference, but we just want it moved. We want it to happen.
As I mentioned in my testimony, we have almost two dozen applications, only one of which has been approved. That number is pretty low when you consider the number of short lines we have. But it is sort of a wait and see situation.
Many of our members are saying, why do I want to devote the resources to filing an application when the record speaks for itself. In fact, we bought a very well qualified person on staff, Steve Sullivan to help us. He has a great background both in finance and in the railroad industry to help us move these things along. But even with that, we simply can't get it done.
If it takes moving to the Department of Agriculture to get these going, fine. If it stays in FRA and FRA either gets the resources or whatever ends the intramural fire-fight they have over there or whatever, we just want to simply see these applications moved. We really like the 180-day limit in the bill that it puts on RRIF applications.
Mr. QUINN. Thank you, Mr. Bachus.
Mr. Oberstar, questions of the panel?
Mr. OBERSTAR. Thank you, Mr. Chairman. I appreciate all of the witnesses' contributions here today. I read over your testimonies prior to the hearing and I am very impressed with the effort each has made.
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I just want to observe that with the declining U.S. economy, the consensus among economists is that we are in a recession by whatever yardstick you measure it. These will be long-term consequences of the tragedy of September 11th, but we need to get this economy back on track. We need to provide real jobs, putting American workers to work, not looking at tax loopholes, not looking at tax breaks, not hiring tax accountants, but putting American workers to work.
A railroad bill of the kind that we are talking about here, the Chairman's and mine together, we can have $100 billion out there in the workplace rehabilitating the railroads, generating passenger rail services across this country, putting America back to work in real jobs, the jobs that earn you an income to buy the cars and the houses and the major consumer items that keep our economy going.
In that spirit, Mr. Turner has said that it is going to take major work on the rail, on ties, on railbeds to rehabilitate the short lines. Those are going to be big jobs.
Mr. James and Mr. Filipovic, my countryman, finally a name I can pronounce here in Washington, the short lines have 56 percent of the non-Class I track and a greater share of the rehab work that will necessarily be done.
My understanding is that it is not going to be covered by Davis-Bacon. Let's be very candid about this. I want to get your combined reaction to these Class III projects.
Mr. JAMES. Mr. Oberstar, on behalf of the building trades, as you know as one of our long-time champions on that issue, and we are very grateful for all the leadership you have shown us over the years, questions have been raised in that respect.
I believe in my prepared testimony, we indicated that in the building trades our expertise is in construction markets and infrastructure in various modalities. We are not experts in the rail industry or other particular industries.
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To that end, I believe Chairman Young in his opening remarks addressed that issue. He indicated in a bipartisan spirit that if in fact there are questions concerning ambiguities that have risen as to the nature and scope of the construction activity, he is prepared to address that.
As you know, in a meeting with your staff last week, we indicated our desire to work closely with you as the Ranking Member and with Chairman Young in addressing that issue.
Mr. OBERSTAR. You realize that there is a problem and you mean to address it, if I can translate your response.
Mr. JAMES. It is early in the process, Mr. Oberstar, as we all know. We in the building trades thoroughly and aggressively pursue protection of our membership interests on Federal construction projects, including Davis-Bacon prevailing wages. We intend to take that same approach here.
Again, I would just reiterate, we intend to work with you as the Ranking Member, as well as Chairman Young, as well as the rest of the members of this committee, in addressing that as the process moves forward.
Mr. OBERSTAR. I appreciate that. I appreciate Chairman Young's strong support for the prevailing wage, Davis-Bacon labor provisions. It will remain a constant focus of mine.
Since my time is running out, I want to say to Mr. Kennedy that I am not sure what bill you have analyzed, but I think you mischaracterized the bill that Mr. Houghton and I have introduced as, to summarize your views on it, an Amtrak bill, an Amtrak bond bill.
This bill is not for the purpose of bailing out Amtrak. The specific provisions that we have written into the legislation allow others than Amtrak to build high-speed rail and to make sure that the final decisions are taken out of the hands of Amtrak, we leave that with the Secretary of Transportation.
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Are you aware of those provisions?
Mr. KENNEDY. Well, I do not do the research on the legislation, Mr. Chairman. The staff at the NRC did.
Mr. OBERSTAR. Okay. Well, I just suggest that you go back and we will be happy to visit with you one on one about this matter and review that. Thank you.
Thank you, Mr. Chairman.
Mr. FERGUSON [PRESIDING]. Thank you, Mr. Oberstar.
Mr. Coble.
Mr. COBLE. Thank you, Mr. Chairman. Mr. Chairman, many times witnesses come here and they have difficulty in confining their statements to the five-minute rule. I want to commend this panel. I think you all very consistently stayed within the five-minute rule. I know the chairman appreciates that.
Let me revisit Davis-Bacon. This will be for anybody on the panel. I am told that Davis-Bacon has no application on projects that are financed by bonds or tax credits. Does anyone know if that is a valid statement?
Mr. JAMES. I'll take a stab at that, sir. That depends on a particular piece of Federal infrastructure legislation.
Mr. COBLE. I wasn't sure about it. I guess my question is this: Is it your belief that this legislation will expand the Davis-Bacon or what effect will this legislation have upon the application of Davis-Bacon?
Mr. JAMES. We do not agree that it is an expansion of Davis-Bacon. Rather, we view it as a consistent application of the underlying Federal construction policy contained in that 70-year old Act that has been on the books and which various Congresses over the last 70 years have applied consistently to major Federal infrastructure programs.
Mr. COBLE. Thank you.
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Mr. Hamberger, on the issue of tort liability, you suggested more specific language on this subject in RIDE-21's provision that governs agreements with the owning freight railroad to use its right-of-way for high-speed passenger corridors.
Do freight railroads typically have liability provisions in their agreements to host commuter rail operations?
Mr. HAMBERGER. Yes, sir, they do.
Mr. COBLE. Thank you, sir.
Mr. Turner, for the record, I know you can readily tell us, but for the record, tell us how short line railroads can become partners in developing high-speed passenger rail.
Mr. TURNER. It would obviously depend on the locality. If we have the best route, the shortest rail mile route, perhaps between two points, then I think we could really be a partner or if we could find a way by utilizing short lines that we could bypass a congested rail area, then I think it would be appropriate for us to be partners in that, sir.
Mr. COBLE. Mr. James, if you will, just for my clarification, respond to me again about my initial statement when I said that I had been told that Davis-Bacon did not apply on projects involving bonds and tax credit. Give me your answer to that again.
Mr. JAMES. It is my understanding, Congressman, that the answer to that question depends on a particular piece of Federal infrastructure legislation. If it is the will of Congress to apply it, it is applied. There is nothing inherently preventing that from happening. It is simply a question of the will of Congress.
Mr. COBLE. That is how I understood it, but I wanted to be sure I understood it correctly.
Mr. JAMES. Yes, sir.
Mr. COBLE. Mr. Chairman, since I have commended the panel for their diligence, I don't want to violate the five-minute rule, so I will yield back.
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It is good to have you all with us, by the way.
Mr. FERGUSON. Mr. Coble gets a gold star.
Mr. Nadler.
Mr. NADLER. Thank you, Mr. Chairman.
Mr. Hamberger, H.R.2950 provides for $35 billion in RRIF loan guarantee authority and addresses some long-standing problems with that program. $7 billion is reserved for non-Class I freight railroads.
How much would you envision that Class I freight railroads might borrow from an expanded RRIF program.
As you answer that, let me ask you a second question so you can combine them. Would RIDE-21, if enacted, in your view, lead to substantial improvements on freight lines to be able to handle TOFC, 286,000 pound cars.
How could this bill, RIDE-21, be improved or what other measures should we consider to divert freight from trucks to rail?
Mr. HAMBERGER. Thank you. You were out of the room when I thanked you earlier for your eloquence on behalf of freight railroads. Thank you for your support.
I would associate myself with about 98 percent of your remarks in your opening statement. I think a couple of my members would disagree with one or two things you had in there.
Mr. NADLER. After the hearing I will ask you what the two percent is.
Mr. HAMBERGER. Let me just start with the specific question on RRIF. Our chief financial officers of the Class I railroads are looking at it right now. As you know, we invested about $6.6 billion last year, I believe it was, out of a $33 billion industry. That is 20 percent reinvested in capital. Of that approximately two-thirds is generated internally and one-third is borrowed.
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Therefore, just trying to do the math, $2.2 billion borrowed on the open capital markets, obviously, if that was at a lower rate, at that time would be a benefit to the industry.
I am not a financial analyst, so I am not quite sure how one does the net present value and all of that. But I know they are looking at it and there is substantial interest in the Chief Financial Officer offices to be able to take a look at this and see how it would work with our capital programs.
Would it enhance the operations? I think it would certainly lower the cost of capital. By lowering the cost of capital, that would encourage more investment. More investment equals better service, safer service and more consistent service. So, I think this kind of program, the RRIF program, would yield also better freight service as well as passenger service.
Overall, we are still looking at the issue of what role should the Federal government play in providing capital to the freight railroads.
Our current position at the AAR is that it is appropriate for a Class I to participate in a project with Federal dollars where the primary objective, the primary beneficiary of that project is a public benefit. There are some members who believe that it might be more appropriate to go a little bit more aggressively after Federal dollars. There are some who think that that is a pretty good policy where it is and of course, we are with our members.
So, we are still looking at that, but I think there are a number of issues that perhaps are not in this committee that our Tax Policy Committee is taking a look at. For example, and I don't mean this as an anti-truck statement, because inter-modal is our fastest growing service and we cooperate on a daily basis with trucking companies.
But their investments in capital in the form of excise taxes paid on diesel fuel is a deductible expense the month it is paid, the year it is paid.
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Our investment in our right-of-way is a capital expense depreciating over seven years. That has a major impact again on your cost of capital and on your balance sheet. So, that is one that we are taking a look at from the standpoint of does that make sense, and how that would fare over there in the Ways and Means Committee. As you ask what can be done to help, that would be one idea that we are taking a look at.
Mr. NADLER. Thank you. I think I will get my gold star, too, so I will yield back.
Mr. FERGUSON. Thank you.
The gentleman from Connecticut, Mr. Simmons.
Mr. SIMMONS. Thank you, Mr. Chairman. I will direct my questions to Mr. Hamberger, Sullivan and Kennedy because they all focus a little bit in their written testimony and spoken testimony on the issue of at grade crossings and on the issue of speeds.
I note that Mr. Hamberger said a high-speed passenger rail requires separate dedicated tracks and sealed corridors, in a perfect world, and I agree with you completely. That is the best way to go.
But in New England we have been around for a long time and things tend to accumulate over time. The first interstate railroad was from Providence, Rhode Island to Stonington, Connecticut. That was in 1839.
Guess what, the Northeast Corridor runs over that same way for a portion of its distance. Subsequently the short line railroad was created primarily for freight purposes. So, it was designed as a freight railroad. Now it hosts the high-speed corridor.
We just can't do high-speed. We have, I counted seven, and there are actually nine at grade crossings.
As you see the language of this bill, did you see it disqualifying the Northeast Corridor, from New York to Boston, from these dollars as it is currently drafted or alternatively, if not, did you see ways of applying quad gate technology and other technologies to deal with the safety issue, given the fact that these trains simply cannot operate at high speed along a shoreline which has almost nine full circles of turns.
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Mr. HAMBERGER. I guess I would prefer to refer that question to counsel who drafted the language. My own view is that what our principle is trying to get at is that it be safe and that it not interfere with freight operations.
As you take a look at the successful dedicated high-speed programs around the world, that is the way they are designed and the way they are run. Whether or not a new technology for quad gate would do the same thing, I don't know.
Mr. SIMMONS. Then I will switch to Mr. Sullivan on that second part of the question. I also add that the Northeast Corridor in Connecticut hosts high-speed Amtrak, the Acela. It hosts the Metro North Commuter for the full distance into New London and it also hosts freight rail, which is required for some of the industries along the shoreline. So, we have all three types on the same tracks.
Mr. Sullivan, in your testimony you have made comments about lower speeds and the value of somewhat lower speeds and also quad gate crossings for those areas where bridges or tunnels are not either adequate or cost effective.
Would you comment on that? Do you see this provision eliminating funding for the Northeast Corridor from Boston to New York or the elimination of those crossings?
Mr. SULLIVAN. No, I don't. I have been intimately involved with the Northeast Corridor for many, many, many years. Stonington I have ridden through many times. I know the curves and I know the low speed at those grade crossings. The application of quad gates, for instance, to low-speed grade crossings in that area was very appropriate to the safety of the operations of that railroad. I think it could be applied on other lines.
I made a comment before that we get focused on speed, when the real focus on my mind should be on the schedule. If I want to get from Point A to Point B and compete with automobiles or airlines, I want to be able to get there faster and safer and more comfortably than the competition.
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So, in my mind we ought to be focusing on the schedules. The speeds become very important in making those schedules, but the first focus ought to be on the schedules.
The 90-mile an hour and above suggestion I made was for the incremental type approach that is being taken by many of the rail corridors around the country, particularly I mentioned the Midwest Rail Initiative. In other words, building up to 90 miles an hour initially with a certain investment and then building from there maybe to 110. Once you are at that speed, build up to 125.
The money that it takes to get from, say, 110 to 125 is vastly different than the money it may take to get from 79 to 90 or 110 miles an hour.
So, I don't think it is inconsistent with the legislation. If it is, I think the legislation should be changed to make it consistent.
Mr. FERGUSON. The gentleman's time has expired.
Mr. SIMMONS. Thank you, Mr. Chairman.
Mr. FERGUSON. Mr. Borski.
Mr. BACHUS. Mr. Chairman, could I just add one thing? That is really why I was asking my questions of Mr. Sullivan, too. Before their testimony, it was something that I had not heard about.
Mr. FERGUSON. Mr. Borski.
Mr. BORSKI. Mr. Hamberger, how are you, sir?
RIDE-21 does not envision Amtrak to construct and operate these systems. Is there any consideration by the freight lines to getting back in the passenger rail business?
Mr. HAMBERGER. That has not been a topic of discussion at any of the AAR meetings I have been at.
Mr. BORSKI. I wouldn't think that would be something you all would think about; right?
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Mr. HAMBERGER. Some. I believe one of our members operates a commuter rail out in the Pacific Northwest and a little bit around Chicago. But I don't believe that is something that people are considering at this point.
Mr. BORSKI. To run passenger trains at 125 miles an hour or better you need electrification, the catenary system. Does that present any problems to the freight railroads?
Mr. HAMBERGER. That is a matter of first impression. I don't know. I have not really looked into that.
Mr. BORSKI. You mentioned in your testimony that operators might not be subject to Railroad Retirement or Railway Labor and other labor provisions. Would you like to expand on that point?
Mr. HAMBERGER. Well, to be precise, I did mention just Railroad Retirement. But the concern, and let me just say I will get back to you on the record on the catenary thing if I may.
The concern, and perhaps we are being overly cautious, but the concern would be that if a State operated an intercity and yet intrastate high-speed rail--whether it is Chicago to East St. Louis or in Florida or some of North Carolina is being talked about or certainly in California, that is possible--as I understand the law, the operator that would be selected may not necessarily have to comply with, as you say, all sorts of rail labor laws that are on the books, but the one that particularly concerns us is Railroad Retirement.
If that then becomes a magnet for service that is currently being run by Amtrak or if commuter rail were to transfer from operating on freight railroad right-of-way, as most of it does now, to operating on this new passenger track, if that operator is not subject to Railroad Retirement, then we would see a migration of employees out of the Railroad Retirement system.
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As you know, we have three times more retirees than employees right now. If that were to happen, it could seriously endanger the fiscal footing on which the Railroad Retirement system is now very solid.
Mr. BORSKI. Mr. Filipovic, can I ask you? RIDE-21 does not envision Amtrak as the potential builder of these high-speed rails. What do you think about that? What is the implication to Amtrak workers?
Mr. FILIPOVIC. I just want to get back to the Railroad Retirement issue in and of itself. It has been indicated that there are a lot of companies or entities where they are intrastate, where they are not considered a carrier under the Railroad Retirement Act or the Railway Labor Act.
Those are some of the issues that we as labor would be concerned with, that even if it was not considered a railroad per se, that they should be subject to the provisions of the Railroad Retirement Act and the Railway Labor Act and the Railroad Unemployment Insurance Act, et cetera, and so on and so forth.
Mr. BORSKI. Mr. Turner, if I may, sir, RIDE-21's expansion for the RRIF program would certainly benefit Class IIIs. My question is: Will many of your smaller members, the ones who need the help the most, will they be eligible? Will they have the credit available to take advantage of this program?
Mr. TURNER. Well, you have really hit upon a point that is very difficult. That is the railroads that need the infrastructure funding the most are the least qualified for the loan. Unless we see some changes in the law for RRIF, then these folks are simply going to do without. As I believe Congressman Bachus said, we will see them disappear.
Mr. BORSKI. Would you have any idea of what the percentage would be of your members that have this problem?
Mr. TURNER. No, sir, I wouldn't.
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Mr. BORSKI. Thank you, Mr. Chairman.
Mr. FERGUSON. Thank you. I am going to yield to myself for a moment. I serve as the vice chair of this subcommittee and I have a great interest in the work that it does. I certainly appreciate your being here with us today.
I have a few questions. Let me apologize first for being late. I was an hour late to this hearing because my train was an hour late today. So, please accept my apologies. It is true, Mr. Simmons, as I am sure you can appreciate, being from Connecticut.
My first question is for Mr. Hamberger. Under RIDE-21, the Swift Act, High-speed Rail Corridor Development Grant Program is authorized for $35 million a year. Do you feel this is enough money to develop high-speed rail corridors or do we need new money as opposed to just low-interest loans or bonds?
Is there enough of a Federal commitment in your opinion?
Mr. HAMBERGER. I guess that our view is that wherever the money comes from there is never enough. But wherever it comes from, we just want to make sure that the way it is spent does not violate the principles that I have laid out.
So, I don't know what the proper balance is between Federal and State or bond and grant. I will leave that up to others to decide. We are just concerned about how it is spent and the impact it has on our operations.
Mr. FERGUSON. I would be interested in picking your brain more on that perhaps in the future.
Another question: The potential of RIDE-21, including the expansion and modifications of the RRIF loan program, is the possibility of creating public/private partnerships to construct high-speed passenger rail.
In particular, freights are encouraged to participate where they would benefit from moving passenger trains off their tracks, thereby increasing capacity and reducing operational problems.
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Do the freight railroads see the potential for these types of partnerships?
Mr. HAMBERGER. We, in fact, participate in those kinds of partnerships even today. I think one of the ones that is perhaps the poster child, if you will, is out in Seattle-Tacoma, the FAST corridor, which is a commuter rail. It is also a corridor to move intermodal freight out of the ports of Seattle-Tacoma east. Burlington Northern and Santa Fe and Union Pacific made substantial contributions to that along with State, local and Federal dollars.
That is the kind of program that we look for around the country to participate in. Obviously, to the extent that RRIF provides low-cost capital, that goes a step toward making those kinds of partnerships even more attractive.
Mr. FERGUSON. Thank you.
Mr. Filipovic, on Page 3 of your testimony you raised the concern that Amtrak may have difficulty competing for operating service over new lines built with funds raised under this bill.
It is my understanding that, one, Amtrak's monopoly was eliminated with the reform law of 1997, opening these contracts up for competitive bid for the last four years, and number two, that this legislation makes no changes to the statute.
Do you have a different understanding for this legislation?
Mr. FILIPOVIC. I do. I am not that well versed. Actually, I made those comments, but again, I am not that well versed in that particular area. I will refer that and we will get you a response for your question.
Mr. FERGUSON. Great. Thank you very much.
Mr. Blumenauer.
Mr. BLUMENAUER. Thank you.
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If I could follow up with Mr. Filipovic, as I understand it you will be providing some reactions generally to the legislation in greater detail?
Mr. FILIPOVIC. That is correct. Yes, we will.
Mr. BLUMENAUER. As you are doing that, I would be particularly interested in having as part of your analysis the impact that you see in terms of not extending these provisions to Amtrak, treating everybody the same, I guess.
We have heard, and I appreciate Mr. Hamberger's concerns, and you mentioned in your testimony upsetting the balance. We want to pass good legislation, but we could inadvertently pull the plug and unsettle what we did with Railroad Retirement.
If there are other similar provisions, this would be something that I would hope would be a part of your analysis and if there are other panel members, we want to make sure we are not unleveling the playing field inadvertently.
In that connection, I guess, I want to identify myself with the comments I believe Mr. Sullivan had referenced in terms of the phased implementation.
I come from one of those regions that is bi-State--Portland and Seattle--and have been working to upgrade the rail connection well before September 11th. Now, with an extra half hour or 45 minutes at the airport or longer, it makes compelling sense for people to move forward.
We are one of those incremental approaches. I wondered whether there were others of the panel members that have some reactions to the wisdom of permitting us to move to higher speed rail, but maybe not to 125 miles an hour overnight.
If not, I seconded what I thought was our subcommittee's chairman's move to have a comprehensive bill. I was ready to move. It sounded pretty good to me as he started to string together the elements that this subcommittee has worked long and hard to advance, to virtually unanimous support on our committee and it seems to make more and more sense in light of the events that we are facing.
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I wondered if there are any who would have any reservations about our effort at crafting a comprehensive piece that incorporates the elements that you have talked about today.
Mr. KENNEDY. I would like to take a shot at that. I am sitting here thinking. I see Congressman Nadler on Larry King occasionally. You think of what happened on September 11th and you think of the railroad industry that nine guys on the street corner out of ten, if you mentioned the railroad industry, they would probably to this day laugh at you, but we really are an industry that is going to explode.
The need for what we do and how we do it is going to be front page news, I think, for the next five, ten, or fifteen years.
Based on what you just said, we have talent here that spans the globe in supply, construct, and operate. If you are serious about that, and I suspect you are, why couldn't we put together a think tank, a rail resurrection think tank of sorts among us and work really close hand in hand?
Perhaps we could save a lot of time. We have a lot of overlapping issues, be it labor, be it equipment supply. You know, I come from the track construct and maintain end of the business. But we at NRC, 200 companies, employ probably 100,000 people, have revenues of a couple of billion.
A lot of people don't even know we exist. We would like to, just as a thought, help put together a team so that we could really maybe save some time and get the job done right, yet get it done a little quicker.
Mr. BLUMENAUER. Well, this is one member of the committee that would be interested in a more comprehensive approach. Although there is a lot of interest and horsepower on the committee and staff, I think what we have represented before us today with this panel and subsequent speakers and people in the audience are people that represent literally hundreds of thousands of men and women, thousands of companies and communities all across the country that have built up around the rail infrastructure and still continue to rely upon it to an extent that they don't always appreciate it.
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We have seen recent events spotlight it. But I think energy conservation, environmental concerns, congestion all are part of the big picture. Today, national security reemphasizes it. I would be deeply interested in efforts that we could undertake with the subcommittee and with distinguished representatives like we have with us today to see if we could look at the bigger picture. This may be an opportunity to do it right for the right reasons.
Mr. TURNER. We have seen in the 30-some years that I have been employed in this industry, we have really seen our industry shrink. I think as Congressman Bachus pointed out earlier today, we are on the verge of losing more short lines and then suddenly, I think, we are reminded how important our rail infrastructure is, whether we are a Class I between two major cities or we are a Class III in a rural part of the country.
We emphasize the fact that we serve a lot of rural communities. But we also serve a lot of metropolitan areas such as parts of the city. In almost every major city, somewhere there is a short line.
If we are going to keep our rail infrastructure and not let it get any smaller, then I would say we need a comprehensive bill that really addresses this issue.
Mr. FERGUSON. The gentleman's time has expired.
Before we release this panel, I want to yield to Mr. Nadler for a follow-up.
Mr. NADLER. Thank you. I'll have to give up my gold star. I have one more question for Mr. Hamberger. I thank the chair for your indulgence.
Mr. Hamberger, I was thinking as we were all discussing the relationship between passenger and freight, we have had a couple of experiences in New York and I imagine around the country. There were two experiences in New York and various areas where commuter lines improved their stations and extended the platforms and made it impossible for freight trains to use lines they had used before and might wish to use in the future.
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The State of New York spent in the eighties, I don't remember, $80 or $85 million to raise the clearances to TPSI standards on one line and then the State-owned commuter railroad raised the track level by putting in more ballast and the $85 million went out the window because the clearances-I mean the bridges were higher, but now so was the track bed, so you didn't have 17'6'' any more.
The question I have is: As we fund improvements for passenger rail, high-speed rail, et cetera, do you think that we should put in this legislation some kind of protective mechanism that somebody should have to review what is being done to make sure that whatever is being funded would not inadvertently eliminate or reduce the capacity to handle freight on the system?
Mr. HAMBERGER. Again, I appreciate your sensitivity to that whole topic. I guess we thought maybe we had accomplished that when we found out from discussions with staff, when we found out that a bill was being drafted. We expressed our concern on that.
It is Subparagraph 3 that says an agreement has to be reached with the freight railroad that addresses compensation and assurances regarding the adequacy of infrastructure capacity. So, rather than turning it over to the FRA or somebody else to determine that it doesn't affect freight capacity, we would rather have that power ourselves.
Mr. NADLER. Let me interrupt, if I may, for a second. Let's say you have a freight railroad that is not using a particular line now or that the line isn't even used for freight now. But as I expressed before and Mr. Bachus did and several others have alluded to, we do not have the redundancy in the system in the United States that I think we are beginning to realize we ought to have.
We want to expand freight and someone will come along five years from now and say, well, if you put that line together and that line and this line, you can have a nice freight line and it turns out that we just eliminated the possibility without thinking about it.
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I wonder if that provision that you have to have an agreement is enough to protect the freight capacity and freight potential of the country's system.
Mr. HAMBERGER. One can always use belt and suspenders, as they say. But my concern would be that if you say we are going to turn it over to the FRA or whatever agency to make a determination whether or not this corridor can be used for high-speed rail without impacting freight, you and I might come at it with a view toward wanting to protect freight capacity.
Someone else might come at it with a view toward trying to make sure that corridor is available for high-speed rail. So, you might turn it over to a third party that says no, I am the expert and I have determined that it will have no impact on freight capacity, notwithstanding what the freight rail owner might be saying.
So, that was the concern of not wanting to turn it over to a third party to make that decision, but rather make it an arm's length discussion between the freight rail owner and the applicant for the bonds. That was the concern. That is just looking at it from the other side.
I see wher you are going. If that can be yet another protection, obviously we would be glad to have that. But I wouldn't want to put that in thinking it is protection and end up—
Mr. NADLER. No. I meant in addition, not instead of. Do you think it would be a good addition?
Mr. HAMBERGER. Conceptually, absolutely, sure.
Mr. NADLER. Thank you. Thank you, Mr. Chairman.
Mr. HAMBERGER. If I could just add one sentence, we would be delighted to work with Mr. Blumenauer and this committee in putting something together. I would say I think we need to do it quickly. >From everything I am hearing, there is a lot of emphasis at both ends of Pennsylvania Avenue for putting together a package that will create jobs like Mr. Oberstar said, to put Tim James' people to work. If we could do it in the next couple of weeks, that would probably be a pretty good time to do it.
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Mr. FERGUSON. We are going to continue to do a lot of things quickly here. Thank you, Mr. Chairman. We appreciate this panel. On behalf of the Chairman and the Ranking Member, Mr. Clement, we appreciate your cooperation and your presence here today.
I want to ask the next panel to please be seated.
Mr. QUINN. [PRESIDING]. I am sorry I had to leave. I had another appointment.
Because of his transportation schedule, Mr. David King, Deputy Secretary of Transportation of North Carolina, will testify first. He will then have to leave and we will hear the testimony of the other panel members.
Mayor King, will you proceed?
TESTIMONY OF DAVID D. KING, DEPUTY SECRETARY OF TRANSPORTATION, NORTH CAROLINA DEPARTMENT OF TRANSPORTATION, ON BEHALF OF THE STATES FOR PASSENGER RAIL COALITION; BRIAN KROLICKI, STATE TREASURER OF NEVADA, ON BEHALF OF THE NATIONAL ASSOCIATION OF STATE TREASURERS; JAMES QUERY, EXECUTIVE DIRECTOR, PUBLIC FINANCE DEPARTMENT, MORGAN STANLEY; SCOTT L. KING, MAYOR, GARY, INDIANA, ON BEHALF OF THE U.S. NATIONAL CONFERENCE OF MAYORS; AND MARK R. DYSART, PRESIDENT/CEO, HIGH SPEED GROUND TRANSPORTATION ASSOCIATION
Mayor SCOTT KING. Mr. Chairman and members of the subcommittee, I am Scott L. King, Mayor of Gary, Indiana.
I appear today on behalf of the United States Conference of Mayors where I serve on the organization's Advisory Board.
Mr. Chairman, I want to thank you and other members of this subcommittee for holding this hearing today to examine pending legislation that provides for increased investment in the nation's rail infrastructure, particularly high speed rail.
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There is now an impetus to act in new ways and seek out new directions. If we act now, the Mayors believe that high-speed trains and other investments can deliver greater stability for our economy over the longer term.
A critical and particularly timely consideration, along with the many other benefits of this opportunity for redirection in Federal transportation policy.
Well, September 11th revealed the operational vulnerabilities of our nation's transportation systems, particularly our aviation system. It also displayed some of the tangible benefits of more diversified transportation investments.
It is clear that a more dire economic fallout from the attacks on the World Trade Center and the Pentagon has been mitigated to some extent by the presence of more diversified transportation networks, particularly rail capacity in the New York and D.C. regions.
It is noteworthy that New York's MTA ranks number one in the nation in rail transit use, followed by Washington's Metro system, the nation's second largest rail system. Both markets are connected together by Acela Express, North America's only high-speed rail service.
The conference past President, Boise Mayor H. Fred Coles, and current President, New Orleans Mayor Marc Morial, urge the development of a national rail policy for the 21st Century.
As a first step in this new policy thrust, our leaders and the mayors have been urging increased Federal investment to link the nation's metropolitan economies via high-speed rail networks, in addition to capacities that now exist with the interstates, air service and telecommunication networks.
The mayors are anxious to work with this committee to begin this process of investing in high-speed rail capacity.
Let me say that there is much all of us have learned in the last three weeks. We are just starting to understand the implications for our economy and what this means for our policy choices. As political leaders, we are also challenged to grasp the degree to which the public's views on transportation and other issues may already be shifting.
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We have found in polling conducted in January that 69 percent of those polled throughout our member cities favored the creation of high-speed trains to serve their areas and to provide connections between major population areas. I suspect that number has increased in the last three weeks.
With that discussion, I want to address some of the issues related to RIDE-21. First of all, and in all sincerity on behalf of all of my colleagues, I want to commend you and the sponsors of this proposed legislation for your broader allocation of Federal resources to the development of high-speed rail, as well as for improvements to commuter and freight rail infrastructure.
Your proposed commitment of $71 billion to the nation's rail infrastructure is significant and of historic proportion.
Mr. Chairman, I want to emphasize that the Mayors efforts to promote the development of high-speed rail have focused on pressing Congress to enact pending legislation, the High-speed Rail Investment Act, where this legislation in both chambers now enjoys substantial support.
Under this legislation, RIDE-21, tax-exempt bond authority totaling $35 billion is provided to assist the States in investing in the rail infrastructure to support train speeds of 125 miles an hour.
While cash requirements in the first year under this plan are lower, it is a recurring annual cost that is substantial over time, particularly given that there are currently no operating revenues from any existing rail services to support the debt service.
This is one of the particularly difficult challenges for government in launching new services, which in this case is high-speed rail.
The tax credit bond formula is much more attractive, we believe, to the various States at this time, given the economy. The Mayors believe that this approach using tax credit financing is much more likely to stimulate more investment in the short term.
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As hearing discussed previously in my testimony, it is particularly crucial that we find a way to jump start the rapid deployment of high-speed rail services.
We are of the opinion that the availability of tax-exempt financing does not present a powerful enough incentive to move this investment forward.
In preparing my testimony I have been taking note of the deteriorating financial outlook for many of the States. My own State of Indiana, along with many others in my region, are reporting significant revenue shortfalls. This is a difficult climate for capturing substantial new funding commitments.
We compare the model with Europe in terms of what their national governments have made for high-speed rail investment. In my own region of the country, we have been working to launch the Midwest High-speed Rail Initiative, which you heard about in the provide panel.
This effort is already underway and is one that puts our multi-State area ahead of other regional efforts. We have been strongly supporting the tax credit bonds as the approach that we believe will accelerate our efforts to undertake this major project.
I would note that our goal initially is to secure higher speeds on intercity service because the economics are there to support it. In order to achieve the threshold of 125 miles per hour as RIDE-21 envisions, this quite frankly would require an even larger commitment of capital.
In closing, I want to thank you, Mr. Chairman for your leadership on this issue. The level of funding commitment, $71 billion overall, is a much more realistic amount, given what we know of the infrastructure of this country's rail system needs.
We on the U.S. Conference of Mayors are committed to working with you to achieve this level of investment in high-speed rail. But we do not believe that the level of Federal support that is provided will result in the accelerated State investment in high-speed rail services that we are all seeking.
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On behalf of the nation's Mayors, I want to thank you and all members of this committee for the opportunity to present the views of this conference. We will look forward to working with you to the best of our collective abilities in the days and the weeks to come.
Mr. QUINN. Thank you, Mr. Mayor. We appreciate that very much.
The other members of the panel have agreed to let us list any questions for you now. Mr. Coble, do you have any questions for the witness?
Mr. COBLE. I have one question for you, Your Honor, Mayor King. It is good to have all of you with us, by the way.
You characterized the Amtrak tax credit bonds as much more attractive to the States than the RIDE-21 approach. But Mr. Krolicki, who speaks for the State treasurers across our land, has submitted testimony to the contrary.
He points out that tax-exempts are a much more reliable and proven means of financing infrastructure than tax credit bonds. Can you give me a factual basis for you two learned gentlemen being in disagreement.
Mayor SCOTT KING. Not that it is unusual for cities and States to disagree on certain issues. But I think it is when you take the snapshot. Perhaps the gentleman's testimony is premised upon a longer view.
Those of us representing cities are kind of in the front lines of these things and we have to look at what is immediately in front of us. The reality now in our economy is that States, and particularly a State such as Indiana where its revenue sources are almost limited to sales and income taxation, in the short term it is not at all a realistic picture that they are going to be willing to pick up added debt.
Today's headlines back in my home community talk about the growing deficit in the State of Indiana that seven months ago boasted one of the strongest surpluses of any State in the Union.
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So, I believe a basis for distinction in terms of the financing mechanism could be the length of time we are looking at. I can tell you Indiana, right now today, would be rather loath to get itself into a debt service situation using tax-exempts. It would make it, quite frankly, much more difficult for that State, our State, to prioritize this investment.
Mr. QUINN. Would the gentleman from North Carolina yield for just one second?
Mr. COBLE. Sure.
Mr. QUINN. The same headlines that greet you in Indiana are being printed in Buffalo, New York today as well. Our Mayor is experiencing exactly what you describe.
Can you comment at all either way, with the tax-exempts or not, as to what was mentioned in the first panel as it relates to economic development for this RIDE-21? Just a word or two, Mayor?
Mayor SCOTT KING. It is an incredible opportunity for several different reasons. First of all, one of our big challenges is before we have seen the shift economically I think as a nation we were very proud of the economic growth and development we had, but a very difficult statistic: 85 percent of that growth occurred outside the nation's inner cities.
The challenge and the particular opportunity presented here by high-speed rail, and Gary is a good case example, is our train stations are kind of points of contact. They are inside the cities and can trigger economic development.
In our particular case, it is linked right directly with our airport, which is part of the larger Chicago airport system. A remarkable economic development engine is presented by investment in these rail opportunities.
Mr. QUINN. That is what I thought. Thank you. I am on the gentleman's time, so I yield to him any time he needs.
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Mr. COBLE. I thank the chairman.
I would just say this to you, Your Honor, and to the rest of the panelists, if you can, if you have any information regarding marketability of tax credit bonds, I would like to have it. Mr. Chairman, if we could have it now, we could take it. If you don't, you can submit it to us.
Mayor SCOTT KING. I would be happy to do that. Both the organization and from the City of Gary, we also have, I think, some data that could be beneficiaL to this subcommittee.
Mr. COBLE. I thank you for that. I yield back, Mr. Chairman.
Mr. QUINN. Mr. Coble, we will officially request that the Mayor get that to the subcommittee and then share it with all the members.
Mr. COBLE. That would be fine.
Mr. QUINN. Thank you very much, Mr. Coble. Thanks for yielding, Mr. Coble.
Mr. COBLE. You bet.
Mr. QUINN. Mr. Nadler.
Mr. NADLER. Thank you, Mr. Chairman.
I have two questions for the Mayor. It is sort of similar to Mr. Coble and what the Chairman was just discussing. Some have said that tax credit financing is more expensive than tax exempt financing.
Do you believe this is true when the costs to the States are included?
Mayor SCOTT KING. In the greater or lesser expense, in my experience, it sort of depends on whose pocket is involved with it. I did some numbers sitting with one of the staff representatives kind of using $1 billion sort of piece comparing the tax exempt approach to the tax credit. There, using the tax-exempt approach, if we assumed a 5 percent rate on the tax-exempt bonds and if we amortized for a 30-year period, we would be talking about a State expense of $78 million per annum to service that debt.
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If we took the $1 billion and used tax credit back, you know, if we used the typical 80-20 kind of formula split of Federal to State or local, the State would have its choice of a one-time $200 million payment, as opposed to $78 million a year for 30 years, or using seven percent, probably a $16 million a year debt service.
If you amortized that out over the 30-year period, you are comparing $16 million annually to $78 million with the tax-exempt. That is just an example.
Mr. NADLER. Then tax credit financing is much cheaper?
Mayor SCOTT KING. Yes.
Mr. NADLER. So, why is it that some people say it is more expensive?
Mayor SCOTT KING. Well, we are Americans. We can find answers.
Mr. NADLER. You know of no rationale, in other words?
Mayor SCOTT KING. I do not, sir. I do not.
Mr. NADLER. Thank you. One other thing: You mention that some of the reasons why many State governments would not or could not participate in tax-exempt or RRIF financing for high-speed rail.
Could you elaborate on some of those reasons?
Mayor SCOTT KING. I didn't hear the first part. I apologize.
Mr. NADLER. I said you mentioned some reasons why some State governments could not or would not participate in tax-exempt or RRIF financing for high-speed rail. Could you elaborate on that a little?
Mayor SCOTT KING. Some of it again will be the finances of various States. Then some of it will be where within that State, what priority for that State is the development of a particular corridor.
You know, I would daresay—
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Mr. NADLER. In other words, it is just the prioritization of the debt service?
Mayor SCOTT KING. Yes. I think there are other factors in addition to the priority of the debt service, yes.
Mr. NADLER. There are other factors?
Mayor SCOTT KING. There can be other factors where the State is deciding here is how we are going to allocate our resources and our budget priorities.
Mr. NADLER. It comes to priorities. All right. Thank you.
Mr. QUINN. Thank you, Mr. Nadler.
Mr. Bachus, questions for Mayor King?
Mr. BACHUS. I don't want to be Johnny One Note, but the competing thing about tax credit bonds or tax-exempts, Mr. Krolicki, you know, the State treasurers are taking the opposite view, I think, on which one is the most attractive.
I think, as he points out, tax-exempts have been more proven. They have been more reliable. That has been the national experience. I am also sort of wondering.
I would also say, you know, tax credit bonds have not been well received in the marketplace. Has Gary offered these before and had good experience with them?
Mayor SCOTT KING. We have had frankly a lot of good experience with both financing mechanisms, to be very candid with you. We are right now doing a fairly significant tax exempt bond issue for public safety development, et cetera.
But at the same time a lot of our new housing starts, for example, multi-family as well as in many cases single-family development, have been using tax credit financing. One project, and this is totally anecdotal, I got a briefing yesterday before coming to Washington, that we were looking at an 83 cent on the dollar tax credit piece. It even went up from there in the last week.
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So, right now our limited experience in Gary, Indiana-and it is something to explore-it looks as though those mechanisms are actually gaining strength, the tax credit.
But we have done both and we have enjoyed success with both. It is just our organization believes the tax credit piece is better, particularly at the time and place where we are right now nationally.
Mr. BACHUS. Now, I would also say maybe we can hear from Mr. King, when we hear from him. I also think some of the State DOT people have told us that we are really talking about-as opposed to an 80-20 type match, that the Amtrak would require, as I recall, be more like a 30 percent, more equivalent to a 70-30 match. I don't know how that factors in.
I guess my last question is this, and this is something we will have to sort through, but isn't being in charge of your own corridor instead of dealing with Amtrak, which would be an monopoly, worth something to, say, Gary?
Mayor SCOTT KING. Well, every Mayor in the country will take as much control over everything we can get. You know, we tend to think that way. However, when we are dealing with interstate, whether it be a highway, whether it be air travel or whether it be rail, the principal jurisdiction there, I think, is the one that exists.
Obviously, under the commerce clause it is critical for the Federal piece and they have chosen, I think wisely, to have management of these larger systems be done at no less than a State level. So, I don't know. I know speaking for myself, I have enough to do without worrying about this.
I think interstate travel is appropriately in the purview of our federal government to be managed as they have deemed appropriate at State levels. I would follow that model.
Mr. BACHUS. I just wondered maybe when we talk to the other people is it worth something to you to have control over it as opposed to-I know I think the people in Alabama would think it would be.
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Mr. QUINN. Thank you, Mr. Bachus.
Mayor King, thank you for your attention here this afternoon. Have a safe trip home. We appreciate your being here and joining us.
Mayor SCOTT KING. Thanks for your courtesy and for the panel's courtesy.
Mr. QUINN. Thank the rest of your panel.
Mayor SCOTT KING. Yes, I appreciate it.
Mr. QUINN. Mr. Krolicki, we are going to move to your end of the table and then work our way down. We ask that since we have your written comments today, that you try to keep your verbal to about five minutes of so. When all four of you are finished, we will go to questions for the panel.
You may begin. Thank you.
Mr. KROLICKI. I shall do so, Mr. Chairman.
Mr. COBLE. Mr. Chairman, if you will pardon me just a moment, Mr. Krolicki, in your testimony, if you could, put your oars in the waters that I put before the Mayor regarding the conflict that you two have, if you can do that conveniently. If you cannot, I will put a question to you.
Mr. QUINN. Especially since the Mayor has left, so feel free to do whatever you want. Thank you, Howard.
Mr. KROLICKI. I had noted that, Mr. Chairman. Mr. Chairman and members of the committee, I am Brian Krolicki. I am the State Treasurer of Nevada. I serve as the chairman of the National Association of State Treasurers Committee on Credit Rating and Debt Management.
The National Association of State Treasurers, which we have imaginatively nicknamed ourselves, NAST, we represent the State Treasurers in all 50 States and territories.
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My committee handles policy issues and member education relating to the tax-exempt municipal bond market. State Treasurers are the Chief Financial Officers of the States. Within our respective States, State Treasurers exercise a broad range of fiscal responsibilities, including cash management, the investment of public funds and debt management of bonding authorities of the States.
Accordingly, because the State Treasurers recognize the challenges and complexities involved in shaping and implementing fiscal policy, NAST certainly appreciates this opportunity to discuss an important component of the Federal, State and local government partnership, the development and maintenance of transportation infrastructure, in particular, the innovative financing of these public projects.
We are here today not as experts on railroad policy, but to offer our expertise as regular issuers of debt. We take no position on the overall merits of any railroad legislation currently pending before Congress.
We come before you to share our experience with debt financing and hope to offer advice that will help you realistically shape the financing component of legislation that is low-cost, efficient, and responsive to the market.
The National Association of State Treasurers generally supports policy initiatives designed to leverage private capital and provide innovative financing solutions to policy issues.
NAST supports and encourages efforts to develop innovative new incentives for State and local financing. In the statement we focus from the perspective of an issuer of State debt on the structure of the private activity bond markets and on tax credit bonds.
Tax-exempt bonds are the single most important source of State and local investment in public infrastructure. Tax-exempt bonds are efficient. They are well understood, popular among investors and have an established market infrastructure and a several hundred year history.
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Tax-exempt bonds are an important source of Federal assistance to the States. Because the federal government forgoes a tax revenue on interest earned by investors on qualified municipal bonds, investors demand a much lower rate of interest than they otherwise would.
States benefit through this lower cost of capital. State Treasurers are big believers in the municipal bond market. The traditional tax-exempt bond market is large and established with a broad base of investors.
The secondary market trading in tax-exempt bonds is relatively active and quite liquid. Rates are set efficiently according to market-based rate of return. Issuers do not need a formal Federal approval to tap into the capital markets.
A key component of the State and local financing of infrastructure projects is the use of special purpose private activity bonds. The Internal Revenue code permits State and local governments to issue tax-exempt private activity bonds, which allow the governments to act as conduits to provide financing for private parties.
Tax-exempt private activity bonds may be issued to finance a wide variety of public infrastructure needs, including airports, ports, commuting facilities and certain rail transport projects.
A private activity bond is a municipal bond which is either used entirely or partially for private purposes and is given Federal tax-exempt status. Private activity bonds must meet the test of qualification outlined within Federal tax law to obtain the tax-exempt status.
To qualify as a private activity tax-exempt bond, the debt must meet volume cap requirements and also satisfy several other requirements outlined in statutes.
In general, tax-exempt private activity bonds for financing of airports, ports and governmentally-owned high-speed intercity rail facilities are not subject to these volume limits.
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Now, I would like to address the tax credit bonds, if I may. In recent years, a number of new bond programs have been introduced that are intended to create new financing mechanisms for State and local governments for critical infrastructure needs.
Under tax credit bond proposals, the holder of a bond receives annual Federal income tax credits equal to the prevailing taxable interest rate multiplied by the size of the loan. The Federal tax credit is in lieu of interest payments from the issuer, which means theoretically the issuer does not pay any interest on the borrowed funds.
Again, theoretically, all of the return earned by the investors results from the tax credit. Market experience with tax credit bonds is highly limited. In fact, I don't believe there are over $500 million of these tax credit bonds outstanding in this country.
The only real life examples are qualified zone academy bonds or, another cute name, QZABs. QZABs are taxable bonds issued by State and local governments to benefit public schools located in enterprise communities or empowerment zones. Instead of receiving interest payments from the issuer, an eligible holder is allowed annual Federal income tax credits while the bond is outstanding.
These credits compensate the holder for lending money to the issuer and function as payments of interest on the bond. There are, as I mentioned, several problems with the current ZQAB marketplace.
In order to be successful and offer States the lowest possible cost of borrowing, tax credit bonds should be appealing to investors in the capital markets. Congress has authorized only $400 million of QZAB bond issuance per year for the last four years and only a small portion of which has actually been used.
This $1.6 billion amount is allocated among all of the States, so any one State receives a relatively small allocation. The small size and short term of the program results in several problems.
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First, it is difficult for bond issuers, attorneys, underwriters, investors and others associated with the municipal bond market and transactions to commit resources to developing expertise on a new and unknown financing vehicle when very little issuance will be permitted to take place.
Second, the small issuance volume has resulted in no significant secondary market for QZABs. That is critically important. A lack of market liquidity discourages investors and raises the cost to the issuers.
The secondary market refers to the buying and selling of securities after they were issued, of course. Liquidity refers to the ease with which an investor can buy or sell a bond in the secondary market.
Several current tax credit bond proposals would place relatively low annual issuance gaps on these programs. In the context of the capital markets overall, this would be a relatively small volume of issuance, especially given the novelty of the financing structure.
In contrast, there are approximately $1.5 trillion of traditional municipal bonds currently outstanding. As in any market with a small total outstanding volume of securities, the relatively small size of the tax credit bond market would ensure that little secondary market activity trading took place.
Tax credit bonds would be illiquid instruments. As a result, investors would demand a liquidity premium, in our opinion, or a higher rate of return from bond issuers to compensate for the risk and cost of illiquidity.
In considering tax credit bond programs, we respectfully request Congress to keep in mind the key issue of the respective roles of the State and Federal governments. Most of the current tax bond proposals would insert a direct Federal oversight role into the process of financing infrastructure development.
This oversight goes well beyond the current oversight rules applicable to tax-exempt bonds, which generally need to comply only with specific tax qualification requirements. Beyond these qualification rules, State and local government issuers are provided substantial discretion to select, fund and manage projects. This is appropriate under our Federal form of government.
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It permits State and local governments to maximize flexibility in employing their limited resources to address their infinite needs. Decisions about the provision of public facilities and services are best and most efficiently made at the State and local levels.
On behalf of my colleagues around the country, I would respectfully submit the following conclusions and recommendations: The National Association of State Treasurers supports to use of creative financing mechanisms that allow States to leverage the capital markets and to address our policy issues.
In this respect, we believe that the tax credit bonds may potentially provide an attractive form of Federal assistance to States to help finance capital investment by providing issuers a lower cost of capital than they may achieve with other debt instruments.
However, we have outlined a number of issues with these proposed programs. We encourage the committee to consider these issues when structuring railroad infrastructure investment legislation.
We urge you to recognize that existing financing methods such as private activity bonds are very well received by the market and not subject to liquidity and other issues that limit attractiveness of the tax credit bonds.
To maximize the flexibility and financing and to provide the States with multiple options in funding, we encourage the committee to consider both types of instruments as financing options.
Mr. Chairman, thank you for the opportunity for myself and NAST to share our views on these issues. Again, I will be delighted to answer questions when we conclude.
Mr. QUINN. Thank you, Mr. Krolicki. Again, I should mention that Ms. Berkley from your State is a member of the full committee and a very supportive member of the full committee and involved in our issues. She could not get here for this subcommittee. She is not a subcommittee member anyway. But she wanted me to thank you for your testimony.
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Mr. KROLICKI. I will read her my speech later. I will find her. Thank you, Mr. Chairman.
Mr. QUINN. Ms. Berkley just called and said she is not available. [Laughter.]
Thanks very much.
Mr. Query, we are going to try to keep you to about five minutes or so and then we will get to questions. I do have a question I want both of you to respond to in a minute. I know Mr. Coble does.
Mr. QUERY. Mr. Chairman and distinguished members of the subcommittee, thank you very much.
My name is James or Rocky Query. I am an Executive Director in the Public Finance Department of Morgan Stanley. We are an international investment banking firm and one of the largest investment banks for financings by both municipalities as well as corporate transportation entities.
I presently serve as manager for the firm's efforts as both financial advisor and underwriter for highway as well as transit agencies nationally.
We have also worked with Amtrak on financings, both taxable and tax exempt.
I have worked in the public finance industry for about 15 years and have been responsible for developing, I would say, literally dozens of financing programs for State agencies, addressing a variety of both highway, transit, airport and high-speed rail needs. So, I thank you for the opportunity to comment on various approaches to financing infrastructure needs for rail.
Mr. Chairman, my comments on the legislation are directed primarily at the provisions relating to the creation of the so-called high-speed rail infrastructure bonds rather than the sections with regard to the RRIF Program.
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This particular part of the legislation allows the Secretary of Transportation to designate bonds of up to $3.6 billion annually to be issued for the purpose of developing high-speed rail corridors. The bonds would be issued by the States or a compact of States and would be exempt from Federal income tax, as we have been discussing.
The bonds would also be exempt from volume cap limitations on the issuance of private activity bonds. Having faced the difficulties of crafting a financing program that will actually work in the marketplace for investment in high-speed rail corridors using current law, there are several goals addressed by H.R.2950 which I believe are very important to strive for and I would heartily commend and endorse.
The first is by ensuring that high-speed rail infrastructure bonds are not subject to volume cap restrictions on private activity bonds, this bill allows those types of financings to move ahead without competing against other financing needs and other infrastructure areas like housing, student loans, et cetera, which regularly seek allocations for limited volume cap.
Secondly, the bill recognizes that the current definitions of high-speed rail that currently are in the tax code are too high to be useful for any currently planned projects. This was discussed in the prior panel as well.
This bill adopts the standard of sustained cruising speeds of 125 miles per hour or more which is in fact more realistic for current operations, but perhaps in fact there are opportunities to do even better.
Third, Chairman Young and subcommittee Chairman Quinn have clearly stated the goal of providing States greater flexibility in their efforts to encourage development of high-speed rail corridors.
Given the wide range of circumstances faced by States across the country, anything that can be done to encourage such flexibility is extremely beneficial.
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But with those three goals in mind, as members of this subcommittee consider the best methods of meeting those goals, I would offer several very specific types of suggestions. The first is that I believe even greater flexibility could be provided to the States by simply exempting high-speed intercity rail facilities in corridors currently designated by the Department of Transportation from the need for volume cap, rather than establishing a new category of bond.
This would avoid the need to establish a new program with new regulations that would need to be promulgated and which would require a detailed project review by the Secretary of Transportation.
Second, rather than establishing a new definition of high-speed rail based on sustained cruising speeds of 125 miles per hour or more, the legislation could provide a simpler approach by simply qualifying again any inter city rail facility in a high-speed rail corridor designated by the Department of Transportation.
This would avoid relying on an operational standard that could be difficult to meet in a number of different regional circumstances, a number of which you have already discussed this afternoon as well.
I think it is important to add a clarification with regard to what it means to provide for an exemption from volume cap for this particular type of bond.
Currently, under existing tax law, any State or municipality could in fact issue tax-exempt bonds presently for a high-speed rail project or low-speed rail project, for that matter, as long as it was willing to stand behind those bonds with their own sources of revenue and security.
The provisions with regard to volume cap allocation have to do with debt that is issued specifically for a private activity issuer, such as Amtrak or such as a freight company or short line railroad.
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Mr. QUINN. Excuse me, sir. How about a transportation authority within a State?
Mr. QUERY. A transportation authority within a State, to the extent it was a governmental entity created by State law, would be viewed much as the State itself, as an agent of the State and would be able again to issue bonds backed by sales taxes or other sources of revenues under existing law.
Mr. QUINN. Okay. Thank you.
Mr. QUERY. So, when you talk about exempting something from volume cap allocations, again we are talking specifically about so-called private activity bonds.
Lastly, and the most important aspect of the legislation is that RIDE-21 does not appear to aim deliberately at providing any significant new revenues to meet the debt service burden that would be incurred for bonds used to meet the needs of intercity high-speed rail.
As States and rail operators such as Amtrak or the Alaska Railroad and others seek to make needed improvements, additional levels of capital funding remain the real impediment to financing. It is not because people face volume cap limitations that they are not engaged in these types of financings. It is because they can't pay the debt back. This is the real impediment that everyone is obviously trying to address.
In the most general terms I would offer an adage by a senior investment banker when I first started in the investment banking business. He basically said, ''Borrowing money is easy. It is paying it back that is difficult.''
That may be an obvious lesson, but he wanted me to get started with the basics early and I try not to forget them.
Mr. QUINN. You ought to run for Congress. We could probably use that.
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Mr. QUERY. No, sir. I know things that are beyond my capabilities. But if we keep focusing on the revenues necessary to repay debt, that, I think, is the most important aspect of this discussion.
There are a couple of questions that perhaps could be helpful to address quickly because I think they were already asked with regard to the marketability of tax credit bonds.
Mr. Krolicki, the treasurer, was very good at pointing out the pros and cons of the existing tax-exempt market. I really don't think there is any contradiction in the various views that have been expressed so far with regard to tax credit bonds and tax-exempt bonds.
The primary distinction is that for the tax credit bond the federal government is willing to pay the interest on that bond. As a result, it makes it extremely attractive for all participants.
When it comes purely to the cost of financing, you can't beat tax exempt bonds with any type of financial instrument and you can't beat the demonstrated flexibility, the tried and true nature of it and the investor support for tax-exempt bonds.
Simply put, I already make a living selling tax-exempt bonds. I am confident that I can make a living selling tax credit bonds. That is the basic difference in the marketplace for the two approaches, one security, is a known quantity, the other requires development.
I tried to touch on the nature of why one might view it more expensive than the other.
Lastly, just with regard to control of corridors, one of the features of the tax credit legislation that I felt was particularly artful was the nature of the agreement that needed to be entered into between the State and the operator within a high-speed corridor in order to encourage the State to make its State match contribution.
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No State is going to make that contribution, I would speculate, but the Secretary can speak to it more expertly than I can, without an agreement that suits their particular circumstances. If as part of that agreement control of that corridor is a paramount concern, I would expect that that would in fact be embodied in those agreements along the way.
Thank you very much.
Mr. QUINN. Thank you very much, Mr. Query. I think that last ten minutes really described what we have been talking about. Thank you very much. We appreciate it.
Mr. King?
Mr. DAVID KING. Mr. Chairman, Mr. Coble, thanks for the opportunity to be back before you.
I am David King, Deputy Secretary from the North Carolina DOT. I am representing a 21-State coalition that has been supporting passenger rail improvements. It is chaired ably by Terry Mulcahy, Secretary of Transportation in Wisconsin.
I ask that my written testimony be entered into the record. I will spend my brief moments here on a few of the high points, many of which have already been covered. In fact, virtually all have already been covered, so I will be brief.
As I look at H.R.2950, I think back to the July 25th hearing which, for me, was personally very instructive. I think I learned a lot that afternoon. I remember, Mr. Chairman, you making the point that perhaps we need a summit. I think it is fair to look at H.R.2950 as perhaps the outline for that summit.
As you and Mr. Blumenauer and others have said this afternoon, there is perhaps some reason to combine some of the issues that have been discussed today into a larger piece. As we go forward, as have other panelists before you today, obviously these States, and I am sure the AASHTO States as well, represented by Mr. Boardman, would be happy to be part of that summit or that conversation that leads eventually to successful legislation.
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In the weeks that have intervened between the 25th and today, culminating with the introduction of this bill, I think there are some things that have been put into H.R.2950 that are directly responsive to some of the points we made in July. One of these is that the level of funding is more commensurate with the need.
Secondly, the State role has been elevated.
Third, you emphasize partnerships with other States through compacts with freight railroads, with other modes, so we are very appreciative of that and think that the ball has been moved substantially down the field.
Having said that, there are several critical issues, again, issues which have been already addressed here, that I think are potential impediments to successful implementation of this legislation.
The first is the sustained cruising speed argument that you have heard again on multiple occasions this afternoon. Most of the States that we are aware of are planning for 110 mile an hour service. 125 mile an hour service in a freight corridor is functionally difficult, if not impossible.
It would require new alignments. New alignments require a full ten-year NEPA planning process. So, we are talking very long term when we are talking 125 mile an hour speeds.
Secondly, with the possible exception of California and Florida, we don't believe that there are any States that are contemplating speeds higher than 110. New York, I think, falls in that category as well.
Finally, we have focused on the 100 to 300-mile market. In that market the incremental difference in time between 110 miles an hour and 125 is not great.
As the events of the 11th of September have unfolded, that market is far more attractive, I think, to the consumer and the marketplace as a rail trip than it was pre-September 11th.
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The second set of problems that is related to the cruising speed problem is the elimination of grade crossings. Again, that has been mentioned. I would ask you to make a distinction between eliminating grade crossings and managing grade crossing safety.
There are 8,306 miles of Federally-designated high-speed rail corridors in 11 corridors across the country where the Midwest corridor is actually an octopus of corridors. That 8,306 miles embodies about 12,000 grade crossings. At a very conservative estimate of $3 million per grade separation, you could consume the entire $36 billion building grade separations.
We have pioneered a process in North Carolina called ''sealed corridor'' which allows us to protect crossings we believe far more cost effectively and get 98 or 99 percent of the safety value for about three percent of the cost. We would hope that we could back off of that as an absolute criteria.
Third, I am intimidated somewhat sitting next to two true experts in bond financing, but I will say that for the very simple reason that the State governments are not in a position to fund 100 percent of the cost of intercity rail improvements, we support the tax credit bond approach far more vigorously than the other approach that is part of H.R.2950.
It all comes down to whether or not we have a level playing field as between intercity rail infrastructure and our traditional approach to highway, aviation and transit where States provide a match with the federal government as a major funding partner.
That, I think, rather than the technicalities of secondary markets or the marketability or the cost of issuance is the real test of whether or not the program as outlined in H.R.2950 will go forward successfully.
Will the States have the wherewithal and the budget power to shoulder 100 percent of the load as opposed to 20 or 32 percent of the load?
Finally, we commend you and Chairman Young for bringing this forward and having this hearing so promptly. Once again, we have learned a lot by listening to our fellow panelists.
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Some conversation has taken place today about the stimulation of the economy. Again, if you use the incremental approach and don't try to exceed 125 miles an hour with this program as an unequivocal criteria, then I think it is a far better opportunity to use the proceeds of this program and any other to stimulate the economy and to create jobs in the short and intermediate term as opposed to the very long term.
Secretary Mulcahy has submitted an extensive list of projects to the leadership of Congress that we believe are ready to go within an 18 to 24-month timeframe. We commend that to you.
Finally, I remind you that at our last opportunity to be before this committee we had Mr. Sam Williams of Atlanta, who is Executive Director of the Atlanta Chamber here on behalf of 14 Chambers of Commerce in the Southeast, people who do not generally advocate for more government, saying that we think this is important in the Southeast for economic development reasons. That rationale is stronger now than ever.
Thank you very much, Mr. Chairman, for this opportunity for our 21 States to be heard. We look forward to questions.
Mr. QUINN. Thank you, David. Thanks very much for your testimony.
Mr. Dysart, we will ask you to summarize your written comments in about five minutes or so and then we will get to questions. Thank you.
Mr. DYSART. Can do, Mr. Chairman. Thank you again for having the High Speed Ground Transportation Association here. We always appreciate the opportunity. We are grateful to Chairman Young, as well, for his focusing attention on the high speed rail industry and our needs for the future.
The HSGTA Association is a trade organization with members that include rail equipment suppliers, engineering firms, construction firms, law firms, labor-management trusts, Federal, State, and local government agencies, other associations and organized labor.
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We also represent a very diverse constituency in that we have members that would like to see incremental high-speed rail built, very high-speed rail and magnetically levitated vehicles and systems of that kind. We have been in existence since 1983.
We would like to share our thoughts with the subcommittee today on some principles that we believe should be included in any legislation promoting high-speed ground transportation.
Also endorsing these principles are the National Association of Railroad Passengers, the Indiana High Speed Rail Association, the Midwest Council of State Governments High Speed Rail Task Force, the Environmental Law and Policy Center of the Midwest and the Railway Progress Institute.
These five principles are as follows:
We would urge you to enact legislation which, one, reflects a substantial and credible Federal capital investment. The federal government has committed 70 times more funding to highways and airports over the last 30 years than to intercity passenger rail.
If Congress believes high-speed rail is in the national interest, then Congress must make a substantial funding commitment now and it must find a way to sustain funding over the long term with a dedicated source of money.
Two, legislation which enables States and localities to advance passenger rail improvements quickly. While direct appropriations may be preferable, innovative finance mechanisms for rail, including tax-exempt bonds, tax credit bonds and Federally-guaranteed loans also offer the potential to promote State and local participation in promising corridors.
Three, legislation which infuses capital for rail in both the short and long term. The nation requires immediate further investment in our existing passenger rail infrastructure that is Amtrak, to ensure continued safety, security and mobility.
At the same time, a long term commitment to rail, including the introduction of new technologies is essential to support our predicted future transportation needs.
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Four, legislation that enables implementation of the high-speed corridors with the greatest economic and transportation potential. The nation cannot restrict high-speed rail only to the northeast. Other promising rail corridors nationwide in the Midwest, the South, the West and the Northwest can and must be built to enable Americans living in crowded corridors the freedom of transportation choice and mobility.
Five, legislation that respects the rights and requirements of all rail stakeholders. Any new Federal program enacted by Congress must promote the interests of all the stakeholders that will make high-speed rail work, including rail and construction employees, existing and future passenger and freight operators and partner localities and States.
There ends our five principles. The expansion of high-speed ground transport has become imperative in light of recent events. The Congress and the administration should work to create a truly intramodal transportation system, passenger as well as freight, that helps pull the nation's transportation modes together in a systemic way that fosters safety and security while promoting our mobility for the future.
The High Speed Ground Transportation Association looks forward to working with this and other committees to move these issues forward and make them happen just as soon as possible.
We thank you, again, Mr. Chairman, for giving us an opportunity to express some views today.
Mr. QUINN. Well, thank you for your summary. We really appreciate it.
Mr. Coble, I want to give you the first chance since you were talking about having your oar in the water a little bit earlier. So, I would yield to Mr. Coble first and then Mr. Bachus if you have any questions.
Mr. Coble.
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Mr. COBLE. Thank you, Mr. Chairman. Mr. Chairman, I want to emphasize Mr. King with my questioning since he comes from my State. Mr. King, you testified before the Oversight Subcommittee of the Committee on Ways and Means on July 25th of this year regarding tax treatment for infrastructure, specifically regarding high-speed rail.
At that time you said, ''Our emphasis will be to assure that nothing we do to improve rail passenger service diminishes the ability of freight railroads to provide safe, reliable freight service.''
Do the provisions of RIDE-21 meet this goal?
Mr. DAVID KING. Yes, sir. I wish Mr. Nadler were here because he certainly pressed that issue this afternoon.
I can assure you, when we are working with the two Class I railroads in North Carolina, CSX and Norfolk Southern, we will do nothing that diminishes their ability to be successful freight operators. At the margin, we will improve their ability to be successful at freight operations with the investments we make to provide for passenger service.
That is our literal and moral contract with these Class I railroads. Were it not, they would require it anyway.
Mr. COBLE. That was the answer I was hoping to receive.
You note in your written testimony, Mr. King that no tax-exempt bonds have been issued for high-speed rail since they changed in the law. I think it was 1997. Why is that?
Mr. DAVID KING. I think it is affordability, Mr. Coble. I think the points that some of the other panelists, in fact some members of the committee have made, about the financial condition of States and the point that I tried to make about the partnership that we have on other modes of transportation bears this out. States are in the habit of putting up a match that is usually in the 20 to 30 range in exchange for Federal support for a major mode of transportation.
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For those two reasons, I believe, we do not have any tax-exempt issuances that have been completed in the high-speed rail area. That is why I believe perhaps the other approach has more viability.
Mr. COBLE. Some States are restricted to issuing these bonds for projects that run at 150 miles per hour. Would that have any effect on none having been issued?
Mr. DAVID KING. I'm sure at the margin any change that would loosen, for example, removing the cap, would have some potential benefit. In the very informal poll we have done of our 21 States that are involved in this coalition, we find very limited interest in the tax exempt bond approach because of affordability, because of the lack of a true Federal partner.
Mr. COBLE. One final question, if I may, Mr. Chairman.
Mr. King, you suggested that lowering the ultimate design standard for RIDE-21 High-Speed Rail Corridors from 125 miles per hour to 110 miles per hour.
As presently drafted, RIDE-21 requires sustained cruising speeds of 125 miles per hour or more and ultimate corridor design submitted to DOT, not in all the individual projects by which the State moves toward 125 miles per hour.
Why is this a problem?
Mr. DAVID KING. The increment from 110 to 125 is very expensive. To go back to Mr. Sullivan's presentation, you are buying very expensive minutes above 110 miles an hour. You are also virtually guaranteeing that you have to go outside of existing freight railroad corridors.
That means that you have to enter into a full environmental analysis and environmental impact statement for a new alignment. That means that you are into a 10 or 12-year planning and environmental planning process before you are even ready to design.
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So, for pragmatic reasons, if we are to get on with this business and because the cost effectiveness of those very expensive minutes above 110 is not there, at least in our analysis, then we think that perhaps 110 mile an hour design speed makes sense in our situation in the Southeast.
Now, ultimately, I think all of us would like the higher speeds and to be able to have 150 or 170 or 200-mile service like perhaps the French do. But in the short and intermediate term, I think that is an unrealistic goal for us in the Southeast.
Mr. COBLE. Thank you, sir. Thank you, Mr. King. Thank you, gentlemen. Mr. Chairman, I thank you, sir.
Mr. QUINN. Thank you, Mr. Coble.
Mr. Bachus, questions for the panel?
Mr. BACHUS. Thank you. One thing I will say for the panelists, and there has been quite a lot of expression by both panels that the 125 mile-even though it actually is intended as an ultimate target, that that is a real problem. I think that is one thing where maybe we will see some changes.
Looking at, you know, H.R.2329, which is one solution, and then RIDE-21, I will start with Mr. Dysart, is RIDE-21 consistent with the principles you outlined in your written testimony? If it is not, what changes would have to be made to it?
Mr. DYSART. Well, it is not entirely consistent to the extent that one, I have to rely on the bond experts to tell us what the mix should be. As long as we have a mix that satisfies the States in terms of what kind of funding mechanisms we use and they will access it quickly, then that will meet our goal, the one goal that we have.
We are also concerned about the labor provisions because I think you may well be taking care of building and construction trades in H.R.2950, but you have not addressed yet the rail labor issues. They have very different and specific issues that are separate and apart from Davis-Bacon. Otherwise, we are probably getting closer and closer.
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I think an amalgam of these bills would be very helpful ultimately if we put this together. As you would say in labor, cheery-pick them.
Mr. BACHUS. Mr. King, I will ask you this and I asked the same question earlier to Mayor King. Is being in charge of your own corridor instead of dealing with-in this case it is Amtrak. I don't mean that in a negative way, you know, saying they are a monopoly. I don't mean that negatively. But is it worth something to have control over your own operation?
Mr. DAVID KING. Well, I will give you a variant of the answer that Mayor King gave you. That is that States, when given a choice, would always like to have more control rather than less.
When I was here in July, I cited the capital corridor in California where a joint powers authority has been put in place by the State and the control for the operation of trains in that corridor is vested in that joint powers authority. Amtrak is the contractor. They are an important contractor, but they are a contractor.
The station operations, food service, schedules are all controlled by the State. That is the fastest growing ridership corridor in the country. I think there is a lesson there.
Mr. BACHUS. That is the deciding role in the management, I think, is maybe the way to determine it.
Mr. Dysart. You are quite right.
Mr. BACHUS. We do struggle up here because Amtrak has not been funded. I mean they have not received sufficient funding. So, it is hard sometimes to sort through what caused their failures and to decide how successful they would have been otherwise.
Mr. Query, I wanted to say this and just to alert all of you all to this. The CBO did an analysis of H.R.2329, which is the tax credit bill. They released it this week. It concluded that the Amtrak bond proposal as embodied in H.R.2329 would produce only $8 billion in present value resources at a cost 15 percent higher than simply handing out $8 billion in regular appropriations.
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How do you reconcile these realities with your support for H.R.2329? Would you have any comment?
Mr. QUERY. Congressman, unfortunately, I have not had an opportunity to look at the CBO report. I would be interested in doing so.
I would respond basically by saying in spite of what that particular analysis may imply, if one of the choices on the table today were $8 billion of appropriations committed up front over an extended period of time to pursue a capital program, rather than a financing vehicle, then I think in spite of the fact that it lessens the amount of work for investment bankers to do, I think it would probably be attractive for our transportation clients. To that extent, it would be a positive thing.
I don't know what lies behind their present value analysis, but cash is always a good thing.
Mr. BACHUS. Okay. I want to just close by making two comments and I will do that because I am pretty much out of time.
One thing as the gentleman from North Carolina mentioned, the tax-exempt bonds we now have for high-speed rail, there are two provisions on using them. One is that projects funded must run at 150 miles per hour. Obviously, from what Mr. King said and what we said about the need to lower the speed, that tells you maybe one reason they haven't done them.
The other one is that high-speed rail is just one of 12 things they can use that money for. You know, politics being what they are, they are going to use that for roads or something else, education, even, I guess.
The other is that out of an authorized amount of $1.6 billion of tax credit bonds that States may issue for construction of educational facilities, and we all know they need those, they have issued only $100 to $150 million of those.
So, I would ask why.
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Mr. QUERY. Congressman, if I could address the first question and I think, Mr. Treasurer, you addressed the second one in your testimony. With regard to the use of the 150 mile per hour provisions, the private activity bond provisions that were put in for high-speed rail a number of years ago, to the best of my knowledge, was put in for a specific project in Florida. That project did not move forward.
So, basically, there is no project on the drawing boards that I am aware of that would meet those criteria. Since obviously the investments in the northeast corridor, which is our most rapid high-speed corridor at the moment, don't meet it, it is hard to imagine which project would in fact qualify.
So, the impediment again has nothing to do with standing in line behind other projects. I would also suspect that again, even if that high-speed rail provision were dropped to 100 miles an hour or even eliminated, you still wouldn't find, frankly, a long line at the door.
To the best of my knowledge, we are the only investment bank that has sold a mass commuting private activity bond for Amtrak. That is the only use of those particular provisions. There certainly must be a lot more applications and a higher level of interest, I would think, nationally for similar high speed rail projects.
I don't know if others agree with that or not.
Mr. QUINN. Just to finish up on that, Mr. Query, I don't want to speak for Mr. Young, this is his bill. He is not here right now. He was here earlier today. But I think that is one of the things that he is trying to get at with the bill, that the 150, I didn't know it was Florida, but it was somewhere. You could just do away with it and you still wouldn't have people waiting at the door?
Mr. QUERY. That is my opinion.
Mr. QUINN. I wouldn't disagree with you. I think you are pretty close.
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I have just one quick question for you. I jotted it down when you were making your remarks. I didn't want to interrupt you. You talked about some work that you and Morgan Stanley have done with State systems. Have you done any local or anything smaller, any county or citywide things?
Mr. QUERY. Yes, we have. But again, the nature of those programs tends to be different. For example, toll road financings for localities is common. Mass transit financing for localities is common. There are variations on the theme.
For example, the Virginia Railway Express, one could argue that in fact that is intercity rail between Fredericksburg, Virginia and Washington, D.C. I don't think most people think of that as high speed rail. Even if it were to go faster, they would still think of it as a commuting facility. We did put together that financing program back in about 1990.
Mr. QUINN. That is fair enough. I was going to ask the Mayor before he left with a lot of these projects, no matter what we are talking about, it depends on where it is high-speed.
Certainly if you are a mayor of a city, it is not high-speed anywhere in a city, in most cases.
Mr. QUERY. That is exactly right.
Mr. QUINN. But it is how you get from where you want to be, as Mr. Nadler pointed out, to another spot where it becomes high-speed. These numbers, whether it is 150 or 125 or 110, who knows.
Mr. QUERY. The real difficulty, as the Secretary described, the realities of intercity rail travel today isn't how fast the train is moving while it is moving. It is how long it has to sit there and wait for a freight train to go by.
Mr. QUINN. So they can move it at any speed.
Mr. QUERY. At any speed.
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Mr. QUINN. At any speed with people on it.
Mr. QUERY. Yes, sir.
Mr. QUINN. One of the things we started out doing today, I didn't ask that the record stay open for any specific length of time other than the 30 days we always do, but we may take the opportunity. I have some questions coming from both sides.
My colleagues from the other end of the table here had to go to other meetings. We may take the opportunity to get back to you with some questions. There are a couple here tonight that I just don't have time for. But we would like to get to all of you.
Finally, on behalf of the Members who are still here, I want to thank you for staying with us this afternoon. It is always enlightening.
Thanks very much. We are adjourned.
[Whereupon, at 5:30 p.m. the subcommittee was adjourned, to reconvene at the call of the Chair.]