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Wednesday, March 11, 1998.











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Opening Remarks

    Mr. WOLF. The House is in session and we are going to have a couple votes during the middle of this hearing. I also have an amendment up in about 20 or 30 minutes, so we are going to try to get somebody else to briefly chair.

    I welcome you to the committee. Perhaps it may be a better idea to just summarize your statement. But before you do, let me just begin with a statement.


    Today, we will hear from Ms. Molitoris, Administrator of the Federal Railroad Administration, and from George Warrington, Acting President of Amtrak. We have also invited two of Amtrak's board members, Ms. deLeon and Ms. Rosen, to testify on the Brotherhood of Maintenance-of-Way agreement they negotiated for the Corporation.
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    Last year, former President Tom Downs outlined for the Subcommittee what needed to be done for Amtrak to avoid bankruptcy. This approach included a restructuring of Amtrak to reduce the Corporation's deficit, decreasing operating costs by making investment in the Corporation's infrastructure, and reducing costs through legislative reforms.

    By the end of 1997, all three of these actions had occurred. Amtrak had been able to restructure the company and its route system, thereby reducing its annual costs by approximately $400 million. Congress enacted a reform and reauthorization bill that provided statutory relief from some of its most onerous labor provisions, made various legislative reforms, and freed up $2.2 billion in tax credits for Amtrak to spend on various capital needs.

    In fiscal year 1999, the administration and Amtrak are requesting $621 million in capital funds and are seeking permission to use the capital appropriations for preventive maintenance. This recourse is quite different from prior years, when Congress provided a grant for operating and capital, as well as funding for the Northeast Corridor Improvement Program.

    With all of these changes, you would think that I would be optimistic about Amtrak's future. However, I must say that I am concerned. I have heard from a variety of experts about the precarious position Amtrak is in. For example, GAO testified last month that Amtrak is still in ''dire financial straits.''

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    Other knowledgeable sources have said that the administration's 1999 request would simply be shifting costs from operating expenses to capital expenses, in essence, moving the pea from under one shell to under another shell and causing Amtrak to spend down its needed capital appropriations on the daily operation of the system instead of on long-term investments, ultimately, perhaps, bringing about the bankruptcy of the Corporation in the year 2000.

    Secretary Slater was more optimistic about Amtrak's future when he testified last week. However, he noted that Amtrak will continue to need Federal support well after the year 2002 in the form of a capital appropriation.

    During this hearing, I would like to get to the bottom of Amtrak's financial conditions and hope to have the following questions answered. Does Amtrak continue to operate in a fragile state, as many have testified, or have these recent legislative actions placed the Corporation on a more stable footing? Will adopting this new structure for Federal appropriations be robbing Peter to pay for Paul, diverting the TRA and capital appropriations to pay for traditional operating expenses?

    I personally, and I am sure most members, would like to see or want to see Amtrak survive. It actually serves my Congressional district to a certain degree and many people in the Washington metropolitan area use it. I believe America needs a cost-effective and efficient national rail passenger system. Preserving a national rail system is vital for a balanced transportation network, but we really have to get the answers to all of these questions.

    We welcome you and your staff and we will, as I said earlier, insert your full statements in the record. You can summarize them.
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    Let me recognize Mr. Sabo first.

    Mr. SABO. Thank you, Mr. Chairman. I look forward to hearing our witnesses testify, both as to the future of Amtrak and also the Federal Railroad Administration continuing on rail safety. Thank you, and welcome.

    Ms. MOLITORIS. Thank you.

FRA Opening Statement

    Mr. WOLF. Ms. Molitoris.

    Ms. MOLITORIS. Thank you, Mr. Chairman. Thank you for the opportunity to testify today in defense of our budget request for 1999. Mr. Chairman, I will focus on two subjects in my oral statement: rail safety and Amtrak.


    Mr. Chairman, safety is and has always been a priority of President Clinton and the Department of Transportation. In fact, Secretary Slater calls safety his north star. We are focused on safety results and I am going to highlight today those results which I believe have flowed from the investments requested by the President and approved by Congress in the last couple of years.

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    The railroad industry today is changing dramatically and quickly. Freight traffic has increased by more than a third since 1990, to the highest level in history, while rail employment has decreased to the lowest level in a century. The evolution of mega-railroads, large Class I railroads, poses challenges to our safety oversight never contemplated by FRA history or our regulations. Mega-railroads impose a huge distance between corporate decisionmaking and the men and women on the front lines who are most at risk for their lives in the pursuit of their work.


    Traditional inspection techniques alone cannot reach the root of safety hazards quickly enough to prevent tragedy in this new rail structure. Consequently, FRA has evolved its safety program through a coalition of labor, management, and FRA to attack safety hazards at their roots.

    If we look at Union Pacific in 1997, I think we have a good example. In 1995 and 1996, Union Pacific safety statistics were all going in the right direction. The safety issues, both service and safety, that occurred in 1997 could not have been foretold by the traditional site inspection method alone. Only because of the new SACP program could we respond as quickly as we did to uncover safety hazards such as insufficient employee and supervisory levels; training, fatigue, and crew management issues that were really at the heart of both safety and service problems. Traditional inspections alone will not enable us to make safety gains in a timely fashion to get preventive rather than just a reactive mode.

    We also should mention that SACP has leveraged a lot of dollars right to the safety issues that men and women on the front lines face. For example, Union Pacific has focused on training, in hiring of new dispatcher personnel, train and engine crews, and track specialists, and initiated a new fatigue countermeasures program. Fatigue is one of the biggest issues in transportation and Union Pacific has already, since our impact in the late summer, invested $4 million in a fatigue countermeasures program. They have also invested very significant dollars in training, a three- to four-fold increase in hiring from the previous year, and tripled the number of dispatching supervisors.
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    The SACP work of labor, management, and FRA brought the 1997 series of collisions and yard tragedies to a halt. It has brought management, labor, and FRA into a partnership for safety that goes well beyond issues involved in collective bargaining. It is only through this intense and continuing SACP activity that FRA can adequately carry out its safety oversight.

    One more example, the Conrail acquisition proposed by CSX and Norfolk Southern. With the experience of the UP-SP merger results so vivid for all of us, we proposed to the STB that it was extremely important that safety implementation plans be presented as part of the railroad submissions. They required that, and as a matter of fact, we are now developing a rule which will mean that these safety implementation plans must be a part of any future major reorganization or transaction.


    We have achieved safety results. Since 1993, with the new comprehensive approach, we have achieved a 19 percent decrease in railroad-related fatalities, a 42 percent decrease in on-the-job casualties, a 17 percent decrease in accident rates, and a 16 percent decrease in grade crossing incident rates. These indicators mean safety is increasing. They are important signs that the program is working, but we have lots more to do.

    Our request includes $62 million for railroad safety, which includes 32 additional rail safety employees and related costs to support all of these programs. In addition, safety research and development focused on safety initiatives is also included. Our request will enable us to carry out our safety mission and advance it to help reach the zero goal that we have.
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    On the issue of Amtrak, Mr. Chairman, 1997 was a critical year for Amtrak. Labor agreements were reached. Service issues were resolved. Reform legislation that you mentioned was so critical was enacted. And the Taxpayer Relief Act, which provided much-needed investment funding, was also passed. The Clinton administration continues to have the same focus as it has all through the first term, that we continue to further transform Amtrak into a cost-effective provider of high-quality transportation service.

    Our five-year goal remains that Amtrak only come to the Federal Government for the investment necessary to undertake capital projects to assure safety, improve service, reduce cost, and protect the public's interest in Amtrak. To accomplish this, we are proposing the minimum funding necessary to implement Amtrak's September 1997 strategic plan to move the Corporation to financial viability within the next five years. To ensure the prudent and effective use of these funds, our proposal calls for the release of all funds, including TRA, to be contingent upon Amtrak's creation of a thorough and thoughtful capital plan.

    This administration considers passenger rail service to be a critical element of the nation's transportation network and we propose $621 million in capital in addition to the $2.2 billion through the Taxpayer Relief Act.

    I look forward to working with you, answering your questions and those of the subcommittee today. I believe that we have many opportunities to talk about what we can do in safety and in passenger service throughout this country. I look forward to working with you, Mr. Chairman.
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    Mr. WOLF. I thank you much.

    [The prepared statement and biography of Jolene Molitoris and the biographies of James McQueen and Kathryn Murphy follow:]
     "The Official Committee record contains additional material here."

Amtrak's Opening Remarks

    Mr. WOLF. Mr Warrington.

    Mr. WARRINGTON. Thank you, Mr. Chairman. Mr. Chairman, I have been Acting President of Amtrak since this past December. Over the past three-and-a-half years, I have served as President of Amtrak's Northeast Corridor operations, headquartered in Philadelphia, Pennsylvania, and frankly, I am very proud of all of our accomplishments over the past three years. While I served as President of the Northeast Corridor, I was also a member of Amtrak's management committee, and in that capacity I have had a voice in virtually all of the important changes we have made at Amtrak over the last three or four years.

    My experience is based primarily in operating and running a railroad. Testifying before Congress is not a part of my normal routine. My instincts, however, tell me that in either of these capacities it is best to be direct and straightforward and that is what I intend to do here today, Mr. Chairman.

AMTRAK FROM 1994 TO 1998
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    While we finished one of the most difficult years in Amtrak's history, I feel very confident—very confident—that we at Amtrak are in a much more stable position, both commercially, financially, and operationally, than we have been in a very long time, certainly in my three-and-a-half years at Amtrak. In the past three years, we have significantly improved the bottom line by over $300 million through very aggressive revenue development and cost-cutting actions.

    The bottom-line improvements include redeployment of our fleet assets, very aggressive passenger and commercial revenue development, maximizing real estate assets, and elimination of poorly performing routes, about 17 to 20 percent of our route miles. Though a significant amount of savings has been and will continue to flow from much better business practices internal to the company, we have also been turning our attention to strengthening and creating new lines of business, such as expanding high-speed rail, commuter business, the mail business, and express services. All of this has been done within the context of reductions in Federal operating support by about 50 percent.


    Although we have reduced the number of system miles we run every day, we have retained our customer base and we have begun to see increases in both ridership and passenger revenue. Between fiscal years 1995 and 1997, revenues have climbed from $851 million to $970 million. This year, our plan calls for a further increase in passenger revenues, which will carry us over the $1 billion mark for the first time in the company's 27-year history.

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    Our strategic investments, for example, in new locomotives and Viewliner sleeping cars have reduced our operating expenses and measurably increased customer satisfaction. We are less than two years away from inaugurating high-speed service on the Northeast Corridor. We have just ordered new equipment for our San Diego to Los Angeles service in California.

    Ridership has increased over this past year by 2.6 percent, with the highest increases actually occurring in the West Coast operations. Based on our first quarter results, this trend continues with a seven percent increase in the first quarter of this fiscal year over the first quarter of last year, and, in fact, last month, in February, our Northeast Corridor ridership and our Northeast Direct ridership was up by 9.5 percent over February last year, and that is a very positive, continuing trend.


    While our business plans are forward-looking and aggressive in terms of operating efficiency and commercial revenue development, one of our priorities over the next six to 12 months will be to develop a long-term vision for maximizing the core business potential in the marketplace; that is growing market share. We have to better understand all the forces that affect our market. It is not enough to know who our customers are. Rather, we need to know where they want to go, what we need to do to get them there, and how we can get them to buy our service again once they try us. In other words, we need to know how we can be relevant, not relevant based upon a system that operated in 1958 but relevant in today's economy and in today's marketplace.

    In the last few years, we have tried to reduce costs through the elimination of service. Of all the actions we have taken, this one, as you know, has been very emotionally charged. Some said we cut too much service. Others felt we should have cut far deeper and eliminated virtually all of our long-distance trains.
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    Last year, in fact, a blue ribbon panel advocated that we, Amtrak, should be privatized and be reborn in a fashion analogous to the British Rail model. We now know from recent reports in the London Times that the British experience has resulted in fewer trains, poor reliability, customer satisfaction at an all-time low, while public subsidies have actually doubled. A study published in Britain last year estimated that the entire cost of privatizing British Rail will be 5.6 billion British pounds, or $9.4 billion U.S. So far, this has yielded mostly promises of future improvements. Finally, there are those in this country who believe that we should only operate short-haul trains in highly-populated corridors.

    I suggest, Mr. Chairman, we lay aside for the moment whatever ideological feelings we all have about Amtrak, intercity passenger rail service, subsidies or privatization. Last year, as I mentioned, Congress told us it wanted a national system, but it also wanted Amtrak to operate like a business. That is a real challenge, and frankly, it is often a very real conflict.

    Yet, as I have said, we need to know much more about the travel demand market and our role in the marketplace. There is a world of difference in the expectations of our Metroliner passengers and those who travel on our long-distance trains. We need to know more about those differences, what it will take to make customers in different markets use our service again, and what we can do to expand and grow market share. Understanding those differences and understanding our financial and operating capability to satisfy them is the key to long-term stability and growth. In my view, knowing the answers to these questions is the difference between providing a public service and truly running a relevant business with a market-driven plan and an economic objective.
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    As you know, last year, as part of the Taxpayer Relief Act, Congress granted Amtrak what essentially was a tax refund of $2.2 billion to be used for capital investments. This is about half of the amount our planning assumes if we are to reduce operating expenses through high-yield capital investment. This balance of the required $4 billion in Federal capital support would be requested through the annual appropriations process.

    The administration's budget for fiscal year 1999 recommends, as the Administrator said, $621 million of capital for Amtrak, all of it flowing from the Highway Trust Fund. When this budget was first proposed, frankly, it was met with some skepticism at Amtrak. After much thought and much discussion and much working together with the administration, we have offered and crafted a modification that enables the proposal to work well for Amtrak, not only this year but over the next several years.


    Last year, this subcommittee added language, originally contained in the administration and Senate ISTEA bills, to the FTA section of your funding bill. This language gives transit agencies greater flexibility in how they may spend their capital dollars. With this definitional change, the transit community can now spend its capital dollars on maintenance of equipment and facilities that heretofore had been considered or defined as operating expenses. This makes good business sense and it has the effect of taking great pressure off of operating costs.
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    This year, in addition to requesting full funding of the administration's budget, the $621 million, we and the administration support applying the transit capital maintenance definition to Amtrak, consistent with all, not just transit, but all Federal transportation programs, thereby enabling Amtrak to technically eliminate immediately the entire requirement for operating subsidies.


    It is critical to Amtrak that the $2.2 billion in TRA funds be used only for projects which provide a high rate of return, leverage other external private and public funds, or significantly improve the bottom line. We want to reserve that fund for those purposes. In fact, our capital investment strategy will contribute approximately $1 billion in bottom-line improvements over the plan period. Without these investments, the financial performance of the Corporation will worsen, we will lose revenue opportunities and incur additional costs that would otherwise be avoided.

    As I believe you know, we originally anticipated submitting a funding request for fiscal year 1999 with clearly delineated lines of operating and capital support, as we have traditionally done in the past. The administration's proposal, as you know, contained no request for operating support and recommended that we use our TRA funds to cover these operating needs. While we differed with the administration over the use of TRA, we do believe that using the newly-appropriated capital for maintenance of equipment and facilities as the transit industry does will work very well for us and for the committee.

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    Specifically, the approach will give us equity with other modes, all Federal transportation programs; will require no operating subsidy; it will create a very low, 40 percent, outlay rate for this committee; it will allow us to make better business decisions and not gold-plate our capital programs; and frankly, we believe it will permit easier tracking of the appropriation that is given to Amtrak by the committee and by the Congress.


    With respect to labor, Mr. Chairman, I would like to say a few words. One of the critical needs any business faces revolves around investing in its human assets. Amtrak is no different. Recruiting, training, and employing a skilled, qualified, and productive workforce in a very competitive environment, particularly in our urban centers, is a very serious challenge for us every day. New agreements we hope to be reaching with our unions will help us in this regard.

    Our ability to recruit and retain employees is highly dependent on competitive wages. Amtrak's craft wages have generally lagged behind the commuter and freight railroad industries. For instance, an Amtrak electrician is paid $16.10 an hour compared to the Long Island Railroad or Metro North, where an electrician is paid $23.10 or $21.49 per hour, respectively. An Amtrak catenary lineman earns $16.93 an hour, compared to a Metro North lineman who earns $21.91 an hour. As a matter of fact, Con Edison pays $29 an hour for an electric traction lineman. An Amtrak train dispatcher in our joint Amtrak/Long Island control center in Manhattan is paid nearly $10 less an hour than his Long Island Railroad counterpart.

    Needless to say, Amtrak's efficiency erodes when it hires and trains its workforce to perform specific and highly-skilled technical functions, only to lose that investment to a competitor's wages. Some positions require considerable investment in training. In direct costs alone, today, Amtrak spends nearly $77,000 and nine months to train a new locomotive engineer, nearly $99,000 and two years to train an electric traction catenary lineman, and $89,000 and two years to train a signal maintainer. I have to look at all sides of this issue, not just the impact of wage hikes on the bottom line but also what it costs to retain our investment in training.
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    We are currently in negotiations with 12 of our 13 labor organizations. With the exception of the nearly 2,500 BMWE members, most Amtrak contract employees have been without a new agreement since 1995. Other than COLA, cost-of-living payments, these employees have seen no wage increases. If Amtrak is expected to act like a business, we cannot ignore the wage issues which impact our workers. Yet we also must demand that wage improvements be coupled directly with productivity improvements and work rule reform by our labor organizations.

    Last year, it became clear that Amtrak was faced with making a decision about entering into new contracts which could potentially extend to all 13 labor organizations in Amtrak if we were to avoid a disrupting and damaging work stoppage in the Northeast, which would have impacted 600,000 daily commuters. PEB, Presidential Emergency Board 234, which specifically dealt with the BMWE dispute, determined that Amtrak employees deserved wage increases consistent with the full national settlement on the freight railroads, but it did not address any productivity, efficiency, or work rule improvements.

    Amtrak was not in a position to voluntarily agree to wage increases without significant productivity and work rule changes. Had the PEB simply been imposed on the parties, Amtrak would have had to pay wage increases and not receive the benefit of productivity improvements. The agreement we reached with the BMWE not only provided for wages less costly than the national settlement, but also provided Amtrak with significant work rule changes unique to our own operating needs. I might add, quite frankly, that we have among the best work rules and productivity opportunities in the country, particularly when stacked up against virtually, if not all, commuter and freight railroads in the entire nation.

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    Mr. Chairman, if we reached no agreements with any of our unions, our obligations, primarily cost-of-living payments, under existing contracts would have amounted to $182 million during the current five-year contract period. With the BMWE agreement as the pattern, we project a five-year incremental cost for all agreements across the entire operation of approximately $248 million. With cost-saving productivity and work rules changes, again along the lines of the BMWE settlement, we estimate savings or cost offsets of more than $56 million during this same period. In other words, with these negotiated savings, the actual cash costs to Amtrak over five years will be less than $200 million, or on an annualized basis, about $38 million a year.

    Given the critical need to retain skilled workers, secure work rule and productivity gains, improve morale, which is vital in a customer service business, and avoid a very costly strike to Amtrak and the Northeast region, an annual increment of $38 million in the context of a $1 billion annual payroll is not only defensible, but I believe personally, the right thing to do.


    Given the sensitivity of this issue, however, Mr. Chairman, I want you to know that I have instructed Amtrak's Chief Financial Officer to establish a separate accounting system for any wage increase, including the BMWE agreement and future agreements, which would assure that all new increments would be funded through and by passenger revenues. Under this mechanism, this committee would not be financially responsible for any negotiated wage increases and would have the ability to better track all Federal dollars appropriated to Amtrak.

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    In addition, paying for new wage increases out of Amtrak passenger revenues imposes a discipline on Amtrak that encourages the company to drive toward productive outcomes. This makes sense for Amtrak and, we believe, it makes sense for this committee. It also encourages Amtrak management and labor to maximize revenues, passenger revenues, so that the source of future wage increases will be secure.

    Along the lines of productivity, you know we have been reengineering our railroad and we have implemented and invested in a wide range of efficient fleet, facility, production, maintenance, business management, and engineering processes and procedures as a way of reducing costs and increasing productivity.

    Several examples include better utilization of rolling stock by creating run-through operations across the nation on several long-distance trains which has cut maintenance costs and provided additional flexibility in the deployment of our equipment. Uniform consisting of all single-level trains again gives us greater flexibility in our fleet deployment and allows us to reduce the number of our maintenance facilities and costs.


    On the Northeast Corridor, Amtrak maintains the most dense railroad in North America and maintains it to the highest FRA Class VII standards ever established. Yet our capital cost per mile is the lowest among the major commuter railroads in North America. Amtrak invests $39,600 on average annually of capital per mile, compared to SEPTA in Philadelphia, which spends $259,000, METRA in Chicago, which averages $126,000, and New Jersey Transit, which invests about $123,000 on an average annual basis.
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    Through better management of our track and switch renewal programs, we have reduced delays resulting from maintenance of way work by 51.5 percent between 1994 and 1997. Our practices and techniques for repairing large segments of aging infrastructure, such as 1900s vintage bridges, has saved the company tens of millions of dollars in new construction costs and, from a Research and Development point of view, has led the railroad industry. Between 1994 and 1997, we have increased our measurable engineering field productivity and efficiency by 106 percent.


    With respect to high-speed rail, I know there were several questions about the status of the program. I assure you that the project is on budget and on schedule. We expect to have all of the Northend, New Haven to Boston, electrification work completed by next summer, on schedule. Twelve of the 24 electrical substations are well underway. Approximately 9,000 of the 14,000 catenary pole foundations have been installed, along with 4,000 poles and about 120 of the 1,500 miles of overhead wire is up.

    Trackside, we built the required sidings in the Northeast Corridor, installed 138 of 140 miles of continuous welded rail and 330,000 of 332,000 required concrete ties. We have modified 119 of the 127 curves, and of the 146 bridges that need to be undercut, raised, or eliminated, 95 have been completed. It has all been done on schedule and on budget by those same employees who we negotiated with last fall.

    With respect to trainsets, we have 18 on order. Five will be in the house and ready for service by late 1999, with the balance of 13 delivered by July of 2000.
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    I want to reiterate, Mr. Chairman, that I believe the future looks better for Amtrak, frankly, than it did a year ago, and certainly much better than it has over the last several years. The monies released to us by way of the Taxpayer Relief Act have given us the opportunity for the first time in our history to genuinely plan our capital needs over time.


    In summary, the administration's budget as modified can and will work for Amtrak and this committee if it does not depend on using TRA for maintenance of equipment but instead preserves it for high-return capital investments; it enables Amtrak to use the same rules used by other recipients of Federal appropriations; it allows Amtrak to make better, wiser business decisions about how to invest and use capital; it eliminates, technically, Federal operating subsidies; it reduces outlays for the committee; and it allows the committee to better track where funds appropriated to Amtrak are spent.

    It is critical, though, that we receive full funding of the President's request, the $620 million, and it is vital that we also be permitted to spend our capital with the type of flexibility now enjoyed by the transit industry. We are encouraging the administration and the Congress to undo the language, as well, with respect to the $199 million that was reversed last fall.

    I will tell you, Mr. Chairman, I am genuinely excited about the business challenges and opportunities we face. Ridership and revenues are steadily growing across the country. We have a very good product which honestly and genuinely is getting better, and we have a future which looks much more stable over the next several years than we have been accustomed to in many, many years, frankly, thanks to the TRA, thanks to a lot of hard work by a lot of employees at Amtrak, and thanks to a long-range proposed funding plan with flexibility that enables us to achieve the kind of stability that we have not seen in a long, long time in the company.
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    Thank you, Mr. Chairman.

    Mr. WOLF. Thank you, Mr. Warrington.

    [The prepared statement and biography of George Warrington and biographies of Amy Rosen, Sylvia deLeon and Alfred Altschul follow:]
    "The Official Committee record contains additional material here."

    Mr. WOLFE. I will have a large number of questons. Mr. Regula has to go to another meeting. I will yield my time to him and then we will go to Mr. Sabo. Mr. Regula.


    Mr. REGULA. Thank you, Mr. Chairman.

    I want to say that the Federal Railroad Administration has been very helpful to us on questions on the Conrail merger issue in Ohio and I would have some questions about that. Ms. Molitoris, you are familiar with the merger I am talking about. What other States are impacted as much as Ohio by this proposed Conrail acquisition?

    Ms. MOLITORIS. Mr. Regula, Ohio is impacted very heavily by the merger. Certainly, the State of New York is also impacted, and certainly other States. However, I think when you look at the State of Ohio, you see the presence of the so-called ''X'', which is where the two railroads almost intersect leading to an opportunity, if not handled correctly, for congestion problems to arise. That is why we have been very focused as an administration on the whole safety impact of this merger proposal.
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    We have submitted to the Surface Transportation Board our information about the potential safety impacts and the Surface Transportation Board did respond quickly and required the submission of Safety Integration plans of both the proposed railroads who would be involved in the acquisition.

    I think that it is important to say to you that just the plans are not enough. We are committed to working consistently with the railroad companies to enhance these plans and to be very close to them to assure that implementation continues throughout any approval process that may go on.

    Mr. REGULA. Do you look at competitive access, also, as part of your overview?

    Ms. MOLITORIS. The submission by the Department of Transportation includes both competitive issues and safety issues, and we submitted a fairly comprehensive filing to the Department. Of course, all competitive issues are related to the public interest and so our focus has emphasized both competitive issues and safety issues.

    Mr. REGULA. As you know, the Governor and also many of the Members of Congress from Ohio have raised issues about this merger and the impact that it would have. Have any of the other States become involved in opposition to the Conrail acquisition?

    Ms. MOLITORIS. Mr. Regula, several other States are parties of record and they have certainly proposed issues of concern with regard to safety and service and competitive issues and we have tried to work diligently with each of them to provide technical assistance and to incorporate their concerns into the Department's filing.
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    Mr. REGULA. The last question, you do, in responding to this, take a position on the competitive situation and try to keep the options available to shippers, particularly the small shippers on the regional or short-line railroads?

    Ms. MOLITORIS. Our filing, which was submitted February 23, says that there are a fairly long laundry list, Mr. Regula, of issues that we feel require mitigation before this proposal would be in the public interest.

    Mr. REGULA. Do you monitor the negotiations that are going on among the interested parties?

    Ms. MOLITORIS. We try to be available to support these talks, but the negotiations really are between companies and cities or locales, States in some cases. We try to be responsive to all the citizens' issues that are raised as we have with some of your concerns, and provide technical assistance. Thank you.

    Mr. WOLF. Mr. Sabo.


    Mr. SABO. Thank you, Mr. Chairman.

    Let me understand the Amtrak request. Your request is about $620 million in capital funds with the change of definition of how you could use it, rather than a significant operating appropriation. That means less outlays for us, but it also means less cash flow for you in the first year. Where are you going to get the additional cash flow in the first year of this change?
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    Mr. WARRINGTON. Our assumption, Mr. Sabo, is that we have established an outlay rate of 40 percent, which is about $248 million, the first of the fiscal year. To cover the balance of that fund, we would short-term borrow through the TRA.

    Mr. SABO. So you would escalate your borrowing during the first year to make up for that cash flow shortage?

    Mr. WARRINGTON. Short-term, internal TRA borrowing, and then when the——

    Mr. SABO. What is TRA?

    Mr. WARRINGTON. Taxpayer Relief Act. As I was saying, short-term borrowing for cash purposes through the fiscal year for qualified expenses, replenished with the balance of the appropriation at the end of the fiscal year when the 60 percent share is provided.

    Mr. SABO. What you are suggesting may make sense long term. It clearly is a budget gimmick for the first year to lower our outlay pressures, and we have lots of them. I expect before the year is over, there will be other gimmicks that will offend me much more than this proposal. [Laughter.]

    But it really is an outlay savings for us for only one year, because by the second year, by the year 2000, we have the obligation for the balance of 1999 and the 40 percent of 2000. So in the second year of the biennium, there is no outlay savings for us.
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    What does concern me is that this is one of many proposals that when combined put this subcommittee in a difficult position in this and future years. As another example, I think the Federal Railroad Administration has certain fees proposed that are not likely to be adopted, as do several other agencies. Your Amtrak adjustment helps us with those kinds of problems. I also see substantially increasing contract authority for other transportation purposes, which will have some impact this year and will have major impact by the year 2000.

    So the gimmicks will soon lose their effectiveness. We have the full burden on our table by the year 2000, plus we have a huge increase in outlays from increased contract authority for surface transportation. And by the year 2001 and 2002, we have discretionary spending limits going down. That gives me pause. I do not know the answer, and I do not know that I should expect you to have it, but we are headed for a major crunch. Then whether we can continue to accommodate requests, in future years, it frankly gets more difficult.

    Mr. WARRINGTON. I suppose the short-term alternative to that, Mr. Sabo, is operating money, which is scored at a much higher rate during the first year.

    Mr. SABO. Yes. And whatever year we make this switch, it saves us, temporarily, money in one year.

    Mr. WARRINGTON. Right. That is correct.

    Mr. SABO. Then the crunch comes back, and we are building a whole series of other crunches. Unless this Committee has a huge increase in outlay allocation from some other subcommittee, we are going to have immense problems.
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    Mr. WARRINGTON. Mr. Chairman, it is still less than the outlay rate——

    Mr. SABO. In the first year.

    Mr. WARRINGTON. In the first year, yes, that is right.

    Mr. SABO. But it is a one-year savings for us in outlays, basically.

    Mr. WARRINGTON. Yes.


    Mr. SABO. The Federal Railroad Administration, how much in user fees do you propose in your budget?

    Ms. MOLITORIS. Eighty-two million dollars.

    Mr. SABO. Out of how big a budget?

    Ms. MOLITORIS. Seven-hundred-and-sixty-three million.

    Mr. SABO. And those are $82 million of new fees.
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    Ms. MOLITORIS. These are user fees recommended for the Office of Safety as well as——

    Mr. SABO. Eighty-two million of new user fees?

    Ms. MOLITORIS. User fees have not been in effect since 1995.

    Mr. SABO. So that is over ten percent of the budget. I am not sure if the fee proposals do or do not make sense. My observation is that I have seen these recommendations year in and year out and somehow they do not get passed. If we do not pass them, can your budget accommodate a reduction of that amount?

    Ms. MOLITORIS. As I mentioned in my opening statement and certainly in the oral, the money that we are requesting for safety is essential for us to carry forward the increases in safety which I believe are a priority for everybody.

    Mr. SABO. Thank you.

    Mr. Chairman, I guess the only thing I hope as I look down on your side of the table, is that I hope Mr. Regula and Mr. Packard and Mr. Callahan will be very generous to our subcommittee when it comes to 602(b) allocations.

    Mr. WOLF. Well, Mr. Callahan does not like foreign aid. I think he will give us half of it, so we are going to be in good shape. [Laughter.]
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    I think Mr. Sabo is exactly right, though. Before I recognize Mr. Callahan, I must say that the Coast Guard user fee is not going to take place. The FAA user fee has been thrown out by the courts. I think what OMB and what the administration have done is to put these user fees in the budget to fill it out and they know the fees are not going to stay. I think Mr. Sabo makes a very good point.

    Mr. Callahan.

    Mr. CALLAHAN. Thank you, Mr. Chairman.


    Let me just ask a couple of quick questions, Madam Administrator. We just recently had some severe flooding in South Alabama, and as a result we had some short-line railroads that have severe damage to their track. I know that the LRFA has not been funded. Do you have a working relationship with FEMA whereby you can join with them when we request disaster aid resulting in washed-out short-line railroads?

    Ms. MOLITORIS. Mr. Callahan, we work closely with FEMA and try to provide technical assistance. Of course, we in many cases know these railroads from previous relationships and just from our safety work. You point out a very important problem. Short-line railroads move just under 20 percent of the commerce by rail in this country, so they are very crucial for rural areas and other areas. We work closely with the association, but there is no specific fund for that right now.
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    Mr. CALLAHAN. Do you have any unobligated funds from the 1996 supplemental appropriations?

    Ms. MOLITORIS. No, there is not.

    Mr. CALLAHAN. Is there any way you can contact Mr. Witt, who is the head of FEMA, and explain to him your concern from a safety standpoint for these short lines, because they are going to need some immediate relief in Conecuh County, Alabama, and Escambia County, Alabama. I would appreciate you contacting him. I think he is down there in Alabama. But I do not know if he will have the opportunity to look at the short-line railroad.

    Ms. MOLITORIS. Mr. Callahan, we have, in fact, in the past, when there have been emergencies of this nature, actually administered the monies that were identified for railroads.

    Mr. CALLAHAN. It is not necessary for us to pass a supplemental bill assign money to you? Can you work through FEMA with the supplemental?

    Ms. MOLITORIS. Yes, we did. Yes, we did, and we will——

    Mr. CALLAHAN. So you worked through FEMA?

    Ms. MOLITORIS. Yes.
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    Mr. CALLAHAN. You actually can get money through FEMA for this type of relief?

    Ms. MOLITORIS. Well, this is FEMA's money that is identified as emergency funds. We work as their partner on the technical side and try to help the small railroads.


    Mr. CALLAHAN. Briefly, let me just make a couple of comments to Mr. Warrington. Mr. Warrington, you want the Highway Trust Fund to fund the $621 million you are requesting. Do you know what funds the Highway Trust Fund? I am sure you do. Do you know where the money comes from?

    Mr. WARRINGTON. Motor fuel taxes.

    Mr. CALLAHAN. Do you know where most of that money comes from, what industry?

    Mr. WARRINGTON. No, I do not, Mr. Callahan.

    Mr. CALLAHAN. The trucking industry. So what you are saying is that you think the trucking industry ought to pay taxes and continue to pay highway use taxes so we can fund Amtrak or other railroad needs. Do you think that is fair?
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    Mr. WARRINGTON. Mr. Callahan, if we had our druthers, we would prefer to be funded out of the general fund. Frankly, we are small potatoes when stacked up against the highway interests in this country and we would rather not be squeezed in that position.

    Mr. CALLAHAN. I appreciate that, and I am not going to squeeze you too badly today, either. But let me just ask another rather mundane question. Do you have a telephone in your car for when you need to talk to someone? Do you have one of those?

    Mr. WARRINGTON. Yes, I do.

    Mr. CALLAHAN. Do you know how to use it?

    Mr. WARRINGTON. Yes, I do.

    Mr. CALLAHAN. Well, your predecessor was not good at it, and sometimes when some of the Members of this Subcommittee would call him, he would never return our calls. I would encourage you to use that cellular phone in the back of your car. When a Member of this Subcommittee calls you, I hope you would be kind enough to return our telephone calls. By doing so, you might have a little bit more cooperation with some of the members of the committee.

    But we are going to give you the benefit of the doubt at this point. You are new on the job and we are going to try to cooperate with you. That does not mean I am not going to try to cut $621 million for Amtrak, because I am going to try to cut it. But it does mean that common courtesy by returning phone calls might aid you better in the future.
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    Mr. WARRINGTON. I understand that, Mr. Callahan. I assure you that you and all members will receive prompt responses to any phone calls, number one, and for the record, I do not ride in a limousine. [Laughter.]

    Mr. CALLAHAN. I guess you came over here by train. [Laughter.]

    Thank you. Thank you, Mr. Chairman.

    Mr. WOLF. Mr. Olver.


    Mr. OLVER. Thank you, Mr. Chairman.

    Ms. Molitoris, I do not know, maybe this is an unfair question, but do you have any sense of what happened in the accident out in South Dakota or North Dakota, the rail-bus collision? As it is such a short period of time, if you do not——

    Ms. MOLITORIS. Mr. Olver, let me just say that it is certainly preliminary, but we have people that are there. We do know—we were concerned at first that maybe there was perhaps a blizzard condition and that there was some sight problem. But what we know at this point, and again, it is preliminary, that it was a clear day and, at least from our preliminary information, the school bus stopped at the crossing and then for some reason proceeded. We do not know what that is.
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    As I think you know, Mr. Olver, we have through the whole administration focused on school bus safety at crossings with a major initiative of working with school bus owners and drivers. We are going to reemphasize this—we have a larger database of these people through NHTSA—to again highlight for them how crucial these behaviors are in operating a school bus at a crossing.

    Mr. OLVER. I have just been handed from the Subcommittee staff a pretty good, but probably still preliminary, set of details, so I will leave where I was on that for the moment.

    Ms. MOLITORIS. Okay.


    Mr. OLVER. Let me ask you a couple of other questions. I am curious about the Conrail takeover. More directly, what is the timetable? What is exactly the FRA's role in these negotiations? Are you just a bystander or are you an arbitrator or what is the role of FRA in this proposal?

    Ms. MOLITORIS. Mr. Olver, we are a party of record. The independent institution which will make the final decision about the character or approval of such a proposal is the Surface Transportation Board. However, as I have mentioned, especially because of our experience with the results of two other mega-mergers, BN–SF and Union Pacific-Southern Pacific, we realized the huge safety implications of this kind of transaction. This would be the largest kind of transaction the East has ever known, and——
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    Mr. OLVER. Is the Surface Transportation Board entirely independent of the Federal Railroad Administration?

    Ms. MOLITORIS. Yes, it is. It is an independent agency, although located within the structure of an organizational——

    Mr. OLVER. In the structure of the FRA?

    Ms. MOLITORIS. Of the Department of Transportation.

    Mr. OLVER. The Department of Transportation.

    Ms. MOLITORIS. But totally independent. We filed, as I mentioned, for the first time in history, focusing on safety as part of the surface transportation environmental impact statement. Safety was included and our comments identified the potential safety hazards that had to be mitigated and addressed individually and in detail——

    Mr. OLVER. So as a party of record, you get to comment and recommend at various stages in what the STB is doing?

    Ms. MOLITORIS. That is correct.

    Mr. OLVER. Okay. And what is the route to which they take into account? Are they required to take into account, or do they look at it and say, well, yes, we do it, or no, we do not, or what do they do there?
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    Ms. MOLITORIS. The STB makes an administrative decision, of course. They make a judgment about all of the filings, but in relation to our submission which talked about safety, they reacted very quickly and then required the railroads to submit safety implementation plans. And I should mention, as I did to Mr. Regula, that the implementation of these safety plans will be our bailiwick to be very involved at every step along the way, now and into the future, that those safety implementation plans are done and done in a very detailed and accurate way.

    Mr. OLVER. I have very little further time here. Let me just say I was particularly curious about your comment on the safety aspect that there are at least four major route segments of the planned merger with projected safety risk increases of greater than 50 percent. That is a little hard for me to conceptualize, why that would be the case. Maybe you can give me something on that.

    And the other thing, I am wondering whether you have a kind of a sense of the timetable in which this is going to function. I can see some substantial benefits as one gets up to my part of the country in this process. Maybe there are some serious detriments, too, that I am not quite so clear on what the cost-benefit analysis may be. But would you give me some sense of what the timing is, and also, could you explain how those specific route segments where the risk increases greater than 50 percent occur?

    [The information follows:]

    During the course of FRA's 1997 formal safety assessment of the Consolidated Rail Corporation (Conrail) acquisition by CSX Transportation (CSXT)/Norfolk Southern Corporation (NS), an analytical model was constructed for FRA by Zeta Tech Associates, Inc., Consultants. The model quantifies the safety impacts on the acquiring carriers, based on projected changes in rail traffic. FRA's safety assessment was filed with the Surface Transportation Board (STB) on October 21, 1997 (FRA Safety Assessment of CSX/NS Proposed Acquisition of Conrail).
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    The model includes 61 line segments covering all Conrail mainlines, plus certain lines of CSX and NS on which traffic flows would increase as a result of the proposed acquisition. The model incorporates train volume, track characteristics, operating speed, and historical differences in accident rates among three carriers. The model measures the impact on safety, in terms of dollars of accident cost, for each segment in the analysis both in a base year (1995) and the projected year 2000.

    Certain segments with large projected traffic increases also sustained large increases in risk (cost). There are four line segments with risk increases greater than 50 percent. These are: NS 7—Ft. Wayne to Kansas—54.5 percent; NS 3—Buffalo to Cleveland—54.4 percent; NS 1—Hagerstown to Roanoke—56.6 percent; and CSX 6—Greenwich to Chicago—62.2 percent.

    FRA's model and projections assume that Conrail will be assimilated into CSXT and NS by the end of Year 2000. If the merger is approved by the STB, the pace of the absorption of Conrail will be guided by how quickly CSXT and NS can integrate Conrail's resources and complete other regional and local requirements. Realistically, FRA believes that most merger-related operating and safety action items identified by CSXT and NS in their STB filings and Safety Integration Plans (SIPs) will be completed within a 3–5 year post-merger time frame.

    Ms. MOLITORIS. First of all, there is a July timetable for a decision by the STB on the proposal. We filed our comments on February 23.

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    The particular segments you mentioned, one was in Ohio, as brought up by Mr. Regula. There is a shared asset area, for example, in northern New Jersey, which serves the New York area. There is one in southern New Jersey, which in part serves Pennsylvania.

    The kinds of changes that we have identified have to do with things like a high percentage of increase in trains. Obviously, an efficient operation and a safe operation can accommodate these changes. What we said in our filing was that you cannot presume or assume that these kinds of changes can just somehow magically happen.

    Mr. OLVER. Are these all instances where there is a shared segment——

    Ms. MOLITORIS. No, they are not.

    Mr. OLVER [continuing]. That most of them will be traveling, or is it just because of the way that they are put back together, the traffic on each of the segments just becomes much greater? Are any of the segments where both are going to be traveling, both are going to be running?

    Ms. MOLITORIS. There are. There are. What I would like to do, Mr. Olver, is to respond in detail to this question for the record. But let me just say now that those particular areas are ones that we identified, because for the first time in history, FRA did a pre-proposal safety audit in depth on all three of the parties who would be involved, Conrail, Norfolk Southern, and CSX, and we reviewed in detail the potential areas for increased risk.

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    We knew that we had to do something different from the past because of what we experienced at the Union Pacific and at the Burlington Northern-Santa Fe, that these mega-railroads can produce safety hazards that we have to get ahead of time to prevent tragedy. But I will be very happy to elaborate on each of those elements that you requested.

    Mr. OLVER. Thank you, Mr. Chairman.

    [The information follows:]

    The model's risk projections are based upon traffic projections, information supplied by CSX and NS in their initial filings with the STB, as well as other follow-up data requested by FRA. The line segments analyzed were those with existing Conrail, CSX or NS desginations. The traffic projections for the year 2000 represent the total traffic (CSX and/or NS) projected for any given line segment. The increases in traffic on some line segments are as a result of traffic pattern changes (rerouting of trains to consolidate and expedite) and expected new business growth.


    Mr. WOLF. Mr. Packard.

    Mr. PACKARD. Thank you, Mr. Chairman and thank you for being here all of you.

    I will be rather parochial and very short on my questions. A lot of damage and floods and mudslides on the west coast. How does that impact your ridership, your performance, your revenues? Has that been analyzed at this point?
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    Ms. MOLITORIS. Well, are you talking both about passenger and freight, Mr. Packard?

    Mr. PACKARD. Yes.

    Ms. MOLITORIS. Let me comment on the freight side and perhaps Mr. Warrington would be more appropriate to give details on the passenger side, although we are certainly close to both of these.

    In some of the areas, some rail service had to shut down. I would say that, it is—and I could report in writing on all of the impacts in detail for your review. The railroads have in general gotten back into service within a few days and sometimes within one day. Some of the mudslides have been extremely damaging. I know that some of the commuter service was impacted as well.

    So, any time that these very horrendous natural disasters occur, our regional office, which would be Region 7 in California was very focused on how they can help. Of course, the FEMA involvement was very important. I have to commend the actions of the private freight railroads, because they had a very good emergency plan. They reacted very quickly and they do invest private dollars in the main, especially the major Class I railroads. They do fix their own right of way. I think this is one advantage of our system as compared to some of the other systems around the world and the railroads deserve credit for their prompt response.

    Mr. PACKARD. Some of those main lines go right along the bluffs and the coastal areas that have been somewhat undermined. In some instances, there has actually been sloughing away of some of the bluffs at the coastline. Has that jeopardized any significant portion of your lines?
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    Ms. MOLITORIS. We are working closely with the railroads, of course, but our inspectors are looking at things like bridges and track, but so are the railroads. They are very focused on safety. In fact, they have some—especially with flood-related and slide-related damage, there are special rules, operating rules in place to require very slow speeds in the neighborhood of any potential impact on a bridge. It has actually saved lives on a number of occasions, because a damaged area was able to be identified ahead of time.

    [The information follows:]

    From the standpoint of train accidents, FRA has had seven reported through the National Response Center since October 1, 1997 that were related to severe weather. Other less serious train accidents have probably occurred, but these are reported through the normal reporting channels and FRA does not have the information compiled until several months later.

    Of these seven accidents, two involved passenger trains, in which no persons were injured. Five involved freight trains, with 4 train crew members having received minor injuries for which they were treated and released.

    Of the five freight train accidents, four resulted in a release of diesel fuel from the locomotive fuel tanks, and one caused a release of hazardous material from three cars, with no injuries or evacuation. The accidents occurred in seven different states, as follows: Arkansas, 1; Oregon, 1; Kansas, 1; Virginia, 1; California, 1; Missouri, 1; and South Carolina, 1.

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    All accidents are preventable, but this rate of train accidents from weather-related causes is not unusual during this time of year. The railroad industry has been diligently following the recommendations of FRA in Safety Advisory 97–1 related to protection of operations during flood warnings, and these precautions have been effective. In a passenger train accident at Crescent Lake, Oregon, on January 2, 1998, the train was operating at reduced speed during severe weather conditions, in accordance with the Safety Advisory. The derailment was limited to the leading wheels of the locomotive, damage was slight and no persons were injured.

    Train accidents reported thru NRC as weather-related include:

    Dec 29, 1997 UP Chetopa, KS—Soft track on account of heavy rain; also train handling. Freight train, 49 mph, derailed 1 locomotive, 13 cars. No hazmat, no injuries.

    Jan 2, 1998, ATK/UP Crescent Lake, OR—Rock slide. Passenger train, no injuries, no hazmat. Lead truck of locomotive derailed and lodged on rock.

    Jan 26, 1998 Kiamichi RR Hope, AR—Soft track on account of heavy rain. Freight train, 1 locomotive derailed at 5 mph. Minor injuries to locomotive engineer, diesel fuel spill, no other hazmat.

    Feb 5, 1998 NS Emil, VA—Washout. Freight train, 23 mph, derailed 3 locomotives, 2 cars. Diesel fuel spill, no other hazmat, no injuries.

    Feb 20, 1998 ATK/UP Montecito, CA—Tree across tracks, weather related. Passenger, no injuries. Train operating at reduced speed on account of weather per FRA Safety Advisory 97–1. One set of wheels derailed.
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    Mar 13, 1998 UP Kirkwood, MO—Debris on track. Freight. Diesel fuel spill, no other hazmat, 3 minor injuries to train crew members.

    Mar 18, 1998 CSX Cheraw SC—Washout caused by failure of farm pond dam. Freight train, derailed 2 locomotives, 15 cars, speed not reported. Diesel fuel and 3 hazmat cars (1 Caprolactam, 2 Adipic acid powder) no evacuation, no injuries.


    Mr. PACKARD. Thank you and Mr. Warrington, would you——

    Mr. WARRINGTON. Yes, Mr. Packard, El Nino today has cost us about $1.7 million net on the west coast. Most of that has affected the Coast Starlight, our premium train. As of about two weeks ago, there was a major bridge washout north of Los Angeles which has affected service north of LA.

    On the other hand, El Nino has also saved us a few dollars in the northeast, where the winter has been mild and we have not had to engage in as much snow removal, weather protection or over-time. So, on balance, hopefully, we will come out ahead. It has had a disruptive effect, a significant disruptive effect on our passenger operations and some of our mid-distance operations in addition to the Coast Starlight in California.

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    Mr. PACKARD. As you have articulated with some of the local services, passenger services, Metrolink and some of your commuter systems that are operated by our local entities and agencies, has that worked out well? Are there any problems that exist as you articulate with your Amtrak services and those local commuter services?

    Mr. WARRINGTON. No. As a matter of fact, Mr. Packard, we are the dominant operator under contract of virtually all of those services. It is a little known fact that Amtrak is the largest contract operator of commuter services around this nation. It is one of the things of which we are actually very proud. On those commuters which we operate, we tend to average, across the entire country, a 97 percent on time performance. We have about a $300 million annual business on that front. We are the major operator in California. We are the operator in Boston and we operate service right here in Virginia for the VRE and for the State of Maryland.

    We are an operator which runs a very competitive and effective service across the country and our relationships with local commuter agencies and states around those contracts, in my experience, have been very, very good and very positive.

    Mr. PACKARD. Thank you very much. Thank you, Mr. Chairman.

    Mr. WOLF. Thank you, Mr. Packard.

    Mr. Cramer.

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    Mr. CRAMER. Thank you, Mr. Chairman.

    Mr. Warrington, welcome aboard. I know you are no stranger to Amtrak and you have served well under different titles. I would like to have the benefit—and you may have had an opportunity to go into this in your original statement—of some information from you about your vision for maximizing the potential for Amtrak in the marketplace. What do you see under the circumstances that Amtrak is doing right, and what has not worked so well.

    Your west coast ridership has increased somewhat significantly and tell me a little bit why you think that is and how we can help here on the east coast as well.

    Mr. WARRINGTON. Let me maybe work backwards. On the west coast, we have an organization that focuses intensively on customer service and customer quality. We have a lot of travel demand. There has not been a historical railroad orientation there and when you introduce it for the first time, provide good quality, and focus on customer service, what we find is, people come. You have to have sufficient amounts of demand to make it work economically. California, Oregon and Washington have clearly been success stories.

    In the northeast, what we have done over the past three years is thoroughly assess what the market wants, what the market needs. As a result we have tailored and designed our high speed program around what the marketplace wants and needs. We have a 12 percent market share today in the northeast. We have a 50 percent air/rail market share between New York and Washington and with the introduction of high speed rail in the northeast, based upon extensive modeling and planning work around what the market wants and needs, that market share will grow in the year 2000 by three or four points, which is very significant.
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    I would say that we need to do the same type of market research around the rest of the system, particularly around long distance inter-city services; the same kind of thorough, market-based, business-like, customer-driven research around what people want and what people need if the system needs is be relevant. Our route system needs to be relevant from a business point of view. It needs to be relevant from an economic point of view.

    Frankly, we operate services today over routes and in frequencies that tend to be driven by either historical travel patterns, going back, frankly, to the 1950s or based upon various cost cutting initiatives. What we have not done is thoroughly assess what the market wants, what the market needs and what we have to do—what we can do—economically and financially in order to grow market share.

    If you do not do that, you will stagnate and you will tend to spin your wheels around a growing market. We have to be relevant in the marketplace. We have to be competitive in the marketplace. We have to go places and deliver service in a way that people will come once and come again.

    We have not conducted that kind of research, good business-like research in the 27-year history of this company. We have done quite a bit of it around the west coast. We have done a lot of it around the northeast operation, which is why we feel so confident about the commercial and cash flow that will come from the high speed program in the year 2000.

    We need to do the same kind of analytics and the same kind of business-like planning around what people want and what people need for the rest of the system.
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    Mr. CRAMER. That is a challenge and you need to be encouraged to keep meeting that challenge. Are you, in fact, within two years of the high speed service in the northeast.

    Mr. WARRINGTON. As a matter of fact, it is a $2.6 billion program. I will tell you that the program is on schedule and on budget. We will be extraordinary leaders in late 1999 and the year 2000, frankly, for the country and for the world around delivering an on schedule, on budget, quality high speed operation that we can all be very proud of. It is all on schedule and on budget.

    Mr. CRAMER. Good luck. Thank you, Mr. Chairman.


    Mr. WOLF. Thank you, Mr. Cramer.

    With regard to the President's budget for fiscal year 1999 of $621 million in capital funds for Amtrak, the request is quite different, as you mentioned, from prior years when you requested an operating grant, a capital grant and funding for the northeast corridor. If you can tell us, why has the administration request proposed such a radical departure from the past years?

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    Ms. MOLITORIS. Mr. Chairman, the administration sees Amtrak as it always has said in the times we have been here before, as a crucial part of the 21st century. Amtrak's strategic plan called for $5 billion to enable them to meet the operating self-sufficiency goal that we jointly, the administration and Congress had set for them. The administration proposes over the next five years to fund such a plan.

    I know that you and others have identified it with a variety of words. I think it is a significant amount of money. I think you have heard Amtrak say that they feel that this will work. It gives Amtrak the flexibility to operate as a business, something that we all want. Amtrak——

    Mr. WOLF. Excuse me.

    Ms. MOLITORIS. Sure, go ahead.

    Mr. WOLF. No, you go ahead.

    Ms. MOLITORIS. We believe that this plan can work. We agree actually with Mr. Sabo, that the first year is a hard year, but I am encouraged—and perhaps Mr. Warrington will go into more detail—about some of the ways that Amtrak is trying to improve revenues, which will serve them well. For instance, express service, wheeling power on the northeast, the same kind of business initiatives that other passenger services around the world are doing to get better.

    Mr. WOLF. We have heard them over the years and you have heard them over the years. I would put myself in the forefront of the supporters in the Congress for Amtrak. I was raised in Philadelphia, a block away from the tracks, if you will, as it goes by John Bartrom High School.
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    We have heard the stories over and over and we do not want to do a shell game whereby we are moving funding around and then they come back and they say, well, we did not understand. I think we have a moral obligation to the American people to make sure that what we are doing is appropriate.


    You are asking that Congress allow Amtrak to use its capital funds for preventive maintenance. Why, in your opinion, is it necessary?

    Ms. MOLITORIS. Well, Mr. Chairman, this definition is one that the Congress approved last year for FTA. It is a way that maximizes Amtrak's ability to flexibly use this money to get the best bang for the buck, quite frankly. We believe that since not only are we proposing a fairly unique option as compared to the past budget proposals, but it also includes a requirement that none of the funds be released without a very thoughtful and comprehensive capital plan.

    I think this requirement is a governing measure to assure both you and us that this money is used in the very best way possible. I would agree with you on your comments in this regard.

    I think we are making this proposal and we are living with some of the things of the past that make people a little skeptical about whether it can work.

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    Mr. WOLF. You know, Amtrak came up here for years and said things were fine, when the system was beginning to decay from within.

    Ms. MOLITORIS. I know that, Mr. Chairman. If you recall, in the first few times I appeared before you, I talked about the difficulty we had, as a new administration, coming in and trying to find out what things really cost. When you run a business, you have to be able to identify what things cost. Costs were so bundled that we could never really sort it out. We spent a lot of time and invested money to get systems to track costs and to be able to give you correct answers and to give ourselves correct answers.

    Also, I think, we ought to give Amtrak credit for the improvements that they have made in the last four years. They have a strategic plan now which gives them goals that they must meet. They are increasing ridership. They are pursuing business initiatives like express business, wheeling power, doing those kinds of things which are netting them a real bottom line improvement.

    In fact, I would be happy to submit for the record a whole sheet of the financial, operational and, I think as you heard, business relationships with their customers and labor that are much better than they have every been.

    Mr. WOLF. Please do.

    [The information follows:]
    "The Official Committee record contains additional material here."

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    It is my understanding that, should Congress permit Amtrak to use its capital appropriation for preventive maintenance, approximately $520 million of the $621 million request or more than 80 percent could be spent on these items. In the past, Amtrak funded these funds from its operating grant. Isn't the administration and Amtrak simply shifting costs from operating expenses to capital expenses, in essence, moving a pea from one shell to the other shell?

    Ms. MOLITORIS. Mr. Chairman, I believe that this new proposal gives us an opportunity to give Amtrak the challenge to use this money in the very best way. It is a definition that was approved by Congress for transit last year and, I think, for a good reason.

    Mr. WOLF. Does it concern you that Amtrak will use more of their capital fund for traditional operating expenses and less for traditional capital investment, like new cars? Does this bother you a little bit?

    Ms. MOLITORIS. Well, the first year, Mr. Chairman——

    Mr. WOLF. You are an expert.

    Ms. MOLITORIS. In the first year, we are going to have a very—we will be pressed in all of these areas. I think the role of the Federal Railroad Administration, the department and the board is, to hold Amtrak to a very high standard. I think that Mr. Warrington is doing a very commendable job. He is very—as with you, he is very direct with us at the board.
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    Mr. WOLF. Let me just say this is the second time I have met Mr. Warrington. I was impressed when he came by my office. He seemed to be no nonsense. I understand Mr. Warrington asked not to have the job. [Laughter.]

    I understand that, several of you hope to be reappointed to the board and you will be on the board.

    Ms. MOLITORIS. I represent Secretary Slater.

    Mr. WOLF. Secretaries never attend, except for the one meeting. I used to work for a cabinet officer. You will be there probably most of the time.

    I think it is important that you appoint someone with railroad experience and not a political person. I think if you come out with some of the names—and I have heard you rolling out political people—I think you are going to begin to raise questions in this Congress and, frankly, in the minds of a lot of people. So, the person who is appointed—and if Mr. Warrington is not the person, fine—it ought to be someone who really understands this and is not just another political face who is coming along. I think the credibility here in Congress will just drop dramatically.


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    During fiscal years 1998 and 1999, Amtrak will have $1.1 billion (per year) in Taxpayer Relief Act funds available for traditional capital investment. Are we not setting Amtrak up for failure in the year 2000 where there are no supplemental TRA funds?

    Ms. MOLITORIS. Well, Mr. Chairman——

    Mr. WOLF. Wouldn't we be setting them up for failure?

    Ms. MOLITORIS. This administration wants to set Amtrak up for success.

    Mr. WOLF. They will be gone after 2001.

    Ms. MOLITORIS. I think the work that we do from now until the year 2000 is critical. I think the strategic plan that was agreed to by the board of Amtrak and the staff of Amtrak is a very challenging but a strong plan that can lead them to operational self-sufficiency.

    I also believe that the high speed service and the new business initiatives are really going to contribute to the bottom line of Amtrak. We believe it can work. Until we continue this track record of success, which has been real in the last couple of years, the only way we can prove it to you is by each of our actions, each day of each year and to come back and talk to you about the success that Amtrak has reached.

    Mr. Warrington mentioned some and I am going to submit several pages for you.
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    Mr. WOLF. Excuse me.

    Ms. MOLITORIS. Mr. Chairman, could I just mentioned, too that I appreciated your comments about Mr. Warrington, because I too think that he is doing a very good service for us. The Deputy Secretary, Mortimer Downey and members of the board, are developing a very business-like outreach and search to really look for very highly qualified and experienced people to work with the new board. So, there will be a basis of information for them.

    Mr. WOLF. TRA allows Amtrak to use some of its funds for preventive maintenance, specifically maintenance of equipment, which costs Amtrak roughly $340 million per year. Why should Congress expands Amtrak's eligible use of its capital appropriations to include maintenance of facilities and equipment as requested, since Amtrak already has flexibility with the TRA funds?

    Ms. MOLITORIS. Well, we believe and the administration believes that—the definition is one that applies throughout the transportation industry. It is important.

    For example, Mr. Chairman, you recall in the transit industry, for example, often because there was more of an incentive to buy new, the maintenance area was not given its full potential. I believe the judgment of management at Amtrak can make good decisions on what the best use is. That is what we are trying to do, give them accountability on how they use the money.

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    Mr. WOLF. Of the total appropriation of $621 million in the administration's budget, you are seeking $200 million to be available on October 1, 1998, for the northeast corridor-related expenses and the remainder of the funding to be available July 1, 1999. Why are you seeking this split in the availability of the funds?

    Ms. MOLITORIS. This method of use by Amtrak is one that seems to respond to their needs and their use.

    Ms. MURPHY. Mr. Chairman, traditionally we have always asked for capital outlays beginning in the fourth quarter. Part of that has been a scoring issue, but the administration is open to revisiting that as long as both the administration, Amtrak and the committees agree that, Amtrak will not draw down more than 40 percent in the first year. That is for the total capital fund. That is $621 million.

    So, regardless of how much of the funds they obligate, during fiscal year 1999, Amtrak and the administration has agreed that not more than 40 percent of the $621 million will be drawn down in fiscal year 1999.

    Mr. WOLF. For the scoring now?

    Ms. MURPHY. Correct.

    Mr. WOLF. If Congress were to adopt this proposal, the general capital appropriations would not be available to Amtrak until July 1. In the interim, would Amtrak use funds provided under the Taxpayer Relief Act for maintenance of equipment, infrastructure and facilities and then subsequently repay these costs from the capital appropriation?
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    [The information follows:]

    If the fourth quarter restriction on Amtrak's capital grant is maintained in the FY 1999 appropriation language, then Amtrak would ''borrow'' funds from the Taxpayer Relief Act (TRA), for this purpose, then ''repay'' its TRA account when the capital grant is made. It should be noted that Amtrak has requested the elimination of the fourth quarter restriction and the Administration has no objections to this request.

    Mr. WOLF. That is not a great way to run a railroad though, in the sense that you have to do that. I do understand what you are saying.

    If Congress were to adopt the administration's budget request for Amtrak, including the preventive maintenance definition, can you assure us that Amtrak will not go bankrupt in the year 1999 or in the year 2000?

    Ms. MOLITORIS. Well——

    Mr. WOLF. This is, I think, what some people are saying.

    Ms. MOLITORIS. I believe, Mr. Chairman, that this gives Amtrak a good foundation. I think Amtrak's business plan shows that, even in the difficult first year, which we all acknowledge is difficult, that as in many capital-intensive transportation businesses, some borrowing may be necessary. That, in fact, Amtrak can get through the first year successfully and then increase the success of their operation as the years go forward.
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    I think it is a good and workable plan. It is not without challenge.


    Mr. WOLF. Challenge.

    How does the ARC work? After several years, does it have to make a statement that Amtrak will or will not be successful? Help us; walk me through that.

    Ms. MOLITORIS. Well, the ARC, I believe, is a method Congress has identified to support and advise Amtrak.

    Mr. WOLF. We have an amendment coming up briefly. So, I am just going to go through a few more of these questions and then we can break.

    Ms. MOLITORIS. Mr. Chairman, their primary goal after a couple of years is to advise Congress on what they observe and what they evaluate.


    Mr. WOLF. Is it set up in such a way that says if they will make it or they will not make it? If they will not make it, then do they have to submit a plan to shut down?

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    Mr. WARRINGTON. Mr. Chairman, the ARC will regularly review our financial plan. We have a financial plan that the board officially adopted last September which, in fact, we updated yesterday to bring us as much in the way of up to date market and other information and cost information to the table. We will work off of the fiscal year 1998 baseline about where we start.

    What the ARC needs to do, working with us quarterly over the next two years, is determine if by the year 2000 Amtrak is on a path toward self-sufficiency and not requiring operating support. We will be working with them closely on a quarterly basis in order to make that determination.

    Right now, we have a plan in place that gets us to 2002 and 2003. There are lots of events that will occur between now and then against which we need to regularly update.

    I will tell you, in response to your question to the administrator, I personally feel comfortable and confident that, with the proposed budget, not only for this year, but for the five-year period that the administration has recommended, we can make it. We will need the flexibility provisions—they are critical—and the proposed level of support is absolutely critical. With that combination, on a five-year basis, I can tell you confidently that this organization is not going to go bankrupt and is not going to liquidate.

    We have a stable environment in order to conduct the right kind of market-based, business-like research and planning around the national network. So, together we can, as a public policy matter, decide over the next several years, within the context of a stable environment, what the national system needs to look like and what is economically defensible in 2002 and for the long haul, rather than on a year-to-year basis where it appears like we are always on the edge.
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    Mr. WOLF. Okay, I am going to give these questions to Mr. Aderholt and then if Mr. Aderholt has to leave, if Mr. Olver can do it. This amendment should be over in about 5 minutes. So, I will be right back.

    Just to move on, so you do not break the pace, as a part of the request, the administration is seeking $500,000 for secretarial expenses and expenses related to the Amtrak Reform Council. Do you believe that Amtrak should pay for its own oversight? Would that not be a conflict of interest?

    Ms. MOLITORIS. Mr. Chairman, I am glad you brought that up, because I wanted to mention to the members of the committee that, our request, we believe, is appropriate because it is the FRA's responsibility to support and provide support staff and services for the ARC. We have already received calls from members who have been appointed to the ARC, talking about some of their ideas and some of the needs that they see for us to support them.

    So, we will be working with them closely and this kind of support is important so that they can do their job and we can pay for the things that they are going to ask us to do.


    Mr. ADERHOLT [presiding]. Why do you believe it is appropriate that Amtrak funding be derived from the highway trust fund, as you have proposed in the budget request?
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    Ms. MOLITORIS. Mr. Aderholt, we believe that Amtrak is part of a national transportation system. It has been the administration's position for some time that, it is appropriate for all of the surface modes to be together in the budget that is offered to Congress. In fact, I think it was Mr. Callahan who mentioned the relationship to trucks. There actually is a very identifiable benefit to Amtrak.

    For example, in the northeast and other congested areas, the ability for Amtrak to take cars off the road actually gives trucks more opportunity to pursue their business. There certainly is, I think, a reasonable debate and discussion that could go on about why we want to have a unified system. That is really what ISTEA is all about, for us to look at transportation as a system and how each element affects each other because, in fact, they all do. In fact, there are so many more interrelationships today than there ever were ten or 20 years ago.

    In fact, there are tremendous contracts for freight movements between trucks and railroads. So, the whole concept of one national transportation system is really the thrust behind this concept.


    Mr. ADERHOLT. If the Committee included bill language to prohibit TRA or the 1999 capital appropriations from being used to pay for union wage increases, wage increases that Amtrak says it can ill afford, would you support this?

    Ms. MOLITORIS. Mr. Aderholt, I think you have already heard or perhaps this was before you came in that, Amtrak and Mr. Warrington has already directed his fiscal officer to set up a separate account so that all of the dollars that might need to be paid out of the agreement, the BMWE agreement and any future agreements would come out of revenues.
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    Mr. ADERHOLT. Mr. Olver, do you have some questions?

    Mr. OLVER. I can always fill time with questions? [Laughter]

    Mr. ADERHOLT. I am at the bottom of the page here, so let me just turn it over to you for a few minutes.


    Mr. OLVER. Thank you, Mr. Chairman, for passing the baton on here for a moment.

    Since you stopped at that particular point, I would like to examine a couple of things. I notice, Mr. Warrington, that you had mentioned—I think it is on page 10 of your testimony—the comparisons of capital expenditure for a group of railroads on a per mile basis, including SEPTA and down through Amtrak. Amtrak was by far the lowest capital expenditure. One-sixth of SEPTA's and others go down the line between SEPTA and Amtrak. Is there a proportionality there in some way to growth of trackage to the development of new trackage that would put some of those numbers like SEPTA's and others up to very high numbers? Are they in capital campaigns that are far more extensive, new lines and so forth, where Amtrak is not in the mode of establishing new lines, but it is rather in the mode of trying to figure out which ones to triage essentially?

    Mr. WARRINGTON. I think there are a couple of factors, Mr. Olver. One is, we tend to be more productive and we get more out of every dollar that we invest. We run a Class 7 railroad. It is the highest class of railroad operation in the country. We have a very skilled workforce and we are very productive. As a matter of fact, prior to going into this BMWE agreement last fall, we had among the best work rules in the country.
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    We are the only railroad in the country that can establish gang sizes that we want. We can make starts any seven days of the week, including Saturdays, Sundays and evenings, 24 hours a day and not pay overtime. There is no other railroad in this country that can organize its work and execute it as productively as Amtrak can. I can tell you that with confidence.

    In addition, we tend historically to have been under-capitalized around a very aging infrastructure, an electric traction system that is 1920s vintage, a Baltimore tunnel complex that is 1900s vintage, Susquehanna River Bridge which is 1920s' vintage. It is an old, antiquated plant and frankly, we have not been able to invest the amount of money necessary in that plant for reliability over the long haul. The TRA will get us a long way there over the next several years, to both make up for some state of good repair that we need to deal with and, at the same time, provide us with the kind of reliability we need for high speed rail service and reducing our travel times between New York and Boston to under three hours and between New York and Washington to two hours and forty-five minutes from today's three hours.

    At the end of the day, it is a combination of productivity, which is good and lack of capital, which is not good.

    There may be a handful of major capital investments that are included in those commuter agency numbers. I suspect that the SEPTA number includes their massive railworks project, which may tend to drive their numbers a bit. But over time, on average, the amount of capital which has been invested in this infrastructure pales in comparison with the amount of federal and local money which has been invested in the plant of all those commuter agencies.

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    Mr. OLVER. Well, that is an interesting answer that covers a lot of ground, but I am trying to devise for myself some way of comparing these railroads to see how they fit. I do not know whether we are talking about apples and oranges as we look at them. I would have thought there would be, if one wanted to make comparisons, that one might add columns like the passengers per mile of the amount of the subsidy, the percentage which is a subsidy that goes into each one of those. I think every one of them is subsidized and we are, at this point, pushing Amtrak into a position essentially of reducing the subsidy, although the creative financing here for a period of time is at least a form of subsidy along the way.

    My guess is, maybe the percentage of subsidy covers this. I will not think of other columns to put in that. I think I could devise a few if I thought about it a little bit longer.

    I went about that a little bit obliquely and you have come back to me with some comments about productivity and so on. Your comment about your using old capital means we have not been putting capital in here at the rate—I guess, this is the age of the system. You addressed that maybe there is an age factor that one ought to throw in here to better understand what it is that is going on. I am curious.

    Are we keeping up with the safety in these age factors and some of the items like you mentioned, like the bridge, the big bridge that you mentioned across the Susquehanna? Are we in any danger on that? I trust we are not.

    Mr. WARRINGTON. Absolutely not, we are in no danger at all. As a matter of fact, I will tell you that we are fixated. We are fixated as operating people on safety. We have a responsibility to our employees and to our customers. I will tell you, it is a fixation in our operation. It always has been and always will be. It is a track record of which we are very, very proud.
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    What we have been forced to do, Mr. Olver, is invest wisely and invest efficiently. Let me give you a good example of what you can do with capital.

    Right now, I will pick an interlocking in New Jersey, County Interlocking which is a complex array of tracks and crossovers that you have to operate over, at 125 miles an hour. Due to the lack of capital over the years, what we have done is have a 15-man gang go into that interlocking once a week and do what we call resurface, which is bring the railroad into proper alignment and cross elevation. You should not go into a railroad and do resurfacing more than once every two and a half to three years. We were into that interlocking once a week.

    What we decided to do was, take scarce capital, $200,000 and rebuild that interlocking. We did it last July and we have not been back there to resurface since last July, six, seven months. That 15-man gang can now be used for much more productive results. That is the kind of benefit you get from wisely investing capital and the organization has been forced to over the last several years, given its small amount of capital availability, to make those kinds of wise investments. I will tell you, it is entirely driven number one as a priority by safety.


    Mr. OLVER. Okay, well, I guess I, from the data you have given, I can accept that you are under-capitalized. So, the TRA is a fine thing to move us along.

    Mr. WARRINGTON. Yes.

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    Mr. OLVER. Now, there are no measures of productivity showing here that I can particularly see in the testimony. You asserted very strongly that the productivity was the best Class 7 railroad and so forth and the best of the railroads. I suppose it must bear some comparison with these others that are better capitalized than Amtrak is capitalized.

    If we are so productive, how can we justify—the business of the use of the capital appropriations, any of the TRA monies might be used for pay of union wage increases that Amtrak can ill afford. Certainly Amtrak can ill afford the pay increases in a global kind of a way. On the other hand, if we are so productive as you assert that we are—and in your testimony, on page 6, you give at least one instance, the only instance I see is one of an Amtrak electrician paid $16 an hour compared with LIRR, 23 or $21 an hour and then the catenary lineman, where it is $16.93 versus Metro North, where the earnings are $21.91.

    I mean, this is very tantalizing to me. It is sort of an appetizer, in essence, to see how your analysis of productivity fits with the pay scales that are being afforded for our Amtrak personnel. If, in fact, you are correct on the assertion of high productivity and other kinds of comparisons, which you have only given me two very scattered on point sources here.

    There must be a lot of different categories in all these different railroads that would be part of a matrix that one could see on the different railroads and on the measures that would allow me to better compare apples with apples in these rail systems. The other kinds of columns that ought to be in there would help a lot in understanding where we are in these discussions about Amtrak to have a much better matrix to look at to make comparisons on.

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    If the productivity was so great, I would have thought that the proper question ought to be, how under those circumstances of productivity can we not pay for pay increases that would get people closer to what is being paid in all these other rail systems?

    Mr. WARRINGTON. Mr. Olver, the thrust and the spirit of my testimony and what I believe is that, the most important thing for us to do is to be competitive on the wage front, because we invest a lot in our people and in how we train them. The issue really is not—and should not be—what wages are.

    What is most important is, coming to grips with what the real labor costs are in a competitive environment, and assuring that that labor force is paid fairly and equitably, but also working productively and efficiently.

    This agreement with the BMWE and our prospective agreements with the other crafts really enable us to move in that direction, to begin to assure competitiveness, in an urban environment, but at the same time stress not what we are paying people, but if we are paying them appropriately given their level of productivity. Are we getting a fair day's work for a fair level of pay? I will tell you, going into the BMWE agreement, Amtrak had, in this industry, among the best work rules in the country and we emerged with significant improvements to those work rules that make us feel good about the way we carry out our business from a management and workforce point of view.

    I can feel very good and very proud about the efficiency with which we dispatch our work on the northeast corridor around our maintenance of way activities. I would stack it up against all other railroads. Mr. Olver, I would be happy to furnish you and the committee with the matrix that details and documents those kinds of productivity improvements we have secured, but also ways of doing business around productivity and efficiency which enables us to declare that we are among the leaders in this industry around the way our workforce does its work in the field.
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    Mr. OLVER. Are you the only Class 7 railroad?

    Mr. WARRINGTON. Yes.

    Mr. OLVER. How many Class 6s are there in passenger rail?

    Mr. WARRINGTON. There is a—the Long Island Railroad is Class 5. MBTA is Class 4. Metro North is Class 5. New Jersey Transit is Class 4 and Class 5.

    Mr. OLVER. Are there any 6s?

    Mr. WARRINGTON. I do not have any on the list here.

    Mr. OLVER. If you do not have any on the list——

    Ms. MOLITORIS. No, sir, no 6s.

    Mr. OLVER [continuing]. That is of some significance. There are no 6s?

    Ms. MOLITORIS. No, sir.

    Ms. ROSEN. Mr. Olver, if I may. I serve on the board of directors at Amtrak, but statutorily as the representative for commuter agencies that operate over Amtrak property. I have served on the board of New Jersey Transit as well for over ten years and currently serve as Vice Chairman.
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    The matrix that you talk about is something that I think we should provide this committee.

    Mr. OLVER. I certainly hope to see it.

    Ms. ROSEN. It is readily available and the American Public Transit Association actually tracks it very well.

    If you look at the last ten year of the history in terms of the levels of capital, it is astonishing that when you look at the properties on the northeast corridor, how much larger the commuter agencies' capital programs are than Amtrak.

    What I think that you are addressing in Mr. Warrington's comments was the establishment of the Productivity Council within the BMWE agreement. All of us who represent commuter agencies are hoping that this Council will be something we will be able to model in our future agreements.

    [The information from Amtrak follows:]


    Mr. OLVER. Mr. Chairman, if you do not want to take over, I will ask one more, if you would allow. Let me go into one other piece of your testimony that has been mentioned earlier. I notice, Mr. Warrington, you point out that, between fiscal '95 and '97, passenger revenues have climbed from $850 million to $970 million. A substantial part of that must be rate increases, I take it. What portion of that represents rate increases?
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    Mr. WARRINGTON. I do not have that off the top of my head, Mr. Olver, but I can certainly furnish that to you for the record. I would speculate that about 60 percent of that is probably fare increases, 40 percent ridership. The rate increases occurred during the early years and the ridership increases have occurred during the latter part of that period.

    Mr. OLVER. Please, you had better go back and answer that for the record, because it could not be 40 percent. Let me just say, your passenger revenues between '95 and '97—well, if we are talking about three fiscal years, that would be a little bit more—you have made a big thing about the ridership increase in 1997. Was there a ridership increase in 1996 or 1995?

    Mr. WARRINGTON. It began turning around in late '96 and through '97 and has continued into '98.

    Mr. OLVER. That was when we were also closing down some lines——

    Mr. WARRINGTON. That is right.

    Mr. OLVER [continuing]. To reduce some ridership. It would be very difficult to come up with a set of calculations when there is only 2.6 percent ridership increase in fiscal '97 when you are turning things around in '96 that could produce a 14 percent increase in the actual revenues in a three-year period if a very large portion of that were not related to the actual increase in rates rather than in anything related to the ridership. I will let you answer that one. Maybe that is another matrix, a different matrix with ridership increases year by year.
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    Mr. WARRINGTON. Sure.

    [The information from Amtrak follows:]

Table 1


    Mr. WOLF [presiding]. Mr. Warrington, Amtrak has submitted two grant requests which you call option A and option B. Option A seeks $621 million in capital grants, similar to the administration's request. Option B asks for a status quo, although there are no numbers in it, as you know. First, let's discuss option B. What funds are you requesting under option B? Can you answer in the total and then specify for operating capital in the northeast corridor in option B?

    Mr. WARRINGTON. Yes. The option B proposal, as I recall is——

    Mr. WOLF. Can you just use a couple of sentences?

    Mr. WARRINGTON. Yes, $376 million for operating, which includes $145 million for railroad retirement, $200 million for NECIP and $129 million for Amtrak general capital.

    Mr. WOLF. For a total of?
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    Mr. WARRINGTON. $705 million is my recollection.

    Mr. WOLF. $705 million to $621 million?

    Mr. WARRINGTON. Yes, we prefer $705 million. [Laughter.]

    Mr. WOLF. If Congress provides Amtrak with funding in the usual structure, operating capital northeast corridor, will you still seek to prevent a maintenance definition?

    Mr. WARRINGTON. Yes. We believe that the flexibility provisions are useful for all general capital appropriations. So, the answer is yes, Mr. Chairman.


    Mr. WOLF. How does your grant request $621 million differ from the administration's request?

    Mr. WARRINGTON. Initially, we had differences on several fronts. I think over the past four to six weeks, we have come together and I believe Amtrak and the administration are on the same page. I think initially the administration proposal did not include the transit definition. The administration proposal assumed from the beginning use of the TRA for capital maintenance. Also, the administration proposal did not assume an October 1 release date of at least a portion of the funds. Over the past four to six weeks, we have worked closely with the administration.
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    Frankly, initially there was some anxiety around the original provisions and I think we have very successfully gotten on the same page. That level of effort, $621 million, coupled with flexibility, works for us. I believe the administration and we agree with that.


    Mr. WOLF. I saw that several senators were upset with this, I think including Senator Roth. Where are they now? Have you been in communication with them?

    Mr. WARRINGTON. We had heard from Senator Roth. We had heard from Senator Lautenberg. We have communicated to both of those senators and others that, this provision, with flexibility, actually works for us, not just this year, but when tied to the five-year proposal that OMB has put forward. We believe it gives us the kind of stability we need to assure that we are not on a precipice in '99 or 2000 or 2001. So, I cannot assure you exactly where they are, but I believe they understand that we believe this is a workable solution.


    Mr. WOLF. If Congress were to enact option A and include bill language making $421 billion available as of July 1, 1999. Will this create any short term funding shortfalls?

    Mr. WARRINGTON. Frankly, off the top of my head, Mr. Chairman, I cannot answer that. I would have to refer to staff. I would like to ask the staff to review that from a cash flow point of view.
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    [The information follows:]

    Option A would not work for Amtrak on a cash basis. The current NECIP grant agreement does not allow for a 100% draw on October 1st. Draws are made as reimbursement of actual expenses. Therefore, on October 1st no funding would be available to Amtrak. With a 9-month delay of funding, Amtrak would require borrowings which would exceed the amount available to Amtrak under short-term borrowing facilities.


    Mr. WARRINGTON. I do know that the proposal, the administration proposal included a $200 million earmark for NECIP. That earmark is not received on the first day of the fiscal year. Historically NECIP comes through a grant agreement and we receive it only when we are reimbursed for the actual expenses. So, what we know works best is a $621 million level of effort, with 40 percent of that being actually made available to us on day one and the balance being made at the end of the fiscal year. We would prefer that, frankly, without the NECIP earmark, but we could probably live with it with the NECIP earmark.

    Mr. WOLF. Would you need to borrow funds from the Taxpayer Relief Act in order to meet your operating expenses or are there other ways to address this type of shortfall?

    [The information follows:]

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    Since Amtrak does not have sufficient short-term credit lines to cover the FY 98 cash deficit, Amtrak anticipates temporarily borrowing up to $100 million from the TRA fund in order to meet qualified capital maintenance expenses.

    In FY 99, Amtrak expects to receive only 40% of its capital appropriation due to the anticipated scoring. This will create a substantial cash shortfall FY99. To cover this cash shortfall, Amtrak will again need to borrow up to $100 million from commercial banks. The additional cash shortfall will be covered by temporarily borrowing from the TRA funds for qualified capital expenses as defined by law. These borrowed funds will be repaid to the TRA on October 1, 1999 when Amtrak will gain access to the remaining FY 99 appropriation.

    Mr. WOLF. One reason that Congress has carried the July 1 availability date for capital funds is to keep your outlays low, as was talked about earlier. We recognize the board has voted to hold capital expenses to a 40 percent outlay rate during fiscal year 1999. However, a new board will be appointed soon. What assurances can you provide this committee that the new board will agree to keep your outlay rate of 40 percent, an action which limits how quickly Amtrak can spend it is capital appropriations? If both of you hope to serve on the new board, you might want to comment, too.

    Mr. WARRINGTON. Yes. Management has strongly endorsed and recommended that approach as part of this package. It is the way that this entire program works and there are several elements that make it work. As management, I would strongly recommend to a successor board that that is the deal; that is the understanding. For all of this to work, it requires a continuing commitment to that deal.

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    If the Congress or the committee feels it necessary to impose obligation ceilings, we could certainly live with that as well.

    Mr. WOLF. Okay, do you have any difference with that?

    Ms. DELEON. I certainly cannot speak for the new board since the President has not announced his intentions to nominate or present a slate of nominees to the Senate. I would say that the current board has directed management to proceed accordingly and there is a plan underway. I would say that George Warrington has directed the staff and that once this becomes established practice, I believe that without justification it certainly would become much more difficult for a new board to undo.

    Mr. WOLF. Ms. Rosen.

    Ms. ROSEN. I would concur with that. The existing board feels very strongly and has institutionalized that. I would agree with Mr. Warrington that, if the committee decided they needed to put some language in there, that would not be a problem for the institution.


    Mr. WOLF. The administration has requested that Amtrak be entirely funded from the highway trust fund in 1999. Mr. Warrington, what is your opinion of that. I know Mr. Callahan asked you, but how do you feel about that?

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    Mr. WARRINGTON. I am advised that it is not a great position to be in. [Laughter.]


    Mr. WOLF. Okay, that is enough.

    Under the Taxpayer Relief Act of 1997, Congress provided Amtrak with $2.3 billion in capital funding over the next two years. Once funding was deducted for the non-Amtrak states, Amtrak will receive roughly $1.1 billion in 1998 and 1999. What conditions must be met for the Internal Revenue Service to release these funds to Amtrak?

    Mr. WARRINGTON. Off the top of my head, I cannot tell you that, Mr. Chairman. Mr. Alshul, who is our chief financial officer can do that.

    Ms. ROSEN. I can say as the Chair of the Financial Committee I have been briefed on this. It mirrors the same exact regulations that are in the TRA language.

    Mr. WOLF. Have you received the first installment on the funding?

    Mr. WARRINGTON. No, we have not.

    Mr. WOLF. How many installments are there and how much will be included in each installment?
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    Mr. WARRINGTON. I believe the first installment is expected within the month and the first installment will be in the neighborhood of $1 billion.

    Mr. WOLF. What agreements do you have with IRS in order to spend these funds?

    Mr. WARRINGTON. We have an agreement which is about to be executed or recently executed.


    Mr. ALTSHUL. We have an agreement with the IRS that is consistent with the Tax Reform Act. It mirrors the exact language in terms of what we are allowed to spend the money on.

    [The information follows:]
    "The Official Committee record contains additional material here."


    Mr. WOLF. How will the first installment of the TRA funds be spent?

    Mr. WARRINGTON. One of the things that management recommended to the board about a month ago, Mr. Chairman, was a specific initial program of projects, all oriented toward high yield cost reductions over the next several years. We have——
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    Mr. WOLF. Can you share that with us?

    Mr. WARRINGTON. Sure, we can provide that to the committee. For the record, it is a very detailed list of projects, spread out across this entire country, all oriented around driving down operating costs.

    [The information follows:]
    "The Official Committee record contains additional material here."


    Mr. WOLF. Will you have to keep a separate account to show how the TRA funds are being spent?

    Mr. WARRINGTON. Yes and we need to provide that accounting on a quarterly basis to the Amtrak Reform Council as well.

    Mr. WOLF. As part of the TRA agreement, states that do not have Amtrak service receive one percent each of the TRA fund. That amounts to $138 billion over two years. Is Amtrak responsible for providing those funds to the states?

    Mr. WARRINGTON. Amtrak will serve as a pass-through for those funds, Mr. Chairman.

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    Mr. WOLF. Are you obligated to be sure that the states spend these funds on eligible items?

    Mr. WARRINGTON. The enforcement responsibility is not with Amtrak.

    Mr. WOLF. Who has that responsibility?

    Mr. WARRINGTON. I believe that is a state responsibility to the IRS.

    Al, do you want to speak to that?

    Mr. WOLF. What happens if they do not spend it on eligible items?

    Mr. ALTSHUL. I need to review what the enforcement provisions are in there, but there is some language in there that requires that they adhere to what the required expenditures are.

    Mr. WOLF. How do you hold them accountable then?

    Mr. ALTSHUL. How do we or how does the IRS?

    Mr. WOLF. The IRS, whomever.
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    Mr. ALTSHUL. I need to get back to you. I do not recall the language, but we will respond to that.

    [The information follows:]

    There is no formalized process for monitoring these funds given to non-Amtrak states. The six states who received these funds are expected to abide by all appropriate laws regarding the handling of these funds or face prosecution.


    Mr. WOLF. Since some among Amtrak board members negotiated the BMWE agreement, we have asked them to participate in the hearing, and we appreciate you both taking the time, to explain the agreement as ratified.

    Before we begin the questions, could you highlight for the committee each of your experience in labor negotiations, including how many contracts you have negotiated in the past. Are you both labor negotiators?

    Ms. DELEON. Well, first, let me say I am Sylvia deLeon and on behalf of the board I am pleased to be here today.

    In my daytime job, I am a partner in the law firm of Akin, Gump, Strauss, Haver & Feld. I am a lawyer. I have been a lawyer for over 20 years. I have been a partner in the firm for 16 years and serve on the Firm-Wide Management Committee.
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    [I have an active law practice which includes the management of the firms transportation practice. I have handled labor-related issues in the transportation arena. Within the context of my transportation practice, I have dealt with many labor-related matters particularly as they have intersected with governmental policies and intervention.]

    During the course of that time, I think I have negotiated everything under the sun. I have negotiated everything from full funding grant agreements to the termination agreement on behalf of the State of Texas for the Super Collider.

    On balance, over time, I think that I have probably negotiated more with this subcommittee than I have with labor unions, and I must say it has been excellent experience to prepare me for the tough unions.

    Over the course of my career, I have always represented both public sector clients and large and small corporations, many in advising them and many in negotiating for them.

    Ms. ROSEN. My name is Amy Rosen. As I said before, I sit on the board of directors in the seat that is designated for commuter representatives.

    In that capacity, I have spent, I would say, at least 20 years involved with the delivery of transportation services and, specifically, I have spent the last ten years on the board of New Jersey Transit. I have spent ten years as a corporate officer of the Lockheed Martin Corporation and was deeply involved in all of the strategic mergers that have happened, as well as work force consolidations.
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    In my experience in the transit business, I authored the legislation that created New Jersey Transit as Deputy Commissioner of Transportation. In a former life before that I was directly involved in the negotiations with Conrail when they ceased to provide commuter services in New Jersey. I have been directly involved in and, in fact, chaired the committee that has overseen all of the labor matters related to New Jersey Transit for the last ten years.

    We have been asked this question, Mr. Chairman, by several people, and I think that it is interesting to note when our board gave Sylvia and I, and Governor Carper authority to enter into this process, they, at the time, noted that we were the three board members that had some specific background in those matters.


    Mr. WOLF. What are the yearly costs associated with the agreement?

    Ms. DELEON. With respect to the BMWE—we have a chart that we will submit for the record, but I think the net cost would be roughly $5 million total.

    Ms. ROSEN. If you take the net cost to the corporation of the BMWE agreement on an annual basis, after you remove the COLAs, which were already obligated and budgeted and include the offsets with the productivity, as well as the work rule agreements, the net costs associated are about $5 million.

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    The interesting part is that if you take that assumption, which everybody does, that will help structure the remaining 13 agreements that we have to sign. On a billion dollar payroll which, of course, includes the railroad retirement obligations, that would amount to a total of about $38 million on the same calculation.

    [The information follows:]
    "The Official Committee record contains additional material here."


    Mr. WOLF. What long-term cost savings does Amtrak expect to gain through work rule changes negotiated in the agreement and what are the short-term costs, if any? Also what happens if Amtrak does not meet these anticipated savings?

    Ms. DELEON. I am glad you asked the question, Mr. Chairman, because I think in hindsight, that is probably the area that we, on the board, are most proud of.

    When we entered into these negotiations, we faced a very difficult situation. We faced a strike possibly days, if not hours, away. The Presidential Emergency Board and the National Mediation Board had run its process, and we were faced with a Presidential Emergency Board recommendation that we simply could not afford and that would have landed squarely on your desk to pay for.

    [Moreover the PEB recommendation made no allowance for work rule changes.]
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    At the end of the day, we committed to a contract that made perfectly clear we would not commit beyond our ability to pay and that we would insist upon work rule changes and productivity gains that would be a model for future agreements.

    We will use this structure for future agreements, we will probably have work rule changes and productivity savings in the range of $56 to $58 million for Amtrak.

    [With respect to the short term cost savings of the BMWE productivity gains, they should be in the range for $7 million over the next 2 1/2 years.]

    Finally with respect to the savings for Amtrak, this only calculates one portion. As George Warrington pointed out very directly in his testimony, the cost of not having labor agreements or losing employees is far greater than the cost of the salary and the measurement of productivity.

    We have training programs, and other employee management partnerships and we now have a contract that is competitive and is also a model. It is a contract that is far better than any freight railroad or any commuter railroad has ever been able to negotiate with the unions with respect to productivity gains and work rules. And so, for a company like Amtrak, it is critically important.

    Mr. WOLF. They told me you have to be at the airport at Dulles at what time?

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    Mr. WARRINGTON. National.

    Mr. WOLF. National.

    Mr. WARRINGTON. By 6 o'clock.

    Mr. WOLF. Oh, well, you are okay then. They said Dulles. [Laughter.]

    Ms. ROSEN. Beats me at 5:00. What about your board members? [Laughter.]

    If I may, Mr. Chairman——

    Mr. WOLF. Sure.

    Ms. ROSEN. I think your specific question on that, if I recall, and correct me if my numbers are wrong, please, that the productivity savings in the BMWE agreement specifically call for $3 million of savings on an annual basis and the work rules I think totaled around $8 million.

    I have to echo what Ms. deLeon said, in that, for many of us involved in the transit industry, work rules and productivity, hand-in-hand with management and labor, are really where we see that the future of running efficient operations less dependent on Federal subsidies will be.
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    I also would just like to add that, at the beginning of, whenever it was, late last October when we were actually two or three days away from facing a strike was that it was going to cost the organization $3.8 million a day for every day that we took that strike. The question of our own liquidity, which you have raised earlier, would have been on the line within a matter of days.

    So, if one wants to think of this in another fashion, it might be fair to also add what, in fact, we did not lose. Because from my personal interest in terms of the commuter agencies, we did not stop running the trains for one day.

    New Jersey Transit has 140 trains. Amtrak has 600,000 commuters which also use our infrastructure or we contract to provide service for. 450,000 of those are state-operated agencies which provide commuter service and another 60,000 Amtrak intercity passengers.

    So, at the time, there was no way that we could have been told that the conclusion would be that positive, but that is the part that I stand here and am proud that occurred.


    Mr. OLVER. Mr. Chairman, would you yield?

    Mr. WOLF. Sure. Mr. Olver.

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    Mr. OLVER. Thank you very much. I have to come in here with your indulgence because I am getting a lot of numbers, and I can usually assimilate them reasonably well, but I am getting a little bit lost.

    Ms. Rosen, did I understand you to say that there were—there must be a difference in our comparisons here.

    Ms. deLeon, I guess I should go to you. Were you giving the number of $58 million for a five-year period? Is that what you were giving?

    Ms. DELEON. Yes.

    Mr. OLVER. For five-year savings on productivity and on work rules that could be attributed——

    Ms. DELEON. For all of the crafts.

    Mr. OLVER [continuing]. For all crafts if you followed the same——

    Ms. DELEON. Perhaps one way to clarify this is to look at the BMWE agreement, as the first agreement reached among all of our contracts that have expired. We went into this knowing we had to set a structure and make a statement about what we would insist upon achieving in any future agreement. We have budgeted and put together our numbers based on the savings that we will insist upon achieving through negotiations for new contracts with all of our crafts.
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    Mr. OLVER. So then, if it is all, if the BMWE was extrapolated to all of your unions, all of your crafts, that is how you would get $58 million over a five-year period?

    Ms. DELEON. That is correct.

    Mr. OLVER. To go back to Ms. Rosen's comment, you said that $3 million was productivity and $8 million was work rules. I take it that was one year out of the five or is that only from BMWE by itself?

    Ms. ROSEN. That is why I think we are confusing you, and we will submit the chart.

    What I was referring to was based on the Chairman's original question, strictly the BMWE savings.

    Mr. OLVER. Oh, I see. The BMWE was then $11 million of savings——

    Ms. ROSEN. Well, the BMWE

    Mr. OLVER [continuing]. It would save between the two over five years.

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    Ms. ROSEN. To put that in context—no, because they are two slightly different things, if I may, and please key in if the numbers are wrong.

    The Productivity Council savings will be established and will be ongoing. The specific work rules that were established have a specific dollar amount. They also will provide way out beyond five years differences—and you can do those different numbers—but those numbers are related to one year on the work rules and annual basis on the Productivity Council.

    Mr. OLVER. On just the BMWE.

    Ms. ROSEN. Yes.

    Mr. WARRINGTON. Maybe I can clarify, Mr. Olver. Let me try to help here.

    The overall five-year cost of BMWE is $33.9 million. Against that we——

    Mr. OLVER. The overall five-year cost——

    Mr. WARRINGTON. Five-year cost of the BMWE of new cost.

    Mr. OLVER. That is the net, whatever savings——

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    Mr. WARRINGTON. No, no, no.

    Mr. OLVER. That is the wages.

    Mr. WARRINGTON. That is the wages. The wages are $33.95 million over five years. Against that, as an offset, we have $8.7 million of productivity and work rule economies for a net cost to Amtrak of $22.25 million.

    Mr. OLVER. Over five years.

    Mr. WARRINGTON. Over five years. That is the net cost over five years or about $5 million a year net cost of the BMWE agreement, No. 1.

    No. 2, what those numbers do not include, they do not include any of the benefits, work rule benefits, productivity improvements which would be associated with a newly formed Productivity Council between Amtrak senior management and the Brotherhood of Maintenance of Way Employees were together.

    We would identify opportunities together, not as part of a contractual relationship, but as part of a general incentivized improvement program to look for additional ways to save money that flows back to the company and back to employees.

    Mr. OLVER. So now I remember another number, someone said that there was a $5 million—to a previous question—that there were $5 million yearly associated costs with this agreement. That, more or less, fits with what you have said, $25 million net when you take the total wage costs versus the productivity and work rule benefits and so forth.
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    What then would that mean if you take that $5 million up and extrapolate it upward for all of the trades, all of the——

    Mr. WARRINGTON. Why don't I walk through those numbers in the same fashion for——

    Mr. OLVER. Maybe you ought to just give me the total. You can walk me through it and, ultimately, I think probably we need to sit down and see this walk-through. I have been asking while you were away for matrices. We are now up to matrices rather than just a matrix.

    Ms. ROSEN. The number is $38 million for all crafts on a yearly basis.

    Mr. OLVER. $38 million——

    Ms. ROSEN. Take the $5 million as compared to the $38. If you took the same assumptions, which we did in the BMWE agreement, and applied them to all of the same crafts the number would——

    Mr. OLVER. For all of them would be $38 million per year for all crafts. So, for a five-year period, that would be running into—what?—$195——

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    Mr. WARRINGTON. $191.65 million.

    Mr. OLVER. $195——?

    Mr. WARRINGTON. $191.65 million.

    Mr. OLVER. I guess I would like to see these things laid out.

    Ms. ROSEN. We will be happy to submit to the record.

    Mr. OLVER. If it is possible.

    Mr. WOLF. Sure. Absolutely. Absolutely.

    [The information follows:]
    Offset folios 187 insert here

    Ms. DELEON. Mr. Olver, I would also like to add that it might be useful to consider within the context of Amtrak's labor budget of a billion dollars this is roughly a total cost of——

    Mr. OLVER. A five-year period it is a——

    Ms. DELEON. $38 million.

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    Mr. OLVER. Yes, $38 million a year over all of the crafts in a situation where, at least on the basis of what Mr. Warrington said earlier, I see only two. Again, my head is bursting with figures at this point. I almost have a headache trying to sort them out.

    But I see only a couple of contact points of where the comparisons are with this organization versus other transportation organizations of an ostensibly similar nature. Because I have seen only a couple of points at which we see what the salaries are, and I do not see other aspects of the benefits. It is very difficult to make these judgments as we are being asked to make them.

    Ms. DELEON. We would be happy to provide anything for the record.

    I will tell you, in my opinion, in terms of making a judgment, my judgment is it was a very good deal.

    Mr. WOLF. Let me just interrupt for a second, if I can.

    We have a problem, and we are going to ask you if you can postpone your flight. We do not want to leave tonight without finishing the hearing, and we might be here until 6:00 or 7:00, I do not know. Because in a half-an-hour or 45 minutes there are votes, and the members will be running back and forth. There are going to be at least three votes. That is probably 40 minutes.

    What I plan on doing, too, is taking all of this testimony and giving it to the GAO and giving it to the IG to look at it.
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    So if you can look and see if you can stay longer, otherwise we are going to have to come back. Everyone else is in town; is that correct?

    Ms. ROSEN. You know, Mr. Chairman, I am sorry to indulge you, but I have a daughter who goes on stage for the only night tonight at 7:30. If it is possible——

    Mr. WOLF. In Washington?

    Ms. ROSEN. No, in New Jersey. If it is—I will have Mr. Warrington ask, but——

    Mr. WOLF. Absolutely. Yes, absolutely, you can—I would never make somebody miss this day. We are going to go through all——

    Ms. ROSEN. Let me let Mr. Warrington answer your question.

    Mr. WOLF. We are going to go through a number of questions on the union agreements and then after that I think both of you ought to feel comfortable to leave, particularly since you are billing at $35 an hour [Laughter.]

    Ms. ROSEN. I am billing at my usual rate. [Laughter.]

    Mr. WOLF. Zero—pro bono. More lawyers should do that. That is wonderful. I think that is great. [Laughter.]
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    I have some poor clients we might want to send to you. They are starving and——


    Ms. ROSEN. Though I am not an attorney, sir, my current clients raised——

    Mr. WOLF. But if we could do that, jump ahead, go through them, and can you see if you can move——

    Mr. WARRINGTON. I can be here until about 6 o'clock. Will that work, do you think?

    Mr. WOLF. That should do it.

    Mr. WARRINGTON. Because I have got to go back home—well, it is a long story, but I need to be on a plane.

    Mr. WOLF. That should do it. We will just go to the labor issues so you both can——

    Ms. ROSEN. We really appreciate that.

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    Mr. WOLF. So if your answers can be relatively succinct and then expand them for the record.

    What specific contingencies are contained in the agreement?

    Ms. ROSEN. The BMWE agreement had five contingencies, and I think you probably have them for the record. Roughly, if you want me to state them, they were the enactment of the authorization bill resulting in the release of the TRA, the submission by the administration and enactment by Congress of the operating support equivalent as that laid out in Amtrak's glidepath, and submission by the administration and enactment by Congress of a ''get-well'' appropriation of an additional $84 million in operating support to make up for prior years' underfunding the glidepath, no reduction in the first installment of the TRA; and, there is a parenthesis there of the $199 million general capital appropriation.

    The fifth was the appropriation of the general capital grant in Fiscal Year 2000 no less than that appropriated in 1999.

    In addition to those contingencies, there was a very broad contingency stating that should the Amtrak Board of Directors determine that any of the set of contingencies or any other significant funding event related to the wage and funding event failed to occur within a reasonable time, the BMWE agreement provisions related to wage increases not yet paid shall be void, unless the Amtrak board of directors determines that Amtrak is financially able to continue such payments.
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    In the context of this, I would like to speak for myself, and Ms. deLeon will probably have to add to this.

    The purpose of these contingencies were not representative of anything other than the board's interest not to sign an agreement that we did not have the ability to pay; the same thing that I would do in my life as a corporate manager, the same thing I would do in my life as a board member of New Jersey Transit.

    At the time, there were many Federal funding questions up in the air. We did not have the TRA authorization. We, in fact, did not have an appropriation. Those were designed to represent a level of Federal support generally required in order to be able to support the levels of funding in that agreement.

    Mr. WOLF. What was the justification for the board negotiating a contract based on a number of conditions that are not controlled by the negotiating parties?

    Ms. ROSEN. Sylvia should add her own things in there, too.

    The actual contingencies were developed and devised by management at the time, and the board's direction, which was to come up with some contingencies that deal with, represent the level of Federal support that would be necessary for us to be able to meet our payroll. They were never intended to be stand-alone, any individual one of them whatsoever.

    Mr. WOLF. Are there other examples in the private sector where a private corporation negotiated a contract with its unions that is contingent upon subsequent actions by the Congress?
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    Ms. DELEON. If I may answer that. I think there has been a lot of misinformation about the contingencies in this particular agreement. These contingencies are, in effect, protective options for management. The contingencies are there simply to ensure that we did not commit beyond our ability to pay.

    The contingencies do not require any action by the BMWE. They simply give management an opportunity to take a look at any particular funding event, and should management conclude that it did not have the ability to pay, it could, in fact, walk away from the agreement.

    Mr. WOLF. But it did involve the Congress, though. That was the thing.

    Ms. DELEON. Amtrak involves the Congress. The purpose of this agreement with the contingencies, it might be useful to take a look at the circumstances at the time. The Congress had not passed the Taxpayer Relief Act. The President had not submitted a budget. We did not know how we would fare with appropriations.

    If we were to sign an agreement and later have disastrous consequences from this committee or any other funding event, we simply, as board members, have a fiduciary obligation to not commit the corporation, and so it is really the reality is that any labor agreement, ultimately, is inextricably tied to the appropriations that the Congress awards.

    I think the President's budget request more than meets the resources that the contingencies in total reflect. So, looking at that contract today, I would say, based on the current situation and based on our hope that this committee will fully fund Amtrak, there is no reason to dream of walking away from this agreement. I think it would be a mistake for the company and a mistake for the Congress or the administration to put us in that position.
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    Mr. WOLF. I understand that. And, again, this committee handles a bill on the floor, where I have, with others on both sides, had to fend off cuts at Amtrak over the years. These are all going to be questions that are going to be asked on the floor. They are going to be asked in the full committee, and they are going to be asked by members who, frankly, who have no love for Amtrak and there are a significant number. So we have to know the answers.

    Ms. ROSEN. Mr. Chairman, if I just may add—I am sorry.


    Mr. WOLF. It is clear that the President's 1999 budget request does not meet the specific contingencies set out in the agreement. It does not include a request reinstating the 1998 capital funds of $199 million. It does not take into account prior year under funding of $84 million, or provide funding for an operating grant at the glidepath level of $150 million.

    How does the administration's budget submission not renege on the BMWE agreement? Is it still valid because of the reneging?

    Ms. ROSEN. Mr. Chairman, if I may answer that question and also go back to something Mr. Warrington said. I think it is in all of our interests to be frank and direct here. During the negotiating process, we, very frankly, were just as concerned—we being Amtrak management and Amtrak's board—with the administration's position on what our future funding was.
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    If you look at the contingencies, I could easily argue that all five of them related to what the administration's position was going to be, and in many of those instances we were still unsure. We were still unsure at the time whether or not the TRA would be passed. We were unsure at the time what the administration, as option 2 clearly lays out, would be submitted by the administration, how we would make the glidepath whole, et cetera.

    In response to your specific question, the administration's budget, as it relates to the contingencies, are two separate issues. They are not separate issues. They are related, but they are not invalidated or negated because, in the context of what the administration is now proposing, and we, frankly, were very pleased on the total numbers, in the five-year plan it includes $4.9 billion. If you take the TRA money out of that it comes out to $2.75 billion.

    Amtrak's board has consistently been, as long as I have been on the board, talking about a business plan that roughly related to $5 billion over a five-year period.

    In fact, if you look at that breakdown and look at the $2.75 billion that is in the 1999 through the 2003 budget submitted by the administration, that, in effect, is more than was included in our plan which was $2.73 billion.

    So, if you look at the contingencies, which really represented to us a level of Federal support required for Amtrak to meet its obligations, in order for us not to sign an agreement that we did not have the ability to pay, the characterization of that Federal support, whether it be in capital, whether it be in operating, whether it be in RRTA, or any other column, from the board's perspective and management's, is really irrelevant.
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    Mr. WOLF. Well, let me ask you: The agreement includes contingencies which the Congress must enact legislation that provides: (1) An operating assistance grant consistent with the glide path; (2) an appropriation for previous operating shortfalls; and (3) a general cap or appropriation of at least $199 million.

    Should Congress enact the President's budget structure, would Congress, in your opinion, violate the terms of the BMWE agreement?

    Ms. ROSEN. No.

    Ms. DELEON. As a lawyer, if I may try to clarify, none of these contingencies, whether they are met or not met, violate or nullify in any way this contract. What these contingencies were clearly designed to do was to provide Amtrak with the control that it needed to take a look at the contract, evaluate our fiscal situation following the appropriations process, and make our own business judgment as to whether we have the ability to pay.

    There is no specific contingency that must be met that would nullify this contract. The purpose of this was to ensure our ability to pay. The President's budget meets the resources collectively that are reflected in the contingencies.

    If this Committee, in its wisdom, chooses to fully fund the President's budget request, I cannot conceive of this board or the next reaching a decision that for the next fiscal year it did not have the ability to carry through with this agreement.

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    Mr. WOLF. What must occur for Amtrak to void the agreement and what is the minimal level of funding needed for Amtrak so that the corporation is financially able to pay the BMWE wage payments?

    Ms. DELEON. Our management has come up with a plan that would pay for this contract and future labor contracts out of passenger revenues. We do not intend to use Federal dollars to pay for this or any future labor agreement.

    Therefore, in order to be able to do that, the company has to have enough Federal money to run and to make its capital investments. If this committee fully funds the President's request of $621 million we will be able to do that for this fiscal year.


    Mr. WOLF. Should the Congress be concerned about a possible strike if the administration's 1999 request is enacted, or does Amtrak have other means to meet the contingencies laid out in the agreement?

    Are there any concerns with regard to that?

    Ms. ROSEN. If the administration's budget is fully funded, we see no current situations that would lead us to a strike situation.

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    Mr. WOLF. Also, too, you mentioned the savings before. We remembered that the BMWE said they were not going to strike against commuter rail. Is that accurate or not accurate?

    Ms. ROSEN. I was deeply involved in those negotiations——

    Mr. WOLF. If you could say, yes or no. I am trying to help but——

    Ms. ROSEN. We were in constant negotiation up until the day we got the extension to see if there was a way to work out with our labor forces whether or not we would be able to safely operate commuter rail.

    Mr. WOLF. Okay.

    Ms. ROSEN. That is a question we had not ever approached before and it had not been fully resolved by the time that the intervention occurred.

    Mr. WOLF. If we did not fully fund the President's budget, would you expect a strike?

    Ms. ROSEN. I really cannot answer that on hypothetical terms. If you give us levels of funding, we will be happy to run the numbers and talk about what we can do and what we cannot do.
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    Ms. DELEON. If I may answer that question.

    [If the President's budget is not fully funded, the least of my concerns would be a strike. I would indeed be Amtrak's immediate viability]

    Mr. WOLF. The point that I am trying to make is that you are paying for the salary increases out of your revenue and, therefore, you are shifting revenues around. I want you to have enough money. So, you know, this is not an adversarial process here or at least it is not meant to be.

    But, so, even though you do fence it, it is kind of like the off-budget/on-budget issue.

    And, so, even if you do fence it and it does not come out of the federal appropriations, it does come out of some other place and, therefore, if it comes out of that, there is a hole there that has to be filled. You understand that.

    Go ahead, you wanted to say something, Mr. Warrington?

    Mr. WARRINGTON. Yes, that is true.

    Mr. WOLF. Thank you. [Laughter.]

    Okay. We have——
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    Mr. WARRINGTON. At the end of the day it all has to add up to a number that is a cost associated with doing business, Mr. Chairman, and frankly, what I am sharing with you is that at a $621 million level, all revenues, all expenses across-the-board, commercial, commuter, reimbursable, all labor expenses, all material expenses, all supply expenses, utility expenses, electric expenses, when you put it altogether with $621 million and flexibility the dog will hunt. It will work and it will not only work this year but at the President's, the OMB level of recommended aid over the five-year period by providing stability to an institution that desperately needs it.


    Mr. WOLF. The BMWE agreement sets the pattern for other union agreements. It is the Committee's understanding that Amtrak has to negotiate a similar agreement with 12 other unions and two joint councils. In the past, Amtrak has said it could ill-afford the BMWE agreement. If up to 12 other unions and two joint councils come to agreements at a level similar to the BMWE, press accounts have cited a total cost of $442 million by the year 2002. Do you believe that figure is accurate, $442 million?

    Ms. DELEON. Mr. Chairman, I do not agree with those press accounts. There were a lot of inaccuracies reported throughout the course of this negotiation. I think the total cost actually would be $247 million.

    Mr. WOLF. Whatever, well, if you could elaborate that on the record, because I am glad to hear you say that. But if it were $442 or whatever it is, how much would be for this fiscal year 1999?
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    Ms. DELEON. For fiscal year 1999, the total cost after productivity savings for all crafts would be $88 million.

    Mr. WOLF. And if you could break it down?

    Ms. DELEON. We will give you the decimal point for the record.

    [The information follows:]
    "The Official Committee record contains additional material here."

    Mr. WOLF. Are any of these costs retroactive?

    Mr. WARRINGTON. Yes. A portion of them are retroactive and what we tried to do, Mr. Chairman, is add up the value of those agreements on a presumption that over the next several months we will execute more agreements based similar to the BMWE settlement and there is a specific distribution plan for those funds based upon some reasonable assumptions about concluding those agreements.

    Those have been factored into the cash flow.

    Mr. WOLF. If you would just elaborate for the record, how you are going to pay for those costs.

    Mr. WARRINGTON. We will do that, Mr. Chairman.
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    [The information follows:]

    Wage increases due to the BMWE wage settlement, and increases due to settlements reached with other craft unions will be paid out of passenger revenue fare collections. Amtrak will separately track each craft union's settlement's incremental wage costs over and above the union's existing wage agreement, and compare the resulting amount to total monthly passenger revenue fare collections. Incremental wage costs would include any lump sum payments, retroactive wage increase payments, and the net increase to current wages under the new agreements compared to the existing/old agreement.

    Mr. OLVER. Mr. Chairman, would you yield?

    Mr. WOLF. Yes.

    Mr. OLVER. Ms. deLeon, again, I thought I got the answer that it was $191 million of nets over five years, and you have just said 242. What have I missed? What is the difference?

    [$248 million is the cost for total wages for all crafts over five years. Mr. Warrington said that roughly $191 million is the cost after subtracting out our productivity gains.]

    Ms. DELEON. He asked for one——

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    Mr. OLVER. Without the offset?

    Ms. ROSEN. Without the offsets.

    Mr. OLVER. Oh, that is without the productivity and work load rule offsets.

    Ms. ROSEN. Yes.

    Mr. OLVER. Okay. So, that if you net it, then it comes down to 191. But we really ought to be talking about and we really ought to be understanding what this cost is with the offsets, I think.

    That is the true number that we should be dealing with. But in the matrix you are going to provide, we will see it.

    Thank you very much.


    Mr. WOLF. Thank you.

    We are moving. I think this is going to be the last question for the Board Members. At the end of the day your daughter will remember more that you made her performance than that you were here in Washington.
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    After the last question, I do not see any need for you to stay either. Funds provided by the Taxpayer Relief Act are only to be used for capital investments not to pay for wage increases. How can the board assure this committee that these funds will not be used for wage increases?

    Mr. WARRINGTON. Yes. We have an accounting system that will enable us to do that. So, in fact, we have a very complex accounting system. And what we have designed is a methodology which will account for those increments and cost them through passenger revenue accounts.

    And our chief financial officer has assured me that we have the capability to do that, Mr. Chairman.

    Ms. DELEON. If I may respond to that, as well?

    Mr. WOLF. Yes, please.

    Ms. DELEON. Capital investment is the key to Amtrak's long-term success. It is the key to improving the bottom line and to improve operating efficiencies. The board feels very strongly that the TRA should be reserved for high priority capital investments.

    I think that we can assure you that while there may be differences of opinion on the authority as to how the TRA money can be used and, in fact, the original administration proposal requested use of the TRA in a much more aggressive way.
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    [The Board believes it is important to try to preserve it for capital.]

    It was after our modified discussions with the administration that they agreed to our modifications to their proposal. The board feels very strongly that it will be only back here again at the end of the day with greater problems if we do not preserve the TRA for high priority capital investments.


    Mr. WOLF. I assume and maybe this is not accurate, both of you may be on the next board, who knows? But, assuming that you are on the next board and Mr. Warrington, if you would also answer this, do you believe that there are routes that ought to be shut down to make the corporation much more successful?

    We originally tried to get a base closing commission. We could not get it because members did not want to do it. So, now, we are down to a GAO report saying which ones ought to be closed.

    But I would like to know, because my sense is if we really want to have a good system, and we know there are unprofitable routes. This is the political process, that is why I think it is good to have somebody who is not involved in the political process, who just shoots straight down the middle, analyze this issue for us.

    I mean there have been routes kept open because there have been powerful individuals on this end or that end and if you terminate these routes, you are going to make X mad or Y mad. That is not a good way to run, particularly with the taxpayers' money.
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    I mean if you want to run your local bar, or your hoagie shop or your cheese-steak operation that way and give things away, that is your own choice, but not the taxpayers' money.

    So, I would like all of you to tell us, do you believe there are routes that need to be closed and do you believe the next board ought to be looking at some of these things?

    Ms. DELEON. Mr. Chairman, I watched carefully as you attempted to proceed with your model of a base closing procedure for Amtrak. We cut a significant amount of Service within the company over the past three years. And I will just tell you, speaking personally, we went around the country to town hall meetings in various cities, and the outcry was amazing.

    And, at the end of the day, it was Congress that was saying. ''You cannot cut this, or you cannot cut that.'' Joining with me here today (I believe she may have just left) was the Mayor of Marshall, Texas, which is very dependent on the Texas Eagle. When you meet with mayors around the country and they have lost air service and are left only with rail service it is, in fact, difficult.

    Nevertheless, we stand by George Washington's testimony that we must be a market driven corporation. And I think the difficulty and the misunderstanding—we know you do the best you can, you have incredible pressures put upon you as you ultimately end up in conference making these decisions—but Congress has mandated that we be a national passenger rail system and that we serve the entire country.
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    On the other hand——

    Mr. WOLF. That definition is not clear to everyone what that actually means.

    Ms. DELEON. That is right. And we would like to come back to you, perhaps next time, with some market driven analysis and it will be up to the Congress to maybe make some of these decisions.

    The Northeast Corridor is very profitable. Amtrak West, because of the initiatives and the joint partnerships we have entered into with the State of California. Similar initiatives in other States, provide great models. But there are a lot of parts of this country that will never be profitable under this model.

    And the difficulty is that at the end of the day we come to this committee, having trimmed our appropriation request as tight as we can get it and having already gone through the layers at OMB and the Department of Transportation, and we come in here and for you to cut it even more makes it impossible to fulfill our mandate to serve all of these places.

    I understand what you are saying but ultimately the decision rests with the Congress.

    [Congress must face the fact that to provide a nationwide service requires an ongoing federal investment.]
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    Ms. ROSEN. I would hope in response to your question that the new board is able to pursue and willing to pursue the type of market-based research that Mr. Warrington raised and which I have really, personally, observed being done in the Northeast Corridor.

    On the other hand, I also believe that there are institutional issues with Amtrak. I think that the board has come up with and really believes that we have a viable five-year plan if everything goes right. It is really, really tight and one of the reasons that it is tight is that our mandate, and we have a lot of mandates beyond the fact we are supposed to be a national rail passenger system. You raised the question of the ARC earlier.

    The ARC, from the day of enactment, has two years, to certify that we, as a corporation, are on the way to self-sufficiency or have, by law, a requirement to come up with the restructuring or liquidation plan.

    If necessary, if we cannot make this plan work—and it is going to be tough to make it work; we do not want to pretend anything else—then I would hope that the new board and the ARC may find themselves faced with having to address some of the institutional issues. I do not think they are impossible to address. But by the nature, as long as we are requiring massive Federal subsidies, which we are today, then the institutional conflicts are going to exist.

    Mr. WARRINGTON. Mr. Chairman, I agree with that. I think the challenge is, as a matter of public policy, agreeing on getting comfortable with what a national system is, what it will look like, and how it can be made relevant, so that you grow market share rather than stagnate?
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    I am not comfortable that today's national system, as it is defined, is the most appropriate or most effective economical, market-driven system. I think if we all agree that we need and want to have a national system that is relevant, our challenge as businessmen and operating folks, is to define and operate a system that makes sense within that context.

    And I think our challenge over the next year, frankly, is to understand what the market wants and try, strenuously, to define and articulate a national system that works but works within reasonable economic parameters.

    And I cannot tell you what that picture is going to look like today. I think we will have a much better picture of that over the next year.

    Meanwhile, the level of aid, the level of effort which is included within the OMB proposal—with the flexibility provisions—gives us the ability to have stability over the next couple of years as we try to decide over the long haul—this is not a two or three year issue, it is really a long-term issue—as to what a national system should look like, what should it be, what is an appropriate role for the Federal Government, what is an appropriate role for regional government, and what is an appropriate role for State government?

    I think we have not confronted those issues in any way directly over the last several years, probably in 27 years.

    Mr. WOLF. Well, I do agree and I think it is important to make a greater outreach with the governors. You know, several years ago we put an additional, $22.5 million to keep some of those routes going.
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    I think all but one now may be closed. Or is it just only one? I am not sure.

    Ms. ROSEN. Yes, all but the Texas Eagle.

    Mr. WOLF. There was literally money poured down a rat hole. I mean it was all gone. And if you had that money to add here, imagine what you could have done.

    So, I think that more outreach with the governors. And I appreciate your comment.

    I think that is all for both of you. I appreciate your taking the time to come to the hearing and you are excused, if that is the word, you can go if you want to.

    Ms. DELEON. Thank you.

    Ms. ROSEN. Thank you very much, Mr. Chairman.


    Mr. WOLF. Thank you.

    Mr. Warrington, at the end of fiscal year 1997, Amtrak had $75 million cash shortfall and needed to borrow to cover these costs. In fiscal year 1998 Amtrak anticipated $100 million cash shortfall. Based on your first two quarters of revenues, what do you believe Amtrak's current budget deficit will be at the end of fiscal year 1998? $100 million or what do you think it will be?
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    Mr. WARRINGTON. Yes. I think that right now we have $170 million of borrowing authority and our plan is that we will borrow about $100 million.


    Mr. WOLF. Why do you borrow from foreign banks?

    Mr. WARRINGTON. Foreign banks have a lot more experience, confidence and certainty around the prospects for railroading than most financial institutions do in this country.

    They have a lot of experience.

    Mr. WOLF. What percentage of your loans are with foreign banks and American banks?

    Mr. WARRINGTON. Recently, most of our equipment and capital related financing has been through foreign banks. Most of our short-term borrowing has been through domestic banks, Chase Manhattan and the like.


    Mr. WOLF. In the past, the corporation has provided some limited express service largely small packages and baggage which netted the corporation $5 million a year. However, last year Amtrak began to aggressively pursue an expanded express service. In your fiscal year 1998 plan, Amtrak estimated that it would collect $60 million in revenues from this expanded service.
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    Before Amtrak could begin, the Union Pacific brought a suit to the Surface Transportation Board asking for the board to define what Amtrak could and could not do. The board has not yet reached a decision in the case and, as a result, Amtrak has not been able to expand its express service nearly as much as specified in your plan.

    After two quarters of service, what do you believe Amtrak will collect in revenues for the express service in 1998?

    Mr. WARRINGTON. Probably somewhere, Mr. Chairman, in the neighborhood of $8 to $11 million. We have scaled back those projections.

    Mr. WOLF. Big time.

    Mr. WARRINGTON. Big time by about $47 to $50 million. I have confidence that, over the longer haul, 12-to-18 months, we will ramp up. I do not believe we will ramp up to the $60 million level. I think a more reasonable assumption is around $30 million a year. But we have to get a reasonably favorable STB ruling there.

    And we have got to be practical, frankly, about what type of express service we can run and not materially injure the performance of our core business passenger train.

    Mr. WOLF. How will the delay in implementing the express program affect Amtrak's net loss in fiscal year 1998?

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    [The information follows:]

    The delay in the express program implementation is expected to adversely impact Amtrak's planned net loss in fiscal year 1998 by approximately $48 million.

    Mr. WOLF. What do you plan on doing—I suppose it is in your plan—but to mitigate these losses?

    Mr. WARRINGTON. We factored that in our plan. And I will tell you, frankly, Mr. Chairman, our plan on an annual basis has dozens and dozens of plan actions and that we have got to compensate for on a regular basis.

    And this is one of those plan actions which, over the short haul, we have to compensate for and we will probably at the end of the day end up doing a bit more borrowing to cover for that, to fill that gap over the short haul while the program ramps up.

    On the other hand, Mr. Chairman, we have had instances, as an example, where we did not have revenues in our plan which have materialized including the lease of locomotives to freight railroad, particularly the UP, out West, where we will draw down probably $10 or $11 million this year, because we have got locomotives available.

    So, there are puts and takes that go on during the course of the year and, at the end of the day, we have some borrowing flexibility but not a lot of borrowing flexibility to cover those eventualities.

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    Mr. WOLF. In 1999, the Corporation thought that it would collect $75,000,000 from express services. Have you recalculated this? If so, what is your current revenue projection for express?

    [The information follows:]

    Based on the delay of implementing Express service in fiscal year 1998, the Corporation is conservatively estimating a net contribution of $21 million for fiscal year 1999. This includes $55 million of express revenue. The revenues from Package Express service are excluded from these numbers.

    Mr. WOLF. What impact does the BMWE agreement have on your bottom line in 1998? In 1999?

    [The information follows:]

    The BMWE agreement is expected to be approximately $3 million over our business plan bottom line expenses in both fiscal 1998 and 1999.


    Mr. WOLF. In 1996, you estimated immediate savings of up to $30 million to be realized from purchasing power wholesale for its own use. In addition, Amtrak anticipated that it could increase revenues by up to $75 million from reselling its power to transit agencies.
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    Did Amtrak realize any revenue in Fiscal Year 1997? If not, what did Amtrak to do compensate for the revenue shortfall?

    Mr. WARRINGTON. A whole host of actions, particularly around other commercial——

    Mr. WOLF. What happened? What——

    Mr. WARRINGTON. What happened? Well, that plan assumed two things. Number one that we would successfully secure wholesale status for our purchase and resale to commuters of electric power.

    It also assumed and we continue to assume that there is value in a competitive electric market place for the transmission of electric power from low-cost areas of the country to high-cost areas of the country, like the Northeast, and that the Northeast Corridor asset, itself, could be available for that use. We continue to engage in discussions and assessments with third parties, both domestic and international interests, around the potential of mid-to-long-term use of the corridor asset for transmission purposes.

    With respect to wholesale power purchase pricing we spend $40 million a year right now in the Northeast Corridor for electric traction costs for our trains and commuter trains. We spend another $10 to $15 million a year for house power stations and the like.

    We have before the Federal Energy Regulatory Commission, as does ENRON a proposal to enable us to purchase power through ENRON on a wholesale basis. That application is pending right now, and upon its successful determination by FERC, which we are keeping our fingers crossed about, those savings will be implemented immediately.
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    Mr. WOLF. Have you weighed-in on their behalf with FERC?

    Ms. MOLITORIS. No, we have not.

    Mr. WOLF. Should you?

    Ms. MOLITORIS. I think FERC's deliberations are quite independent.

    Mr. WOLF. Well, I understand that but, you know, when you are in the wall it is an amicus brief if for nothing else. But I think if this is so critical, you are basically their parent, or if not their foster parents——


    Mr. WOLF [continuing]. You might want to weigh in.

    They are all politically appointed by the administration. I think this is something that you might want to do. That is important. You could get a significant amount of money, could you not?

    Mr. WARRINGTON. Yes. It has got significant benefit. I will tell you, Mr. Chairman, that we have secured a whole host of endorsements and support and communications to FERC on our behalf by members of Congress, commuter agencies and States up and down the Northeast Corridor.
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    Mr. WOLF. Would it be helpful if the FRA supported your effort?

    Mr. WARRINGTON. I think it would be very helpful.

    Mr. WOLF. Last year, Amtrak's proposed wholesale power supplier, Enron Power Marketing, was denied access to a transmission network that would allow it to supply electricity to Amtrak. Enron filed a complaint in December, 1997 with the Federal Energy Regulatory Commission (FERC) petitioning access. As long as this matter is in dispute, Amtrak will continue to purchase power at retail prices, which is twice the cost of wholesale power. Has FERC made any ruling? What impact might this ruling have on Amtrak's revenue projections?

    [The information follows:]

    FERC has not made a ruling as of this date. If and when FERC makes a favorable ruling, the contract with Enron would impact expenses, not revenues, i.e. it would result in savings. The Northeast Corridor's fiscal year 1998 budget originally projected $11 million in savings from this contract. The revised fiscal year 1998 budget assumes no savings from this contract. The Northeast Corridor has covered the shortfall with other actions. The fiscal year 1999 budget does assume the $11 million savings. The FERC process does not have a regulatory time clock built in for when FERC must make a ruling, and so a projection time-wise cannot be made.

    Mr. WOLF. How did the ice storm in the Northeast affect Amtrak's 1998 revenues?
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    [The information follows:]

    The ice storm impacted the Northeast Corridor's Empire Line service, reducing revenues and ridership, particularly on the Adirondack and Vermonter trains. It is estimated that between $300,000 and $400,000 of ticket revenue was lost.

    Mr. WOLF. At this point, do you believe that Amtrak will need to borrow to cover any budget deficit in 1998? Will this amount be greater or less than the amount required in 1997?

    [The information follows:]

    Amtrak's original FY98 Strategic Business Plan assumed a cash shortfall at yearend of $100 million. It was assumed that Amtrak would cover this through accessing commercial credit lines.

    Due to deterioration of the express business, incremental wage costs and other expenses, Amtrak now expects to have to cover approximately $200 million at year end, worst case. This $200 million maximum cash shortfall will be covered by $100 million short-term bank borrowing and temporary borrowing from the TRA fund for qualified expenses of up to $100 million.

    In FY97 Amtrak accessed short-term credit lines at year end for $75 million.

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    Mr. WOLF. The reforms contained in Amtrak's reauthorization bill provide the Corporation with additional flexibility to address its financial problems. Specifically, how will these reforms contribute to Amtrak's short-term and long-term financial viability?

    [The information follows:]

    With the passing of the Amtrak Reform and Accountability Act, many of the barriers imposed in the past have been removed.

    These included the repeal of the requirement that Amtrak operate a federally-mandated basic route system for passenger services, and the statutorily prescribed protections for employees affected by a route discontinuance, authorization for Amtrak to negotiate changes in how it contracts out certain labor functions and significant liability reforms.

    In the short-term contracting out certain labor functions will not have an immediate effect on Amtrak's financial performance. This is because under the terms of the Authorization Bill, the contracting out language in the Rail Passenger Service Act was eliminated in law and placed in each labor agreement. Negotiations over contracting out must begin no later than Nov. 1, 1999, under the terms of the Railway Labor Act.

    The liability reforms will also have little or no effect on Amtrak's financial performance in the short-term. The $200 million liability limit will likely only come into play following an incident resulting in a large number of severe injuries to passengers and passenger deaths. Such an event has not yet occurred.
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    It is also unclear of how the liability reforms will affect Amtrak's financial viability in the long-term. Amtrak has had only one accident where the total losses exceeded $100 million: Chase, MD. Unless the future brings several larger catastrophes, this $200 million liability limit for compensatory and punitive damages for passenger injuries or death will function mainly as ''unused insurance''.


    Mr. WOLF. To be free of Federal operating subsidies by the year 2002, Amtrak has placed a great deal of importance on the timely completion of high-speed rail between New York and Boston which would reduce the trip time between these two cities by almost two hours.

    Amtrak is also trying to reduce the trip time by 15 minutes between Washington, D.C., and New York, by getting the southern end of the corridor back into a state of good repair. If high-speed rail is implemented as planned, how much additional revenue is the corporation anticipating in the year 2000?

    Mr. WARRINGTON. The net revenue increase will be in the neighborhood of $180 million a year.

    Mr. WOLF. And that is realistic?

    Mr. WARRINGTON. Yes, absolutely. Mr. Chairman, when we did the modelling for this we modelled around several variables: travel time, and frequency and price. Also, we never modelled, never used econometric models which factored in the attractiveness of high-speed trains, themselves, and we believe that our estimates are, if anything, conservative.
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    Mr. WOLF. If a delay occurs in the program, what is more important to complete on time, the electrification or the high-speed train sets?

    Mr. WARRINGTON. The electrification, Mr. Chairman. I assure you that the train sets are right on schedule as is the electrification.

    Mr. WOLF. You told me you had five in.

    Mr. WARRINGTON. We will have five in by the close of business December 31, 1999.


    Mr. WOLF. The Department of Transportation IG just completed an audit of Amtrak's high-speed rail program on the Northeast Corridor. The auditors found that Amtrak has experienced problems with its project over the past year which have negatively impacted the project's costs and schedule.

    Specifically, the IG found that due to some construction problems the completion date for electrification slipped from July 1999 to October 1999. This is the same month that Amtrak originally planned to begin its high-speed service between New York and Boston. Would you highlight for the committee what the construction problems were and how you are rectifying them?
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    Mr. WARRINGTON. The construction problems initially had to do with the contractor encountering rock and field conditions which stretched out their construction schedule. The problem revolved around the catenary foundation poles, basically digging holes and pouring concrete.

    They ran into some field problems for the first six-to-eight months of the program. Initially there were also were some safety problems that caused us to shut them down until they could correct the situation.

    Now that the safety problems were corrected, and the production line began humming, they have gotten back on schedule and actually we have compensated for these delays by doing much of the work concurrently rather than sequentially to recover that time in the schedule.


    Mr. WOLF. In order to begin high-speed rail service in October 1999, Amtrak has developed an aggressive recovery plan and, as part of this, the corporation plans to test each block of construction as it is completed, instead of testing the full corridor for three months as originally proposed.

    Even though each block will be tested, how can you assure the committee that every block will work with every other block without doing a full-scale testing?

    Mr. WARRINGTON. The engineers assure us that it will work.
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    I am not an engineer, myself, but——

    Mr. WOLF. What if it does not work?

    Mr. WARRINGTON. It will work. [Laughter.]

    Mr. WARRINGTON. If it does not work, Mr. Chairman, we have——

    Mr. WOLF. I mean what if it does—I take you at your word—but do you have a contingency plan if it does not work?

    Mr. WARRINGTON. Mr. Chairman, we feel very comfortable and I have been assured by all of our engineers that this is, number one, a very simple design. This is not rocket science. This has been done all around the world. In fact, it was done between New York and Washington in 1932. We do not have to reinvent the wheel. This is a system that has been well-designed and will work.

    Ms. MOLITORIS. Mr. Chairman, I just want to mention, I think although they are not going to test over the whole system for three months, it is not as though they are not going to run trains over the whole system in getting ready for the high-speed service.

    So, I do not know exactly how your question was written there but they certainly are going to use the whole system before they actually institute the service.
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    Mr. WOLF. Do you believe that high speed rail service will be delayed any further because of the construction problems?

    [The information follows:]

    Amtrak's high speed rail program remains on-track for its 1999 debut. Electrification construction work is scheduled to be completed in May, 1999, with testing and commissioning expected to be completed by the end of August, 1999. Electrified service to Boston is tentatively scheduled for our regular seasonal change in the fall of 1999. Service using the new high speed trainsets will be phased-in beginning in the late fall of 1999 (when the first trainset is delivered), and continuing through July, 2000 (when the final trainset is delivered).

    Mr. WOLF. A second problem the IG cited was catenary wire. The original supplier delivered unacceptable catenary wire and Amtrak had to find another supplier for this wire. Has this problem been rectified?

    [The information follows:]

    An alternate supplier has been found to supply the wire, with no significant impact on the project schedule.

    Mr. WOLF. At this point in time, the Corporation was supposed to have 40 percent of the wire hung. However, no catenary wire has been hung along the Corridor yet. When will the new wire be delivered?
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    [The information follows:]

    Actually, nearly 200 miles of wire have been hung. A revamped schedule and an alternate supplier of contact wire are allowing the hanging of wire to remain on schedule.

    Mr. WOLF. Amtrak does not plan to complete installation and testing of the catenary along the entire Corridor until mid-October 1999, the same month that the system is supposed to be operational. Aren't you cutting this short?

    [The information follows:]

    Construction of the electrification system is scheduled to be completed in May 1999, with commissioning and testing planned for completion by the end of August 1999. Amtrak believes this provides a sufficient cushion until the start-up of electrified service in late October. Amtrak's experience in operating an electrified line on the southern end of the Corridor, as well as its close oversight of the project since its inception, will help ensure timely electrification start-up.

    Mr. WOLF. Will weather impede the stringing of the catenary wire?

    [The information follows:]

    Weather has not been a factor in the rate at which wire is hung, and Amtrak does not expect this to change.
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    Mr. WOLF. Okay. We have other questions on that and I will just give them for the record.

    Are you using the corridor for monopole? Have you granted out for use of monopoles along the corridor to the different telephone companies and communications?

    Mr. WARRINGTON. Yes, we have got several telephone communications transactions, probably four or five. We have some with MCI.

    Mr. WOLF. How many monopoles are there in the corridor from Washington to Boston?

    Mr. WARRINGTON. I am not sure what a monopole is.

    Mr. WOLF. It is for the use of cellular phones.

    Mr. WARRINGTON. We have executed agreements with several carriers. I cannot recall, off the top of my head, who they are, Mr. Chairman, but they place antennae on the top of catenary poles, and we have several locations in Pennsylvania, Philadelphia, and elsewhere, where they are actually in construction as we speak.

    Ms. MOLITORIS. Mr. Chairman, Quest was one I might bring to mind, which was actually a fiber optic contract as opposed to the monopoles, but it was a $45 million infusion to Amtrak on the positive side.
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    Mr. WOLF. A third problem the IG cited was the reliability of service in Connecticut. Amtrak owns most of the track between New York and Boston except for a segment in Massachusetts and 56 miles between New Rochelle, New York, and New Haven, Connecticut.

    This 56-mile stretch is owned by the Connecticut Department of Transportation and has experienced several catenary problems recently.

    Because of the age of the wire on the 56-mile portion, Metro North has torn the catenary out twice, and there have been some numerous slow orders from a portion of the track. In order to achieve three-hour service, Amtrak needs to operate at 90 miles per hour along this section, but may not be able to do so if the catenary is not reliable or if there is inclement weather.

    What are you doing to ensure that your trains can operate reliably and quickly over that portion?

    Mr. WARRINGTON. We factored Metro North limitations into our schedule modeling and, as a result of the restrictions that Metro North feels comfortable placing on their territory, we have accommodated that through several investments elsewhere to gain the handful of minutes that flow from the reduced speeds through that section of track in Connecticut.

    At the end of the day, it is probably worth two to three minutes.
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    Mr. WOLF. Connecticut DOT plans to replace this catenary wire by 2012, at a cost of $200,000,000. With increased traffic along the northern end of the Corridor, already above the levels originally planned for, and the unreliability of the current catenary wire, has Amtrak factored in these problems in your calculation of three hour service?

    [The information follows:]

    Amtrak's three hour service plan requires traveling approximately 90 miles per hour through Metro North territory between New Rochelle, New York and New Haven, Connecticut. If Amtrak is limited to 75 miles per hour between Stamford, Connecticut and New Haven due to the condition of the catenary wire, a two to three minute increase in trip time could occur. Improvements elsewhere in the train operation—scheduling, adjusting stops, etc.—would be required in order to maintain a three hour trip time. Amtrak is factoring all such contingencies into its operating plan.

    However, it is also important to note that infrastructure condition is a concern for the entire Northeast Corridor, not just Connecticut. If the condition of the Connecticut catenary is maintained to current standards, the travel time objectives can be achieved.

    Mr. WOLF. Is Amtrak working with the Connecticut DOT to speed up the replacement of the catenary wires between New Rochelle and New Haven?

    [The information follows:]
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    The catenary system between New Rochelle and New Haven was installed in the early years of this century. Metro North—the owner and primary user of the tracks—has completed replacement of the system between New Rochelle and the Connecticut state border with a constant-tension Overhead Catenary System capable of supporting speeds up to 110 miles per hour. Connecticut has developed a 12-year program to replace the 47 miles of catenary within the State. Amtrak and Connecticut have been working together to address measures that could be taken either to accelerate the 12-year replacement program or to prioritize the location for initial work in order to more quickly achieve higher operating speeds. Amtrak will be meeting and working with the State on this in the coming months.


    Mr. WOLF. Another problem the IG cited was change orders. Specifically, Amtrak has had over 230 change orders in an electrification program for a cost of $140 million and 20 change orders to the train sets at a cost of $35 million.

    Why were there so many? That does seem high, doesn't it?

    Mr. WARRINGTON. On the electrification project, we have a contractor who was very aggressive around claims, and we have a management that is very aggressive around fighting claims. We feel confident that the claims that the contractor has submitted will be reduced significantly and, at the end of the day, we will negotiate an outcome which is extremely reasonable and within our overall project budget.

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    On the trainsets themselves, there have been a number of change orders. Most of them relate to—and through market research we have done, both internally with employees and externally with customers—around changes which, over the long haul, will cost us a lot less money because we do not have to retrofit equipment.

    Mr. WOLF. Mr. Olver.

    Mr. OLVER. Mr. Chairman, I have heard the phrase from both sides of the table so many times today that at the end of the day I am beginning to think that this is an effort to make me a Pavlovian dog. [Laughter.]

    Mr. OLVER. And I think that I am going to succumb to that. I am going to adjourn myself. [Laughter.]

    Mr. WOLF. I was hoping you would go for another minute or two because I have a call.

    Let me move on. We will ask more for the record.

    Mr. WOLF. Who is responsible for these costs?

    [The information follows:]

    In the case of the electrification contract, 15 major claims have been filed. Most of these relate to correcting design flaws in the original uncompleted Morrison Knudsen design. The contractor has also filed numerous other small claims relating to changed site conditions or specific field conditions—changes that are not unexpected in any significant construction contract, which often require modifications as construction progresses and site-specific issues are uncovered. It is important to keep in mind that Amtrak is dealing with a contractor that is extremely aggressive about pursuing claims and change orders. In return, Amtrak will be just as aggressive in defending the legitimacy of these claims.
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    As for trainsets, the number of change orders remains relatively minor. However, the largest, by far, have involved major design changes to the trainset interior to develop a First Class car, enhance handicapped accessibility throughout the train and restrooms, improve lighting, and upgrade the food service car. These changes were driven by an extensive survey of over 20,000 rail, air and highway travelers to evaluate their travel needs and the types of amenities that will increase market share. In addition, Amtrak worked with hundreds of employees to develop designs for the locomotive cab, food service areas, and other passenger areas, to ensure that the designs achieve both employee and customer requirements and preferences. In short, while these change orders will cost Amtrak money in the short term, the long-term revenue gains will far outweigh the short term costs.

    Amtrak and the contractor are involved in a dispute resolution process that will ultimately allocate financial responsibility between the parties for changes in the design and for additional construction costs. Amtrak's liability is reasonably limited and manageable. However, funds have been set aside for claims that are ultimately determined to be Amtrak's responsibility.

    Mr. WOLF. Does Amtrak have enough money set aside to pay for these change orders?

    [The information follows:]

    Amtrak's project budgets include reserves for change orders and claims that we project remain sufficient to pay for electrification and trainset change orders.
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    Mr. WOLF. How many change orders do you project will occur in these two projects before they are completed 18 months from now?

    [The information follows:]

    Any further changes to trainsets would be minimal, as the trains already are in construction. Amtrak expects the electrification contractor to continue its practice of submitting large numbers of small claims relating to field conditions, and there may be some claims filed regarding catenary wires. These issues will be resolved through the dispute resolution process or through other negotiations. The existing project reserve is sufficient to support any liability for anticipated claims.


    Mr. WOLF. It has been reported that our pedestrian railroad fatalities are on the rise again, up 14 percent from 1996 to 1997. Is this accurate and why?

    Ms. MOLITORIS. Yes, it is accurate, Mr. Chairman. But let me clarify the difference between highway-rail crossings and pedestrian.

    Highway-rail crossing incidents have reduced significantly. It is the so-called trespasser or people on property who are not legitimately authorized to be there where we are having the most difficulty.

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    Mr. WOLF. If you took them out of the category, what would it show?

    Ms. MOLITORIS. It would show an increase in safety. We have decreased highway-rail crossing fatalities by 28 percent between 1993 and 1997. We feel our focus there, which has been hand-in-hand with Operation Lifesaver and four of the surface administrations in the Department, we feel that we are doing well in terms of awareness, education, and closing crossings as well.

    Mr. WOLF. Okay. Just——


    Ms. MOLITORIS. May I finish on that particular question?

    The issue of trespasser fatalities is a very difficult one, Mr. Chairman, because it involves such things as recreational use of railroads, people fishing off of railroad bridges, hiking on railroad properties. It involves homeless issues, where people set up little camps in those areas. It also involves tragedies where people commit suicide on the railroad right of way.

    So it is a very difficult issue. We are, however, working closely with law enforcement agencies, cities and communities to come up with a program to try and stop this increase, but it is just extremely difficult because the media often glamorizes the use of railroad right of way by nonauthorized persons.
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    If you, per chance, saw the American Express ad for Tiger Woods, it began with him standing right in the middle of a series of tracks.

    Mr. WOLF. How long has the ad been going on?

    Ms. MOLITORIS. I do not know the exact time when it started.

    Mr. WOLF. That is tragic for young people to see that ad.

    Ms. MOLITORIS. And also there are movies——

    Mr. WOLF. Would you check and let us know?

    [The information follows:]

    The American Express advertisement ''What I Want'' is a 30 second commercial supporting American Express business services. The commercial was intended to highlight Tiget Woods' aspirations and bigger dreams for himself. There is a 3 second vignette featuring an actor standing between railroad tracks. The actor is not Tiger Woods. The commercial was aired in September 1997 and is still being aired, but not at the same rate.

    Ms. MOLITORIS. Yes. There are a whole host of things on the Internet, movies, hobo manuals in the bookstores. It is a very, very difficult issue because, for some reason, this has become glamorized, and it is hard to address. We are addressing it on all of the fronts that we can. In terms of highway-rail crossings, even just as I told you been 1993 and 1997 we decreased the deaths by 28 percent, but last year by 8 percent alone.
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    Mr. WOLF. Your goal was to reduce by 50 percent the number of accidents, correct? That was your goal between 1994 and the year 2004?

    Ms. MOLITORIS. Yes.

    Mr. WOLF. Do you think that is still practical?

    Ms. MOLITORIS. Yes. In fact, we are——

    Mr. WOLF. Is it attainable?

    Ms. MOLITORIS. We are actually ahead, if you would divide from the Year 2004, we are ahead on the highway-rail crossing. The trespasser is the difficult one right now.

    Mr. WOLF. You had 55 action plans. What of the 55 actions have been the most effective?

    Ms. MOLITORIS. As I mentioned last year, Mr. Chairman, they really all need to happen. There is not one silver bullet on this issue.

    I think the awareness program, the national campaign for education and awareness of drivers, I think the outreach to law enforcement and judges, all of these have been very effective. Also, the new ways of warning people at crossings, the photographic enforcement has been very effective. New ways of putting different techniques like four-quadrant gates, concrete median strips to help prevent people from going around gates when they are activated, all of these have had a positive impact.
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    I think nothing more than education and awareness, however.
    "The Official Committee record contains additional material here."


    Mr. WOLF. How is the safety record for Amtrak? Because you go through a very congested area, I mean, from Washington to New York is——

    Mr. WARRINGTON. Fortunately, Mr. Chairman, Washington to New York is an entirely grade-separated railroad, so we do not have those kinds of problems.

    Mr. WOLF. How about for young kids coming on the track?

    Mr. WARRINGTON. That is definitely a problem, and we do a lot of local work with our own police department, local law enforcement and school education programs. We invest a lot of money, time, and effort through our own police department——

    Mr. WOLF. Any guess on the——

    Mr. WARRINGTON. Yes. Unfortunately, it has been all too frequent.

    Mr. WOLF. Could you submit for the record how many, say, for the last seven years?
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    Mr. WARRINGTON. Sure. We will give you the entire record over the past decade.

    Mr. WOLF. And where they took place.

    Mr. WARRINGTON. Certainly.

    [The information follows:]

    Listed below are the number of trespasser fatalities by state that were struck by Amtrak trains on the main line between Washington D.C. and New York.

TEN YEAR PERIOD—(1988–1997)

    1997—(2) Total—Maryland (1), New York (1).

    1996—(6) Total—Maryland (1), New Jersey (2), Pennsylvania (3).

    1995—(4) Total—Maryland (2), New Jersey (1), Pennsylvania (1).

    1994—(4) Total—Pennsylvania (2), New Jersey (2).

    1993—(5) Total—Maryland (1), New York (1), New Jersey (3).

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    1992—(5) Total—New York (3), New Jersey (1), Pennsylvania (1).

    1991—(6) Total—New York (1), New Jersey (2), Pennsylvania (3).

    1990—(11) Total—Maryland (3), New Jersey (4), Pennsylvania (4)

    1989—(22) Total—Maryland (4), New York (7), New Jersey (5), Pennsylvania (6).

    1988—(9) Total—New York (3), New Jersey (3), Pennsylvania (3).

    Mr. WOLF. We held this hearing in the afternoon because your board was meeting in the morning. Afternoon hearings are difficult because of votes. In the morning we do not have vote interruptions. I do apologize, but there is nothing I can do.

    We have two votes, and then we may have a motion to recommit and final passage. We are going to just let you go. We will have other questions for the record.

    Since you are here——

    Ms. MOLITORIS. I would be happy to wait, sir.

    Mr. WOLF. Maybe you can go down and get a sandwich or get a coke. The staff will let you know how long we are going to be.

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    Ms. MOLITORIS. That would be fine.

    Mr. WOLF. Just so you know, what I would like to do is submit the transcript to the GAO, John Anderson, and have him look at it. I want to also send it to the IG, Ken Mead. I am also going to send it to former Amtrak President Tom Downs. I am also going to try to find two or three financial experts that can look at this and come back to us in two weeks or three weeks to give us their sense of Amtrak's viability.

    Is there anything else you want to add?

    Mr. WARRINGTON. No. I think that is very fair, Mr. Chairman. I think, at the end of the day, while Mr. Olver does not like to hear that——


    Mr. WARRINGTON. At the end of the day, I think we can confidently assert and be reassured that, with that level of effort over five years, with flexibility provisions, we can finally stabilize this place and really focus our attention on defining what a national railroad is and ought to be.

    Mr. WOLF. I appreciate it. We are going to recess.

    I really hope the new board, which is not in existence because they are yet to be appointed, will pick a professional railroad person for President, somebody who is not driven by fear and intimidation. Because if this thing slips back into the political process again I think the confidence level will decline. You will give enough ammunition to those who would like to see the railroad go, that I think it could end up having only corridor service—obviously, the Northeast Corridor is always going to be there. That is going to do well and certain parts of California.
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    I guess you have a say with regard to who serves on the board or the administration does. They ought to pick a good person for President, who understands this and who is going to just call it the way that they see it.

    Thank you for your testimony, and we will recess.

    Mr. WARRINGTON. Thank you, Mr. Chairman.


    Mr. WOLF. I am sorry for the delay, and I hope it has not inconvenienced you, but we had the votes, and there was nothing we could do.

    Ms. MOLITORIS. No problem, Mr. Chairman.


    Mr. WOLF. We will try to get you out of here pretty soon.

    Systematic reviews of Union Pacific and CSX. FRA conducted safety assurance and compliance problems reviews of systemic safety problems at Union Pacific, Southern Pacific, and CSX during Calendar Year 1995.

    As part of that, FRA identified systematic problems and root causes at each railroad and worked with the railroads to address these problems.
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    In the summer of 1997, Union Pacific, which merged with Southern Pacific in 1996, and CSX together experienced ten major train collisions resulting in eight fatalities. In response, FRA escalated its inspection efforts by sending 80 federal and state inspectors to the situation at UP and more than 75 federal and state inspectors to review CSX's operations. FRA found a number of safety deficiencies at both railroads and made several recommendations targeted to improving rail safety.

    What problems did FRA identify during its intensive inspections of UP and CSX in 1997?

    Ms. MOLITORIS. Mr. Chairman, of course, there is a list of issues for each of the railroads, but let me say that there were some similarities and some differences. At CSX, for example, the result of our SACP was 252, I think, action steps of safety issues systemwide over the whole railroad that had to be fixed, and they have pursued those.

    Our SACP, let me just define, is an ongoing thing. It is not something that starts and stops. It has different elements. The big audit of Union Pacific with the 80 inspectors was a way to get a level of in-depth information that is not possible to get in the traditional site inspection technique.

    The SACP, also, is a process which includes labor at the beginning. So you sit down with the railroad, with railroad management and labor——

    Mr. WOLF. Some of these concerns come from labor?
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    Ms. MOLITORIS. Absolutely. I will give you an example of the difference between site inspection results and SACP.

    Part of SACP is what is called listening posts, where our people go and listen at a labor organization meeting to the safety issues that they are concerned about.

    In one particular instance, this was——

    Mr. WOLF. Is management there?

    Ms. MOLITORIS. Not at the listening posts.

    Mr. WOLF. So they are willing to speak out.

    Ms. MOLITORIS. Yes. And actually, now that the SACP is more mature, the level of communication is much more open, even at the SACP, where everybody sits down.

    In the one I was going to explain to you, the listening post our people heard that engineers were experiencing signals at intersections which were falling red right in front of their face, so they could either go into emergency and risk derailment or they could go through it and risk decertification of their own license. Neither one of those is a choice anybody should have to make.

    So we went to the headquarters and examined with management, started digging. The bottom line is we found that this was occurring, not only at this one particular location where the railroad labor people were talking to us about it, but at 400 locations across the whole system, and we were able to fix the software problem before it hurt anybody.
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    Mr. WOLF. Did the railroad cooperate with you?

    Ms. MOLITORIS. Absolutely. We could not have done that without——

    Mr. WOLF. Do you think they knew this was taking place before this?

    Ms. MOLITORIS. No. No, they did not.

    Mr. WOLF. Why didn't the workers tell the management?

    Ms. MOLITORIS. Well——

    Mr. WOLF. Why wouldn't the engineer call up and say, This is what happened to me the other day at ''X'' location?

    Ms. MOLITORIS. Well, I believe that, first of all, we are dealing with a history where communication has not been, maybe, the strong suit.

    No. 2, people were dealing with it as an ad hoc problem in a certain location. It was our process to try and find root causes——

    Mr. WOLF. But shouldn't the company have come up with that, if you have got a problem here, and a problem there? It would seem to me that if this engineer said it, this engineer said it and, therefore, there might be a problem throughout the system. They should have known.
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    Ms. MOLITORIS. Mr. Chairman, certainly in an ideal condition you are absolutely correct. What we are trying to do with SACP is facilitate the kind of communication on safety issues that is always welcomed by a supervisor or anybody along the chain of command. I believe that is why the SACP process has been really a positive one, a win-win for both management and labor on CSX, on BNSF, on the Union Pacific.


    Mr. WOLF. Have the leadership of the railroad companies responded in a positive way?

    Ms. MOLITORIS. Very much so.

    Mr. WOLF. So you have no complaints? They are not dragging their heels or have not been recalcitrant in dealing with these problems?

    Ms. MOLITORIS. They have not. Let me say that the leadership has been very responsive, and I think labor has been very responsive. I think all of us would agree that the difficulty often is in middle management.

    Mr. Chairman, when you have a company with 53,000 employees who have done business in one way for a long, long time. It is not easy to change the safety culture, the behavior, the thinking, the modus operandi of 53,000 people, and that is the only way we are going to get to zero is if we get safety first above and beyond everything into everybody's behavior.
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    Mr. WOLF. Is there an adversarial process? Do the workers not feel comfortable citing problems? What is the problem?

    Ms. MOLITORIS. As a matter of fact, historically, the relationship between management and labor was really around collective bargaining which, of course, is often or maybe we should say almost always an adversarial situation. So what we are trying to do, and with some success, is say safety is not negotiable. Safety is the win-win for everybody.

    In some sense, it is, I think, a very good role for government to be the facilitator and the bridge, which gives labor a level of confidence about speaking forth directly and also has an opportunity to give information to management that they may not have been getting.

    Mr. WOLF. Is there a way for the worker to communicate that without putting his or her name?

    Ms. MOLITORIS. Oh, yes, there is. In fact, we have an 800 number. We have made videos, as a matter of fact, on the Union Pacific, where I, personally, give them my business phone, my fax, my e-mail, and we have gotten hundreds of communications. They feel comfortable putting their name down for us.

    If we have a name and a place to contact, we have responded to each and every one of them. In fact, we have a project manager now on the Union Pacific, and we have begun to realize we have to reorganize our own structure to respond to the kind of changes that we have had in the past few years.
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    Mr. WOLF. Where is the project manager located?

    Ms. MOLITORIS. Right now he is located in Kansas City, but he spends a great deal of time in Omaha. In fact, he was actually on site in Omaha for over three months.

    Mr. WOLF. During the 1995 SACP reviews, did FRA identify systemic problems at the railroads that, if properly addressed at that time, would have prevented the cluster of accidents in 1997?

    Ms. MOLITORIS. First of all, the SACP began in 1995 and UP was not our first stop. In addition, Mr. Chairman, we had to evolve the process. We are a lot better at it today than we were when we started the first one because it was a totally new process, and we had to develop and train our own people to be facilitator, to find ways to get people in a room and be able to talk directly and come up with action plans.

    We did not begin the first SACP on Union Pacific until 1997. The events of 1997 really overrode the normal time table for SACP. So that is why we jump-started it beyond the normal time table to go into the big safety audit and get the kind of response from UP, which has netted literally tens of millions of dollars in investment and safety for the company, and it is benefitting both service and safety.

    Mr. WOLF. Are there any railroads that are not cooperating?

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    Ms. MOLITORIS. No. We are not involved at the same level with every railroad. First of all, we only have 400 personnel directly related in the field, and we have to point our resources at the most safety-intensive problems.

    Mr. WOLF. Would you let the committee know, as the year develops, if there are railroads that are not cooperating?

    Ms. MOLITORIS. We certainly will.


    Mr. WOLF. The FRA has been involved with the railroad industry in the development and testing of positive train control systems, with train separation and wayside signals for years, yet there has not been a working demonstration, as there was with the Burlington North Railroads former ARES system.

    Why and when will there be a working demonstration?

    Ms. MOLITORIS. I feel encouraged by the story I am going to tell you, Mr. Chairman.

    PTC, in 1994, we presented the Congress with a report on the status of positive train control and an action step program that we were committed to. We have fulfilled all of those action steps.

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    They have resulted in demonstrations in the Northwest, which was a joint UP–BNSF project. It resulted in demonstrations in Michigan, which is on high-speed service, preparatory to go to Chicago.

    Just in February, the beginning of February, the board of the AAR—the American Association of Railroads—for the first time committed to support a comprehensive positive train control project in Illinois from Springfield, north 100 miles. Not only have they supported it, but they are investing their money in it, and the product will be a comprehensive positive train control software package that can be adapted by every railroad for their use.

    Mr. WOLF. They are committing how much?

    Ms. MOLITORIS. $20 million.

    Mr. WOLF. And it is one of your priorities.

    Ms. MOLITORIS. Yes.

    Mr. WOLF. It has been on the Safety Board's most wanted list since 1990 and, yet, you are only requesting $600,000 for it in 1999 Fiscal Year. Do you think that is an adequate amount?

    Ms. MOLITORIS. Well, we have invested in positive train control throughout the Clinton administration, and we have money for the——

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    Mr. WOLF. Mr. Hall, when he testified, did say your 1999 request was inadequate.

    Ms. MOLITORIS. May I suggest all of us would like to see positive train control tomorrow. The time table for the Illinois project is four years. Additional resources could reduce the time table, possibly.

    I have asked our staff to look at the technical feasibility of reducing the time table, but I believe that the money that we have requested can move this project forward to its resolution, to the end of the time period where we would have this product. It must be interoperable. It must be able to be used by all of the railroads to adapt to their own systems.

    I am sure that Mr. Hall would like to see an earlier time table, as would we all, but operating within the constraints of balanced budget, which is No. 1 priority, I believe the administration has been very focused on, and I think Mr. Hall would tell you it really started to move in 1994. It really was a priority of mine when I came in.

    Mr. WOLF. In comparison, the Association of American Railroads has committed $20,000,000 (in increments of $5,000,000 annually over four years) to develop positive train control technology along a corridor in Illinois. Congress has provided some funding to this project in prior years. The total cost of this project is estimated to cost about $60,000,000 and this figure does not include the cost of track improvements needed to accommodate high speed passenger trains. Are you expecting the freight railroads to fund the rest of this project? Why hasn't FRA requested any funding in its 1999 budget for this project?

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    [The information follows:]

    FRA and the state of Illinois DOT (IDOT) presently have about $15 million of public funds available for this project, to be added to the $20,000,000 committed by the Association of American Railroads. One major precept of the joint effort already agreed is that program procurements will be competitive, based on the principles of open architecture, and cost shared to the maximum possible extent by supplier organizations.

    FRA did not request funding in FY 1999 as prior year funding was adequate to continue work through FY 1999.


    Mr. WOLF. What is the commitment to the Illinois project in terms of funding from FRA?

    Ms. MOLITORIS. Illinois DOT is putting in $3 million. We are putting in $11 million in 1998—or 1999. My finance director will help us here.

    Ms. MURPHY. Right now there is a total of $15 million; $12 million from FRA from previous fiscal years and $3 million from Illinois IDOT. There is no funding in the 1999 budget at this time because of the $15 million and the funding that AAR has committed for the first year, which is $4 million.

    Ms. MOLITORIS. So it is $20 million over four years.
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    Mr. WOLF. Do you have any other things on the most wanted list?

    Ms. MOLITORIS. No, I do not believe so. That has been the primary one.


    Mr. WOLF. The Transportation Research Board, in its biannual review of the high-speed rail program for Congress, stated that, ''development of positive train control is the number one priority for the successful development of incremental high-speed passenger service on freight railroads. However, all of the potential safety and productivity benefits of PTC will not be realized for high-speed passenger service or other freight and passenger rail services unless development of components is undertaken.''

    Do you feel that the development of components are being undertaken, and it is not slipping, and it is on-line?

    Ms. MOLITORIS. You are talking about high-speed rail now, sir, aren't you?

    We met with Joe Sussman, who is the chair of that committee, and I think when we completed our discussion he was much more clear. The report that you got from that committee was about a year behind, by the time it comes out through the votes and the committees.

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    Our focus is on having next-generation high-speed rail do the things that are too expensive for one state or a group of states to do; such as positive train control, nonelectric locomotives, and research on grade crossing protection. Those are the things which have been very helpful to states, including California, and Florida, Illinois, Michigan, the State of New York.

    Mr. WOLF. What about with regard to Amtrak, are you doing that much with them?

    Ms. MOLITORIS. Absolutely. First of all, we are very involved with high-speed rail on the Corridor. We have been very much on top of the electrification because, like you, we are very concerned that it be on time. I, myself, have been up there.

    Mr. WOLF. What about the commuter trains that use that, too?

    Ms. MOLITORIS. All of them are concerned and interested. The commuter trains are concerned about the protection, the positive train protection process that has to be in place because they are going to have to equip their vehicles, also.

    There is a dialogue going on right now, Mr. Chairman, between Amtrak and the commuters to come up with a viable sharing of costs because everybody is going to benefit. Those people who run on the Corridor will be safer because of these systems.


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    Mr. WOLF. Whatever happened with the recommendations and the requirements of Amtrak having to upgrade its stations with regard to the Americans with Disabilities Act?

    Ms. MOLITORIS. I believe all of their stations are meeting ADA requirements, but I, personally, could not give you a report on each station, but I would be happy to do it for the record.

    Mr. WOLF. If you would do that.

    Ms. MOLITORIS. Certainly.

    [The information follows:]

    Amtrak currently provides service to 516 stations in 44 states and is making measurable progress toward meeting Americans with Disabilities Act (ADA) station requirements. Most Amtrak stations in major cities across the country are fully accessible to passengers with disabilities. Approximately 60 percent of all stations provide wheelchair access to the trains. Of the eight Amtrak designated key stations: Washington, DC Union Station; New Carrollton, MD; BWI Airport, MD; Baltimore, MD, Pennsylvania Station; Wilmington, DE; New York City, NY, Pennsylvania Station; Old Saybrook, CT; and Chicago, IL Union Station, all are accessible.

    Amtrak shares joint use with 29 commuter key stations, nineteen of which meet ADA compliance. The compliance at the other key stations must be completed by 2001. As new stations are build and old ones renovated, every Amtrak station in America will be in full compliance with the ADA station requirements by 2010.
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    Mr. WOLF. In the President's budget request, FRA is seeking the reinstatement of railroad user fees. In the past, these fees were collected to fund FRA's rail safety program. However, this year, the administration is seeking to broaden the programs covered by these fees to include rail safety, railroad research and development, and some general counsel activities, for an estimated $82,900,000.

    Why are you broadening the eligible programs?

    Ms. MOLITORIS. The administration's position has always been that those who benefit the most from the service should contribute through user fees. The $62 million is for the direct Safety Office activities. The $20 million is for counsel and safety R&D.

    So those are areas that directly contribute to the safety program, and so the administration's position has been that user fees should cover them.


    Mr. WOLF. The staff gave me information with regard to most wanted issues. You, actually, have safety of passengers in railroad passenger cars on the NTSB most wanted list also.

    Ms. MOLITORIS. And we have just come out with a report on that. We have a proposed rule on passenger equipment safety.
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    Mr. WOLF. Does the report get you to the point that you are off the list or how does that deal with it?

    Ms. MOLITORIS. Not until it is final. This is a proposed rule. That means it has been published. It goes into the Federal Register and then has its whole process of hearings and people responding. So as soon as that is final, I would be hopeful, but it is ''open acceptable response'' at this time.


    Mr. WOLF. Even though the railroads paid the user fees through fiscal year 1996, now they oppose the reinstatement of this fee because they believe it is inequitable text.

    In a recent Senate Commerce hearing, the railroad stated that $420 million would be collected over the next five years if this fee was reinstated and that these dollars could be better spent on infrastructure projects that would have a direct impact on safety and service.

    How do you respond to that argument?

    Ms. MOLITORIS. The administration's position has been that user fees are appropriate with regard to those who benefit from the service.

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    Mr. WOLF. What about for Amtrak having to pay these user fees?

    Ms. MOLITORIS. Amtrak is in the same category as all of the railroads, so they pay it as well.

    Mr. WOLF. What does Amtrak pay?

    Ms. MOLITORIS. In 1994 they paid about $2 million.

    Mr. WOLF. Excuse me. I did not hear that.

    Ms. MOLITORIS. In 1994 Amtrak paid about $2 million.

    Mr. WOLF. And you think they should have to keep on paying it.

    Ms. MOLITORIS. That has been the administration's position, sir.

    Mr. WOLF. Mr. Warrington, in the past Amtrak had to pay these user fees. What is your position on the reinstatement of these fees?

    [The information follows:]

    Amtrak opposes the reinstatement of these fees.

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    The President's budget proposal for fiscal year 1999 calls for not only reimposing, but expanding ''railroad safety user fees,'' which are estimated to be $410 million over the next five years. Over the same five year period, Amtrak is required, by law, to reach operating self-sufficiency. At a time when Amtrak is working toward achieving operating independence, the imposition of another user fee siphons off scarce resources that could otherwise be spent on other critical needs that have a direct impact on safety, service and operational reliability. Addressing these needs would also have the effect of bringing us closer to operating self-sufficiency. We feel the imposition of a federal user fee would be counterproductive to the goals Congress has already laid out for Amtrak.

    The railroad safety user fees were originally imposed by Congress in 1991. During the debate on the 1995 Budget Reconciliation Act, Congressional committees decided not to extend these fees, and neither the House nor the Senate Budget Committees included these fees as part of the FY98 Congressional Budget Resolution. We believe these latter actions are appropriate and oppose the reinstatement of these fees.


    Mr. WOLF. The administration is proposing the collection of user fees for GPS in the Year 2000. How much will that——

    Mr. MCQUEEN. The request is for $3 million, and so user fees will cover that.

    Mr. WOLF. Would you give us a justification why.
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    Ms. MOLITORIS. Do you want me to give it to you now, sir?

    Mr. WOLF. Why don't you do that.

    Ms. MOLITORIS. DGPS is really a crucial element to expand the reach of GPS. It is going to help on the positive train control project. We are working with the Air Force to take GWEN towers that are being decommissioned to put them into use for this purpose. There will be about 60 of them. This won't just cover railroads. There will be benefits to trucking and other transportation modes.

    Mr. WOLF. FAA is doing it. Are they going to be charging aviation users and will other agencies be charging?

    Mr. MCQUEEN. FAA—you already pay user fee and ticket taxes.

    Mr. WOLF. There is a different user fee, though.

    Ms. MOLITORIS. Yes.

    Mr. MCQUEEN. Right, different user fee.

    Mr. WOLF. That is you and I when we——

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    Mr. MCQUEEN. That is right. The railroads would pay the user fees for——

    Mr. WOLF. It is a little different, though, isn't it?

    Mr. MCQUEEN. It is different.

    Ms. MOLITORIS. Can we respond for the record on what FAA is doing? Because I do not know how they are looking at this directly. I know that the towers are being donated by the Air Force. There is not a charge. Those are being transferred, so they can go to this use because they are being decommissioned.

    [The information follows:]

    The Administration proposes that the FAA impose a user fee to recover the cost of their Wide Area Augmentation System (WAAS).


    Mr. WOLF. OMB directives require that proposed user fees involve a direct link between the fee and the service provided. What is the direct link between the proposed fee and the services FRA provides under the railroad research and development program?

    Ms. MOLITORIS. Mr. Jim McQueen is head of that office, and I could have him give you detail.
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    Primarily, it is only the research and development on direct safety-related research and development, not other things. So that would be the direct link, but we would be happy to annotate for the record which projects. I know track, for example, is one.

    [The information follows:]

    FRA's R&D program addresses safety-related research in the following ten areas: human factors, rolling stock, track and structures, track-train interaction, train control, grade crossings, hazardous materials, safety of train occupants, safety of high-speed ground transportation, and facilities and equipment.

    Mr. MCQUEEN. Mr. Chairman, 96 percent of the research and development budget is dedicated to railroad safety.

    Mr. WOLF. We have some other questions that we will submit for the record.

    Mr. WOLF. Railroads already share the costs of the research and development program with FRA. Wouldn't enacting this user fee be double billing?

    [The information follows:]

    FRA and the railroads share the cost of R&D work. FRA's budget generally covers 66 percent of the total work performed with the industry funding the balance. The user fee, if enacted, would recoup FRA's appropriated funds.
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    Mr. WOLF. One other question: Do the people who serve on the Amtrak board get paid?

    Ms. MOLITORIS. Mr. Chairman, as far as I know, they are only paid for their travel, their expenses.

    Mr. WOLF. So they do not get a per diem?

    Mr. MCQUEEN. There is a per diem.

    Ms. MOLITORIS. Yes, there is a per diem, but not a salary.

    Mr. WOLF. Per diem, not a—I do not mean for their travel down here, but do they get a salary for that day?

    Mr. MCQUEEN. No.

Closing Remarks

    Mr. WOLF. I guess that about does it. I appreciate your taking the time. We will just send you some other questions.

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    Ms. MOLITORIS. And we will include all of these several things that you asked for.

    Mr. WOLF. Any last comment you want to make about safety?

    Ms. MOLITORIS. Mr. Chairman, in our talk yesterday I was hopeful that we could find a time when you could come to visit some of our initiatives—maybe just an in-and-out day trip. I hope that that will be possible because I think your leadership can be a wonderful bully pulpit for safety, which is No. 1.

    Mr. WOLF. I will disguise myself, and we will go to the railroads to see what we can find out.

    Ms. MOLITORIS. There you go.

    Mr. WOLF. Thank you very much.

    Ms. MOLITORIS. Thank you, Mr. Chairman.

    [Questions for the record follow:]
    "The Official Committee record contains additional material here."