Segment 1 Of 3     Next Hearing Segment(2)


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PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at []. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.







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FEBRUARY 7, 10, and 13, 1995

Printed for the use of the

Committee on Transportation and Infrastructure


BUD SHUSTER, Pennsylvania, Chairman

WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
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HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
WILLIAM H. ZELIFF, Jr., New Hampshire
BILL BAKER, California
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER I. BLUTE, Massachusetts
JOHN L. MICA, Florida
ZACH WAMP, Tennessee
RANDY TATE, Washington
RAY LaHOOD, Illinois
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NORMAN Y. MINETA, California
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
ROBERT E. WISE, Jr., West Virginia
JAMES A. HAYES, Louisiana
BOB CLEMENT, Tennessee
MIKE PARKER, Mississippi
ELEANOR HOLMES NORTON, District of Columbia
PAT DANNER, Missouri
JAMES E. CLYBURN, South Carolina
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BOB FILNER, California


SUSAN MOLINARI, New York, Chairwoman

SUE KELLY, New York, Vice Chairwoman
JAY KIM, California
BOB FRANKS, New Jersey
JOHN L. MICA, Florida
BUD SHUSTER, Pennsylvania
(Ex Officio)

BOB CLEMENT, Tennessee
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
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NORMAN Y. MINETA, California
(Ex Officio)



Proceedings of:

February 7, 1995

February 10, 1995

February 13, 1995



FEBRUARY 7, 1995
  Downs, Thomas, President, National Railroad Passenger Corp., AMTRAK, accompanied by Tim Gillespie, Vice President, Government and Public Affairs, AMTRAK

  Mead, Kenneth M., Director, Transportation Issues, Resources, Community, and Economic Development Division, U.S. General Accounting Office, accompanied by Dr. Frank Mulvey, Assistant Director, Ron Wood, Assistant Director, Deborah Justice, Evaluator, and Rick Jorgenson, Evaluator
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  Molitoris, Jolene M., Administrator, Federal Railroad Administration, Department of Transportation, accompanied by Donald Itzkoff, Deputy Administrator, Federal Railroad Administration and Mark Lindsey, Chief Counsel, Federal Railroad Administration


  Mineta, Hon. Norman Y., of California

  Molinari, Hon. Susan, of New York

  Lipinski, Hon. William O., of Illinois

  Nadler, Hon. Jerrold, of New York


  Downs, Thomas

  Mead, Kenneth M

  Molitoris, Jolene M


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  Downs, Thomas, Chairman and President, Amtrak, chart, State of Mississippi, Amtrak Facts

Mead, Kenneth M., Director, Transportation Issues, Resources, Community and Economic Development Division, U.S. General Accounting Office:

Chart, Federal Appropriations for Amtrak Fiscal Years 1988—95

Amtrak's Working Capital Surplus/Deficit, Fiscal Years 1987—94

Aging of Amtrak's Car and Locomotive Fleets

Ridership on Amtrak's Rail Passenger System FY 1993

Report, Intercity Passenger Rail Financial and Operating Conditions Threaten AMTRAK's Long-term Viability, February 1995*

  Molinari, Hon. Susan, a Representative in Congress from New York, response from the Railroad Retirement Board concerning impact of workforce reductions on Railroad Retirement Board trust funds

Molitoris, Jolene M., Administrator, Federal Railroad Administration, U.S. Department of Transportation:

Responses to questions from Rep. Lipinski
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Response to question from Rep. Nadler

Letter to Rep. Molinari, February 17, 1995

Examples of Approved Private/Public Partnerships Under ISTEA

Breadth of Private/Public Project proposals
Examples in the Partnership for Transportation Investment, chart

*Retained in subcommitte file.

FEBRUARY 10, 1995

  Barrett, Hon. Thomas M., a Representative in Congress from Wisconsin
  Barton, Hon. Joe, a Representative in Congress from Texas
  Bass, Hon. Charles F., a Representative in Congress from New Hampshire
  Biden, Hon. Joseph R., Jr., a U.S. Senator from Delaware
  Blute, Hon. Peter, a Representative in Congress from Massachusetts
  Castle, Hon. Michael N., a Representative in Congress from Delaware
  Clayton, Hon. Eva, a Representative in Congress from North Carolina
  Ehlers, Hon. Vernon J., a Representative in Congress from Michigan
  Gejdenson, Hon. Sam, a Representative in Congress from Connecticut
  Gekas, Hon. George W., a Representative in Congress from Pennsylvania
  Hefley, Hon. Joel, a Representative in Congress irrom Colorado
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  Hilliard, Hon. Earl F., a Representative in Congress from Alabama
  Hoekstra, Hon. Peter, a Representative in Congress from Michigan
  Jacobs, Hon. Andrew, Jr., a Representative in Congress from Indiana
  Moakley, Hon. John Joseph, a Representative in Congress from Massachusetts
  Montgomery, Hon. Sonny, a Representative in Congress from Mississippi and John Robert Smith, Mayor, Meridian, MS
  Neal, Hon. Richard E., a Representative in Congress from Massachusetts
  Pomeroy, Hon. Earl, a Representative in Congress from North Dakota
  Torkildsen, Hon. Peter G., a Representative in Congress from Massachusetts


  Barton, Hon. Joe, of Texas
  Biden, Hon. Joseph, Jr., of Delaware
  Blute, Hon. Peter, of Massachusetts
  Castle, Hon. Michael N., Delaware
  Clayton, Hon. Eva, of North Carolina
  Gejdenson, Hon. Sam, of Connecticut
  Gekas, Hon. George W., of Pennsylvania
  Lipinski, Hon. William O., of Illinois
  Neal, Hon. Richard E., of Massachusetts
  Torkildsen, Hon. Peter G., of Massachusetts

  Smith, John Robert, Mayor, Meridian, MS
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  Bachus, Hon. Spencer, of Alabama, statement
  Deal, Hon. Nathan, of Georgia, statement
  Frank, Hon. Barney, of Massachusetts, statement
  Rose, Hon. Charlie, of North Carolina, statement
  Wolf, Hon. Frank, R., of Virginia, statement

FEBRUARY 13, 1995

  Burnley, James H., Former Secretary of Transportation, (1987—1989)
  Capon, Ross, Executive Director, National Association of Railroad Passengers
  Downs, Thomas M., Chairman and President, Amtrak, accompanied by Tim Gillespie, Vice President, Government and Public Affairs
  Harper, Edwin L., President and CEO, Association of American Railroads, accompanied by Rob Blanchette and Charles Dettman
  Knappen, Theodore, Government Affairs Representative, Greyhound Lines Inc

  Lawler, Gregory E., Executive Director, Safe Transit and Rail Transportation (S.T.A.R.T.)


  Lipinski, William O., of Illinois

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  Burnley, James H
  Capon, Ross
  Downs, Thomas M
  Harper, Edwin L
  Knappen, Ted
  Lawler, Greg


Downs, Thomas M., Chairman and President, Amtrak:
Letter to Rep. Molinari, March 14, 1995
Response to question from Rep. Mica
Chart, Allocation Comparison to Annual Cost Payments FY95 Dollars (millions)
Northeast Corridor Common Use Costs Alternative Allocation Examples FY95 Dollars (thousands)
Amtrak Northeast Corridor Commuter Service Estimated Annual Train Miles (Train miles over tracks maintained and controlled by Amtrak) By User
Response to questions from Rep. Lipinski
Chart, Breakdown, by Railroad, of train and engine employees who have prior rights to freight railroad employment
Appendix C—2 to the National Railroad Passenger Corporation Agreement
Harper, Edwin L., President and CEO, Association of American Railroads:
Chart, FELA: Annual Trends, employment; injuries; payout: 1981—1993
Response to question from Rep. Molinari
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Letter and chart from M. Walrave, Chief Executive, Union Internationale des Chemins de fer, February 9, 1995


  Carmichael, Gilbert E., Former Federal Railroad Administrator, statement
  Carpenter, A.R., President and CEO, CXS Transportation, Inc, statement
  Hill, Barry T., Associate Director, Transportation Issues, Resources, Community and Economic Development Division, U.S. General Accounting Office, statement
  Horth, David R., Chairman, National Railroad Construction and Maintenance Association, Inc., statement
  Reistrup, Paul H., Chairman Emeritus, High Speed Rail/Maglev Association, statement



House of Representatives,

Subcommittee on Railroads,

Committee on Transportation and Infrastructure,

Washington, DC.

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  The subcommittee met, pursuant to call, at 10:03 a.m., in Room 2167, Rayburn House Office Building, Hon. Susan Molinari (chairwoman of the subcommittee) presiding.

  Ms. MOLINARI. Thank you and good morning. We are about to begin our subcommittee hearing on railroads on Amtrak's fiscal condition. I would like to welcome you all this morning and before we begin hearing from our witnesses, I would like to acknowledge Congressman Bud Shuster, Chairman of the full Transportation and Infrastructure Committee for an opening statement.

  [Ms. Molinari's prepared statement follows:]

  [Insert here.]

  Mr. SHUSTER. Thank you very much, Madam Chairwoman. I just want to congratulate you for moving ahead so expeditiously. This is an enormously important issue. We want to save Amtrak. We want to streamline Amtrak and that is why we are holding these hearings.

  Thank you.

  Ms. MOLINARI. Thank you. I would like to now recognize the ranking Minority Member, Mr. Lipinski.

  Mr. LIPINSKI. Thank you very much, Madam Chairwoman. I ask unanimous consent to include my opening statement in the record so we can move on and hear the witnesses.

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  Thank you.

  [Mr. Lipinski's prepared statement follows:]

  [Insert here.]

  Ms. MOLINARI. Thank you. Mr. Boehlert from New York.

  Mr. BOEHLERT. It is a pleasure to be here with you.

  Ms. MOLINARI. Let's see if we can keep this mood going.

  Mr. Clement.

  Mr. CLEMENT. Well, Madam Chairwoman, I want to say what our full committee Chairman said. Your energy, as well as your vision and working with you and Mr. Lipinski is surely a treat, and I think we have got a great committee and I am looking forward to hearing the testimony concerning Amtrak's fiscal condition.

  Coming from a part of the country that has no Amtrak service at all, we have got about 11.5 million people in my part of the country that surely would like to have had railroad passenger service, but have been overlooked, and maybe Amtrak has been running some routes that have--should have been discontinued a long time ago and look at some parts of the country that have not had any railroad passenger service at all.

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  But I am going to keep an open mind about railroad passenger service. I have been a railroad buff all my life. I believe in railroads and I believe in railroad passenger service, but I think we need a level playing field and we also need Amtrak to look at the whole country, rather than part of the country.

  Thank you.

  Ms. MOLINARI. Thank you, Mr. Clement.

  Let me just say before we begin that today's hearing is the first stage in the subcommittee's gathering of facts as we move forward to consider Amtrak reform and the reauthorizing legislation.

  As reflected in our announced schedule, this first hearing will be devoted to getting an overall picture of Amtrak's current financial and operating conditions. The just completed report of the General Accounting Office will play a major part in this analysis.

  Then on February 10th, we will reconvene and will be hearing Members' testimony about current problems and proposals concerning Amtrak. A third and final hearing on the statutory mandates that govern Amtrak and how to reform them will be held on February 13th.

  A new ingredient has now been added to the matters we must consider because the administration's fiscal year 1996 budget was submitted to Congress yesterday. As pertinent to Amtrak, the administration proposes I believe a slightly increased level of funding.

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  But the bigger proposed change involves funding all of Amtrak's related programs, about $1 billion, that has been the Highway Trust Fund, to be called a Unified Infrastructure Fund. While I believe we need to work for a sustainable Amtrak, this is an important policy change that we have to review carefully as we move forward to fashion legislation to reform and reauthorize Amtrak.

  As for Amtrak's current situation, that well-known contemporary social philosopher, Homer Simpson, recently told his son, Bart, that there are three all-purpose phrases to insure one's survival in any organization. One, great idea, boss, two, cover for me, and three, it was like that when I got here.

  Well, here in Congress lately we can't pass that buck that easily anymore. We know Amtrak's situation that required recently announced cutbacks has been a long time in the making. We also know that Congress plays a major role in bringing us to the current state of affairs.

  So instead of trying to assign blame for any past mistakes, our goal here today is to get an accurate picture of Amtrak's current condition in order to prepare a realistic reauthorization and reform bill.

  To that end, we have purposely limited today's scope of the hearing. But as we move forward in later hearings, we will be seeking input from a wide range of persons and organizations with an interest in Amtrak's future.

  With that, I would like to welcome our first panelists and introduce for remarks the Honorable Jolene Molitoris from the Department of Transportation, Administrator of the Federal Railroad Administration. Thank you.
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  Ms. MOLITORIS. Thank you so much Chairwoman Molinari, Chairman Shuster and all distinguished Members of the committee. It is my privilege to appear as the Federal Railroad Administrator representing the administration on behalf of the important role of Amtrak in our transportation system.

  This is my first opportunity to appear before the Railroads Subcommittee, and I must say I am extremely pleased that Congress has seen fit to establish this committee which focuses on the challenges and importance offered by rail transportation. Accompanying me today are Don Itzkoff, our Deputy Administrator, and Mark Lindsey our Chief Counsel.

  Since the first days of the Clinton administration, Vice President Gore has headed the National Performance Review to evaluate the proper role of the Federal Government. For us at the Department, this translates into our role in ensuring a safe, technologically advanced, and efficient national transportation system.

  Some have questioned the role of intercity rail passenger service for our Nation. I am here to reaffirm the Department's support for Federal, State, local and private partnerships with Amtrak and its customers as Amtrak seeks to become a competitive provider of intercity rail passenger service for the 21st century.
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  Intercity rail passenger service is a safe, energy efficient, and environmentally sound means of transportation. In the corridor between Washington and New York City, for example, Amtrak has proven it can dominate with over 40 percent of common carriage customers between Washington and New York riding Amtrak.

  In some other corridors, such as Albany to New York City or between Chicago and St. Louis, intercity rail is an attractive transportation alternative and a preferred means to increase intercity mobility while meeting ever stringent environmental requirements.

  The message from many people that we see and hear from every day is that this country needs rail passenger service and it must be an important component of our transportation systems. The realities of Amtrak today, however, do not match our vision for the future. For too long, Amtrak has had to struggle with inadequate resources for its expansive operating system, focusing on survival instead of improvement, rather than investing in the future, Amtrak has been required to defer maintenance, ignore depreciation, and tolerate declines in the quality of their service.

  But rather than focus on the past, we are ready to address the current realities and move forward. Major changes are needed in Amtrak and the Clinton administration is energized by the opportunity to help it become a competitive transportation entity for the 21st century.

  Amtrak must be an efficient, commercially-driven provider of world class transportation service. It must provide quality services at a reasonable cost, and it must be financially stable, yet recognize the reality of declining available Federal resources.

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  Secretary Federico Pená has stepped up to this challenge. The Secretary sees his role as a facilitator for the creation of the new Amtrak. The Department has requested the capital in past budgets to begin to address years of neglect. But importantly, the Secretary recognizes that Amtrak, as a company, must be changed dramatically to meet its transportation challenges.

  The President and the Secretary's appointments to the Amtrak Board of Directors indicate the kind of no nonsense business approach that the Secretary expects. With a new board and management team in place, the Secretary challenged the corporation to reinvent itself.

  Amtrak's President Tom Downs has tenaciously pursued a top to bottom analysis of the corporation. More than just total revenue and cost, this analysis includes the specifics about Amtrak's service and operations that will help us find opportunities to grow Amtrak's business.

  The actions taken by the Board in December are clearly just the first of many steps to be taken in the near future to improve our country's rail passenger service, but all of our stakeholders must recognize the limits on Federal resources. In that regard, the Department and Amtrak's Board of Directors are committed to reducing or potentially eliminating Federal operating assistance over the next 5 years.

  Revenue must be in line with costs. Achieving this goal requires increasing business and revenue and reducing expenses. With regard to increasing its business, Amtrak must get closer to its customers and be responsive to their needs, and that is why they have designed three strategic business units as a step in this direction.

  The role of capital investments in driving down expenses must be considered and the strengthening of the role of States and localities in support of intercity rail passenger service must be enhanced. As the Department moves to restructure itself, we are exploring ways to streamline Federal transportation assistance to afford States more flexibility in setting their own priorities for their Federal transportation funds.
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  And finally, we must do more to encourage private partnerships and private investment and initiatives within the Nation's intercity rail passenger system. Expanding private sector involvement will bring capital and fresh ideas to our efforts to upgrade Amtrak's service and move the corporation toward financial stability.

  Chair Molinari, I look forward to working with you and each Member of the Committee as we develop the vision for intercity rail passenger service in the year 2000 and beyond.

  I appreciate the opportunity to appear before you today and answer any questions you may have.

  Ms. MOLINARI. Thank you very much, Administrator Molitoris.

  Mr. Shuster.

  Mr. SHUSTER. I have no questions. Thank you.

  Ms. MOLINARI. Well, that just took me by surprise.

  Mr. Lipinski.

  Mr. LIPINSKI. I will pass the questioning to

  Mr. Clement.
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  Mr. CLEMENT. Well, it is a pleasure having you here this morning. I know in your testimony you mentioned about private cooperation and participation as well as investment.

  How do we do that and do we need tax incentives, or what do we need for that to happen?

  Ms. MOLITORIS. Madam Chairwoman, Mr. Clement, I believe there really are a wide range of opportunities for private investment, and I think that Amtrak has begun to take initiatives in their own regard that I am sure Mr. Downs will address. For example, they have outsourced information services in the past year that will enable them to upgrade their systems and in the long run, it is a very good business decision on the part of Amtrak, so there are a lot of opportunities to invite the private sector to partner with Amtrak in many areas to increase the viability, the financial viability of the company.

  Mr. CLEMENT. Can you give me some examples of that so-called private cooperation between Amtrak now?

  Ms. MOLITORIS. Well, I just mentioned the outsourcing of the information services. I believe that in the strategic planning that Amtrak is doing, they are looking at a number of areas. I think it would be more appropriate for Mr. Downs to reference those that are the most viable in the near future.

  Mr. CLEMENT. I thought maybe you were referring to the passenger transportation as well, not just services.
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  Were you referring to both or--

  Ms. MOLITORIS. Well, as a matter of fact, Mr. Clement, at the last board meeting, in terms of evaluating opportunities, that was a request of the board to look at potential areas of the system that might be responsive to private investment, and I believe that as the consultants who are evaluating the system look at that, that will be one of the options that they present to the board.

  Mr. CLEMENT. Well, did you discuss the liability issue as well?

  Ms. MOLITORIS. Not at that particular time, we did not.

  Mr. CLEMENT. Is that a major problem?

  Ms. MOLITORIS. It certainly is a consideration for the future. The liability of the freight railroads, is that what you are talking about?

  Mr. CLEMENT. Well, yes, as well as passenger service.

  Ms. MOLITORIS. The liability issue is a very important one. As perhaps you know, when we presented the administration's high-speed rail bill last year, the issue of liability was fleshed out, perhaps as expansively as it has been done on the Hill in the past. We did not address that fully in the bill that was passed, but recognized that that issue is extremely important in its resolution for future Amtrak success.
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  Mr. CLEMENT. Do you all have anything to add to what was said? Staff have anything?

  Mr. ITZKOFF. Well, I would just say with regard to liability, that the key there is to look at potential opportunities for insurance availability down the road for high-speed rail. Right now we want very much to watch the developments between Amtrak and the freight railroads as they negotiate both series of issues for the future, as the master agreements come into negotiation in the 1995, 1996 time frame.

  Mr. CLEMENT. Okay. Thank you.

  Ms. MOLINARI. Thank you, Mr. Clement.

  Congressman Boehlert.

  Mr. BOEHLERT. Thank you.

  Madam administrator, you indicated in your statement that you consider the GAO report unduly pessimistic. I would like you to amplify some of that. Tell us where you don't share their pessimism, where you can be more optimistic.

  Ms. MOLITORIS. Madam Chairwoman, Mr. Boehlert, as a matter of fact, Ken Mead and his staff were very kind and gracious in briefing us at the Department about the report before it came out, and we discussed some of these issues.

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  The fact is that the GAO report is a snapshot in time, and the investigation that they pursued in their service did not include the actions of the Board in December, which is really a platform, those decisions that the Board made, very difficult decisions, were a platform for beginning to build the new Amtrak, and that was not part of their investigation.

  In addition, they did not include, because it was not available to them at the time of their work, the opportunities for the strategic business units to really get close to customers and achieve not only savings, but traveler increases because of their ability to be responsive to customers.

  So those two kinds of things are two of the areas where I think the future of Amtrak, built on these decisions, is not fully explored.

  Mr. BOEHLERT. Well, I will ask Mr. Mead later, but in your briefing, did you point out to him the fact that they did not take into consideration the December action?

  Ms. MOLITORIS. Yes, I did, but that was just last week, and I think the report was--you know, perhaps you want to ask Mr. Mead about that.

  We certainly did, and sent him some comments, and I believe that Amtrak also did, but I think the job of the GAO is an audit job at the time that they are there, and so I believe their investigation is a good basis upon which to build, and some of those characteristics that they describe certainly are the reasons that the Amtrak Board took such strong action in December.

  Mr. BOEHLERT. Well, you know, I share your optimism in the future of Amtrak, but I will tell you, it is not going to be easy.
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  I am an unabashed fan and I think it is very important, I think intercity rail passenger service has to be a component of a viable intermodal network. But it is not going to be easy, and you know, I look at the administration's fiscal 1996 budget provides $1.35 billion--let's see, $1.035 billion for Amtrak, which is a slight increase over fiscal 1995 funding levels to be funded entirely out of the Highway Trust Fund. Yet, at the same time the share of the trust fund allocated to transit is reduced from $2.9 billion in fiscal 1995 to about $1.3, cutting it by more than half.

  What is the administration's rationale for that? Is it movement in the wrong direction?

  Ms. MOLITORIS. I think as the Secretary discussed yesterday in his press conference, Mr. Boehlert, the opportunity to be responsive to recommendations like we received from the Intermodal Commission about giving States and localities more of an opportunity to choose and make decisions about what they particularly need, because as the Members of your Committee represent across the country, there are various needs.

  I think that the kinds of investments in Amtrak, which I am prepared to talk about, that the administration proposes are responsive to the kind of steps that they took in December. We believe in the kind of capital investment that we are suggesting to help Amtrak get out of the decapitalized hole that they have been put in over the last 10 years.

  In addition, we recognize that there will be a transition period as we try to reduce operating subsidies by increasing our focus on their capital investments and through the Board's action with President Downs, working toward innovative business approaches toward really getting this into the new Amtrak for the 21st century.
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  I think that the administration's proposal for Amtrak is a reasonable one. I think it truly begins to respond to the flexibility requirements and suggestions that we have had from governors and mayors and the Intermodal Commission and really for some time.

  Mr. BOEHLERT. Madam Chairwoman, I know my time is up, but I just want to make one observation, if I may.

  Isn't your capital request level funding?

  Ms. MOLITORIS. Let's see. It is. It is.

  Mr. BOEHLERT. Well, you may have been optimistic a few minutes ago, but now I am not as optimistic.

  How is level funding a recognition of the need for more?

  Ms. MOLITORIS. Well, part of the December actions was a commitment by--recommendation by Mr. Downs, and it was accepted by the Board, that the heritage equipment would be reduced from the fleet, as you perhaps know, the heritage equipment is an extremely expensive form of transportation for Amtrak.

  Some of the vehicles are over 40 years old. The materials that are used for maintenance and repair have to be hand tooled. So it is an extremely expensive drain on the operations of Amtrak. Taking those out of the system certainly is an opportunity to bring new Metroliners and more modern equipment.
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  We think that the $230 million is a reasonable estimate. Everyone would always like to have more so that you can move the corporation faster, but we had to recognize other needs within the framework that we felt was reasonable for the administration.

  Mr. BOEHLERT. Thank you.

  Ms. MOLINARI. Mr. Lipinski.

  Mr. LIPINSKI. Thank you very much, Madam Chairwoman.

  Good morning to one and all on the panel. The administration just yesterday proposed opening up the Highway Trust Fund to support Amtrak. Doesn't such a diversion break faith with highway users who have paid into the trust fund in the expectation that those funds would be used for highway projects?

  Ms. MOLITORIS. Chairwoman Molinari, Mr. Lipinski, there is precedent in our history for uses of the transportation funds in the Highway Trust Fund for other purposes. In fact, transit has come from that area.

  Mr. LIPINSKI. If I could just----

  Ms. MOLITORIS. I am sorry?

  Mr. LIPINSKI. If I could interrupt you for a moment though. In regards to transit, there is money that comes from the gas tax that is earmarked for mass transit that goes into the Highway Trust Fund.
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  Ms. MOLITORIS. That is true, and there is no similar earmark for rail. I think what the Secretary and the administration is trying to suggest is that as we restructure ourselves as a department, that we want to think outside the box, that we want to be responsive to the new realities of reductions in available dollars from the Federal Government for transportation investment, and so we want to be more wise and strategic in how we use it.

  We believe the people closest to the issues, the States and the local governments, the metropolitan planning organizations, should have an opportunity for flexibility when we give them the opportunity to choose. We have also, just last week, Mr. Lipinski, announced an investment partnership which shows that with renewed and increased flexibility, we can attract capital from the private marketplace which will, in fact, stretch these dollars and in the long run, get more transportation investment than we already have.

  We believe as we look at it intermodally, that this is a plan that will work. We have proved it has worked with our innovative financing program, which we announced last week, which brought $2 billion worth of transportation investment on projects that had been stalled for financial reasons, and we gave flexibility to these projects, worked with them, and brought private dollars into the process.

  Mr. LIPINSKI. Well, if I may disagree with you, I don't see how we can reduce the amount of monies that we can use out of the Highway Trust Fund and the Aviation Trust Fund, which is also a proposal of the administration, and also take on the responsibility of funding Amtrak out of the Highway Trust Fund.

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  It seems to me that all we are doing is reducing revenues across the board available to aviation, highways, and to Amtrak. We know the infrastructure in this Nation needs an awful lot of work. I am talking about not only aviation, but highways and everything that the Highway Trust Fund does.

  We obviously know that Amtrak has enormous revenue problems at the present time. It seems to me that putting the three of these together and then reducing how much can be spent on them is extremely short-sighted on the part of the administration and the Department.

  I realize that everybody is talking about cuts over here, but I think that what cuts are going to be necessary if we are going to reach the goals put forth here in regards to the Aviation Trust Fund, the Highway Trust Fund and Amtrak, I think it is impossible to meet those, and I think it is going to really destroy the Aviation Trust Fund, the Highway Trust Fund, and we are not going to be able to do anything to help Amtrak at all.

  And I would like to hear you respond to those kind of statements that I made because I feel very--you know, extremely concerned about this situation.

  Ms. MOLITORIS. Congressman Lipinski, I very much appreciate your concern. What I might suggest is that we present to the committee a list of projects where we have made an effort to use this flexibility, and it has succeeded, and in fact it has brought more money in transportation investment. The private dollar can be leveraged. I think this is a new concept, and any time you put a new concept on the table, it is disconcerting often, and there is worry about how it will work.

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  We have spent a lot of time looking at this proposal. We think it has a vision for the future, and if I may, Chairwoman Molinari, I will present as an addendum to my testimony for the committee a list of projects from the $2 billion that we announced last Tuesday as an example of how this might work.

  So the fact that we are combining these forms of transportation in a unified trust fund is an opportunity by simplifying the regulations, simplifying the oversight, where we can save money on time, because projects can move forward much more quickly and so you are saving that amount of money, even in the timeliness of the construction and completion of those projects.

  There are many other areas where savings can be achieved in this regard. We can demonstrate what we have done in the $2 billion that we announced on Tuesday and you can look at that.

  I would be happy to work with you to continue to respond to your questions and concerns.

  [The information received follows:]

  On January 31, 1995, Secretary of Transportation Pená announced a new DOT investment initiative for financing 35 transportation projects in 21 states valued at nearly $2 billion. The Partnership for Transportation Investment initiative allows states and localities to use new and innovative finance methods to launch transportation projects nationwide without additional Federal resources . The multiple strategies of financing include: private match, revolving loan funds, flexible reimbursement rules, and credit enhancements. Examples of Partnership for Transportation projects include a $12 million project in Michigan using private matching funds toward the state's share of the project costs, a $9.3 million freeway management system in Arizona where DOT has permitted the Interstate right-of-way to be leased with the leasing revenue used to create a revolving fund that will finance construction and operation of the system, a $33 million intermodal facility in Ohio where DOT has broadened the definition of Section 1012 of ISTEA loans enabling the state to establish a revolving fund that, when repaid, also can support other projects to enhance the environment, and an $8.3 million New York State project that will upgrade several Canadian Border crossings where DOT has contributed $5 million to seed a revolving fund that will help finance the project.
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  Mr. LIPINSKI. I am very anxious to see that, and I still believe though with all the flexibility that you are talking about, the proposals you are making, I just don't see how it is feasible to accomplish your goal.

  I realize my time is up, but I have one more question. Is there any talk whatsoever about having some kind of revenue raised from the railroads to go into the Highway Trust Fund to be able to take care of Amtrak?

  Ms. MOLITORIS. There is no proposal on the table for that, Mr. Lipinski.

  Mr. LIPINSKI. No proposal whatsoever? So we are strictly talking about taking care of Amtrak out of the Highway Trust Fund with the monies being raised through the gas tax?

  Ms. MOLITORIS. That is correct. I think it is appropriate to mention, however, that in terms of right-of-way, the railroad industry does maintain its own right-of-way, has invested billions of dollars over the last decade, and every year invests over $100 million for the maintenance of the highway rail grade crossing devices, warning devices that are there. I think that there is a big investment in the transportation network, and I can provide that also for your information.
  [The information received follows:]

  The following table presents the maintenance of way and structures expenses for Class I railroads from 1990 though 1993.

Table 1

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  Mr. LIPINSKI. I am not saying that there isn't an investment by the railroad industry. There is no question that there is. I simply get back to the point once again, you have aviation, you have highways, now you want to have Amtrak, and you simply--we haven't had enough money for aviation and highways. They want to reduce that and now they are adding the burden of Amtrak. It doesn't make any sense to me.

  Thank you very much, Madam Chairwoman.

  Ms. MOLINARI. Thank you. Let me just jump in here for a second. Following up on the concerns I think that we are all having here is that we see a system that is very important to this Nation, yet that is in desperate financial shape, that the proposals that have been put forth by Amtrak and the administration are Band—Aids at best to a long-term problem.

  And to suggest frankly that with this Band-Aid approach, we are going to attract private investors or even ask State and local governments that are under the same financial strains that we are in the Federal Government to basically trust us that this is going to work, seems to me to be, to use Congressman Boehlert's phrase, unduly overoptimistic, that this would not be a wise investment on anyone's part, until we, A, either come up with the financial resources of the Federal Government to say we are committed to overhauling the capital infrastructure; we are committed to making some labor changes; we are committed to putting our money where our mouth is, or B, say we are now going to change a substantial amount of congressional statutes, with the administration standing behind a lot of those difficult decisions, so that we can streamline this operation down to make it more credible for private investors.

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  Let me just add some of the things that we picked up from GAO that is not part of your testimony. It does not appear to be part of Amtrak's figuring, and I could be wrong, but in trying to piecemeal this together again, to fit and stretch that dollar, you avoid the inclusion of things like the fact that our contract--Amtrak's contracts with the freights are about to expire, and included in no one's analysis, except GAO's, it appears to me, is that there is probably going to be an increased push for liability costs, for the level of utility costs, that contracts with the workers are about to expire in a lot of cases, that health care, post-retirement costs are going to be added to that, couple that with the lack of capital, how do we get there?

  Ms. MOLITORIS. Well, there are a lot of steps to be taken, Chairwoman Molinari, and part of the administration's legislative package with regard to the Amtrak reauthorization will present a comprehensive administrative position on those kinds of issues that you raise.

  I think it is incumbent upon us to begin to do a real education job about how realistic our goals are in terms of getting out more support for Amtrak from the kinds of partnerships, State, local and private investors, that we see as real possibilities for the future.

  It has worked in a number of other transportation areas. Toll roads or intersections that have been put together, I know, for example, in Ohio, have been taken over by the private investor, which they felt was a very useful tool for them in terms of the time that they saved in getting that intersection put together. That was a revolutionary idea 3 or 4 years ago. Now it is one that is being used rather extensively throughout the country.

  We know that this new proposal deserves a lot of debate and we expect that. I would be very happy to expand on the examples that we have in mind. We recognize that the opportunity to increase the Federal investment is not there for us, and what we are trying to do is look at a vision of transportation intermodally, be realistic about what we can achieve, and that is the reason that the Secretary has charged the Board of Amtrak and Mr. Downs is working so tenaciously to accomplish this new vision, the difficult decisions in December were a first step.
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  Ms. MOLINARI. Well, let me just conclude and we will go on to other--I will take your word for it that what the administration is planning is to come forth during reauthorization with a radical restructuring of Amtrak and a lot of statutory changes, or else I can't imagine that there would be a private investor in the world that functions under a system of capitalism that wants a rate of return on their investment, which is clearly not possible under this current scenario, that we will work together on this radical restructuring, because, as you correctly noted and as has correctly been pointed out by my colleagues, the financial investment from the Federal Government is not there in the administration's budget.

  Mr. Quinn--oh, I am sorry. Mr. Kim.

  Mr. KIM. Thank you, Madam Chairwoman.

  I have a question for you that kind of bothers me, but I understand that Amtrak was established as a corporation, not as a Federal agency, yet the Federal agency owned Amtrak and controlled Amtrak and all the Board members are bureaucrats.

  Also, the Federal agency is the sole holder of stock so that the rest of the common stockholders do not have any difference you have, and maybe that is the problem, and looking at the report seems to me that you are continually losing money, and looking at this revenue expense ratio reaching 80 percent already, looks like it is a matter of time, it is going to reach 100 percent, which means your expenses are twice more than revenue, and it is really--if it is really a private corporation, it would have filed bankruptcy a long time ago.

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  I appreciate you trying to cut back, eliminating 5,400 jobs and cutting back 21 percent of train services and et cetera, but have you ever thought of the idea that turning over the whole Amtrak to the private sector, truly become a private corporation, rather than this pseudo private corporation, just turn it over.

  Have we ever explored that?

  Ms. MOLITORIS. Mr. Kim, I appreciate your comments. I think that in fact there is a lot to do that Mr. Downs and the Board are working at to make this really a competitive corporation for the 21st century, and the kind of decapitalization that Amtrak has suffered for over 12 years does not present it in its present form as a likely candidate for the kind of immediate turnover that you would suggest.

  I think that the Board and Mr. Downs are looking at all sorts of opportunities to take this corporation into a new construct, and I think the kind of actions that were taken in December were very strong and painful ones, and I think that that should be an indication of the commitment of the new management at Amtrak to restructuring this company. I believe that the Board members indeed are not bureaucrats, but as a matter of fact, people from the private sector who have a great deal of experience in the restructuring of companies, and dramatic restructuring at that. And so I think the President's appointments, as well as the Secretary's appointments, were focusing on experience in bringing companies to health.

  Mr. KIM. You are the one holding preferred stocks and all the Board members are appointed by Federal agencies. I don't understand what kind of private corporation that would be. They have no financial obligation. If you lose money, they have absolutely no liability, and what kind of decision-making body is this? It has absolutely no liability.
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  Now, again, you didn't answer my question. Have we ever explored this possibility of just handing it over to the private corporation? Have we ever done that? If we have, can you tell us what they offered even?

  Ms. MOLITORIS. Mr. Kim, I would like to have our chief counsel respond to the issue of--your first question, which is the corporation and its structure.

  Mr. LINDSEY. The Board does have the usual liabilities of a board of directors, Congressman, so that in terms of its function, once appointed, it functions just like the board of any other corporation and has all of the responsibilities and liabilities that directors of any private corporation have. So in that regard, it functions as a normal corporation.

  Mr. KIM. Why don't they pay for all their deficits, the board members? Why did taxpayers have to fund it? Why don't you have a board member to pay it if they have financial liability and obligations?

  Mr. LINDSEY. Their obligation isn't to covering the deficits of the corporation, nor is it to become a director of a corporation. They have a fiduciary duty to the corporation and they carry that out very seriously.

  Mr. KIM. So there is no financial obligation then?

  Mr. LINDSEY. No. On their part, there is not.

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  Mr. KIM. That is not the way it is in the private sector, I can tell you that.

  Ms. MOLITORIS. Mr. Kim, I might also suggest that, in fact, all transportation companies receive support from the taxpayer, and that is a fact and the Amtrak general revenue support certainly stands out more clearly than others because it is general revenue and they do not have a trust fund.

  Mr. KIM. I don't want to argue. You mentioned transportation. I don't know of any trucking company that is subsidized by the government. I didn't know that.

  Ms. MOLITORIS. Mr. Kim, I would suggest that the highway, which is the right-of-way for the trucking company, is paid for over 50 percent by the trucking investment through the gas tax. However, it does not cover the full level of damage that trucks do on the highway, and it is an extremely good investment and that amount is covered by other forms of investment and public sector investment at the local and State level.

  Mr. KIM. My time is up, but you still didn't answer--I mean, why don't we just turn it over to the private sector? Is that prohibited by some legislation? What is the problem on that, just turning it over to the private sector?

  Ms. MOLITORIS. Mr. Kim, as I suggested, I do not believe that the private sector at this moment is really available to take on this task. There are issues about right-of-way. There are legislative rights and duties that would have to be changed. I certainly will bring your suggestion, and I am sure Mr. Downs, who is here, will also raise this to the board's attention.

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  Mr. KIM. Thank you.

  Ms. MOLINARI. Mr. Nadler.

  Mr. NADLER. Thank you, Madam Chairwoman.

  I had a couple of questions in mind which I will get to. Mr. Kim's line of inquiry has suggested something to me too. Is it not true that one 80,000 ton truck does, in terms of maintenance conditions and damage to our highways, the equivalent of 9,600 cars?

  Ms. MOLITORIS. I am not aware of that particular----

  Mr. NADLER. A U.S. DOT study showed that the last time it was done. And is it not true that the trucks are subsidized to the tune of about 50 percent of the cost of the highways by other vechicles which are not trucks. In other words, don't trucks have a subsidy in terms of the highway, which receives a substantial subsidy beyond what the trucking industry contributes?

  Ms. MOLITORIS. Mr. Nadler, in fact, it was my suggestion to Mr. Kim that, in fact, we all contribute to our transportation system, and in fact, I think part of what is not on the table about Amtrak is the kind of highway and other investments, sir, that would have to be made if Amtrak did not exist.

  Mr. NADLER. Then it is clearly true. I simply wanted to get the fact in that every form of transportation is subsidized and, in fact, the problem with the railroads probably is that we have subsidized their competition over the years to a far greater extent than we have subsidized them. So, it hasn't been a level playing field.
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  It is wrong to suggest that Amtrak is the onlymode receiving a subsidy is because it is budgeted. Although, the trucking subsidy comes from automobile owners in the form of gas tax and from local property owners in the form of local property taxes that subsidize local maintenance of highways, it is still subsidized.

  But I have a question for you. The administration is suggesting that the Highway Trust Fund be available for use in mass transit and in railroads, including rail freight, or just Amtrak?

  Ms. MOLITORIS. Right now they are talking about opportunities with very little inhibitions and requirements so that States could make those decisions.

  Mr. NADLER. So States could make those decisions, it could be for rail freight, for Amtrak, for mass transit----


  Mr. NADLER. ----and the States would make the decision. Okay. Now, ISTEA gave States the flexibility to use a lot of the trust fund monies, about half of them, for mass transit. And the expectation when Senator Moynihan and others wrote ISTEA was that States like New York with a lot of mass transit would use a lot of the funding for mass transit, and a State, for instance, like Montana, probably would elect not to.

  You are proposing to depend on States to choose to fund railroads. Do you have any figures as to what use the States have made of the flexibility of ISTEA funds, if any?
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  Ms. MOLITORIS. Mr. Nadler, as a matter of fact, at the present time, ISTEA does not provide a lot of flexibility for rail passenger or rail freight.

  Mr. NADLER. No, but it does for mass transit and I am using this example to draw an analogy. It does not provide for rail freight or for railroads because of the jurisdictional tangle. They didn't want to get the Commerce Committee involved 5 years ago.

  I am glad that no longer is a factor. But, my question is, given what I recall is an extremely disappointing failure of the States to take virtually any money from the trust fund, I want to ask if you have the figures, even in New York, to spend on mass transit. Senator Moynihan wrote the act and Governor Cuomo acted as if he hadn't bought it. And other States have not done this.

  Do we have any reason to believe that States would elect to take care of the needs of railroads given the flexibility?

  Ms. MOLITORIS. Mr. Nadler, part of the commitment of the Department is to work with States to give them the kind of tools and encouragement to really look at transportation intermodally. Part of what we will be looking at in the package that comes to Congress in March is the kind of criteria that might be used as performance standards for investments by States.

  Mr. NADLER. So you have sticks and carrots for the States?

  Ms. MOLITORIS. I am sorry?
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  Mr. NADLER. So you would have sticks and carrots for the States?

  Ms. MOLITORIS. Well, we certainly hope to have motivating factors to help them look at the requirements of a good national intermodal transportation system.

  Mr. NADLER. What I am suggesting is that, at least in New York, as well as a lot of other States that I am familiar with, the Departments of Transportation are really highway departments. They give virtually no attention to anything else and they are not likely to do so. And, if you want money spent, some money spent on railroads, either the Federal Government is going to have to spend it or it is going to have to mandate.

  I know it is unfashionable these days, but it is going to have to mandate that the States do because the States of their own volition, many of them, perhaps most of them, will not.

  I will give you one just one, very quick example. And, I will use my own State. In 1991, New York State had a two and a third billion dollars capital budget for highways, zero for rail freight, and zero for aviation. You will find that unless you do something about the States, your faith in them will not be validated, at least for investing any money in railroads.

  Ms. MOLITORIS. Mr. Nadler and Chairwoman Molinari, I would like to submit for the record the record to date. I think certainly there is a transition from highway departments to transportation departments, but I have been very encouraged by the increased interest in various States. For example, at ASHTO, this year was the first time that the Federal Railroad Administrator sat with the executive committee and met with the directors, commissioners and secretaries of 18 States throughout the country about their intermodal needs. Certainly that can be improved.
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  I think the partnership between States can be one method of increasing this kind of intermodal transportation investment vision, but we will give you the record to date of how States are investing.

  The Federal Highway Administration estimates that between 3 to 5 percent of the Intermodal Surface Transportation Efficiency Act of 1991 funds under Title I are expended on intermodal transportation projects. Some examples of intermodal projects include numerous transit capital improvements, purchasing lift-equipped buses, retrofitting buses for compliance with the Americans with Disabilities Act, constructing bus centers, shelters and park and ride lots, rehabilitating, renovating and constructing intermodal stations, replacing or rehabilitating railroad bridges, purchasing natural gas buses and fuel equipment, refurbishing or purchasing rail commuter equipment, and upgrading rail signal systems.

  [The information received follows:]

  [Insert here.]

  Ms. MOLINARI. Mr. Quinn.

  Mr. QUINN. Thank you, Ma'am Chair and Madam Administrator, just a couple of observations and maybe one brief question at the end.

  About 2 or 3 weeks ago, a group of Members met with Secretary Pená to talk about restructuring the Department and its service to the country. At that time, we got a sense that morning about flexibility, about working with the MPO's across the country to provide flexibility, and I just add a word of caution for the Department as I did that morning in our meeting with the Secretary that in the interest of flexibility, which is a new buzz word here and it started a year or 2 ago with budget considerations here on the Hill, at least that was one place where it started, in the interest of flexibility, sometimes we are anxious to say, and the Department may be anxious to say, well, if we are not in that business or we shouldn't be in that business, let's give the States that to do. Let's not worry about it, and we will call it flexibility and they will do what they want to do.
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  The caution is only this: In my State of New York, that our governor and his administration, are doing the same thing. They are saying, if we are not in that business or we shouldn't, let's give it to the Feds or let's give it to the local towns and villages and counties across our State and then across the country.

  The word of caution is only that in the name of flexibility, let's make sure somebody is doing it. In our interest on the Federal level to get rid of what we don't want to do and drop the cost, we need to understand and keep in mind that States all over this country are doing the same thing.

  Second, just an observation, in terms of the conversation you had with Mr. Lipinski and the trust fund, you probably know this, but I would point out to you that yesterday there was a vote on the Floor of the House with regards to the line item veto and how it might affect the trust fund.

  Line item veto of course was approved last night, bipartisan approved, however, the amendment that wanted to tinker with the trust fund was defeated with over 360 votes. So as you continue to review any discussion on the trust fund, that might be something to keep in mind.

  And now my question. In answer to a question that Mr. Boehlert had, you talked about the transition period as you move in this budget from capital expenses and subsidy and get to a point where that is better for Amtrak and better for the country and everybody else, and when you mentioned transition period, I was just wondering if you had any time in mind, a year, 2 years, 10 years.
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  Is the Department talking about a time period?

  Ms. MOLITORIS. Mr. Quinn, the Department and OMB are looking with Amtrak's board at a 5-year period where the goal would be to substantially reduce or eliminate operating subsidies.

  Mr. QUINN. Okay. Thanks very much.

  Ms. MOLINARI. The Ranking Minority Member of the full committee, Mr. Mineta.

  Mr. MINETA. Thank you very much, Madam Chairwoman.

  Ms. Molitoris, congratulations on not only the job that you are doing, but on your being here I guess for the first time before our subcommittee.

  Ms. MOLITORIS. Thank you, Mr. Mineta.

  Mr. MINETA. You serve on the board of directors of Amtrak.

  Ms. MOLITORIS. The Secretary is the board member, Mr. Mineta, and either Mr. Downey, the Deputy Secretary, or I represent him.

  Mr. MINETA. I see. During that tenure then, had you had the opportunity to sit as the Secretary's representative on the--at the board of directors meeting?

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  Ms. MOLITORIS. Yes, at every meeting, sir.

  Mr. MINETA. And during the course of your tenure there, have you had occasion to suggest any kind of management changes or any kind of administrative actions that might be taken by the Amtrak people themselves?

  Ms. MOLITORIS. Mr. Mineta, that discussion is an integral part of almost every board meeting, and I think that the management has pursued the restructuring of Amtrak with as much vigor as any corporate CEO I have seen.

  The effort to get very clear information has been a tremendous investment of time and energy for the management of Amtrak, and the ability to really find out what things cost and the ability to offer short and long-term solutions to these have been the basis for the kind of actions that were then finally taken in December by the board.

  Mr. MINETA. So you found them to be responsive in terms of any kind of management suggestions that you might make?

  Ms. MOLITORIS. Yes, I certainly have.

  Mr. MINETA. Now, in your testimony you indicate, and I quote, ''We may need to revisit statutory restrictions on Amtrak's flexibility in conducting its business,'' end of quote.

  And I am wondering if you could give some examples of those statutory restrictions that we might take a look at in order to relax whatever restricts their flexibility in conducting their business.
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  Ms. MOLITORIS. Mr. Mineta, in fact, the administration's reauthorization proposal for Amtrak will include our position on those issues, the kinds of opportunities for them to be responsive with regard to route changes, for example.

  They need to be able to be flexible and nimble as a transportation company in the transportation environment today. They need to be able to outsource materials and activities to help them be more competitive in the environment. We talk about a lot of those opportunities and the administration's position will be included in its proposal to this committee.

  Mr. MINETA. And when will that be forthcoming?

  Ms. MOLITORIS. I believe in March.

  Mr. MINETA. Will that legislative suggestion also talk about the financial impact or the financial effect of whatever restructuring you are going to be suggesting, including whatever statutory restrictions that ought to be relaxed?

  Ms. MOLITORIS. I believe the reasoning for the proposal will certainly be elaborated upon, yes, sir.

  Mr. MINETA. What is the objective of this reauthorization measure you are going to be bringing forth? Is it to try to bring Amtrak back on some kind of financial footing? Is it reorganization to--in order to bring about savings, or what would you--how would you characterize the objective of what you are intending to do?
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  Ms. MOLITORIS. Well, first of all, Amtrak needs to be reauthorized. That is the number one reason, and as the administration has proposed and said through my testimony and the Secretary's statements throughout the past year, we are committed through working with Mr. Downs and the board of directors to help create the new Amtrak, which is really a competitive, efficient customer-focused company, and that requires changes which will be reflected in this administration proposal.

  Mr. MINETA. One of the things I was wondering as I looked at the routes that were being eliminated, why some of the northeast States, as I recall, are not paying more of the cost of the operation of the--some of those routes.

  I am trying to just recall from my looking at some other material early on when we got jurisdiction of railroads here, I did some reading. I think we were trying to look--I was trying to look----at what was the rationale used in your December meeting, recognizing that you had to cut, what, $380 million or whatever it was at that board meeting in December, what rationale you used in cutting back some of the routes.

  When I look at the California routes that were being cut as compared to some of the not touching any of the Northeast Corridor routes or I look at, as I recall. I think it was Chicago—Milwaukee, that one was being cut and reduced in service quite a bit, and it seemed to have a pretty good ridership.

  And so I was trying to see, what is the rationale for whatever cuts that were occurring, and frankly, I couldn't put my fingers on a rationale.
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  Ms. MOLITORIS. Mr. Mineta, the Mercer Company was a consultant to Amtrak and developed a model trying to be very focused on the facts and what the changes in frequency and elimination would do to the bottom line with the least possible impact on the system.

  For example, in terms of the facts that I have, the Roseville line was 29.2 cents per mile loss and the Chicago—Milwaukee was 41.7 cents per mile loss, whereas the Northeast Corridor Metroliner, for example, had a 4.9 cents per mile loss.

  So that is just to give you somewhat of an order of magnitude, but it was a very extensive study, and we could--we would be happy for any Member of the committee to work with Amtrak to give you a presentation on the way that work was done.

  Mr. MINETA. Thank you very much.

  Ms. MOLINARI. Thank you, Mr. Mineta. I would just like to add that this subcommittee will be marking up Amtrak reauthorization on March 21 and so whatever you can do to get your proposals before us much earlier than that so we could review it and incorporate it would be appreciated.

  Ms. MOLITORIS. Thank you very much.

  Ms. MOLINARI. Thank you. Mr. Ehlers.

  Mr. EHLERS. Thank you, I appreciate the time even though I am not a Member of this august subcommittee. I just wanted to comment, I have a very serious concern in terms of my district, Grand Rapids, Michigan, one of the few on the list for totally eliminating service, and just wanted to express my concerns, perhaps they should be addressed to Mr. Downs rather than to you, but it has been a continuing saga where I think they had a golden opportunity as the airlines raised their prices for service to a medium-sized city after deregulation, Amtrak had a golden opportunity to provide service to Chicago and improve their service.
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  Instead it has deteriorated. It has been a serious problem. We get complaints about poor service, not good scheduling, dirty cars, et cetera, and you don't gain business that way. I do remember very well the inaugural train ride when they initiated the service. I was the county commissioner at the time, and it was very nice. I have always supported rail transportation. It was a nice trip, but on what should have been a 3-hour trip from Grand Rapids to Chicago, we arrived 2 hours late, and got home that same day much, much later. I thought that was a strange thing to do for inaugurating a new service and certainly did not create a good impression.

  I just wanted to express my concern. I think it is very important to rail service, not just to my area, but to other areas of the Nation. I will certainly do whatever I can to help keep Amtrak going, but there certainly has to be improved operation as well, and you have to bring the people back on board.

  The city of Holland, which is not in my district, but Congressman Hoekstra's, has gone to the expense of putting up a nice new terminal which will lie there unused if the service is dropped. Grand Rapids is in the process of developing an intermodal terminal, which will involve bus transportation, train transportation, taxi and connections to the airport, and so forth, and that is obviously going to go by the boards.

  I think it will be a real setback if Grand Rapids and Holland lose Amtrak service, and I certainly hope you can do whatever you can to begin it, but basically you have to build the system and do it right, and then I think it will carry its own weight.

  Thank you.
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  Ms. MOLITORIS. Mr. Ehlers, may I just respond by saying a couple of things? First of all, the Board and Mr. Downs and all of Amtrak is committed to quality service. Some of the difficulties that they had to endure of course were the decapitalization, but also, the heritage cars, and they are called heritage cars because they were inherited from the freight railroads, and some of them will be almost 50 years old. It is very difficult to give the quality that our passengers deserve, and that is why the Board, along with Mr. Downs, support Mr. Downs in his recommendation to take the heritage cars out of the system.

  I also think that Mr. Downs' commitment to on-board service improvements and real focus on customers in the strategic business units is really going to net benefits which are going to attract customers and help the revenues grow.

  The final thing is that I want to emphasize that Amtrak and the Board said in its press release and communications that Mr. Downs has had with each State that they are willing to work with each State to come up with a partnership to achieve a retention of services where there is an interest in those States to do so.

  Mr. EHLERS. If I may----

  Ms. MOLINARI. Mr. Ehlers, because we are on a tight time line, let me just suggest that we are going to have a hearing on Friday at which point Members who are not Members of this committee can come forth and testify before this subcommittee on their particular and parochial problems.

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  What we would like to do at that point in time is to take your testimony, once it is an official part of the record, and bring it to the attention--we will share that with both Amtrak and the Federal Rail Administrator for their ability to respond to you at that point in time, if that is agreeable.

  Mr. EHLERS. Yes. I just have one or two sentences, yes. One, old cars don't make trains run late, and that is the major complaint. Number two, if you stop the service, you will never get it started again.

  Thank you.

  Ms. MOLINARI. Thank you, Mr. Ehlers. And we do encourage you to submit a more detailed statement on Friday. Ms. Kelly.

  Mrs. KELLY. Thank you, Madam Chairwoman, and I thank you, Mrs. Molitoris for appearing before us this morning.

  In my district, Amtrak runs between New York and Albany on a regular basis. Its loss would represent a great loss in our ability to move passengers around the area, and I have only one question. At this particular moment, I notice that your appropriation for capital for fiscal year 1996 is the same as it was in 1995.

  It is my understanding that the--a capital squeeze on Amtrak represents exactly what Mr. Ehlers was talking about, helps Amtrak not be able to meet its schedule on time. I wonder if this--you had worked with Amtrak on this capital request and I wonder if you would be willing to speak about that.
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  Ms. MOLITORIS. Certainly, Congresswoman Kelly. First of all, I want to tell the committee that the dollar figure last year represented a 41 percent increase in capital for the Clinton Administration's years in office as compared to the previous period. So there has been a real commitment to increase the capital to Amtrak because we recognize how important it is.

  The consideration of the capital number this year certainly was constrained by our ability and needs in other parts of the budget. There will be, with the changes in the restructuring proposed by the corporation and the Board, the taking out the heritage cars and the restructuring of the system itself will give us an opportunity to focus those dollars on increasing the quality on the remaining system.

  In fact, the Board has committed itself to the National Rail Passenger Corporation and we believe that this--everyone would always like to have more dollars. We believe this is a reasonable step toward addressing and working with Amtrak on helping recreate itself, and I am also very aware of the importance of the corridor that you represent and, in fact, the FRA is working with the State of New York on a demonstration project with new equipment and an upgraded turbo train, which has been used I think for almost 20 years on the New York to Albany run.

  That test, I think, has been so far successful, and we look forward to the new kinds of data on maintenance that we will be getting from this test and it is an investment that we certainly believe in.

  Mrs. KELLY. Thank you very much.

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  Ms. MOLINARI. Thank you.

  Mr. Franks.

  Mr. FRANKS. I will pass this time.

  Ms. MOLINARI. Thank you.

  Mr. Blute.

  Mr. BLUTE. Thank you, Madam Chairwoman and I appreciate you coming today. I represent the city of Worcester, Massachusetts, which is the second largest city in New England in which Amtrak recently announced it was eliminating most of the service to that city, and we are very concerned about this and we think that although we understand the problems that Amtrak is having, and the GAO report is very clear on the multifaceted problems that they do have, I must say that we are very concerned in that area of the country about declining service, and as it relates to the subsidies that we are going to be asked to vote for, and I have been supportive of the subsidies last year and opposed cuts in those subsidies, but it is difficult when service is declining.

  I just want to ask one question because I know we will have the opportunity that the Chairman mentioned on Friday, but you observed in your testimony that Amtrak has inadequate resources for the extensive route system that it has to operate by law. It is required to operate. I wonder if you think it is time for Congress to remove the requirement that Amtrak operate a defined route system, giving Amtrak more flexibility to concentrate on those areas that make economic sense, that have a large ridership.
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  Ms. MOLITORIS. Mr. Blute, I think the commitment of the board of Amtrak is clear in its December actions, but at the same time, the board is committed to retaining a national system.

  I think that the kinds of investments that this government makes need to be based on good fiscal information, need to be made with a focus on making Amtrak as competitive as possible, and also working with States and localities for those areas and routes that may not have the same economic feedback from revenues, but may be worth an investment for other reasons, and that is part of the Secretary's focus on giving States and localities more of a say in not only investing in these routes and service, but also then helping define the system itself, because there are routes that we have heard about from certainly our customers throughout the country that may not have the same return on investment that the Northeast Corridor has because there are less people, but maybe certainly in their mind worth their State investment for other reasons.

  Perhaps it is the only viable opportunity for them. Maybe it impacts the air quality in their city. There are many reasons. Maybe it helps them avoid other infrastructure investments that are less benign to the environment.

  So these are opportunities that we want to work with our customers in the States and local governments to get them the kinds of system that best suits their citizens.

  Mr. BLUTE. Thank you.

  Thank you, Madam Chairwoman.

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  Ms. MOLINARI. Thank you, Mr. Blute.

  Mr. Clement--I am sorry. Mr. Cramer. I didn't see Mr. Cramer.

  Mr. CRAMER. That is all right, Madam Chairwoman. I have no questions at this point.

  Ms. MOLINARI. Mr. Clement.

  Mr. CLEMENT. Thank you, Madam Chairwoman.

  You mentioned awhile ago about the demonstration train, the turbo train. I understand the Amtrak board may be interested in showcasing that train in the near future around the country. Is that true?

  Ms. MOLITORIS. I don't know about around the country, Mr. Clement. I know that the State of New York has scheduled, I believe it is a potential opportunity for citizens and elected officials to ride the train on the 27th of this month and perhaps there are a couple more days that they are going to--I think there is a 2-day period when people may ride the train.

  The opportunity for us as a Federal Railroad Administration to be part of work on nonelectric locomotives is a very important piece of the future and the facilitation of research and development activities that we see because, in fact, there are corridors throughout the country that could benefit from higher speed service with a nonelectric locomotive that would delay or make unnecessary the infrastructure investment in electrification.

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  Mr. CLEMENT. Well, Amtrak has gotten a black eye, and I really think it would be in Amtrak's best interest to showcase a train around the country, because a lot of people have a lot of history when it comes to trains, and I think 1996 would be a very good time to consider that very seriously.

  I would like to ask you also, when Amtrak was created, as I understand it, the Secretary of Transportation designated a basic route network that Amtrak was directed to serve and that it is still directed to serve. Is the Secretary considering revising this basic route network to make Amtrak more cost effective?

  Ms. MOLITORIS. Mr. Clement, first of all, the actions of the Board in December worked with Tom Downs and Amtrak management to do just that. It was, in fact, about 21 percent of service that was implicated in the frequency and termination changes that are recommended.

  So that, I think, is a very dramatic step, and I think the Board and the management of Amtrak are acting responsibly in reacting to their difficulties financially and the ability to develop this company to be more responsive to the transportation environment in which we find ourselves, which is very different from the transportation environment that existed when Amtrak was first created.

  And if I may, sir, comment on your suggestion with regard to touring the trains. I might point out that when the high-speed trains were toured around the country, there was, in fact, just the kind of response that you suggested. However, the cost for those tours must be borne by the States that are interested in doing it. So we would be happy to work with States who are interested. In fact, the Olympic Committee has been to my office and we are working with their logistics director and other interested States and cities who want to see some sort of demonstration around the Olympics.
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  The State of Washington had the Talgo train demonstration which had over 70 percent ridership, as a matter of fact, which is good on anybody's transportation system, and in fact that train sometimes could not go faster than 40 miles an hour because of track conditions which the State of Washington and Oregon have committed to improving. So I think your suggestion is proven in fact, and I would hope that we can continue to respond to States who are interested.

  Mr. CLEMENT. Yes. I would like for you to share with me, either in the record or with my office at least examples of what has been done already concerning demonstration trains and showcasing and this so-called cooperative effort between Amtrak and the States.

  Ms. MOLITORIS. I would be very happy to submit it for the record and also to your office, Mr. Clement.

  Mr. CLEMENT. Thank you.

  Would the Secretary do this as a part of the process of designating a national transportation system when we talk about the future?

  Ms. MOLITORIS. Mr. Clement, I think the Secretary has certainly talked a lot about a national transportation system and how important that is to an intermodal success story for transportation in this country, and I think his proposal for restructuring our administration, our department, and for the new kinds of flexible funding arrangements bolster that

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  Mr. CLEMENT. And the final question, does the Secretary feel the need of an independent commission in designating this network?

  Ms. MOLITORIS. The Secretary of Transportation supports the action of the Amtrak Board in terms of its responsibility to make Amtrak very responsive to its customers and ready for the 21st century.

  He certainly is talking with various elected officials in the Congress and the Senate about how we might work together to really vision and come up with a plan for the future of not only Amtrak, but the whole national transportation system.

  Ms. MOLINARI. I think that about sums it up for today. I want to thank you for your patience and we look forward to working with you towards the ultimate reauthorization of Amtrak.

  Thank you for being with us this morning.

  Ms. MOLITORIS. Thank you very much to you and all the committee members, Madam Chairwoman.

  Ms. MOLINARI. Our next panel will consist of the General Accounting Office, Ken Mead, Director of Transportation Issues.

  Thank you and good morning. Please proceed.

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  Mr. MEAD. Madam Chairwoman, I appreciate the opportunity to be here today. My colleagues are, Dr. Frank Mulvey, Ron Wood, and Debbie Justice of our Amtrak team. I would like to welcome the committee to the rail jurisdiction. I wish it were under some happier circumstances.

  I would like to say at the outset of my statement very clearly that Amtrak has been most cooperative in all phases of our work. We think, based on our work, that continuing the present course, maintaining the same funding level, scope of service on the current route system, is neither feasible or realistic, even with the proposed cutbacks.

  And the message I would like to leave with the committee is that a decision really needs to be made on what is to be expected of Amtrak, how much the Federal Government is willing to pay, and how any remaining costs are to be covered.

  From the standpoint of perspective, before I go into two or three charts I would like to share with you, I should point out that like all major intercity rail companies in the world, whether it be conventional or high speed, Europe or Japan, Amtrak operates at a loss and has always needed government funding.

  Also for the sake of perspective, Amtrak's not alone in receiving public support. Historically, nearly all modes have received some form of subsidy. Some still do. For example, in 1993, the Essential Air Services program gave a per trip subsidy that was greater than the average per trip subsidy for Amtrak. General aviation is also heavily subsidized, and as has been pointed out earlier, Amtrak over the years, they don't have a trust fund, and I don't mean that from the standpoint of advocating that they do have access, but it is a fact.
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  In 1995, out of a total budget of over $2 billion, Amtrak will receive roughly $970 million from the Federal Government and about $30 million from the States. That is a little over 40 percent of its budget. In your packages, I think you have the same charts. I would like to walk through what those charts represent. The top bar is a so-called mandatory payment to the Railroad Retirement Fund. That is about $150 million a year. It fluctuates a bit, but that is a pretty steady state.

  The next bar is the Northeast Corridor grant. That is specifically for Northeast Corridor improvements. That is for about $200 million. The next bar down is the General Capital Grant which is available for use system wide. That is about $230 million, and at the bottom is the operating subsidy, which is intended to cover the difference between the operating costs and revenues, like fuel and salaries. That for 1995 was $392 million. The administration proposes a reduction to $300 million.

  Amtrak's revenues and Federal subsidies have not covered their operating costs. At the end of 1994, the railroad had a negative balance of working capital of $227 million, and I think that chart graphically portrays where the railroad was headed. It was headed for even deeper red ink in 1995 and of course we don't have a bar for that one.

  At the same time, as has already been alluded to by the committee, Amtrak's capital requirements have grown. The unmet needs for new equipment improvements of facilities and track now total over $4 billion, with over $2 billion of that in the Northeast Corridor alone.

  Also, the labor agreement with Amtrak's 14 labor unions soon have to be renegotiated, as do track use agreements with the freight railroads. The reason I mention the track use agreements is because Amtrak, most the track over which Amtrak travels is about 97 percent of it, is owned by the freight railroads.
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  Those agreements were entered into about 25 years ago and they are up for renegotiation. An important part of negotiations will have to do with whether the freight railroads should be liable for any of the damages as a result of an accident.

  What has happened at Amtrak is over the years, they have sought to make ends meet by deferring maintenance, assuming debt, from 1993 to 1994 it went from about $500 million in debt to over $700 million, and they also reduced staffing.

  But some of those actions, like deferring the maintenance, while they were necessary for the day-to-day survival of the railroad, they simultaneously caused serious capital deterioration and by the end of 1993, for example, about 40 percent of their fleet, I think, was overdue for major overhauls.

  The same goes for their maintenance facilities. I have never seen maintenance facilities in such woeful shape. In one case, for example, in Beech Grove we saw they were storing inventory outside, seats for trains, and there were so many derailments at the tracks leading into this maintenance facility that many of the people, instead of performing maintenance, would have to take time to go out and put the train back on the track.

  Now, as you know, in December, Amtrak announced an aggressive plan to rescue the railroad. They planned to reduce its work force by about 5,600 positions. They have about 25,000 people. They are going to cut service frequency and eliminate a number of route segments and retire nearly all of its oldest and most costly passenger cars.

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  If that plan is implemented, it is likely that Amtrak will make it through the year. But longer term, our analysis suggests that it is unlikely that Amtrak can overcome its problems and continue to operate the current 25,000-mile system without significant increases in passenger revenues or funding from someplace.

  Amtrak's ability to increase its passenger revenues to the degree required is limited by competitive conditions. Many people don't realize that none of Amtrak's routes, including the Northeast Corridor, is profitable.

  When you consider the costs of capital, revenues in the corridor, that is the Northeast Corridor, cover about 65 percent of the route's cost, compared with about 50 percent for routes elsewhere. In terms of ridership, this map shows in very general terms the ridership on Amtrak's routes.

  Amtrak carries 22 million people per year. That is less, in fact, than the 30 million they are carrying as part of these commuter rail contracts. The dark, heavy lines represent the routes that carried over 1 million riders in 1993.

  The dotted lines on that map are ones that carry over 400,000 and the light lines are less than 400,000, and here are some interesting facts. Five of the forty-four routes, the ones in the Northeast and Southern California, account for over 50 percent of all riders, 56 percent of revenues, and 40 percent of cost.

  Twelve of the forty-four routes account for 70 percent of the riders, 68 percent of revenues, and about 60 percent of costs. Amtrak's passenger revenues have declined over the past several years. One of the reasons was the accidents. We think the influence of those have begun to abate.
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  The economy. We think the influence of the economy has begun to abate. But the airline, the influence of airline competition is still there and that is causing a constraint in the growth of Amtrak's ridership.

  I would like to move to the longer term. As I said, I think Amtrak's new strategic plan is going to come close to closing the gap for this year and eventually will need to reduce annual expenditures of about $360 million. Now, if Amtrak had done nothing and subsidies were eliminated, they would have been looking at about $7 billion in a debt cumulative from 1994 to 2000.

  Now, if the Federal subsidies had stayed constant, the cumulative net losses after subsidy would have been about $3.8 billion, again, assuming Amtrak had done nothing. So Amtrak clearly had to do something. Yet even if they were to accomplish their entire plan and further assuming a continuation of the existing operating subsidies, the railroad will need an additional $1.3 billion from 1996 to 2000 to break even. That does not account for nearly $4 billion in capital.

  Now, an important underpinning of this plan is to shift much of the responsibility for funding from the Federal Government to the States and localities and private sector, and to increase capital assistance.

  Without those changes, Madam Chairwoman, the recently announced cuts will be just the beginning of the route abandonments and service cutbacks if the subsidies to Amtrak were eliminated and the railroad was privatized.
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  This alludes to Mr. Kim's point I think earlier, we think it is unlikely that a nationwide passenger rail system could be preserved. If privatized, the intercity service would be reduced to a few regional corridors at most because only a few well-traveled routes could potentially generate the sufficient revenues to cover those costs, and even in those cases, we think you need capital investment to get the route you are selling in shape before anybody in the private sector would be interested in buying it.

  Now, if funding for Amtrak from all sources is reduced or maintained at its current level, we think the basic route network will have to be further reduced beyond the recently announced changes, so that service could be provided within whatever funding is going to be made available.

  Now, our report suggests that Congress could direct Amtrak or a special temporary commission to develop concrete options for you to consider. Not just one option, but multiple options, and they could be developed based on assumed levels of funding, with State, local and Federal, or if Congress chose, it could be just Federal.

  In fact, I think it would be somewhat similar to the process the committee is going to be going through in a designation of the National Highway System. The basic network could be augmented by relatively unprofitable regional routes supported by those States that were willing to cover the full cost of operation, less the revenues.

  Our report also contains a recommendation to Amtrak relative to giving the committee a legislative proposal, coupled with cost information on the impact of those proposals. They cover such matters as contracting out, giving the railroad a little more flexibility under some of the labor legislation, removing payments under the Railroad Retirement Act for nonAmtrak employees, tort reform for punitive damages, and exempting Amtrak from Federal fuel taxes.
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  And with that, I just will open up for questions.

  Ms. MOLINARI. Thank you very much, Mr. Mead.

  Mr. Shuster.

  Mr. SHUSTER. No questions.

  Thank you.

  Ms. MOLINARI. Mr. Clement.

  Mr. CLEMENT. Yes, Mr. Mead .

  Mr. Mead, have you reviewed the possible changes that might be made in Amtrak's statutory mandates and do you have any estimate of what changes in those mandates might save Amtrak in reduced cost?

  Mr. MEAD. Well, that is what we have recommended Amtrak do in terms of the labor statutes, the tort reform that they have all alluded to. If you are referring, sir, to the national route network and what Amtrak's mission is, GAO is not in the business of defining the national route network. We think Congress needs to define the network and mission.

  That is why we were suggesting that Amtrak offer you options for that or the Congress could create some type of a commission or board to provide options. The difference between the two would be if Congress wanted a board or commission or for Amtrak to take into account things like impact on rural areas, congestion relief, pollution relief and so forth, then it would be difficult, I think, for Amtrak to take those things into consideration and that might suggest some type of board.
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  Mr. CLEMENT. Mr. Mead, on page 74 of your report you described the relationship between Amtrak and the commuter railroads. You say that Amtrak serves these commuter railroads on a cost plus basis, but you also say that Amtrak was unable to provide you with data on the cost of providing these services.

  If Amtrak doesn't know the cost of these services, how can it charge for them on a cost plus basis?

  Mr. MEAD. Well, that is a good question, and by December 1994, we did get the information from Amtrak and it is under Tom Downs' leadership that that information was collected, and what it basically showed is that the commuter rail operations are generating about $290 million a year.

  It is now representing about 19 percent of the railroad's operations and the profit, though, wasn't close to $290 million in revenues, and I would be hesitant to say what the profit was in an open forum like this for proprietary reasons.

  Mr. CLEMENT. Mr. Mead, next year Amtrak's contracts with the freight railroads will expire and will need to be renegotiated. If Amtrak and the freight railroads cannot agree on these contracts, under present law, the ICC would arbitrate that issue. Is that correct? And if the ICC is abolished, are you comfortable with the DOT arbitrating such a dispute?

  Mr. MEAD. First, you are correct. If they cannot agree, the ICC, under present law, would be the one that would resolve that. I am sure you are aware the fate of the ICC is somewhat in doubt and if it were transferred to DOT, the direct answer to your question is yes.
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  I would feel uncomfortable having the Secretary of Transportation make that decision. Why? Because he sits on the Board of Amtrak. I think the freight railroads would have some question whether he could do that in an evenhanded and balanced way.

  Mr. CLEMENT. All right.

  Mr. MEAD. That does not mean you couldn't have some--a FERC-like agency with walls in DOT, but I think the Secretary--it would be somewhat problematic in making those decisions.

  Mr. CLEMENT. You cite in your testimony the support that other modes of transportation receive from the Federal Government. We have seen estimates that highways receive about $20 billion per year in general fund subsidies, not from user fees, primarily from State sources. Is this correct?

  Mr. MEAD. From--primarily from State sources. I can't vouch for the figures on highways, but it is so that States frequently fund their highway projects out of general funds. In some cases, out of a cigarette tax.

  Mr. MULVEY. Agreed. We don't have numbers on that with us, but $20 billion sounds about right.

  Mr. CLEMENT. You mention that one policy judgment for the Congress to make is whether States should be allowed to use their allocations of Federal transportation trust funds to subsidize Amtrak's service in their States.
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  What would you consider to be the pros and cons of allowing the States this kind of flexibility?

  Mr. MEAD. Well, I think it is all very nice to speak of flexibility for the States. That certainly was one of the principles of the ISTEA legislation. Our work has shown, though, that even where there is flexibility between mass transit and highways, the exercise by States of that flexibility to move dollars to mass transit has not been a great deal. So where they already have flexibility, they haven't. And the reason they haven't is because the needs for highways and mass transit so far outweigh the amount of money that they are getting.

  Mr. CLEMENT. So you have no objections to them having that flexibility?

  Mr. MEAD. I don't have objections to them having that flexibility, but I have some reservations about the assumption that they are going to be able to exercise that flexibility in a way that is going to keep Amtrak up.

  Just one example to build on that. Say you have three States. I will use my home State of Connecticut as a hypothetical, so I don't get myself in trouble. But take the States of Connecticut, Rhode Island, and Massachusetts, all in the Northeast Corridor. Say that the State of Connecticut was to say, we are not interested in paying all this money for the Northeast Corridor, but the State of Rhode Island and Massachusetts were prepared to say yes. We really want rail service. How is Congress going to sort through the cost allocation if Connecticut decides that they will not fund and Rhode Island and Massachusetts decide they will? Will Rhode Island and Massachusetts have to pick up the share for Connecticut? Obviously the train has to go through Connecticut.
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  I guess there is a subsidiary question, will the train stop in New Haven or New London, and I think it becomes somewhat problematic in the cost allocations.

  Mr. MULVEY. I think you are also addressing too the issue of whether or not it is fair to have highway users contribute money to pay for rail, intercity rail. Those are highway trust funds that are made available to support mass transit under the argument that mass transit investment helps divert people off the highways and benefits those who continue to use the highways.

  Similar arguments could be made for Amtrak in those markets where it carries a lot of people and diverts traffic from the highways, where that in fact is the case.

  Ms. MOLINARI. Thank you.

  Let me just jump in here for a second to get some numbers. Mr. Mead, on page 47 of your report you mentioned, even after the cutbacks announced, Amtrak estimates, it is their estimation, that they are going to need over $4 billion for capital investment to bring its infrastructure into a state of good repair.

  Do you concur with that number, $4 billion?

  Mr. MEAD. That is correct. That number does not include the introduction of high-speed rail into the Northeast Corridor. That would be additive.

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  Ms. MOLINARI. And what is that?

  Mr. MEAD. I would put that at approximately $1.5 billion, I should clarify. Included in the $4 billion is $2 billion for the Northeast Corridor just to bring it up to a state of good repair, but bringing in high-speed train sets, electrifying north of New Haven, it would be additive.

  Ms. MOLINARI. Let me ask one more question, then I will turn it over. Do you have any idea of Amtrak's current debt load? A lot of your report talked about how they borrowed in the past to meet their operating needs.

  Do we have any idea what their debt load is today?

  Mr. MEAD. A little over $700 million.

  Ms. MOLINARI. Thank you.

  Mr. Boehlert.

  Mr. BOEHLERT. Thank you, Madam Chairwoman.

  I know this is not part of your charge, but who operates rail passenger service in other nations around the world?

  Mr. MEAD. It varies. It is very complicated.
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  Mr. BOEHLERT. But isn't it mostly government entities?

  Mr. MEAD. Yes. There is always government involvement, although it may appear to be a private firm. It may have a private sounding title. For example, the development of maglev in Germany was being done by an operation called Transrapid, Incorporated.

  Mr. BOEHLERT. Which is a German government entity?

  Mr. MEAD. Yes, the Ministry of Research and Development had a lot to do with the success of that operation.

  Mr. BOEHLERT. But the basic point is around the world in the other principal industrialized nations, the government is heavily involved and in most cases exclusively involved providing rail passenger service?

  Mr. MEAD. Yes, sir.

  Mr. BOEHLERT. Somehow we got the idea--I don't want to throw money away, but somehow we got the idea that rail passenger service in America should be a profit center for the government. I am not quite sure where that came from.

  Mr. MEAD. Actually the enabling legislation for Amtrak starts off by saying we create Amtrak as a for-profit corporation. Obviously it hasn't quite worked out that way.

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  Mr. BOEHLERT. You know why. No guts, no glory. I mean, I look at the budget and you point out that an article appeared in The New York Times referring to your report, that 40 percent of its nearly 1,900 cars need to be overhauled, and yet we have level funding for capital improvements and we wonder why the passengers don't come.

  Mr. MEAD. I believe that the principal weakness in the administration's case on this is the capital budget is even, and with the numbers that we are dealing with here on capital, it is going to be--it is hard to see that $200 million stretching.

  Mr. BOEHLERT. Yes, Mr. Mead, one of the points made by Administrator Molitoris, she just preceded you, you heard her, was that Amtrak's ridership grew steadily during the 1986, 1990 time period where its equipment had the lowest average age and then began to decline in the 1994 time frame because the equipment was older.

  I mean, people aren't dumb. People want--you know, good service and good equipment, and it seems to me we are expecting miracles from Amtrak and we want to give them a half a loaf of bread. If we give them some money to buy the new cars, overhaul the cars and improve the service that we all want, then the customers will come. You know, Field of Dreams, you build it and they will come.

  But it seems to me we are starving Amtrak. So I am not a big spender, but I think it would be a fairly wise investment if we put a little more money into the capital program for Amtrak.

  Would you share that conclusion?
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  Mr. MEAD. I would say that if you wish to keep the present national network, somebody is going to have to come up with more money for capital. Otherwise, you have to go to a downsizing mode.

  Now, as I understand the thesis here is that the States and the private sector would come up with the capital. I don't fully appreciate how that will happen.

  Mr. MULVEY. I think it is also true that you use the term a little more capital, but I think our report and our analysis shows we are talking about a lot more capita--than Amtrak has gotten over the years. If you wanted to create a modern railroad that was going to attract a lot of people or had the chance of attracting a lot of people, it is going to cost a lot more money.

  Amtrak has always been, almost from the outset, severely under capitalized, even our harshest critics will admit that about the corporation.

  Mr. BOEHLERT. One of the things people don't factor in when they look at rail passenger service and the amount of money that is being provided from the Federal Government is the fact that, one, it is probably the safest mode of transportation.

  Two, it is the most energy efficient mode of transportation. Three, it is the most environmentally sound form of transportation. Those are all pretty big pluses on the chart as I look at it, and I say it is a pretty wise investment of the taxpayer's dollar, although I want to minimize that investment, to keep supporting Amtrak, and I think it is penny wise and pound foolish to have level of funding in a capital budget when everybody in the world acknowledges that they need more money to overhaul their equipment so that the equipment will provide what we want, incentive for more people to use the service.
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  Mr. MEAD. Just as a frame of reference, my colleague, Mr. Wood was offering me here. At the present rate of capitalization in the budget, they are basically proposing about 23 percent of what the capital requirements are on an annual basis, and I guess the States would pick up the rest, and you know, when we did our report, Mr. Boehlert, one of the comments Amtrak made on it is we had our capital estimate in there. We stretched it out over 10 years, and one of the observations was that we really think it is a nearer term requirement than that. So this $5 billion figure is probably something that we have about a 5, 6-year window.

  Mr. BOEHLERT. Mr. Mead, I have had the occasion to work with you over the years and I have a high regard for your professional approach to everything. And I thank you for this excellent report.

  The only thing where I would fault you is in some of your editorial judgment, I want you to be a little more optimistic. If we are as responsible as we should be in the Congress with giving the resources that we require to get Amtrak going in the way we all would like it to be going, maybe Mr. Kim would be happy because people would be knocking on a door to say, we want to buy it. But now no one in their right mind is going to make an investment from the private sector in something that is starved for resources.

  Mr. MEAD. Just as a--not an editorial comment, but it is interesting to look historically at the Conrail experience, which they did of course ultimately privatize, but that was only after there were significant abandonments of routes and the Federal Government plowed quite a bit of money into Conrail, and then it became something that could be offered for sale.

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  Mr. BOEHLERT. Madam Chairwoman, I want to thank you. I want to give Mr. Mead a concluding cause for optimism. There are a lot of us up here that think that better days are ahead if we do what we should do in a responsible manner.

  Mr. MEAD. Yes, sir.

  Ms. MOLINARI. Thank you. I dare say that Mr. Downs is even more happy to hear that than Mr. Mead.

  Mr. Mead, let me just follow up on that point about being penny wise and pound foolish, but is it not your judgment that if we are going to make--Mr. Boehlert's suggestion, a tremendous infusion of capital dollars into a system towards either privatizing it or making it profitable for the United States Government or not making it just such a drain on the United States Government, that we have to go back in and reevaluate this picture in terms of all the routes that we currently operate, or else we are going to be back here going through this same exercise every year.

  Mr. MEAD. Yes.

  Ms. MOLINARI. Thank you. All right. Got that, Jerry? Thank you.

  Mr. Borski.

  Mr. BORSKI. Thank you, Madam Chairwoman.

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  Mr. Mead, thank you very much for your testimony and the normal outstanding work that you and your associates are doing for us here. You mentioned in your remarks that Amtrak was not profitable, even on the Northeast Corridor.

  Should we be surprised by that? Are there profitable corridors anywhere in the world that are run by railroads?

  Mr. MEAD. No, not when capital is considered, not that we are aware of. I should point out that when capital is not considered, the Northeast Corridor does look profitable, and that is where--I believe the folklore comes from that it is a profitable operation.

  Mr. BORSKI. We are talking about increased flexibility here potentially for Amtrak. Can the use of flexibility on the State level, even if used to its maximum, support a national rail system?

  Mr. MEAD. There is a line, charity begins at home and GAO has examined the use of flexibility by States where they already have it in moving from highways to mass transit, and generally that use of flexibility has been very limited. We have not done a survey of States as to what they would be willing to offer to support the rail system.

  Mr. BORSKI. Do you think they could support a national system?

  Mr. MEAD. I am skeptical.

  Mr. BORSKI. Have you studied the impact on other forms of travel if the worst happened and Amtrak deteriorates and collapses?
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  Mr. MULVEY. No, we haven't in this report. We have begun examining that for subsequent work on Amtrak reauthorization issues, looking at if you were to abandon Amtrak and those roads that carries the most traffic, the LA—San Diego corridor, the Northeast Corridor, what that would means in terms of more cars on the highway, more flights to the airports?

  And in the Northeast Corridor, as you know, the airports are already fairly heavily used. Some of them are slot controlled. There is a call for the possible development of new airports in both New York and Boston. Certainly if the Northeast Corridor were eliminated, it would accelerate the need to build those new airports, but we haven't fully quantified that yet, but we are working on that issue.

  Mr. BORSKI. Are there certain segments of the population that are more dependent on Amtrak than others?

  Mr. MEAD. Yes.

  Mr. MULVEY. Amtrak takes ridership surveys of its own riders to get a distribution as to whether or not they are business travelers, nonbusiness travelers, and it really depends upon the kind of market you are talking about.

  In the Northeast, you get a ridership on the Metroliner which is really similar to what rides the airlines. Outside the Northeast Corridor on the longer haul trains, you get more families, you get more leisure travel, less business travel than the airlines get.

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  But the demographics of the population tend to cut across the Nation as a whole. You don't get a focus on any particular economic, socioeconomic group.

  Mr. BORSKI. I have no further questions, Madam Chairwoman. I yield back the balance of my time.

  Ms. MOLINARI. Thank you.

  The Chairman of the full committee, Mr. Shuster.

  Mr. SHUSTER. Thank you very much.

  We very much appreciate your testimony and your analysis. Check me on my numbers here. If there are 22 million passengers a year and, according to the data I have here, there are 1,904 passenger cars in service. That means that there are 11,554 passengers per car per year, if I assume a 365 day year or even a 300 day year. You divide that into 11,554 and that means there is on the average of about--take the 300 days, which is more favorable, 38 passengers per car per day. That is less than a bus. Is that accurate?

  Mr. MEAD. The general load factor in Amtrak, and of course this varies widely by route, is a little over 50 percent.

  Mr. SHUSTER. Forty-nine percent. It has gone down----

  Mr. MEAD. It should get better, Mr. Shuster, with the retirement of those old heritage cars which now comprise about 20 percent I think of their passenger miles.
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  Mr. SHUSTER. Unless I am incorrect, later on you can please correct me, certainly not in public, only in private--

  Mr. MULVEY. It is also true that not all of those cars--

  Mr. SHUSTER. --if my arithmetic is incorrect.

  Mr. MULVEY. That also would include cars that are out of service. That would reduce the numbers and Amtrak often has quite a few cars out of service. I am not sure--Debbie would know that, but that also includes the diners and the other passenger cars?

  Ms. JUSTICE. Yes. It includes all of the specialty cars, the diners, but included in that 1,900 number are all the baggage cars, all the auto carriers which technically don't have people on them.

  Mr. SHUSTER. If I merely double the figure, still it is only about one bus a day a car. Thank you.

  Ms. MOLINARI. Mr. Lipinski.

  Mr. LIPINSKI. Thank you, Madam Chairwoman.

  Mr. Mead, it is always a pleasure to have you come and testify. You and your entire staff are always extremely informative and very, very helpful to us, and I know that I speak for all the Members of the subcommittee, once again, your testimony today has been very enlightening to us.
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  I think that--I would like to make an observation. It seems to me based upon all the discussion we have had this morning that we are really at a crossroads in regards to the Amtrak situation. We have to determine as a policy of the United States Government, are we going to see to it that Amtrak continues and is successful or are we going to throw in the sponge?

  It seems to me that we have been holding Amtrak together with bailing wire and string and Band—Aids for quite awhile now, and it is either time to let it die a peaceful death and a death that doesn't cost us too much money, or infuse a great deal of money into Amtrak.

  I concur with you, I don't see the States being willing to put much money into Amtrak whatsoever. I know when we passed ISTEA, I attempted to get an amendment in there where a certain amount of money for mass transit would go directly to large metropolitan areas. I had no success in doing that because people maintain that the flexibility in there that the States were receiving mass transit would be well taken care of.

  Well, that really has not come to pass at all, and I am sure that railroads are going to be a lower priority to the States than even mass transit, and as I say, I don't see that as a real option. So I think that we here on the Federal level have to make a determination to kill it or to infuse life into it so it becomes almost as efficient, as clean, and as fast as the European—Japanese trains, and I would like to know if you have any comments upon my comments.

  Mr. MEAD. I think your experience will be different depending on the States. For example, I think the State of California may feel differently. I don't want to speak, Mr. Mineta is not here, probably call me up later, say, why did you say this.
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  But I would suspect that the State of California may--and especially Southern California, would have more of a vested interest in retaining rail service than perhaps some places--some other places, but, yes, in general, I agree with your analysis and I think your characterization of the choice Congress faces is correct.

  Our report, our testimony today tried to make clear that the matter on the table clearly transcends the power and responsibility of the board of directors of Amtrak. They really need Congress' help here.

  Mr. LIPINSKI. Do you think that when Amtrak's board took some action in December in regards to eliminating some routes, reducing the frequency, do you think that that was the significant step in the right direction or do you think that once again that is more like a Band—Aid being placed on the situation?

  Mr. MEAD. I think it was an aggressive step. I hesitate to say it was good in all respects because I am not sure that if I were Congress, I would make the cuts exactly where they did, but many of the cuts are still to come.

  I mean, all we have seen so far are basically frequency reductions, and Amtrak is taking, I understand, some heat off of just moving from 7 days a week to 3 or 4 days a week. There is some concern. April 1st, you are going to have route eliminations, Chicago, Milwaukee, Chicago, Grand Rapids, some in California, segment eliminations, then in June and October, there is going to be more, and I would say that if the committee just wants to let this happen, I guess it could happen that way, but I think there is a larger picture involved here than just the Amtrak board of directors making cuts.
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  Mr. LIPINSKI. Thank you very much. I appreciate once again you all being here this morning.

  Madam Chairwoman, thank you.

  Ms. MOLINARI. Thank you, Mr. Lipinski.

  Mrs. Kelly.

  Mrs. KELLY. Yes, thank you.

  Thank you, Mr. Mead, for appearing today. I just wanted to ask a few questions about your report. I am a new Member and I wonder if it normally takes as long to produce a report as this report took.

  Does it normally take this long to produce this kind of a report?

  Mr. MEAD. No. Actually this effort has been under way for--examining Amtrak has been under way for about a year-and-a-half, and we made an interim report last April on the finances before the Energy and Commerce Committee which then had jurisdiction over rail, and we decided at that point not to issue a report because we wanted to wait and see what happened at the end of the year, and the end of the year was not good and we knew Amtrak was going to take some action and we wanted to take some of those into account.

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  But, no, it doesn't normally take us a year-and-a-half, but this is a top to bottom rather comprehensive look.

  Mrs. KELLY. This leads me to the next question as to how relevant this report is now in light of Amtrak's own reorganization plan. I wonder if you went back and reconfigured what you were thinking when you wrote the report in light of that plan.

  Mr. MEAD. Certainly. The $1.3 billion figure is Amtrak's figure about how much they will require from somebody to make ends meet by the year 2000. The $4 billion capital requirement figure is Amtrak's figure.

  The assumption about operating subsidy levels is an assumption that Amtrak and its board of directors made, and I can provide you that for the record. So we try to take that into account. We did not have time to get behind all those numbers, but I am assuming Amtrak's numbers were on target.

  Mr. MULVEY. To add to that a little bit, that is part of GAO's work. Before we issue our report, we often give it to the agency or the affected party for their comment.

  Once we receive their comments, we try to incorporate their suggestions and as you can see in the back of our report in the appendices, we include Amtrak's comments and we address their concerns in the report. We also had the benefit of their preliminary plan and we tried to incorporate that in the report.

  We did not have time to do a detailed analysis, but we did try to look at those figures and see what they meant for our findings.
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  Mr. MEAD. In hindsight, I would say something we would have done differently is if we were able to forecast change of landscape and the assumptions about what the States and locals would pick up, I think we would have included in our survey some fairly extensive touching base at the State level, but it really never entered our thinking that it would shift to the States, so in that respect, I think a dimension of our work could have been enhanced.

  Mrs. KELLY. Just one other question about the report itself. I was looking for some concrete recommendations to come from the report and I don't know if that is the normal procedure or not. I feel that you have a lot of interesting, good figures in here and I have read as much of it as I possibly could consume until I finally got through the whole thing, and I was hopeful that I would see stronger concrete recommendations.

  Is that normally your policy not to give us--to give us hard facts and soft recommendations?

  Mr. MEAD. It depends on the subject matter. Some of the issues involved here are inherently ones that GAO ought not to be telling Congress, this is what definitely should be done. For example, the issue on whether States should be able to use ISTEA money, highway money for rail, I think it is inherently a policy issue. We can point out pros and cons for it.

  On the labor law issues, we point those out in the report. That is an area that frankly there is always two sides on. The definition of the national route network, there are lots of issues associated with that that I wouldn't want GAO in a position of saying, well, this is what the national route network should look like. I would see our role more as offering options.
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  Mrs. KELLY. Okay. Thank you.

  Ms. MOLINARI. Thank you.

  Mr. Kim.

  Mr. KIM. Thank you, Madam Chairwoman.

  I would like to make a comment and question. Instead of upgrading this obsolete system, according to your report, you might take $ .5 million a year just for the capital investment, and Amtrak says they need $4 billion to try to repair these old fashioned diesel-run locomotives, trying to repair, maintaining these obsolete switching systems, after all the existing railroad can take so much in terms of speed anyway.

  Why don't we focus, refocus all this money, shift the money into a more futuristic system such as Japan and Germany has, a maglev high-speed train? Now, I know we have a sentimental value on this Amtrak, but I think it is time now we have got to bite the bullet, go in and proceed for the future. We can't just keep repairing--giving money for a life-sustaining system.

  I know that it could be done because I remember years ago in California we--a bunch of private investment companies, consortium, put together a proposal to run a high-speed train from LA to Las Vegas and amazingly, some 200 or so miles an hour and it only takes 2 hours to get there.

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  Now, that is compelling, much faster than bus and existing Amtrak. When you reach that kind of speed, then there will be a demand. According to a market study they have done, there certainly is a market. The reason why they gave up this, abandoned this idea, is that so many obstacles, such as environmental issues, try to acquire the land, right-of-way was a problem, and the biggest problem was our own government, all the regulations. That is why they finally gave up this idea, but I do know that there is a market. I do know that it could be done strictly by private funding.

  Now, if we shift the money and let the Amtrak die, shift the money, refocus it, give us some kind of loan guarantee like we did to Mexico, we can attract some private investment, maybe joint venture with Amtrak, I think we should look into the futuristic rather than just keep repairing this thing and pouring money down into a bottomless pit.

  Mr. MEAD. That is certainly a point of view, helps in part explain my response to Mrs. Kelly earlier, the role of GAO. I can tell you that that is certainly an option.

  Amtrak, as you know, in the Northeast Corridor particularly, has been pursuing the introduction of high-speed rail. It seems to be going at something of a snail's pace. We would like it to move along faster, but it will take money.

  I should point out also that the ISTEA legislation specifically authorizes $700 million for it, but they never appropriated a dime, to the best of my knowledge, and in Germany, you may know, they have committed $5 or $6 billion of capital investment to put maglev in revenue service.

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  Mr. MULVEY. We did a report last year on the obstacles facing high-speed ground transportation in this country and we will be happy to provide you with a copy of that report.

  We specifically dealt with the Anaheim to Las Vegas route and we looked at that very, very carefully, and some of the obstacles on that route were quite interesting, and are surprising.

  Mr. KIM. Your recommendation is lacking in the direction--the recommendation is simply a Band—Aid, how to repair, how to fix the existing system without looking at the future. That is the reason I mentioned this.

  Mr. MEAD. In fairness I should point out also that there is a lot of tension in the community on this Northeast Corridor issue. There are people elsewhere in the country who feel that they would like to get rail service and that that is important too, even if it is not high-speed rail, and I think Amtrak is trying to deal with all those tensions together and that is part of the reason why we are in this situation we are in now. They are trying to keep this 25,000 mile system operating. They feel that is their basic charter.

  Ms. MOLINARI. Final question. So if we decide that we have to revisit the initial charge and mission of Amtrak by revisiting all these systems in order to have a more efficient system, what do we do about, in GAO's knowledge, if we were to eliminate, which is obviously what would be some of the suggestions that would come out of this panel of Base Realignment and Closure Commission, there are two outstanding issues that we are still faced with. And I understand that it is Congress' opportunity to make statutory change. I just wonder if you have recommendations on what we do when we eliminate a route with the costs incurred by the 6-year Labor Protection Act, and also the impact on the railroad retirement system.
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  Mr. MEAD. I am not going to take a position on the C2 protection other than to say Amtrak has done an analysis of what its impact might be, getting 6 years worth of wages if you were to cut outright routes. There has been legislation introduced. I am not sure this session, but certainly past sessions that would modify that. It is clearly--it would impact on the short-term savings if you retained those labor protection provisions.

  I believe that in the contracting out area, that that is an area that Congress could perhaps safely move to give Amtrak some more flexibility. The $150 million retirement payment, somebody is going to have to make it.

  Ms. MOLINARI. I know. I just can't find anybody in this town who is going to tell me who that is.

  Mr. MEAD. You know what is interesting about this $150 million payment is if you knock it out, Amtrak's total budget isn't near the $1 billion mark. You would be about $150 million short, and right now though, they are tripping right over that $1 billion mark, but it is because of that $150 million.

  Ms. MOLINARI. I appreciate that. Let me just ask one more question on the basis of your report, when you talk about contracting out systems, it seems to me and the problem that we have with capital expenditures and maintenance, and you said in your testimony again today in response to questions that the maintenance facilities themselves have to be a large focus.

  Should we not consider, in this streamlining, contracting out and closing those maintenance facilities and contracting out all maintenance, or is that just not doable?
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  Mr. MEAD. No. I think that is an appropriate line of inquiry. I believe Amtrak's board of directors is. You have one place up in New York, what is it, Sunnyside. They spent $2 million in 1993, I think it was, repairing broken pipes in the plumbing system on these trains because they had no heaters to use when they were repairing them so the pipes all froze.

  Ms. MOLINARI. I appreciate that. Any other questions for the panel? Gentlemen, Ms. Justice, thank you very much for your testimony that you have prepared today for the report, and we look forward to continuing working with you and coming back together again as we proceed towards the reauthorization.

  It is an excellent report and your insights have proven valuable obviously to this subcommittee.

  Mr. MEAD. Thank you.

  Ms. MOLINARI. Thank you.


  Ms. MOLINARI. Okay, whether you like it or not, it is Amtrak's turn. Thank you very much for your patience. I with like to welcome Tom Downs, President of the National Railroad Passenger Corp., Amtrak.

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  Thank you very much for being with us this afternoon.

  Mr. DOWNS. Thank you, Madam Chairwoman. In the interest of the committee's time, I would ask that my prepared statement be entered into the record.

  Ms. MOLINARI. Without objection, so ordered.

  Mr. DOWNS. Thank you. I also was noticing all of these gorgeous pictures and now that our jurisdiction is transferred to the first rail subcommittee in the history of the House of Representatives, might I donate to the committee an Amtrak picture?

  Ms. MOLINARI. Maybe after the reauthorization would be appropriate, Mr. Downs.

  Mr. DOWNS. It is a deal, after the reauthorization bill.

  Ms. MOLINARI. Thank you.

  Mr. DOWNS. Kind of as an aside, I hope you all had a good weekend. I understand that LaGuardia did not, Kennedy did not, Newark did not, Philadelphia did not, Baltimore did not, National did not, and we did. We ran within 5 or 10 minutes and on at least 40 trains added additional cars and so sold an additional 30,000 tickets on the corridor. That is one reason for an Amtrak.

  You have to have alternates in the transportation system and Amtrak is a mode of transportation all by itself. There isn't another one of these in America. There is usually one of these in every other industrialized nation in the world, and we fill that purpose, and while it is sometimes with near schizophrenia that I talk about justifying minimal amounts of capital or even minimal amounts of subsidy for Amtrak, it is also at the same time that I recognize that as America's passenger railroad, I am sometimes embarrassed about carrying the American flag.
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  Every other major industrialized country in the world has made substantial investments in rail passenger service. Our per capita investment in rail passenger service in America ranks just above Bangladesh and they are gaining on us fast, and that is a statistic that comes out of the World Bank.

  Our costs are low. They are artificially low in a number of cases about capital expenditures. One of the reasons our costs are low frankly is that we don't own anything with the exception of about 300 miles of railroad and we are privatized.

  I would remind Mr. Kim that we are probably the most privatized passenger railroad in the world. We pay a contract price for operating over 24,000 miles worth of freight railroad territory, which is privately owned and operated. We have made investments in equipment. They are minimal. We have made investments in plant. They are minimal.

  As a result, we have had a deterioration in the quality of our service. We have been selling a product that we can't deliver. We have been stretched too thin to be all things to all people. We had the winter from hell. We had accidents. We had snowstorms last winter. We had brutal airfare competition over that same period of time, and we missed our revenue mark by $130 million last year.

  That is how we got to this point. We talked to the administration. We talked to the Congress, and everyone said, you have to start at home to fix yourself. It was everybody's message. Don't expect a straightforward bailout of Amtrak. Heal yourself about your business.

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  What the board did in December is the most substantial and traumatic restructuring of Amtrak in its entire 24-year history. Nothing else about downsizing or resizing Amtrak even comes close by half. 5,600 employees gone. $435 million worth of costs taken out of the company.

  Over the next 4 years, that is an annualized cost savings of about $2 billion. We did it. The advice we got was, don't do it politically, do it business. If the passengers aren't there and the revenues aren't there, the service has to go away. If the costs are too high, you go straight up the cost chain until you get to the point where you have made enough savings.

  In this case, in doing this analysis of the system, we found a breakpoint, we found that there is a lot of interconnectivity in this national system and it depends on connections, not just single routes, so rail passenger service across the north central portion of the country through North Dakota, Montana, Idaho, Washington State, and Oregon depends on connections down the coast, likewise the other direction.

  If we broke parts of that system off or we made the frequencies too low, the national system collapses. The next stop point after that is the Northeast Corridor, and that is all that would be left in terms of another round of savings. So I would disagree with GAO about whether we will be back here again.

  The only place to come back here about cost savings next round is back everything out, and that is not like an estimate of turning off the lights on the Washington Monument. It is simply how the economic analysis worked out by some of the finest rail economists available in the world who had done similar analyses for Brit Rail, for Argentina, for states in the Pacific Rim, and we would be glad to share that with the committee and anyone else who would like to participate in that.
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  We think we have done everything that we can on our side this round about taking cost out.

  We did not assume that we were going to, in this round, escape rail labor protection cost as a portion of this downsizing. We budgeted in this fiscal year as a restructuring cost. We request that money in the next year in the authorization bill, but our assumption was, and the board's direction was that we would all be better off if we negotiated some compromise on C—2 rail labor protection.

  The current statutory structure at Amtrak does not allow us in effect to negotiate that, either unions or management, and the board's position was very strongly articulated. We need to be free to negotiate that between labor and management and not have a--necessarily have a solution imposed upon us in that arena.

  We have said that to labor. We have said that publicly as our position and we still believe that it is better to negotiate that internally. We have looked at, as was mentioned several times before, lessons to be learned from other passenger rail systems around the world.

  One of the things that struck us initially was that Amtrak returns more money on its operating subsidy than any other system in the world. In other words, we are probably now the most efficient rail passenger--national rail passenger service in the world, including Japanese rail systems.

  We have taken some actions as well about statutory changes. Another statutory change that has been difficult and some have tried to dance around, we have not, is that we have prohibitions in our legislation about contracting work out. We are not saying that we want a mandate to contract work out. We want to be free to negotiate that with our unions about whether work can be done in-house or outside. Not a mandate to cap--contract work out.
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  I think it is imperative that we level out this playing field for Amtrak about getting economies for our system. I am convinced that Amtrak employees, if put in the right competitive environment, can bid and succeed on price of beating outside vendors, but I want them to have the opportunity to do that and we cannot.

  on the issue of railroad retirement, we have struggled back and forth. I agree with the Chair that everybody says they would like to do something about it, but nobody can find a place to put it. If Southwest Airlines was paying $150 million a year in railroad retirement excess charge, they would be in red ink. That is their margin of profit.

  When you talk about subsidy, that is lumped in with Amtrak's subsidy, quote, ''the billion dollars worth of Amtrak subsidy.'' That is a cost of Amtrak that is imposed by the Congress of the United States by law. If it is, then that is a legitimate item to be paid for by the national government, but ought not to be paid for by States or others who want to contract for their service or even in effect buy the customers themselves. It ought to be clearly delineated as a mandate that needs to be paid for at the national level.

  We have looked at what costs fall out if Amtrak doesn't exist. Currently our employees, combined with employer pay on railroad retirement, puts $300 million into railroad retirement a year. That is a healthy chunk, and if we are not around, that goes someplace.

  On the Northeast Corridor alone, we spend about $200 million a year on cost for continuing to maintain that. If we are not around, that falls on someone. If we are not around, the rail labor protection costs are estimated at about $3 billion at current statutory levels and that goes someplace. So we don't go away painlessly as a choice. But I think those are choices that Congress needs to make.
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  We have other areas where we think it does not make sense for us. For instance, we pay a diesel fuel tax to the Treasury so the Treasury can pay us back an operating subsidy. That doesn't seem to make sense. We pay the Treasury for salaries of Federal Railroad Administration folks to oversee us so that it goes to Treasury so it comes back to us.

  There are a number of areas like that that are statutorily imposed on us that we think we need to have some clarification about. Our bottom line in this last round was, we need to get all of our costs out that are not defensible. We need to get all of the quality of our service up for our customers, because we do sell a product and American citizens write personal checks for this. We have a responsibility for delivering a quality product to them. Get the quality up, and depend more on the marketplace, and the marketplace means either States or customers, and I disagree with the argument that, well, maybe if the States get the flexibility, they won't use it.

  In our case, if the Congress doesn't pay or the States can't pay and the customers aren't there, this service goes away. It is not like a transit system. The service simply goes away. And maybe that is the fairest test. What we are hearing back, small communities in America, Meridian, Mississippi and Great White Fish, Montana, they do not want to lose the service, and the good news is, States are considering using even their general funds to help support this. The hardest of the States' funds to use, they are in the process of trying to get agreements to do that. States like Wisconsin restoring service, even the Chairman's State of Pennsylvania looking at options for Harrisburg line service.

  These are valuable services. I don't think that giving States more flexibility in certain kinds of funding is going to lead to no funding decisions. I do believe, though, that there is a bottom line capital issue that has to be addressed about Amtrak and its future. It is capital, a railroad is a capital consumption machine, whether it is a freight railroad or passenger railroad. It takes money for track, signals, passenger cars, locomotives. It takes money for all of those, and if that cash isn't there, it becomes a real drag on the operating side in terms of repair cost, locomotive down time, service interruptions so that you lose your customers.
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  I think that there has to be a determination about what national role capital plays for Amtrak. In talking to Members of both Houses recently, it is clear that there is a line that can be drawn between operating subsidy and our commitment to the Congress is to drive the operating subsidy as close to zero over the next 4 to 5 years as we can.

  It is not clear that you can drive capital to zero, and I do not believe that I could in all truthfulness say that capital could ever go to zero. As a matter of fact, I think it will take between $500 and $600 million a year worth of capital investments to do things like completing the capital plan on the Northeast Corridor, replacing equipment, being a participant with states about train stations and service development.

  If that is done the right way with capital, then America can have a passenger railroad. I think without capital, America cannot have a passenger railroad. It can have small regional freight lines or--I am sorry, regional passenger lines, but it can't have a national rail passenger system.

  This is probably the most fundamental question facing the committee and this authorization. It is at the heart of what GAO raises as capital requirements. Is there a national passenger railroad for America and if so, where does the capital come from?

  I think the flexibility around the operating side can come elsewhere, from States, from local jurisdictions, from partners and other businesses that Amtrak develops. I do not believe that without some form of capital, that Amtrak can exist in the out-years as a viable entity, and I would urge careful consideration of that capital issue.
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  The one point that Ken alluded to, and then I will close my remarks, was the possibility of regional differences over Amtrak. I do not--I value the Northeast Corridor. There are nine States that are directly served by Amtrak service that I think we provide as much transportation value as any other mode of transportation in that corridor, but I also know that without the support of the other 41 States around the United States, that is not a viable commitment, that the country could make continuously to those nine States.

  I know that we provide a service in rural areas, small towns, 530 of them where no other service is available, and I hear it in Mississippi and North Dakota, Montana. I know there is an alliance there that makes sense, and my plea is to all of the regions to not get into a beggar thy neighbor environment where if only it wasn't being spent in the Northeast, it could be spent in the Midwest or the West. If it wasn't being spent in the West, it could be spent in the North Central. That division in our weakened environment would spell failure.

  Madam Chairwoman, that concludes my remarks.

  Ms. MOLINARI. Thank you very much, Mr. Downs.

  We have about 8 minutes left before we have to go for a vote. So if we can beg your indulgence for a few more minutes, I know that Members of our subcommittee do have questions for you. We will run over and reconvene within the next 10 minutes.

  Mr. DOWNS. Thank you.

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  Ms. MOLINARI. Thank you.


  Ms. MOLINARI. Thank you. We will come back to order.

  And when we last left you, Mr. Downs, you were concluding with your opening statement. Do you have anything else to add before we go to questions?

  Mr. DOWNS. No. It is just a pleasure to be here.

  Ms. MOLINARI. It is a pleasure to have you here, Mr. Downs.

  Mr. Shuster.

  Mr. SHUSTER. Thank you very much.

  We certainly appreciate your testimony today. I think in this sea of doubt about Amtrak, there are at least two beacons of hope that I see. One is Tom Downs. We have a great respect for you and for the management team that you have put together and I think if anybody can help streamline and save Amtrak, it is you and your management team and I salute you for the outstanding job you are doing.

  The second beacon of hope, I think, is the feeling by most of the Members on this committee that we don't want to destroy Amtrak, we want to save Amtrak. And I recognize that means there might be some very painful decisions that we are going to have to make, but they will be made in an attempt to save Amtrak and not to eliminate it, as so many in this Congress seem to want to do.
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  One of the things that concerns me greatly is the estimate of a $4 billion one-time capital cost to bring Amtrak up to snuff. And I think you are going to have to see elephants flying before this Congress is going to approve another $4 billion on top of everything else that we are doing. In fact, it is going in the other direction, as you well know.

  One of the things that has intrigued me is this question I have been wrestling with these numbers of passengers per car per day and I realize that varies all over the lot in the northeast corridor to the far reaches of Montana and the Dakotas. Can you give me any--setting aside the northeast corridor, which I am sure has a tremendous load factor, can you comment on the rest of the system as it goes across the country, the load and the relationship of passengers per car per day.

  Mr. DOWNS. I would be pleased to, Mr. Chairman.

  First, on the $4 billion, I agree that it would come in an annual appropriations right after Dumbo appeared. I hope it is not an assumption that in stating a capital need, for instance, for the corridor, those were in some cases between 7- and 10-year revenue number estimates. Those are not a single $4 billion appropriation.

  Mr. SHUSTER. If I understand you, there is another one point--if you put the northeast corridor, which I think has got to be one of our top priorities, you have to add another $1.2 billion to the $4 billion.

  Mr. DOWNS. No. Those are state of good repair numbers. For instance, the depreciation--the depreciation account on the corridor, we call that--there was about $3.8 billion of Federal capital spent on improving the corridor between Washington and New York. That turns into a depreciation account. That work has to be replaced, ties and rails. So the depreciation account on the corridor runs about $200 million a year and we try and spend that, but we have not come as close as we would like.
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  But that is over 10 years; that is $2 billion of the amount that we are talking about. Once the high speed rail investment is put in place north of New York, it takes a capital investment to keep that plant up to a state of good repair as an interstate would. And that is the--that is the cost, for instance, on the corridor is that amount over almost a decade in some cases.

  So it is not $4 billion now. That is an accurate statement of capital needs over a much longer period of time on rail passenger car revenue because we run so many different kinds of services, for instance, the Keystone Service on the Harrisburg line is, in effect, a commuter line and it has relatively high car usage per car--I mean passenger usage per car.

  But it has relatively low fares per ride and that means that you get a lot of passenger turnover at low fares. On long distance trains, for instance, a sleeping car may have, say, 12 people total onboard but they may be paying $600 a head per day for the use of that car for that day, so it is how much revenue per car that really counts.

  A bus--nobody is going the pay $600 a day for a day's ride on a bus. We provide a different kind of service and I think our best measure to be held accountable for is cost per seat mile, revenue per seat mile. How I measure my business units now is a couple of key performance indicators. One of them is how much it costs them to produce one seat mile and how much that train seat mile produces in revenue. The difference is either the subsidy or profit, the best way to measure both long distance and short rail service.

  Mr. SHUSTER. I see my time has expired, so I will wait for the next round.
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  Thank you.

  Ms. MOLINARI. Mr. Clement.

  Mr. CLEMENT. Thank you, Madam Chairwoman.

  It is a pleasure having you here and several of us have been working for a long time to get the railroads where they ought to be in the Transportation and Infrastructure Committee, Mr. Downs. You mention in your testimony about the Federal transportation trust funds that are available to the States. Is it your understanding they could utilize those funds to subsidize Amtrak now?

  Mr. DOWNS. They cannot. Because of the jurisdiction splits, particularly in this House when Energy and Commerce had Amtrak and there were legislative proposals in the drafting of ISTEA to allow States more flexibility about Amtrak funding because of the committee jurisdiction issues, there was no agreement reached about that, although I think there was general agreement that it made sense. The committees themselves could not reach it so it is not possible for a state to spend its apportioned transportation funds on Amtrak.

  Mr. CLEMENT. So we would have to get statutory authority--in order for the States, governors, to have more flexibility.

  Mr. DOWNS. Yes, sir.

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  Mr. CLEMENT. Mr. Downs, in your testimony, you list a number of legislative actions that could be taken to improve Amtrak's long-term financial prospects. Have you developed any estimates of how much these actions would reduce Amtrak's cost or increase its revenues?

  Mr. DOWNS. We have some rough estimates. We are in the process of refining them and I would be glad to share them with the committee by as early as next week.

  Mr. CLEMENT. That would be very helpful, Madam Chairwoman. Mr. Downs, as I understand it, when Amtrak was created, the Secretary of Transportation designated a basic route network that Amtrak was directed to serve and that it is still directed to serve. Do you think the Secretary should revise this basic route network to make Amtrak more cost effective?

  Mr. DOWNS. In essence in the last--we also have a provision in the--in our authorizing legislation that if we declare a financial emergency, we can take any steps that are necessary to put the corporation in better financial shape. We did exercise that authority in this round. The service eliminations and the service truncations were taken by the board absent any other action by the Secretary of Transportation. In effect, the Congress did create for us a mechanism for doing that and I think this round proved that we are capable of doing that based on businesslike decisions.

  I do not hold any particular portion of the route system sacrosanct. I have said publicly that I believe the railroad has to go where people want it to go and they are willing to ride on it. If they are not willing to ride on it, it can't go there anymore.

  Mr. CLEMENT. Do you think authority to designate this route network should be delegated to Amtrak?
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  Mr. DOWNS. If it helped in clarifying what I perceive as a business requirement of the board to be able to make these decisions in a businesslike fashion, yes. I believe it is far more preferable for the Amtrak board to make decisions than to get an independent commission to make decisions about route closings. I believe you can get better accountability out of holding Amtrak itself to those decisions.

  Mr. CLEMENT. So you would be opposed to an independent commission designating this network.

  Mr. DOWNS. I think that the commission that Congress set up was the Amtrak Board and it needs to hold us accountable for making those decisions. If we can't explain our decisions, we ought to be called to account in a public forum like this.

  Mr. CLEMENT. I appreciate your comments a while ago, too, in your opening remarks concerning other parts of the country that you realize you have a heavy commitment to the northeast and southern California, but you also realize if Amtrak and railroad passenger service is going to continue, we must involve at least other parts of the country and at least give them exposure, even though we might not get regular, continuing daily service in order for railroad passenger service to continue on a regular continuing basis.

  Is that what you said?

  Mr. DOWNS. Absolutely. I believe this is America's passenger railroad and that it serves not just the dense northeast corridor, it serves rural America, as well. On this last round of service cuts we heard from communities that said that this was their economic life blood and they could not lose it, from Meridian, Mississippi to Great Whitefish, Montana, those places are not dense urban areas and in many cases they have lost essential air service. They have no inner city bus left.
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  And in parts of the north central portion of the country, like North Dakota, this is the only other means of transportation that they have. They are desperate to retain it and I think that is a need that we serve. The question was asked earlier are there dependent people, are there riders that are dependent on Amtrak? You bet you. There are small-town economies, elderly who can't drive, students, children, all of whom depend on some form of rail passenger service in America. That is our constituency, as well.

  Mr. CLEMENT. Even though those--even areas that have no railroad service at all where you could provide maybe on a--on some type of irregular basis, some type of railroad passenger service at least to make them aware of Amtrak and the utilization of Amtrak.

  Mr. DOWNS. I have had lots of conversations with members of the Georgia congressional delegation about that event that is happening in 1996, in Atlanta we are hosting the world. And everyone is desperate for another mode of transportation. They can't move everyone by air and they can't move everybody by highway and they want an expansion of rail passenger service. I want to be there for that. I think it is a place to show America's passenger railroad off. It is a chance to meet some regional needs. But we need some support to do it.

  Mr. CLEMENT. Thank you, Mr. Downs.

  Ms. MOLINARI. Vice chair of the committee, Mrs. Kelly.

  Mrs. KELLY. Thank you, Madam Chairwoman, Mr. Downs. I want you to know I am an Amtrak rider. I look forward to the 3 hours from Washington to New York, that wide seat and that calm, smooth ride and the quiet. It is really a treat for me to be able to ride Amtrak.
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  I also understand how the small towns need your services. I am a person who watched an American bald eagle catch a rabbit for its young from the train going from California to Chicago one day. I know that the rail--the rail tracks go places that roads and planes can't get us to and I would hesitate to do anything that would impede or impinge upon the quality of rail travel and availability of the scenic parts of the United States by rail. I am concerned, though, that this economy be able to--that our budget be able to support what I see as a very real need in terms of your capital needs to keep the ridership up and so forth.

  There is one part of the--obviously being from the northeast, the northeast corridor is a concern to me. And there is one other question I would like to ask you about that. I saw a recent news report that the Morrison Knutson contractor must be in serious financial trouble on that rail and I am concerned, I wonder if you would be willing to speak to that. Is that a true statement that I read in the press?

  Mr. DOWNS. Their board has notified us that they are having financial difficulties and that they are in negotiations with their banks about their lines of credit. There is a concern--we have a design-build contract for the electrification of the northeast corridor north of New Haven to Boston. It is Morrison Knutson Speed and Elektra--there are three major companies. They are each jointly and individually responsible for the completion of that design. The partners, I understand, are in conversation about making sure that this contract goes through to completion on the design. They have indicated that they will take whatever steps are necessary to avoid any kind of default on the design.

  We have an option about exercising a proceed to construction with them that would probably come to the fore in the early spring--I am sorry, Comstock Construction Company is the other--the third of the partners, Speed, Comstock and Morrison Knutson.
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  At this next threshold in the spring or summer, we will make a decision about the financial capabilities of this consortium to enter into phase two, the full construction of this. If they do not meet that financial viability test, we would bid that portion of this contract. It would set us back approximately 180 days on the construction side, we believe, but nothing in this financial difficulty of Morrison Knutson should slow this project down.

  Mrs. KELLY. Good. Thank you very much.

  Mr. DOWNS. My pleasure.

  Ms. MOLINARI. Thank you, Mrs. Kelly. Mr. Lipinski?

  Mr. LIPINSKI. Thank you, Madam Chairwoman.

  Mr. Downs, nice to see you this morning or this afternoon by now. Did I hear you correctly when you said that Amtrak gets the least amount of Federal subsidy of any railroad system in the world?

  Mr. DOWNS. Any national passenger railroad in the world.

  Mr. LIPINSKI. And yet--and you are so--you are running I think an efficient service, but the amount of subsidy you are getting is, as you say, the smallest of any passenger service in the entire world. Is there any way that you can really see Amtrak continuing to operate without additional resources coming in from the Federal Government?
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  Mr. DOWNS. I believe that we can realistically set a target of declining Federal operating assistance and I put that in two contexts, one is Federal. I think we have a responsibility for developing more aggressive partnerships with States. We only have right now out of our $2.4 billion budget about $33 million worth of State-supported service income. We have an ability I think to drive our costs down further through a variety of gains in productivity. But we also have an ability to grow revenue and that is one thing that the GAO report had--had pretty much had at a flat level with a growth only in inflation.

  Aside from those and the issue of--which I still think is a serious one, how the $150 million worth of excess railroad retirement is carried, if it is carried as a subsidy for Amtrak, I don't think we will ever get to the point where we can cover that cost. I think it is unfair to characterize capital investment in Amtrak as a subsidy.

  Our, quote, subsidy cost right now covers the cost of improving the northeast corridor between New York and Boston. A 1.2 or 1.3 billion capital project that is going to have long-term gains for the country, that is a capital investment. It is not a subsidy. That is a conscious choice we were making about developing high speed rail and improving transportation in the northeast.

  On our capital side, I do not believe we can be free from the national government. I think that there has to be a mechanism found that better treats capital investment in Amtrak, not operating subsidy but capital investment, as a legitimate national goal. I was reminded that a half a cent on the gas tax is about $600 million, 6 or $700 million. In a capital account, that could cover our long-term capital needs for the entire corporation for the entire country. So is it reachable? Is that reachable? It is possibly reachable but that depends on a consensus of everyone saying that that has enough value for the United States.
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  Mr. LIPINSKI. So you are saying that as far as operating costs, you think it is possible for you to squeeze enough to cover--would be very close to not having to have any additional Federal monies for operating eventually, but the capital side you feel you definitely need some additional revenue to take care of the capital side, correct?

  Mr. DOWNS. The reason our company is falling apart is a lack of capital, not a lack of willpower and ultimately it wasn't the lack of ridership. We didn't start to lose our ridership until our capital plan started to fall apart.

  Mr. LIPINSKI. You have also testified, too, that you believe that States would be willing to come forward with some revenue. It has been my experience, based upon highways, mass transit, that that is not the case at all. I was wondering, are there any States that you have spoken to, any governors, any legislative leaders in States that have stated to you that they would be willing to become involved in supporting Amtrak more extensively?

  Mr. DOWNS. California has already come to that conclusion. I think Wisconsin will soon come to that conclusion. We have had--I have had conversations of interest with the Governor of Michigan. The Governor of Massachusetts has made it clear about his state's need for rail passenger service.

  I have had a recent conversation with the Governor of Pennsylvania who indicates his interest in pursuing some kind of relationship with Amtrak about Pennsylvania service. They are doing this in the face of the fact that this is general fund money that they are talking about. Governor Thompson, I think when he talked about his State trust fund talked about having a trust fund of a billion dollars a year and the cost of fully restoring all Amtrak service on the highways was $5 million, not ''b'' but ''m''.
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  And in relative terms, that is easy to do. That is not easy to do, but it is easier to understand in a budget of that size. But what it means for a governor, if it is an unauthorized general fund expenditure is he has got to go to his State senate and then he has to go to his statehouse to get an authorization bill back-signed, then back to his State Senate Appropriations Committee and his State assembly for an appropriations bill and back and do it in a very quick order and that doesn't happen.

  My own experience is it is very hard to do that in the short term and that is where we have run into trouble with the States saying, wait a minute, Christmas is here. You say I can't use my Federal money, I have to use general fund money and I have only got 90 days to do it. I said, yes, I am sorry but I haven't got any money.

  Mr. LIPINSKI. You were saying they have a trust fund in Wisconsin?

  Mr. DOWNS. Every State has a transportation trust fund usually of some kind to--

  Mr. LIPINSKI. Do you know where the revenue comes from in that trust fund in Wisconsin?

  Mr. DOWNS. It comes from gas tax and Federal highway and I believe Federal transit funding. I just don't know their State trust fund. In New Jersey, when I was there, the State had all of its transportation funds go into a single State transportation trust fund which could issue its own bonds, receive gasoline tax revenues, Federal highway funds and Federal transit funds.

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  Mr. LIPINSKI. In New Jersey which you are familiar with, was there any money going into that trust fund out of railroads?

  Mr. DOWNS. I am sorry, sir?

  Mr. LIPINSKI. Was there any money going into the trust fund in New Jersey from railroads?

  Mr. DOWNS. We ran the--I was chairman of the board of New Jersey Transit Corporation and we spent about $550 million a year on capital.

  Mr. LIPINSKI. I am saying, though, was there any revenue that went into the trust funds that came from railroads?

  Mr. DOWNS. No. We had no--no, none.

  Mr. LIPINSKI. So it was being then supported by the Federal funds that you got in and also through any local gas taxes you might have had?

  Mr. DOWNS. Yes.

  Mr. LIPINSKI. Don't you think that creates a problem, though, of trying to do something like this when you were taking money out of the trust fund that is set up to take care of highways and bridges and things of that nature, then you start taking money out of it for railroads, such as the administration is now proposing to do?
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  Mr. DOWNS. It probably does, but I don't know any other arena to be in. If everyone is saying live on less, make business decisions, limit the Federal exposure, we have to either provide an option for the States to do this with some degree of flexibility or we simply see it go away. I can't continue to produce services that aren't of enough quality for passengers to buy tickets and our revenues are not sufficient.

  And if there are no other partners there about that operating subsidy, if the Federal Government isn't there, the State isn't there and the customers aren't there, that service has to go away. Maybe that is the--that is the marketplace that this decision has to be made in. I don't like it. I didn't come to Amtrak to dismantle it. But in these days, I don't know very many other options about paying for that service.

  Mr. LIPINSKI. Well, it seems to me that the option that has been proposed by the administration is an option that really never is going to fly on Capitol Hill and I think we are going to have to--if we are going to keep Amtrak and we are going to make it as vast as possible, as efficient as possible, as clean as possible, we are going to have to find some other revenue source to do so and not the Highway Trust Fund because I just don't see where there is any possibility of getting support for that up here.

  But my time is up. I thank you very much.

  Ms. MOLINARI. Thank you. Let me just join with everyone who has proceeded me in thanking you very much for your patience here today and your patience outside of Amtrak and also to you and Mr. Gillespie in testimonies of the generosity of the time that you have given this subcommittee since we have assumed jurisdiction of railroads and we do thank you a lot. This is a learning experience for all of us.
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  I suppose we still go back to the fundamental bottom line question, which is if we are to pursue increased funding with our colleagues or less of a decrease than some of our colleagues anticipate, we have got the come up with a reauthorization that shows them how over the next few years Amtrak becomes a much more vitally--vital organization.

  I know in page I think it is 77 or 79 of the GAO report there is a list of Amtrak recommendations, including some statutory changes in terms of contracting out, labor, et cetera. Taking all those into account, if Congress were able to do all those things, if Congress were able to help compensate for the capital expenditures, are you here saying that you think that then there would be no need to eliminate any additional routes in the country?

  Mr. DOWNS. No. I think routes change over time. People's travel patterns change, revenues change. This ought to be a constant adjustment process. It can't be a static route.

  If the highway system doesn't look like it did in the 1950s and neither does aviation, we can't say that route adjustments would stop, whether it is frequency of service or truncations. What we can say is we will go where the market is. If the market isn't there and nobody wants to support that market, we need to be out of there.

  Ms. MOLINARI. Let me get back to you and maybe this is just a direct result of statutory change, but it seems to me we waited until Amtrak had to declare a financial emergency in order to make some rather radical restructuring changes, which causes concern.

  Now, did you declare the financial emergency because--did you have to wait till a financial emergency was precipitated because statutorily that is the only way you changed it, and if the answer to that is no, what do we say to our colleagues and the American taxpayer that Amtrak will not wait till there is another financial emergency until you revisit the routes as you just suggested?
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  Mr. DOWNS. First our commitment is both to the administration and the Congress over the next 5 years to get as close to zero on operating subsidy. We have been as high as $700 million in operating subsidy and we are targetting $150 million a year at the end of this process for operating subsidy. That has got to be driven by cost efficiencies and better marketing, better revenue development. But that is our bottom line commitment is to reduce significantly over the next 4 to 5 years the operating subsidy requirements of Amtrak.

  Can we get there without capital? No. I can't commit to you that we could make those kinds of significant improvements without some significant degree of capital and our accountants say that our real current costs for depreciation, for a fully depreciated, worn-out equipment is probably about $230 million a year worth of cash cost. That is what our depleted capital plant is worth, about $230 million a year worth of cost real time. We can get out of a big chunk of that with better capitalization.

  You have our commitment that you will never see us procrastinate about making a business decision about service eliminations or route eliminations. You have got my commitment. You have got the Board's commitment that there is no time to procrastinate about service adjustments or route eliminations.

  The reason we took the emergency route was it allowed us to do this and avoid major public hearings and a variety of forums. We simply had to do it to make this work from a time standpoint this fiscal year. We have the authority to do it on a longer schedule during the course of a fiscal year, state our intentions, hold the hearings, make the decisions about route service elimination.
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  Sometimes I think that the railroad has tended to hide behind the Congress or the administration as a reason or a rationale for not making tough business decisions. That is not our job. Our job is to make the decisions as fast as we can, minimize the Federal subsidy, get us out of that kind of cycle about whatever it is you just pay for it, you, the Congress, pay for it. We can't be there anymore. We have to make those decisions and be accountable to you about how we make those decisions on a revenue and a cost basis.

  Ms. MOLINARI. I except all that and perhaps it is because I lack the history with Amtrak. But it seems to me you just made a very difficult decision in your recent scaling back and elimination plan, yet I guess my concern is if you say no to the GAO recommendation of going through a procedure or you say no to outside consultants coming in to study the overall route structure of Amtrak today, that as the board of directors, you see that as your job and I don't disagree with that. What guarantee do I have that we don't have to wait till there is another radical restructuring that takes place in Amtrak?

  Mr. DOWNS. The answer is you set the targets in the operating subsidy levels on the authorization bill. That is the bottom line. If a business is supposed to set in its business plan revenue targets, what you are in effect doing in that process of agreeing to authorization levels for operating subsidy that are lower, you set the--you set the hurdle for us about how much we are authorized to draw. That is the financial--that is the ultimate financial performance.

  Ms. MOLINARI. But shouldn't for the service that you have just described in the last hour-and-a-half, shouldn't it be the other way around? We are setting targets based on economics and you are suggesting that it is your job to provide service. Shouldn't our economic decisions be driven by your calculations of what routes are workable and what routes are not rather than you determining what routes are workable or not because of our economic forecasting?
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  Mr. DOWNS. I believe that those decisions need to be made at the local and the regional level rather than us deciding them here. I have become a bit disenchanted about the ability--

  Ms. MOLINARI. You mean, if the municipalities want to contribute to the inner cities or the States want to.

  Mr. DOWNS. They can make those decisions. I have heard that from State after State, we want this service. And they are fearful about some commission saying without any resources given to the States about being able to make those decisions themselves. They are fearful about somebody saying well, obviously Montana doesn't need that for economic development and that whole region's rail service disappeared. There has got to be a better mechanism that involves those States and those regions and their own destiny and their future. It is their service, as well.

  That is why I say we have got to do everything we can to drive costs down, increase the quality. Ultimately, if you give them some degree of flexibility about making those decisions themselves and they choose not to, then they have made that choice themselves, for their citizens, about their State's economy, the regions, their cities' access to rail passenger service. I believe that they will make the right decisions and sometimes it will be that the service dies and other times it will be that it grows.

  But at least it is being made there. Our job, I hope, is to guarantee it is a quality service, lowest possible price. If they want to buy it, it is there. And if not, it will go away.

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  We can't do that, though, and expect them to fund the full capital load of that. It is like trying to develop an aviation system without airport grants or a highway system without some degree of Federal participation in that process. I think this mode of transportation on Amtrak needs some Federal capital support.

  There is additional money coming back into the trust fund with the return of the 2.5 cents. Some allocation decisions will have to be made about that. I don't think that is impossible and I think there is a growing consensus about some capital funding for Amtrak. I want to avoid, though, what happened to us in the 1980s.

  We were told to get smart and get cheap and drive down the cost of the service. At the same time, our capital budget was driven to the floor. In 1986, Amtrak's entire capital budget was $18 million. That is $18 million worth of capital budget. Somebody said what did you do with it? I said I think we fixed broken windows. That decapitalization drove our costs straight up and our customers away. It has to be linked on some degree of capital authorization.

  Ms. MOLINARI. I appreciate that.

  Let me ask one final question relative towards getting the States to belly up on this. Are you--have you thought about should that be the percentage share? Should that be a discussion that takes place between Amtrak and the States or should it be a State—Federal matching grant or should that be a combination?

  Mr. DOWNS. I think if they had some broad choices to make and we are talking minimum amounts of money here that most of the States would be willing to make those choices without a lot of special block grant around this issue. I know that there is a concern about where this belongs in the accounts within the trust fund and I understand the reservation about the difficulties of putting it in the highway account. There is a transit account.
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  We have been kept from that account by the problems with committee jurisdiction since our very beginning. I think if you let States make some choices like that, they would feel more comfortable about controlling their own destiny, making those choices.

  Ms. MOLINARI. Mr. Shuster.

  Mr. SHUSTER. Thank you.

  Mr. Downs, you talked about Amtrak being the most efficient passenger rail service in the world.

  How do you measure that?

  Mr. DOWNS. It is one of two ways. One is cost per--government subsidy per citizen. The other is the return on the--the return on the investment. We return more in taxes than we pay--than we are paid.

  Mr. SHUSTER. Explain that, will you? I understand the first one, but the second one I need to understand.

  Mr. DOWNS. We take in a loss of passenger revenue. We create economic activity.

  Mr. SHUSTER. $1.4 billion a year.

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  Mr. DOWNS. In terms of passenger revenue, ticket revenue. That turns into paychecks. Those individuals then pay State and Federal income tax back into the system. So our system generates net economic--net economic add rather than net economic loss. Some systems on passenger rail make huge investments in their rail systems like the French are at $6 billion a year, which is like $300 per capita for their citizens. But that means they value that in a different way. The revenues back to the government don't come close.

  Mr. SHUSTER. You are saying in effect the $1 billion a year in Federal subsidy, and some of that I realize is capital, some of it goes into retirement. But the $974 million a year that the taxpayers pay generates back to the Treasury more than $974 million a year?

  Mr. DOWNS. No. It deals with our operating subsidy only, not our capital.

  Mr. SHUSTER. Okay. But your operating subsidy, which is what, $400 million or something?

  Mr. DOWNS. $392 million right now.

  Mr. SHUSTER. $392, generates back to the Treasury more than $392 million a year.

  Mr. GILLESPIE. Yes, that with the amount our vendors and their employees, between a quarter and a half-a-billion dollars a year in goods and services. It is the taxes Amtrak employees pay as well as our vendors.

  Mr. SHUSTER. You mentioned Meridian, Mississippi as an example. Would you happen to have the number as to how many passengers there are in Meridian, Mississippi each day?
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  Mr. DOWNS. No, I do not. But I do know that from the Mayor that they valued this service enough that they spent $3 million of city money on building a new rail passenger terminal.

  Mr. SHUSTER. Can you get me that number, daily from Meridian, Mississippi?

  Thank you very much.

  Ms. MOLINARI. Thank you. If there are no other questions from the panel, I want to thank the gentlemen for spending the day with us. As I stated, come Friday we will be having our Members testify. While clearly your schedule should preclude you from attending, we would certainly welcome other representatives of Amtrak to sit in on those hearings.

  And we will provide you the full documentation of that hearing record on Friday. And I thank you very much. We look forward to working with you to do all we can to increase the future prospects of Amtrak as a nationwide rail service.

  Thank you very much for all that you have done, the sacrifices that you have made and your cooperation.

  Mr. DOWNS. Thank you, Madam Chairwoman.

  Ms. MOLINARI. I am sorry?

  Mr. DOWNS. Your picture is in the mail.
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  Ms. MOLINARI. Thank you.

  Before I close out the hearing record, I would like to state we recently requested data from the Railroad Retirement Board of the projected effects of the Amtrak cutbacks on railroad retirement and unemployment systems. Without objection, I am going to ask the board's data and the hearing data and information be included in the hearing record.

  [The information received follows:]

  [Insert here.]

  Ms. MOLINARI. Without objection, this hearing is over.

  [Whereupon, at 1:25 p.m., the subcommittee was adjourned.]

  [Insert here.]

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