[Senate Hearing 106-1101]
[From the U.S. Government Publishing Office]
S. Hrg. 106-1101
OVERSIGHT HEARING ON AMTRAK
=======================================================================
HEARING
before the
SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
FEBRUARY 23, 2000
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington JOHN D. ROCKEFELLER IV, West
TRENT LOTT, Mississippi Virginia
KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan RON WYDEN, Oregon
SAM BROWNBACK, Kansas MAX CLELAND, Georgia
Mark Buse, Republican Staff Director
Martha P. Allbright, Republican General Counsel
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
------
SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE
KAY BAILEY HUTCHISON, Texas, Chairman
TED STEVENS, Alaska DANIEL K. INOUYE, Hawaii
CONRAD BURNS, Montana JOHN B. BREAUX, Louisiana
OLYMPIA J. SNOWE, Maine BYRON L. DORGAN, North Dakota
BILL FRIST, Tennessee RICHARD H. BRYAN, Nevada
SPENCER ABRAHAM, Michigan RON WYDEN, Oregon
JOHN ASHCROFT, Missouri MAX CLELAND, Georgia
SAM BROWNBACK, Kansas
C O N T E N T S
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Page
Hearing held on February 23, 2000................................ 1
Statement of Senator Cleland..................................... 6
Prepared statement........................................... 8
Statement of Senator Hutchison................................... 1
Statement of Senator Kerry....................................... 3
Statement of Senator Wyden....................................... 51
Witnesses
Carmichael, Gilbert E., Chairman, Amtrak Reform Council.......... 16
Prepared statement........................................... 20
Mead, Kenneth M., Inspector General, U.S. Department of
Transportation................................................. 28
Prepared statement........................................... 31
Millar, William, President, American Public Transportation
Association.................................................... 38
Prepared statement........................................... 40
Ross, Dr. Catherine, Executive Director, Georgia Regional
Transportation Authority....................................... 42
Prepared statement........................................... 43
Thompson, Tommy, Governor of Wisconsin, Chairman of the Amtrak
Reform Board................................................... 9
Prepared statement........................................... 13
Warrington, George, President, National Railroad Passenger
Corporation.................................................... 9
Appendix
Inouye, Daniel K., U.S. Senator from Hawaii, prepared statement.. 61
Snowe, Olympia J., U.S. Senator from Maine, prepared statement... 61
Response to written questions submitted by Hon. Max Cleland:
Gilbert E. Carmichael........................................ 62
Amtrak....................................................... 68
Response to written questions submitted by Hon. John McCain:
Amtrak....................................................... 71
OVERSIGHT HEARING ON AMTRAK
----------
WEDNESDAY, FEBRUARY 23, 2000
U.S. Senate,
Subcommittee on Surface Transportation and Merchant Marine,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room SR-253, Russell Senate Office Building, Hon. Kay Bailey
Hutchison, chairman of the subcommittee, presiding.
Staff members assigned to this hearing: Ann Begeman and
Charlotte Casey, Republican professional staff; Carl Bentzel,
Democratic counsel; and Debbie Hersman, Democratic professional
staff.
OPENING STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. I am going to call the meeting to order.
We meet today on a very important purpose, to review the
progress of Amtrak in meeting its goal of operational self-
sufficiency by the end of 2002. This is the first hearing we
have had on Amtrak's progress since passage of the Amtrak
reform legislation in 1997 and since the first report of the
Amtrak Reform Council, which was released on January 24 of this
year.
Railroads have played a major part in the history of
America, the vital link between the East and the West.
Railroads are part of our past and I hope will be part of our
future. In that regard, I believe Amtrak can and should be a
vital part of our integrated transportation system in the
future.
Amtrak serves 45 States. It operates over 22,000 route
miles. In 1998 it served 21 million passengers. And if you
include Amtrak's contract commuter services, it serves an
additional 54 million passengers.
I am pleased to find that Amtrak is meeting its financial
goals. In fact, they have exceeded their own business goals. In
fiscal year 1999, Amtrak revenues reached a record $1.8
billion, a 7 percent increase over the previous year. In the
first quarter of this year 2000, revenue increased 8 percent.
One note of personal pride in these results is the
performance of the Texas Eagle. A few years ago, I worked with
Amtrak and our State legislature to save this route from
extinction. Ridership increased on this route 17 percent in the
last quarter.
I think this is a tribute to Amtrak's renewal, essentially
a shift in attitude from that of a government agency to a
quasi-business entity. It is also a testimony to Amtrak's
improved working relationships with States and localities.
This shift in attitude is also reflected in the private
sector's view of Amtrak. Moody's has recently announced that it
is upgrading the bond rating for Amtrak, based partly on the
notion that Amtrak will indeed be operationally self-sufficient
by 2003. Clearly, this is good news. But there are still
concerns about Amtrak's path to self-sufficiency.
The GAO has raised concerns about Amtrak's glidepath to end
Federal subsidies. They have reported that Amtrak needs to
increase its progress by fivefold in order to meet the goal of
no longer needing Federal operating funds.
A key component of this success is mail and express package
contracts, which I hope you are going to address, Governor
Thompson, in your testimony.
Concerns have also been raised by the Amtrak Reform Council
about the accounting methods that Amtrak is using. First let me
say that I appreciate what the reform council is doing. I met
with you, of course, when you were meeting in Dallas. I believe
you are a good reality check for Amtrak.
In order for Amtrak to succeed, we cannot delude ourselves
with purely rosy scenarios. We must have critical analysis of
Amtrak's performance.
ARC contends, for example, that while revenue is up,
Amtrak's core business of intercity passenger rail performed
marginally worse in 1999. Further, ARC raised questions about
ridership. It suggests that despite a sustained economic
expansion in this decade, Amtrak is serving approximately the
same number of customers today as it was in 1990.
The Amtrak Reform Council has also suggested that Amtrak is
wearing many hats, perhaps too many hats. It is everything from
a passenger rail company to a real estate company to an
equipment and manufacturing company. These are good questions
that need to be answered, if Amtrak is truly to succeed.
Second, I want to address the accounting issue raised by
the ARC report. I want to be clear. I do not think that
Congress, in writing the Amtrak Reform Bill, envisioned that
Amtrak, our national railroad, should be treated differently
than other public transit agencies.
I believe Congress intended that Amtrak would continue to
receive capital funds from the Federal Government. And I
believe that covering the cost of depreciated assets should be
part of capital funds, despite the Amtrak Reform Council's view
that this is in conflict with generally accepted accounting
principles.
I think the same can be said of progressive overhauls.
Congress has explicitly allowed progressive overhauls to be
part of capital funds since 1993. The committee report, Report
105-85, accompanying the reform legislation of 1997 states that
the bill directs Amtrak to eliminate its need for Federal
operating support by the end of the 5-year authorization.
Further, we have the statement of Congressman Chip
Pickering of Mississippi. Speaking as a former staff member of
this subcommittee, he states, ``At no time during the
legislative history was Amtrak ever asked to present its
operating needs in the manner defined in the ARC report.''
Let us look at the practices that have been in effect
before and after the bill. Since 1993, Amtrak has had explicit
authority from the Congress to use capital funds for
progressive overhauls. For 28 years, Amtrak has recorded the
full value of depreciation as an operating expense, but this is
a non-cash expense and is not funded as part of operating
subsidies.
I think the intent of Congress is absolutely clear. And
past practices and appropriations bills have been clear on this
subject.
I am also told that Houston Metro, the rapid transit
authority there, uses capital formula grants to make
progressive repairs to its buses, such as engine replacements.
They do this with the explicit approval of the Federal Transit
Administration.
Further, I am told that 3 years ago, the Federal Transit
Administration even broadened its rules to allow capital funds
to be used to upgrade transit facilities. As for depreciation,
Houston Metro uses its capital formula grants to purchase
replacement assets for assets that have been depreciated.
I do not think we need this issue to be a distraction. I
hope to clarify that operational self-sufficiency under the
1997 reform bill is just that, self-sufficiency for operating
funds. But traditional capital funding will continue, and it
will contain the components of depreciation and progressive
overhauls. I do not think Amtrak should be held to a different
standard than other transit service in America.
Let me conclude by saying that I hope all the parties at
the witness table will continue to work together to make Amtrak
succeed. My definition of success for Amtrak is that it is a
national railroad that will provide opportunities for States
and compacts and rapid transit agencies at a local level to all
come in and feed off that national system.
An eastern corridor system is not a national system. A
western corridor system is not a national system. It must be
truly national for it to have the support of the Federal
taxpayers. I believe that it will continue to benefit all
Americans.
For rural areas, rail service, when combined with buses, is
a vital link to the rest of the United States. For heavily
congested urban corridors, rail service is clearly an answer to
relieve the gridlock.
So I want to thank every one of you who are here today. All
of you are key to the success of Amtrak. And I look forward to
hearing your testimony.
And with that, I would like to call on my colleague,
Senator Kerry from Massachusetts, if you would like to have an
opening statement.
STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Thank you very much, Madame Chairwoman. I
would like to make a few comments at the outset. First of all,
I appreciate your holding this hearing. And I appreciate your
leadership on this.
And I thank all of the members of the panel for coming here
to share their thoughts and observations with us today.
This is an incredibly important subject for us. It is one
that is really under-focused on and under-invested in, in my
judgment, under-discussed in the context of the needs of our
country.
One of the privileges of membership in the U.S. Senate,
depending on which committee you are on, is to be able to see
some parts of the world in the context of our responsibilities.
And when you see Japan or France or Germany, Switzerland, other
transportation systems, Great Britain, they put the world's
technological economic leader to shame.
It is astonishing to me that some people in our country are
still fighting the concept of this kind of transit being viable
and important to our nation. It is just stunning to me. And it
is even more frustrating and confusing when you measure what is
happening on the roads all across America.
We are wasting more productivity hours, billions of dollars
lost to people sitting in traffic jams, not to mention the fuel
cost to a nation at a time when fuel is once again becoming a
concern to our country, as it will, I say, increasingly over
the next years, not to mention that exits on most highways in
most parts of the country where we have seen technological
revolution, whether it is Houston, Los Angeles, New York or
Boston or Florida, many other places, you cannot move, folks.
You cannot get from here to there.
And it is awfully hard to move products from here to there.
We could be doing a much, much better job of planning and
thinking about our overall national transportation needs and
grid. And it is absolutely without question that whether we are
smart to invest in it now or forced to do it in the future at a
greater expense and with much greater difficulty, because of
the problems of lack of rights of way and the difficulties of
``not in my backyard'' and all other things that we will then
fight, we will face this question broadside in this country at
some point in time.
Far be it better that we were smarter to do it now, when we
still have that capacity, than do it later.
And it is such a simple question, Madame Chairwoman, of
supply and demand and of marketing.
When people get on an airplane--now there is great hassle
between airlines. How much leg room do you get, how quickly do
you get there, how long does it take to get to the airport, how
much time are you wasting with delays, how much time is there
locked in at the gate and the ground holds, as we try to get
our system up to par.
Well, with the Acela Express now coming on line, though not
as fast as we would like for reasons of equipment, but in terms
of the electrification, we have a ride that is under 4 hours
from New York to Boston. And it has been our dream for years to
press that down to 3 hours.
I guarantee you, when you get it down to 3 hours, you are
going to see a lot less people trudging out to LaGuardia or to
New York, to Logan, fighting the big dig and the other stresses
of getting there. And they are going to jump right from mid-
downtown city to mid-downtown city and do it in less time and
probably in greater comfort, with cellular capacity, with all
of the amenities in terms of the modern communications and data
transmission, as well as food and so forth.
Now all of this leads me to want to underscore that if we
do not invest sufficiently, if we do not make those rides worth
riding, if we do not fulfill the promise in terms of the
quality of service, we can have a self-fulfilling prophecy
here. We can kill the railroad.
And those who say we do not really want or for some reason
are not committed to it, we will reap the benefits of their
dooms day prophecies because it will become inevitable.
On the other hand, we could decide that we want to be
better than Japan or Germany or France or any other country and
have a rail system that is second to nobody. That takes capital
investment. No rail system operates without some kind of
subsidy. Not one railroad on the planet operates without
subsidy. And yet we are somehow adopting the principle without
economic value that suggests that that is going to happen.
Now we all voted for it, because that was the only way to
get some money into the system and make it happen. But let me
just stress a couple of things, and I will be very quick.
When Congress passed the Amtrak Reform and Accountability
Act, we did not require--and I want to confirm what the
Chairwoman has said, that we did not require Amtrak to adhere
to the generally accepted accounting principles for the
measurement of operational self-sufficiency. We did not intend
to. We did not try to. And that was not the effect of what we
passed.
And I know I speak with some authority on this, as does the
Chairwoman, because we were both deeply involved in the
drafting and negotiating in 1995, 1996, and 1997. I opposed
then, and I oppose now, as I have just said, the fundamental
principle that underlies this, that you are going to have a
first-rate railroad in this country with the kind of rail bed
and rolling stock investment that we need, without some kind of
assistance.
But that aside, it is wrong to hold Amtrak to a higher
standard than any other passenger railroad in the world. And I
do not agree, as a matter of policy, that Amtrak should be
required now, after we reached a compromise, that we are now,
in the absence of the legislative funding that we have said we
were going to provide, going to change the rules in midstream.
For some reason, the Amtrak Reform Council wants to change
the rules in a way that are adverse to the capacity of Amtrak
to meet the very standards we aspire to meet. And that is not
what I had in mind in 1997. It is not what I think the
Chairwoman had in mind. It is not what the Congress had in
mind. It is not supported by the legislative intent. And yet,
that is what is sought here.
The fact is that never in the past has Amtrak proposed to
change the funding of progressive overhauls or to begin to
recover non-cash expenditures, such as depreciation, from
operating revenues.
Amtrak has presented its business plans to us. It has
always included progressive overhauls as a capital need. And
likewise, the non-cash item of depreciation was absent in those
presentations.
Never has Congress or the ARC responded by telling Amtrak
its assumptions were wrong. And no one has ever told Amtrak
until now that the rules were changing.
Congress was well aware of Amtrak's plans and intended to
hold Amtrak to them, that Amtrak must achieve operational self-
sufficiency. But it is simply wrong to change what we intended
now 26 months later in a way that somehow makes the capacity to
achieve that operational self-sufficiency impossible.
I am also concerned that Congress fails to live up to its
commitment, which is critical to the capacity of Amtrak to even
pretend to come close to meeting its goal.
Specifically, in 1997 we authorized $5.1 billion in capital
for Amtrak. So far, we have only appropriated half that amount.
And when you do not appropriate the amount of money to a
business that it needs in business terms to take the best
advantage of pricing, contracting, long-term planning, then you
make it much tougher for any business to operate.
So in light of our failure to live up to our part of the
bargain, I am frankly astonished that Amtrak has done as well
as it has done. I look forward to the completion of the effort
in the Northeast Corridor.
But I could not agree more strongly with the Chairwoman.
The Northeast Corridor does not make a national railroad. We
have significant other obligations on a national basis, which
will hugely benefit the long-term interests of our nation. And
it is long since time that we got about the business of
delivering our part of that bargain.
Thank you very much, Madame Chairwoman.
Senator Hutchison. Thank you, Senator Kerry. I appreciate
very much your remarks. I agree with you.
I just want to clarify one point. And that is, all of these
transit agencies that do progressive overhauls as capital
expenditures use GAAP financing--I mean, GAAP standards. The
generally accepted accounting principles are used in all of
their reporting.
But it has become well settled in our laws, in our
appropriations processes, in our transit administrations, that
you can use GAAP principles and still have progressive
overhauls as a capital expenditure.
So I think it is very important that we settle this once
and
for all with our testimony and our discussion, because I do not
think there needs to be any change to the law for this to be
absolutely within Congressional intent and within the law that
we have written.
So having said that, I would like to ask Senator Cleland if
he had an opening statement.
STATEMENT OF HON. MAX CLELAND,
U.S. SENATOR FROM GEORGIA
Senator Cleland. Thank you very much, Madame Chairman.
Let me just say this is a pretty special day for me. I just
want to congratulate our chairman, John McCain, on a wonderful
showing in Arizona and Michigan. I am proud of him as our
chairman. I am proud of him as a member of the Senate. I am
proud of him especially as a fellow Vietnam veteran.
Senator Kerry. Is this another Democrat for McCain?
[Laughter.]
Senator Cleland. For the McCain majority here.
Let me just say it is wonderful to welcome all of our
members of our panel today, but especially Catherine Ross, Dr.
Catherine Ross, who has taken over a marvelous position and an
incredibly fine operation in Georgia, one that I think will be
a pioneer effort in helping us in this country find our way out
of the morass of urban sprawl and into the light of day of a
balanced transportation system in America.
Just skipping ahead a little bit, excerpting from your
testimony, Dr. Ross, you mention that ``I am proud to tell you
today that in-state passenger rail is getting back on rail in
Georgia, and we expect to provide Georgia's intercity commuters
a real choice in rail by 2003, about 30 years since the famed
train, the `Nancy Hanks,' linking Atlanta and Macon to
Savannah, was decommissioned.''
You say, ``For too long, Atlanta literally buried its
passenger railroads by building its downtown automobile
viaducts and highways on top of its famous rail yards and
relying solely on the automobile for surface transportation.
Atlanta is still Terminus, its original namesake, only for
passenger air travel. But we can no longer keep up with surging
growth in Georgia by adding more concrete ribbons to our
landscape. Our people want transportation choices that are
convenient, reliable, affordable and that protect our quality
of life. Soon, Atlanta and greater Georgia will be known for
their 21st Century rail network. Following the creation of the
Georgia Regional Transportation Authority last year, Georgia
took a new look at its transportation needs for the 21st
Century and saw a number of factors that could point toward a
passenger rail revival.''
I think that is what we are beginning to experience here in
this country, and none too soon. I think we are beginning to
see a renaissance of rail in this nation. The famed Iron Horse
of the 21st Century can be a key to resolving two of our most
challenging problems in the 21st Century: urban sprawl and
gridlock.
For too many of our citizens, congestion is becoming a
daily battle, not only on our highways but in our skies. In my
own backyard, Atlanta has the very worst traffic congestion of
any southern city. And commuters there drive an average of 34
miles a day, the longest commute in America.
And Atlanta's Hartsfield Airport, now the busiest airport
in the world, is experiencing crippling delays. In fact, FAA
data indicate that Hartsfield's passengers collectively
experienced over 6.4 million minutes of delay between January
and November of last year. 1.2 million of those minutes were
mine. It seems that way.
[Laughter.]
Senator Cleland. That computes to an astounding well over
4,000 days in lost time wandering around the Atlanta Airport.
As congestion and tempers continue to build, passenger rail
more and more becomes a cost-effective option for
transportation planners across the country. And after all,
other nations more densely populated than ours have already
recognized the potential of high-speed rail.
Taiwan, for example, plans to invest $13 billion in high-
speed rail work. France has announced plans to invest $20
billion in its high-speed network. Japan and Germany have also
made investments in high-speed rail a national priority.
Here in the United States, various States have taken the
lead in promoting high-speed rail development, something I am
sure Dr. Catherine Ross, Executive Director of the Georgia
Regional Transportation Authority, will soon inform us of.
But I would just like to emphasize that the unfairness of
the Federal Government holding States to high environmental
standards on the one hand and then blocking those same States
from spending Federal transportation funds on Amtrak, which
would enable them to meet those high standards, I think is
unfair.
I am co-sponsor with Senator Lautenberg of legislation to
allow Amtrak to expand its bonding capacity by some $10 billion
so you can expand the network of fast trains and our latest
technology we use in this country to the Midwest and to the
South, particularly into my home State of Georgia.
That is why I am such a strong supporter of this kind of
legislation, S. 1144, which gives States the flexibility to
spend Federal transportation funds on passenger rail, if they
decide it is in their best interest to do so.
I would note that in addition to 35 Senate co-sponsors, the
National Governors Association, the National League of Cities,
the Council of State Governments, the U.S. Conference of
Mayors, the National Council of State Legislatures, they have
all come out in support of this legislation. I think it is a
clear indication of how strongly States feel about the issue.
In conclusion, I would just like to say that as population
density, congestion and air quality in parts of the United
States begin to resemble those in other parts of the
industrialized world, the advantages of passenger rail will
become as apparent to U.S. planners as they already are to
French, German, Japanese and Taiwanese transportation experts.
It is imperative for the Federal Government to play a
leadership role in fostering the development of passenger rail.
The future of our entire transportation system and, therefore,
of our economic growth and development, depends on it.
Thank you very much, Madame Chairman.
[The prepared statement of Senator Cleland follows:]
Prepared Statement of Hon. Max Cleland, U.S. Senator from Georgia
Madame Chairman, I'm particularly happy to be here today because I
believe we are about to experience a renaissance of rail in this
nation. We all know that railroads were the dominant transportation
force in the 19th century. Now in the 21st century, the ``Iron Horse''
can be key to resolving two of our most challenging transportation
problems: sprawl and gridlock.
For far too many of our citizens, congestion is becoming a daily
battle, not only on our highways, but in our skies. In my own backyard,
Atlanta has the very worst traffic congestion of any Southern city, and
commuters there drive an average of 34 miles a day. And Atlanta's
Hartsfield Airport, now the busiest airport in the world, is
experiencing crippling delays. In fact, FAA data indicate that
Hartsfield's passengers collectively experienced over 6.4 million
minutes of delay between January and November of last year. That
computes to an astounding 4,470 days in lost time.
As congestion and tempers continue to build, passenger rail, more
and more, becomes a cost-effective option for transportation planners
across the country. After all, other nations, more densely populated
than ours, have already recognized the potential of high speed rail.
Taiwan, for example, plans to invest $13 billion in high speed rail
work. France has announced plans to invest $20 billion in its high
speed network. Japan and Germany have also made investment in high
speed rail a national priority.
Here in the United States, various states have taken the lead in
promoting high speed rail development--something that I'm sure Dr.
Catherine Ross, Executive Director of the Georgia Regional
Transportation Authority, will soon address. But I'd just like to
emphasize the unfairness of the federal government holding states to
high environmental standards, on the one hand, and then blocking those
same states from spending federal transportation funds on Amtrak, which
would enable them to meet those high standards. That's why I'm such a
strong supporter of
S. 1144, which gives states the flexibility to spend federal
transportation funds on passenger rail if they decide it's in their
best interest to do so.
I would note that in addition to 35 Senate co-sponsors, the
National Governors' Association, the National League of Cities, the
Council of State Governments, the U.S. Conference of Mayors, and the
National Council of State Legislatures have all come out in support of
S. 1144. I think this is a clear indication of how strongly states feel
about this issue.
In conclusion, let me just emphasize that as the population
density, congestion and air quality in parts of the U.S. begin to
resemble those in other parts of the industrial world, the advantages
of passenger rail will become as apparent to U.S. planners as they
already are to French, German, Japanese, and Taiwanese experts. It is
imperative for the federal government to play a leadership role in
fostering the development of passenger rail. The future of our
transportation system, and therefore of our economy, depends on far-
sighted national statesmanship.
Senator Hutchison. Thank you, Senator Cleland. And I thank
you for mentioning our Chairman's victories last night. I am
certainly supporting Governor Bush, but I have the highest
regard for our Chairman. And we all wish him well, of course.
And I also want to mention that he has encouraged us to
have hearings to keep the Committee going. He is very much in
touch with us. And I was very pleased to be able to have this
hearing with his consent, because this is such an important
issue.
So with that, I thank all of you for waiting. We have a
terrific panel today. It is the group all sitting there that I
think will be the difference between success and failure in
Amtrak. And I hope we are all pulling in the same direction.
I would like to first call on the great Governor of
Wisconsin, Governor Tommy Thompson, who is also Chairman of the
Amtrak Reform Board. He is accompanied today by George
Warrington, of course, the President of Amtrak, who I think is
doing a terrific job, also.
And, Governor Thompson, I want to thank you for taking your
valuable time to be chairman of this board. It was very
important that we had a chairman who did want Amtrak to succeed
and someone who had the experience that you have. And I very
much appreciate your adding that to your many duties as
Governor of your great State. Welcome.
STATEMENT OF HON. TOMMY THOMPSON, GOVERNOR OF
WISCONSIN, CHAIRMAN OF THE AMTRAK REFORM BOARD; ACCOMPANIED BY
GEORGE WARRINGTON, PRESIDENT,
NATIONAL RAILROAD PASSENGER CORPORATION
Governor Thompson. Well, thank you very much, Madame Chair.
It is a tremendous privilege and honor for me to be here.
And I first would like to thank you, Senator Kerry and
Senator Cleland, for your wonderful statements. I could not
agree with you more. And I thank you so very much for your
passion, your enthusiasm for Amtrak. And I also want to thank
you for holding this hearing.
I also would like to congratulate John McCain for his win
yesterday.
And like you, Senator Hutchison, I support Governor Bush.
We have two great candidates, and I know we are going to
win now that Senator Cleland has joined----
[Laughter.]
I am very enthusiastic, as you all know, I am passionate
about Amtrak. I am proud of our people, our employees, our
product, and especially our performance, and, yes, our promise.
I am proud of the way we are becoming a more successful, a
market-based, customer-focused enterprise. Why? Let us take a
look at Amtrak.
The track record for 1999, total revenue reached an all-
time high last year of $1.84 billion, which is a 7-percent
increase over 1998. Ridership for the first time ever has
increased for 3 consecutive years. It is up to 2 percent over
last year, but 10 percent over the last 33 years, a 10-percent
increase in ridership.
We exceeded our business plan--yet, we had the previous
year--this time by over $8 million. As you know, the business
plan targets represent our glidepath to operating self-
sufficiency. For 2 years in a row we have met and surpassed our
business plan. We have exceeded those goals.
Real estate and telecommunications ventures have returned a
profit to Amtrak of $106 million, another record high. Mail and
express, as you mentioned, Senator Hutchison, has increased
$100 million, up 18 percent from the prior year. And there are
many more financial accomplishments to herald.
But let us turn to some of the other issues. Business
partnerships, this year we signed major agreements with BNSF,
which is a freight railroad, UPS, Dynamex, Express Trak, the
Post Office and Dobbs International Service. These partnerships
alone will generate more than $20 million in new revenue
annually and $28 million in long-term savings. So overall, it
is a $48 million swing.
And there is also our very important State partnerships,
which demonstrate to you, Congress, this country's hunger for
more and higher speed intercity rail.
Capital investment partnerships with our States generated
more than $300 million last year, Senator Kerry, another
record.
In Oklahoma, after a 20-year absence, a national railroad
system of passenger rail service, we introduced the Heartland
Flyer going from Oklahoma City to Fort Worth, Senator
Hutchison. For those of you who think that Amtrak is for
densely populated corridors of the Northeast, think again. The
Heartland Flyer carried nearly 27,000 passengers last year in
its 6 months of operation. We exceeded our own projection by 30
percent.
The Texas Eagle, which we all are very happy about, saw a
ridership growth of over 9 percent. In California, increased
frequencies on the San Joaquins, as well as the Capitols
corridors, resulted in a ridership increase of 18 percent. They
carried more than half a million people last year.
New equipment and additional frequencies on the Cascades
service in the Pacific Northwest resulted in a 12 percent
ridership boost. On the Keystones in Pennsylvania, ridership
increased by 18 percent to nearly 1 million customers.
We launched an Acela Regional on January 31 this year,
reducing the travel time from Boston to New York by nearly 1
hour and one-half. The response has been absolutely tremendous.
Ridership has grown by 25 to 35 percent since January on the
Acela Regional.
New services that are poised to launch, Los Angeles to Las
Vegas in the fall of 2000; Boston to Maine--Senator Olympia
Snowe will be happy about that--in January 2001.
These are facts, just plain unvarnished facts. They show a
dedication to running this company more like a business, as
you, the Congress, has rightly demanded. They show a dedication
to improving the bottom line, which is improving even faster
than we had expected.
But most importantly, as you can see from the ridership
increases, these increases are huge in the world of
transportation. In the launch of new service, these performance
indicators show a dedication to our core business, the business
of providing a world-class intercity, passenger city rail
system. And that in turn results in a better bottom line.
Another fact: This success is being recognized by those
without biases and without enthusiasm, who have just an
objective financial interest. It is being recognized on Wall
Street, where both Moody's Investor Service, as well as
Standards and Poors, have upgraded Amtrak's credit rating,
something which would have been unheard of 2 years ago. And
Moody's went as far as to state that it expects Amtrak to be
operationally self-sufficient by 2003.
I know my friend, Mr. Gil Carmichael, who is sitting next
to me, will say that the ARC has not made a finding. And he
truly is my friend and someone I have a great respect for. I
guess that is why I was disappointed personally in the Amtrak
Reform Council's recent report on Amtrak.
I take issue with the ARC reporting that while America's
intercity transportation system has expanded almost beyond
recognition, Amtrak has simply managed to survive.
Though I do not disagree with their statistical analysis
showing Amtrak losing two-tenths of 1 percent of the intercity
travel market per year to the airlines, automobiles and buses,
I do take issue with them never bothering to explain the way
this happened. It is funding, pure and simple, as Senator Kerry
said.
Funding for rail has declined 78 percent, 78 percent in
comparison to funding for the other modes. But Amtrak has still
managed to hold onto its market share. I think that is pretty
darned impressive, though the Council's report indicates that
they believe otherwise.
Simple economics says that if you do not spend the funding
on increased capacity, how can you expect increased ridership?
Take, for example, our experience in California, in the
Northeast, where we put on new equipment and increased
frequencies, thus adding capacity. Ridership has skyrocketed.
In America we have increased funding for the roads and the
highways, thereby increasing highway and airport capacity, but
we have ignored passenger rail. Last year, Amtrak received $571
million in support compared to approximately $30 billion in
direct subsidies for the highways, $11 billion for aviation, $5
billion for mass transit. Yet the ARC never acknowledges this
funding disparity.
The report also chose to ignore many of the economic
benefits that intercity passenger rail service offers to the
States. As I look around this hearing room, I recognize many
States represented on this subcommittee which have uniquely
benefited from our Amtrak service.
I know, Senator Hutchison, you can tell how mail and
express service has significantly improved the economics of the
Texas Eagle.
I know that Senator Burns can tell you that in Montana,
Amtrak is often the only way to reach the highlands during the
winter
season.
In Maine, I am sure Senator Snowe can relate to you her
State's excitement over soon-to-be introduced Boston-to-
Portland service and the benefits it is going to bring to
Maine's tourist industry.
I am sure Senator Cleland can tell you how Amtrak will help
them in their efforts to bring cleaner air to Atlanta.
The Council's report, the argument about what constitutes
operational self-sufficiency, I believe, is just plain wrong. I
do not believe it is consistent with the Congressional intent
by wrongly contending that progressive overhauls, the cost of
depreciation be added to Amtrak's measure of operating self-
sufficiency.
The ARC could affect Amtrak's private financing
relationships, which I think is really sad. Everyone knows that
adding those measures effectively dooms our chance at Amtrak to
be self-sufficient. Who wants to invest in a company that is
already doomed?
I have great respect for Gil. But I am here to testify in
front of you today, and I want to tell you that we cannot reach
the new target that was created by the ARC. By contending that
the cost of depreciation and progressive overhauls be added to
Amtrak's measure of operating self-sufficiency, the ARC has
absolutely raised the bar too high.
So let us just touch on that issue very briefly. And I will
conclude very quickly, Senator.
Amtrak has never, never in its 29-year existence, requested
nor received Federal operating funds for the cost of
depreciation, never. Adding this non-cash cost to the glidepath
now, 26 months after the bill was enacted, makes it impossible,
makes it absolutely impossible, for us at Amtrak to achieve our
goal that we are currently on target to meet.
The ARC's other contention is that progressive overhauls be
included in the paradigm of operating self-sufficiency. This is
also unfounded. Since 1993, Congress has allowed Amtrak to fund
progressive overhauls with capital funds. In 1997, the ARAA
said nothing to the contrary.
Very simply, for the 5 years the whole issue of operational
self-sufficiency for Amtrak was being debated, never, not once,
was depreciation of progressive overhauls ever included; never.
And never did a committee or a Member of Congress direct us
to do otherwise. The ARC's contention that we now add these two
new costs to our operating glidepath is entirely inconsistent
with what the Act says and with the legislative history and
with Amtrak's past practice. I hope we can put that issue to
rest today.
And I thank you for your testimony. I have run out of time,
although I would like to fill you in on all the excitement,
both inside and outside of Washington for intercity rail.
Twenty-seven Governors wrote to the President requesting
full funding for Amtrak to the 2001 budget request. Thirty-five
co-sponsors, Senator Cleland, along with you and many of you on
this panel, are pushing for S. 1144, which seeks to cure an
inequity that has existed since 1991 and would give States the
rights to spend Federal funds on intercity rail if they decide
it is the best transportation solution for the region.
Another 30 co-sponsors on S. 1900, the high-speed rail, the
Investment Act that gives us the power and the opportunity to
put the capital in high-speed trades, an innovative financing
proposal which would provide significant funding for the
development of high-speed rail corridors across the country.
All of these things, Senator, leads me to the conclusion to go
back to where I started.
Yes, Madame Chair, I am passionate. I am enthusiastic about
this company's progress and, even more, its potential. In the
1997 Act, you gave us a mandate, to become operationally self-
sufficient while preserving the national system of the highest
quality. And all of you talked about that. And so far, we as a
Board have lived up to that mandate. We believe that we have
earned the right to your continued support.
I thank you, Madame Chair, for giving me this opportunity,
the extra 2 minutes, to finish up. I thank you so very much for
this opportunity. I thank you for holding this hearing. And
yes, we will make you proud of the national railroad system, if
we are given the opportunity and the flexibility to achieve it.
[The prepared statement of Governor Thompson follows:]
Prepared Statement of Tommy Thompson, Governor of Wisconsin,
Chairman of the Amtrak Reform Board
Madam Chair and Members of the Subcommittee:
I deeply appreciate the opportunity to appear before this
distinguished Subcommittee to talk about one of my favorite subjects--
Amtrak. As I am the first to admit, when I was initially approached by
the Speaker of the House to serve on the Amtrak Reform Board, I thought
long and hard before accepting. I knew that Amtrak was in what the
General Accounting Office (GAO) and the Inspector General of the
Department of Transportation (DOT IG) called a ``precarious financial
condition,'' and it is not my habit to tilt at windmills. At the same
time, I also knew that Congress and the country wanted a thriving
national passenger rail system, and I certainly was aware of the fact
that my own state depends on Amtrak for jobs, for transportation, and
for economic development. In the end, of course, I accepted the White
House's offer, and now, 17 months into my chairmanship, I can
confidently say that signing on board Amtrak was one of the best
decisions I've ever made.
I'm enthusiastic about Amtrak. I'm enthusiastic about our people,
our product, our performance and our promise. I'm proud of the way
we're becoming a successful, market-based, customer-focused enterprise.
Unfortunately, people sometimes mistake genuine enthusiasm for glib
salesmanship or cynical spin doctoring. In my own case, for example,
I've been accused of presenting a ``rosy picture'' of Amtrak because
I'm such an enthusiast. The implication of that criticism is that if
I'd just stick to the facts, and leave my enthusiasm out of it,
Amtrak's prospects would not be nearly as impressive as I've made them
out to be.
Very well, then. Let me just stick to the facts. The plain,
unvarnished facts--on Amtrak's track-record for 1999.
I'll start with overall performance. FY 1999 was a record-setting
year for Amtrak. The corporation's total revenue reached an all-time
high of $1.84 billion, a 7 percent increase from the previous year.
Revenue growth has helped Amtrak exceed the bottom-line target set in
the corporation's business plan for the second consecutive year--this
year by $8 million--keeping Amtrak on course to achieve operational
self-sufficiency by 2003. And, for the first time ever, Amtrak's
ridership has increased for three consecutive years, due to growing
demand. Total ridership exceeded 21 million in 1999, up 2 percent from
last year and 10 percent since it began rebounding three years ago.
There are other factual accomplishments for FY 1999, as well:
Capital investment partnerships with states garnered a
record $300 million. In partnership with cities, Amtrak
refurbished or renovated ten stations nationwide, began a $53
million expansion and reconstruction of the Seattle King Street
Station, dedicated a $19 million locomotive maintenance
facility in Los Angeles and broke ground on a $14 million
service and inspection facility for passenger cars.
To improve its bottom line, Amtrak entered into
business partnerships with Dobbs International Services,
Burlington Northern Santa Fe, United Parcel Service, the United
States Postal Service, ExpressTrak, and Dynamex. These
partnerships are expected to generate more than $20 million in
additional annual revenue and $28 million in long-term savings.
The corporation's real estate and telecommunications
ventures returned profits of $106 million, a record high.
The mail and express business, which involves the
transportation of time-sensitive shipments, produced $98
million in revenue for FY 1999, up 18 percent from FY 1998.
Based on its ``expectation that operational self-
sufficiency will be achieved,'' Moody's Investor Service
improved Amtrak's credit rating to A3, reflecting a stable
outlook. Standard and Poor's publicly assigned Amtrak a triple
``B'' issuer rating.
In the area of customer service, Amtrak trained 16,500
employees to begin implementation of the American travel
industry's first-ever service guarantee.
And we're growing. In 1999, we reintroduced the Oklahoma to Fort
Worth Heartland Flyer, which exceeded our ridership projections by more
than 30 percent, carrying nearly 27,000 passengers last year, proving
again that intercity passenger rail isn't only for the densely
populated Northeast Corridor.
In Texas, with your help Senator Hutchison, a local
marketing effort and mail/express business on the Texas Eagle
has contributed to passenger revenue growth of over 20 percent.
In California, Amtrak increased the number of round
trips on the San Joaquins and Capitols corridors. The result
was the highest ridership ever for the Capitols--up 18 percent,
to 540,000.
In the Pacific Northwest, Amtrak introduced new
equipment and added frequencies on the Cascades service,
resulting in a 12 percent ridership boost.
In the Northeast Corridor, Amtrak set the third
consecutive ridership record for Metroliners, with over 2.2
million passengers in FY 1999.
In Pennsylvania, Amtrak attained the greatest
ridership increase ever on the Keystone Corridor--18 percent--
for a total of nearly one million customers.
In Maine, Amtrak began preparations for the Boston-
Portland service.
Finally, Amtrak secured funding commitments from the
private and public sectors to initiate rail service between Los
Angeles and Las Vegas by fall 2000.
Those are the facts, unvarnished.
Let me turn now to one of Amtrak's most urgent priorities,
developing new, high-speed rail corridors across the nation. Corridor
development so far has been state-driven, and in early 1999 Amtrak
created a new High Speed Rail Department to help lead efforts in 36
states, by working closely with these states in the planning,
construction, equipment acquisition, and implementation of high-speed
rail projects.
Of course, the most imminent of these efforts is in the Northeast.
In 1999, Amtrak completed the electrification of the Northeast
Corridor, a 156-mile section between New Haven and Boston. This made
possible the first step in the high-speed rail program--the launch of
Acela Regional on January 31, 2000. Featuring all-electric service and
refurbished equipment, Acela Regional trains reduced the journey
between Boston and New York by as much as an hour and a half. The
response has been tremendous. Compared to the former Northeast Direct
trains, ridership has grown 25 to 35 percent on the Regional trains to
date.
All this activity has generated significant support for Amtrak all
across the country. Let me give you some examples:
Over half of my colleagues, 27 governors from across
the nation, and both political parties urged President Clinton
to fund Amtrak at the authorized level of $989 million in FY
2001.
The National Conference of State Legislatures also
urged President Clinton to fund Amtrak at the authorized level,
as did 15 Members of the Congressional Black Caucus, the AFL-
CIO's Transportation and Trades Department, and a bipartisan
group of 26 of your Senate colleagues, including some of you.
More than one quarter of the Senate wrote to the President
saying we want to see Amtrak succeed and grow. And I'm proud to
say that the President's FY 2001 budget submission to Congress
responded to the call to action.
For the first time in the three annual budget requests
that have occurred subsequent to the passage of the ARAA, the
President has, for the first time, requested the level of
funding for Amtrak authorized by law. Let's not forget--the
whole operating self-sufficiency test was predicated, among
other things, on Amtrak receiving the authorized levels of
capital funding contained in the bill. To date, Congress has
provided about 50 percent of the authorized amount.
In addition, the National Governors' Association, the
U.S. Conference of Mayors, the National League of Cities, the
Council of State Governments, and the National Council of State
Legislatures have joined 35 Senate cosponsors, including EPW
Chairman Smith, Subcommittee Chairman Voinovich, this
Subcommittee's Chair, Senator Hutchison, and our distinguished
Majority Leader, in support of S. 1144, the bill that would
grant states the long-awaited flexibility to spend federal
transportation dollars on passenger rail.
29 Senators are also co-sponsoring S. 1900. The bill,
introduced by Senator Frank Lautenberg of New Jersey, would
amend the Internal Revenue Code of 1986 to allow a credit to
holders of qualified bonds issued by Amtrak and gives Amtrak
the authority to sell $10 billion in high-speed rail bonds over
the next 10 years.
I could go on--but I hope I've already made my point. If I'm
enthusiastic about Amtrak, it's not because I'm painting some sort of
rosy scenario. It's because we are keeping our commitment to Congress
and the American people to run Amtrak like a business and to achieve
solid financial improvement. And many others, including many of you,
are as enthusiastic about the growth of passenger rail as I am, as
evidenced by your support for these legislative and funding
initiatives.
Of course, 1999 had its disappointments as well as triumphs. No one
is more anxious than I am to put the Acela Express trains into service.
Because of the success Acela Regional is enjoying, I'm sure Acela
Express will surpass our expectations. But I would remind everyone that
high-speed trainsets in the Northeast are a new technology, and we owe
it to the American people to see to it that this new technology meets
our high standards. Only when it has done so will we announce a
starting date for Acela Express. That is our responsibility, and we
intend to live up to it.
Talking about responsibility, I would be remiss if I did not
address one of the other issues that brings us here today. Sitting by
my good friend Gil Carmichael, Chair of the Amtrak Reform Council (ARC)
and Ken Mead, Inspector General (IG) for the U.S. Department of
Transportation, I want to publicly thank them both for the attention
they have devoted to Amtrak over the last 18 months. Both the IG and
the ARC have offered new perspective and valuable insight. We welcome
their advice on how to succeed and have incorporated some of their
recommendations into our Strategic Business Plan. Ken helped us think
through some critical financial issues and decisions this year, and we
have the utmost respect for his advice and counsel. Gil has also
offered some valuable recommendations, particularly in the area of mail
and express--a line of commercial business that I think we all
recognize as a critical element to our financial success. But we also
differ on some issues, and one of them is the very core of all that we
do.
We were given a mandate by Congress to achieve operating self-
sufficiency by FY 2003. When the new Board first met, that challenge--
adherence to the ``glidepath'' and attainment of operating self-
sufficiency--was the first issue we discussed. It is of paramount
importance. It is the foundation on which all our business decisions
rest. And never, ever was there any ambiguity attached to what Congress
meant. It meant we had to become independent of the federal operating
support and begin fiscal year 2003 without requesting one dime from the
federal government for our operations, with the exception of excess
mandatory railroad retirement costs.
More than two years after the law was passed, and sixteen months
after I became Chairman of the Board, a new definition has been
proposed by the Council. I am not going to go into the legal
explanation--we have already laid that out in our response to the ARC's
report, which they graciously included in the Executive Summary. And I
am sympathetic to Mr. Carmichael's dilemma--he has told me that this
new definition is the result of his lawyer's analysis of the law, and
absent any clear Congressional intent, he cannot reach another
conclusion. It is my hope that you who are sitting behind the dais, who
wrote this bill and voted for its passage, will today clear up for the
Chairman of the ARC any concerns he may have, and restate the
Congressional intent. It was made clear in five years of business
plans, five years of testimony, and five years of annual reports. But
it would be helpful to hear it from the Subcommittee again today. The
glidepath never included depreciation, which is a non-cash cost, and
progressive overhauls, which are funded with capital. Consequently,
operational self-sufficiency never encompassed either of these
accounting principles either. And clearly the law does not say
otherwise.
I can assure the distinguished Members of this Subcommittee that we
are well on our way toward achieving operational self-sufficiency by
2003, and I think I have given you some of the facts that back up that
statement. Yes, there have been obstacles in the track--and no doubt
there will be more. And there are also those who will criticize our
every move, and do everything in their power to make sure that the
predictions they've been making these past 29 years about our
inevitable demise come true. The bottom line, however, is this:
Congress and the American people gave us a mandate in 1997. So far, we
have lived up to that mandate. We believe we have earned the right to
your continued support.
Thank you, Madam Chair. I stand ready to answer any questions you
may have.
Senator Hutchison. Thank you, Governor Thompson.
Mr. Gil Carmichael was chosen to chair the Amtrak Reform
Council. We very much appreciate your willingness to do that.
And Mr. Carmichael was the former Federal rail administrator,
so he does have a lot of rail experience.
And we appreciate what you are doing and look forward to
talking to you further. Mr. Carmichael.
STATEMENT OF GILBERT E. CARMICHAEL, CHAIRMAN, AMTRAK REFORM
COUNCIL
Mr. Carmichael. Thank you, Madame Chair.
Governor Thompson and I served on the Amtrak Board together
for 4 years. And I think he knows this about me, that I am a
strong believer in a national rail passenger system. And I have
been elected twice by my Council with the understanding that I
was pushing for a healthy, successful Amtrak and a national
rail passenger system. I would just like to set that straight.
If there is anybody that I would classify as a major
proponent of Amtrak and the national rail passenger system, I
would so classify myself.
I am going to try to summarize this testimony we have for
you. And, as I listened to the Senators speak and listen to
Tommy speak, I will do my best to kind of blend it together.
First off, the Act created the Council, the Amtrak Reform
Council. And so our life is inside that Act, and our mission is
inside that Act. And as Chairman, and all my members, the ten
other members of the Amtrak Council, know where I am coming
from.
There are some on there that would just as soon see Amtrak
shut down. But the Amtrak Council is working as a team. And I
think I can literally speak for them and their desire to help
Amtrak be successful.
Our mission is straightforward. It comes straight out of
the law. We want to improve rail passenger service in America,
and we want Amtrak to succeed. And we will--as a Council, you
have told us in creating us, that you wanted us to--make
constructive recommendations of how to help Amtrak reach its
mission.
So the Council is not a trigger-happy group. And we are not
focusing on a finding, on making a finding. If we were, we
would not be so concerned that Amtrak have sufficient capital
to be successful over the long term. That is why we are so
concerned with the standard by which Amtrak is measured.
Now this standard is in the law. The statute mentions no
standard other than GAAP. As we read the law and as my
attorney, our chief counsel, reads the law to us, he cannot
find any other standard to use except GAAP. And when you look
at GAAP, it says depreciation and progressive overhauls are
expenses. That is just a standard corporate GAAP
interpretation.
It requires that a company be able to fund its basic
operating expenses, including the replacement of capital used
in its annual operation, called depreciation. You start with a
new locomotive. You wear the locomotive out. You set up
depreciation to replace the locomotive.
Depreciation is a non-cash expense in the sense that it
does not have to be paid immediately. But ultimately, the
equipment, the worn-out equipment, is consumed and must be
replaced. Thus, Amtrak's operating expenses, including
depreciation, have to be fully funded.
Now, we have no argument. If Amtrak cannot produce the
revenues to replace the locomotive, then the Federal grant
funds have to be used to replace the locomotive. We are not
arguing that. It [Amtrak] just cannot fund that under the law,
as it is written.
Amtrak chairman and president Graham Claytor in 1992
addressing this same Committee, I think, said any company that
does not put in the capital to more than match its depreciation
is slowly liquidating itself. Our concern about this issue is,
the way the law is written, we have no other way to go except
to show and to demonstrate what the depreciation is and what
the operating costs are. We need guidance here.
The single exception to GAAP that the law that created us
recognizes is for Federal funds provided to reimburse Amtrak
for the excess mandatory railroad retirement taxes.
Amtrak has so many employees in the railroad industry that
they get an unnatural amount of the burden of railroad
retirement. And I personally am in agreement that excess
railroad retirement should not be a burden on Amtrak. And the
Reform Act recognizes that and sets it up that way.
All right. Amtrak--as we listened to Tommy speaking for the
corporation--maintains that Congress has determined that Amtrak
does not have to cover its depreciation as it is a non-cash
cost that historically has not been funded by Federal grants.
We have no argument with that. But we cannot find it in the
law, and so we cannot interpret it that way.
That Federal grants are necessary to provide funding for
Amtrak's capital expenses, we agree with that. If they do not
have the revenue stream to do it, then if the government wants
Amtrak to stay in business, they have to fund it; and that
Amtrak should have the flexibility to use capital funds for
equipment maintenance, based on recent practices documented in
the language of the Appropriation Committee reports.
The financial implications: The chart on page five of my
testimony shows that if Amtrak's operations are to be fully
funded, if we are to apply GAAP to it, $752 million would have
to be appropriated in 2002 to cover the operating cost,
including $185 million for the excess mandatory railroad
retirement tax. If forced to use the GAAP, we are going to have
to keep saying that figure.
The Council brings this to your attention because we want
Amtrak to be funded as a going concern, not one that is burning
up its assets.
What we are saying is, to do that, the Congress must
provide for these costs to be covered. Congress has to come up
with the $752 million, because Amtrak cannot come up with it.
The remedy: So the remedy to us today, the resolution of
this issue is up to Congress, which is why the Council is
raising the issue at its earliest possible opportunity.
I am very happy we have this hearing so I can show you this
dilemma and say: Please give us guidance and give us an answer
on how to do it. The clearest guidance, if the standard is not
GAAP, would be to amend the law, identifying any operating
expense Amtrak does not have to cover from operating revenues.
Progressive overhauls and depreciation: If Congress says
that, we have no problem moving on with that and no
disagreement with that, then authorizing an appropriation for
necessary capital funds to cover these costs.
So what we are asking for is: Please define this and please
remember that you have to put up the money for it. The Council
respectfully awaits guidance from the Congress at this time,
and we are here.
I kind of feel like the messenger. Do not kill me.
[Laughter.]
Amtrak's financial progress toward self-sufficiency and the
impact of the Acela Express delay: Amtrak's progress toward
meeting the goals of the Reform Act has been slow to start. It
is on a line like this on a 5-year line, slower the first 2
years, gradually increasing, and then rapidly increasing. Its
core business is what we are worried about more than anything
else.
The Amtrak National Rail Passenger System: Its core
business is performing at lower than planned levels. But higher
revenues from its commercial business have kept the corporation
on plan. So it is still on its glidepath, because it is
bringing in these other revenues.
The planned improvements for fiscal years 1998 and 1999
were not ambitious. All the major performance improvement in
Amtrak's 5-year plan, in the October 1998 5-year plan, are back
loaded. In 2000 and 2001, we really have to see a rapid growth
in their revenues if they are to meet their goals.
To make an informed judgment about Amtrak's financial
performance and its future funding requirements, the Council is
asking Amtrak, and needs to receive from Amtrak, and assess if
Amtrak's new strategic plan must be adjusted, because the Acela
is delayed. That [Acela] revenue is not going to be in this
year, apparently.
So we need the adjusted strategic business plan and how
that will be covered, which should include Amtrak's plan for
offsetting the financial impact of this Acela Express delay. We
need its MBNA, its analysis of routes and services. We need its
long-term capital plan for the entire passenger system.
What does Amtrak need in the next 12 years for the total
national passenger system, not just the southern portion of the
Northeast Corridor, which is an infrastructure division of
Amtrak? We just received that this week. And Amtrak expects to
require $12 billion over the next 25 years just for the south
half of the Northeast Corridor, as I believe that report put
out last week stated. So that is just for the infrastructure
division. That is not for the national rail passenger system.
After we receive and evaluate these plans, we will have a
clear, updated picture of Amtrak's financial situation that we
can provide to the Subcommittee. The Council will then be able
to provide recommendation to Congress on a long-term funding
policy for rail passenger service. If they will give us this
information, we will give you some recommendations back.
The Council's first annual report--and I will try to make
this quick--the first annual report looked at Amtrak as an
institution. We just looked at this big organization sitting
out here, headquartered in Washington, D.C., and operating
across the United States. It [the report] did not have any
answers in it. It did have a lot of questions.
When we looked at the institution that Amtrak is--and this
is what this new reform board inherited, primarily--we found a
very large and flawed organization. It is a huge organization
with many different lines of business that has not been
effective in managing the core business of operating a national
system of passenger, mail and express services.
We are very worried about all of these other things keeping
Amtrak and Amtrak's management from concentrating on the
passenger, mail and express business out there, the national
system that everybody is testifying for. We counted over 12
major functions that Amtrak is trying to carry out.
And as you said, Madame Chair, there may be some things it
should not be doing in that area, if it is distracting the
management and the capital from the main business of passenger,
mail and express.
So in the next 8 months, I think--10 months--this Council
is going to make some very good, strong recommendations of how
to help Amtrak focus on its core business and be self-
sufficient. That is enough on that annual report now.
Our program next year is to give the Amtrak Board and this
Committee strong recommendations of how to help these last 2
years be very productive and reach the self-sufficiency.
So we will be investigating issues that will allow us to
make recommendations that help Amtrak meet its Reform Act
financial performance goal. Now it is going to be tough love.
It is not going to be sweet love. We are going to be talking
tough and making recommendations.
And I feel they are going to be--as long as I am Chairman,
they are going to be very constructive recommendations, not any
destructive ones. I will not stay as Chairman if they start
being anti-national rail passenger system. I know where I am
coming from there.
One final important thing I would like to bring up--and I
will quit with this--the railway unions have made it a priority
to abolish this Council. Last year they caused an amendment to
be introduced in the House to cut the Council's funding by some
40 percent. Fortunately, the funds were restored in conference.
Our vice chairman, Paul Weyrich, finds the opposition of
Labor amazing. And I do, too, for one simple reason. The
Council is a bipartisan, independent commission that supports
the responsible expansion of intercity rail passenger service.
If the Council's views are followed, there will be more
passenger service, not less. Everything I have been talking
about here is about the core business of passenger, mail and
express service. We think it has to grow and grow fast. And you
have to add people if you are going to grow.
So that is where this Council is coming from. So I agree
with Paul Weyrich. Labor needs to come help us. We need Labor's
advice, and we need Labor's view of how to make Amtrak grow and
be successful.
I hope you know, Madame Chair and Senators, that we are
very sincere in this area. I am going to make sure that in our
Council meetings--we are very open. I do not have any trouble
operating in a public way. And I want Labor totally involved in
helping guide us and give us advice and direction.
So thank you for your invitation. We need your guidance.
And I would be pleased to answer any questions.
[The prepared statement of Mr. Carmichael follows:]
Prepared Statement of Gilbert E. Carmichael, Chairman,
Amtrak Reform Council
Madam Chairman, it is a pleasure to be here today on behalf of the
Amtrak Reform Council to address the three issues on which you have
requested comment: the Council's First Annual Report, issued on January
24, 2000; the delay in the delivery of Amtrak's new Acela Express
equipment and the impact of that delay on Amtrak's financial
performance; and the Council's most current assessment of Amtrak's
financial performance vis-a-vis the goals of the Amtrak Reform and
Accountability Act of 1997, which I will refer to as ``the Reform
Act.'' I am accompanied today by Tom Till, the Council's Executive
Director.
With your permission, I will provide a summary of my views and will
submit my full statement for the record.
The Objectives of the Council
Madame Chairman, it is important that you and the members of your
Subcommittee understand the Council's objectives. As we read the law,
our purpose is to improve rail passenger service by evaluating Amtrak's
performance and making recommendations to Amtrak for improvement. The
law further provides, should the Council ever make a financial finding
that Amtrak will not meet the goal of the Reform Act, the Council
should recommend to the Congress an action plan for a restructured and
rationalized national system of intercity rail passenger services.
The Council is not focusing on the issue of a finding, but is
making every effort to identify and recommend strong measures that will
help Amtrak meet the goals of the Reform Act and thus avoid any
financial finding. We have begun that process, and it will continue as
long as I am Chairman of this Council.
The Council's First Annual Report
When Congress enacted the Amtrak Reform and Accountability Act of
1997, which requires that Amtrak operate without ``Federal operating
grant funds'' by the end of FY2002, the Congress established the Amtrak
Reform Council as an independent, bipartisan oversight body of 11
members, charged with, among other tasks, monitoring Amtrak's progress
in improving its financial performance to achieve the goals of the Act.
The Council is required to report on its activities in annual reports
to the Congress, the first of which it issued on January 24, 2000. The
complete report is available on our website at
(www.amtrakreformcouncil.gov) under the heading ``First Annual Report''
and printed copies are available by contacting the Council's office in
Washington at (202) 366-0591.
In releasing this first annual report, the Council stated that
``This year's report does not reach any conclusions about Amtrak's
long-term future. It provides a picture of the Amtrak organization as
it exists today, it presents the Council's perspective on Amtrak's
performance to this juncture, and it raises questions and issues that
the Council believes should be addressed in its future efforts and,
ultimately, by the Congress.'' The report also made clear that it is a
statutorily required Annual Report and not in any sense a finding, and,
were the Council at some future date to make such a finding, it would
be the subject of a separate report.
The major findings of the Council's report are indicated below.
Amtrak's Broad Range of Complex Functions. The Council's first
annual report focused on understanding Amtrak as an institution and
assessing its performance. The Council has determined--after careful
analysis and deliberation--that Amtrak performs an exceptionally broad
range of complex functions that go far beyond its core business of
operating passenger, mail and express services. In addition to its
transportation operations, Amtrak operates and maintains
infrastructure, and it remanufactures and repairs passenger coaches and
locomotives. Amtrak does substantial business as a contractor or
potential contractor for domestic rail commuter services and foreign
passenger services and it also functions as a real estate management
and development company. Aside from these business functions, Amtrak
also functions in certain respects as if it were a federal agency. The
Council will address its concerns about Amtrak's need to focus on its
core business in order to improve its financial performance.
Measuring and Monitoring Amtrak's Financial Performance. The
Council's analysis of Amtrak's financial performance made it clear that
although Amtrak's did meet its Plan for FY 1998 and FY 1999, this was
not of great significance for two reasons. First, Amtrak's core
business of passenger, mail, and express was below planned levels.
Second, the major improvements that Amtrak must make in order to meet
the financial goals of the Reform Act are back-loaded into the years FY
2000 and FY 2001. This is the reason for the Council's concern that
Amtrak focus on raising the revenues and controlling the costs of its
core business, which is essential to its meeting the plan. Because of
its importance, I will discuss separately the standard by which the
Reform Act requires the Council to measure Amtrak's financial
performance in meeting that Act's financial goals.
The Three Statutorily-Assigned Tasks. Amtrak was not able to
provide to the Council in the timeframe necessary for the report the
detailed information the Council needed to fulfill its statutory
reporting requirements regarding productivity improvements and the
evaluation of Amtrak's routes and services. We are working with Amtrak,
and when the information is provided, the Council will prepare and
submit reports to the committee.
Regarding Amtrak's use of TRA funds, because the Council did not
have the resources to analyze the more than 81,000 transactions that
Amtrak had carried out involving TRA funds through May of last year,
the House Transportation and Infrastructure Committee requested the GAO
to analyze this matter. Our report indicated that the Council had
found, on a preliminary basis, that Amtrak had not, to that date, used
a significant amount of funds for the high priority, high-return
capital projects that will be needed to improve Amtrak's financial
performance to meet the goals of the Reform Act.\1\ After the GAO
report is released, the Council will review its findings, and will
submit a brief supplementary report to the Congress, if appropriate.
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\1\ See pages 35 through 38 of the January 24, 2000 First Annual
Report of the Amtrak Reform Council, ``A Preliminary Assessment of
Amtrak,''* for a discussion of the TRA funds. The Annual Report is
available on our website at (www.amtrakreformcouncil.gov).
* The information referred to has been retained in the Subcommittee
files.
---------------------------------------------------------------------------
Recommendations for Improvement that the Council has forwarded to
Amtrak. In November 1999, the Council made its first recommendations to
the Amtrak Board including (i) setting up Mail & Express as a separate
business unit or profit center; (ii) segregating the operations of the
NEC fixed plant as a profit center within the NEC Business unit with
its own income statement, balance sheet, and capital plan; and (iii)
improving Amtrak's management and business planning process by
identifying and quantifying risks and opportunities; developing
contingency plans; identifying minimum business plan objectives; and
implementing a program for annual cost savings in Amtrak's corporate
overhead.
Issues and Next Steps. The Report identified key areas on which the
Council intends to focus its work efforts over the coming year. In one
sentence, Madam Chairman, the Council's program for this year will be
to develop recommendations to assist Amtrak--in any way the Council
can--to meet the Reform Act's financial performance goal. We will keep
the Subcommittee informed of our major activities.
The Standard For Measuring Amtrak's Financial Performance Against the
Goals of the Amtrak Reform and Accountability Act of 1997
The Council believes, based on Section 203 of the Amtrak Reform and
Accountability Act, that Amtrak's ability to operate ``without federal
operating grant funds'' should be measured by using Amtrak's financial
statements, which are prepared according to generally accepted
accounting principles, and which assume that Amtrak is a ``going
concern'' which will remain in business indefinitely at the same
business volume and level of technology. Former Amtrak Chairman Graham
Claytor, one of the most respected executives in the transportation
industry of the last century, said it very well when he stated, ``Any
company that does not put in the capital to more than match its
depreciation is slowly liquidating itself.''
I have appended to my statement a legal and legislative analysis
that provides the basis for the Council's position concerning the
measurement of Amtrak's financial performance. The finding of this
analysis is that the statute requires that the standard be based on
Amtrak's income statements prepared using generally accepted accounting
principles. The only exception is the exclusion of excess mandatory
railroad retirement taxes from the self-sufficiency test because this
provision was written into the Reform Act.
Amtrak proposes, instead, that federal appropriations acts and
historical practices in place in FY1997, result in an implied test of
operating self-sufficiency that literally depends on Amtrak's not
needing cash from ``federal operating grant funds'' after FY2002.
Amtrak's proposed test excludes the funding of several expenses, which
are estimated to total $567 million in FY2002, that have been (and
Amtrak assumes will continue to be) funded by ``federal capital grant
funds,'' even though they are included as operating expenses in
Amtrak's GAAP financial statements. Both approaches exclude federal
funds authorized and appropriated to reimburse Amtrak for excess
mandatory Railroad Retirement Taxes.
The Council is making a very important point, which is not aimed at
Amtrak, but at the Congress: for measuring Amtrak, it is less important
to focus on the words that are used to define the standard than it is
to understand clearly what those words mean in terms of a necessary
federal financial commitment to intercity rail passenger service.
Whether it is called funds for capital or funds for operating expenses,
our report points out that, by Amtrak's own projections, the
Corporation will need $752 million in federal funding in FY2003 to
maintain or replace its existing assets and for other necessary
expenses before the first dollar of capital for incremental capital
additions or improvements can be provided. Whatever it needs in ``new
capital'' will have to be provided on top of that.
The difference between the two approaches is demonstrated in the
chart below. Under Amtrak's approach, Amtrak would meet the standard
for operating self-sufficiency in FY2002 while still requiring federal
grants of approximately $752 million, which includes, in addition to
the authorized payment of $185 million for excess RRTA, $80 million for
equipment maintenance, which is categorized as ``progressive
overhauls,'' and approximately $487 million for renewing and replacing
its assets.
Madam Chairman, it is important for the Congress to recognize that,
whatever its decision about the rules for permitting Amtrak to use
capital funds for operating expenses, including the replacement and
renewal of its capital asset base under depreciation, the federal
funding must be provided to make that work.
It is against this backdrop that I can now provide comments on the
issue of Acela and on Amtrak's current financial performance.
The Acela Delay and its Financial Impact on Amtrak's Financial
Performance
Our knowledge about the technical causes of the Acela delay is
limited to information provided by Amtrak. Causes of delay are not a
major focus of activity for the Council or its staff. Our focus is on
the financial impact of the delay, and on actions Amtrak expects to
take to offset that financial impact. Because we have not yet received
Amtrak's most recent five-year Strategic Business Plan, which will
provide Amtrak's projections on the impact of the Acela delay, we
cannot present an analysis to the Subcommittee today. When we have the
information and have made that assessment, we will provide it to the
Subcommittee. We can say, however, that since the initiation of Acela
Express service was expected to have significant financial benefits for
Amtrak, the delay will almost certainly impose difficulties that will
require Amtrak to make significant adjustments to lower its costs and
to raise revenues from other sources. There is no doubt that Acela is
critical to Amtrak's plans to achieve self-sufficiency.
You may remember from your appearance at our outreach hearing in
Dallas this past November, that there is a proposal before the Council
that the Council recommend to the Congress that Amtrak's deadline for
financial self-sufficiency be delayed by a year so that the financial
results of a full year of Acela Express operations can be accurately
measured before the Council determines whether Amtrak will meet the
financial performance goals of the Reform Act. A final decision as to
whether that recommendation be made to the Congress will be addressed
at the Council's meeting next month.
Amtrak's Financial Performance vis-a-vis the goals of the Amtrak Reform
and Accountability Act
Amtrak's financial performance during the first two months of
FY2000 follows the trends established in the past two years. That is,
performance that, on the whole, meets the Plan supported by higher-
than-planned financial performance by non-core business elements which
make up for lower-than-planned revenues from Amtrak's core business of
passenger operations.
Amtrak's November 1999 financial statements (which were prepared on
or around January 27, 2000) reported that Amtrak was approximately $2.1
million ahead of its Strategic Business Plan for the first two months
(October and November 1999) of FY2000, during which time its expenses
totaled approximately $464 million and its revenues totaled
approximately $315 million. A positive variance of approximately $2
million is immaterial relative to both revenues (approximately 0.6
percent of revenues) and expenses (approximately 0.4 percent of
expenses). Furthermore, without a $3.1 million positive variance from
``Contributed Support Capital'' (related to the progressive overhaul
program funded by portion of the approximately $2.2 billion of the
Taxpayer Relief Act (TRA funds)) during the first two months of FY2000,
Amtrak's positive variance of approximately $2 million would have been
a negative variance of approximately $1 million.
For the first two months of FY2000, Amtrak's total system ridership
was 0.8 percent ahead of Plan and 1.2 percent ahead of FY1999.
Passenger miles, seat miles, and load factor, however, were all below
the Plan \2\ for FY2000 and below FY1999 actual levels, reflecting a
trend towards shorter average passenger trips due to weaker long
distance traffic. Increases in core revenue per seat mile reflect the
shift to shorter average passenger trips and ticket price increases.
---------------------------------------------------------------------------
\2\ Although Amtrak's Board of Directors reportedly approved
Amtrak's Strategic Business Plan (Plan) for the period starting October
1, 1999 (FY2000) in December 1999, it has not yet been provided (in any
form, summary or otherwise) to the Council. The written Plan should
include underlying business strategies and assumptions as well as
monthly financial projections. Such strategic business plan detail is
needed for the Council to evaluate the reasonableness of the Plan and
the likelihood that Amtrak will achieve it, as well as facilitating the
Council's evaluation of Amtrak's actual financial performance relative
to its Plan for FY2000.
---------------------------------------------------------------------------
Madam Chairman, if the Council is to provide a perspective on
Amtrak's financial performance, we also need to evaluate its estimates
of future capital investment requirements for at least the next 3-5
years. We have gotten the first element of those estimates from Amtrak,
which this week released its 25-year capital funding program for the
southern portion of the Northeast Corridor, amounting to some $12
billion, half of which Amtrak expects to come from the states.
Additional estimates are needed, and we expect that at least some of
them will be forthcoming, as part of its new Strategic Business Plan
and the accompanying analysis of its routes and services using its new
Market Based Network Analysis tool.
With this data, the Council will, for the first time, be able to
provide the Congress with a clear picture of the capital and operating
requirements that will be needed to support intercity rail passenger
service for the future. Information and analysis of this type is
essential if the Congress is to have a sound basis for policymaking
about this vital issue.
Madam Chairman, this concludes my statement. I will be pleased to
answer any questions you or the other members of the Subcommittee may
have.
appendix
The Standard for Measuring Amtrak's Financial Performance Against the
Goals of the Amtrak Reform and Accountability Act of 1997
The Council has a statutory obligation under the ARAA to evaluate
Amtrak's performance and make recommendations for achieving further
cost containment, productivity improvements and financial reforms. ARAA
Sec. 203(g). A major element of monitoring Amtrak's financial
performance is determining whether, in the Council's judgment, Amtrak
will be able to meet the statutorily-prescribed goal to ``operate
without Federal operating grant funds appropriated for its benefit''
after FY2002. 49 U.S.C. 24101(d). In making its judgment, the Council
must define a clear standard consistent with the requirements of the
ARAA for measuring Amtrak's financial ability to operate on a
sustainable basis without the need for federal operating assistance
after FY2002.
The ARAA establishes Generally Accepted Accounting Principles as the
Appropriate Standard
The Council believes that the ARAA specifically establishes the
standard that the Council is required to use: generally accepted
accounting principles (GAAP). Section 203(g) of the ARAA specifically
requires that in making its evaluation and recommendations with respect
to Amtrak's performance, the Council ``shall consider all relevant
performance factors, including . . . appropriate methods for adoption
of uniform cost and accounting procedures throughout the Amtrak system,
based on generally accepted accounting principles. . . .'' (Emphasis
added.) Section 204 of the ARAA further requires that the Council
``shall take into account . . . Amtrak's performance,'' as measured
under the requirements of Section 203(g), in determining whether
``Amtrak's business performance will prevent it from meeting the
financial goals [of the ARAA]'' or whether ``Amtrak will require
operating grant funds'' after FY2002. The ARAA provides no standard
other than generally accepted accounting principles by which the
Council is to measure Amtrak's financial performance.
Further, the Council believes that GAAP is the appropriate standard
for it to use to measure Amtrak's financial performance under the
provisions of the ARAA. Amtrak prepares its financial statements in
accordance with GAAP, and Amtrak's independent auditors have taken no
exception with Amtrak's accounting and financial reporting practices in
this regard. Moreover, GAAP is generally employed by the accounting
profession and financial community to evaluate the financial condition
as a going concern of for-profit corporations, which is Amtrak's status
under its federal charter. 49 U.S.C. 24301(a).
Progressive Overhauls are operating expenses under GAAP that cannot be
federally funded after FY2002 under the provisions of the ARAA
The ARAA provides that, after FY2002, ``no funds authorized for
Amtrak shall be used for operating expenses other than those prescribed
for tax liabilities under section 3221 of the Internal Revenue Code . .
. that are more than the amount needed for benefits of individuals who
retire from Amtrak and their beneficiaries (i.e., `excess Railroad
Retirement payments').'' 49 U.S.C.24104(a). The ARAA makes no exception
other than for excess Railroad Retirement payments from the prohibition
against continued federal subsidy of Amtrak operating expenses after
FY2002. As noted, the Council believes that it is required to use GAAP
in applying the prohibition against federal operational subsidies of
Amtrak after FY2002 as set forth in Section 24104(c).
Amtrak disagrees with the Council's position that the Council is
required to use GAAP in applying the prohibition against continued
federal subsidization of Amtrak operating expenses after FY2002. Amtrak
instead takes the position that its expenses for ``progressive
overhauls'' of equipment can continue to be funded from federal capital
funds after FY2002 even though these expenses are indisputably
``operating expenses'' under GAAP and are recorded by Amtrak as
operating expenses in its financial reports. (``Progressive overhauls''
are defined by Amtrak as routine annual car inspection and repair work
and scheduled part replacements performed every 1 to 3 years; they are
essentially maintenance (i.e., operating) expenses under GAAP).\1\
Amtrak's position is premised on the Congressional practice, commencing
in FY1993, of including funds for Amtrak ``progressive overhauls'' of
equipment in ``capital grants'' rather than ``operating grants'' even
though the expenses for progressive overhauls are reported by Amtrak as
operating expenses.\2\
The Council disagrees with Amtrak's contention that there is an
implied exception for continued federal subsidization of Amtrak
operating expenses for ``progressive overhauls'' in the ARAA. First,
the fact that progressive overhauls have been funded in recent years
through capital grants rather than operating grants cannot be
determinative of their status. If funds for Amtrak operating expenses
could simply be included in federal capital grants after FY2002, the
prohibition against future federal funding of Amtrak operating expenses
would become meaningless: it would simply be a shell game of moving
operating expenses into capital grants instead of funding them
separately. (For FY2000, Amtrak in fact requested and received only a
federal capital grant with flexibility to use it for certain operating
expenses under the special Federal Transit Administration definition of
capital expenditures.)
Second, and most determinative, the prohibition in Section 24104
against federal funding of Amtrak operating expenses is specific and
categorical, and provides for only one exception: excess railroad
retirement payments. The categorical prohibition also directly squares
with the legislative intent of the ARAA, which was to require Amtrak to
become ``operationally self-sufficient'' after FY2002.\3\ Implicit
exceptions to specific statutory commands are not favored in the law,
and the Council believes that if Amtrak expected to continue to request
federal funding for progressive overhauls after FY2002, it was
incumbent upon it to obtain a specific exception for such operating
expenses, such as that applicable to excess railroad retirement
payments.
The Council would also point out that continued federal funding of
Amtrak operating expenses for progressive overhauls after FY2002 is not
only counter to the statutory goal that Amtrak wean itself from federal
operating subsidies, but is, as Amtrak has specifically acknowledged,
counterproductive in the long run with respect to Amtrak's need for
continued federal capital funds to renew and expand its infrastructure
and equipment. As Tom Downs, former President of Amtrak observed
``[S]hifting some equipment overhaul costs . . . from the operating to
the capital budget . . . is akin to eating your seed corn--using scarce
capital dollars to maintain, rather than replace, worn out assets--and
undermines our ability to invest in our future.'' \4\
Amtrak also contends that, because its ``glidepath to self-
sufficiency'' and Strategic Business Plans were before the Congress
during the ARAA deliberations and assumed continued federal funding of
progressive overhauls, that Congress must be presumed to have endorsed
Amtrak's assumptions. This argument, however, ignores the statutory
scheme. Congress did not in fact endorse (or implicitly incorporate
into the ARAA) any specific assumptions of Amtrak's ``glidepath'' nor
the Strategic Business Plans upon which it was based. Congress in fact
delegated an evaluation of Amtrak's Strategic Business Plan to an
``independent assessment'' to be conducted by the Department of
Transportation, Inspector General (DOT/IG). ARAA, Section 202. After
reviewing Amtrak's Strategic Business Plan, the DOT/IG criticized many
of the assumptions underlying the Strategic Business Plan. The DOT/IG
also specifically concluded in its assessment that ``progressive
overhauls'' could not be federally funded after FY2002 under the
provisions of the ARAA.\5\
(The General Accounting Office also concurs that Amtrak may not use
federal funds for progressive overhauls after FY2002 under the
ARAA.\6\)
Depreciation is also an operating expense under GAAP that must be
recovered for Amtrak to be operationally self-sufficient after
FY2002
The Council also believes that the cost of depreciation is an
operating expense under GAAP that Amtrak must recover after FY2002 for
it to be found ``operationally self-sufficient'' under the ARAA. Amtrak
agrees that depreciation is an operating expense under GAAP. Amtrak,
however, takes the position that this expense must be ignored for
purposes of the operational self-sufficiency test because it ``is a
non-cash expenditure'' and ``is not funded as part of a federal
operating contribution.''
The Council disagrees with Amtrak's position that the cost of
depreciation can be ignored under the ARAA. Under GAAP accounting,
there is a recognition of the cost of capital associated with an
enterprise in the form of depreciation. Depreciation is a non-cash
charge against revenues designed to represent the estimated value of
capital assets consumed or made obsolete during the period of time that
the revenues were generated. In theory, an enterprise reserves a
portion of its revenues equal to the depreciation charge to fund the
repair and/or replacement of its capital assets. These investments are
essential if an enterprise is to remain a going-concern at its current
level of activity and technology. If an enterprise cannot cover its
cost of depreciation, it is self-liquidating.
This point has been expressed most forcefully by Amtrak itself. As
Graham Claytor, former president of Amtrak has testified: ``Any company
that does not put in the capital to more than match its depreciation is
slowly liquidating itself. . . .'' \7\
The Council accordingly believes that it is absolutely essential
that Amtrak make provision for and recover its depreciation expenses
after FY2002 if it is to be considered ``operationally self-
sufficient'' in any meaningful sense of the term. If these expenses are
not recovered, Amtrak will not be able to operate on a sustainable
basis after FY2002; instead, it will be slowly liquidating itself.
The Council, however, recognizes that, unlike ``progressive
overhauls'' which can only be viewed as an operating expense under
GAAP, federal grants to Amtrak to replace assets consumed can also be
categorized as true capital investments because they are used to
purchase capital assets. Federal funds for Amtrak asset replacements
have, to the Council's knowledge, always been provided through capital
grants.
The difficulty as the Council sees it, however, is that the ARAA
makes no specific provision for continued funding of Amtrak's capital
needs, including to replace its assets. If the Congress were to speak
clearly on the issue and commit itself through authorizing legislation
to provide sufficient capital grant funds on a reliable, long-term
basis to cover Amtrak's cost of capital consumed (i.e., depreciation),
then the Council would recognize such funding commitments in
determining if Amtrak will be operationally self-sufficient after
FY2002.
Endnotes to the Appendix*
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*The Endnote Reference Material has been retained in the
Subcommittee files.
---------------------------------------------------------------------------
1. See Department of Transportation and Related Agencies
Appropriations for 1995, Hearings Before a Subcommittee of the
Committee on Appropriations, House of Representatives, Part 4, at 741.
2. Congressional funding of ``progressive overhauls'' through
capital grants originated from the exigencies of Amtrak's enormous
deferred equipment overhaul backlog in the early 1990's and from
furloughs or planned furloughs of equipment maintenance employees at
that time for lack of funds. See Department of Transportation and
Related Agencies Appropriations for 1993, Hearings Before a
Subcommittee of the Committee on Appropriations, House of
Representatives, Part 5, at 754; Department of Transportation and
Related Agencies Appropriations Bill, 1993, House Report, Committee on
Appropriations, H. Rep. 102-639, at 136; Department of Transportation
and Related Agencies Appropriation Bill, 1993, Senate Report, Committee
on Appropriations, S. Rep. 102-351, at 149; Senate Report, Committee on
Appropriations, Supplemental FY1993, S. Rep. 103-54, at 33. To avoid
further furloughs and increasing backlogs of heavy overhauls, Congress
chose to fund both capital and non-capital overhauls through capital
grants. Reflective of the purpose of such funding, the Committee report
language at the inception of this practice does not refer to
``progressive overhauls'' as such, but rather uses broad language to
describe the expenses as ``long-term equipment overhaul work'' (Senate
Report 102-351, at 149 (FY1993 Amtrak appropriation), supra); ``capital
equipment overhauls'' (House Report 103-105, at 1 (Second Supplemental
Appropriations, FY 1993)) or as necessary to ``avoid further furloughs
of employees at Amtrak's Indiana and Delaware maintenance and car
overhaul facilities.'' (Senate Report No. 103-54, at 33 (Amtrak
Supplemental Appropriations, FY1993)).
3. S. Rep. 105-85, at 1; see also Congressional Record, at S11930
(``At the end of 5 years there will not be operational subsidies by the
taxpayers of Amtrak. We have all agreed to that.'') (remarks of Sen.
Hutchison). (daily ed. 11/7/97)
4. Senate Hearing Before Subcommittee of Committee on
Appropriations, FY1995, S. HRG 103-810, Pt. 1 at 590 (3/24/94); see
also id. at 592-593, 621; House Hearing Before Subcommittee of
Committee on Appropriations, FY1997, Pt. 2, at 735-736 (noting Mr.
Down's goal of moving expenses of progressive overhauls from capital
account to operating account beginning in FY1997.)
5. See November 23, 1998 DOT/IG Summary Report on the Independent
Assessment of Amtrak's Financial Needs Through Fiscal Year 2002, at 3,
21, n.14; see also DOT/IG October 28, 1999 testimony Before the House
Subcommittee on Ground Transportation, at 2, 4, 6; DOT/IG March 10,
1999 testimony before Senate Subcommittee of Committee on
Appropriations, FY 2000, S. HRG. 106-221, at 197-198.
6. See July 1999 GAO Report, Intercity Passenger Rail, Amtrak's
Progress in Improving Its Financial Condition Has Been Mixed, at 12,
22.
7. Hearing Before the House Subcommittee on Transportation and
Hazardous Materials, Serial No.102-111, at 45; see also Senate Hearing
Before a Subcommittee of the Committee on Appropriations, FY1993, S.
HRG. 102-725, Pt. 2, at 124 (4/9/92); see also exchange between Sen.
Lautenberg and Gil Carmichael (FRA Administrator), id. at 236-237
(concurring with Claytor statement that ``if you invest less than your
depreciation you are liquidating'' and characterizing this observation
as a ``truism'').
Senator Hutchison. Thank you, Mr. Carmichael. I very much
appreciate exactly what you said. I appreciate the constructive
suggestions that you will make in the future, in addition to
the constructive criticism that you have made.
I think it is important that we have those kinds of
suggestions, as you are looking at it. We do not just need an
auditor. We need someone who is raising the points to say here
is what you would suggest are the better priorities.
I still want to discuss, and will ask more questions later,
why it is inconsistent to have generally accepted accounting
principles, but also be able to overhaul the units. I want to
discuss this matter with the APTA representative, because every
transit agency uses generally accepted accounting principles.
On the other hand, we have always had progress overhauls as
capital expenditures. So I want that to be cleared up,
hopefully without any more Congressional action. And so that is
on my agenda for the question period.
I will now call Mr. Kenneth Mead, the Inspector General of
the U.S. Department of Transportation, who has been in that
position for approximately 3 years.
Thank you, Mr. Mead.
STATEMENT OF KENNETH M. MEAD, INSPECTOR GENERAL,
U.S. DEPARTMENT OF TRANSPORTATION
Mr. Mead. Thank you, Madame Chair, Senators Cleland, Wyden,
Senator Snowe.
I would like to touch on five subjects briefly. These
include the operating results of Amtrak high-speed rail and its
depreciation and progressive overhaul issues. Something you
just said, I think, ought to be the proper focus. There is a
difference between the accounting treatment of this matter and
what the Federal Government can properly fund. They are two
different things, but sometimes they tend to be merged in the
discussion.
I would also like to touch on a life-safety issue. I would
like to put on the Committee's radar screen an issue pertaining
to the tunnels under New York and Penn Station, actually
tunnels going from New York to New Jersey, and also under Penn
Station. There are six of them. And I believe there are a
couple of issues about them that the Committee needs to be
aware of.
Before getting into my overview, I would like to say a word
about OIG's relationship with Amtrak. I think it is important
in any big undertaking to have a good working relationship with
all parties involved. As you know, we have a statutory
responsibility to report periodically on how Amtrak is
progressing on its glidepath.
I have to say that I think a major reason for the progress
we have made has been the forthcoming and forthright attitude,
full disclosure on the part of the Amtrak Board, its president,
and the senior staff at Amtrak.
I cannot think of a single instance where an obstacle has
been placed in our path. And that is a good working
relationship. And I just wanted to say that for the record.
It is very meaningful. A couple of times there have been
bumps in the road. We differ from time to time with Amtrak.
But the President of Amtrak, Mr. Warrington, has called us
up and said, ``You need to know about this issue that is
developing. What do you think about it?'' The record should
reflect this.
Five months into this year, we believe it is still possible
for Amtrak to achieve operating self-sufficiency by the due
date, 2003. But delays in the startup of the high-speed rail
service are going to make that difficult. Frankly, we see
Amtrak moving in the right direction on almost every front, but
the heavy lifting still lies ahead.
On Amtrak's operating results, over one-half of the $692
million in projections we found to be at risk in Amtrak's
business plan represented investments in projects that were to
have a payoff later. But it is imperative that Amtrak begin to
realize the payoffs of these investments. Small steps made in
1998 and 1999 must now be replaced with large strides.
A couple of points about Amtrak's performance in the first
quarter of 2000, I think it shows progress, but it also shows
that the strides are slow in coming. Overall passenger revenue
was almost $10 million better than this period last year, but
still more than $9 million behind their plan.
Amtrak West passenger revenues were higher by $2 million
than the first quarter last year, but they also fell short of
targets by
$1 million. And even with the high-speed rail delays, Northeast
Corridor passenger revenues were up 7 percent over last year
and $2 million better than plan. The express business is also
growing, with revenues almost $2 million better than the first
quarter last year.
A problem, though, has been intercity, which comprises most
of the long-distance trains. In the first quarter, intercity
fell short of its passenger revenue targets by nearly $11
million. And its passenger revenues were more than $2 million
shy of the same period last year.
I think that the market-based network analysis that you
have all heard so much about from Amtrak is to the intercity
component of Amtrak to what high-speed rail is to the Northeast
Corridor. So it is quite important.
On high-speed rail, Amtrak is now projecting that Acela
Express service will start this July. That is a delay of about
6 months. Whether this happens or not is going to depend on
Amtrak resolving a number of testing issues and pushing the
manufacturer to adhere to a strict delivery schedule.
Amtrak expects $142 million in lost passenger revenues to
be offset by expense savings and late delivery penalties. We
agree these offsets are likely, but only if there are no
further delays.
Make no mistake about it, high-speed rail is the
cornerstone of Amtrak's business plan. And the relatively small
financial impact this year should not detract from how
important it is to Amtrak's future to bring this program home
soon.
We know there has been some discussion about whether Amtrak
might need another year on its glidepath because of delays. We
think it is premature to make this call. We will report back. A
year from now we think we will be in a lot better position to
make an assessment about how long that glidepath will be and
whether there needs to be an adjustment.
Now I would like to move to the yardstick for self-
sufficiency. It captures the depreciation and progressive
overhaul issues.
Capital funding: The law eliminates operating subsidies
after 2002, but technically it is silent on whether capital
funding is going to be provided. If Amtrak makes its operating
self-sufficiency mandate, it will not be by much, and clearly
not by enough to cover even its bare-minimum capital needs.
If the truth be told, most people familiar with this
legislation knew that at the time that the legislation was
passed. Amtrak has never represented that it will not need
capital grants subsequent to the glidepath. I would like to
make that clear. Amtrak cannot continue to operate any part of
this railroad nationally, intercity, Amtrak West, or the
Northeast Corridor without capital assistance.
Capital depreciation: The ARC's position is that because
depreciation is defined as an operating expense by accounting
standards--and they are correct in that--that it ought to be
included in Amtrak's calculation of self-sufficiency. But
capital depreciation essentially represents capital replacement
costs. And it has historically been funded by the Congress
through capital grants, not operating subsidies.
Another way of looking at this: to require Amtrak to
include depreciation expenses in its calculation of operating
self-sufficiency will effectively make self-sufficiency by 2003
impossible. Even more fundamentally, it would have guaranteed
that result when the President signed this into law. It is kind
of ironic. You have to wonder why Congress would pass this law,
if the result was preordained.
Progressive overhauls: They are limited equipment overhauls
performed each year as a complement to the comprehensive, heavy
4-year overhaul program. Again, it is correct that progressive
overhauls are defined by accounting standards as an operating
expense. Technically that is true.
But based on our work, we think that allowing Amtrak to use
Federal funds for both progressive and heavy overhauls puts the
railroad in the best position to make overhaul decisions based
on what is best for the condition of its rolling stock.
What we are concerned about is if Congress were to say
``You cannot use Federal funds for progressive overhauls,''
Amtrak would not do them. They just would not do them. And they
would wait for 4 years. Then the heavy overhauls would cost
more, and the quality of the ride and efficiency and
reliability factors would deteriorate. We have seen this happen
with Amtrak before. I do not think we want a repeat.
Finally, I would like to move to this fire and life safety
issue. I believe you all have a handout.*
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* The information referred to has been retained in the Subcommittee
files.
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Do you have one?
Senator Hutchison. Yes. If you could be very brief on this,
because we are going to----
Mr. Mead. I will be. I just want to put this on the
Committee's radar screen.
There are about $654 million worth of unfunded fire- and
life-safety needs in New York, Penn Station and the river
tunnels. I brought these pictures along to illustrate two of
the more prominent needs for ventilation and evacuation. In the
event of a serious tunnel fire, the existing systems are not
ones that anybody would want to contend with.
The exit stairs shown in the first two pages of the
photos--these are the stairs that people would use to exit
these tunnels and the same stairs that the fire and rescue
people would use to get down into the tunnel. As you can see,
the stairs are ten stories, there is no railing, and there is
enough room for only one person.
So I just want to join with the Long Island Railroad, New
Jersey transit and Amtrak in saying that this is a fairly
important issue as we move down the road.
And thank you for the extra time, Madame Chair.
[The prepared statement of Mr. Mead follows:]
Prepared Statement of M. Kenneth Mead, Inspector General,
U.S. Department of Transportation
Madam Chair and Members of the Subcommittee:
We appreciate the opportunity to testify on Amtrak's financial
outlook. Last October, we provided our views in testimony before the
House Transportation and Infrastructure Subcommittee on Ground
Transportation. Our overall assessment at that time was that with
strong leadership, intense management, and favorable economic
conditions, it would be possible, albeit difficult, for Amtrak to
become operationally self-sufficient by 2003.
Five months into Fiscal Year (FY) 2000, we still believe that it is
possible for Amtrak to achieve operating self-sufficiency, although the
delays in Acela Express service will pose additional obstacles.
Amtrak's success will require aggressive pursuit of projects such as
the service improvements identified in its Market Based Network
Analysis and implementing high-speed rail service between Boston and
Washington that is not only fast, but reliable. A year from now, if
high-speed rail has begun and other market based service changes have
been implemented, we will be able to tell you with greater certainty
whether Amtrak is likely to achieve its Congressional mandate in 2003.
Today, we would like to present our views on Amtrak's Fiscal Year
1999 and first quarter 2000 financial results, the financial impact of
delays in the high-speed rail program, the ``yardstick'' for measuring
self-sufficiency, Amtrak's capital funding needs and spending plans,
and the critical fire and life-safety needs in Penn Station-New York
and the Hudson and East River tunnels.
Amtrak's Financial Results. The financial results for FY 1999
show that Amtrak has made some progress, but still indicate the need
for major improvement. Amtrak's audited 1999 operating loss of $916
million, including depreciation, was $56 million more than its 1998
loss and the largest in Amtrak's history.\1\ Amtrak's test for self-
sufficiency, however, pivots on its cash losses rather than its
operating losses. In 1999, the cash loss was $579 million, $54 million
higher than the 1998 cash loss and $19 million worse than Amtrak
projected for 1999.
---------------------------------------------------------------------------
\1\ Amtrak's reported operating loss for 1998 was $930 million,
which included the full amount of retroactive labor payments
attributable to the years 1996 through 1998 (per newly settled labor
agreements). After allocating these costs to the years in which they
were incurred, the 1998 operating loss totals $860 million.
---------------------------------------------------------------------------
On the positive side, Amtrak's systemwide passenger revenue grew by
almost 6 percent in 1999, although this was short of Amtrak's goals by
$31 million, or about 3 percent. Systemwide ridership increased by 2
percent from 1998 levels, led by growth of better than 3 percent in
both the Northeast Corridor and Amtrak West business units. Intercity
ridership decreased by 1.6 percent, due in part to fare increases,
reservation system glitches, and residual effects from the Bourbonnais
accident last March. Nevertheless, all three business units posted
increases in passenger revenues ranging from 2 to 11 percent.
In the first quarter of FY 2000, passenger revenue, while almost
$10 million better than the first quarter of FY 1999, was still more
than $9 million behind plan. Most significantly, Intercity passenger
revenues fell $11 million short of plan, and $2 million worse than the
same period last year. Intercity ridership also fell 7 percent short of
plan and 4 percent below the same period last year. These shortfalls
were partially offset by a strong 7 percent increase in passenger
revenues in the Northeast Corridor, which came in $2 million ahead of
plan despite the delays in high-speed rail. Overall, Amtrak recorded an
operating loss of $240 million. While these results indicate progress
in some areas, Amtrak will have to see much more improvement in the
remaining three quarters if it is to remain on its glidepath.
Amtrak has been able to mitigate passenger revenue shortfalls in
both 1999 and the first quarter of 2000 through means such as
reimbursable work \2\ and one-time sales of real estate, but these
opportunities are limited. Amtrak is clearly moving in the right
direction, but the heavy lifting is still ahead.
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\2\ Maintenance work performed for commuter and freight railroads,
and state and local agencies for which Amtrak is reimbursed.
High-Speed Rail Delays. Amtrak is currently projecting at
least a 6-month delay in the start-up of Acela Express service. The
delays were caused by suspension and oscillation problems in the wheel
trucks discovered during testing on the high-speed trainsets and
locomotives. Amtrak, the Federal Railroad Administration, and the
manufacturer have made progress in resolving these issues; however,
work continues on remaining issues that must be resolved before the
trainsets can be operated at their designed speed of 150 miles per
hour. The current delays and the associated lost passenger revenues are
projected to be $142 million this year. While this loss will make it
more challenging for Amtrak to achieve its financial goals in 2000, it
is too early to tell what impact it will have on Amtrak's self-
sufficiency mandate.
This year's revenue loss will be mostly mitigated by operating
expense savings, interest savings, and contractor penalties for late
equipment delivery. The balance is expected to be offset by new leasing
agreements valued at about $44 million. The fact that the current
delays will have a minimal effect on Amtrak's 2000 operating results
should not detract from the critical significance of the high-speed
rail program. High-speed rail is the cornerstone of Amtrak's business
plan, and its success is critical to Amtrak's ability to reach self-
sufficiency. The offsetting savings, penalties, and leasing actions are
sufficient in the short term, but compensation is no substitute for
implementation. Amtrak should move as quickly as possible to begin
service, but should not do so until it is certain that this service can
be operated with consistent reliability.
On a final note, we are aware that there has been some discussion
about whether Acela delays might necessitate an extension of Amtrak's
glidepath by one year. Our view is that it is premature to make this
call. In a year, we will be in a better position to judge the impact of
the delays on Amtrak's timeframe for reaching self-sufficiency.
Amtrak's ``Yardstick'' for Self-Sufficiency Needs to Be
Clearly Defined. The Amtrak Reform and Accountability Act of 1997
(ARAA) precludes Amtrak from using Federal funds for operating expenses
after 2002, except for excess contributions to the railroad retirement
fund (RRTA). It is silent, however, on several key issues. We believe
clarification is necessary so that Amtrak, the Congress, the
Administration, and the Amtrak Reform Council (ARC) can all measure
Amtrak's progress using the same set of standards.
Capital Funding After 2002. While precluding use of
Federal funds for most operating expenses, ARAA does not
specifically indicate the Congress' intent to provide capital
funds after 2002. If Amtrak makes its mandate in 2003, it will
not make it by much; clearly not enough to cover its minimum
capital requirements. Even with the currently projected Federal
capital funding, Amtrak will fall $244 million short of meeting
its minimum capital needs in 2001 and 2002. Without funds to
cover such costs as debt or mandatory safety improvements,
Amtrak will not be able to continue to operate the railroad. It
would be pointless for Amtrak to reach operating self-
sufficiency in 2003, if the absence of capital funds in that
year would effectively shut down the railroad.
Capital Depreciation. The ARC has stated its position
that Generally Accepted Accounting Principles (GAAP) are both
logically and legally the standards that should be used to
measure Amtrak's operating self-sufficiency. Because capital
depreciation expenses are operating expenses, a strict
application of GAAP would require Amtrak to include
depreciation, essentially the cost of replacing capital, in its
calculation of operating self-sufficiency. This would require
Amtrak to cover the costs of capital replacement from its fare
box after 2002. Although we agree with the ARC that GAAP
standards are the appropriate ones to use in examining Amtrak's
finances (and we have always done so in our assessments), we
disagree that depreciation expenses should be included in the
self-sufficiency calculation. Congress has historically funded
replacement of capital assets through capital grants, not
through the operating subsidies that ARAA seeks to end. In
addition, requiring Amtrak to include depreciation in its
calculation of operating self-sufficiency would effectively
guarantee that Amtrak would not reach its mandate by 2003 and,
in fact, would have guaranteed that result when the law was
passed in 1997.
Progressive Overhauls. Progressive overhauls are
limited equipment overhauls that are performed each year in
lieu of a comprehensive, or ``heavy'' overhaul every 4 years.
Amtrak believes that progressive overhauls increase equipment
reliability, reduce out-of-service time on equipment, and save
money.
The ARC has taken the position that under ARAA, progressive
overhauls, as an operating expense, could not be federally
funded after 2002. We agree that progressive overhauls are
operating expenses, but other considerations should come into
play in deciding what overhaul program Amtrak should be able to
use Federal funding for after 2002. Prohibiting the use of
Federal funds for progressive overhauls would likely encourage
Amtrak to scale back or even eliminate them completely. Amtrak
would rely instead exclusively on heavy overhauls, which can be
funded out of Federal funds after 2002. Because progressive
overhauls keep equipment in a better average state of good
repair and increase availability for service, eliminating them
would likely lead to a reduction in service reliability,
customer satisfaction, and critical passenger revenues.
It is important to note that this shift to an exclusive heavy
overhaul program would not change the total amount of Federal
funds being used by Amtrak for overhauls. Reductions in
progressive overhaul expenditures (currently federally funded)
would likely be offset, dollar for dollar, by increased
expenditures for heavy overhauls (federally funded now and
after 2002).
If capital funding is to be provided beyond 2002, allowing
Amtrak to use Federal funds for both progressive and heavy
overhauls would allow Amtrak to make responsible business
decisions about the best way to keep the railroad's capital
assets in good working order. Discontinuing this practice would
likely result in a less satisfactory overhaul program, dictated
solely by the fact that Federal funds may be used for heavy
overhauls after 2002, while progressive overhauls would need to
be funded from the fare box.
Despite Anticipated Capital Funding Shortfalls, Amtrak
Continues to Provide for Projects Beyond Minimum Needs. Our last
assessment of Amtrak's financial needs found that projected Federal
funding will fall short of meeting minimum capital needs in 2001 and
2002 by at least $244 million.\3\ Still, Amtrak continues to pursue
projects such as investment in the design of the planned California
high-speed rail corridor and infrastructure improvements to support new
Las Vegas service. Amtrak believes such projects are critical
investments if it is to continue to improve financially. While we are
sympathetic to Amtrak's position, it is necessary for Amtrak to first
ensure that funds are available to meet legal obligations and to make
the minimum investments necessary to continue the safe, reliable
operation of the national rail system over the short term.
---------------------------------------------------------------------------
\3\ Report No. CE-1999-116, July 21, 1999. Report on the 1999
Assessment of Amtrak's Financial Needs Through Fiscal Year 2002, Office
of Inspector General, U.S. Department of Transportation.
---------------------------------------------------------------------------
Last year, we projected that Amtrak's minimum needs in 2001 and
2002, $459 million and $391 million, respectively, exceed available
funding by $139 million and $105 million, respectively. These estimates
represent the annual minimum investment necessary in areas such as
debt, infrastructure improvements, life-safety, and equipment
overhauls. Every capital dollar spent on projects outside minimum needs
adds another dollar to the existing minimum needs funding shortfall.
Fire and Life-Safety Needs in Penn Station-New York and the
Six Hudson and East River Tunnels. Amtrak has identified over $12
billion in capital needs on the southend of the Northeast Corridor over
the next 25 years. One of the most serious needs relates to $654
million in unaddressed fire and life-safety needs in Penn Station and
the six adjoining river tunnels. In addition to Amtrak, the Long Island
Rail Road and New Jersey Transit use the station and tunnels. Although
these railroads have already invested $150 million in the project, the
remaining problems (estimated at $654 million in 1997 dollars) will not
be fixed before 2014 under the current plan.
The plan's timing is long, in part, because of the difficulty of
doing the construction without impairing the operations of the three
railroads and, in part, because of assumed funding constraints. We have
asked the three railroads to estimate how much the plan could be
accelerated, especially the most serious needs for ventilation and
evacuation, if its timing were only constrained by the pace of
operations and not by a lack of funding. When this accelerated plan is
available, the three railroads, the Administration and Congress should
explore ways to implement this new, accelerated plan.
Year End Results Show Some Progress, But the Heavy Lifting Is Still
Ahead
Amtrak's financial results for FY 1999 show that Amtrak has made
some progress, but still indicate the need for major improvement if
Amtrak is to reach operating self-sufficiency by 2003. While Amtrak was
able to accomplish most of its stated financial goals, Amtrak's audited
FY 1999 operating loss of $916 million, including depreciation, was $56
million more than its 1998 loss and the largest in Amtrak's history.\4\
On the positive side, Amtrak's systemwide passenger revenues grew by
almost 6 percent while systemwide ridership increased by 2 percent over
1998 levels.
---------------------------------------------------------------------------
\4\ Amtrak's reported operating loss for 1998 was $930 million,
which included the full amount of retroactive labor payments
attributable to the years 1996 through 1998 (per newly settled labor
agreements). After allocating these costs to the years in which they
were incurred, the 1998 operating loss totals $860 million.
---------------------------------------------------------------------------
FY 2000 is a critical year for Amtrak. Last October, we testified
that Amtrak's operating loss in 1999 reflected, in part, investments in
projects like the Market Based Network Analysis (MBNA) and Service
Standards, which had high up-front costs such as training and research,
but were expected to yield significant financial improvements in the
years ahead. These and other ``placeholders'' accounted for over half
of the $692 million in projections we considered to be ``at risk'' in
the 1999 Business Plan.\5\ This year, it is imperative that Amtrak
begin to realize the payoffs of such investments--the small steps made
in 1998 and 1999 must now be replaced with large strides this year and
next.
---------------------------------------------------------------------------
\5\ Business Plan Actions projecting revenue growth or expense
savings for which no concrete plans had been developed or linked to
projected results.
---------------------------------------------------------------------------
The first quarter of 2000 indicates that these strides are slow in
coming. Overall passenger revenue, while almost $10 million better than
the first quarter of FY 1999, was still more than $9 million behind
plan. Both Amtrak West and Intercity fell short of their passenger
revenue targets for this period, although Amtrak West's revenues
exceeded results for the same period last year. Intercity, however, not
only fell short of its passenger revenue targets by nearly $11 million,
its revenues were more than $2 million shy of the same period last
year. The good news is that, despite the delays in high-speed rail
service, Northeast Corridor passenger revenues for the first quarter of
FY 2000 were up a strong 7 percent, exceeding projections by over $2
million.
Amtrak has been able to mitigate passenger revenue shortfalls in
both 1999 and the first quarter of 2000 through means such as
reimbursable work ($8.6 million greater than plan) and one-time sales
of real estate. Additionally, the Express business is growing, with
revenues almost $2 million better than the first quarter last year, and
$1 million better than planned. Amtrak is clearly moving in the right
direction, but the heavy lifting is still ahead.
On a cautionary note, we are pleased to see Amtrak able to
compensate for some of the shortfalls in passenger revenues, but we are
concerned that such shortfalls are occurring at this magnitude,
especially in Intercity. A chain is only as strong as its weakest link,
and even if projects such as high-speed rail perform as well as
projected, those revenues alone will not be enough for Amtrak to reach
and sustain viability. Amtrak must work just as aggressively to
maintain existing sources of revenue as it works to secure new
sources--otherwise benefits related to improved operations will only
serve to maintain the status quo. As service changes indicated
in the MBNA are implemented, we expect to see a strengthening of all of
Amtrak's
revenues.
Amtrak Will Be Able to Mitigate FY 2000 Losses Related to Acela Delays
Because of delays in the delivery of the new Acela Express high-
speed trainsets and the Acela Regional high-speed locomotives, full
implementation of new Acela Express and Regional services will be
delayed about 6 months.\6\ The delays were caused by suspension and
oscillation problems in the wheel trucks discovered during testing on
the high-speed trainsets and locomotives. Amtrak, the Federal Railroad
Administration, and the manufacturer have made progress in resolving
these issues; however, work continues on remaining issues that must be
resolved before the trainsets can be operated at their designed speed
of 150 miles per hour. As a result of these delays, Amtrak will forgo
an estimated $142 million in expected gross revenue that would have
been generated by these Acela services. While this loss will make it
more challenging for Amtrak to achieve its financial goals in 2000, it
is too early to tell what impact it will have on Amtrak's self-
sufficiency mandate.
---------------------------------------------------------------------------
\6\ Delivery of the last (20th) Express trainset will not occur
until December 2000 rather than July 2000 and the last (15th) high-
speed locomotive for Regional service will not be delivered until June
2000 rather than December 1999.
---------------------------------------------------------------------------
This year's loss will be mostly mitigated by expense savings,
interest savings, and contractor penalties for late equipment delivery.
By not operating these services, Amtrak will save operating expenses
for propulsion power, maintenance costs, onboard labor and supplies,
and financing costs. In addition, Amtrak's purchase contract for the
trainsets and locomotives includes a provision for liquidated damages
for forgone revenue in the event of a delivery delay. These savings
total $98 million of the gross revenue loss of $142 million. We have
reviewed Amtrak's calculations of these expected savings in operating
expenses, financing costs, and liquidated damages and conclude that
these savings appear reasonable.
Amtrak is in the process of negotiating lease agreements that it
projects will generate sufficient revenue in FY 2000 to offset the
remaining net revenue loss. We have reviewed the proposals and their
related revenue projections, as well as the likelihood they will be
achieved. It is our opinion that, if these lease agreements are
successfully completed, Amtrak will achieve the $44 million offset this
fiscal year. However, if delays extend beyond those currently
identified, additional mitigating plans would need to be developed or
revenue losses could affect 2000 operating results. Unfortunately, had
the delivery delay not occurred, these funds could have been used to
mitigate other risks in Amtrak's business plan or to address many
capital investment needs that it has throughout its system.
The fact that the current delays are likely to have a minimal
impact on Amtrak's 2000 operating budget should not detract from the
critical significance of the high-speed rail program. High-speed rail
is the cornerstone of Amtrak's business plan, and its success is
critical to Amtrak's ability to reach self-sufficiency. The offsetting
savings, penalties, and leasing actions are sufficient in the short
term, but compensation is no substitute for implementation. Amtrak
should move as quickly as possible to begin service, but should not do
so until it is certain that this service can be operated with
consistent reliability.
On a final note, we are aware that there has been some discussion
about whether Acela delays might necessitate an extension of Amtrak's
glidepath by one year.
Our view is that it is premature to make this call. In a year, we will
be in a better
position to judge the impact of the delays on Amtrak's timeframe for
reaching
self-sufficiency.
The ``Yardstick'' Used to Measure Operating Self-Sufficiency Needs
Clarification
The Amtrak Reform and Accountability Act of 1997 (ARAA) precludes
Amtrak from using Federal funds for operating expenses after 2002,
except for the costs of excess contributions to the railroad retirement
fund (RRTA). It is silent, however, on several key issues. We believe
clarification is necessary so that Amtrak, the Congress, the
Administration, and the Amtrak Reform Council (ARC) can all measure
Amtrak's progress using the same set of standards.
Capital Funding After 2002. While precluding use of
Federal funds for most operating expenses, ARAA does not
specifically indicate the Congress' intent to provide capital
funds after 2002. If Amtrak makes its mandate in 2003, it will
not make it by much; clearly not enough to cover its minimum
capital requirements. Even with the currently projected Federal
capital funding, Amtrak will fall $244 million short of meeting
its minimum capital needs in 2001 and 2002. Without funds to
cover such costs as debt or mandatory safety improvements,
Amtrak will not be able to continue to operate the railroad. It
would be pointless for Amtrak to reach operating self-
sufficiency in 2003, if the absence of capital funds in that
year would effectively shut down the railroad.
Capital Depreciation. The ARC has stated its position
that Generally Accepted Accounting Principles (GAAP) are both
logically and legally the standards that should be used to
measure Amtrak's operating self-sufficiency. Because capital
depreciation expenses are operating expenses, a strict
application of GAAP would require Amtrak to include
depreciation, essentially the cost of replacing capital, in its
calculation of operating self-sufficiency. This would require
Amtrak to cover the costs of capital replacement from its fare
box after 2002.
Although we agree with the ARC that GAAP standards are the
appropriate ones to use in examining Amtrak's finances (and we
have always done so in our assessments), we disagree that
depreciation expenses should be included in the self-
sufficiency calculation. Congress has historically funded
replacement of capital assets through capital grants, not
through the operating subsidies that ARAA seeks to end. In
addition, requiring Amtrak to include depreciation in its
calculation of operating self-sufficiency would effectively
guarantee that Amtrak would not reach its mandate by 2003 and,
in fact, would have guaranteed that result when the law was
passed in 1997.
Progressive Overhauls. Progressive overhauls are
limited equipment overhauls that are performed each year in
lieu of a comprehensive, or ``heavy,'' overhaul every 4 years.
Amtrak believes that progressive overhauls increase equipment
reliability, reduce out-of-service time on equipment, and save
money.
The ARC has taken the position that under ARAA, progressive
overhauls, as an operating expense, could not be federally
funded after 2002. We agree that progressive overhauls are
operating expenses, but other considerations should come into
play in deciding what overhaul program Amtrak should be able to
use Federal funding for after 2002. Prohibiting the use of
Federal funds for progressive overhauls would likely encourage
Amtrak to scale back or even eliminate them completely. Amtrak
would rely instead exclusively on heavy overhauls, which can be
funded out of Federal funds after 2002. Because progressive
overhauls keep equipment in a better average state of good
repair and increase availability for service, eliminating them
would likely lead to a reduction in service reliability,
customer satisfaction, and critical passenger revenues.
It is important to note that this shift to an exclusive heavy
overhaul program would not change the total amount of Federal
funds being used by Amtrak for overhauls. Reductions in
progressive overhaul expenditures (currently federally funded)
would likely be offset, dollar for dollar, by increased
expenditures for heavy overhauls (federally funded now and
after 2002).
If capital funding is to be provided beyond 2002, allowing
Amtrak to use Federal funds for both progressive and heavy
overhauls would allow Amtrak to make responsible business
decisions about the best way to keep the railroad's capital
assets in good working order. Discontinuing this practice would
likely result in a less satisfactory overhaul program, dictated
solely by the fact that Federal funds may be used for heavy
overhauls after 2002, while progressive overhauls would need to
be funded from the fare box.
Despite Anticipated Capital Funding Shortfalls, Amtrak Continues to
Provide for Projects Beyond Minimum Needs
In our 1999 assessment, we estimated that projected Federal funding
in 2001 and 2002 would fall short of meeting Amtrak's minimum capital
needs by approximately $244 million. The figure below illustrates the
timing of this shortfall.
Despite our recommendation that Amtrak identify funding for all of
its known minimum needs before investing in developmental, yet non-
critical needs, Amtrak's 2000 capital plan continues to provide funds
for such projects.
The following are two examples of non-minimum needs spending.
California is considering spending $20 to $34 billion
to build a very high-speed rail network that will not be
completed before 2017. Amtrak is spending $5 million in 2000,
and plans to spend another $20 million between 2001 and 2004 to
finance a series of studies and projects related to this
corridor. The State is investing an additional $180 million.
Amtrak believes this investment will ensure Amtrak's position
in the planning and eventual provision of this high-speed
service.
Amtrak is investing $14 million in infrastructure
improvements necessary to support a new Las Vegas service. The
total project cost is $28 million, and Amtrak is hoping that
the $14 million balance will be funded with a separate Federal
appropriation. Amtrak is projecting $1.35 million in net
revenues by 2004 from this service. When the same project was
proposed last year, our analysis indicated that expenses were
likely to exceed revenues, in which case we concluded Amtrak
would most likely make the decision to not offer the service,
and restated the projected net revenues to zero.
Amtrak believes these projects are critical to its ability to
generate future revenues and cost savings. In fact, revenues like those
projected from the Las Vegas service are some of the building blocks in
Amtrak's plan for reaching self-sufficiency. While we are sympathetic
to Amtrak's position, it is necessary for Amtrak to ensure that funds
are available for the minimum required investment in areas such as
life-safety and refleeting. This will not be possible in 2001 and 2002
if Amtrak continues spending on non-minimum needs. If the
Administration's proposed budget for 2001 is adopted, Amtrak would have
sufficient funds to address minimum needs and invest in projects with
long-term growth opportunities like new high-speed corridors. In the
meantime, while such funding remains uncertain, we recommend that
Amtrak take the more prudent course of delaying investment in such
projects until all minimum needs are met and/or additional funding
becomes available.
Critical Life-Safety Needs in New York's Penn Station and River Tunnels
On a final note, we are very concerned with longstanding fire and
life-safety needs in Penn Station and the six Hudson and East river
tunnels connecting Penn Station to Queens and New Jersey. The Penn
Station fire and life-safety project began in 1976, and more than $106
million has been spent on these needs between 1976 and 1999. Even
though an additional $43 million will be spent by Amtrak, the Long
Island Rail Road and New Jersey Transit in FY 2000, funding has not
been secured for some of the more critical projects such as lighting
improvements, benchwall repairs, evacuation stairs, and tunnel
ventilation. The price tag for these projects after 2000 is $654
million.
The current plan for addressing all needs anticipates completion by
2014. This is partly a function of constraints caused by the number of
trains running through the tunnels and station each day. There are
limits to how quickly the life-safety investments can be made without
widespread disruptions for commuters and intercity passengers. But the
prolonged schedule is also a function of constrained funding. Amtrak
and the commuter railroads have identified several projects, including
those that address critical ventilation and evacuation needs, which
could be accelerated if funding were not a constraint. Such
acceleration could be facilitated by a joint effort among the
railroads, the Administration, and the Congress.
Madam Chair, Amtrak's ability to successfully implement its
Northeast Corridor high-speed rail program and service improvements
indicated by the Market Based Network Analysis will play a crucial role
in determining whether Amtrak's efforts will be sufficient to sustain
progress along its remaining glidepath to operating self-sufficiency.
During this period, it is important that all parties reach agreement on
what ``self-sufficiency'' means. I can assure you we will continue to
look closely at Amtrak's progress along its glidepath, and keep you and
your staff fully informed. We expect to have our assessment report on
Amtrak's 2000 Strategic Business Plan available early this summer.
This concludes our statement. I would be pleased to answer any
questions.
Senator Hutchison. Thank you, Mr. Mead. And perhaps that is
the subject of another hearing, a safety hearing.
But I do very much appreciate your comments regarding the
capital depreciation or replacements costs, which Congress has
always funded. I think that is very important; and also the
alternative would be to let cars deteriorate, which is why
Amtrak got in trouble in the first place. So I think we have to
try to reconcile this for the ARC so that we can be more
realistic.
And last but not least, I think it is absolutely clear from
the law and from everyone who spoke on the Amtrak reform
legislation in 1997, that we were never intending to preclude
capital expenditures for Amtrak, just as every other public
transit and every other transportation mode has from Federal
taxpayers.
With that, let me say that I am going to ask the next two
witnesses, both of whom represent transit agencies, to stay
within the 5-minute limit.
And I will call on first Mr. Bill Millar, who is the
President of the American Public Transportation Association.
And if you could refine your remarks to 5 minutes, I would
appreciate it. Thank you.
STATEMENT OF WILLIAM MILLAR, PRESIDENT,
AMERICAN PUBLIC TRANSPORTATION ASSOCIATION
Mr. Millar. Thank you, Madame Chair. And I will certainly
do my best to stay within the 5-minutes.
And I think that Mr. Mead has outlined a lot of the
technical accounting issues that I had intended to cover. And I
completely agree with his analysis of it.
Let me skip over my introductory remarks then and go
straight to what I believe to be the heart of my testimony that
is of interest to the Committee.
I have been asked specifically to comment on how public
transit systems account for certain types of expenses, namely
heavy vehicle overhaul, which is a term we use which is
equivalent to the progressive overhaul that Amtrak uses, and
the depreciation expenses, or more precisely, does the transit
industry regard these as part of operating budget expenses of
capital expenses?
Now in preparing the testimony here, I had the staff review
a number of audit statements from a number of transit systems.
And I find that while individual public transit systems may
describe or account for their expenses slightly differently,
all do so under the overall umbrella of the generally accepted
accounting principles, or GAAP principles, as we speak of here
today. That is consistent, also, with what my experience was in
many years of heading up the public transit system that served
the public in Pittsburgh, Pennsylvania.
Now talking about depreciation specifically, private
enterprises use depreciation not simply to meet GAAP standards,
but it is a practical matter to reduce their income taxes. It
also helps explain in a more systematic way the cost of asset
over time.
Well, public agencies simply do not pay income taxes. It is
not an issue with public transit agencies. In fact, a number of
years ago, the Congress allowed through the tax code for public
agencies who have no need of depreciation to actually sell that
depreciation as a way to replace equipment more rapidly, things
of that sort.
For most transit systems, operating revenue, like for
Amtrak, as I understand it, is a very precious commodity and is
guarded very carefully. We do not spend operating revenue today
on tomorrow's replacements.
For example, the DART system in Dallas that I know the
Chair is very familiar with, does not allocate its operating
dollars today for future renovations of the system, even though
they are clearly getting great benefit in the community from
the light rail vehicle and the bus system that they operate.
So, too, with Fort Worth, San Antonio, Austin, and, as the
Chair has mentioned, Houston as well.
So the practice, then, is to carry the depreciation on an
operating statement for the reasons that the inspector general
has outlined to you. But frankly, it has very little meaning in
the public sector context because the equipment that is going
to be replaced, the assumption is it will be from some form of
public funding down the road.
Now turning to the issue of vehicle overhauls, a similar
situation exists there. The Federal Transit Administration has
allowed definitions of capital funding to be spent for heavy
overhauls; that is, replacement of major components of rolling
stock now for some
13 years. And in recent times, that definition has in fact been
broadened. And it now allows that subcomponents can be
rehabilitated as time goes by, not waiting for major heavy
overhauls.
Regrettably, the experience in the public transit industry
was much as Inspector Mead just described in Amtrak, that if it
was not allowed in this fashion, then simply these kinds of
improvements were not made on a timely basis. And that is
unfortunate, indeed, from every way you look at it.
Now there are other experiences in this area that I would
like to draw to your attention. For example, I spent much of my
working career in the State of Pennsylvania. And it became
clear that when dealing with overhauls, a couple of principles
were agreed to by all: One, that the strategic overhauls do
extend the service life of vehicles. And thus, they really help
maximize the benefit of the public investment that was made in
the vehicle in the first place; second, that periodic heavy
maintenance activity served to significantly improve vehicle
reliability, reduce equipment breakdowns and the associated
consumer inconvenience, and allow for preventative maintenance
and safety objectives to be met on a more regular and more
timely basis.
I think it is also interesting, if one steps away from
public passenger transportation for a moment and looks over in
the modern funding of a highway program, that in fact the
Congress has allowed with each succeeding surface
transportation bill more emphasis on maintaining highway
systems.
So we see preventative maintenance activities, such as
bridge painting being allowed. We see a whole program called
interstate maintenance being allowed. So you even find the
analogies in there as well.
Let me close with two concluding statements, and these
would be as follows. Although the public transportation
agencies may use different methods of accounting for
depreciation vehicle overhaul expenses under GAAP, two
conclusions are clear: One, while public transportation
agencies may report depreciation as a non-cash expense item in
their operating statement, they generally do not budget for
depreciation of these assets that are government funded and for
which replacement is expected to be government funded.
And second, many transit agencies fund heavy overhauls with
capital funds that are received from a variety of governmental
sources. And as the Chair has said, these same agencies have
their statements audited every year. They receive clean audits
because it fits within the overall understanding of what the
practice is in the industry.
With that, Madame Chair, I thank you. And I would be happy
to answer any questions at the appropriate time.
Senator Hutchison. Thank you.
[The prepared statement of Mr. Millar follows:]
Prepared Statement of William Millar, President,
American Public Transportation Association
Introduction
Good morning Chairman Hutchison and Members of the Surface
Transportation Subcommittee. I am pleased to be here today on behalf of
the American Public Transportation Association (APTA) to testify
specifically on certain capital cost accounting practices used in the
public transportation industry. Consistent with your letter of
invitation, I will also highlight other issues, including the
importance of ongoing investments in rail infrastructure to a balanced,
intermodal transportation system that offers choices to travelers and
offers the potential to build a healthy future for America.
About APTA
APTA is a nonprofit international association of over 1,270 member
organizations including transit systems; planning, design, construction
and finance firms; product and service providers; academic
institutions, and state associations and departments of transportation.
APTA members serve the public interest by providing safe, efficient and
economical transit services and products. Over ninety percent of
persons using public transportation in the United States and Canada are
served by APTA members.
Public Transportation Use is Growing
Across America, public transportation in general, and commuter rail
and rail transit in particular, is in the midst of a rebirth. Because
of increasing investment levels made possible through the
Transportation Equity Act for the 21st Century (TEA 21) and annual
appropriations acts, public transportation ridership is on the rise, a
trend likely to continue as many of the 200 new passenger rail projects
authorized by TEA 21 take shape.
The latest ridership figures verify a trend of more and more people
choosing to use public transportation services. Thanks to Congress's
investment in the federal public transportation program, improvements
in the transit commuter benefit tax law, a healthy economy, and other
factors, an estimated 9 billion transit trips were taken in 1999, the
highest ridership in almost forty years. Over the last four years,
transit ridership in the United States has grown by 16 percent.
Transportation Options are Needed to Address Traffic Congestion
There is no disputing the fact that traffic congestion in the U.S.
has reached epidemic proportions. Problems surround us on weekdays and
weekends alike, no matter what time of day. A study released by the
Texas Transportation Institute (TTI) confirms our observations: traffic
is bad, and is getting worse each year. The study notes that in 1997,
congestion cost travelers in 68 urban areas 4.3 billion hours of delay.
The financial cost of congestion now exceeds $72 billion annually, an
increase of more than $6 billion over the previous year. That is the
equivalent of $755 per eligible driver, or $3 in congestion cost per
driver every working day.
While the TTI study advances a number of possible solutions to
America's traffic congestion crisis, one of the core proposals to
increase mobility is very clear: offer citizens mobility choices. We
believe public transportation can and will play an enormous role in
doing just that. And such choices should extend to travel between
cities as well as travel within cities.
Capital Cost Accounting: What are the Standard Practices?
I have been asked to comment on how public transportation systems
account for certain types of expenses, namely heavy vehicle overhaul
and depreciation expenses. More precisely, does the transit industry
regard such costs as operating budget expenses or as capital budget
expenses?
As President of APTA, I speak broadly on this topic, being
reasonably familiar with the practices used by many transit systems
across the United States. However, individual public transportation
systems may describe or account for expenses differently in accordance
with local requirements or law while still adhering to Generally
Accepted Accounting Principles (GAAP). I also speak from experience
gained while serving thirteen years as Executive Director of Port
Authority of Allegheny County, the public transportation system serving
Pittsburgh, Pennsylvania, where consideration was continually given to
the best way to fund and reflect capital and operating expenses.
How Public Transportation Systems Treat Depreciation
Private sector enterprises account for depreciation primarily to
reduce taxable income and to distribute the cost of an asset over its
useful life in a systematic manner. Public agencies normally do not pay
taxes and thus would not benefit from the first reason. While transit
agencies typically include depreciation as an expense in the
preparation financial statements audited under GAAP, depreciation
expenses are specifically identified as a non-cash item that is
excluded from the calculation of operating expenses. In addition,
transit agencies generally do not budget for depreciation expenses when
the purchase of assets is funded through federal and/or other
governmental capital grants (the manner in which the vast majority of
transit capital projects are funded).
To offer an illustration, as citizens of Dallas continue to enjoy
their new light rail system, the Dallas Area Rapid Transit Authority
(DART) does not allocate today's operating dollars to fund future
renovations of their system. Any future renovations of the DART system
will instead be funded through sources of capital funding that may be
available, such as dedicated taxes, capital grants, private financing
or creative financing techniques.
Another example will be for the ongoing bus and trolley bus
replacement needs in cities such as Fort Worth, Houston, San Antonio
and Austin. Rather than accounting for depreciation in each annual
operating budget as vehicles age (an accounting practice used in the
private sector largely for tax write-offs), the practice in the transit
industry is to fund such capital investments through separate funding
sources available for capital projects. This allows the operating
budget to reflect the costs of operating the system, rather than
longer-term capital costs.
How Public Transportation Systems Treat Vehicle Overhauls
The Federal Transit Administration's definitions of capital funding
clearly allow for heavy overhauls, i.e., the replacement of major
components of rolling stock. Since 1987, the federal public
transportation program has regarded vehicle overhauls as an eligible
and desirable capital activity. This program recognizes that the
various sub-components of a rail vehicle generally have a useful life
of much less than the twenty-five or more year useful life of the
vehicle.
Further, during my years in Pennsylvania, I worked extensively with
the Pennsylvania Department of Transportation and the Pennsylvania
State Legislature to come up with a reasonable way to pay for vehicle
overhauls. That dialogue was based on two fundamental principles: (1)
that strategic vehicle overhauls serve to extend the life of vehicles,
and thus help to maximize the benefit of the public investment in that
vehicle, and (2) that periodic ``heavy maintenance'' activities serve
to significantly improve vehicle reliability, reduce equipment
breakdowns and the associated customer inconvenience, and satisfy
important ``preventive maintenance'' objectives. Pennsylvania chose to
fund a public transportation vehicle overhaul program as a part of the
state's capital budget.
Evolving Public Policies
Public transportation is not the only surface transportation mode
which handles major overhauls in this manner. I call to your attention
that the federal highway program has taken significant steps in recent
years to include certain maintenance costs as eligible activities for
capital funding. The Intermodal Surface Transportation Efficiency Act
of 1991 (ISTEA) began to allow flexibility in the use of funds for
certain preventive maintenance activities, such as bridge painting, and
established ``Interstate Maintenance'' as an eligible capital program.
Using another Pennsylvania example, only about 10-20 percent of the
Pennsylvania Department of Transportation's recent highway capital
budgets have gone toward the construction of new roads, with the large
majority of the budget going to restoration and rehabilitation programs
intended to make the existing system work better. Pennsylvania, and the
federal highway program as well, are redefining the distinctions
between capital and operating costs to reflect these ``maintenance
first'' policies.
Conclusion
Chairman Hutchison, I hope this information is helpful to the
Subcommittee in its deliberations on this matter. Although public
transportation agencies may use different methods of accounting for
depreciation and vehicle overhaul expenses under GAAP, two conclusions
are clear: (1) while public transportation agencies may report
depreciation as a non-cash expense item in their operating statement,
they generally do not budget depreciation for assets that are
government funded, and for which replacement is expected to be
government funded, and (2) many transit agencies fund heavy overhauls
with capital funds received from a variety of governmental sources.
I thank you for the invitation to testify before the Surface
Transportation Subcommittee. I would be happy to answer any questions
that the Subcommittee may have today, or at any time subsequently.
Senator Hutchison. Thank you. That was very helpful, and
particularly your pointing out that highway funds are now used
for interstate maintenance, for certain preventative
maintenance activities.
That is in your testimony, and I think it is very
important, Mr. Carmichael, for the Amtrak Reform Council to
have those references. Indeed, highway funds are used to
refurbish rail stations. So there is a lot of subsidy and a lot
of, I think, analogy that fits. So I thank you.
And with that, I will call on Dr. Catherine Ross, the
Executive Director of the Georgia Regional Transportation
Authority.
STATEMENT OF DR. CATHERINE ROSS, EXECUTIVE DIRECTOR, GEORGIA
REGIONAL TRANSPORTATION AUTHORITY
Dr. Ross. Thank you, Madam Chairwoman, and thank you,
Senator Cleland, for the opportunity to come before you today
and talk about continuing support for Amtrak and the rebirth of
rail passenger travel in our States and metropolitan areas,
with particular reference to the Georgia experience.
Currently, there is no intercity rail in the State of
Georgia, and we have looked to Amtrak for expertise, and
advice, and leadership for high-speed rail development. The
Georgia legislature created the Georgia Regional Transportation
Authority at the direction of Governor Roy Barnes less than a
year ago.
We are charged with relieving congestion and reducing
pollution in the 13-county region that is non-attainment for
air quality. Part of our core mission is to provide the Atlanta
region transportation choices, and commuter rail expansion is a
large part of our plan.
I am proud to tell you today that in-state passenger rail
is getting back on track in Georgia, and we expect to provide
Georgia's intercity commuters a real choice in rail by the year
2003, but we can no longer meet that demand by simply adding
more highway capacity.
For one thing, the Georgia Regional Transportation
Authority is committed to providing more transportation choices
that includes new roads, car pool lanes, express buses, and van
pools. Rail service is an important part of the mix that is
required for an efficient seamless transportation system.
Buses could carry riders to suburban rail stations, and
commuter trains could connect with the existing Metropolitan
Atlanta Rapid Transit Authority.
Second, linking Georgia cities by rail could spur economic
development in areas of our State that are not growing as
rapidly as the Atlanta region. Rail access to Hartsfield
International Airport, for example, could attract new industry
to middle Georgia.
Finally, there is a national trend toward expanded rail
service. Recent analysis by the U.S. Conference of Mayors finds
that 47 of the nation's 50 largest metro areas are in the
planning phase of some kind of rail investment, and in 17
areas, rail projects are now under construction. In total,
about 200 projects are in the planning, engineering, or
construction phase throughout the nation.
Amtrak will soon start operating high-speed trains in the
Northeast, and Amtrak president, George Warrington, said he
envisions Atlanta as a regional hub for high-speed rail. That
would significantly boost our efforts to establish intrastate
rail passenger service in the State of Georgia.
I would like to emphasize two roles among several that the
Amtrak Reform Council has identified for Amtrak. First, to be a
potential contractor for commuter rail services, and second, to
contribute to Federal policymaking for the nation's intercity
rail passenger system. We believe those are important roles for
Amtrak in assisting the development of commuter rail service in
the United States.
States from every region of the country face similar
problems, as we do with traffic congestion and pollution, and
are equally interested in commuter and intercity passenger rail
service.
We all suffer from growing pollution and growing highway
and airport gridlock. We all recognize that Amtrak can play an
important role in solving those problems.
The Georgia rail renaissance is real. As few as 3 years
ago, none of Georgia's Federal highway dollars went into mass
transit. Currently, MARTA operates 47 miles of heavy rail in a
two-county area, using Federal mass transit assistance and a
local sales tax. Amtrak operates four long-distance intercity
passenger trains in the State, through Atlanta or Savannah.
That is it.
Now, the proposed 3-year transportation improvement plan
for the Atlanta region calls for nearly $260 million in highway
funds to go for commuter rail programs, extending in all
directions from Atlanta. Overall, the 25-year regional plan
anticipates a 380 percent increase in total rail passenger
mileage in the Atlanta region. That is 190 more miles for rail.
Interest in rail transportation is not just confined to
metropolitan Atlanta. The Georgia legislature is considering
legislation that would designate 18 different corridors in the
State.
Georgia residents want to be a part of that network
statewide. People are beginning to see the economic
opportunities behind passenger rail the way they anticipated
extensions of the interstate highway system a generation ago.
Clearly, interest in intercity passenger rail is not
confined to a single State or region, it is a national
movement, and deserves to be addressed at the national level.
That is why groups like the National Governor's Association,
the U.S. Conference of Mayors, the National League of Cities,
the Council of State Governments, and the National Council of
State Legislatures are all urging Congress to give the States
more flexibility for passenger rail.
Madam Chairwoman, I hope my testimony today has made it
clear why Georgia, and many other States as well, look to
intercity passenger rail to help us solve some of our most
serious transportation problems, and why we look to Congress to
facilitate State partnerships with Amtrak.
Thank you very much.
[The prepared statement of Dr. Ross follows:]
Prepared Statement of Dr. Catherine Ross, Executive Director,
Georgia Regional Transportation Authority
Thank you, Madame Chairman, and thank you, Senator Cleland, for the
opportunity to come before you today and talk about continuing support
for Amtrak and the rebirth of rail passenger travel in our states and
metropolitan areas, particularly our experience in Georgia.
Amtrak serves an important purpose to our nation's states and
regions working on developing intercity rail, particularly in areas
like Georgia that currently have no intercity rail at all within the
state. We look to them for the expertise and advice, and leadership for
high-speed rail development.
The Georgia Legislature created the Georgia Regional Transportation
Authority, at the direction of Governor Roy Barnes, less than a year
ago. We are charged with relieving congestion and reducing pollution in
the 13-county region that is in non-attainment for air quality. Part of
our core mission is to provide the Atlanta region transportation
choices, and commuter rail expansion is a large part of our plan.
I am proud to tell you today that in-state passenger rail is
getting back on track in Georgia, and we expect to provide Georgia's
intercity commuters a real choice in rail by 2003--about 30 years since
the famed train, the ``Nancy Hanks'', linking Atlanta and Macon to
Savannah, was decommissioned. For too long, Atlanta literally buried
its passenger railroads by building its downtown automobile viaducts
and highways on top of its famous rail yards and relying solely on the
automobile for surface transportation. Atlanta is still Terminus, its
original namesake, only for passenger air travel.
But we can no longer keep up with surging growth in Georgia by
adding more concrete ribbons to our landscape. Our people want
transportation choices that are convenient, reliable, affordable and
that protect our quality of life. Soon, Atlanta and greater Georgia
will be known for their 21st Century rail network. Following the
creation of the Georgia Regional Transportation Authority last year,
Georgia took a new look at its transportation needs for the 21st
century, and saw a number of factors that could point toward a
passenger rail revival.
For one thing, GRTA is committed to providing more transportation
choices in the Atlanta region, including new roads, car pool lanes,
express buses and vanpools. Rail service is an important part of the
mix that is required for an efficient, seamless transportation system.
Buses could carry riders to suburban rail stations, and commuter trains
could connect with the existing Metropolitan Atlanta Rapid Transit
Authority rail line.
Second, linking Georgia's cities by rail could spur economic
development in areas of our state that are not growing as rapidly as
the Atlanta region. Rail access to Hartsfield International Airport,
for example, could help attract new industry to middle Georgia.
Finally, there is a national trend toward expanded rail service.
Recent analysis by the US Conference of Mayors finds that 47 of the
nation's 50 largest metro areas are in the planning phase of some type
of rail investment, and in 17 areas rail projects are now under
construction. In total, about 200 projects are in the planning,
engineering, or construction phase throughout the nation.
Amtrak will soon start operating high-speed trains in the
Northeast, and Amtrak president George Warrington said he envisions
Atlanta as a regional hub for high-speed rail. That would significantly
boost our efforts to establish intra-state rail passenger service in
Georgia.
I would like to emphasize two roles among several that the Amtrak
Reform Council has identified for Amtrak: 1) to be a potential
contractor for commuter rail services and 2) to contribute to Federal
policymaking for the nation's intercity rail passenger system. I
believe those are important roles for Amtrak in assisting the
development of commuter rail service in the United States.
States from every region of the country face similar problems as we
do with traffic congestion and pollution, and are equally interested in
commuter and intercity passenger rail service. We all suffer from
growing pollution, and growing highway and airport gridlock. We all
recognize that Amtrak can play an important role in helping solve our
problems.
That's why states and regions are making substantial investments in
passenger rail. Let me offer a few examples.
On October 1, 1999, Wisconsin, Illinois and Michigan
announced that, in partnership with Amtrak, they will develop a
plan to purchase new rail equipment capable of traveling 110
m.p.h. to operate in 3 Midwest passenger rail corridors.
On February 1, 2000, transportation officials from
states in federally-designated high speed corridors announced
at a Congressional briefing that they are forming a coalition
of states to support intercity passenger rail and the
development of high-speed corridors. The coalition now has 12
states and hopes to sign up 24 more.
Nine Midwestern states, in cooperation with the
Federal Railroad Administration, are working on the Midwest
Regional Rail Initiative--a plan to improve intercity passenger
rail service throughout the Midwest.
In November 1999, Amtrak and the Pennsylvania DOT
announced a $140 million agreement to fund improvements on the
Philadelphia to Harrisburg Keystone corridor.
In California, Amtrak has invested $125 million--its
largest state investment ever--for new trains for the San
Diego-San Luis Obispo rail corridor. Altogether, California and
Amtrak have invested $500 million over the past 10 years to
improve service on the South California and Central Coast
routes.
Along the Gulf Coast, Mississippi, Louisiana and
Alabama are working on plans to improve service along the
federally-designated Gulf Coast high-speed rail corridor.
The Georgia Rail Renaissance is just as startling. As few as three
years ago, none of Georgia's Federal highway dollars went into mass
transit. Currently, MARTA operates 47 miles of heavy rail in a two-
county area using Federal mass transit assistance and a local sales
tax. Amtrak operates four long-distance, intercity passenger trains in
the state through Atlanta or Savannah. That's it.
Now, the proposed 3-year transportation improvement plan for the
Atlanta Region calls for nearly $260 million in highway funds to go for
commuter rail programs, extending in all directions from Atlanta.
Overall, the 25-year regional plan anticipates a 380 percent increase
in total rail passenger mileage in the Atlanta region, that is 190 more
miles for rail.
Interest in rail transportation is not just confined to
metropolitan Atlanta. The Georgia Legislature is considering
legislation that would designate 18 different corridors in the state.
Georgia residents want to be part of that network--statewide. People
are beginning to see the economic opportunities behind passenger rail
the way they anticipated extensions of the interstate highway system a
generation ago.
Of course, it would be quite optimistic to predict that all of
these new lines will be built and operational in our lifetime, but what
is rewarding to see, from a transportation planner's perspective, is
the spark of interest in passenger rail across the state and the
emerging belief that people can have transportation choices.
Institutionally, we are also making our mark in Georgia. Late last
year, the state formed an interagency team to supervise the development
of a rail passenger network in the state. The Program Management Team,
or PMT, for the Georgia Rail Passenger Program comprises two board
members each from the Georgia Department of Transportation, the Georgia
Passenger Rail Authority and the Georgia Regional Transportation
Authority. Governor Barnes asked Walter ``Sonny'' Deriso, a GRTA board
member from Southwest Georgia, to chair this team.
The PMT's rail consultants are proceeding with studies of the
potential for commuter rail operations in the Atlanta region and
throughout the state. A 5,000-mile network of railroads crisscrosses
the State of Georgia, providing an excellent opportunity to establish a
passenger rail network. A previous exhaustive study of passenger travel
by mode and trip preference surveys found that Georgians would make
about seven to 10 million trips a year by passenger rail if it were
provided at a reasonable cost, was reliable and provided a frequency of
service to meet travel needs.
The current Intrastate Rail Plan anticipates moving 1.6 million
passengers a year by the year 2020 on seven lines with 15 stations and
790 miles of upgraded railroads. The Atlanta Commuter Rail Plan would
expect to carry between 6 and 8 million passengers a year by 2010 with
trains on six lines and 39 stations.
Clearly, interest in intercity passenger rail is not confined to a
single state or region. It's a national movement, and deserves to be
addressed at the national level. That's why groups like the National
Governors' Association, the U.S. Conference of Mayors, the National
League of Cities, the Council of State Governments and the National
Council of State Legislatures are all urging Congress to give the
states more flexibility for passenger rail.
Madame Chairman, I hope my testimony today has made it clear why
Georgia, and many other states as well, look to intercity passenger
rail to help us solve some of our most serious transportation problems,
and why we look to Congress to facilitate state partnerships with
Amtrak.
Thank you.
Senator Hutchison. Dr. Ross, your testimony was right on,
and I so appreciate your sharing that with us, because your
experience in Georgia is very similar to mine in Texas, and our
majority leaders in Mississippi.
In the past, we have drawn on highway funding and highways,
and now that we have cities that are creating mass transit
authorities, Amtrak is a link, and it is a very important link
that allows our rural residents to come into a train station in
a smaller area, get on Amtrak, come into our metropolitan
areas, and it is very exciting.
But we have to keep that skeleton alive if we are going to
have the ability to grow from compacts and local sharing
arrangements. So I thank you very much for that.
Now, I would like to start the questioning, and we will
limit ourselves to 5 minutes as well, because we also have
Senator Wyden. We are very pleased to have you with us.
I want to start with Governor Thompson or Mr. Warrington,
and ask you to address the issue of operational self-
sufficiency. Your own Amtrak plan shows that you must increase
earnings by $674 million in 3 years. That is a 40-percent
increase over today's earnings. How do you plan to do it, and
do you think you can?
Governor Thompson. Yes, we certainly do believe we can,
Senator, and thank you very much for the question. We are going
to do it through high-speed trains. In the Northeast Corridor
we are expecting at least $125 million to $150 million increase
as soon as we are able to get the high-speed express trains
going.
You have already seen what has happened when we put the
high-speed regional on. That has gone up since January by 25 to
35 percent. So we think we are very conservative in figuring
$125 million to $150 million on the express annually.
We are also going to increase our Express Mail by
considerable amounts. We are just signing some new contracts
with a lot of the major companies. We are going to get into the
refrigeration business, which right now is an $8 billion
business across America, and Amtrak is being asked to go into
that business, that we think we are going to be very
successful.
We are managing all of our assets. We are going to have an
announcement next week on Tuesday about our market-based
network analysis, and we are going to be looking at all of the
train sets that we have, how profitable they are, how we can
make them more profitable, and all of these things go into our
glidepath that we feel is a business plan that is sustainable
and achievable, and we think we will be able to do it.
Senator Hutchison. Thank you for that. I want to ask you a
question, because it addresses the bigger picture. We have seen
on the Texas Eagle when you increase the number of trains per
week from three to four that ridership went up and mail
contracting went up.
Governor Thompson. True.
Senator Hutchison. Is it in your plan to go to 7-day-a-week
service on every route----
Governor Thompson. No.
Senator Hutchison. --so that we will have better mail
carriage, and if not, why does that not make sense?
Governor Thompson. Because in some of our analysis it just
does not make sense, Senator. We have to make sure that we
maximize every use of our rolling stock, and in some places, 7-
day transportation service just does not increase the amount.
It only increases the expenses.
So we went through a detailed analysis, and where we think
that by expanding services we will increase the revenue into
the bottom line, we will do that, but in some cases where we
think by going the 7-day service, all it would do is add the
expenses and not increase the ridership. It does not make any
sense to do so.
Senator Hutchison. Is there a breakpoint----
Governor Thompson. So it is really a cold, calculated
decision on our part to do that.
Senator Hutchison. Is there a breakpoint between four- and
five-day-a-week service that gives you more mail and contract
carrier potential, to go to 5-day-a-week service from 4-day-a-
week service?
Governor Thompson. It is based strictly on the analysis of
each line. George, did you want to add something?
Mr. Warrington. Yes, Senator. The demographics of each
origin and destination, from both a passenger demand point of
view, as well as from a mail point of view, and an express
freight point of view vary widely. Travel times matter,
frequency matters, as well as numbers of days of week.
I will tell you that on a system-wide basis, depending upon
those variable demands, the requirements for different types of
frequencies or levels of service vary widely, as do the revenue
opportunities, and the expenses that flow from that.
I will tell you that the underlying premise around all of
our planning work--the Governor indicated we would be sharing
some of those results next week--but it is an ongoing process,
and we have a number of additional analyses which we will be
undertaking on a continuing basis, including over the next
several months.
But I will tell you that the underlying assumption around
all of that work, really for the first time in Amtrak's
history, is not premised upon nickel and diming ourselves, and
cutting ourselves to recover costs, because in all of those
instances in our past, the amount of revenue that we lose
generally far exceeds the amount of cost that we save.
As a consequence, the basic planning premise, which the
airlines figured out a long time ago, is that you need to
expand your reach, you need to expand your coverage, and you
need to expand your frequency.
You need to maximize the assets or the slots that you have
trains available for with the freight railroad to squeeze as
much revenue out of every one of those frequency slots as you
can.
Senator Hutchison. Okay. I certainly want to see an
addressing of that issue as you go down the road, because I
think just as you have said, the airlines have done it, there
is something that would help ridership if people know there is
a frequency of service and the capability to change plans or be
more flexible, which brings me to my second question, and that
is ridership.
I would like for you to address the suggestion that
ridership has really not changed in the last 10 years. Is that
true? Hopefully, not.
Mr. Warrington. Maybe I could put that in a little bit of
context, Senator. First of all, Amtrak's ridership and demand,
frankly, was hemorrhaging for a good number of years through
the late eighties and early nineties. Amtrak responded to that
hemorrhaging by establishing an approach to business which
significantly reduced frequencies and train miles across this
national system, which resulted in a further downward spiral
around ridership.
I will tell you, we have worked very hard over the past 3
years, from a very low starting point, given that historical
context, to rebuild some of what we lost in the mid-nineties as
a consequence of a number of those service changes and service
cuts, and that, coupled with a lot of focus around marketing,
and a significant investment in corridors around this country,
and I can name a number of them off the top of my head, have
enabled us to turn this ship around.
Do I wish we were doing better? Do I wish we were doing
better around intercity train service? Yes, I do. We are still
positive, but we are not where we need to be, and we are not
where I want us to be. The consequences of the market-based
network assessment and the continuing planning we will do will
improve those numbers, no doubt, around the intercity train
system.
Continuing capital investments in particular services and
corridors around this country will continue to pay significant
dividends. Several have come to mind: The Keystone corridor,
between Philadelphia and Harrisburg, the Pacific Northwest,
between Eugene and Vancouver, the Capitol corridor, in
California, between Sacramento and Oakland, among many others.
They have been extraordinary examples of a relationship between
capital investment, and frequency, and ridership increases. We
need to do that more around this country, and we will do that,
Senator.
Even our long-distance train network, where we have had
some problems, trains like the Coast Starlight in California,
the Empire Builder between Chicago and Seattle, and the
California Zephyr, last year had the highest ridership demand
on those trains than in seven or eight prior years, and that is
a consequence of getting refocused around service standards,
around marketing, around consistency, and better connectivity.
Governor Thompson. In the last 3 years, just quickly, we
have increased our ridership each year in the last 3 years, 2
percent this past year, 10 percent over the last 3 years. The
Hiawatha goes from Chicago to Milwaukee, in my area of the
country, is up by at least 10 percent, and we are going to do
more.
There is a new fascination for rail passenger service. As
soon as we get that express going from New York City in two-
and-a-half hours or less to Washington, D.C., we think the
ridership is going to explode. We think from New York to Boston
in 3 hours or less is just going to help the kind of overall
fascination to get more people to say we want that in our part
of the country, we want to be able to have rail passenger
service, and we want to ride it.
Senator Hutchison. Thank you.
Senator Cleland.
Senator Cleland. Thank you very much, Madam Chairman.
Following up, Governor Thompson, thank you for your
passion, thank you for your commitment. That 140-mile-an-hour
fast train, that high technology, we would like it to come
south. We have discussed it before.
Governor Thompson. I want it to get to the Midwest first,
Senator Cleland. That is my passion for being at this
Committee, I want you to know that.
Senator Cleland. We have passion here on this side, too.
May I just say, thank you very much for all you do for this
effort. It means an awful lot.
May I turn to Catherine Ross? Dr. Ross, please allow me to
welcome you to the Senate here. I know the daunting task which
stands before you, as you try to leave the Georgia Regional
Transportation Authority. The creation of that Authority is a
direct result of some of our problems there, but I think we are
able in the twenty-first century to see an ability to work out
those problems, particularly with the passenger rail.
Could you share with us a little bit of the brief history
of GRTA, and the reason and the rationale for your need for
Federal support, and also flexibility at the State level?
Dr. Ross. GRTA, I would argue, has no peer nationally in
regard to the very broad power and authority that we have to
facilitate more transportation choice, and increase our
flexibility to spend Federal funds in the metropolitan area as
we wish. Right now, we cannot spend those dollars on any road-
expanding activities.
Having said that, we are very much--a part of our charge as
rail. There is a six-person oversight rail committee, two from
the Georgia Rail Passenger Authority, two from the Georgia
Department of Transportation, and two from the Georgia Regional
Transportation Authority.
The Chair of that oversight committee, and they have
oversight responsibility for all of rail passenger in the State
of Georgia, not just in the Atlanta area, six on the board of
the Georgia Regional Transportation Authority, so I can assure
you we are in the midst, are very much involved in the rail
agenda in the State, and particularly, because we see it as an
opportunity to address a lot of our needs in the metro area,
but also as a way to begin to provide more transportation
choice throughout the State of Georgia.
So rail is very much a part of our responsibility, even
though we are designated for the review, oversight, and
approval responsibility for all land transportation systems in
the 13-county non-attainment area. That means just what it
says, and we are in the process now of developing a memorandum
of understanding with our partners to detail that relationship.
Having said that, we are very supportive of a number of
bills nationally that have implication for us and what we are
trying to accomplish, and they have been referenced. S. 1144,
which would increase flexibility, so that we could spend the
Federal transportation funds on intercity rail.
For example, 1900, the High-Speed Rail Investment Act,
which would allow Amtrak to float bonds and invest in high-
speed growth corridors. We think high-speed train technology,
the existence of high-speed corridors, is an important part of
the transportation infrastructure, and it is a part that is
woefully inadequate, under funded, and in many instances, non-
existent.
Senator Cleland. Yes. I am a co-sponsor of both of those
pieces of legislation.
Dr. Ross. I understand that. So we are very supportive of
your efforts and very supportive of both pieces of legislation.
One last comment has to do with the reference to another
gap, and that is the gap in the Gulf Coast corridor that now
goes to Birmingham, Alabama. We would like that to come onto
Atlanta.
We are also very concerned in that regard, and also some
opportunities in regard to the corridor from Macon that now
does not go through Macon. It does not connect Macon up to the
coastlines.
So there are a lot of issues that are very important in
terms of us moving our rail initiative along, and meeting the
dictates of the Clean Air Act.
Senator Cleland. Thank you very much. Mr. Warrington, what
is the possibility--do you have any plans to extend the Gulf
Coast high-speed railcar, which currently ends in Birmingham?
Do you have any plans to connect that on to Atlanta, which
would connect it to the southeast high-speed railcar up through
the Carolinas?
Mr. Warrington. Yes, Senator. It has not been officially
designated by the FRA as a corridor, but that does not in any
way preclude us from doing what we continue to do, which is
examine market opportunities. Travel demand for both
passengers, as well as mail, and as well as express business,
that will really be the driver.
What the designation enables is access to some Federal
money through the Federal Railway Administration, primarily
around grade crossing elimination, but from a business point of
view and a market point of view, that is not a constraint for
Amtrak around a decision to invest in services.
This is all about money, and it is all about business, and
it is about defining, with clarity, what the business
opportunities are from a passenger demand point of view, what
can the market bear, what does the market want, and what does
it need, and what in the way of mail and express business can
we count on to be able to make it a positive performer?
Dr. Ross. Can I make a comment to George? We also have a
$2 billion bonding capability, which I did not mention.
Mr. Warrington. That also helps.
Senator Cleland. I cannot help to think that the old
Southern Crescent, which the Southern Railway used to run from
Washington, D.C., through the Carolinas, through Atlanta,
through Birmingham, to New Orleans, is kind of a time-honored
corridor that you might want to look at, and then, of course,
the Nancy Hanks, the passenger rail from Atlanta, through
Macon, to Savannah, these are time-honored corridors that
affect our State, and I think Amtrak might have a marvelous
positive result if it explored them.
Mr. Warrington. Yes. As a matter of fact, Senator, the
Crescent is one of our terrific performers, and it has
incrementally been doing an outstanding job for us, both in
terms of market research, how customers feel about it, and in
terms of revenue yield and ridership. It has really been a
success story, giving a focus on customer service and travel
time, and it benefits from a very positive proactive
relationship with the Norfolk Southern Railroad as well.
Governor Thompson. Senator Cleland, if I could just quickly
add, Mayor Smith is on the Amtrak Board. There is not a meeting
that goes by, which we meet monthly, that he is not trying to
find ways to expand the Crescent. So I can assure you, you have
a very strong voice that is not bashful about trying to push
the Crescent into Atlanta. So I think it is going to come.
But we have to be very serious about the fact that we have
to meet our operational self-sufficiencies. So we just cannot
add that many rail services at this time until we are sure we
are going to meet our goal, but I can assure you, it is being
considered.
Senator Cleland. I understand, and thank you very much. I,
for one, do believe that, in terms of operational self-
sufficiency, and whenever you achieve that, you are still going
to need some Federal funds for all your capital outlay----
Mr. Warrington. Absolutely.
Senator Cleland. --and investment needs, and I fully
support that. Thank you very much, Madam Chairman.
Senator Hutchison. Thank you, Senator Cleland. I did want
to follow-up on Dr. Ross's testimony. There can be so much done
with buses feeding into both train stations and airports.
I know Greyhound has several contracts with Amtrak that
have been very helpful. It really gives our smaller towns more
mobility and more choices, and we hope that we can increase
that.
Senator Wyden. Senator Wyden has certainly been helpful in
the 1997 passage of the Act, and we certainly worked together
on that, and look forward to getting a national rail system
that includes Portland.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. I thank the Chair, and I want the Chair to
know how much I have appreciated the chance to work with you. I
guess I bring a slightly different orientation to this
discussion this morning. I am very glad to see trains being
opened up in other parts of the country, the East Coast of the
United States, but my experience as a United States Senator is
that it seems to me that Amtrak is often making decisions about
where trains operate in an arbitrary way, and that Amtrak is
playing favorites, rather than using objective criteria for its
decisions.
I want to walk you through a specific example, Governor
Thompson, and----
Governor Thompson. Sure, Senator.
Senator Wyden. --and maybe you can tell me why this
supporter of Amtrak should not change his mind, because I am
thinking about doing it, given----
Governor Thompson. We do not want you to do that, sir.
Senator Wyden. --what we have seen in the past. Folks in
rural Oregon, eastern Oregon and Idaho, do not have any train
service any more. It was eliminated in 1997, even though the
1998 GAO report proved that if objective criteria were used,
this train might not have been eliminated.
Now, I asked Mr. Warrington to come to my office and talk
about this, and a year ago he told me that nothing would be
done in terms of new trains until that market-based assessment
was completed. Well, today we have been talking about opening
up all kinds of new trains.
I note that since Mr. Warrington came to my office, there
was another new line opened between Fort Worth, Texas, and
Oklahoma City. So when Mr. Warrington told me a year ago that
there were not going to be new trains opened until after the
market-based assessment, the evidence shows that that had not
been the case.
Now, Senator Crapo, the Republican senator from Idaho, and
I are trying to work in a bipartisan way, just as Senator
Hutchison and I have, to get a train service back to eastern
Oregon and rural Idaho. We have had a task force meeting. We
have had four towns in rural Oregon actually vote to impose
per-capita assessments on their citizens in order to get train
service back.
I mean all these other parts of the country are getting
train service funded by the national government. People in
eastern Oregon, hard-working people who pay taxes, are voting
to tax themselves in order to get some train service, and we
still cannot get a commitment out of Amtrak about exactly what
it is going to take to get across the goal line, and turn this
part of the country, which really feels like a sacrifice zone,
into an area that is part of a national system.
So if you could tell me what it is going to take so that my
constituents understand what they need to do to get over the
goal line, that would be helpful, because they think they have
done a whole lot more heavy lifting than these other parts of
the country that are getting new trains picked up by the
Federal taxpayer.
Governor Thompson. Well, Senator Wyden, first, let me tell
you that the Pioneer service that was discontinued might have
been a mistake. I am the first one to admit that.
This was before the new Amtrak law, it was before the new
board, and before George Warrington and the new staff. We are
trying to really make Amtrak like a business, and we have gone
through, and we have done a market-based analysis of every
piece of rolling stock we have, of every line, and we are going
to base our decisions upon that.
Now, the one line that went in was from Fort Worth up to
Oklahoma City, and that was based upon the fact that the State
of Oklahoma and the State of Texas are going to subsidize that
line. We had a way to continue on to help the Texas Eagle,
which would increase the ridership. It was based upon our
analysis.
The network analysis indicated to us that it would be a
line that we could utilize and would be self-supporting, with
the State subsidies, and that is why that one was started. That
is the only one.
We are looking at Los Angeles to Nevada, and that one is
also one that is going to have heavily, State subsidies put
into it, and one that we think is going to be profitable for
us.
I can assure you that we have set up a committee to look at
your situation, from Portland to Boise, Idaho. We are looking
at that, and after the network analysis comes out, I would like
to personally sit down with you and work with you to find out
how we can get rail passenger service in there as soon as
possible.
I also come from a rural State, and I would like to see
some rail passenger service. I have the same problem you do. I
am the Chairman of the Amtrak Board, and I cannot tell my own
constituents in Wisconsin when we are going to have rail
passenger service go to Green Bay or go to our capital city of
Madison, and we do not understand why some of the other
communities got it.
But it is our strong conviction, so we want to build this
national rail system, we want to do it so that it's going to be
profitable and self-sufficient, and we want to service you,
Senator Wyden, your constituents in Idaho and eastern Oregon,
and we are going to be working with you, and all I can give you
is my promise, my commitment as Chairman of the Amtrak Board
that I want to continue to work with you.
As soon as the analysis is out, I would like to set up a
meeting with you and come in and talk to you, with George
Warrington, and see how far we can go.
Senator Wyden. Well, Governor, I think that is a
conciliatory statement, and I appreciate it. I think to have
Amtrak saying that it may have been a mistake to eliminate the
Pioneer is something that my constituents have wanted to hear
for a long time, because they looked at that 1998 GAO report,
and they said if you use objective criteria, it does not go,
and other trains do, and the fact that you acknowledged that is
helpful.
We are prepared to do the heavy lifting here.
Governor Thompson. Thank you.
Senator Wyden. I was in eastern Oregon--by the way, Gil
Mallory has been helpful and constructive, and we have been----
Governor Thompson. I am glad to hear that.
Senator Wyden. I'm afraid that his hands are tied. We feel
we are doing the transportation equivalent in eastern Oregon of
a barn raising. I mean we have had these citizens imposing
charges and fees on themselves.
We have the large floral association interested in using
the express system in order to move products in eastern Oregon.
We have Indian tribes that want to use the transportation
service.
We are there, and what we need to know from Amtrak now,
given this task force, and the fact that Senator Crapo and I
are trying to meet a goal of self-sufficiency, as Amtrak is
talking about. We need to know how to get there.
We are exasperated that Amtrak has not been willing to do
that, and one of the things that concerns us, even in these
meetings, when we have been meeting over the last year, Amtrak
trots out figures from years ago, when essentially we did not
have the express opportunities, when you could not even figure
out when the train was coming and going.
People in the west used to say, ``It does not leave at a
specific time; it leaves at Amtrak time.''
You just could not plan and do the things necessary to make
it cost-effective, and we need those questions answered. I
think you are being conciliatory this morning, and I am
encouraged by that.
Governor Thompson. Thank you, Senator. If I could just add
two other quick points. It was felt by the old Amtrak that the
best way to get self-sufficient was to cut rail passenger
service. The new Board does not feel that way.
The new Board, the new management, and under the new reform
law, we are trying to grow Amtrak, and I was heartened by
Senator Hutchison's remarks earlier this morning, and she is
saying, it is just not the Northeast Corridor, it is not the
Midwest--she did not mention the Midwest, she said the west or
the Northeast, and I agree with that.
The reason I wanted to be on the Amtrak Board is because I
am from a central State that does not have rail passenger
service, and I want to fight for that. I understand your
concerns, but we have to also understand that we have to be
self-sufficient, even if we promised you today and we could not
meet our requirement under the law to be self-sufficient by
2003, that does not help anybody, but I can assure you and
promise you that we will work with you and make it self-
sufficient as soon as possible.
I need your advice and encouragement, as well as the Board
does and the management as to how we can get the States to also
help subsidize, in order to make it come faster.
Senator Wyden. Again, I think you are being fair, and I
think you also know how hard it is to explain to constituents--
--
Governor Thompson. Absolutely.
Senator Wyden. --when they are told that there are not
going to be new trains, and that is what Mr. Warrington said in
my office a year ago, and they open up newspapers and they hear
about new trains, it is pretty hard for them to say, what
Amtrak is telling us is on the level. I do not think you want
that level of cynicism about the work that you do.
I mean people in our area say they are not getting a fair
shake with existing dollars, why are you willing to support new
bills that give them additional funds. We have to have some
answers for that. I gather one of your associates wanted to add
something.
Senator Hutchison. Mr. Carmichael does, but I want to say
that I agree with everything that Governor Thompson has said,
and with the new focus, but we have to commend the State
legislature of Oklahoma for that new line, because they have
been saving their money, and they redid the track, refurbished
the track with their own funds, and I have to say, it is really
the Oklahoma vision that allowed that to happen rather than
Federal funds.
Senator Wyden. Well, if the Chair would yield, and she
knows how much I respect her views on this, I am anxious to see
that train go, but I note that Amtrak, in their report, said it
was a performance highlight to carry 26,000 passengers in
fiscal year 1999, and the last year the Pioneer ran, it had
87,000 passengers on it.
So we have to reconcile some of these matters that just do
not seem particularly consistent, and the Chair has been very
fair about making the case for national service, and that is
why I enjoy working with her.
Senator Hutchison. I have to say that I do not think the
Texas legislature has yet made the kind of investment that I
hope they will make in order to get, for instance, high-speed
rail. We talked about it ending between Birmingham and Atlanta.
It also ends at Houston before it goes to San Antonio, and
that is because the State Department of Transportation did not
make the necessary designations that would allow that to
happen, and I feel that it is my responsibility to keep working
with our State Department of Transportation to do our share in
order for Amtrak to be able to set standards that make economic
sense.
So I think we have a job to do, and you have a job to do,
and we just need to make sure that we are all pulling our fair
share, and the State of Oklahoma is, let me tell you.
Mr. Carmichael, you wanted to comment on this.
Mr. Carmichael. We get the impression that Amtrak, with all
of this business that they have to produce in the next 2 years,
does not have a supply of rolling stock to do it. I know Amtrak
well enough that they have a lot of old cars that they have
refurbished and reworked several times. The only new train sets
that I know of that are ordered are the 20 train sets for the
Northeast Corridor.
I am real concerned, when you asked the question about the
increase from 4-day to 5-day per week service, our
investigation at this point--and this is not conclusive, this
is just the beginning--but our investigation is that there is a
critical shortage of rolling stock in Amtrak, and they are
going to have a very difficult time doing any of these things
in the next 2 years or 3 years. They have to have rolling stock
to build----
Senator Wyden. The only thing that concerns me about that,
Mr. Carmichael, is, in effect, what you ask for constituents in
my part of the country, rural Oregon, to pay for new rolling
stock for trains in the East Coast United States, when they do
not get any service. I think that double-standard is what is
troubling people with respect to how Amtrak makes decisions.
Let us get away from pitting one part of the country
against another. I think Governor Thompson has been
conciliatory in terms of trying to work on it, and is a sponsor
of both of those bills that Amtrak is interested in passing.
Give me something to work with in terms of explaining to my
constituents why I am supporting the bills, because I think
they question whether they are getting a fair shake. I thank
the Chair.
Senator Hutchison. Thank you, Senator Wyden.
I have as follow-up a couple of questions for Governor
Thompson, you have noted that contributions by the States have
increased.
They were $300 million last year, and that is a key
component here, as we have just discussed, but the ARC noted in
each report, on page 12, that it has heard from several States
expressing concern over their willingness or ability to fund a
greater share of Amtrak's operating subsidies.
I am asking you if you believe that the States are going to
continue to step up to the line, and are the revenues going to
continue to be there to keep this national system, and if not,
what do we need to do?
Governor Thompson. I really think they are, Senator
Hutchison. I really thank you for the question, because I think
there is, as I have said previously, a newfound fascination for
rail passenger service, and I also find that it is a
bipartisan, and there a Republican and Democratic constituency
out there that likes passenger rail service, and I think the
States are going to step up.
I have been the chairman of the National Governors
Organization, and I have been involved in just about any and
all committees of the organization, and Governors are talking
more and more about it.
Thirty-six Governors sent a letter to the President of the
United States asking the President to fully fund it. I am not
saying that if they fully fund it we are going to back off.
What we are saying is that we need the partnership, we need the
capital in order to buy the rolling stock that Gil Carmichael
was talking about.
We need the rolling stock in order to refurbish the tracks
so that Senator Wyden is going to have the service. We are
going to have to have the capital in order for States to come
in and help the operation subsidies in order for us to be self-
sufficient.
This board is committed. We go back and we talk to the
respective States, and we are asking them and telling them that
they need to step up if the Federal Government is going to be a
partner. I think it is there.
I think there is a great deal of bipartisan support in it,
and our State legislators, and with the Governors, and I think
here in Congress. I think it's just coming to the forefront,
and I am excited about, Senator.
Senator Hutchison. Thank you. Mr. Carmichael, on page 19 of
your report you have a chart that shows that while revenues
from passenger service have increased approximately 20 percent
over 10 years, employment costs have increased twice as fast as
revenue.
Do you believe Amtrak is doing everything it can to control
labor costs, and is there anything more that you are going to
recommend that it do in the future?
Mr. Carmichael. Going back to my earlier statement, Madam
Chairman, I do not think labor costs are the problem at all. I
think it is strictly that they have to get revenues up. As
Governor Thompson said a minute ago, they are trying to grow
Amtrak. It is not a problem of having too-expensive labor.
Senator Hutchison. So you do not think the fact that labor
costs are increasing more than revenue is a valid comparison.
Mr. Carmichael. Every transportation company can say that,
see. Amtrak has just got to get more business, and it has to
have rolling stock to do it. That is why I keep coming back to
our concern, is not about the Northeast Corridor. There are 13
corridors developing around the United States that the States
have to help build.
Our concern right now is Amtrak, and its rolling stock, and
its passenger, mail, and express service. That is what needs to
be self-sufficient in the next couple of years.
We are worried, and we will come back with more defined
recommendations, that they do not have the rolling stock
available and cannot get it in the next 2 or 3 years.
I do not know just what their supply of passenger, mail,
and express cars is, but I suspect it is awful tight. So Amtrak
needs to be--as we are--concentrating just on the core
business. All of this money we are talking about spending on
these corridors is immaterial.
It is the rolling passenger, mail, and express trains
across this national system, and meeting the market demands,
going after the market demands out there.
Senator Hutchison. Let me ask you, Mr. Warrington. With all
the emphasis that is being put now on the high-speed trains,
especially in the Northeast and the Eastern corridor, are you
going to be able to look at the rolling stock that is going to
be necessary to get the mail contracts and the passenger
revenues up?
Mr. Warrington. Yes, ma'am. One of the primary products of
the market-based national assessment is for, once again,
really, the first time in the history of Amtrak having a
service plan that is directly linked to an equipment and fleet
utilization plan.
The service plan that we have defined as our national
system defines the number of cars, passenger cars, diners,
coaches, lounges, locomotives, mail, express, and refrigerated
cars that this railroad needs to have access to over the next
two to 3 years, and clearly, we need more equipment.
Now, when it comes to high-speed corridor development, we
are working with each of the States around the nation, around
crafting a partnership that would in large measure provide for
Amtrak to be a procurer and prospectively a leaser of high-
speed equipment around the Nation for regions or collections of
States.
With respect to our basic system today, the national
network, and our intercity train service, we clearly have a
need for additional equipment, and is one of the reasons why we
have inventoried every piece of rolling stock that is on this
property across this country. We have identified its age, we
have done a scope of work around the engineering requirements
and production requirements to get it in shape, and we will
move forward very quickly.
We are already in the process of pulling much of that
equipment out of the yards and putting production program in
place to make sure that we have the kind of flexibility over
the short haul, to meet the short-term service demands
associated with the market-based network assessment.
I believe that later this summer we will arrive at a much
firmer conclusion around the real longer-term equipment
requirements associated with really growing this national
system over the next 5 years, and it will be fairly sizable,
and it will be fairly extensive, I think Gil is right.
But short term, immediately, we need to, No. 1, redeploy
all of the equipment that we have to as many places as possible
to give us as much reach as possible, on as many trains as
possible, and pull the maximum number of cars and locomotives
out of our yards and out of storage and put them in shape to
get us over this hump over the next 2 years.
Senator Hutchison. Mr. Carmichael?
Mr. Carmichael. Madam Chairwoman, this is outside of my
testimony, but just as we are researching right now, rebuilding
those old cars again and again is not the answer--Amtrak needs
to replace its fleet. It needs to go out in the market like
AirTran and lease new airplanes. They leased new airplanes. The
company was very fragile and everything, but was able to go
lease new planes.
In the Midwest corridor, nine States come together, the
Governors are part of it, and they said ``We will help buy the
train sets.'' In my mind, Amtrak ought to say to the Midwest
corridor, ``You [Midwest corridor] get the corridors fixed up
and we will have the train sets here in the next 24 months or
36 months.''
Amtrak ought to be ordering, and leasing, and replacing its
fleet as fast as it can if it is going to grow, because I agree
with what the Governor said a while ago, they tried downsizing,
and that will not make them profitable. They are going to have
to grow, and they are going to have to replace their fleet, and
they are going to have to move as fast as they can.
Senator Hutchison. Can you not use a different standard for
the cars that are going to carry passengers and the cars that
are going to carry freight, though? I mean could you not use
older cars in a productive way for freight?
Mr. Carmichael. Yes, you can, but let me--I apologize,
George. You can, but these trains run in the day time near the
highways, and what the American people need to be seeing is new
modern trains out there.
When they see two or three nice, modern passenger cars, and
a whole bunch of rail cars, mis-matched, and everything else
like that, that does not look like the European trains that we
are talking about.
So I think, and I am speaking ahead for my Council, I think
we are going to come down hard, and concentrating on the core
business, Amtrak needs to replace its fleet and needs to get
new trains out there with mail and express in a very attractive
way.
Senator Hutchison. Mr. Mead, and then I will come back to
Mr. Warrington.
Mr. Mead. I feel obliged to offer a sobering note here.
There is a lot of talk and discussion about capital outlays,
acquisition of new equipment, new corridors, and so forth.
Right now, looking ahead to just the next couple of years,
Amtrak is facing in excess of a $200 million shortfall just to
cover the capital requirements and obligations it currently has
to pay, and coupling that with the fact that we have deferred a
major revenue source called high-speed rail in the Northeast
Corridor for at least 6 months. You put those two together and
Amtrak wants to expand, but it does not really have the access
to the funds.
It has to get over this hump, and it has to meet its
current obligations before it takes on additional ones. It
simply does not have the money.
Mr. Carmichael. That is why I used the term, lease. If they
can buy some good standard train sets out here, I think there
are leasing companies that would be glad, with the credit
rating that Amtrak has, to lease them to them, and they can
place the revenues against them.
Senator Hutchison. Any other comments?
Mr. Warrington. Yes. I would just say, Senator, that it is
very clear that there is extraordinary interest on the part of
States all across this country to partner with Amtrak around
what are the sexy new train sets, high-speed train sets, that
we will be operating over the next several years, and there are
lots of ways, as partners, to undertake those kinds of
investments, including creative financing, which is the way we
do the lion's share of our equipment. Business does not require
up-front capital, and leasing is a variation on that option.
The more fundamental short-term challenge for us, though,
that that does not effectively accommodate is, the market-based
network assessment will direct us to offer greater frequencies
and greater reach of our basic intercity national train
network, and in order to do that, we do need basic rail rolling
stock, coaches, lounges, diners, and the like, and that is what
we need to get over the hump of over the next 2 years or so,
and that is the reason why we need to play with the hand that
we are dealt.
We do have a lot of rolling stock that is not necessarily
ideal, but it is available to the company, and it is an asset
that we need to put in service to drive revenue, to meet our
targets over the next 2 years.
Over the longer haul, partnering with States around high-
speed service and high-speed train sets all around this
country, that is virtually a slam-dunk.
We have a short-term issue here around today's basic
system, and squeezing as much money as we can out of the long-
distance train network, and that will require a greater reach,
it will require greater frequency, and it is going to require
more equipment, and we have to go with what we have right now.
Senator Hutchison. I thank all of you very much. I think we
are all pulling in the right direction.
The alternative, if we lose this opportunity to keep our
passenger rail network for our country, is that we will never
be able to resurrect it. If we lose the access to these
railroads, we will never have rail passenger service in our
country. I think what you-all are doing is very constructive.
Mr. Carmichael, I think you can be very helpful here by having
constructive suggestions. I think the atmosphere here is that
Amtrak wants to work with you.
Mr. Mead, your comments have been very helpful; Mr. Millar
and Dr. Ross as well, from the local standpoint.
This can be a wonderful opportunity in America to give
mobility to people who do not now have it, older people who do
not drive, who want to go visit their grandchildren, convention
goers having the ability to get to a convention by rail,
connecting buses to train stations and airports I think just
has wonderful chances to enhance our transportation system, but
we have a window, and we will never get it back if we lose it.
So I do think we are all pulling in the same direction, and
I do not ever want us to forget that passenger rail is no
different from a public transportation standpoint, as airports,
and highways, and we have subsidies which people accept are
very important, of those modes of transportation, and I just
think passenger rail adds to the flexibility of those other
modes of transportation.
So I hope that we can continue to have this kind of
hearing. We certainly will do it on an annual basis.
Mr. Carmichael, there is one thing I want you to consider
down the road, and that is, I understand the generally accepted
accounting principles and the law, but I also think that as we
look at the Congressional acts and the uses of Congressional
appropriations, which have always had the overhauls, the
progressive overhauls in them, that at the very least you will
give two options in your members' reports, if you want to say
that generally accepted accounting principles do not allow
that, and you want to report that, if you feel that is your
responsibility.
I also want you to give us a second report that addresses
the same principles that every public transit agency in America
uses with generally accepted accounting principles, but
knowing, as Mr. Mead said, they do not pay taxes.
So there is a different reason behind the principle in a
business versus a quasi-government system as we have. So if you
think you have one, why do you not give us some options?
Mr. Carmichael. Let me put this on the record, please,
ma'am. I feel comfortable with the guidance of your Committee
that we should treat Amtrak like you treat a transit agency. We
have no problem with that. But now that the Committee has met,
we will be glad to do our study with Amtrak as a government
agency,
or a transit agency. I think you are talking about a government
agency.
Senator Hutchison. It is a government agency.
Mr. Carmichael. It has been hard to define what Amtrak is.
One day it is a corporation, and the next day it is a
government agency, and I think this Committee has determined
for us that it is a government agency, and we have no problem
with government agencies not covering depreciation, and
progressive overhauls, so our report will reflect that from now
on.
Senator Hutchison. Thank you. That has been worth
everything that we have learned today, because now I think it
is very clear that we can go forward all on the same page.
Governor Thompson. Madam Chair----
Senator Hutchison. Governor Thompson.
Governor Thompson. --if I could just clarify, we are not a
government agency. We are part of the government. I do not want
Gil to walk away from here saying that we are a government
agency and say that he has it on the record with--I think there
has to be a clarification of that, but I would like to say on
behalf of the Board, we do not consider ourselves solely a
government agency. We are part of the government, and we are
also a corporation that----
Senator Hutchison. Would you accept quasi-government?
Governor Thompson. Quasi, I will. I also would like----
Senator Hutchison. We are about to have an agreement here,
Governor Thompson.
[Laughter.]
Governor Thompson. I would like to also take this
opportunity on behalf of the whole Amtrak Board to thank you
for your leadership, Senator Hutchison, thank you for your
support in Texas, and we want to continue to work with you and
the other senators to make Amtrak the best that it possibly can
be.
Senator Hutchison. Well, I thank you. Every one of you is
contributing to the success, and I think this has been very
helpful to get us on the same page so that we can go forward.
Thank you all.
[Whereupon, at 12:12 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
Thank you madam Chairwoman. First, I want to thank the Chairwoman
of the Subcommittee for her leadership in convening this hearing. I
also want to commend you, Senator Hutchison, for your continuing
interest in this subject.
Certainly, the provision of rail passenger transportation service
for our nation's citizens is an important issue, one that deserves
serious consideration. Amtrak serves more than 21 million intercity
travelers and more than 54 million commuters annually. Although my
state is one of only five not served by Amtrak, rail service is a vital
link in our nation's transportation system.
Since passage of the Amtrak Reform and Accountability Act by the
last Congress, Amtrak has endeavored to make significant strides toward
achieving operating self sufficiency. As you know, the Act required
Amtrak to be free from a federal operating subsidy by 2002. The state
of Amtrak's finances and the future of Amtrak bring into sharp focus
the job Amtrak was created to perform and our support for its mission.
It would appear that by almost any standard Amtrak was
undercapitalized from the day of its creation. Few other passenger
railroads in the world are forced to do so much with so little and at
this point I would like to commend Amtrak for its very real effort to
do more with less.
I will be particularly interested in hearing the thoughts of
today's witnesses on Amtrak's progress since the passage of the Amtrak
Reform and Accountability Act. In addition, I look forward to working
with you, Madam Chairwoman, throughout the duration of this Act to
ensure that our nation has the rail passenger transportation system it
needs and deserves.
______
Prepared Statement of Hon. Olympia J. Snowe, U.S. Senator from Maine
Thank you. I would like to express my appreciation to the Chair for
scheduling this hearing today.
For many years, I have been a supporter of Amtrak and would like to
express my strong support for a national passenger rail system and the
need to maintain a passenger rail system which is flexible and
possesses the incentives necessary to become self-sufficient.
Today, my home State of Maine is one of a handful of states in the
continental United States that is not served by passenger rail service.
I am proud and excited that Amtrak has entered an agreement to begin
providing passenger service to Maine, as early as this fall. I thank
Amtrak President Warrington for working with me over the years to make
this service a reality, and I very much look forward to riding this new
Boston-Portland train.
Today, we will look at the recently-released Amtrak Reform Council
report concerning the future of Amtrak. Essentially, ARC has concluded
that Amtrak will not be able to meet its Congressionally mandated goal
of operational self-sufficiency by 2002, in part because of accounting
practices employed by the service employs, under which it chooses not
to count some major expenses, including depreciation expenses and
progressive equipment overhauls, as operating expenses. Amtrak counters
it was never intended to count such items as operating expenses. The
report also takes issue with Amtrak's claims of ridership gains, as
well as its claims that it is doing $8 million better than projected in
its 1998 strategic business plan.
I know that it has not been an easy job, trying to work out the
many differences of opinion on the best way to preserve and improve
Amtrak. More than twenty-five years ago, Congress created Amtrak to
consolidate and strengthen our national passenger rail system. Watching
the success with which new and higher-speed rail service swept through
Europe and the Pacific Rim, we recognized the opportunities that rail
service could provide as a part of our overall transportation system.
But today, the Amtrak system remains incomplete and the system, in my
view, remains somewhat troubled. While Amtrak provides rail service
throughout this nation, a variety of factors have combined to keep our
national rail system from attracting the type of widespread and popular
usage that has marked service in most other modern, industrialized
democracies in Europe and Asia.
Amtrak must be able to meet the next century as a financially
independent entity. In this day and age when not just every dollar
counts, but every cent, I believe we are rightly placing the burden of
proof on Amtrak.
Amtrak certainly faces enormous challenges, and I look forward to
working as a member of this Committee with the service to confront
these challenges.
Once again, I would like to express my appreciation to the Chairman
and my thanks to the witnesses for sharing their insights on the
current standing and the future of Amtrak.
Thank you.
______
Response to Written Questions Submitted by Hon. Max Cleland to
Gilbert E. Carmichael
Question 1. Do you believe that, if Amtrak received the same
financial support that aviation and highway industries received, its
customer market-share would be similar?
Answer. This apparently simple question is really quite complex. It
is complex because it goes not only to the amount of funding (``the
same financial support'') both in total and on a per-passenger basis,
it also invokes a broad range of issues about how the government funds
the transportation industries, including the sources, uses, and amounts
of the funding, and the government's role in administration of the
financial support.
The structure and levels of financial support for Amtrak are
certainly critical to its long term financial self-sustainability, but
the Council at this time has insufficient empirical information to
answer the question since the Council has not yet received long-term
capital requirements estimates from Amtrak. The Council has not yet
taken an official position concerning financial support, nor has it to
date made any recommendations concerning appropriate funding mechanisms
and levels of funding for Amtrak.
The Council's staff has, however, gathered some publicly available
data that are pertinent to answering this question. For modes other
than passenger rail, there are specific funding mechanisms, although
Congress still approves use of funds for all modes through the
Congressional authorization and appropriation processes. Highways are
funded by gasoline and diesel fuel taxes and certain specific excise
taxes funded through the highway trust fund. Airports and airways are
funded by ticket taxes and landing and other related fees through the
aviation trust fund. Federal funding, while it is substantial, is
provided to the highway and aviation industries from taxes or fees paid
by the users, not from the general revenues of the U.S. Treasury. In
contrast, Amtrak's current and historical funding is not, and has not
been, generated by any form of transportation user fee, but is
appropriated from general revenues.
Thus, it is not surprising that publicly available data of amounts
of federal funding provided to various modes of transportation suggest
that Amtrak currently is receiving more support on a per-passenger
basis and on a net, absolute basis than the commercial airline industry
(total operating and capital costs of the FAA less user fee
collections). Amtrak's higher level of support per-passenger is
attributable to the fact that the airlines serve larger numbers of
travelers: approximately 600 million commercial airline passengers
versus approximately 21.5 million Amtrak passengers. In FY1999, Amtrak
received approximately $600 million, not counting TRA funds, and served
approximately 21.5 million passengers, for a subsidy of almost $30 per
passenger. By contrast, the combined FAA operating and capital budgets
totaled approximately $10 billion in FY1999, and served not only the
airline industry's approximately 600 million passengers, but also (with
no cost reimbursement) provided control for military flights and
airplanes that fly over, but do not land in, the United States. Taking
this entire $10 billion budget, and assigning all of the cost to the
approximately 600 million passengers who took off or landed in the
United States resulted in a total federal budget expenditure per
commercial airline passenger of less than $17. This is not the whole
picture, however. For FY1999, total collections to the Airline Trust
Fund (including interest earnings on the Trust Fund of $698 million)
totaled approximately $11 billion. As a result, airline passengers
totally funded the total federal budget expenditure for operating and
capital costs of the air traffic control system in FY1999, resulting in
no net financial support to the airline industry from the federal
government.
Likewise, in FY2000, the FAA Operating Budget and Capital Grants
are projected to be approximately $10 billion,\1\ while total
collections to the Airline Trust Fund (including interest earnings of
$771 million) for the fiscal year are anticipated to be approximately
$10 billion. For the proposed FY2001 budget, the FAA's total proposed
operating and capital budgets of $11.2 billion are projected to be $200
million less than projected total collections to the Trust Fund
(including estimated interest on the Trust Fund of $811 million) of
$11.4 billion.
---------------------------------------------------------------------------
\1\ The total FAA budget for FY2000 of approximately $10 billion
included $5.9 billion for
operating expenses of the FAA plus capital budgets which included
Facilities and Equipment of $2.1 billion; Grants and Aid of $1.9
billion; and Research Engineering & Development of $157 million.
---------------------------------------------------------------------------
Like the aviation industry, in recent years, the Highway Trust Fund
has fairly consistently received funds in excess of expenditures. For
Fiscal Year 1998, for the Highway Account by itself, receipts of
approximately $24.3 billion exceeded expenditures of approximately
$20.3 billion by approximately $4.1 billion. Total Highway Trust Fund
disbursements of approximately $20.3 billion in FY1998 for
approximately 327.4 billion person trips (an available 1995 statistic,
which continued increasing from 1995 to 1998) imply federal
expenditures per person trip of approximately $0.06, all of which was
fully funded from federal gasoline and excise taxes.
In closing, it is important to note that all government-
orchestrated funding for highways and aviation is for the development,
improvement, renewal or operation of infrastructure, which is used, in
terms of common carriage, by companies that operate on commercial
principles in the competitive marketplace. Funding for Amtrak supports
both the infrastructure that Amtrak owns, principally in the Northeast
Corridor, and Amtrak's train operations.
Question 2. Are you concerned about the negative impact that your
press statements might have on Amtrak's ability to secure private
market capital, which directly impacts its ability to achieve operating
self-sufficiency?
Answer. The Amtrak Reform Council is sensitive, and has been
sensitive, to the potential negative impacts that press statements and
public reports may have on Amtrak's ability to secure private market
capital. Every financially related public statement of the Council
falls into one of two categories. Each is based either on publicly-
available financial analyses done by or concurred in by the Office of
the Department of Transportation's Inspector General or the General
Accounting Office, or on reasonably determined positions derived from
statutory interpretations of critical public policy issues affecting
Amtrak and rail passenger service.
Public credit ratings for Amtrak's debt by both Moody's and
Standard & Poor's have not changed since the Council issued its First
Annual Report, with the report's attendant press coverage.
Amtrak's ability to raise private sector financing is fundamentally
dependent upon Amtrak's ability to achieve its strategic business plan
objectives and the prospect of continued federal capital funding, not
upon adverse publicity.
For example, Moody's credit report states that its credit rating is
based on ``Moody's expectation that operational self-sufficiency will
be achieved, but that the Federal Government will continue to provide
financial support for Amtrak's capital programs.'' The report goes on
to say, ``Moody's believes that the implementation of high-speed rail,
and the realization of forecast operating efficiencies and consistent
service standards are critical to the achievement of operating self-
sufficiency. The success of these initiatives will help to ensure
continued political support for Amtrak and therefore help safeguard
future Federal funding.''
Standard & Poor's ratings also are dependent upon Amtrak's
performance rather than the Council's press releases. Standard & Poor's
January 2000 rating concludes, ``Ratings could be lowered if management
is unable to reduce operating losses and fund significant capital
spending needs during the next three years, and it appears to be unable
to reach a goal of self-sufficiency.'' (Copies of Amtrak credit ratings
are attached to the answers to these questions).
The Council's First Annual Report has benefited Amtrak and its
public debt ratings by addressing at an early date the appropriate
financial yardstick by which the Council and Congress will determine if
Amtrak is meeting the financial goat of the Amtrak Reform and
Accountability Act. Additionally, the Council's First Annual Report and
subsequent Congressional hearings have made it clear that Amtrak will
need federal capital funding of approximately $750 million annually to
maintain its existing system and levels of service even if Amtrak
achieves the financial goals of the Act.
Question 3. If Amtrak has always had a clean financial audit
history and has always outlined its financial strategy in its business
plans, then how do you believe that they can operate with more
transparency?
Answer. The purpose of a financial audit is not to ensure that a
corporation's business operations are financially ``transparent'' or
disaggregated by business unit and area of responsibility. The purpose
of a financial audit--of Amtrak or any other corporation--is to provide
assurance that all revenues and costs are fairly being recorded and
characterized for the entire corporation, not for its parts. Thus, the
outside auditors do not opine on whether financial data for various
segments of a corporation's business fairly present the results of
operations of those business segments.
To make prudent, well-informed business decisions, Amtrak's
managers and employees need to have readily available information about
the specific operations over which they have control. Amtrak employees
need an accounting system that gives them, on a ``transparent'' or
disaggregated (readily visible and understandable) basis, the
accounting and operating information for business elements under their
control, particularly if they have decision making authority. The basic
structure of Amtrak's accounting system is based on historical
accounting requirements more applicable to regulated freight railroads
than a commercial provider of passenger, mail and express
transportation services in today's competitive, deregulated
environment.
Amtrak's own management has publicly stated in presentations
describing its new Market Based Network Analysis (MBNA) process that
its historical reporting systems, the Financial Information System and
Route Profitability System, are inadequate. These systems do not
provide the kind of incremental cost and revenue information that
Amtrak's line managers and its senior management need to make sound
business decisions on a disaggregated basis. As a result, Amtrak
undertook an extensive effort to develop a new MBNA system to evaluate
its existing routes and to identify potentially profitable new routes.
A more ``transparent'' accounting system would have simplified the
process of developing an MBNA analysis, and would also allow Amtrak
managers to make better decisions on a daily basis at all levels of the
company.
A more ``transparent'' or disaggregated accounting system would not
only facilitate making better daily operating decisions and long term
strategic decisions, it would also enable Amtrak, as an example, to
segregate the financial performance of its passenger, mail and express
train operations on the Northeast Corridor from the financial
performance and capital costs of the Northeast Corridor infrastructure.
This is important because the costs of operating and maintaining the
NEC infrastructure are enormous, and Amtrak operates only about 100 out
of approximately 1,200 daily trains. The remainder are operated by (or
are operated under contract for) several commuter railroads (which run
more than 1,000 trains per day) and by a few freight railroads. If the
financial performance of Amtrak's train operations are enmeshed with
the financial performance of the infrastructure, then it is much more
difficult to measure accurately the trains' financial performance, and
to hold managers accountable for that performance.
In a corporation with a sound commercial organization--and a
correspondingly sound and transparent accounting system--the financial
operations of the Northeast Corridor infrastructure and train
operations would not be the only operations receiving separate reports.
The financial performance of Beech Grove and other equipment overhaul
facilities, of Amtrak's state and commuter contract operations, of
Amtrak's commercial ventures, and of its national system of train
operations would all be clearly indicated.
S&P rates AMTRAK issuer credit triple-B
(Press release provided by Standard & Poor's)
NEW YORK, Jan. 19, 2000--Standard & Poor's today publicly assigned its
triple-`B' issuer credit rating to the National Railroad Passenger
Corp. (Amtrak). The outlook is developing. The rating was previously
confidential.
The issuer credit rating of Amtrak reflects its important public
service role, operating improvements over the past two years and
continued, although substantially changed, assistance from the federal
government. These factors offset a weak financial profile. In addition,
potential restructuring, system rationalization, or liquidation of
Amtrak could occur under existing legislation if an oversight board
created in 1997 determines that Amtrak will require an operating grant
after late 2002.
Substantial evidence of political support (appropriations in the
face of significant challenges; $2.2 billion of capital funds) is taken
into consideration and reflected in the current rating, since without
such support, Amtrak would not cover its cash operating expenses from
operating revenues.
The U.S. government has historically been a primary source of
operating and capital funds since Amtrak's creation by the government
through the acquisition of various passenger railroads from the freight
railroads during the 1970s.
Amtrak was created by Congress to function as a corporation, not a
department, agency, or instrumentality of the U.S. Government. Amtrak
is a corporation organized under District of Columbia law, and the
federal statute has specified that the D.C. Business Corporations Act
governs Amtrak, except where it is inconsistent with the federal law.
The company has needed annual federal appropriations to remain in
operation and provide national passenger rail service. Amtrak is the
U.S.'s only provider of long distance passenger rail transportation and
is an important contract operator of commuter and shorthaul service in
various markets.
During the 1990s, annual appropriations became more challenging and
in 1997 Congress passed legislation (the Amtrak Reform and
Accountability Act of 1997 or ``ARAA'') that provided flexibility that
Amtrak says it needed to function in a more businesslike manner and
restore a viable national passenger rail system.
At the same time, this legislation mandated that Amtrak reach
operating self-sufficiency by Dec. 2, 2002 (Amtrak's fiscal year ends
September 30), and added a performance-related sunset trigger. The ARAA
bill also created the 11 member Amtrak Reform Council (ARC).
The ARC will oversee Amtrak's progress through at least 2002
towards operating without federal operating subsidies. The ARAA bill
contains a sunset trigger that requires ARC to submit a plan to
Congress to restructure and rationalize Amtrak and for Amtrak to submit
a plan for liquidation if ARC determines that Amtrak will require an
operating grant after the fifth anniversary of the ARAA, in late 2002.
Although this legislation contains several features that are
supportive of Amtrak, provisions for a potential restructuring or
liquidation of the company tied to performance-related goals are
unusual for an entity of or owned by the federal government and caused
the rating to be lowered to its current level in early 1998. The
uncertainty associated with the ARAA sunset provisions currently
precludes a higher rating, but continued progress toward self-
sufficiency and evidence of broadening political support could justify
a rating upgrade.
The ARAA gives Congress authorization to appropriate up to $5.1
billion in capital grants between fiscal 1998 and 2002, the estimated
amount that Amtrak requires to reach operating self-sufficiency by the
end of five years. $2.2 billion of the $5.1 billion was a one time
infusion from a separate source (the 1997 Taxpayers Relief Act
``TRA''). Although approval and disbursement of the funds beyond the
$2.2 billion is subject to the annual appropriation process, it is
expected that Amtrak will receive close to its full request over the
next couple of years.
Amtrak's passenger rail transportation business is capital
intensive, subject to competition from other more flexible and reliable
transportation modes and is not required as an essential service in
many markets. This situation contrasts in some respects with the
position of national passenger rail transportation in some European
countries and Japan, where its competitive position and public support
are more secure. Appropriations for operating and capital subsidies,
although significant, have been insufficient over time to operate,
service and maintain the equipment standards found in other sovereign-
dependent railroads.
The company is closely supervised by the government through the
annual appropriations process and periodic reauthorization by Congress
and various oversight authorities including the General Accounting
Office, U.S. Department of Transportation's Inspector General and the
ARC.
Operating costs remain high, with an operating ratio (operating
expenses as a percent of revenues) of about 150% (excluding federal
payments), and federal subsidies that are about equal to about 15% of
total revenues. The latest labor contract settlements covering all of
Amtrak's union employees provide Amtrak with new work rule flexibility
but also increase wage costs. However, Amtrak now has new freedom to
negotiate outsourcing of certain work, which could offset some of the
increase.
While Standard & Poor's believes that there is the potential for
some states to contribute incremental support, there is likely to be a
limit to such support. Potential restructuring, system rationalization
or liquidation could be considered by Congress under the ARAA bill if
operating subsidy needs persist past FY 2002 and the ARC sends a report
to Congress stating that is the case. The most essential segment, the
Northeast corridor, serves major population centers with large
Congressional delegations that have been major supporters of Amtrak in
the past and could coalesce with other regions served to support
elements of Amtrak.
Although mandated to reach operational self-sufficiency by December
2002, Amtrak will also continue to need capital funding past that date,
and for the foreseeable future. Current legislation only provides
funding authorization through FY 2002. Congress must act to authorize
funding or Amtrak will no longer receive appropriated funds. Results
from FY 1998 and FY 1999 indicate that Amtrak remains on its previously
determined ``glidepath'' designed to eliminate operating losses before
the end of 2002. Standard & Poor's believes that over the next three
years, it will be almost as important for Amtrak to demonstrate
significant progress towards self-sufficiency as to reach technical
self-sufficiency.
OUTLOOK: DEVELOPING
Amtrak has made progress over the past two years toward the
required goal of self-sufficiency from federal operating grant funds.
Management's strategy to eliminate reliance on operating subsidies
through substantially greater capital investment designed to attract
new customers and lower costs is a necessary, although high risk,
strategy. The outlook could be revised to stable or ratings raised,
despite the threat of a potential restructuring or liquidation of the
company, if management meets or exceeds plans for self-sufficiency,
which would primarily result from a high degree of success with new
initiatives, especially high speed rail in the Northeast corridor.
Ratings could be lowered if management is unable to reduce
operating losses and fund significant capital spending needs during the
next three years, and it appears to be unable to reach a goal of self-
sufficiency, Standard & Poor's said.
Moody's Raises Amtrak's Credit Rating Citing Improved Financial Outlook
WASHINGTON, December 21, 1999--Moody's Investment Services raised
Amtrak's credit rating to A3 this week. After assessing Amtrak's
finances and its Strategic Business Plan, Moody's assigned the A3
rating that means a ``stable outlook'' and noted that it ``reflects
Moody's assessment of the financial strength of Amtrak in relation to
its unique operations and prominence in the U.S.''
Further, Moody's noted that the rating is based on ``. . . Moody's
expectation that operational self-sufficiency will be achieved, but
that the Federal government will continue to provide financial support
for Amtrak's capital program.''
``We are pleased with Moody's decision and proud because it
reflects the private sector's confidence in our continuing commercial
success as well as the strengthening relationship with our public
partners,'' said Gov. Tommy Thompson, Amtrak's chairman of the board.
``We have been investing our resources to introduce high-speed rail in
the Northeast and other corridors, deliver consistently world-class
service and take advantage of every business opportunity by forging
partnerships with industry leaders.''
Moody's also wrote, ``The ARC (Amtrak Reform Council) may recommend
the dissolution of Amtrak if it fails to meet the self-sufficiency
goal, which in Moody's view is unlikely, given achievements to date.''
Congress created the independent ARC as part of the Amtrak Reform and
Accountability Act of 1997 to monitor the corporation's progress toward
operational self-sufficiency.
In fiscal year 1999, Amtrak achieved record total revenue of $1.8
billion and reduced expenses in accordance with its business plan.
Ticket revenue was supplemented by nearly $100 million in revenue from
Amtrak's mail and express shipment business and also other commercial
ventures. This all resulted in Amtrak beating the target set for the
corporation's reliance on federal operating support ($484 million) by
$8 million. This is the second consecutive year Amtrak surpassed its
financial target. For the first time in the corporation's history,
ridership improved for a third consecutive year, increasing to more
21.5 million.
``Amtrak's financial performance for the past two years is a result
of reorienting itself to operate more like a business and proves that
operational self-sufficiency is well within our grasp,'' said George D.
Warrington, Amtrak's president and chief executive officer. ``With
adequate federal capital support, Amtrak can continue to make
investments as part of its business plan to become the alternative to
congested highways and airports.''
Among the key components of Amtrak's business plan is the
development of high-speed rail corridors nationwide. Amtrak will
introduce Acela Express between Boston and Washington, D.C. later this
spring that will dramatically improve travel times and generate an
estimated $180 million in net annual revenue when fully operational.
Other business plan components include an initiative to deliver
guaranteed world-class service, to develop a more market-based system
and to leverage public and private partnerships. In the past year,
Amtrak has announced strategic alliances with The Hertz Corporation,
Motorola, Capital One and Dobbs International Services. In addition,
Amtrak has partnerships with two freight railroads, Norfolk Southern
and BNSF, to expand its express shipment business.
Amtrak operates a 22,000-mile intercity passenger rail system,
serving more than 500 communitiesin 45 states.
Moody's Investors Service Assigns Financial Strength Rating of A3 to
Amtrak
NEW YORK, Dec 14, 1999--Moody's Investors Service has assigned an
issuer rating of A3 to the National Railroad Passenger Corporation
(Amtrak). The rating, which has a stable outlook, reflects Moody's
assessment of the financial strength of Amtrak in relation to its
unique operations and political prominence in the US. The A3 rating is
based on Amtrak's unique role as the operator of the national passenger
rail system in the US, and Moody's expectation that operational self-
sufficiency will be achieved, but that the Federal government will
continue to provide financial support for Amtrak's capital programs.
Amtrak's status as a private corporation whose preferred stock is
entirely owned by the US Department of Transportation (DOT), and its
insulation from bankruptcy are additional positive credit factors. The
rating reflects the continuing, intense competitive pressures that
Amtrak faces from the nation's highly developed highway and air
transportation systems, as compared with the national passenger rail
systems in other countries, and the substantially larger land area that
it serves.
Credit risks include the Congressional mandate to achieve
operational self-sufficiency by year-end FY 2002, the continued
reliance on Federal subsidies, the start-up of high-speed rail service
on the Northeast Corridor (NEC), and the on-going implementation of new
business strategies. Moody's believes that the implementation of high-
speed rail, and the realization of forecast operating efficiencies and
consistent service standards are critical to the achievement of
operating self-sufficiency. The success of these initiatives will help
to ensure continued political support for Amtrak and therefor help
safeguard future Federal funding.
Amtrak's Reliance on Subsidies Common to All Passenger Rail and Public
Transit Systems
Amtrak was created in 1971 by an act of Congress to operate a
national system of passenger rail transportation. Currently Amtrak
operates a 22,000-mile passenger rail system serving 45 states, and
annual riderships of 21.5 million integrity passengers, and 58 million
commuters under contract with commuter agencies. Amtrak's business
activities include core railroad operations (passenger, food service
and state-supported services, commuter, (contract management of
commuter agencies) reimbursable (project work for commuter agencies)
and commercial business lines (real estate, right of way leases, air
rights leases).
As is typical of public transit systems in the US, as well as
transit and passenger rail systems throughout the world, Amtrak
receives substantial government subsidies. In Moody's April 1998
Special Comment: ``The Credit Implications of Increased Special Tax
Subsidization of Mass Transit Systems'' we stated ``Moody's recognizes
that mass transit systems cannot exist financially on their own and
must be subsidized. Many of the larger mass transit agencies have one
or more dedicated sales or special taxes to fund both operations and
debt service.'' While Amtrak lacks a long-term dedicated revenue
source, the trend of Federal subsidies is well established, although
susceptible to appropriation risk. From 1971 through 1999 the federal
government provided Amtrak with nearly $23 billion in financial support
through annual budgetary authorizations. With subsidization comes an
implied contract with its political partners and customer base. In
Moody's opinion, Amtrak's on-going overhaul and strategic re-invention
must be financially successful in order to ensure continued political
support for future funding subsidies. The proven ability to deliver
capital programs, particularly high-speed rail implementation in the
NEC as promised, is also critical to continued subsidization.
Reorganization Focused on Operational Self-sufficiency
In 1994 the federal government challenged Amtrak to reduce its need
for operating subsidies and achieve operational self-sufficiency by the
end of FY 2002. In 1995 Amtrak organized its operations into the three
Strategic Business Units (SBUs) that exist today. The SBUs are arranged
along geographic and market segment lines and consist of the Northeast
Corridor (NEC), Amtrak Intercity and Amtrak West. Only the Metroliner
route, which operates almost entirely on Amtrak-owned tracks, has
achieved profitability.
The Amtrak Reform and Accountability Act of 1997 (ARAA) established
a new organizational structure for Amtrak and provided for Taxpayer
Relief Act (TRA) funding of $2.3 billion over a five year period for
capital expenditure needs, including the acquisition of high speed rail
rolling stock, and maintenance of equipment and facilities. While the
ARAA also repealed certain restrictive labor provisions, it also
imposed additional layers of management oversight, including financial
audits by the DOT Inspector General, and the creation of the Amtrak
Reform Council (ARC). The ARC may recommend the dissolution of Amtrak
if it fails to meet the self-sufficiency goal, which in Moody's view is
unlikely, given achievements to date. The composition of the new Board
of Directors helps to ensure broad bi-partisan political support for
Amtrak at the national level.
Moody's Believes Goal of Operational Self-sufficiency is Achievable
Amtrak's 1998-2002 Strategic Business Plan (SBP) has been designed
to achieve operational self-sufficiency by the end of FY 2002. A key
component of plan needed to achieve this goal is the successful launch
of high-speed service (``Acela'') in the NEC. Incremental net revenues
from this new service are forecast to grow to $180 million by 2001.
Currently, implementation is about 6 months behind schedule due to
wheel-wear problems on the new rail cars. Electrified service from
Boston to New York is scheduled to begin in January 2000, with limited
Acela Regional service. The high speed Acela Express service is to be
implemented in mid-2000, assuming corrected railcars are delivered in
the spring. While delay costs through mid-2000 are expected to be
offset by liquidated damages from the contractor, as well as from
operational and start-up savings, Moody's believes that a delay beyond
the end of 2000 could jeopardize Amtrak's chances of achieving the
Congressional mandate of self-sufficiency.
Other key components of Amtrak's business plan hinge on significant
growth in mail and express revenues, improvements in fleet quality and
management, containment of core operating costs and development of new
commercial ventures. The SBP assumes self-sufficiency will be achieved
one year ahead of the requirement, assuming actual future federal
appropriations will equal proposed amounts ($521 million 2001, $521
million 2002).
Recent Operations and Financial Results Show Improvement
During the last few years Amtrak has seen a significant improvement
in traffic and revenues, reversing previous years' trends of declining
ridership. From 1997-98 total ridership grew 4.5%, and revenues 3.8%.
From 1998-99 ridership went up 2% (3% in the NEC) and revenues 6%.
However, these positive trends are somewhat offset by increases in
expenses largely due to increased labor costs associated with newly
ratified contracts with nearly all unions. Amtrak has 21,000 unionized
(13 labor unions and 2 councils; 25 labor agreements) and 2,500
management employees.
Amtrak has recently completed a comprehensive study of its
operating units and is in the process of applying more stringent
bottom-line analyses to all of its business lines. Ultimately Amtrak is
working towards a more market demand model, which may result in service
configuration adjustments. Moody's believes that any service
adjustments would be subjected to political need and compromises. The
scope and nature of future operational changes will impact the extent
and timing of Amtrak's drive towards greater operational self-
sufficiency.
The latest DOT-IG report identifies $692 million in projected SBP
revenue increases that are at risk of not being achieved by 2002. Over
half of these revenues relate to service standards improvements,
initiatives related to Amtrak's Market-Based Network Analysis (MBNA)
and other management actions that have yet to be fully implemented. If
these revenues are not fully realized, Amtrak may need to expend scarce
capital dollars for operations, thereby slowing the pace of much needed
upgrades to its infrastructure both in the NEC south of New Haven and
nationally.
______
Response to Written Questions Submitted by Hon. Max Cleland to Amtrak
Question 1. Governor, I have heard that as a nation we spend over
$70 billion a year on our highway infrastructure, yet increasing
traffic gridlock is strong evidence that we are unable to keep up with
demand. Is passenger rail a cost-effective transportation alternative,
and if so, why?
Answer. Yes, passenger rail is a cost-effective transportation
alternative, because as population and congestion increase, our ability
to cheaply meet that growing demand diminishes.
Comparing the relative efficiency of modal investment choices over
time reveals that highways and air service reflect lower average costs
historically due to high capital investment but rising average costs
today. Average costs to meet passenger demand in the highway and
aviation systems are starting to grow as increasing demand and
congestion lead to less cost-effective options for increasing capacity.
In contrast, the nation's rail system reflects higher average costs
historically due to minimal capital investment and falling average
costs today. Investment in rail can lower average costs both as a
result of increasing efficiency and by stimulating increased demand for
rail service.
While over $70 billion per year is spent on the national highway
infrastructure, only $500 million per year is spent on the national
rail infrastructure and fleet by the federal government. As policy-
makers consider where to invest transportation dollars, they will need
to consider the cost-effectiveness of those investments in meeting
future travel demand. Accommodating that demand will be increasingly
challenging in the capacity-constrained highway and aviation systems,
while the rail system looks to be a progressively more cost-effective
alternative.
Highway Delays are Rising--The Texas Transportation Institute (TTI)
has shown, for example, that since 1982, driver delay across the
largest 68 urban areas, measured in hours of delay, has grown by an
average of 181%, with delay in medium and small urban areas growing at
a much higher rate.\1\
---------------------------------------------------------------------------
\1\ Texas Transportation Institute, Urban Mobility Study, 1999.
Growth in Average Annual Delay per Driver 1982 to 1997 \2\
------------------------------------------------------------------------
Urban Area Group Percent Change
------------------------------------------------------------------------
Very large 125%
------------------------------------------------------------------------
Large 300
------------------------------------------------------------------------
Medium 343
------------------------------------------------------------------------
Small 400
------------------------------------------------------------------------
Overall Average 181%
------------------------------------------------------------------------
While the nation spends over $70 billion per year on its highway
infrastructure, the system has been unable to keep up with demand.\3\
In examining alternatives for alleviating congestion constraints, for
example, TTI concludes that on average, and assuming additional road
capacity meant new roads rather than congestion management solutions
(HOV etc.), less than half (45%) of the roadway needed to keep up with
demand was built between 1994 and 1997. This suggests diminishing
returns to each dollar invested.
---------------------------------------------------------------------------
\2\ Measured in total minutes of delay per year.
\3\ Federal Highway Administration, Highway Statistics, 1997, Table
HF-2, Total Disbursements for Highways, All Units of Government;
estimate includes capital and maintenance outlays only.
---------------------------------------------------------------------------
Aviation Delays are Rising--Our nation's aviation system is
likewise becoming increasingly congested, particularly in the largest
cities. In 1991, for example, 23 airports experienced annual aircraft
flight delays in excess of 20,000 hours. Today, there are 27 with at
least that amount, and that number is expected to grow to 31 by
2007.\4\
---------------------------------------------------------------------------
\4\ Federal Aviation Administration, Airport Capacity Enhancement
Plan, various years.
---------------------------------------------------------------------------
Further, the average delay per operation (takeoff or landing) now
exceeds 5 minutes at all of the top 10 airports.\5\ This fact is
particularly important for three reasons. First, the vast majority of
passenger traffic passes through the top airports. Of the 3,300
airports considered of national significance, the top 29 handle 67% of
the nation's traffic.
---------------------------------------------------------------------------
\5\ Federal Aviation Administration, 1998 Airport Capacity
Enhancement Plan.
---------------------------------------------------------------------------
Second, while an average delay of 5 or 10 minutes per operation
appears relatively small, these delays do not tend to be distributed
evenly, but instead are grouped during peak hours. The result is that
the typical operation during peak hours is delayed by substantially
more than 5 or 10 minutes.
Average Delay per Aircraft Operation At the Top 10 Most Delayed
Airports, 1997
------------------------------------------------------------------------
Minutes per
Rank Airport Operation
------------------------------------------------------------------------
1 Newark 9.94
2 Atlanta 7.64
3 LaGuardia 7.63
4 Philadelphia 6.95
5 DFW 6.42
6 Detroit Metropolitan 6.20
7 St. Louis 6.05
8 Minneapolis-St. Paul 6.00
9 JFK 5.38
10 Boston Logan 5.37
------------------------------------------------------------------------
Source: FAA Airport Capacity Enhancement Plan, 1998.
Finally, congestion per operation imposes delays not on a single
individual, but on an entire aircraft. The costs of these delays can,
therefore, become high. The Air Transport Association, for example,
estimated that the additional aircraft operating and ground handling
costs resulting from delayed operations in 1997 equaled $2.4
billion.\6\
---------------------------------------------------------------------------
\6\ Ibid., p. 32.
---------------------------------------------------------------------------
In its recent report to the U.S. Department of Transportation, the
National Civil Aviation Review Commission summarized its primary
finding: ``gridlock is near and will be expensive.'' \7\ This finding
is based largely on the rapid growth in aviation system delays and the
system's increasing inability to address these delays with conventional
approaches, such as new runway capacity, the combination of which is
expected to result in continued growth in aircraft delays.
---------------------------------------------------------------------------
\7\ National Civil Aviation Review Commission, Avoiding Aviation
Gridlock and Reducing the Accident Rate, A Consensus for Change,
December 1997, p. 1-2.
---------------------------------------------------------------------------
Costs for Adding Highway Capacity are High--The incremental cost of
adding capacity to the urban interstate system is $0.14 per passenger-
mile in new pavement, congestion and accident-related costs--and even
more if environmental and social costs are included.\8\
---------------------------------------------------------------------------
\8\ Federal Highway Administration, 1997 Federal Cost Allocation
Study, Final Report; based on Table V-26, marginal costs for the year
2000.
---------------------------------------------------------------------------
The incremental cost of adding rail capacity, however, is
diminishing. Over time, therefore, the average cost per passenger mile
for highways will rise as the average cost per passenger mile for rail
will fall, making passenger rail a cost-effective option for adding new
capacity. Rail passenger demand, particularly on higher-density routes,
is expected to rise at a rate higher than the historical average in
part due to increasing congestion and delay on existing alternatives,
and in part as new investment results in higher levels of service.
As the highway and aviation systems are stretched to their limits,
investment in rail becomes an increasingly viable and attractive option
for meeting new intercity travel demand.
Question 2. Do you believe Amtrak can achieve operational self-
sufficiency following the Amtrak Reform Council's (ARC) suggested
guidelines?
Answer. As agreed to at Senator Hutchison's February hearing, the
ARC will not include depreciation and progressive overhauls as
operating expenses that Amtrak must recover without federal grants.
This is consistent with the intent of the Subcommittee and Amtrak's
assumption in all of its Strategic Business Plans. Amtrak continues to
believe that it will achieve operational self-sufficiency based on this
criterion.
Question 3. Amtrak noted in its Strategic Business Plan that
partnerships with the states will play an important role in Amtrak's
efforts to achieve operational self-sufficiency. The Georgia Department
of Transportation (GDOT) appreciates Amtrak's interest and enthusiasm
in Georgia's efforts to implement passenger rail service, both commuter
and intercity. However, GDOT would like to see flexibility afforded to
state and local rail operations to seek the best arrangements possible
when it comes to the operation of intrastate rail programs. In
addition, GDOT and others in my state, including myself, believe that
funding flexibility in TEA-21 should be expanded to include intercity
rail. Should funds be flexed, GDOT believes the federal government
should afford equal access opportunities to funds made available for
passenger rail service for both Amtrak and the state or local rail
operations.
Could you please comment on GDOT's statement:
Answer. Amtrak is extremely supportive of the efforts within
Georgia to develop new intrastate and intercity passenger service to
provide an alternative to the growing congestion that is choking
Atlanta and other cities within the state. Amtrak has met with the
Georgia DOT, the Georgia Regional Transportation Authority, and the
Georgia Passenger Rail Authority, as well as with the Governor and
Lieutenant Governor, to express our support for rail and to offer any
assistance we can provide to help progress these efforts. Senator
Cleland's leadership in this area has been a particularly important
catalyst in building support for rail passenger service within the
state. We look forward to a very bright future for rail in Georgia. The
state provides a critical link between the federally designated
Southeast High-Speed Rail Corridor heading north to Greensboro,
Charlotte, Richmond and Washington, DC, and the Gulf Coast High-Speed
Rail Corridor, heading south and west to Birmingham, Meridian, New
Orleans and Texas.
The Rail Passenger Service Act of 1970, which created Amtrak,
statutorily authorizes Amtrak to operate on trackage owned by every
railroad in the country, provided Amtrak compensates the railroad for
certain costs associated with its use of the rail line. This authority
to operate, as well as some 30 years of experience working with freight
railroads, can assist states attempting to implement new rail service
over freight-owned rail lines, particularly over routes where no
passenger trains currently operate. However, states are free to seek
competitive proposals for new rail passenger service and Amtrak
welcomes the opportunity to bid on such proposals.
Amtrak very much appreciates the support of Senator Cleland for
amending TEA-21 to provide states with the flexibility to invest
certain federal transportation funds in intercity rail projects.
Currently, legislation is progressing in both the House and the Senate
to allow states this right. This flexibility would not in any way be
limited to Amtrak or Amtrak routes and would provide an important
potential source of funds for Georgia to assist in implementing its
vision for intrastate and intercity passenger rail.
Question 4. The Gulf Coast HSR Corridor currently ends in
Birmingham. I would appreciate your comments on extending the corridor
to Atlanta, so that the Gulf Coast Corridor can tie into the Southeast
HSR Corridor.
Answer. Amtrak strongly supports extension of the Gulf Coast High-
Speed Rail (HSR) Corridor to Atlanta and has urged the states in the
Gulf Coast HSR Corridor to seek federal designation of this extension
from the Federal Railroad Administration. This corridor is extremely
important in light of the severe rail congestion in and around Atlanta.
Efforts to alleviate this congestion will be the lynchpin for
implementing new service on all routes around Atlanta, including
Birmingham (and the Gulf Coast HSR Corridor), Macon, Athens, Greensboro
(and the Southeast HSR Corridor) and Chattanooga.
______
Response to Written Questions Submitted by Hon. John McCain to Amtrak
Question 1. According to testimony by the Department of
Transportation Inspector General (DOT-IG), the tunnels leading into and
out of Penn Station in New York require substantial work to meet life
safety needs. How much would it cost to fix the most pressing needs,
such as evacuation and ventilation, and how quickly could these
projects be completed if all necessary funds were available?
Answer. There are 28 individual projects that were discussed with
the USDOT OIG staff that reflected unfunded need for the years 2001 to
2014. These projects reflect the highest priority needs for fire and
life safety in Penn Station New York and have a total unfunded need in
1997 dollars of $654,915,000. These projects address the ventilation
and evacuation needs either directly, through enhancements in the
physical plant, or indirectly, in a complementary way by providing the
communications, signage, lighting, walking surfaces, rescue vehicles,
water standpipes, and the like, required to accomplish an effective
emergency response and/or evacuation.
The major portion of the program is scheduled for completion within
the first nine-year period (2001-2010). Much work has been done to
determine fast track potential and early completion. However, given the
current lack of a dedicated funding source, and therefore the resulting
competition between these life safety needs and available single year
allocations of funds for all needs, long-term project planning becomes
difficult at best. This reality combined with the inability to schedule
major blocks of time for construction work in heavily used tunnels and
station areas naturally stretches out completion times for these
projects. There are, however, beneficial and costly projects that could
be expedited with dedicated funding. These do not impact substantially
on active rights-of-way and fall primarily in the areas of constructing
new tunnel ventilation shafts. They can be built, including their
integrated new emergency access and egress components, substantially
outside the tunnel configuration with the only impact coming at the end
of the project from the connection of the reconstructed shafts to the
tunnels.
Since these projects are currently in the design process, we do not
yet have the final design, constructability, staging, and contract
packaging information necessary to determine and commit to a specific
fast tracking impact. However, we do believe that the potential exists
to complete these projects in advance of the present schedules
contingent upon receipt of funding commitments.
----------------------------------------------------------------------------------------------------------------
Total
Unfunded
Project Needs 2001-
2014
----------------------------------------------------------------------------------------------------------------
Penn Station Track Level Emergency Ventilation $8,209,000
----------------------------------------------------------------------------------------------------------------
Wayside Communication for North River Tunnels, Empire Tunnel 978,000
----------------------------------------------------------------------------------------------------------------
Wayside Communication for East River Tunnels Lines 1 & 2, and Penn Station New York 779,000
----------------------------------------------------------------------------------------------------------------
Tunnel Handrail Replacement & Signage 246,000
----------------------------------------------------------------------------------------------------------------
Tunnel Lighting Improvements & Blue Lights at Emergency Phones 1,754,000
----------------------------------------------------------------------------------------------------------------
East River Tunnels Emergency Ventilation Design 567,000
----------------------------------------------------------------------------------------------------------------
East River Tunnels Emergency Ventilation--Long Island City Site-- Construction 80,000,000
----------------------------------------------------------------------------------------------------------------
North River Tunnels Emergency Ventilation Design and Construction 18,784,000
----------------------------------------------------------------------------------------------------------------
Supervisory Communication and Data Acquisition System for Ventilation Control 155,000
----------------------------------------------------------------------------------------------------------------
Emergency Ventilation Power--Design 150,000
----------------------------------------------------------------------------------------------------------------
East River Tunnels Emergency Ventilation--1st Ave. Site--Construction 83,000,000
----------------------------------------------------------------------------------------------------------------
Tunnel Structural Rehabilitation 151,194,000
----------------------------------------------------------------------------------------------------------------
Emergency Ventilation Power--Construction 5,600,000
----------------------------------------------------------------------------------------------------------------
Supervisory Communication And Data Acquisition System--future software implementation 325,000
----------------------------------------------------------------------------------------------------------------
Document Buildings--Maps & Plans 900,000
----------------------------------------------------------------------------------------------------------------
Emergency Response Vehicles 15,400,000
----------------------------------------------------------------------------------------------------------------
Integrated Evacuation Plan--Penn Station New York 3,800,000
----------------------------------------------------------------------------------------------------------------
Third Rail Replacement--North River Tunnel Construction 9,036,000
----------------------------------------------------------------------------------------------------------------
Port Access Improvements for the North River Tunnels and East River Tunnels 11,900,000
----------------------------------------------------------------------------------------------------------------
Philadelphia Structures gjpering Support (Internal Labor) 7,408,000
----------------------------------------------------------------------------------------------------------------
New York Engineering and Project Management Support (Internal Labor) 23,519,000
----------------------------------------------------------------------------------------------------------------
Farley Building Track Level Emergency Ventilation, Communication, etc. 49,700,000
----------------------------------------------------------------------------------------------------------------
East River Tunnels Track Rehabilitation and Drainage 60,143,000
----------------------------------------------------------------------------------------------------------------
East River Tunnels Track Emergency Evacuation Walking Surface 6,013,000
----------------------------------------------------------------------------------------------------------------
North River Tunnels Track Rehabilitation and Drainage Improvements 30,072,000
----------------------------------------------------------------------------------------------------------------
North River Tunnel Track Emergency Evacuation Walking Surface 3,007,000
----------------------------------------------------------------------------------------------------------------
Penn Station Track Rehabilitation and Drainage Improvements 14,973,000
----------------------------------------------------------------------------------------------------------------
Passenger Car Modifications (Emergency Brake Release) 67,303,000
----------------------------------------------------------------------------------------------------------------
TOTAL $654,915,00
0
----------------------------------------------------------------------------------------------------------------
NOTE: All costs reflect 1997 dollars and include no escalation
Question 2. In its 1999 Assessment, the DOT-IG identified capital
spending that was taking place in areas outside of Amtrak's minimum
needs--particularly corridor development and the transformation of
train cars in the Northeast Corridor.
a) Has Amtrak identified funding in its current capital plan to
cover its minimum needs?
b) How will these needs be covered in 2000 and 2001?
c) If spending continues on non-minimum needs, the resulting
shortfall will require some minimum needs to go unfunded. Which needs
will be deferred and what will be the short and long-term effects of
this deferral?
Answer. Amtrak believes the capital investments that have been made
for non-minimum needs will generate bottom-line benefits that will help
Amtrak achieve operational self-sufficiency.
Amtrak has identified and funded its minimum capital needs, as
defined by the DOT-IG, for FY2000. Amtrak's current capital program
provides funding for such minimum needs with Taxpayer Relief Act (TRA)
and general capital dollars.
Amtrak will again look to TRA and general capital funds to support
its minimum capital needs in FY2001. The definition and value of such
needs are currently being evaluated. Clearly debt service, mandatory
and legally obligated programs would have first priority for funding.
Question 3. The cost of the electrification project between New
Haven and Boston has increased by over $300 million since its start in
1995.
a) How are these additional costs being funded?
Answer. The additional costs for electrification are being funded
through federal sources.
b) What planned projects have been eliminated or scaled down to
absorb these increased costs?
Answer. Amtrak has effectively managed other portions of the
project to offset the cost increases of the electrification program.
Although current projections for the High-Speed Rail Program show an
increase in the electrification project costs of approximately $250
million, the incremental federal funding required was less. Project
costs for infrastructure, EIS mitigation and product development were
reduced. Also, by delaying financing and taking advantage of lower
interest rates and escalation costs, a larger percentage of trainset
and facility costs are being financed.
Question 4. Amtrak's high-speed train service--the Acela Express--
has now experienced multi-year delays.
a) What have been the reasons for the delays to date and what
effect will this most recent delay have on your revenue projections for
FY 2000?
b) What actions have you identified to offset the potential loss in
revenue?
c) To what extent has the Acela trainset Contractor compensated
Amtrak for having failed to fulfill its contractual obligations (i.e.,
how much has Amtrak received in contractor penalties)?
d) Press reports indicate differences of opinion between the
builders of the trainsets, Amtrak, and the Federal Railroad
Administration about how testing should proceed. Why wasn't this
testing procedure agreed upon in advance?
Answer. The high-speed train service has not experienced multi-year
delays. Given the contractors most recent schedule, the delivery of the
high-speed trainsets is expected to be approximately seven months
delayed.
The delays to the high-speed trainset program are primarily
attributable to manufacturing and other delays caused by the
Contractor. As this matter might be subject to future claims and
potential litigation, it would be inappropriate for Amtrak to comment
further at this time.
Ticket revenues are anticipated to be $120 million less than
originally planned. However, Amtrak has identified alternative revenue
sources to offset the cash loss associated with the delay. These
revenue sources include liquidated damages from the contractor, savings
in interest and operating costs due to the delayed implementation of
service and incremental lease revenue.
The contract between Amtrak and the manufacturer Consortium,
responsible for the production of the trainsets, includes provisions
for liquidated damages. The value of the liquidated damages is directly
dependent upon the date that each unit is delivered to Amtrak,
therefore a precise value cannot be determined today and can only be
calculated when each unit is delivered. The contract provisions allow
Amtrak to deduct the value of estimated liquidated damages from the
payments made to the Consortium, which Amtrak intends to do.
As far as the testing procedure is concerned, in accordance with
the Contract, the Contractor submits a test procedure for each test
required by the Specification to Amtrak for approval. The test cannot
begin until the Contractor has received Amtrak's conditional approval
or approval of the test procedure. Amtrak also submits a copy of the
test procedures to the Federal Railroad Administration (FRA) Office of
Safety for their review and comments before approving the procedure.
There have been some differences of opinion between the Contractor,
Amtrak and the FRA with regards to appropriate testing requirements and
methodologies. All issues regarding how to proceed with testing have
been resolved quickly using both regular meetings and conference calls
in which the Contractor, Amtrak and the FRA are participants. Amtrak
cannot comment on press articles that have not been specifically
identified.
Question 5. On January 31, Amtrak launched Acela Regional, with
limited electrified service between Boston and Washington, DC.
a) How has this performed to date?
Answer. Acela Regional market performance in February 2000 was
excellent as evidenced by . . .
Ridership on the four trains was 43,028 trips, with
ticket revenues of approximately $2.36 million;
This level of market performance was +21% (ridership)
and +48% (ticket revenues) versus comparable Northeast Direct
service in February 1999;
February 2000 ridership on these trains exceeded plan
by nearly 5% while ticket revenues exceeded plan by 26%.
Based on preliminary March 2000 sales indicators, Amtrak expects
Acela Regional ridership and ticket revenues to be even better in
March.
b) What has been its record for on-time performance and load
factors?
Answer. Acela Regional service was launched on January 31, 2000.
The following February, 2000 data represents the first full month of
service:
Load Factor: Train 130 40.5%
(NYP and North) Train 131 47.4%
Train 132 64.1%
Train 133 55.7%
Avg. NYP and 51.9%
North
On-Time Train 130 80.0%
Performance:
Train 131 95.0%
Train 132 82.8%
Train 133 93.1%
Total OTP 87.8%
Question 6. It appears that passenger revenue for the Intercity
Strategic Business Unit for the first quarter of fiscal year 2000 is
considerably behind its planned performance. What are the reasons for
this relatively poor performance, and what plans do you have to improve
these revenues in the remainder of 2000?
Answer. While first quarter FY00 Intercity passenger revenues were
below plan, passenger revenues in January/February (+4% vs. year ago)
were encouraging, signaling a reversal in Intercity market trends
versus the last few months of calendar 1999. In addition, performance
during the first weeks of March indicates that the positive trend is
continuing.
First quarter FY00 Intercity market performance was hampered by a
combination of factors including poor on-time performance coupled with
some product quality issues; a reduction in travel due to Y2K concerns;
and increased low airfare competition in some Intercity markets.
However, the outlook for the balance of FY00 is very positive as
Intercity ridership trends will improve significantly due to both the
implementation of targeted, tactical marketing and pricing actions, and
the launch of several key strategic initiatives focused on product and
brand improvements . . .
initiation of a new travel agency promotion offering
an additional 10% discount off of lowest prevailing fare;
travel agency sales trends are improving already;
continuing revenue management strategies designed to
increase discounted inventory;
extension of the Fall buy/get one promotion in late
January through all of February;
a focused program of freight outreach initiatives to
help improve Amtrak on-time performance;
on-time performance has already started to turn
around;
consequently, customer satisfaction is on the upswing;
consolidation of the new Marketing Department at the
corporate level;
launch of the popular Spring 1-2-Free promotion on
February 28;
launch of the Service Standards Program, and
specifically the service satisfaction guarantee in early
summer;
the re-positioning of the parent Amtrak Brand as we
introduce service guarantees and deliver ``right & ready''
trains;
continued appeal and growth of the Amtrak website,
representing 5% of total sales (100% improvement versus FY99);
Question 7. According to your FY 2000 Strategic Business Plan, you
are again projecting significant cost savings from purchasing power at
wholesale rather than retail prices. In past years, this has assumed
that Congress would amend relevant statutes so as to allow Amtrak to
engage in wholesale power purchase and sale activities, despite the
1998 ruling of the Federal Energy Regulatory Committee to the contrary.
Is this still your strategy, and if so, how are you proceeding with
this effort?
Answer. Amtrak will continue to pursue the authority from Congress
to engage in the wholesale purchase and sale of electric power.
Enactment of a provision designating us as a wholesaler was part of our
FY 2001 Legislative and Grant Request submitted to Congress and the
Administration on February 15, 2000. Our strategic business plan has
assumed that by managing energy usage and continuing to take advantage
of a developing deregulated electricity market, we will realize annual
savings of $3 million in FY2000 and $14.5 million annually thereafter.
This past December, Amtrak exercised with Duke Solution, Inc., for
power supply in the Northeast Corridor. Projected savings under this
contract are approximately $3 million for FY2000. Amtrak believes that
it will be able to gain additional savings on power by expanding the
company's participation in Retail Choice programs, as power markets
develop further.
Question 8. The Amtrak Reform and Accountability Act is silent in
regard to future capital funding for Amtrak. After 2002, does Amtrak
expect that the federal government will provide capital grants for its
depreciation and progressive overhaul expenses or will these items be
funded from other resources? What about funding for maintenance and
other costs traditionally paid for via operating grants but today being
covered by capital grants as permitted according to Appropriations
Reports?
Answer. Amtrak expects to receive annual federal capital grants
after 2002. These capital grants will be used for progressive overhaul
expenses and for its depreciated assets. Amtrak will also continue to
pursue capital investments from commercial partners and state/local
governments. A portion of future grants will be used to cover qualified
maintenance costs as permitted according to Appropriations Reports.
After 2002, the amount of federal grants used for qualified maintenance
expenses will be equal to or less than the value of Excess Railroad
Retirement payments.
Question 9. What is the level of the capital grant that Amtrak
expects to receive from the Congress in 2003 and for the succeeding 4
years? How would these monies be used?
Answer. Amtrak is currently constructing its long-term capital
program which will incorporate the development of high-speed corridors
across the country. It is anticipated that the planning efforts with
States will be finalized later this summer. The long-term capital
program and budget would therefore be included in Amtrak's FY2001
business plan, issued in the early fall of this year. Federal funding
would be used to support debt service, life/safety, operational
reliability, equipment overhaul and refleeting, infrastructure, state-
of-good repair, high-speed corridor development and other capital
investment needs.
Question 10. GAO and the DOT Inspector General have been critical
of last year's Strategic Business Plan because of significant amounts
of financial benefits that ``Amtrak expects to see are merely
placeholders--that is, amounts placed in the plan for `actions to be
determined later' or which Amtrak had no support.'' Please tell me to
what extent Amtrak has firm and supportable financial estimates for
expected net financial benefits for productivity enhancements ($161
million in the plan), establishing service standards ($105 million),
and realigning its route structure ($105 million).
Answer. Virtually any five-year business plan will have
placeholders for actions that are planned but have yet to be developed
in detail. From an audit perspective, the DOT-IG and the GAO have
appropriately categorized those unspecified actions as values that are
at risk. Each year, Amtrak further defines a set of actions it will
take and forecasts for the mid- and long-term a set of broader, not yet
detailed actions. For the past two fiscal years, all previously
identified placeholders have been either defined or replaced with new
actions that have produced budget results equal to plan. Productivity
enhancements are an example of such placeholders that have been
subsequently defined and have included revenue enhancement, service
delivery and labor cost programs.
Two major initiatives, service standards and the realignment of the
route structure, were identified in last year's business plan. Both had
yet to be fully developed at the time of the business plan publication.
Since that time, however, an enormous amount of research, planning, and
development has occurred.
The service standards program has now been defined, the FY2000
benefits have been identified by business unit and the program is in
the first stages of implementation. Product categories have been
standardized, new staffing ratios have been set, all 25,000 employees
have attended service quality training, a new management evaluation
process has been implemented, and a new attendance recognition and
incentive program has been implemented. This summer the heart of the
initiative, the ``Right and Ready Trains'' program and the Customer
Guarantees, will be implemented. Following implementation of the full
program, service consistency and quality should improve to a point
where ridership and therefore revenue increases. Savings are also
projected as the result of the attendance program. Once these programs
are begun this summer, Amtrak will be able to more clearly assess the
revenue impact and will incorporate the results in the FY2001 business
plan.
Following a comprehensive economic analysis of its national rail
system and potential market opportunities, Amtrak unveiled its new
Network Growth Strategy (NGS) at the end of last month. The NGS is a
market-driven plan that will expand the existing network, increase
profitability, and better serve all Amtrak passengers and business
partners. The strategy proposes to:
Expand or improve service in 21 states
Add service to 975 new station pairs
Add 11 route segments
Grow ridership for long-distance intercity with a 12%
growth in train miles
Double the number of shipping lanes for mail and
express business
The plan will generate $229 million in new annual passenger revenue
and will contribute $65 million to the bottom-line in FY2003. With a
ramp-up of service beginning in FY2000, the Business Plan forecast of
$105 million for the five-year plan period will be met.
Question 11. To what extent will future Strategic Business Plans
contain similar placeholders or financial estimates for which Amtrak
has no firm and supportable estimates?
Answer. Future five-year Strategic Business Plans are likely to
contain financial estimates or similar placeholders. The nature of
Amtrak's business has elements of uncertainty such as the current
escalation of fuel prices.
As illustrated by the achievement of our FY1998 and FY1999 Budget
Results, Amtrak has been able to successfully respond to changes by
developing new initiatives during a given fiscal year. This may be a
combination of additional cost containment and/or revenue increases.
Question 12. Amtrak has stated that it will increase its mail and
express business from the current $80 million-$90 million to over $200
million. What progress has been made in achieving this goal and how
much federal money will be required to meet this expected increase?
Answer. Amtrak's business plan calls for an increase in the volume
of mail and express business from $98 million in FY1999 to over $200
million in FY2002 through aggressive growth of the fleet and routes
available to serve our customers. The mail and express business is key
to improving the financial results of mid- and long-distance passenger
services.
For the five months ending February 29, 2000, the mail and express
business had increased its revenue base by $11.8 million or 30% over
the same period last year, with growth in the full car express business
up 72%. The shipping community is reacting favorably to the service
Amtrak provides for high value, time-sensitive express shipments. The
demand for the service is high, and requires additional capacity to
grow further.
The growth in the mail and express businesses as contemplated in
the business plan will expand a profitable incremental business line
and therefore reduce Amtrak's reliance on federal operating subsidies.
In order to accomplish this goal, an aggressive expansion of the
express fleet is underway, and is being financed either through third
party financing or through partnerships with commercial companies. The
facilities required to handle this growth in traffic will require
Amtrak to invest capital of at least $25 million over a five-year
period. A specific facilities plan, linked to the route expansion
envisioned in the Network Growth Strategy, is underway and will be
included in next year's business plan. While a portion of this has
already been funded, Amtrak is aggressively pursuing financing
strategies that will allow minimal use of scarce capital to develop the
facilities.
Question 13. Amtrak has similarly stated that it will increase the
amount of money provided by states that pay for Amtrak service. What
progress has been made in achieving this goal and how much more money
does Amtrak expect to receive by 2002? How will money received from
states be used?
Answer. Amtrak has made great progress in increasing the
contribution received from state and local governments. Over the last
five years, operating contributions have increased from $64 million to
$112 million and capital contributions have grown from $128 million to
$219 million and $300 million in FY2000 and FY1999.
Operating contributions are used to offset losses associated with
specific passenger routes, and capital contributions are used for
investment in infrastructure (track, stations, facilities,) and fleet.
Amtrak is also modifying its internal policy and practice for
costing and pricing state-supported trains. In order to meet its
promise to Congress, Amtrak is pursuing several actions to improve
financial viability of its routes in a way that permits it to provide a
national network of services.
Operational self-sufficiency requires that routes cover not only
their incremental costs, but earn a contribution sufficient to cover
the Corporation's fixed cost base. Thus, for routes that do not cover
contribution, Amtrak will seek state assistance to cover that gap plus
a portion of the fixed cost base.
Question 14. After the most recent round of negotiations between
Amtrak and its labor unions, Amtrak expected to offset about 20% of
labor cost increases. What progress has been made in achieving this
goal and why is only 20% of the cost increase being offset? What type
of changes have been made to help achieve this 20% goal?
Answer. The BMWE labor agreement set a conceptual framework that
has been followed in our subsequent labor agreements. That framework
for the negotiations had two components: (1) wage packages valued at
approximately 90% of those reached nationally by the freight railroads,
and (2) offsetting savings of about 20% of the increased wage cost.
Our agreements contained wage packages within the parameters
indicated and will be offset by productivity work rule and/or other
wage changes. Through FY 1999 these savings have amounted to about $21
million. Preliminary results for the first quarter of FY 2000 show we
will reach or exceed our goal this year.
A few of the more significant work rule changes include:
Elimination of the second Assistant Passenger
Conductor on certain long-haul trains,
Extension of the period Amtrak can run trains with a
single Engineer from four to six hours,
The elimination of Amtrak operated commissaries, and
the subsequent contracting for that service,
Increased flexibility in the scheduling of work on the
Signal System (including FRA mandated testing) to nights and
weekends, when traffic is less frequent,
Improved continuity and efficiency of construction
crews engaged in improving Northeast Corridor bridges up to the
conditions required for quality high-speed service.
Question 15. Does Amtrak expect to offset substantially more of its
labor cost increases in the next round of collective bargaining? Is
that feasible if the pace of negotiations mirrors the last round of
negotiations?
Answer. We are working closely with all of our field operations to
establish priorities and needs with respect to requests for
flexibility, productivity, customer service and performance
improvements for upcoming bargaining. At this stage in the process, it
is premature to determine what the financial value any change may have
or the contribution that customer service improvement and productivity
change may have to revenue production.
Question 16. What contingency plans, if any has Amtrak developed
should the planned increases for Acela Express service and increased
mail and express business fail to fully materialize?
Answer. Amtrak is constantly monitoring its performance against
planned goals and adjusts plans where necessary to accommodate for any
shortfalls. Such a plan is in place to offset the ticket revenue
reductions forecasted as a result of the delay in the Acela Express
fleet. The contingency plan incorporates contractually related
liquidated damage revenues, interest and operating savings resulting
from the delay in service and incremental lease income. Similarly, if
monthly forecasts show that the mail and express business will not
fully meet business plan goals, alternative actions will be put in
place to remedy the projected shortfall.