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Removing the Northeast Corridor from Amtrak's control simply shifts the Federal bill from one entity to another; it does not eliminate or lessen it in any way. Amtrak has identified $12 billion in capital needs on the south end of the Northeast Corridor that will need to be addressed over the next 25 years. These are needs that affect operations of all railroads, including freight and commuter agencies. Funds will need to be secured for these needs in order to sustain the projected traffic growth for all users, including Amtrak.


While divestiture might relieve Amtrak from operating, maintaining, and improving the Northeast Corridor infrastructure, it simply makes these costs disappear from Amtrak's books they would still remain the responsibility of the Federal Government. In fact, if these functions are manifested in a separate agency, it is possible that the additional overhead and administrative costs could increase the costs borne by the Federal Government.

A separate non-Amtrak entity overseeing capital needs throughout the Northeast Corridor will have to be proportionately responsive to all Northeast Corridor users. Since commuter railroads are by far the majority users of the Northeast Corridor, projects that are of highest priority to those agencies are likely to take precedence over Amtrak's needs. For example, improving catenary to allow speeds of 150 mph has little benefit for commuter railroads, operating at a maximum speed of 90 mph. Amtrak's planning department will have to invest significant time and effort if it is to secure funding commitments for those needs unique to its own operations. This is especially true given that Amtrak's needs will be competing against commuter agencies with their high ridership numbers and strong political backing.

The success of high-speed rail in the Northeast Corridor hinges on Amtrak's ability to run a first-class rail service consistently and reliably. Amtrak's own performance indicators show that poor on-time performance has a direct and immediate effect on customer satisfaction, and subsequently, revenue and ridership. Comparing on-time performance for Amtrak trains in the Northeast Corridor to performance of trains where they operate over tracks not owned by Amtrak, indicates that ownership and control of track has a direct and positive impact on Amtrak's ability to provide reliable service. On-time performance in the Northeast Corridor, where Amtrak owns and controls almost all of the track, consistently average close to 90 percent. Amtrak West and Intercity trains, which operate primarily over track owned by freight railroads, usually range between 68 and 75 percent.

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Fees for commuter and freight access to the Northeast Corridor, fiber optics lines, and development of commercial opportunities like retail space in stations owned by Amtrak contribute substantially to Amtrak's net operating revenues and are expected to grow even more in future years. Amtrak's mandate for self-sufficiency ties directly to its operating performance. As such, a transfer of Amtrak's physical assets could only hurt Amtrak financially: Amtrak would lose a direct contribution to its net operating revenues that would result in increasing the self-sufficiency gap.


Mr. Rogers. Ms. Scheinberg, the Council states that if high-speed rail bonds are issued, they should not be controlled by Amtrak because of the railroad's inability to manage large capital projects on time and within budget. Do you agree?

[The information from GAO follows:]

We do not see the direct connection between Amtrak's ability to manage large projects and its ability to issue high-speed rail bonds under S. 250. Under that bill, Amtrak's role is to select projects and issue bonds. With the exception of projects on Amtrak's Northeast Corridor, nothing in the bill suggests that Amtrak will manage state projects.

It is not entirely clear why Amtrak should be the entity making the decisions on which state projects should be funded. The states themselves could be given authority to issue these bonds, as they have been for other private activity bonds. Alternatively, the Department of Transportation, as the lead federal agency for transportation and, more specifically, intercity passenger rail, could be given authority decide which projects should be undertaken.

77-252 D-01--5

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I want to let you know how much I appreciated the opportunity to appear before the Subcommittee on
Transportation Appropriations on March 21, 2001. I thought it was a very good hearing, and afforded the
Subcommittee Members an opportunity to better understand the challenges Amtrak faces as we begin to
frame the emerging national debate on the future of intercity rail passenger service.

I have had some time to reflect on the issues raised in the hearing by you and the other Members, and I want to share with you some additional thoughts. First, I want to be clear about how we interpret the intent of Congress relating to the operating self-sufficiency test in FY2003. Second, I want to relate to you the capital investment requirements in the coming years and the long-term plan we have to address those needs. Both of these issues is addressed as a separate attachment to this letter.

During the hearing, I also noted that we are just as focused on managing costs as we are on growing revenues. We began an intensive Cost Management Program last year that addresses opportunities related to operating expenses, capital expenditures and cash generation. Critical to the corporation's success is the fact that the Cost Management Program is not about cutting services or cutting the quality of services. Instead, it is a program structured around improving the way we run the business, with particular focus on areas such as procurement, fleet management, distribution systems management, mechanical and terminal operating efficiencies, inventory and receivables management, and back-office corporate costs. Since our cost management efforts are quite comprehensive, we will be forwarding to you a separate package that provides the program structure, component projects and measurement system to give you a full understanding of the breadth of the program. I will also be happy to provide you with periodic updates regarding our progress in this area.


As you review these attachments, I ask that you also consider the broad context for Amtrak's presence in today's transportation mix. As I said in my oral testimony, the problems Amtrak faces did not arise overnight. When Amtrak was created in 1971, many thought that passenger rail service was all but finished in the United States. At that time, a public policy decision was made to preserve the national

Honorable Harold Rogers

April 30, 2001
Page 2


network of inter-city passenger service. Over the previous decades, passenger service had been virtually abandoned by the private railroads since it was not commercially viable. So although there may have been some who believed that Amtrak would quickly become a profitable rail passenger service, U.S. experience, and indeed international experience to-date, has never provided a basis for such a conclusion.

Amtrak is well on its way to achieving operational self-sufficiency in FY2003 as required by Congress. But let's examine what operational self-sufficiency means. Once the legislated milestone is reached, Amtrak will still require annual federal support for its capital needs and for excess railroad retirement. This means that Amtrak will still be generating operating losses since it will not be covering its depreciation expenses nor will it cover its operating costs for excess railroad retirement. For any true commercial business, this is not the definition of self-sufficiency or profitability.

These inherent contradictions about what Amtrak is and what it should be and can be have, in my opinion, been the real obstacle in developing a national policy on rail passenger service. These divergent thoughts about Amtrak continue to be a part of the debate on Amtrak today.

What is clearly true, however, is that for the last 30 years Amtrak has essentially lurched from year to year in a survival mode and has had to rely heavily on annual federal appropriations for both operating support and capital investment funding. Even in the 1980s when every other major mode of transportation was moving toward a trust fund for capital investment, intercity passenger rail continued to depend upon the unpredictable annual appropriations process.

Mr. Chairman, I believe we are all frustrated by the year-to-year survival orientation Amtrak has lived in.
The uncertainty of this approach has prevented us from doing the types of long-term planning that
railroads need and that other modes can do because they have a reliable source of capital investment
funds. This lack of a consistent and adequate source of capital funding prevents us from making the high-
rate-of-return investments in our system to improve efficiency and reduce operating expenses and inhibits
our ability to attract and retain customers. It prevents us from building strong long-term partnerships with
states and regions as well as with commercial businesses. Finally, it prevents us effectively
demonstrating that rail passenger service has a significant role in the travel marketplace.

The only choice Amtrak has had through the years of inadequate capital investment is to pursue funding through the private markets by leveraging the company's assets. As a result, the company's debt has increased and has become a major budget item, both as interest payments in the operating budget and as principal payments in the capital budget. Wall Streets' interest in investing in Amtrak is limited, as is the company's credit rating, given the uncertain nature of financial support from the federal government.

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