The fact is, intercity passenger rail is part of the solution-not part of the problem. Continued and

subsidies in fiscal year 2001 will go to service that debt? How much in fiscal year 2002?

[The information follows:]

Since FY 95, Amtrak's total debt has grown from $.8 billion to $2.9 billion as of the end of FY 00. Of this difference, $.9 billion is related to defeased sale leaseback arrangements of equipment which do not rely on the operating budget nor Federal capital since these leases are funded via a trust which will provide total debt service. Financing of equipment has been necessary due to the inadequate funds available for capital. During the same 5-year period, Amtrak's revenue has grown from $1.5 billion to $2 billion. In FY 01, $64.2 million will be used for debt service principal and $85 million in FY 02.

Mr. ROGERS. Thank you, Mrs. Emerson.
Mr. Olver?

Mr. OLVER. Mr. Chairman, can you move on? I would like to be

refreshed on where you have already been before I start.

OPERATIONAL SELF SUFFICIENCY

Mr. ROGERS. Sure. Ms. Kilpatrick would appreciate that.

Ms. KILPATRICK. Thank you, Mr. Chairman and Mr. Olver. I very much appreciate it. We have had a lot of discussion this morning, and I am trying to cover three ten o'clock hearings at the same time, so forgive me if some of this has already been asked.

It has been said earlier both by the IG and GAO that you are not going to make it. I think we feel as a committee that you are not going to make it. In the most positive terms we support you and want you to make it.

In 1971, when Amtrak came into existence, and right up until reauthorization and again the last bill in 1996, this country I do not think has ever decided that yes, we want to have this, and, yes, we are going to invest in it like other countries have done that in Europe and otherwise. They have a different need. They have a different configuration. Some of them have been successful because in many instances they receive more public support, as well as other things.

Mr. Warrington, and I did not hear you clearly say, and I know you have every expectation that you are going to make it by December 2002, which is 18 months or so away. Is that realistic?

Mr. WARRINGTON. As I said to the Chairman, I am not going to guarantee it. I cannot guarantee anything in this life. I have learned that after 48 years. You know, who would have predicted that it would take two months to figure out who the President was, and we would be out of electricity in California?

Ms. KILPATRICK. But you have to be better than that.
Mr. WARRINGTON. Yes.

Ms. KILPATRICK. You have to be better than both of those.

Mr. WARRINGTON. I cannot guarantee it because I am not foolish, all right, but I—

Ms. KILPATRICK. Let me go with what the IG said. He said you need to do three things in order to reach it, if you reach it, and all of those are very technical. If they are real, they are going to be awfully hard to get to.

I think the easiest of the three might be to curb expenses. I am not sure if you went over that. Do you have a plan to curb expenses?

Mr. WARRINGTON. Yes. Absolutely. Very much so. In fact, I referenced that earlier.

You know, frankly, one of the difficulties we have had is that with our capital program, and I will mention this because it is a real world issue that we deal with every day. Our capital program this year is one-half of what it was last year because the Taxpayer Relief Act funds are basically spent down, and we are out of capital at the end of this year. We have had to have the size of our capital program this year from last year's $837 million, mostly funded through Taxpayer Relief Act money, to $476 million.

One of the consequences of that is that there are capital related overhead costs, for example, in our shops. We have a big shop in Beech Grove, Indiana. We have shops in Bear, Delaware, and Wilmington, Delaware. In those shops there are capital intensive overhaul programs, locomotives, electric locomotives, cars, major remanufacturing and overhauls.

When you do not have the capital to invest in those cars and you have to cut back your production line significantly, which, unfortunately, is what we have had to do, there are still overhead costs associated with that program. For instance, you still need lights in that shop. Even if you are doing half the cars you were doing before, you still need lights, and you still need all the basics. Those costs, which we can no longer charge off to our capital program, spill back to our operating budget.

As a matter of fact, one of the consequences of having the capital program this year from last year is I have had to eat as part of this year's budget, not originally a part of my plan $40 million of

costs.

Number two, effective July 1 of this coming year the Federal Railroad Administration will introduce and has put us on notice that all railroads are subject to a new requirement called the Code of Federal Regulations CFR 238, which requires that every piece of equipment receive a certain kind of inspection and maintenance practice on a precise, non-negotiable 120 day cycle. It is for the entire fleet.

Ms. KILPATRICK. Let me stop you right there because that is the point I think I am getting to.

Mr. WARRINGTON. Okay.

Ms. KILPATRICK. Your older fleet, and now you have a new reg coming in that is going to cause you to update to spend more money.

If you do not get the bonds, with those ever increasing mandated costs that you are about to assume is there another plan in place? What will you do? The bond that you are proposing has a long way to go. You are incurring additional costs because of the older fleet, because of the new reg that you just mentioned. How are you going to sustain yourself?

Mr. WARRINGTON. We will muddle through as we have muddled through for 30 years, and we will continue to get abused for trying to hold it together and trying to do it on sort of a shoestring.

Ms. KILPATRICK. Who abuses you? It would not be your Congressmen. We are your partners.

Mr. ROGERS. That was your innermost thought.

Ms. KILPATRICK. Thank you, Mr. Chairman. Yes.

Mr. WARRINGTON. You know, all I can tell you is that we will try to hold it together, and we will not really be as competitive as we can be.

What would be almost a crime is to have all come apart while there is this incredible interest in rail service in America. We will not be able to effectively fulfill that need and make a difference in people's lives and in economies and cities. Without the right level of capital investment.

Ms. KILPATRICK. All right. Save the editorial. Save that.
Mr. WARRINGTON. All right.

Ms. KILPATRICK. You are going to need it.

Mr. Mead, as well as Ms. Scheinberg, and thank you, Ms. Scheinberg, for your graphics on page 3 and 4 because it helps for me to put it in context where the lines are and how they interact. I appreciate that.

Your comment on that? I do not know if you knew about that new reg that Mr. Warrington just

Ms. SCHEINBERG. Yes. I would like to comment because the inspection that Mr. Warrington is talking about, the FRA inspections, these are costs of doing business. These are operating costs. These are not capital costs. When you have to inspect, when you have to keep the lights on at Beach Grove, those are operating costs, and those costs have gone up more than the cost of inflation for Amtrak. Those are really a challenge.

You are absolutely right. Reducing those costs is a huge burden, and I just do not see how it can be done. You cannot keep coming back and squeezing and squeezing and squeezing. You are not going to have anything left. I think that this problem cannot be solved. I do not think that the current system that Amtrak has with the 40 routes going to 45 states can be operationally self-sufficient.

This goes back to the Chairman's question about whether Amtrak originally was set up to fail. The reason Amtrak was set up was because the freight railroads could not pay for the cost of the passenger system, and I do think that requiring self-sufficiency has required Amtrak to become more entrepreneurial. It has made major efforts.

They are doing a very, you know, introspective look at how to reduce costs, but I do not think you can get there from here for these very reasons that we are discussing.

Mr. MEAD. You know, I think also that Amtrak's management is one that I have been fairly impressed with. I think they are dedicated to the task. I think Congress put them on the right road when they passed the last three authorizations.

But, let us face it. On midnight December 2, 2002, if Amtrak is off its self-sufficiency mark by $400 million or $500 million, that is quite different, in my judgement, from being off by $50 million or $75 million on the operating self-sufficiency test. I believe that those circumstances ought to be weighed in whether or not December 2, 2002, some bell ought to ring, and if they have not met it by any amount that it would be appropriate, I think, to revisit just where they are at that time.

Secondly, if the capital situation at least for the current system is not addressed I do not think Amtrak is going to make the selfsufficiency goal, and that is why the appropriation this year is fairly important when you are talking about the 100 percent score rate on $521 million being better than if you gave Amtrak $955 million at the normal score rate of 40 percent.

They prefer the $521 million at the 100 percent score rate because they add on to that several hundred million from last year that was subject to the 40 percent score rate that this next year they will be able to spend, which puts them in the neighborhood of $800 million or $900 million, but that capital situation is one that Congress, frankly, does have to come to grips with.