Before the Committee on Commerce, Science, and Transportation United States Senate __________________________________________________________________ For Release on Delivery Expected at 2:30 pm EDT The Future of Thursday October 2, 2003 CC-2003-155 Intercity Passenger Rail Service And Amtrak Statement of The Honorable Kenneth M. Mead Inspector General U.S. Department of Transportation _________________________________________________________________ Mr. Chairman, Senator Hollings, and Members of the Committee: We appreciate the opportunity to testify on the reauthorization of intercity passenger rail service and Amtrak, and the Administration’s proposed reauthorization legislation. Fiscal year 2004 represents the second year that Amtrak will have received Federal funding without new authorizing legislation providing guidance on how that money should be spent. In the interim, Congress has provided that direction in piece-meal fashion in the appropriations process. At this crossroads for passenger rail service, a comprehensive reauthorization that provides new direction is needed to move the current system beyond the unsatisfactory status quo. Current Model Is Broken. We want to start today by reiterating a point we made to this Committee last spring which is that the current, overall approach to designing, governing, and funding the intercity passenger rail system in this country is broken. As shown in the following table, these problems are evident in the persistence of Amtrak’s cash operating loss, growing debt service burden, and declining on-time performance. 1999 2000 2001 2002 2003* Cash Operating Loss $579 $561 $770 $631 $671 Debt Service (Principal & Interest) 139 131 145 233 247 On-Time Performance 79% 78% 75% 77% 74% * 2003 figures are forecast except for on-time performance which is for the 11 months through August 2003. Cash operating loss and debt service are in millions of dollars. What is not commonly understood is that these results have developed in an environment in which Amtrak has had access to external funding of $8.4 billion over the last 6 years (1998-2003). This is an average annual amount of $1.4 billion per year—more than twice the average $670 million in appropriated funds during this period. These funds consist of Federal funds of $6.2 billion split between $4 billion of annual appropriations and a one-time infusion of $2.2 billion in Taxpayer Relief Act funds. To supplement these Federal funds, Amtrak tapped private financial markets to borrow an additional $2.2 billion in this period. In spite of the resulting $1.4 billion per year in funding, the accumulated backlog of capital investment has grown to at least $6 billion. Reauthorization Guidance Is Essential. The problems with our current approach to intercity passenger rail service extend beyond issues of funding to questions of who decides on the types and amounts of services provided, who controls the investment in infrastructure and operations, who provides service, and who selects the providers. Without a reauthorization that answers these questions, we are likely to see an unfortunate continuation of the status quo that provides too little money to adequately fund the current system—a system that, as a result, provides unsatisfactory service. Although that sounds critical of current operations, on the contrary, we think the Department, the Amtrak Board, and David Gunn and his management team have all done a good job over the last year of controlling expenses—an issue we have consistently cited in our annual Assessment Reports as a key to improving Amtrak’s financial performance. Nevertheless, such efforts will not free us from a limp-along Amtrak without either significant increases in funding for the current system or fundamental changes to it. As we have noted before, Amtrak can’t save its way to financial success—pinching pennies alone won’t make this model work. The Administration’s bill confronts several key issues in a straight-forward and comprehensive manner while leaving others less clear or unanswered. In particular, its provisions on governance and corridor development are well- developed. It leaves unanswered, however, what level of Federal capital funding it supports. Also, we would suggest a different approach to organizing the Northeast Corridor (NEC)—separating operations and infrastructure may risk disruptions to service—and the timing of the phase-out of Federal operating support could prove problematic, especially in the current fiscal climate. The elimination of all Federal operating support over a short timeframe, in conjunction with stepped-up requirements for the states to match Federal capital funds, would create significant financial difficulties for states wishing to preserve long-distance train service. Although we make clear in this testimony the trade- offs that may need to be made between long-distance and short-distance service if funding remains at recent levels, we recognize that resolving this is a policy call for the Congress and the Administration. Focus on Short-Distance Corridors. The Administration’s bill proposes to focus Federal capital funding on developing and investing in short-distance corridors (routes with end-to-end distances of less than 500 miles). This would target service improvements to the services that are most patronized today and that hold the greatest potential for passenger growth in the future. Specifically, Amtrak ridership in 2002 totaled about 23.4 million passengers, and short-distance corridor trains carried 19.8 million (84 percent) of them—47 percent in the Northeast Corridor and 37 percent on other corridor trains. The remaining 16 percent of passengers (3.6 million) rode the 17 long-distance trains. (Attachment 1 provides more details on ridership and revenue by route for 2002.) In addition, most long distance trains overlap at least one and often two or more corridors. As a result, many of the passengers on long-distance trains are traveling only between stations located on existing corridors and could be served by 2 improved service on corridor trains rather than riding on long-distance trains that continue on beyond the corridor. For example, on the Coast Starlight from Seattle to Los Angeles, only 5 percent of passengers (about 27,000) in 2000 rode from one end of the route to the other. Over 50 percent of passengers (277,000) boarded and alighted within one of the three corridors on the route. In other words, if the Coast Starlight had not run, 55 percent of the passengers it carried had alternative rail service on either the Cascades, Capitols, or Pacific Surfliner services. (Attachment 2 provides the “end-to-end” and “corridor” passengers for each of the 17 long-distance trains in 2000.) Maintain Integrated NEC and Slow the Pace of Operating Subsidy Phase- Outs. We would take a different tack than does the Administration on certain issues, however, particularly on the separation of NEC infrastructure from operations and the pace of the phase-out of operating assistance. Maintaining the NEC as an integrated railroad is likely to introduce the least risk to the successful transfer of its governance to the northeastern states or of disruption to operations in the period leading up to that transfer. The proposed phase-out of long-distance subsidies is likely to prove logistically and financially difficult for the states to deal with in the timeframes contemplated. In today’s state budget climate, requiring a large, rapid increase in state operating subsidies for both long- and short-distance trains is more likely to lead to their elimination than restructuring and improvement. Funding and Fiscal Capacity Are Open Questions. We note also that the Administration’s proposal leaves open the question of the level of funding committed to short-distance corridor development and its source. This lack of clarity has fostered the perception that the burden of funding system operating losses would fall on the states with no compensating Federal commitment to significantly expanded Federal capital funding. Such a perception weakens support for the governance reforms in the proposal, particularly given the current fiscal climate in the states. The basic equation confronting the Congress in reauthorizing intercity passenger rail service is that, without a substantial increase in funding, the entire current, interconnected system cannot be adequately maintained while also investing in short-distance corridor development. In fact, it will require an increase in appropriated funds of nearly 50 percent compared to 2003 enacted levels just to maintain the current system ($1.50 billion versus $1.05 billion). To significantly increase investment in the corridors, which serve the majority of passengers, would require an additional increase of a like amount. If such funding increases are not feasible, new investments in corridors could only come from either cuts to long-distance train services or, as reflected in the Administration’s bill, the transfer of the funding responsibility for their operating losses to the states. 3 A number of reauthorization proposals have been made in addition to the Administration’s bill. Although each has its strengths, the incremental improvements we discuss in this testimony could be lost if this contention between funds for new investments or for long-distance train subsidies results in a stalemate. Then we are likely to see a continuation of the ugly status quo into the indefinite future. Amtrak’s 2004 Funding Needs. We think that Amtrak can maintain reliability on its system and meet its other obligations if its 2004 appropriation were near to or matched the Senate figure of $1.346 billion. Although Amtrak has requested $1.8 billion, about $300 million of this amount is for reducing the backlog of capital investments on the system or for lower priority investments. Therefore, we estimate that Amtrak can get by with about $1.5 billion in 2004 by limiting capital spending to the minimum needed to maintain reliability. Amtrak should be able to cover the difference between this amount and the Senate mark from its carryover funds from 2003, which are about $200 million.