Testimony given by The Honorable Allan Rutter, Administrator

Chairman McCain, Senator Hollings and members of the Committee, I am honored to appear on behalf of Secretary of Transportation Norman Y. Mineta and the Bush Administration to discuss our legislative proposal, the Passenger Rail Investment Reform Act (the PRIRA), and the future of intercity passenger rail service.

This year marked the first time in the last several years that there was no summer Amtrak crisis. There was no impending financial meltdown that required the Congress and/or the Administration to bail Amtrak out yet again.

That was not a happy accident. Much of the credit goes to Congress: in the Department of Transportation's FY 2003 Appropriation Act, you imposed on Amtrak the discipline and oversight of the formal Federal grant process. This is a process that is common throughout the Department's other programs but which had not applied to Amtrak for decades. FRA used the grant process effectively to hold Amtrak accountable. Much credit also goes to David Gunn and his senior management team who have embraced the need to change the way things have been done at Amtrak. They have recognized the need for accurate and reliable financial reporting, and improved fiscal controls. They have also recognized their accountability for the sound and effective expenditure of the public's funds. These are essential values for any organization that depends upon the public's investment and trust.

The lack of a crisis this year does not mean that the Congress and the Administration can put intercity passenger rail service policy on the back burner. We must confront the reality, as the Department's witnesses have stated in our past testimony before this Committee on April 29 and June 5 of 2003 and during the previous year that this Nation's present business model for intercity passenger rail service cannot be sustained indefinitely. It will take more than authorizing mountains of cash to address the need for improved intercity passenger rail service in this country, particularly since we know that such mountains will look more like molehills in the final versions of the appropriations acts. The Department believes significant structural reform is required. Only forceful action will permit this form of transportation to be anything more than an afterthought in transportation plans of our citizens.

Any objective analysis of intercity passenger rail today leads to the conclusion that this form of transportation is slowly withering away under the current system. After $25 billion of Federal subsidies and countless Congressional hearings, studies, and new business initiatives by Amtrak, intercity rail passenger traffic volumes have remained essentially constant over the past 25 years, while airline enplanements have increased to 250 percent of their mid-70s levels, and traffic volumes for both commuter rail and intercity automobile travel have more than doubled.

But the picture is not bleak across the board, not by any means. When the Administration undertook an effort to reform the way we make passenger rail investments, we looked at where passenger rail is working and growing. Those places have a few things in common: broad public support for passenger rail and support from local communities and states, often in the forms of capital investment and operating assistance.

We have strived to build a system based on those descriptors of success, rather than on the cobbled-together remnants of the failed passenger rail operations of freight railroads. We need a passenger rail system that is dynamic, one whose services and route structure can adapt to changing consumer needs, one coordinated with the rest of our intermodal transportation system. In every other mode of transportation, we get that flexibility and that degree of planning and investment through a state-federal partnership. The Federal government cannot do good highway investment without partnering with states on where those highways should go. We cannot do good work on maintaining and growing our maritime or aviation infrastructure without state and local partners making some key decisions. Thus, our proposal's foundation is built on a strong, stable Federal-State relationship.

Before I talk about the specifics of the Administration's legislative proposal to accomplish this reform, I wish to reiterate the consistent message of the Department before this Committee and before other forums for the last two years. This Administration believes that there is a vital role for intercity passenger rail service as part of this nation's system of passenger transportation. That is the reason Secretary Mineta reluctantly approved Amtrak's proposed mortgaging of its rights to use Penn Station in 2001, and why the Department expended substantial effort to provide Amtrak a loan under the Railroad Rehabilitation and Improvement Financing Program in 2002. Without either of those actions, Amtrak would today be in the hands of the Bankruptcy Court. The Administration's commitment to successful reform of intercity passenger rail can also be seen in the President seeking out truly gifted citizens such as David Laney, Robert Crandall, Floyd Hall, and Lou Thompson to serve on Amtrak's Board of Directors.

It is the Administration's belief in intercity passenger rail transportation that also led to the first serious review of intercity passenger rail service in a generation and the first new Administration proposal for how that service should be provided in three decades. In the Administration's reform bill, we have addressed how to best structure the decision-making and public financial assistance this form of transportation requires, taking into account the changes that have taken place in this country's transportation needs and patterns over the last three decades and the changes yet to come. And, quite frankly, we have also tried to recognize the realities and limits of the federal treasury.

The Fundamental Issues of Intercity Passenger Rail Reform

The Administration's legislative proposal for the Passenger Rail Investment Reform Act contains a very detailed sectional analysis that describes not just the specifics of each section but how they work together. Rather than use this testimony as an opportunity to say the same thing a different way, I will append that analysis to this testimony. Instead, I will focus this testimony on the issues that are addressed by the reform bill and must be addressed by any other serious effort to provide for viable intercity passenger rail service over the long-term. After almost two years of internal Administration analysis, review of options and debate, I am convinced that the Administration and Congress must resolve these eleven fundamental issues, loosely grouped in three broad categories.

These categories are:

· Governmental Roles and Relationships · Constituency Issues · Money

Governmental Roles and Relationships

Defining the future Federal/State and local roles in the provision of intercity passenger rail service : The Federal Government and 12 State Governments have taken on essential roles in the provision of intercity passenger rail service either for that service in general, or for specific routes and services. It is difficult to imagine the absence of a public sector role in this form of transportation, particularly over the upcoming five or six years covered by the next authorization legislation. But are the current relationships in the public sector the optimum or most desirable? In the proposed reform bill, the Administration says they are not. The dominant decision-making and funding role of the Federal Government in this form of transportation is inconsistent with Federal involvement with other forms of transportation. This over-reliance on Federal initiative may be a contributing factor to intercity passenger rail's inability to effectively address the changing transportation demands of this country. The Administration's legislative proposal looks to the successful highway and transit programs as models for intercity passenger rail. The bill would establish a strong Federal/State partnership much like those that exist for highways and transit where the Federal Government is responsible for safety, is a partner in capital investment, and establishes certain minimum standards that services must meet to receive this funding. The States, however, will be the initiator and implementer of actions.

And states are already taking that initiative. More than $136 million in passenger rail investments were made by the states in FY03. Not coincidentally, those investments are being made in places where demand for passenger rail is high, where state and local commitments are strongest, and where the service has the greatest chance for success. Right now, states are making those investments largely unsupported by the federal government. The Administration's proposal considers that kind of state supported investment as the most important sign for where federal investment should be directed.

Planning and Decision-making : Currently, intercity passenger rail planning is primarily the responsibility of Amtrak. Amtrak's exercise of that duty is marked more by a defense of the route system it inherited in 1971 rather than initiative to address changing demographics and travel patterns. While the reluctance to change before 1997 might be attributable, in part, to the statutory restrictions on the route system, neither highways nor transit nor aviation are subject to centralized planning of this sort. These are the forms of transportation that have seen explosive growth while Amtrak ridership has stagnated. The Department does not believe this is some sort of unrelated coincidence.

Highway and transit programs require comprehensive statewide and metropolitan area planning performed by the State departments of transportation and metropolitan planning organizations. These are the organizations most in tune with changing regional and local mobility needs. The Administration believes they must play a primary role in passenger rail planning, deciding when, where, how, how much and who provides intercity passenger rail service as part of a coordinated, comprehensive and multi-modal transportation system.

Addressing Commuter Service Concerns : The intertwining of Amtrak and commuter rail operations has resulted in the latter being periodically held hostage over issues relating to the financial condition of Amtrak but otherwise unrelated to commuter service. In recent years we have even witnessed a commuter agency that prepaid for its Amtrak services having been threatened by an Amtrak shutdown because Amtrak had commingled the commuter agency's funds with other funds in Amtrak's accounts. The Administration strongly believes that, while intercity and commuter rail service are complementary in many ways, commuters should not go through the periodic stress and uncertainty brought on by Amtrak's regular flirtation with financial catastrophe.

Under the Administration's legislative proposal, infrastructure currently owned by Amtrak but on which commuters depend will be transferred to public bodies. These new owners can structure contracts for the operation and maintenance of these facilities that are independent of the financial condition of the intercity rail service provider. Equally important, the States will be given the opportunity to select the operators of the intercity rail service important to them. In making such selections, the States can balance the risks versus the advantages offered by different operators. Indeed, some States might decide that the best approach may be to have one entity provide both commuter and intercity passenger service. But these will be local decisions based upon local issues, not ones that result in threatened national shutdowns of commuter service because of the failure of a single national intercity passenger rail carrier.

Addressing Intercity versus High-Speed Passenger Rail Concerns : Some believe that high-speed passenger rail requires a federal policy completely distinct from other forms of intercity passenger rail. We don't see it that way. The Administration sees intercity passenger rail as one form of transportation that encompasses a wide range of speeds that reflect the mobility needs of the transportation market being served. We should view high-speed rail, not as a distinct and separate goal, but as a possible end state of current investment in passenger rail.

The Administration's legislative proposal is consistent with this perspective. Section 7101 of the proposed Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2003 (SAFETEA) , would transform the existing program of "high-speed" corridor planning into a program that supports State planning for conventional as well as high-speed rail service. This planning program would help States make informed decisions on the where, what and how intercity passenger rail service can play an appropriate role in enhancing passenger mobility. PRIRA would create a Federal/State capital investment partnership modeled after that now used for the transit new starts program. This program would provide capital grants, including full funding grant agreements, to implement State-based intercity passenger rail initiatives that are the product of sound State planning. The scope of the planning and capital improvements that can be undertaken under these programs allows the States more flexibility to choose whether to support or expand services currently provided by Amtrak, or to develop new or improved (including high-speed) intercity passenger rail service on new or existing rail rights-of-way.

Constituency-Issues

The Role of Competition : One of the greatest challenges facing intercity passenger rail is how to assure that the service provides the best value in terms of cost and quality to the passenger and the public, both of whom must foot the bill. This has always been an issue where States have provided financial support for specific trains. To them, Amtrak has looked like the monopoly utility, dictating prices and conditions of service with little or no apparent connection to the actual costs of that service. Missouri knows what Amtrak charges to provide the State-supported Mules and Ann Rutledge , but how does the State determine whether that is the best possible price? Is Amtrak's menu of service options all that can be done or are there service innovations that warrant consideration? How can the State motivate Amtrak to reduce its enormous overhead burden, which is currently about $400 million annually?

In aviation, in trucking, indeed in most commercial enterprises in this country, the best possible price is determined by competition. Competition also is the incubator of innovation. As Amtrak has stagnated for three decades, lower cost commercial aviation and intermodal package delivery have seen creative and successful new companies grow and flourish. The Administration proposes to phase in the ability of States to use competition to select the operators of services they deem important enough to justify State financial support. If the reconfigured Amtrak operations group, which the Administration's bill calls the Passenger Rail Service Provider, is indeed meeting the State's needs by offering the best possible price and the highest quality service, then it will keep the business. If it is not, competition will force it to improve. The riding public and the State and Federal taxpayers will be the beneficiaries.

In discussions on the Administration's bill, I have been struck by how some people confuse the concepts of competition and privatization. They argue that because few if any passenger rail systems are profitable, our proposal, which they mistakenly assume transfers the responsibility for intercity passenger rail service solely to the private sector, is not workable. In fact, under our proposal, the responsibility for intercity passenger rail rests with the States and Federal Government, just as it does for the National Highway System. States do not build these highways. They competitively select design teams and contractors to fabricate the bridges and pour the pavement. The States pay these contractors for their services. However, through competitive selection, the States assure themselves they are getting a quality product and a fair price. But this role for competitively selected contractors doesn't make I-95 or any other highway private.

Passenger Rail Access to the Freight Railroad System : A corollary to the issue of competition is how to provide access to the freight railroad system by service providers other than the current Amtrak operating entity. The Administration recognizes the reluctance of many of the freight railroads to host any passenger rail service of any kind, but their preference is that Amtrak should provide passenger service, if it has to be provided. The freight railroad system is too important to this Nation's economy to create uncertainty that could adversely affect freight service. At the same time, intercity passenger rail cannot survive without access to the freight railroads. The Administration's proposal attempts to reconcile these two positions.

First, the Administration's bill provides a workable and legally sustainable way to provide access to freight railroad lines for non-Amtrak providers of intercity passenger rail service.

Then the Administration's bill addresses concerns expressed by some freight railroads that they would have to deal with multiple new, small passenger operators. The Federal Railroad Administration will review and approve the qualifications of any operator the States might propose. Such a review would go to all significant issues needed to assure that the carrier can meet its obligations to operate over the specific freight railroad in a safe and reliable manner. No more than one service provider will operate over any route thus eliminating the possibility of having multiple intercity passenger operations on one line except in limited areas around terminals. Going beyond this, the Administration's bill limits the current access to the freight rail system at incremental cost to those routes and service frequencies currently operated by Amtrak. This amounts to less than 15 percent of the freight rail system currently operated by the Class 1 railroads. An "arm's length" agreement between the State and freight railroad would be required to establish service over a new route or expand service on an existing route.

Addressing the Concerns of Liability : One of the recurring issues related to intercity passenger rail service revolves around issues of liability and insurance. The Administration believes that the Amtrak Reform and Accountability Act adequately addressed this issue by setting liability limits. The issue then becomes the ability of States or their designated operators to obtain insurance up to those liability limits. Experience with Amtrak has shown that insurance is generally available for the higher levels of liability - in the $10 million to $200 million range. It is the first dollar of coverage that is more difficult to obtain because of the greater likelihood of successful claims in amounts less than $10 million. The Administration's bill addresses this issue by making first dollar of insurance coverage an eligible cost under the proposed capital program.

What Happens to Amtrak's Employees : It is natural that Amtrak's employees are very concerned about the future of intercity passenger rail service. The short-term prospects for Amtrak's financial condition should raise greater questions for them than the long-term effects of the potential introduction of competitive selection of operators and of maintainers of the Northeast Corridor. Over the long run, the reforms of intercity passenger rail service will result in stable if not growing employment in this industry, much as has occurred in the commuter rail industry. But that prospect provides little solace for someone facing this transition. The Administration's bill seeks to address these concerns in a number of ways. It provides a relatively long transition in areas that affect employment; requires that current collectively-bargained agreements transfer to Amtrak's successor corporations; provides current employees with priority consideration for employment with new operators; requires that new operators be subject to the Railway Labor Act, railroad retirement and other railroad laws in the same way as Amtrak; and, provides an employee transition program modeled after the program that helped ease the impact on employees of the changes that made Conrail financially viable.

Money

Operating Assistance : One of the lessons learned from the Amtrak Reform and Accountability Act of 1997 is that Amtrak requires operating subsidies. While many of the other reforms the Administration proposes will help reduce the size of the subsidy requirements for specific routes and services, some amount of operating assistance will be required for almost all of these routes and services for the foreseeable future. Such subsidies should be the responsibility of the State or States that believe these services are important enough to warrant their support. The Administration really sees no difference between commuter and intercity passenger rail in this regard. Having said that, the Administration is cognizant of the challenges many States will face in first determining whether a particular train or service warrants financial support, then identifying the sources of that financial support. For those reasons, our legislative proposal would not seek the State operating assistance requirement for corridor trains until two years after enactment and phase in this assistance for long distance trains over five years.

The extended phase-in period is also intended to provide opportunities and incentives to improve the financial performance of these trains. Moreover, the gradual reduction in financial support on an even-handed basis across the system will necessitate addressing first the trains that perform the worst. That should yield important improvements in financial performance each year. By the end of the period covered by this authorization bill, the proposed reforms would also provide financial equity among the States supporting intercity passenger rail. The States that choose to pay for more service would receive more service. No State would get for free that for which another State must pay.

Design of the Capital Assistance Program : One of the Federal Government's continuing responsibilities for intercity passenger rail will be as a capital investment partner of the States. Intercity passenger advocates aspire for a capital program that is like those for other modes of transportation, and our legislative proposal contains such a program. The proposed structure of the capital program in the Administration's proposal is closely modeled after the Federal Transit Administration's Transit New Starts program. It will have the same sort of eligibility criteria. It will require the same rigorous planning and analysis by applicants, including the development of project management plans with regular updates. Finally, it will include the same safety, procurement, management and financial compliance reviews and audits as the Department undertakes with recipients of FTA funding.

Amounts and Sources of Capital Funding : The Administration has consistently said that it is willing to invest in a reformed system of intercity passenger rail service. The Administration's willingness to support funding for intercity passenger rail recedes the less the system is reformed and the more it resembles the flawed business model we currently use. The Administration also believes that this funding should be upfront and honest and thus come from the General Fund of the Treasury. The Administration cannot support the use of the Highway Trust Fund nor can we support back door approaches to financing from the federal treasury such as those using tax credit bonds.

A National System

One other issue that should be addressed as part of intercity passenger rail policy is the meaning of a "national system". Must such a system involve a single carrier national in scope? The Administration does not believe so. Indeed, before the creation of Amtrak, there was no national carrier of rail passengers. Our Nation's system of intercity passenger rail service was really composed of regional services provided by multiple carriers that came together in precursors of what we today call intermodal terminals but back then were frequently called "union stations." The Administration's proposal envisions a modern view of a national system that has attributes of the past. This would be a coordinated system of passenger transportation that takes advantage of the strengths of all forms of passenger transportation; a system where connections to rail, air, highway and personal transportation come together in intermodal terminals. This is the promise of the Statewide and metropolitan area planning that are part of the surface transportation program. The Administration's intercity passenger rail legislative proposal would provide additional encouragement to the States to consider the merits of all forms of passenger transportation in their planning and to prioritize their investments based upon how the different forms of transportation can work together to provide for effective passenger mobility throughout this country.

The Passenger Rail Investment Reform Act is a serious effort to address a serious problem, the declining state of intercity passenger rail transportation in this country. For the first time in 30 years, an Administration has made a proposal that actually has a chance of providing long-term stability for this form of transportation. It deserves thoughtful consideration by this Congress. Secretary Mineta and I look forward to working with this Committee and Congress to craft a meaningful authorization of intercity passenger rail service that looks beyond the failures of the past to the needs and opportunities of the future.