Amtrak President and CEO George D. Warrington Testimony
Before the House Appropriations Subcommittee on Transportation
on Wednesday, February 28, 2002.

Mr. Chairman, thank you for the opportunity to appear before the Subcommittee this morning. With your permission, I will submit for the record a copy of our Business Plan and Legislative Grant Request, which was sent to Congress on February 15. In my statement this morning, I will summarize the major points of that document and how they relate to our FY03 needs.

Over the last few years, we have worked hard to manage the business within the context of conflicting policy mandates. We have been expected to run a national public service network, and drive toward commercial self-sufficiency, while also coping with inadequate levels of federal capital investment. And many of our key indicators have moved in the right direction. Since the start of 1997, we have boosted ridership by 19 percent and overall revenues by 38 percent. We have diversified our sources of revenue and forged more partnerships with the states, commuter agencies and the private sector.

We have also worked very hard on the cost side. Over the last four years, a substantial portion of cost growth has been attributable to depreciation - which is a non-cash expense -- and interest, which is the result of inadequate federal capital investment. Excluding depreciation, our costs have actually fallen over the past year.

However, despite our best efforts and these tangible signs of progress, the national passenger rail system has reached a critical crossroads. On top of the long-term constraints that we were already dealing with, we have had to face several short-term challenges beyond our control: the weakened economy; September 11; and the Amtrak Reform Council's finding.

Once again, we have done everything we can through self-help to confront these latest challenges. Last year as the recession began to take its toll, we intensified our cost management effort, executing $258 million in expense reductions. More recently, in response to rising security costs and the impact of the ARC finding, we announced another $285 million in spending cuts and capital investment deferrals. That's a combined total of $543 million in spending cuts or capital deferrals over two fiscal years. So as you can see, Mr. Chairman, we're running out of tools.

Going forward, the minimum federal funding that is needed to manage the passenger rail network in FY03 - without route reduction, or adding to our capital backlog or debt -- is $1.2 billion. An appropriation at this level would cover the following needs:

· First, $160 million is needed to cover the cost of excess railroad retirement payments - the amount of Amtrak payroll taxes that are contributed to the industry retirement fund in excess of that paid out to Amtrak retirees. This item is essentially a "pass through" responsibility that Amtrak has inherited, and which is funded through the annual appropriations process.

· Second, $840 million is the minimum capital need for the current network, and that includes: · Mandatory investments, such as environmental, life safety, ADA and debt service; · Basic infrastructure investments to maintain current schedules and levels of safety across the entire network; and · Fleet overhauls and upgrades of facilities and technology to ensure efficient, reliable operations.

· And third, $200 million is needed to cover the net operating losses of unprofitable long-distance trains. Please note that these are not the total losses from running these trains -- this is what's left after internal cross-subsidies from profitable routes and other lines of business.

As you examine our request, it is important to note that it does not cover three items that are critical to the future of passenger rail in America:

· First, it does not cover any of the capital backlog that has developed over 30 years of under-investment. The current estimate of the capital backlog is about $5.8 billion - of which $3.8 billion is for the Northeast Corridor infrastructure and thus affects the capacity and reliability of commuter and freight services, as well as Amtrak. One reason this is so high is because Amtrak, over the last 31 years, on average, has received less than $325 million a year for capital investment purposes. The DOT Inspector General has reported that Amtrak needs at least $1 billion a year for capital investment. In short, our grant request would help prevent the capital backlog from growing any larger in 2003, but it would not reduce the backlog.

· Second, our request does not include any money for development of higher-speed, higher-capacity corridors - which are sought by 38 states and mayors and business leaders across America as an essential component of our future transportation system. Preliminary estimates of the cost to develop the 11 federally designated high-speed corridors are in the range of $50 billion over 20 years.

· Third, our FY03 request does not include funding for additional security measures. Mr. Chairman, as you know, following the tragic events of September 11, we were asked to propose a package of safety and security investments. That package, including infrastructure hardening, equipment security, and tunnel safety improvements, totals about $1.5 billion - of which $105 million was funded by the DOD appropriations act in December. Pending legislation to address these issues includes S. 1550, the Rail Security Act of 2001. In order to achieve a higher level of safety and security in the passenger rail system, I encourage you and your colleagues to act as soon as possible on this or similar legislation, and provide an adequate appropriation to back it up.

Each of these unmet needs - the capital backlog, high-speed corridors and security -- are central to the future of transportation in America. These needs should be addressed in Amtrak's upcoming reauthorization, and they will have an impact on the system's future appropriation needs.

It's also important to understand that a $1.2 billion request is not significantly higher than the total amount of federal appropriations in the current fiscal year. In FY02, total federal funding for Amtrak was $939 million, not just $521 million as some have reported. The total figure included: · 60 percent of our FY01 appropriation, which was deferred until the first day of FY02 for budget scoring purposes ($313 million); · 100 percent of our FY02 appropriations ($521 million); · $100 million provided for life-safety upgrades of the New York City tunnels; and · $5 million provided for additional security after September 11. While this level of funding might have been adequate for Amtrak's minimum needs before unforeseen circumstances such as the economic slow-down, September 11, and the November ARC finding, these recent events have had significant financial impacts, and this is why we have had to defer capital investment, cut operating expenses and cover some of our needs through private financing. Another way of restating this issue is to recognize that if we are level-funded in FY03 at $521 million, the entire appropriation would be consumed by excess RRTA and mandatory capital investments - before even a single dollar is invested in other capital needs, or in long-distance trains, or in modernization.

Mr. Chairman and members of the subcommittee, those are the highlights of our FY03 request. I'd like to leave you with two additional, vital points.

First, by any standard, intercity passenger rail in this country has been under-funded for decades. The GAO, the DOT Inspector General, international comparisons all agree on this point. We have worked hard to maintain and improve the current system, despite under-funding, by increasing revenues from various sources and controlling discretionary spending. But as I have explained, we simply cannot continue to manage the current system unless we receive $1.2 billion in FY03. A lesser appropriation will require a series of business plan actions that, depending on the shortfall, could include one or a combination of steps such as deferring capital investment and eliminating services. Since our FY03 funding level is uncertain, as a contingency, on March 29 we will regrettably provide the legally required 180-day cancellation notice of possible service discontinuance to maintain flexibility as we construct our budget for FY03. I hope we will not have to take capital deferral or service elimination actions later this year, but I have to have this flexibility in the face of uncertain funding levels.

Second, there is a critical need for Congress and the Administration to look beyond the FY03 appropriations cycle and fix the underlying policy model for passenger rail, which is clearly broken. Neither Amtrak nor any other entity can operate unprofitable public service trains and be expected to generate a commercial profit - particularly in the context of significant undercapitalization. Yet that is exactly what we are required to do today.

Thus, we urge the Congress and the Administration -- working with governors, mayors and all interested parties - to make Amtrak's reauthorization an urgent priority this year. During that debate, we need to find the answers to three fundamental questions:

§ First, what kind of intercity passenger rail system does America need and want?

§ Second, how much capital and operating support is required to support such a system?

§ And third, what will be the sustainable sources of government funding to meet these needs?

Until these questions are answered, any policy that relies primarily on short-term business actions or structural reorganization and which does not provide adequate or reliable funding sources will only perpetuate the current problem.

Mr. Chairman, with the actions we have taken this year internally and the level of funding requested in next year's budget, we will be able to maintain the current level of services and give Congress time to adequately deal with the fundamental issues that need to be addressed. However, it is important to reiterate that we are running out of time.

As Congress moves forward with the reauthorization debate, I want to assure you that we are prepared to inform that discussion and provide the expertise which we have developed over the past 30 years of operating America's passenger rail system. I want to assure you that we have given a significant amount of thought to these questions. There is no doubt that we can build a national system of rail passenger service which our nation can be proud of and one that will help address our national transportation crisis. I know this won't be easy. I know it will take time, but all of us at Amtrak are ready to roll up our sleeves and get the job done.

That concludes my presentation; I'll be happy to answer questions.