Source: Federal Highway Administration.

FIREWALLS AND REVENUE ALIGNED BUDGET AUTHORITY

As we look to reauthorization of TEA-21 and the future of the Federal-aid highway program, we believe that it is essential to preserve and reaffirm the principle of a user-based transportation financing system in which all receipts are guaranteed to be used for the purposes for which they were intended.

To accomplish this, TEA-21 set highway obligations at levels based on then-current estimates of gasoline and related tax receipts, and established two mechanisms to guarantee spending. First, separate budgetary spending caps or "firewalls" were established in the Budget Enforcement Act for highway and transit spending. Second, TEA-21 included an adjustment mechanism, Revenue Aligned Budget Authority (RABA), to annually adjust the spending caps or "firewalls" based on updated revenue estimates, increasing or decreasing highway spending each year so that it would align itself with Highway Trust Fund receipts.

These tools RABA and the "firewall" provisions-were designed to provide the long-term fiscal stability needed for State and local highway and transit agencies to finance, design and execute multi-year multi-million dollar construction programs.

Mr. Chairman, we urge you and the Members of your Committee to maintain the "firewall" provision for highway and transit spending.

REFINEMENT OF THE RABA MECHANISM

Recent experience has demonstrated that there are unintended flaws in the RABA mechanism. Changes in economic conditions that result in minor adjustments to estimated receipts cause wide swings in highway funding levels. As with any new mechanism, it is appropriate that we carefully examine and refine the RABA mechanism, including its calculation methods and revenue estimating procedures. We recommend that Congress consider replacing the current calculation method with one that simply compares actual previous year receipts to the assumptions made at the time the bill passed, with the difference becoming the RABA adjustment.

ACCURACY OF THE RABA CALCULATION

One serious concern that must be addressed is the accuracy of the process used by the Department of the Treasury to determine the revenue estimates used in calculating RABA. The correction of a $600 million error by the Department of Treasury has already reduced the proposed highway cutback to $8.6 billion. Recent information on fiscal year 2001 truck sales and fuel tax revenues at the State level call into question the Treasury forecasts. For example, the American Trucking Associations indicates that its data shows truck sales down by 23 percent for 1991 as compared to the Treasury estimate of 50 percent. This leads us to believe that other adjustments in RABA could occur.

We recommend that you consider instituting reforms to the Department of Treasury's process for estimating tax receipts to the Highway Account. This is not the first time that the Department of Treasury has made costly errors. In 1994, a $1.3 billion error eventually cost $3.6 billion to correct. This most recent $600 million error leaves us with absolutely no confidence in their accounting methods. We are not alone in our concerns. In June 2000, the United States General Accounting Office released a report in which they indicated that "Treasury's process for allocating tax receipts to the Highway Account of the Highway Trust Fund is complex and error prone." At the request of House Transportation and Infrastructure Chairman Don Young and Ranking Member James Oberstar, GAO is now engaged in a new review of Treasury's methods for estimating receipts to the Highway Account. We urge you carefully consider the results of GAO's review, and consider appropriate reforms during reauthorization.

LONG-TERM ISSUES

In addition to the immediate impacts of reducing highway spending by more than a quarter, the RABA downward adjustment has longer-term consequences for the Federal-aid highway program. If the obligation level for Fiscal Year 2003 is adjusted downward from $31.7 to $23.2 billion, then the $23 billion level will become the baseline for reauthorization of TEA-21. That would leave us at a starting point $8.6 billion below where we are today, and considerably lower that the $27.8 billion obligation level for fiscal year 2003 contained in TEA-21. Starting in such a deep hole,

would make it much more difficult to maintain the Federal-aid highway program at current levels, and perhaps impossible to expand it.

CONCLUSIONS

In conclusion, I would like to State that the Federal-aid highway program has been one of the most successful Federal-State partnerships ever created. It has contributed to the Nation's mobility safety, and to the unprecedented economic growth that the nation has experienced since the 1950's.

TEA-21 is a major step forward in providing much-needed funding to the Nation's highway and transit program, It is essential that the RABA principle of fully spending Highway Trust Fund receipts and guaranteeing that spending be maintained. However, it is also essential that in a time of recession, the consequences of the RABA mechanism not be permitted to eliminate hundreds of thousands of jobs while setting back much-needed transportation projects nationwide.

We emphatically believe that there are sufficient receipts in the Highway Trust Fund to sustain a higher program level. Authorizing a higher level is consistent with TEA-21, which provided additional contract authority to the States to assure that the Congress could elect to increase the program above the guarantee. We urge the Congress to make this investment in America. We urge the Congress to deliver on the promise of TEA-21 to fully use all the revenues in the Highway Trust Fund. Chairman CONRAD. Thank you.

Might I just inquire, Mr. King, have you looked at this question of job loss associated with the cut that has been proposed in the President's budget?

Mr. KING. Yes, we have, Mr. Chairman. There are several algorithms around for estimating job impacts. Administrator Peters earlier referred to a 38,000-job-per-billion impact. There are higher estimates around. I have seen 42,000 also as an estimate. But, clearly, the job impact potential here is enormous, and the 350,000job impact number that you used we believe is in the ball park, certainly.

Chairman CONRAD. So you believe that that estimate has credibility? That is an estimate that was given to me in a hearing that we conducted in North Dakota during the break on the question of the impact of the President's proposal, not only in terms of projects underway but what the impact would be on jobs. And the number that we were given was actually in excess of 350,000. So you think that would be in the ball park?

Mr. KING. Yes. And to be clear, the job impact estimates not only include people who are actually working in the projects themselves, but also people working in the supply industries and other attendant industries that support

Chairman CONRAD. Engineering firms?

Mr. KING. Absolutely.

Chairman CONRAD. Yes. We understand that. I thought what Ms. Peters said here was not credible. She talked about 18,000 jobs lost. That I don't think has any serious credibility attached to it as a number. Did you hear her testimony with respect to that?

Mr. KING. I certainly did, yes, and frankly I didn't follow the logic of that particular number.

Chairman CONRAD. I don't think there is any logic to it. It is kind of make-believe.

Let me ask you this: I don't know if we are going to be able to fully restore this cut, $8.6 billion. That is a very serious problem. We know we can't live with the magnitude of the cut the President has proposed. It would not be good for the economy given the attendant job losses. It would not be good for the overall efficiency

of the economy given the cost of gridlock that is occurring all across America.

I know that AASHTO and the Governors are asking us to fully. restore the cut. Have there been any other calculations done by your organization with respect to other levels of funding that you would consider?

Mr. KING. Well, certainly, Mr. Chairman, we would always want the maximum level of funding, to state the obvious. We believe, again, that the crux of this question lies with the level of funding that can be supported by the Highway Trust Fund. And as we know, there are a number of different versions of what that number might be.

Chairman CONRAD. Yes, that is correct, and there is a very important point that you made in your testimony, and I want to tell you that we will absolutely follow the request that you have made. to ask the Congressional Budget Office to do a calculation of what will the trust fund sustain.

I am sorry to have interrupted.

Mr. KING. That is quite all right, Mr. Chairman. Beyond that, though, the GAO is presently examining the numbers that have been forthcoming from the Treasury Department relative to the Highway Trust Fund revenue picture. You may recall that when all of this began a few months ago, the anticipated cut was $9.2 billion. Then suddenly there was a $600 million error in the revenue statistics that was discovered, which now results in the $8.6 billion number.

Frankly, that leaves us little confidence in the Treasury Department's numbers, and there is an ongoing study right now by GAO looking at the process, if you will, for generating those numbers by the Treasury Department.

Chairman CONRAD. Let me just ask a final question here. I have been told by some that an informal calculation has concluded that if we were to have the entire $8.6 billion restored, it would then require a gas tax increase for TEA-21 authorization to stay even. Are you familiar with assessments that have reached that conclusion?

Mr. KING. I am not, Mr. Chairman. As a matter of fact, I seem to recall that there are some assessments, again, perhaps informal, that would show that the existing tax structure can support a program level in the range that we are speaking of here for the foreseeable future.

Chairman CONRAD. Well, that is obviously the question we have got to get answered here. We do not want to trigger any requirement for a gas tax increase. That is not the purpose of this undertaking. So it is very important that we get what, in fact, the trust fund will sustain. I thank you very much for your testimony. Mr. KING. Thank you, Mr. Chairman.

Chairman CONRAD. Mr. Till, welcome. Thank you very much for being here, and thank you for your patience as well. I appreciate that. If you would proceed?

STATEMENT OF THOMAS A. TILL, EXECUTIVE DIRECTOR,

AMTRAK REFORM COUNCIL

Mr. TILL. Good morning. Thank you very much, Mr. Chairman. I am just happy to have an invitation to present the council's views today, on the President's budget and its effect on funding infrastructure investments and other expenses related to intercity rail passenger service.

Also here today, Mr. Chairman, is one of the council's members, Mr. James Coston of Chicago.

I am going to speak to the council's views in the context of the council's Action Plan for Restructuring and Rationalization of the National Intercity Rail Passenger System, a report that was submitted to the Congress on February the 7th, and with your permission, Mr. Chairman, I will summarize my statement and submit the full statement for the record.

Chairman CONRAD. I appreciate that very much, Mr. Till.

Mr. TILL. The council has submitted its recommendations to the Congress for reform, and we are sure that other reasonable reforms will be proposed for Amtrak. Indeed, Senator McCain has introduced I think an 86-page piece of legislation with that objective in mind.

I think the most important thing is that the council believes that reform of Amtrak is no longer an option, Mr. Chairman. Reform is an imperative. It is an imperative both for effective operation of the passenger program and passenger service, and it is also an imperative, as I hope you will conclude after my testimony, if we are to fund rail passenger service effectively.

Over its lifetime, Amtrak's ridership growth has barely kept pace with the growth of the United States population. And contrary to popular belief, the period between September 11th of last year and the end of last year, in that period Amtrak carried fewer passengers than it did in the comparable period of the year before, 2000. Amtrak is burdened with debt and debt service, and its assets are in poor condition. And the continuing deterioration of Amtrak's performance since the council was established led the council to its finding last November that Amtrak would not be operationally self-sufficient by December 2, 2002, as the Amtrak Reform and Accountability Act of 1997 requires.

Indeed, Amtrak is no closer to self-sufficient today than it was in 1997, despite the appropriation to Amtrak, over 5 years, of more than $5 billion, including $2.2 billion in capital funding under the Taxpayer Relief Act. Amtrak's announcement on the 1st of February of this year that it needs $1.2 billion for 2003 or it will shutdown the network of 18 long-haul trains is likely to be business as usual for Amtrak: lower revenues than projected, higher costs than projected, greater losses than projected.

Sadly, Amtrak has proven that it cannot in its current structure concentrate on its core mission of running trains. It has too much to do, and it does little of it well. As it is chartered and organized today, no agency of the Government has effective oversight of Amtrak's business plans, its funding requests, or its financial and operational performance. A program cannot be effective without effective oversight, and Amtrak has none.

The action plan the council sent to Congress on the 7th of February thus recommends a fundamental restructuring of the way we organize, fund, and operate rail passenger service under a new program that provides a structure for operating passenger, mail, and express service, and also separately for developing the infrastructure to support those operations throughout the country. If we are to have an effective rail passenger service, Mr. Chairman, the council believes we have to organize and fund passenger trains and the infrastructure that supports them separately.

The council proposes that the new program be administered by a small Federal agency, which is a restructured National Railroad Passenger Corporation, an institution which already exists in the current Rail Passenger Service Act. The council recommends that the NRPC be modeled after the United States Railway Association, which was created by Congress in 1973 to restructure Penn Central and six other bankrupt Northeast railroads.

USRA enforced strict accountability on Conrail, it shielded Conrail from political interference, and by working closely with Conrail management, contributed to Conrail's success. The council believes that the national passenger rail program needs and would benefit from a similar oversight organization.

In this framework, a new train operating company could concentrate on running trains, with the resources to do so, under contract, with no unfunded mandates, and without political pressure on its management decisions.

To ensure that there are adequate incentives for efficiency, the council proposed a national passenger train operating company. The council also recommends introducing the possibility of competition into the provision of passenger train services. In many countries around the world, reforms in the provision of both passenger and freight rail service have involved competitive bidding for contracts to provide those public services.

Our recommendations also deal strongly with the parts of the Northeast Corridor and other infrastructure that Amtrak owns. Today Amtrak is a minority user of the Northeast Corridor-running only about 150 of the corridor's 1,200 trains-and its finances and management cannot bear the burden of maintaining and improving what is largely a commuter facility. The main evidence of the infrastructure's physical deterioration is the increase in minutes of delay under Amtrak's stewardship-from 134,000 minutes in 1998 to 234,000 minutes in 2001, or more than 160 days of train delay. The system is literally slowing down, and this is reported in the January 2002 report of the DOT Inspector General.

The council's final major recommendation for a passenger program is that the Congress enact measures to provide stable and adequate sources of funding-separate sources for train operations and for infrastructure-under a restructured rail passenger program. There are those who say that putting more money into the existing Amtrak is all we need to do. The council strongly rejects that notion. What we have today, Mr. Chairman, is an institution that through more than 30 years of existence has never had the full confidence of either the Congress or the Executive regarding its ability to spend money properly. And this is without regard to