V. Potential Source for Funding the NEC Infrastructure

Separating the Northeast Corridor infrastructure both organizationally and financially from Amtrak's nationwide train operations is another way of closing the gap between the subsidy needs of Amtrak's train operations and the uncommitted funds available in the budget. The other side of this coin is that leaving most of the Northeast Corridor under the ownership and funding of Amtrak will continue the inadequate funding and perpetuate the deterioration of this vital NEC infrastructure. There is little or no chance that Amtrak will be able to get the capital it needs to maintain and improve the NEC out of appropriated funds.

The Council's February 7, 2002, Action Plan included a detailed list of funding options for the NEC rail infrastructure. These options were from a preliminary report on NEC funding options that BGL Rail Associates provided to the Council. 12 The final BGL recommendations identified three major advantages in securing capital funding that would accrue to the NEC infrastructure if it is separated from Amtrak's train operations, as the Council proposes.

First, a separate NEC could apply to the management, operation, maintenance, and improvement of the NEC infrastructure about $500 million in annual funding generated by the NEC infrastructure (not by fare-box revenues from Amtrak's train operations). That's a number that you might not have heard before, This $500 million comprises several categories of income: (1) about $215 million in annual nontrain-operating income generated by the NEC; (2) about $90 million in track use fees from commuter and freight railroads; (3) an estimated $160 million in track use fees that Amtrak's trains would have to pay for using the NEC tracks on an incremental cost basis; and (4) capital contributions from commuter railroads of about $30 million.

Second, a separate NEC would, through the states on its board, have some access to the flexible provisions of the transportation trust funds. Those trust funds, also called guaranteed spending programs, currently control 75 percent-let me repeat that: 75 percent-of all Federal transportation funds, and they are funds that Amtrak can not access.

Third, a separate NEC could access other sources of incremental funding for infrastructure that Amtrak cannot access. There is no single “silver bullet" source of government financing that can meet the Corridor's annual needs for investment. To quote the BGL report:

"Even if more funds were authorized for the NEC, the chances of more funds being appropriated are not good. Our analysis of capital needs and the likely sources of funding indicates that only through a coordinated program of new ownership with broad participation of users can the NEC users expect to achieve the operating level the NEC requires and that the region's transportation needs justify. A change in ownership is essential because Amtrak has demonstrated that it cannot obtain the level of funding necessary out of Federal appropriations. Participation of all owners and users in the identification of logical funding sources can result in a concerted effort to achieve a multi-year capital improvement program using multiple sources of funding."

Some of the sources of incremental funding that could be considered to support the multi-year NEC improvement program for a NECRIC are:

• Bond authority in legislation currently pending before Congress appears to have bipartisan support and is a logical source for addressing some of the critical Northeast Corridor infrastructure projects. H.R. 2950 and S. 1991 would be effective if States used their discretion to exercise those programs.

• Tax incentives for public interest rail projects like those being proposed by the Association of American Railroads could generate private sector investments in the NEC and take some pressure off the appropriations process to find all the funding required.

• Creative partnerships with private sector entities such as "design and build" agreements with engineering construction firms and Regional Transmission Organizations could be a means to build much needed electric transmission lines in the Northeast. Such partnerships could implement the $800 million catenary replacement program on the south end of the corridor.

• Turning over portions of the corridor that are used primarily by commuter services (like the Penn Station New York Complex) to local commuter authorities would shift many of the associated maintenance costs and capital expenditure requirements that are now dependent on Federal appropriations to other sources.

12 The BGL report to the Council is available, as is the Council's Action Plan and its other major reports, on the Council's website at <www.amtrakreformcouncil.gov>.

• Reauthorize the Northeast Corridor Improvement Project (NECIP) to provide Federal funding for life safety/security concerns on the corridor.

Other sources of funding might be added to this list. Such additions are possible during next year's reauthorization of both the Transportation Equity Act for the 21st Century (TEA-21) and the Aviation Improvement Act for the 21st Century (AIR-21).

It would make sense for Congress to expand the flexibility provisions in TEA-21 and similar flexible provisions in the Aviation Trust Fund where NEC improvements would relieve capacity and congestion restraints of major highways and airports. The NEC serves cities with four of the seven most congested airports in the US, and it parallels Interstate 95 for much of its length. Today, the NEC's intercity passenger, commuter, and freight rail operations help reduce regional highway and airport congestion, thus justifying flexibility so that these programs can assure the availability and value of an alternative mode of freight and passenger transportation.

VI. Conclusion

Mr. Chairman, the Council believes its recommendations are strong and sound. The chronic difficulties that Amtrak experiences year in and year out are not due principally to lack of funding. They spring primarily from an organization that is obsolete, that cannot do all the things that it is charged to do, that will not consider recommendations for change, and that desperately needs to be redesigned.

For these reasons, the Council strongly recommends that the Congress first adopt badly needed institutional reforms before providing major new funding for passenger rail service.

Once such reforms are adopted, the Council is convinced that the new structure will make the investment needs of rail passenger service much easier to understand. The new structure will also be much more conducive to effective financing by Federal, State, and local governments and by private capital markets.

I stand ready to answer questions and address issues that the Congress might want to pursue. The Council thanks you, Mr. Chairman, for the opportunity to address the committee.

Chairman CONRAD. Thank you, Mr. Till, for that testimony.

Can you tell me a little about the Amtrak Reform Council? How did that come together? And what is the genesis of the Reform Council?

Mr. TILL. A series of events in the mid-1990s led to the enactment of a law called the Amtrak Reform and Accountability Act, which provided about $5 billion in authorized funding for Amtrak and which also had the effect of releasing about $2.2 billion of a so-called tax refund that Amtrak was authorized to get under the Taxpayer Relief Act of 1997.

As part of that law, the Congress mandated that Amtrak should achieve operational self-sufficiency, and that means that if you look at the normal income statement of a corporation, in Amtrak's case you could take out about $600 or $700 million worth of expenses and they wouldn't count against being "self-sufficient" on an operational basis.

To oversee Amtrak's progress towards self-sufficiency, to advise the Congress of that process, to monitor Amtrak's financial and operational performance, and, finally, to suggest recommendations for Amtrak to improve so that it might make better progress towards self-sufficiency, the Amtrak Reform Council was authorized and created under that act.

It took about a year and a half for it to get into effective operations, until the early spring of 1999, and that was after a period when Governor Christie Todd Whitman of New Jersey had been appointed to the council and had become its chairman. Difficulties in receiving funding for the council led her to resign, and the council's current chairman, Mr. Gilbert Carmichael, was elected by the other members of the council. He has been the chairman ever since, and the council's basic approach has been very simple, to take a two-track approach: one is to monitor Amtrak's performance and identify its problems and what recommendations can we make [for improving its performance] and the other is to look at more fundamental problems and identify the things that the Congress should be advised of. Another one of the mandates that the council has, is to advise the Congress of changes that should be made in the laws pertaining to Amtrak.

Chairman CONRAD. And what is your position there, Mr. Till?

Mr. TILL. I am the executive director. I am the chief of the staff that the council has selected.

Chairman CONRAD. And how long have you been there?
Mr. TILL. I have been there about almost 3 years.

Chairman CONRAD. OK. Let me ask you this: Do you think it is a realistic goal that the passenger rail system be self-sufficient?

Mr. TILL. I think parts of the passenger rail system can be selfsufficient, but I think it is very difficult to take a nationwide train operation and a monopoly construct without any oversight, without any transparency or accountability, and to tie to it an enormous piece of infrastructure on which that company is a minority operator and expect that the company is going to be able to manage itself or that people will be able to understand effectively what is happening in that company.

I can tell you that in late 1999 the council requested that Amtrak provide a simple set of financial statements. Tell us what your

income statement is for the Northeast Corridor infrastructure, and tell us what all your train operations look like. We got that statement, in a form that could not be used, on the day we submitted our restructuring plan to the Congress, on February 7th of this month. And that gives you an idea about Amtrak's responsiveness to any notion of oversight.

Let me just very quickly answer exactly, yes, parts of it can be self-sufficient. Most of it can be much more efficient than it is right now. And the key to doing that is to organize it the way that the council recommends. You don't have to follow our exact recommendations. There are a number of people who are going to make proposals that will be consistent with this because we have got to get the States into the business of making transportation decisions.

You will find that the surge in transportation ridership on rail has been driven in the 1990s by States and groups of States, in the Pacific Northwest, in California, in New York, in the Midwest, and in Florida and in North Carolina. These are the States that are leading the way, and these are the people who are driving Amtrak's most effective operations, with the best customer service, and with the highest satisfaction rate.

Chairman CONRAD. Mr. Till, can you tell me, I have always-I have often wondered-I am not expert in this, so you are educating me and I appreciate that. It has always struck me that, in terms of nationwide passenger rail system, it seemed an unrealistic goal that that be something that could be self-sustaining. And I don't doubt for a minute that the efficiency could be improved with perhaps some of the changes that you have recommended here.

As I understand it, you are talking about splitting this into three different operational entities. Is that correct?

Mr. TILL. What we have today is a single National Railroad Passenger Corporation, which under the Amtrak Reform Act is now technically a private corporation. When the National Railroad Passenger Corporation was originally created under the Rail Passenger Service Act of 1970, it was so-called mixed enterprise/government corporation.

The council believes that the actual Government functions that this corporation performs-and it has a number of major governmental-type functions-should be placed in a restructured National Railroad Passenger Corporation, which would be a Government corporation, and that corportation would spin off the train operations and the infrastructure.

Chairman CONRAD. OK. Let me stop you right there. I am sorry to be taking this time. I have another appointment I am going to put off here because, while we have got you here, I would like to get the benefit of your experience.

Mr. TILL. I appreciate it very much, Mr. Chairman.

Chairman CONRAD. You have talked here about a governmental function. Can you describe that further?

Mr. TILL. The main purpose of the Rail Passenger Service Act of 1970 was to take about $500 million in operating losses for passenger services off the backs of America's private railroad industry. They were already reeling from the highway program, from the development of aviation, from the growth of the trucking industry,