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Report to the Chairman, Committee on Transportation and Infrastructure,
House of Representatives:
November 2006:
Intercity Passenger Rail:
National Policy and Strategies Needed to Maximize Public Benefits from
Federal Expenditures:
GAO-07-15:
GAO Highlights:
Highlights of GAO-07-15, a report to Chairman, Committee on
Transportation and Infrastructure, House of Representatives
Why GAO Did This Study:
Intercity passenger rail service is at a critical juncture in the
United States. Amtrak, the current service provider, requires $1
billion a year in federal subsidies to stay financially viable but
cannot keep pace with its deteriorating infrastructure. At the same
time, the federal government faces growing fiscal challenges. To assist
the Congress, GAO reviewed (1) the existing U.S. system and its
potential benefits, (2) how foreign countries have handled passenger
rail reform and how well the United States is positioned to consider
reform, (3) challenges inherent in attempting reform efforts, and (4)
potential options for the federal role in intercity passenger rail. GAO
analyzed data on intercity passenger rail performance and studied
reform efforts in Canada, France, Germany, Japan, and the United
Kingdom.
What GAO Found:
The existing intercity passenger rail system is in poor financial
condition and the current structure does not effectively target federal
funds to where they provide the greatest public benefits, such as
transportation congestion relief. Routes of 750 miles or more, while
providing service for some rural areas and connections between regions,
show limited public benefits for dollars expended. These routes account
for 15 percent of riders but 80 percent of financial losses. “Corridor”
routes (generally less than 500 miles in length) have higher ridership,
perform better financially, and appear to offer greater potential for
public benefits.
The countries GAO studied varied in their reform approach, but their
experience shows the United States needs to consider three key elements
in attempting any reform: (1) define national policy goals, (2) define
the roles of government and other participants, and (3) establish
stable funding. Countries found these elements important in setting the
role of passenger rail in the national transportation system and
increasing the benefit from investing in passenger rail. Currently,
however, the United States is not well positioned to address these key
elements. The goals or expected outcomes of intercity passenger rail
policies are ambiguous, participants’ roles are unclear, and there is
widespread disagreement about the level of funding to devote to this
effort. Amtrak is taking actions within its authority to reduce costs
and increase efficiency, but Amtrak is not in a position to address all
key elements. To undertake reform, federal leadership is needed.
Addressing key elements of reform poses many challenges, because those
who have a stake in the process have divergent goals or points of view.
Amtrak workers, freight railroads that own much of the rail system over
which passenger trains operate, and federal and state governments would
be among those affected. The diversity of viewpoints poses challenges
for determining both the overall goal for passenger rail in the United
States and the federal role in achieving this goal. Funding-related
challenges include identifying how to pay for achieving these goals and
how to overcome disadvantages intercity passenger rail faces relative
to leveraging of federal funds. Although federal-state cost sharing is
common in highway and transit programs, states face difficulty
leveraging their expenditures on rail service.
There are four main options for the federal role in intercity passenger
rail service: (1) keep the existing structure and funding, (2) make
incremental changes to improve financial or operational performance,
(3) discontinue federal involvement, or (4) fundamentally restructure
the system. Each option has advantages and disadvantages, and each
faces its own challenges. Each requires some level of federal funding,
a clear articulation of expected goals, and, except for the status quo
option, substantial time to implement. Of these options, the
fourth—fundamental restructuring—would allow for effectively
integrating rail into the national transportation system and
substantially improving overall performance and accountability.
What GAO Recommends:
GAO recommends that Congress consider restructuring the nation’s
intercity passenger rail system. Any change should include establishing
clear goals for the system, defining the roles of key stakeholders, and
developing funding mechanisms that include cost sharing between the
federal government and other beneficiaries. Amtrak agreed intercity
passenger rail is at a critical juncture and said that reform includes
establishing national policy goals, stakeholder roles, and committed
funding.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-15].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact JayEtta Z. Hecker at
(202) 512-2834 or heckerj@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Existing U.S. Intercity Passenger Rail System Is in Poor Financial
Condition and Appears to Provide Limited Benefits for Federal
Expenditures:
Foreign Experiences Illustrate Various Approaches to Restructuring and
Key Reform Elements:
The United States is Not Well Positioned for Reform:
Addressing Reform Elements for Intercity Passenger Rail Will Require
Overcoming Stakeholder and Funding Challenges:
Options for the Future of Intercity Passenger Rail Will Determine the
Level of Federal Involvement:
Conclusions:
Recommendations for Executive Action:
Matter for Congressional Consideration:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Selected Performance Characteristics of Amtrak Long-
Distance and Corridor Routes:
Appendix III: Reform Overviews in Five Site Visit Countries:
Canada:
France:
Germany:
Japan:
The United Kingdom:
Appendix IV: Current Amtrak Reform Efforts:
Appendix V: Operational Challenges Associated with Access, Capacity,
and Liability Issues:
Appendix VI: Workforce Issues Associated with Intercity Passenger Rail
Reform:
Appendix VII: Financial Reporting, Internal Control, and Governance
Requirements and Practices for Federal Entities and Public Companies:
Current Accountability Requirements and Practices:
Opportunities for Improvement at Amtrak:
Appendix VIII: Comments from National Railroad Passenger Corporation:
GAO Comments:
Appendix IX: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Key Aspects of Selected Recent Intercity Passenger Rail Reform
Proposals:
Table 2: Summary of State-Owned Rail Services (Pre-and Post-Reform) in
Countries We Visited:
Table 3: Post-Reform Financial Involvement by National Governments of
Five Countries We Visited:
Table 4: Application of Critical Reexamination Questions Defining the
Federal Role in Intercity Passenger Rail:
Table 5: Three Components of Framework for Defining Federal Involvement
in Intercity Passenger Rail:
Table 6: Coach Class versus Sleeper Class: Net Loss per Passenger,
Fiscal Year 2004:
Table 7: On-Time Performance of Long-Distance Trains, Fiscal Year 2005:
Table 8: List of States with Corridor Services, Fiscal Year 2005:
Table 9: Objectives and Status of Amtrak's 15 Reform Initiatives:
Table 10: Examples of Costs Paid by Commuter Rail Agencies to Gain
Infrastructure Access:
Figures:
Figure 1: Amtrak's Route Map, Fiscal Year 2005:
Figure 2: Amtrak Annual Operating Losses and Cash Losses, Fiscal Years
2002 through 2005:
Figure 3: Amtrak Annual Passenger Revenue and Ridership, Fiscal Years
2002 through 2005:
Figure 4: Amtrak's Annual Budget Request and Appropriation Levels,
Fiscal Years 2003 through 2006:
Figure 5: Trip Distance on Long-Distance Routes, Fiscal Year 2005:
Figure 6: Annual Revenues and Costs of Amtrak's Long-Distance Routes,
Fiscal Years 2002 through 2005:
Figure 7: Average Annual On-time Performance of Long-Distance Routes,
Fiscal Years 2000 through 2005:
Figure 8: Corridor Ridership Trends by Route Class, Fiscal Years 2002
through 2005:
Figure 9: Annual State Operating and Capital Contributions, Fiscal
Years 2000 through 2005:
Figure 10: Annual On-time Performance of Corridor Routes, Fiscal Years
2000 through 2005:
Figure 11: Reform Approaches Used by Site Visit Countries:
Figure 12: Class I Ton-Miles per Route-Mile Owned:
Figure 13: Applying the Framework for Deciding the Future of Federal
Involvement in U.S. Intercity Passenger Rail:
Figure 14: Commuter Rail Agency Contributions to Amtrak on the NEC:
Figure 15: Amtrak's Market Share Compared to Air Services for Selected
Origins and Destinations:
Figure 16: Amtrak's Route System--1971:
Figure 17: Changes in Amtrak's Union and Nonunion Workforce, Fiscal
Years 2001 through 2005:
Abbreviations:
ATDA: Accountability of Tax Dollars Act of 2002:
ARC: Appalachian Regional Commission:
CBO: Congressional Budget Office:
CEO: chief executive officer:
CFO Act: Chief Financial Officers Act of 1990:
CFO: chief financial officer:
CRS: Congressional Research Service:
DB: DeutscheBahn AG:
DOT: Department of Transportation:
FFMIA: Federal Financial Management Improvement Act of 1996:
FMFIA: Federal Managers' Financial Integrity Act of 1982:
FRA: Federal Railroad Administration:
GAAP: generally accepted accounting principles:
GFOA: Government Finance Officers Association:
GMRA: Government Management Reform Act of 1994:
GPRA: Government Performance and Results Act of 1993:
JR: Japan Railway:
MBCR: Massachusetts Bay Commuter Railroad:
MD&A: management's discussion and analysis:
NASD: National Association of Securities Dealers:
NEC: Northeast Corridor:
NYSE: New York Stock Exchange:
OIG: Office of Inspector General:
OMB: Office of Management and Budget:
PAR: performance and accountability report:
RFF: Réseau Ferré de France:
RPS: Route Profitability System:
SEC: Securities and Exchange Commission:
SNCF: Société Nationale des Chemins de Fer Français:
U.K.: United Kingdom:
WMATA: Washington Metropolitan Area Transit Authority:
November 13, 2006:
The Honorable Don Young:
Chairman:
Committee on Transportation and Infrastructure:
House of Representatives:
Dear Mr. Chairman:
The future of intercity passenger rail service in the United States has
come to a critical juncture. The National Railroad Passenger
Corporation (Amtrak) continues to rely heavily on federal subsidies--
over $1 billion annually in recent years--and operating losses have
remained high. In addition, Amtrak will require billions of dollars to
address deferred maintenance and achieve a "state of good
repair."[Footnote 1] These needs for Amtrak come at a time when the
nation faces long-term fiscal challenges. As we reported in February
2005, the federal government's financial condition and long-term fiscal
outlook present enormous challenges to the nation's ability to respond
to emerging forces reshaping American society, the United States' place
in the world, and the future role of the federal government.[Footnote
2] Addressing the projected fiscal gaps will require policy makers to
examine the affordability and sustainability of all existing programs,
policies, functions, and activities throughout the federal budget.
Our February 2005 report outlines some of the criteria that should be
considered in reexamining the future federal role toward intercity
passenger rail in this country. These criteria include: (1) the
relevance of and purpose for the federal role, (2) measures of success,
(3) targeted benefits, and (4) the affordability and cost effectiveness
of federal expenditures. A reexamination will include asking questions
such as: Does intercity passenger rail have a clear federal role and
mission? Does intercity passenger rail have outcome-based performance
measures? Do intercity passenger rail expenditures target areas with
the greatest needs and least capacity? Do federal expenditures and
investments encourage state and local governments, and the private
sector, to invest resources? Do these expenditures appear affordable
and sustainable in the long term? Considering the performance of the
current system relative to all these factors will be critical in
deciding the future of intercity passenger rail, the federal role in
intercity passenger rail, and how intercity passenger rail is
structured, operated, and funded in the United States.
Reexamining the federal role and expenditures on intercity passenger
rail service will be particularly difficult because of the divergent
opinions about what this service should be. Some advocate a greatly
expanded federal role and the expansion of intercity passenger rail to
relieve growing congestion on highways and airways and (as energy
prices increase) to provide more fuel-efficient transport; others
believe the federal role should be scaled back, and that at least some
federal operating subsidies should be eliminated. Specific proposals
vary--while one proposal would keep Amtrak largely intact and provide
more funding for capital and other improvements, another proposal would
significantly restructure the management and accountability for
intercity passenger rail with regional, state, and local entities
making fundamental decisions about what intercity passenger rail
services are justified and will receive public financial support.
Amtrak itself has proposed a new vision for intercity passenger rail
service that would include a greater role for states in planning and
developing passenger rail corridors. The acting president of Amtrak
told us that, in his view, Amtrak itself is not a substitute for a
national intercity passenger rail policy and that Congress needs to
develop such a policy. One of the primary difficulties in developing a
clear national intercity passenger rail policy will be reconciling the
wide diversity of views about what intercity passenger rail service
should be and what it should achieve.
To assist Congress as it assesses the future of intercity passenger
rail service in the U. S., and the federal role in such service, you
asked us to identify critical issues and options that Congress should
consider in deciding the future federal role. In response to your
request, this report addresses the following:
* the characteristics of the current U.S. intercity passenger rail
system and the potential benefits obtained from this system[Footnote
3];
* foreign experiences with passenger rail reform and observations for
the United States;
* how well the United States is positioned for reforming[Footnote 4]
its intercity passenger rail system;
* challenges the United States faces in overcoming obstacles to reform;
and:
* potential options for the future of intercity passenger rail service.
To address these issues, we collected information on the
characteristics of Amtrak's routes, including ridership, costs, and the
extent of public subsidies provided on routes. We conducted extensive
analyses of both long-distance routes and short-distance corridor
routes.[Footnote 5] We analyzed data on passenger demographics,
financial performance, on-time performance, and connectivity between
routes, and synthesized the results to determine the actual and
potential benefits provided by both types of routes. We also collected
and analyzed data on passenger rail operations and restructuring
efforts in Canada, France, Germany, Japan, and the United Kingdom
(U.K.) This included interviews with government and private sector
officials in these countries, and reviews of passenger-rail-related
policies and funding. We interviewed officials from Amtrak as well as
the Federal Railroad Administration (FRA), states, various travel and
tour associations, rail labor unions, freight railroads, and the
operator of a luxury passenger rail service in the United States. We
also compared Amtrak's current accountability and financial reporting
mechanisms to the basic requirements and practices for federal entities
and public companies in the United States. Finally, we reviewed studies
on passenger rail reform efforts around the world and consulted with
international rail experts knowledgeable about passenger rail reform
efforts. Our work was conducted from January 2006 to October 2006 in
accordance with generally accepted government auditing standards.
Results in Brief:
The existing U.S. intercity passenger rail system remains in poor
financial condition, characterized by continued high operating losses
and substantial levels of deferred capital and maintenance projects.
Moreover, the current structure does not appear to effectively target
federal funds where they may provide the greatest level of public
benefits, such as reduced traffic congestion and pollution. Amtrak
currently operates two types of intercity routes--long distance and
corridors--that provide service to a wide range of passengers in urban
and rural communities across the country. These routes exhibit markedly
different financial characteristics and operating characteristics. Long-
distance routes account for about 80 percent of Amtrak's financial
losses although they serve 15 percent of Amtrak's total ridership, and
are characterized by poor on-time performance. Support for these routes
is often linked to a number of potential public benefits--one public
benefit is the provision of transportation for rural residents located
along the route who might have few, if any, other transportation
options; another is the national connectivity between regional rail
corridors. However, these benefits may be limited by infrequent or
inconvenient service, and are provided at high cost to the federal
government. In contrast, corridor routes account for most of Amtrak's
ridership and growth in recent years, account for about 20 percent of
the financial losses (which do not include federal capital grants to
maintain Amtrak-owned infrastructure in the Northeast), and appear to
offer greater potential to provide public benefits. For example, these
services tend to be more time-and cost-competitive with other modes of
transportation--potentially mitigating highway and air congestion--and
they offer increased flexibility over long-distance rail services to
adapt schedules and services to meet potentially shifting demographics
and trends in passenger travel. To maximize the public benefits for
federal expenditures for intercity passenger rail services in this
country, a reevaluation of the existing structure may be required to
better target federal funding to services where rail may have a
comparative advantage, is more effectively positioned to provide public
benefits, and is better integrated into the national transportation
system.
Intercity passenger rail reform efforts in other countries illustrate
that, to be more cost effective and offer increased benefits in
relation to expenditures, there are a variety of approaches--and
several key reform elements--that need to be addressed when
implementing any approach. Over the past 20 years, several countries
have employed a variety of approaches in reforming their intercity
passenger rail systems to meet national intercity passenger rail
objectives--that is, primarily achieving more cost effective, value-
added passenger service for the level of subsidies spent. These
approaches, alone or in combination with each other, have been used to
support other national objectives as well, such as increasing
transparency in the use of public funds and providing transportation
benefits and public benefits. Prior to, or during, implementation of
these various approaches, several elements key to comprehensive reform
were addressed. The national governments of most countries we visited
focused their efforts on the following elements: (1) clearly defining
national policy goals; (2) clearly defining the various roles and
responsibilities of all government entities involved; and (3)
establishing stable, sustainable funding for intercity passenger rail.
These elements were important to determining how passenger rail fit
into the national transportation system and to increase the value of
both federal and nonfederal expenditures on such systems.
The United States is not well positioned to undertake any reform of
intercity passenger rail. The experience of the countries we studied
indicates that U.S. reform will require a more fundamental
reexamination of the goals and performance of the system by
policymakers than has taken place to date. Specifically, the United
States will need to address the three reform elements--clearly defined
national policy goals, clear definition of government and stakeholder
roles, and establishing consistent funding devoted to these goals--to
better position itself for improving the performance and benefits of
intercity passenger rail system. The goals and expected outcomes of the
current passenger rail policy are ambiguous, stakeholder roles are
unclear, and funding has been constrained due to competing priorities
and a lack of consensus on the level of funding to devote to these
goals. The primary provider of U.S. intercity passenger rail, Amtrak,
has the authority to take a number of actions, but has a history of
poor financial and operating performance. Recently, Amtrak has proposed
a reform strategy and is undertaking efforts to reduce costs and
increase efficiency within Amtrak's authority. However, the benefits
Amtrak can achieve are limited by constraints. For example, possible
route and service changes could trigger expensive labor protections
payments. Even if Amtrak could manage its operations more efficiently,
Amtrak is not in a position to address the key elements of reform we
observed in other countries. Federal leadership will be needed to
fundamentally improve the performance of intercity passenger rail.
There are a number of challenges associated with addressing the key
elements of reform for intercity passenger rail. The variety of
stakeholders, all with different interests and issues, makes reaching
consensus on any change difficult. Central among federal challenges is
determining what the vision and role for intercity passenger rail in
the U.S. should be and the federal role, if any, within this vision and
reconciling the wide diversity of views about intercity passenger rail
service. Challenges in promoting a more equitable federal-state
partnership include the varying ability and willingness of states to
participate in funding intercity passenger rail and identifying
appropriate policy changes to overcome the disadvantages intercity
passenger rail faces relative to leveraging of federal funds.
Currently, states are challenged to leverage their expenditures on such
service. However, federal-state cost sharing is common in highway and
transit programs where investment is encouraged through matching
grants. Other challenges include freight railroad concerns about
infrastructure access and capacity, workforce issues, and defining the
role of the private sector. Addressing important funding issues will
also present challenges. This includes identifying funding sources to
achieve national policy goals and developing incentives for state
participation. Each of these challenges presents opportunities to
increase the benefits of federal and nonfederal expenditures on
intercity passenger rail and not addressing them will likely continue
the stalemate in moving toward a well defined role for federal
subsidies for intercity passenger rail in the U.S.
For simplicity in outlining the choices, we discuss four possible
options for the future of the federal role in intercity passenger rail
service. The first option would be no change in the current structure
or funding of intercity passenger rail. The second option would focus
on incremental reforms within the current intercity passenger rail
structure. The third option would discontinue federal involvement and
devolve responsibility for intercity passenger rail service to states
and others. The fourth option would reexamine the entire structure of
intercity passenger rail service with the focus on optimizing its
performance and benefits for both federal and nonfederal expenditures.
All four options for the future of intercity passenger rail present
challenges that could impede both their selection and their
effectiveness once chosen. Of the four options, however, restructuring
presents the opportunity to substantially improve the intercity
passenger rail system. This option would allow Congress and
policymakers to establish intercity passenger rail's goals, define the
roles of stakeholders, and develop funding mechanisms that could
provide improved performance and accountability for intercity passenger
rail expenditures.
To maximize the transportation benefits and public benefits of
intercity passenger rail service and any federal funds expended on this
service, we recommend that Congress consider restructuring the current
intercity passenger rail system in the United States. In restructuring
the intercity passenger rail system, Congress should establish clear
goals for the system, define the roles of government and other
stakeholders, and develop funding mechanisms that include sharing costs
between the federal government and other beneficiaries. Due to the
complex nature of intercity passenger rail issues and the wide
diversity of views about its future, an independent and properly
designed commission may be effective in developing a consensus on the
approach for changing its structure. We also recommend bringing
Amtrak's financial reporting, internal control, and governance
practices in line with basic requirements for federal entities or
public companies.
We provided draft copies of this report to Amtrak and the Department of
Transportation for their review and comment. In general, Amtrak did not
take an overall position on the report. However, Amtrak did agree that
intercity passenger rail in the United States has come to a critical
juncture and that a national dialogue about the future direction of
rail service is needed. Amtrak also strongly agreed that the three key
elements to comprehensive reform of intercity passenger rail are
establishing clearly defined national policy goals, clearly defining
government and stakeholder roles, and establishing committed funding.
In response to our recommendation, Amtrak offered comments about
specific steps that could be taken in that regard. For example, Amtrak
agreed that including a Management Discussion and Analysis with its
annual audited financial statements is reasonable. Amtrak took
exception to other examples of oversight such as the chief executive
officer and chief financial officer certifying Amtrak's financial
statements similar to requirements in the Sarbanes-Oxley Act. Amtrak
also took exception to bringing its reporting under the Securities and
Exchange Commission and believes such an effort would not be an
effective use of federal funds given the oversight currently provided
by FRA and the Amtrak and Department of Transportation Inspector
Generals'. While we recognize that Amtrak is subject to oversight
already, we believe there are opportunities to improve current
reporting practices, while identifying opportunities for potential
streamlining. The Department of Transportation did not indicate
agreement or disagreement with the report or its recommendations.
Instead, it provided primarily technical comments that we incorporated
where appropriate.
Background:
The Rail Passenger Service Act of 1970 created Amtrak to provide U.S.
intercity passenger rail service because existing railroads found such
service unprofitable. Today, Amtrak continues to be the main provider
of intercity passenger rail service in the United States, operating a
22,000-mile network that provides service to 46 states and Washington,
D.C., primarily over tracks owned by freight railroads.[Footnote 6]
Federal law requires that freight railroads typically give Amtrak
trains priority access and, in general, charge Amtrak the incremental
cost--rather than the full cost--associated with the use of their
tracks. Amtrak also owns about 650 miles of track, primarily on the
Northeast Corridor (NEC), which runs between Boston, Massachusetts, and
Washington, D.C. Access to this corridor is also critical for the
operations of nine commuter railroads run by state and local
governments serving 1.2 million passengers each work day. According to
Amtrak, four freight railroads also use the corridor each day. Amtrak
employs about 19,000 people.
The Amtrak Reform and Accountability Act of 1997 gave Amtrak
significant flexibility with respect to its route system, but directed
it to continue to operate "a national passenger rail transportation
system which ties together existing and emergent regional rail
passenger service and other intermodal passenger service."[Footnote 7]
To meet this mandate, Amtrak currently operates 41 intercity passenger
rail routes that fall into two distinct types, long-distance routes and
short-distance corridors (see fig. 1). There are 14 long-distance
routes, which generally travel over 750 miles and include an overnight
component.[Footnote 8] Twenty-seven routes are short distance, or
"corridor" services, and are further classified into two distinct
categories. The first is the NEC. According to Amtrak, about two-thirds
of its ridership is either wholly or partially on this corridor. The
second category of corridor service is primarily comprised of routes
partly funded by states, but also includes several other routes that
Amtrak continues to operate as part of the original or "legacy"
system.[Footnote 9] These corridor services have several similarities,
such as a relatively high frequency of service and route distances
generally under 500 miles.
Figure 1: Amtrak's Route Map, Fiscal Year 2005:
[See PDF for image] - graphic text:
Source: GAO; Corel (map).
[End of figure] - graphic text:
The 1997 act also established a Reform Board (to assume the
responsibilities of Amtrak's Board of Directors) and a Reform Council
(to review and recommend changes in Amtrak's route structure). The act
provided for the Reform Board to serve for 5 years and then be replaced
by a new Amtrak Board of Directors; meanwhile, the Reform Council's
mandate was to look at "Amtrak's operation as a national passenger rail
system which provides access to all regions of the country and ties
together existing and emerging rail passenger corridors."[Footnote 10]
In November 2001, the Reform Council reported that Amtrak would not
achieve operational self-sufficiency by December 2, 2002, as envisioned
by the act and, in 2002, the Reform Council recommended restructuring
and rationalizing the national intercity passenger rail system--a move
that envisioned, among other things, breaking up Amtrak and introducing
competition to provide rail service. As of October 2006, Congress was
still considering Amtrak issues, such as its funding level, the size of
its network, the introduction of competition for routes, and Amtrak
restructuring.
Since Amtrak's inception, it has struggled to become financially
solvent. Amtrak has run a deficit each year and required federal
assistance to cover operating losses and capital investment. Amtrak has
received approximately $1.2 billion in annual appropriations since
fiscal year 2003 for operational support, capital improvements, and
debt obligations. Amtrak, like other intercity transportation systems,
is capital-intensive. From fiscal years 1971 through 2006, Amtrak has
received just over $30 billion in federal support, of which about $11
billion has been for infrastructure improvements and equipment
overhauls.[Footnote 11] Additional capital funding has also been
obtained from state and local governments, generally for specific
capital investments required to support corridor routes operating
within their jurisdiction.
The Amtrak Reform and Accountability Act of 1997[Footnote 12] removed
Amtrak from the list of government corporations under 31 U.S.C. § 9101.
While listed, Amtrak was required to submit annual management reports
to Congress under the Government Corporation Control Act of 1945.
Relieved from this requirement, Amtrak remains a government-established
private corporation which is neither an agency nor instrumentality of
the U.S. government, nor an issuer of securities to the public.
Therefore, since 1997, Amtrak has not been subject to the basic
accountability requirements of either federal entities or public
companies. Such requirements cover financial reporting, internal
control, and governance. Through its loan agreement and grant
agreements for operating and capital expenses, Amtrak is subject to a
variety of reporting requirements--including providing a monthly
performance report to its board, the Department of Transportation
(DOT), and Congress; providing FRA with a daily cash balance report;
and providing FRA with a monthly progress report on actions addressing
our previous recommendations. Due to Amtrak's long-term challenges,
several reform proposals and legislation have recently been introduced
to address Amtrak's financial problems. The suggested reforms vary in
the level of federal subsidies proposed and the extent to which the
current U.S. intercity passenger rail system would be restructured.
Among these proposals is the administration's 2005 proposal, which
would phase out federal operating subsides for long-distance trains and
split Amtrak into three entities: an oversight company to manage the
restructuring process, a private infrastructure management company, and
a train operating company.[Footnote 13] This proposal would ultimately
give states greater decision-making authority with respect to rail
service and capital improvements. Conversely, the Senate Committee on
Commerce, Science, and Transportation proposed a reauthorization bill
in 2005 that would authorize just under $2 billion per year over a 6-
year period to fund Amtrak's capital and operating expenses to maintain
current operations, upgrade equipment, and return the NEC to a state of
good repair. Although operating subsidies over the life of this bill
would be reduced 40 percent through cost cutting and other actions,
capital funding to Amtrak and states would increase. See table 1 for
key aspects of recent intercity passenger rail reform proposals and
legislation.
Table 1: Key Aspects of Selected Recent Intercity Passenger Rail Reform
Proposals:
Proposal: Amtrak Reauthorization Act of 2005 (H.R. 1630);
Key aspects:
* Authorizes $2 billion per year for FY 2006-2008 with funds set aside
for retirement and commuter rail obligations;
* Requires no restructuring, but allows Amtrak to continue with its
current 5-year plan;
* Requires periodic reporting by Amtrak on its annual business plan.
Proposal: Passenger Rail Investment and Improvement Act of 2005 (S.
1516);
Key aspects:
* Authorizes $11.4 billion in appropriations for 6 years (FY 2006-
2011);
* Authorizes the issuance of $13 billion in federal bonds for
additional capital improvements;
* Reduces operating subsidies by 40 percent over 6 years;
* Requires Amtrak to evaluate long-distance routes to improve
performance;
* Allows transfer of Amtrak operating rights to host freight railroads;
* Allows the Surface Transportation Board to levy penalties against
freight railroads for failing to give scheduling priorities to Amtrak
trains on freight railroad tracks.
Proposal: Passenger Rail Investment Reform Act (H.R. 1713). (This is
the administration's bill.);
Key aspects:
* Subjects Amtrak to annual appropriations with specific reform
requirements;
* Authorizes appropriation of funds for the purposes of the act over a
6-year period;
* Phases out operating subsidies;
* Reorganizes Amtrak into three functional entities: (1) an oversight
company to manage the restructuring process, (2) a private
infrastructure company, and (3) a train operating company;
* Proposes to create an interstate compact to operate the NEC;
* Gives states greater participation with respect to provision of rail
service and capital improvements;
* Establishes a matching grant program for capital projects;
* Allows potential operators to bid to operate intercity passenger rail
service;
* Authorizes buyouts for current employment contracts.
Proposal: Systemic Passenger Infrastructure and Network Overhaul
through Financial Freedom Act (H.R. 3851);
Key aspects:
* Transfer ownership of property along the NEC to the Secretary of
Transportation;
* Allow companies to compete for the maintenance and operation of
services on the NEC.
Source: GAO analysis.
[End of table]
The U.S. system is not the only intercity passenger rail system that
has experienced financial deficits and economic inefficiencies. Many
countries have undertaken efforts to reform their systems in order to
alleviate financial and structural problems. While the intercity
passenger rail experiences of other countries are often cited in the
debate over the U.S. system, there are some key differences between the
U.S. system and other foreign systems, including:
* Infrastructure ownership. In the United States, nearly all of the
infrastructure that intercity passenger rail operates on is owned by
private freight rail companies and is located on private land. Although
Amtrak, by law, has a statutory right of access to infrastructure at
incremental cost, it enters into operating agreements with freight and
other railroads to use their lines. In contrast, in most of the
countries in Europe, infrastructure is publicly owned.
* Freight and passenger railroad industry. In addition to owning the
infrastructure, freight rail dominates the rail industry in the United
States. This is a stark contrast to most other countries, where
passenger rail is the primary component of the rail industry and
freight plays a more secondary role.
* Geography and demographics. Geographic and demographic factors also
make the United States significantly different from other countries, in
particular those in Europe and Japan. The United States is relatively
larger geographically than most of these other countries. Europe and
Japan are more compact than the United States, making more intercity
travel by rail between major cities as fast as by air. Additionally,
experts and prior research highlight the greater population density of
European cities--making rail a more attractive option for
transportation.
Existing U.S. Intercity Passenger Rail System Is in Poor Financial
Condition and Appears to Provide Limited Benefits for Federal
Expenditures:
The existing U.S. intercity passenger rail system remains in poor
financial condition, characterized by continued high operating losses
and substantial levels of deferred capital and maintenance projects.
Moreover, the current structure does not appear to effectively target
federal funds where they may achieve the greatest level of public
benefits.[Footnote 14] That is, many services are not focused on the
markets where rail may have a comparative advantage over other modes
and is most likely to be a viable and cost-effective option to meet
public transportation demands.
Amtrak operates two types of intercity routes--long distance and
corridors--that provide service to a wide range of passengers across
the country; however, each of these route types exhibit markedly
different financial and operating characteristics. Long-distance routes
account for about 80 percent of Amtrak's financial losses although they
serve about 15 percent of Amtrak's total ridership, and are
characterized by poor on-time performance. These routes are often
associated with a number of public benefits, including offering service
to a number of rural residents and providing national connectivity;
however, these benefits may be limited by infrequent or inconvenient
service and are provided at high cost to the federal government. In
contrast, corridor routes account for most of Amtrak's ridership and
appear to offer greater potential to provide passenger transportation
benefits and public benefits. For example, these services tend to be
more time-and cost-competitive with other modes of transportation--
potentially mitigating highway and air congestion--and they offer
greater flexibility over long-distance rail services to adapt schedules
and services to the demands of the traveling public. While several
challenges related to funding and capacity constraints exist, corridors
appear to be where the comparative strength for intercity passenger
rail services lies and where the greatest potential exists for rail to
provide increased public benefits for federal expenditures. Corridors
could also facilitate integrating intercity passenger rail into the
national transportation system.
Existing U.S. Intercity Passenger Rail System Appears Unsustainable at
Current Levels of Federal Funding:
Although the Amtrak Reform and Accountability Act of 1997 proposed that
Amtrak reach operational self-sufficiency by December 2002, Amtrak did
not achieve this goal and its financial condition since this
legislation was enacted remains precarious.[Footnote 15] In addition,
to stabilize and sustain the existing system, Amtrak is likely to need
increased levels of funding. Amtrak continues to incur substantial
operating deficits and is faced with billions of dollars in deferred
capital maintenance and debt obligations. No combination of service
cuts or productivity improvements can fully eliminate the need for
public operating and capital subsidies, particularly if Congress
continues to mandate that Amtrak operate a national system. However, at
a time when the federal government faces a long-term structural fiscal
imbalance, these poor financial characteristics lead to questions about
how the system should be structured and funded in the future.
Operating Losses:
The U.S. intercity passenger rail system ends each fiscal year with
substantial operating losses. Although Amtrak has made some progress in
containing operating expenses in recent years, it continues to run an
annual operating deficit (total operating revenues minus operating
expenses) of over $1 billion dollars and relies heavily on federal
subsidies to cover this deficit. In fiscal year 2005, Amtrak reported a
net operating loss of $1.2 billion, including an annual cash loss of
$450 million (see fig. 2).[Footnote 16] Although exhibiting a slight
decrease from the record deficit in fiscal year 2004, operating losses
have shown few signs of substantial long-term improvement. In fact,
Amtrak projected in its 2005-2009 Strategic Plan that, under the
existing structure, annual operating losses will increase to over $1.5
billion by 2009.[Footnote 17]
Figure 2: Amtrak Annual Operating Losses and Cash Losses, Fiscal Years
2002 through 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[A] Operating losses represent the net results reported per Statement
of Operations in Amtrak's audited financial statements:
[B] Cash losses include Amtrak reported earnings before interest,
taxes, depreciation, and other post-employee benefits.
[End of figure] - graphic text:
While Amtrak has experienced a steady increase in ridership over the
last decade, there has not been a corresponding increase in total
annual revenues. Between fiscal years 2002 and 2005, passenger revenues
remained relatively stable--declining from $1.34 billion to $1.29
billion (3.3 percent)--despite growth in annual ridership of nearly 2
million passengers during this period, an increase of 8.2 percent (see
fig. 3).[Footnote 18] These results suggest that it is unlikely that
Amtrak can grow its way out of financial difficulty through additional
increases in ridership. Further, these trends of continued high
operating losses and stagnating passenger revenues, despite a number of
cost-cutting efforts, have led the DOT Inspector General and others to
conclude that Amtrak also cannot "save its way to financial health"
and--in the absence of increased federal funding--may require long-term
structural operating reforms.[Footnote 19]
Figure 3: Amtrak Annual Passenger Revenue and Ridership, Fiscal Years
2002 through 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[End of figure] - graphic text:
Substantial Capital Needs and Debt Obligations:
In addition to the burden of its annual operating deficit, the
intercity passenger rail system is faced with substantial financial
obligations related to capital repairs and infrastructure maintenance,
as well as accumulated debt. Both of these obligations have received
substantial federal subsidies each year and are likely to continue
affecting the financial outlook of Amtrak into the foreseeable future.
* Capital needs and deferred maintenance. Lacking the funds to complete
all of its identified capital repair and maintenance projects, Amtrak
has deferred an estimated $6 billion in capital and infrastructure
maintenance spending.[Footnote 20] In addition to increasing the risk
of a major failure on the system, the deteriorated condition of
Amtrak's rolling stock and infrastructure may contribute to higher
operating costs and reduced reliability of service.[Footnote 21]
Further, over 60 percent of this deferred maintenance is attributable
to Amtrak's mainstay NEC service. Disruptions of service on this
corridor, due to needed repairs or safety concerns, would have
significant financial impacts. While Amtrak has identified the
restoration of rail infrastructure to a state of good repair as one of
its primary goals, the cost and extent of the needed improvements
remain a significant burden to the financial viability of the existing
intercity passenger rail system. Although the level of federal capital
funding has increased in recent years, there remains a fundamental
mismatch between the level of investment Amtrak and the DOT Office of
Inspector General (DOT OIG) have estimated is needed to maintain the
existing network and the amount of funding provided. For example, in
fiscal years 2005 and 2006, Amtrak identified capital funding needs of
nearly $800 million dollars annually; however, actual funds
appropriated for capital projects in those years totaled $369 million
and $495 million, respectively.
* Debt obligations. Significant federal funds are also spent each year
to service Amtrak's substantial debt burden. At the end of fiscal year
2005, Amtrak carried a total of $3.6 billion in debt and capital lease
obligations.[Footnote 22] Principal and interest payments on these
accumulated debts is estimated at $295 million for fiscal year 2007 and
will likely remain at about this level for the foreseeable future.
These payments accounted for over 20 percent of Amtrak's total federal
appropriation for fiscal year 2006 and, in light of Amtrak's other
financial obligations, are likely to continue to require funding from
other sources.
Federal Funding:
Given high annual deficits, deferred capital spending, and debt
obligations, the current levels of federal subsidies are likely
insufficient to maintain the existing level of passenger rail service
being provided by Amtrak. Since Amtrak's authorizing legislation
expired in 2002, federal funding for intercity passenger rail has been
far below what Amtrak and others have estimated is needed to sustain
and stabilize the current system. For example, Amtrak submitted budget
requests of approximately $1.8 billion for fiscal years 2004 through
2006. However, the average amount of federal funding received over this
period totaled about $1.24 billion per year--enough to keep the system
operating but not enough to meet the level Amtrak estimated is needed
to prevent the continued deferral of significant maintenance projects
(see fig. 4). The President's budget in fiscal year 2006 proposed no
funding for Amtrak in the absence of significant operating and
structural reforms; however, Amtrak eventually received federal funding
in the amount of $1.29 billion.
Figure 4: Amtrak's Annual Budget Request and Appropriation Levels,
Fiscal Years 2003 through 2006:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[End of figure] - graphic text:
For fiscal year 2007, Amtrak's budget request totaled $1.6 billion.
This figure included $498 million to support cash operating losses,
$730 million for capital spending, $295 million for debt service, and
$75 million for working capital.[Footnote 23] The DOT OIG issued
estimates similar to those proposed by Amtrak, reporting that $1.4
billion would be required in fiscal year 2007 just to maintain the
currently configured system in a steady state, without addressing the
backlog of infrastructure projects or investing in new corridor
development.[Footnote 24] This report also identified that up to $125
million in additional working capital may be needed to protect Amtrak
from insolvency risks posed by any significant unforeseeable events,
such as the Acela brake problem experienced in 2005.[Footnote 25]
Current Intercity Passenger Rail Network Appears to Provide Limited
Public Benefits at a High Cost to the Federal Government:
The nation's intercity passenger rail system serves a variety of
purposes, but many routes appear to provide limited public benefits for
the level of federal expenditures required to operate them. While none
of the 41 routes comprising the current U.S. intercity passenger rail
network earn sufficient revenue to fully cover the operating and
capital costs of providing the service, the two types of routes that
Amtrak operates--long distance and corridors--have markedly different
operating and financial characteristics. Some of these differences
include annual ridership and passenger demographics, financial
performance, and the scope of potential transportation benefits and
public benefits that the service is likely to provide.
Long-Distance Routes are Characterized by Relatively High Costs and
Potentially Limited Benefits:
While Amtrak's 14 long-distance routes serve a number of different
geographical and traveler markets, they often do so inefficiently and
at a high cost to the federal government. That is, long-distance routes
account for nearly 80 percent of Amtrak's financial losses although
they serve 15 percent of Amtrak's annual ridership.[Footnote 26] In
addition, long- distance rail services also tend to be infrequent and
exhibit poor dependability--as measured by on-time performance--due to
increased trip distances and potential issues associated with operating
on freight-owned infrastructure. As a result, actual transportation and
public benefits potentially deriving from these routes, such as rural
transportation and national connectivity, may be limited.
Ridership and Financial Characteristics:
Long-distance routes comprise a relatively small percentage of total
Amtrak ridership, yet they consume a disproportionate amount of federal
subsidies. Ridership on Amtrak's long-distance routes has remained
relatively stable, averaging approximately 3.8 million passengers per
year between fiscal years 2002 and 2005. This figure represents
approximately 15 percent of Amtrak's total reported ridership of 25.4
million passengers in fiscal year 2005. Since many of these passengers
travel longer distances than passengers on corridor routes, long-
distance routes accounted for 47 percent (2.5 billion) of Amtrak's
total of 5.4 billion passenger miles in fiscal year 2005.[Footnote 27]
However, many of the trips taken on these routes are for relatively
shorter distances as opposed to end-to-end trips, with riders often
traveling between city pairs on existing Amtrak corridors or planned
corridor routes. For example, the DOT OIG issued a statement in 2003
which estimated that the share of trips taken on long-distance routes
that were corridor in nature was 34 percent.[Footnote 28] In fiscal
year 2005, nearly 30 percent of all trips on long-distance routes were
for fewer than 300 miles and 46 percent were for fewer than 500 miles
(see fig. 5). In this regard, many passenger trips on long-distance
routes may be similar to those on Amtrak's corridor services, where
rail service is more likely to be time-and cost-competitive with other
modes of intercity transportation. For example, on the Empire Builder-
-one of Amtrak's best-performing long-distance routes--over 24 percent
of all passenger trips on the 2,200-mile route take place on the 417-
mile stretch between Chicago, Illinois, and Minneapolis/St.Paul,
Minnesota; this stretch represents 1 of 10 potential high-speed rail
corridors designated by FRA.[Footnote 29]
Figure 5: Trip Distance on Long-Distance Routes, Fiscal Year 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[End of figure] - graphic text:
Ridership demographic data also indicate that Amtrak's long-distance
routes serve a large percentage of vacation and leisure travelers.
According to Amtrak passenger profile surveys, most passengers (over 80
percent) report utilizing long-distance routes for recreational and
"leisure" trips, including visits with family and friends and for
personal business, compared with other types of travel, such as
business or commuting. In addition, Amtrak passenger data indicate
that, overall, many long-distance customers tend to be retirees--33
percent versus 16 percent for the total travel market.[Footnote 30]
Long-distance routes operate with substantial financial losses and
consume a disproportionate amount of federal operating subsidies.
Financial losses allocated to long-distance routes amounted to $539
million in fiscal year 2005, accounting for approximately 80 percent of
Amtrak's total reported loss of $659 million. This figure also accounts
for nearly 95 percent of the total federal appropriated operating grant
of $570 million provided to Amtrak for that year. Based on data
provided by Amtrak, operating losses on long-distance routes averaged
$154 per passenger with considerable variation illustrated between the
individual routes.[Footnote 31] Financial performance over the past
several years also indicates that Amtrak is unlikely to substantially
reduce these losses through increased revenue or cost reductions.
Between fiscal years 2002 and 2005, Amtrak reported a nearly 30 percent
decline in annual long distance revenue.[Footnote 32] However, during
this time period, operating costs decreased only about 9 percent. As a
result, the budget gap between revenues and costs shows no sign of
improvement (see fig. 6).
Figure 6: Annual Revenues and Costs of Amtrak's Long-Distance Routes,
Fiscal Years 2002 through 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[A] Revenues were calculated as the aggregate of all reported revenues
for individual long-distance routes in Amtrak's Route Profitability
System (RPS).
[B] Costs include FRA-defined train costs (primarily train crews, food
and beverage, fuel, railroad costs, commissions, and certain shared
costs--primarily equipment maintenance and reserves), as well as
additional direct and non-direct costs identified by Amtrak, such as
training, infrastructure repair and maintenance, and overhead costs
allocated to individual routes.
[End of figure] - graphic text:
Contributing to the high operating losses on many of Amtrak's long-
distance trains are the costs of extra services and amenities, such as
sleeper services and dining cars.[Footnote 33] While these auxiliary
services generate additional revenue over coach-class seats, the
additional revenues do not cover incremental costs. In fact, passengers
traveling in first-class sleeper cabins on Amtrak long-distance trains
are actually more heavily subsidized than coach passengers. The DOT OIG
estimated that sleeper services increase the operational loss over
coach class seats by an average of $109 per passenger.[Footnote 34]
When capital costs for providing such services are also included, these
additional losses average $206, with losses on some routes as high as
$358 per passenger (see app. II). Amtrak is currently evaluating
several alternatives to their existing sleeper services in an aim to
eliminate incremental financial losses. Some of these alternatives
include making equipment and service enhancements on the Empire Builder
to reposition it as a luxury service and potentially outsourcing
premium sleeper services on select routes for passengers seeking a
luxury "land cruise" experience.[Footnote 35]
Transportation Benefits and Public Benefits:
Amtrak's long-distance routes are generally associated with a number of
transportation benefits and public benefits; however, these benefits
are obtained at high cost to the federal government and may be limited
by infrequent or undependable service. In addition to offering a
relatively safe mode of transportation, long-distance routes are
commonly associated with their role in providing (1) an intercity
transportation option for a number of rural passengers, and (2)
national connectivity to link regional corridors and other long-
distance routes. While there are public benefits associated with
filling these roles, it appears that other transport modes may be
better positioned to provide these benefits at reduced cost to the
federal government. Moreover, the infrequent service and poor on-time
performance of many of Amtrak's long-distance trains may further limit
the benefits provided by intercity passenger rail along these routes.
Intercity passenger rail provides access to many of the nation's rural
residents but air and bus services continue to be the principal modes
of public or common carrier transportation for these residents. In
2005, the Bureau of Transportation Statistics estimated that scheduled
intercity public transportation (e.g., by air, bus, rail, or ferry)
provides coverage to 93 percent of the 82.4 million residents
classified as rural.[Footnote 36] Intercity bus and air services have
the deepest penetration within rural America--at 89 and 71 percent of
the population, respectively-- and rail services were reported to cover
approximately 42 percent of the rural population. While many of these
residents have access to more than one transportation option, the
Bureau of Transportation Statistics estimated that intercity passenger
rail (i.e., Amtrak) is the sole public transportation option for
approximately 350,000 people nationwide.[Footnote 37] Georgia and South
Carolina were reported as the two states with the largest number of
rural residents (with a combined total of 94,000) that were solely
dependent on scheduled intercity passenger rail. In contrast, scheduled
intercity air and bus services provide the sole transportation option
for 2.4 million and 14.4 million rural residents nationwide,
respectively. In addition, it appears that if rural transportation were
a targeted public policy objective, other modes of transport could be
better positioned to provide this benefit to a greater number of
residents at lower cost. For example, in fiscal year 2004, federal
grants available to the intercity bus industry to support rural service
amounted to just $22 million, with rural coverage for that mode
exceeding twice the level provided by rail. However, as the DOT
reported in 2005, the goal of rural mobility should be to offer
flexible and sustainable travel options to those with the greatest
mobility needs--and not necessarily to preserve or promote use of any
specific transportation mode.[Footnote 38] Achieving this goal may
require the establishment of objective criteria by which to evaluate
the needs of these communities. It may also require the awarding of
competitive franchise agreements to whatever mode that could provide
service with the least amount of subsidy.[Footnote 39]
Intercity passenger rail also provides connectivity between different
regions of the country and other rail routes; however, alternatives may
exist to meet passenger demands at reduced cost. Federal law currently
directs Amtrak to tie together existing and emerging regional rail
passenger service. On a system wide basis, relatively few passenger
trips (8 percent) include a train-to-train connection--that is, a
passenger changing from one train to another. However, on long-distance
routes the percentage of train-to-train connections is somewhat higher
(an estimated 22.6 percent in fiscal year 2004). Consequently, national
interconnectivity provided by long-distance routes appears to be a
potential benefit to approximately 3.5 percent of Amtrak's total annual
passengers. While this population is a very small proportion of the
overall intercity passenger market, some rail proponents believe
national connectivity may also provide public benefits by providing
transportation redundancy to the country. Such redundancy may be
important, particularly if air services were grounded as they were in
the immediate aftermath of the September 11, 2001, terrorist attacks.
However, to the extent that transportation redundancy is a meaningful
policy option, intercity passenger rail may not be positioned to
provide cost-effective service to the greatest number of people. As
previously cited, intercity buses currently provide much greater
coverage across the United States without federal operating assistance.
Therefore, determining whether these public benefits warrant federal
subsidies involves consideration of the substantial costs required to
achieve them, as well as evaluation of alternative options, such as
intercity buses, that may be better positioned to provide these
benefits.
Amtrak's long-distance services are often infrequent and hindered by
poor on-time performance, which may further diminish the benefits
provided by these services and offer reduced potential to meet the
public's transportation demands. For example, nearly all of the long-
distance trains have limited frequencies--typically one daily departure
in each direction--and, due to increased travel times, they are often
scheduled to arrive outside of convenient traveling hours.[Footnote 40]
For example, many of Amtrak's long-distance trains operating within
Georgia and South Carolina--the states with the most rural residents
dependent solely on rail--are scheduled to arrive at the station
between 3:20 a.m. and 6:50 a.m. The infrequent and inconvenient nature
of many long-distance schedules is likely to severely limit rail as a
viable transportation option for many passengers. While increased
frequency of service may potentially address these limitations, this
option could be costly due to the increased level of federal subsidies
that more frequent service would entail if the population and other
characteristics of long-distance corridors did not warrant increased
frequency of service.
On-time performance also continues to be a major limitation affecting
the potential benefits provided by Amtrak's long-distance services. In
fiscal year 2005, Amtrak reported an average on-time performance of
41.4 percent for long-distance routes, ranging from a low of 7.1
percent on the Sunset Limited to a high of 83 percent on the City of
New Orleans (see app. II). While several factors contribute to the wide
variation in performance, Amtrak attributes operating delays on the six
host railroads--on which Amtrak trains operate--as the largest single
factor affecting Amtrak on-time performance, contributing as much as 75
to 80 percent of the delay minutes.[Footnote 41] Since fiscal year
2000, average on-time performance for all long-distance trains has been
in decline (see fig. 7).[Footnote 42]
Figure 7: Average Annual On-time Performance of Long-Distance Routes,
Fiscal Years 2000 through 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[End of figure] - graphic text:
On average, in fiscal year 2005, trains on long-distance routes arrived
at their final destinations approximately 98 minutes late. Trains on
the poorest performing route, the Sunset Limited, averaged nearly 5
hours late. Such poor on-time performance is likely to significantly
affect the extent that passengers choose rail services to meet their
transportation needs.
Corridor Services Appear to Provide More Public Benefits at Reduced
Cost, but Opportunities for Improvement Remain:
Corridor rail services--which include NEC operations, as well as state
supported and legacy corridor routes--appear to offer increased
potential to provide transportation benefits and public benefits to a
greater number of people at reduced cost to the federal government.
Corridor routes comprise most of Amtrak's annual ridership--providing
service to a wide variety of business and leisure travelers--and they
account for much of the growth in passenger rail in recent years,
particularly on the state-supported routes (see app. II for a list of
states and associated corridor services). Relative to the long-distance
routes, corridor services also operate with lower costs and better on-
time performance. They also appear to be better aligned to provide more
cost-effective transportation benefits and public benefits. For
example, they are generally more time-and cost-competitive with other
transport modes and offer increased flexibility over long-distance rail
services, adapting schedules and services to changing demographics and
passenger travel demands. However, despite their relative financial and
operating performance, many of the corridor routes face challenges such
as capacity constraints and funding issues, which may limit
opportunities for rail to increase market share and play a more
significant role in the nation's transportation system.
Ridership and Financial Characteristics:
Corridor routes account for most of the intercity passenger rail travel
in the United States and they illustrate substantially reduced
financial losses relative to the long-distance routes. Most intercity
passenger rail travel in the United States is comprised of relatively
short trips on a small number of corridor routes. In fiscal year 2005,
the average trip length for all routes--both long distance and
corridor--was 213 miles, with corridor routes servicing approximately
85 percent of the total Amtrak ridership. Among these corridor routes,
over half of the ridership in fiscal year 2005--nearly 11 million
passengers--occurred on the NEC alone. The Washington-New York City-
Boston main line of the NEC remains the most heavily utilized rail
route in the country, forming an essential link for intercity passenger
and freight transportation, as well as nine different commuter rail
operations in the Northeast. On an average weekday, over 1,800 commuter
and Amtrak trains operate over the NEC.
On the 26 non-NEC corridors, ridership in fiscal year 2005 was 10.6
million, with 52 percent of this total generated on the four most
heavily traveled routes.[Footnote 43] These corridor services, namely
the state supported routes, also represent the market that is
exhibiting the strongest ridership growth. Since fiscal year 2002,
there has been an 18-percent increase in ridership on state-supported
routes as states continue to increase spending for operations and
capital improvements of corridor rail services (see fig. 8).
Figure 8: Corridor Ridership Trends by Route Class, Fiscal Years 2002
through 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[End of figure] - graphic text:
Given the high number of passengers and the relative importance of the
NEC, passenger profiles for Amtrak-operated trains on this corridor
illustrate some clear distinctions from those on long-distance routes.
For example, a much higher percentage of ridership is comprised of
commuters and business travelers in comparison to the long-distance
routes, particularly on the higher-end NEC trains, the Acela Express
and Metroliner. Amtrak survey data indicates that in fiscal year 2004,
82 percent of travel on these services was business-related. Passengers
on Amtrak's Regional Service--the other primary NEC trains--reported
that 49 percent were traveling or commuting for business or school; 50
percent reported traveling for personal or family business, or
traveling primarily for leisure purposes.[Footnote 44]
For non-NEC corridors, the designated trip purpose varied widely
between the routes because they operate in a number of different states
and passenger markets. For example, the Empire service in New York
caters to a number of business travelers and commuters, while the
California corridor routes are characterized by a larger share of
leisure and personal travel.
As for financial performance, the Acela Express and Metroliner trains
operating on the NEC are Amtrak's only services in which passenger
revenues cover the cost of operation (excluding depreciation and
interest). In fiscal year 2005, Amtrak reported a positive total annual
contribution of $65.3 million for this service. However, Amtrak's other
scheduled trains on the NEC ended the year with operating losses,
resulting in a net contribution of approximately $45 million for
intercity passenger rail service on this corridor. While these results
indicate relative financial success, they do not take into account the
substantial amount of capital spending invested to fund infrastructure
improvements and maintain operations on the NEC. For example, in fiscal
year 2005, Amtrak reported a capital allocation to the NEC of $190.4
million--over four times the reported operating contribution. In
addition, Amtrak has an estimated system backlog of up to $6 billion in
deferred maintenance and infrastructure improvements, with the NEC
comprising more than 60 percent of this total.
All of the non-NEC corridor routes also incur financial losses to
Amtrak; however, considerable variation exists among them. In fiscal
year 2005, Amtrak reported a total annual loss from all non-NEC
corridor services of approximately $164 million, with losses on
individual services ranging from a low of $200,000 (Illinois Zephyr) to
a high of $23.3 million (Empire Service).[Footnote 45] In the
aggregate, these losses represent an average operating subsidy of about
$20 per passenger for non-NEC operations. One reason for the wide
variance in Amtrak's financial performance among these corridor routes
is the level of state support provided. Overall, state payments to
Amtrak for operating and capital costs have increased considerably in
recent years--rising from $148 million to $272 million between fiscal
years 2000 and 2005 (see fig. 9). However, states have generally not
been required to pay the full subsidies for these routes.[Footnote 46]
Moreover, many states that have corridor services have not paid
anything at all, thus producing issues of equity among states. For
example, Amtrak operates a number of weekly departures of the Hoosier
State service--between Indianapolis and Chicago--although it has the
lowest cost recovery of any short-distance route and neither state
contributes any level of operating support.[Footnote 47]
Figure 9: Annual State Operating and Capital Contributions, Fiscal
Years 2000 through 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[End of figure] - graphic text:
Potential Transportation Benefits and Public Benefits:
Both types of Amtrak's corridor routes illustrate significant potential
to provide transportation benefits and public benefits, but they each
illustrate a number of unique attributes and opportunities for
improvement. Transportation experts generally agree that intercity
passenger rail services that serve large, relatively close population
centers--and that are time-and cost-competitive with other
transportation modes--represent the greatest potential markets for rail
worldwide. Moreover, these markets are the ones most likely to offer
the greatest opportunity to mitigate pollution and reduce the growth of
highway congestion through increased rail use. However, the ability of
intercity passenger rail to generate these benefits depends on the
likelihood that travelers will choose rail service over other modes of
transportation. As we have reported previously, congestion is most
likely to be alleviated when rail routes run parallel to congested
roadways and where travelers view rail as a more attractive "door-to-
door" travel option (in terms of price, time, comfort, and safety) than
driving.[Footnote 48] Similarly, rail becomes less competitive with
other modes of transportation, particularly air services, as travel
time and prices increase over longer distances (see app. II). For these
reasons, corridor services appear to be most competitive with
automobile and air travel in markets between 100 and 300 miles. In this
regard, many existing and developing corridor rail services appear to
be well positioned to provide a viable alternative to other modes of
transport and potentially offer a number of public benefits:
* NEC. With over 30 million metropolitan residents, the NEC has a
population density of over 65,000 residents per route mile. According
to the American Association of State Highway and Transportation
Officials, such a large population density helps to explain why the NEC
accounts for such a large proportion of Amtrak's total corridor
ridership.[Footnote 49] Many of the rail services on the NEC are very
competitive with air and auto travel in several markets. For example,
Amtrak serves 50 percent of the combined air/rail market between
Washington, D.C., and New York, and 40 percent between New York and
Boston. Moreover, in fiscal year 2005, Amtrak reported air/rail market
shares greater than 90 percent for other shorter distance city pairs
such as Philadelphia-New York and Philadelphia-Washington, D.C. The
Northeast region also illustrates characteristics of the type of urban
congestion and capacity constraints that may benefit the most from
travelers being diverted away from the highways and onto rail.
* State-Supported Corridors. State-supported routes are the fastest
growing routes and illustrate significant potential to provide a viable
transportation option; however, further development of new and existing
rail corridors may require funding beyond what has been previously
provided. A growing number of individual states and groups of states
have made the public policy decision to utilize state funds to
subsidize additional corridor rail service and invest in related
capital projects. Some of the potential benefits cited for such
expenditures include the potential for rail to accommodate regional
growth and enhance economic competitiveness. Over 80 percent of the
nation's population now lives in a metropolitan area. Officials in many
states are interested in identifying and developing regional rail
corridors that link these economies and provide a viable transportation
option to large numbers of residents. Officials in several states with
whom we spoke also indicated that corridor rail services are an
important component of state and local transportation plans. For
example, in Washington State, corridor rail service between Seattle,
Washington, and Portland, Oregon, comprised over 60 percent of the air/
rail market share in fiscal year 2005 and was identified for its
potential role in reducing the growth rate of highway congestion within
the region. The nine member states of the Midwest Regional Rail
Initiative also identified where potential public benefits may be
provided through additional funding for increased train frequencies and
extensions of existing corridor routes.[Footnote 50] In addition, this
group has set out a "grand vision" to link all of the major industrial
centers in the region with high-speed rail service (operating at speeds
up to 110 miles per hour). If completed, this network would reach over
35 million residents--a number that exceeds the entire metropolitan
population of the NEC. An additional benefit attributed to increased
development of corridor services is that the state (or other public
authority) has the ability to contract for the specific services that
it chooses to subsidize, including scheduling, frequency, and the
stations served. In this manner, services can be adjusted over time
according to regional growth patterns and changing population
demographics.
Potential Opportunities for Improvement:
While Amtrak's corridor routes serve millions of passengers each year
and appear to provide a number of public benefits, there may be
additional opportunities to further develop rail corridors to improve
existing services and reach new markets. For example, a number of
issues associated with infrastructure improvements and capacity
constraints may need to be addressed to ensure that rail services
continue to provide an effective alternative to other transport modes.
To be successful, corridor trains must operate with adequate on-time
performance to provide competitive travel times and reasonably
predictable schedules. In addition, overcoming funding issues will
likely be required in order to realize the opportunities identified by
states for the further development of regional rail corridors.
Infrastructure improvements and capacity constraints are critical
issues on the NEC. Although it is Amtrak's most viable route, the NEC
faces a high level of unmet infrastructure spending, maintenance
spending, and growing capacity constraints, which may affect its
ability to effectively compete with other transportation modes in the
future. Amtrak's most recent legislative grant request asks for $730
million in fiscal year 2007 to complete major projects such as
replacing bridges, ties, power supply systems, and overhauling the
existing fleet of rolling stock, with the NEC being targeted as a
critical priority for such investments. In addition, the many users
operating on the NEC present a constraint on capacity that may impact
the ability of Amtrak trains to reach their destinations on time.
Backups are becoming more common among freight, commuter, and Amtrak
trains, causing delays that result in dissatisfaction among riders.
Delays affecting on-time performance may be particularly important on
the NEC, where a high number of business and commuter travelers rely on
these services.
In fiscal year 2005, Amtrak reported that train services on the NEC
reached their destinations on time an average of 78 percent of the
time.[Footnote 51] While this represents a slight improvement over
fiscal year 2004 levels, this indicator has decreased from fiscal year
2000 levels (see fig. 10).[Footnote 52] Recognizing that the
deteriorated condition of the infrastructure contributes to increased
operating costs and reduced reliability of services, Amtrak has
committed to developing a NEC master plan in conjunction with the
states and commuter agencies that utilize it. This effort aims to
identify long-term needs and service improvements, and work together to
fund such projects.[Footnote 53] An example of such a project designed
to address capacity constraints and improve service is illustrated by
Amtrak's current efforts working with the state of Virginia to develop
an additional track dedicated to passenger trains between Washington,
D.C., and Richmond, Virginia.[Footnote 54] The benefits identified by
Amtrak for projects such as this one include increased capacity,
potentially higher speeds, reduced trip times, and overall improvement
in reliability and on-time performance.
Figure 10: Annual On-time Performance of Corridor Routes, Fiscal Years
2000 through 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Amtrak data.
[End of figure] - graphic text:
Non-NEC corridor routes also face a number of the same infrastructure
and capacity challenges affecting train speeds and the predictability
of travel times as the NEC services. In fiscal year 2005, on-time
performance for these services was reported at 70.4 percent, reflecting
a 6-percent decline since fiscal year 2000. A state official in New
York cited the Empire Service as an example of one such corridor facing
significant congestion and capacity constraints associated with heavy
use by freight trains, commuter services, and Amtrak trains. A recent
study estimated that $700 million would be needed just to complete
infrastructure improvement projects on one segment of this corridor,
the 141-mile line between Albany and New York City. Similar projects to
reduce congestion and increase speeds have been identified on a number
of other state supported and "legacy" corridors in Pennsylvania,
California, and the Midwest.
Overcoming funding challenges is another issue that needs to be
addressed if Amtrak and state partners are going to work together to
continue developing and expanding intercity passenger rail services.
Although some states have identified where additional corridor services
may provide significant transportation benefits and public benefits,
these projects often require substantial levels of public funding. For
example, the total cost required to develop the 3,000-mile high-speed
rail network as envisioned by the Midwest Regional Rail Initiative is
estimated at $4.8 billion. All the state officials with whom we spoke
indicated that any additional state funding for rail will require some
type of federal match program similar to other transportation modes.
Moreover, Amtrak's plans to recover additional overhead and other
shared costs expended on state-supported corridor routes beginning in
2008 will place further demands on limited state funding for rail.
Undertaking the significant infrastructure improvement projects needed
to expand capacity and improve operational performance on existing
corridors would also be expensive. For example, a report issued by a
coalition of rail stakeholders in the Mid-Atlantic region estimated
that funding to address major congestion bottlenecks in that region
would cost approximately $6.2 billion over 20 years.[Footnote 55] In
addition, a report issued by state transportation officials in 2002
estimated that capital investment projects outlined for 21 corridors
across the country could cost as much as $60 billion over a 20-year
period.[Footnote 56] Regardless of which projects are ultimately
funded, it appears that, if rail is to play a more significant role in
the nation's transportation system, overcoming issues of funding and
capacity will be an important component.
Current Intercity Passenger Rail System Is Not Adequately Focused Where
It Can Be the Most Financially Viable and Provide the Most Public
Benefits:
The current intercity passenger rail system is not adequately focused
on its comparative strengths; it exists much as it did when Amtrak
began over 35 years ago. While Amtrak has made notable upgrades along
the NEC and implemented a number of contractions and expansions of its
route structure over the years, the system remains similar in its size
and endpoints as the original "basic system" that the DOT designated in
1971 (see app. II for a map of Amtrak's routes in 1971). As the DOT
General Counsel recently testified, this system has not effectively
adapted to shifting demographics and market demands over time, as other
transportation modes have done.[Footnote 57] While the current model
may provide limited service offerings across the country's broad
geography, it does so at a very high cost to the federal government.
Amidst a number of fiscal constraints and increased pressure to reduce
or better target federal rail subsidies in the future, this model may
no longer be viable. However, intercity passenger rail continues to
illustrate the potential to become an important element with greater
integration into the nation's overall transportation system if it is
focused on the markets where rail exhibits comparative strength. As
reported by the Congressional Budget Office (CBO) in September 2003,
these opportunities are most likely to be found on routes of about 100
to 300 miles that connect cities with large populations. In these
markets, rail is most likely to be both time-and cost-competitive with
highway and air travel, and may be best positioned to meet both the
demands of the traveling public and the demands of sponsoring public
authorities.[Footnote 58]
As our work illustrates, the current intercity passenger rail system
targets substantial resources toward the operation of long-distance
services, which the CBO and others have reported is an area of
comparative weakness for rail services. In addition to accounting for
about 80 percent of Amtrak's operating losses, these services do not
appear to be meeting Amtrak's goal of providing "basic transportation"
very effectively. Services are often unreliable--averaging 41 percent
on-time performance--and serve communities infrequently or at
inconvenient times (often one train daily in each direction).
While these characteristics do not serve Amtrak's long-distance
passengers well, the several distinct "client" markets on these routes
are also not efficiently targeted. For example, many passengers on long-
distance trains travel relatively short distances--400 miles or less--
suggesting that a substantial share of long-distance service may
actually be corridor service. However, these services are not managed
like corridors, which are characterized by higher speeds and more
frequent train service. Passengers in rural communities along these
routes also do not appear to be effectively targeted by rail services.
These services are inherently limited to those communities fortunate
enough to be located next to historical rail lines. Further, there is
reason to believe that alternative modes of transportation may be
better positioned to provide much greater rural coverage at potentially
lower cost to the government. Finally, for those passengers traveling
longer distances, Amtrak often operates costly amenities (e.g., sleeper
and dining cars) which account for even higher levels of federal
subsidies than coach-class seats. Amtrak survey data also suggests
that, on average, the 16 percent of riders on long distance trains who
utilize sleeper services are typically the most affluent passengers.
For example, passengers in Sleeper/First Class reported an average
household income over one-third higher than coach-class
passengers.[Footnote 59] Consequently, substantial federal dollars are
currently being spent to subsidize costly services to individuals with
higher-than-average incomes. All of these characteristics raise
questions about the appropriate federal role in long-distance service,
such as whether federal expenditures should be used to subsidize
leisure services to affluent travelers, and whether there may be more
cost-effective alternatives to provide corridor services and efficient
rural transportation.
In contrast, the current intercity passenger rail system also includes
corridor services, which have been identified as the comparative
strength of passenger rail and where passenger rail services hold the
most promise to be financially viable and provide a number of potential
public benefits. There has been a relative growth of passenger rail
ridership on corridor routes, especially state-supported corridors, and
85 percent of Amtrak's riders live and work along corridors. Aside from
the heavily populated NEC where Amtrak has achieved its best results, a
number of other corridors--such as those in California, New York, the
Midwest, and the Pacific Northwest--exhibit many of the key
characteristics that indicate there may be potential public benefits
that could justify public subsidies for passenger rail services, namely
clusters of densely populated areas within 300 miles of each other.
Moreover, many officials with whom we spoke agreed that the promise of
intercity passenger rail is likely along corridors, not over long
distances. States have further supported this view by providing
substantial funds to support corridor operations and/or capital
investments on these routes.
Foreign Experiences Illustrate Various Approaches to Restructuring and
Key Reform Elements:
Over the past 20 years, several countries have employed a variety of
approaches in reforming their intercity passenger rail systems in order
to meet national intercity passenger rail objectives. These approaches-
-alone or in combination with each other--have been used to support
national objectives such as increasing the cost effectiveness of public
subsidies, increasing transparency in the use of public funds, and
providing transportation benefits and public benefits. Despite the
variation or combination of approaches used, during the restructuring
process these countries addressed several key elements of reform, such
as establishing clear goals for intercity passenger rail, clearly
defining stakeholder roles that are necessary in implementing any
approach, and establishing stable sustainable funding.
Prior to implementing these new approaches, many countries' passenger
rail systems consisted of "monolithic" state-owned and state run
organizations in which customer service and financial performance were
not the main concerns of the railroad. Rather, other concerns, such as
socioeconomic issues (e.g., providing employment) were more important.
Similar to the current situation in the United States, passenger rail
in many countries was losing market share to other modes of
transportation and this loss of market share, along with mounting
dependence on public subsidies and decreasing transparency with respect
to where public funds were being spent, prompted change in the
passenger rail industry. Table 2 discusses the different passenger rail
structures that existed in the five countries in which we conducted
site visits for this report. These countries were chosen because they
have transitioned from state-owned fully integrated organizations to
more consumer driven market-dependent entities.[Footnote 60] While it
is important to be aware of the key differences between these countries
and the United States (e.g., infrastructure ownership, geography, and
political culture) the general catalyst for reform--the need to deliver
a better value for the expense of public funds--is the same as the
current passenger rail environment in the United States.
Table 2: Summary of State-Owned Rail Services (Pre-and Post-Reform) in
Countries We Visited:
Pre-reform structure;
Canada: Operations integrated with infrastructure;
France: Operations integrated with infrastructure;
Germany: Operations integrated with infrastructure (Two existed, East
Germany and West Germany);
Japan: Operations integrated with infrastructure;
United Kingdom[A]: Operations integrated with infrastructure.
Reason for reform;
Canada: To increase focus on cost control and customer service;
France: To reduce national government debt, deficits, and the rate of
public subsidy growth;
Germany: To improve efficiency, reduce the federal debt, and reduce the
burden on the federal budget;
Japan: To improve financial performance and management of the system,
and reduce mounting long term debt;
United Kingdom[A]: To improve efficiency and cost control, improve the
business plan, and depoliticize inconsistent capital funding.
Post-reform operations;
Canada: Single operator (State-owned private stock company);
France: Single operator (State-owned company) Multiple private
operators after 2012;
Germany: Multiple private operators; (Primary operator state-owned
joint-stock company; infrastructure owner is owned by same holding
company);
Japan: State- owned split into six passenger operators organized
geographically and integrated with infrastructure;
United Kingdom[A]: Multiple private operators, which compete for
franchises.
Post-reform infrastructure;
Canada: Multiple owners; (Primarily freight railroads, with 130 miles
owned by passenger operator);
France: Single owner. (State-owned company);
Germany: Single owner. (Joint-stock company; primary operator is owned
by same holding company);
Japan: Multiple owners. (Three largest owners are privatized and three
smallest lease some infrastructure from the government). Integrated
with operations;
United Kingdom[A]: Single owner. (First a public stock company; now, a
private corporation governed by members).
Source: GAO analysis of site visit data.
[A] Our summary of the railway reform effort in the U.K. encompasses
two major efforts in 1993 and 2004. In 1993, the U.K. began privatizing
its rail system partly to control cost and improve quality. As part of
the continuing effort to improve the rail system, the U.K. undertook
another major restructuring effort in 2004. See app. III for further
details.
[End of table]
Various Approaches Have Been Used Abroad to Support a Broad Range of
National Intercity Passenger Rail Objectives Aimed at Improving Value
for Funds Spent:
The foreign countries we visited[Footnote 61] have met a broad range of
national objectives by implementing various approaches to improve the
cost effectiveness of their intercity passenger rail systems. All the
countries we visited reformed their systems in large part to improve
the value of service they were receiving for the amount of public money
being spent on the service. For example, the desire for increased
transparency in the use of public funds, mounting public subsidies and
rail-related debt, and a desire for economic efficiency were all key
factors in the European Union's 2001 directive requiring all member
states to improve the efficiency of their rail systems. Three of the
five countries we visited--France, Germany, and the U.K.--are members
of the European Union and have all begun implementing changes to meet
these goals. Similarly, Canada and Japan both reformed their systems to
increase the value in service they were receiving for the funds being
spent. While the countries we studied reformed their systems in order
to meet financial objectives, the national governments of these
countries still provided heavy financial support to the system after
the reforms. Table 3 shows the current levels of financial support
provided by these governments.
Table 3: Post-Reform Financial Involvement by National Governments of
Five Countries We Visited:
Debt at time of reform;
Canada: None;
France: 30€ billion debt[A];
Germany: 35€ billion debt [B];
Japan: ¥37.1 trillion debt[C];
U.K.: £540 million[D].
Post-reform debt;
Canada: None, and operator has no authority to issue debt instruments
or to go into the debt market to raise funds;
France: 20€ billion[E] transferred to infrastructure company in
(estimated value of infrastructure debt); 10€ billion[F] to operations
company;
Germany: 35€ billion[G] transferred to national government with all
employees of former rail authorities;
Japan: ¥25.5 trillion[H] and all pensions of former national rail
employees transferred to a government- owned corporation. Remainder was
transferred to a holding company and to the four rail companies;
U.K.: £8 billion[I] infrastructure debt accumulated after reform.
Current infrastructure debt is about £18 billion.j Expected to rise to
£21 billion[K] by 2009.
Post-reform operating subsidies;
Canada: $170 million CAD/year[L];
France: 2€ billion/year to regions[M] (fixed subsidy); 5.5€ billion/
year[N] to repay debt; support some pension plans and social fares;
Germany: 7€ billion/year to regions[O]; 10€ billion/year[P] to repay
debt and support federal rail employees. (Fixed regional subsidy, but
current debate to reduce regional subsidy);
Japan: Three of the six passenger rail companies are fully privatized
and receive no subsidies. A business/management stabilization fund was
set up for the other three to invest and use interest for operating and
capital improvements;
U.K.: Subsidies provided based on contracted franchise agreements.
(Remaining costs covered by fares.)
Post-reform infrastructure subsidies;
Canada: Periodic subsidy (Variable--requested from Parliament);
France: Annual subsidy provided from national and regional government;
Germany: State provided interest free loans and grants to develop/renew
infrastructure;
Japan: A negotiated cost sharing arrangement between the national and
local governments, and the railroads;
U.K.: Government provides an indemnity for the network manager's debt
of up to 50% of income. (Remainder is in access fees.)
Source: GAO analysis of site-visit data.
[A] Approximately $35 billion at the time of reform in 1997. Conversion
of France's debt to U.S. dollars was done using the exchange rate for
the Euro introduced January 1999, and therefore is not the exact value
of the actual debt in 1997.
[B] Approximately $39 billion at the time of reform in 1994.
[C] Approximately $257 billion at the time of reform in 1987.
[D] Approximately $806 million at the time of reform in 1994.
[E] Approximately $24 billion at the time of reform in 1997. Conversion
of France's debt to U.S. dollars was done using the exchange rate for
the Euro introduced January 1999, and therefore is not the exact value
of the actual debt in 1997.
[F] Approximately $12 billion at the time of reform in 1997. Conversion
of France's debt to U.S. dollars was done using the exchange rate for
the Euro introduced January 1999, and therefore is not the exact value
of the actual debt in 1997.
[G] Approximately $39 billion at the time of reform in 1994.
[H] Approximately $176 billion at the time of reform in 1987.
[I] Approximately $15 billion in September 2006.
[J] Approximately $34 billion in September 2006.
[K] Approximately $39 billion in September 2006.
[L] Approximately $152 million in September 2006.
[M] Due to fluctuations in exchange rate, the subsidy varied from
approximately $1.7-$2.5 billion between 1999-2006.
[N] Due to fluctuations in exchange rate, the subsidy varied from
approximately $4.7-$7 billion between 1999-2006.
[O] Due to fluctuations in exchange rate, the subsidy varied from
approximately $5.9-$8.9 billion between 1999-2006.
[P] Due to fluctuations in exchange rate, the subsidy varied from
approximately $8.5-$12.7 billion between 1999-2006.
[End of table]
Passenger rail reform in the countries we visited was also undertaken
to achieve a number of other objectives. For example, reform was used
as an opportunity to provide viable transportation benefits and public
benefits that might not otherwise be achieved. The Canadian, Japanese,
and French governments all financially support passenger rail service
to areas of the country that have small or isolated populations and
that may not be well served by other means of transport. For the most
part, this service is unprofitable and would not otherwise be provided.
Another objective was to address growing urban congestion through
enhanced passenger rail service. In the European Union member countries
we visited passenger rail reform was used to address environment and
urban congestion issues. Finally, the countries we visited used reform
to improve the operational performance of existing intercity passenger
rail systems. For example, in Germany, a large part of its reform was
to consolidate the two highly inefficient rail systems that existed
after the country was reunified into one cost-efficient rail system.
Similarly, in Canada a major reexamination of long-distance intercity
passenger rail service took place in order to better market these
routes and, therefore improving the routes' financial performance.
Additionally, Germany and France have established performance metrics
such as on-time performance and train cleanliness, which result in
bonuses or penalties for the rail operators based on their ability to
meet the standards established in the metrics.
These reform objectives have been addressed through various approaches.
Each approach reorganized a different aspect of the existing intercity
passenger rail system. See figure 11 for a summary of the approaches
each country took. These approaches are not mutually exclusive of each
other, and have included, but are not limited to: 1) changing the roles
and responsibilities of the various stakeholders involved in the
intercity passenger rail system, 2) changing the funding structures of
the existing system, 3) changing the organizational structure of the
existing passenger rail entity, and 4) the introduction of competition
or privatization in rail operations.
Figure 11: Reform Approaches Used by Site Visit Countries:
[See PDF for image] - graphic text:
Source: GAO analysis of foreign data.
[End of figure] - graphic text:
Shifts in the Roles and Responsibilities of Intercity Passenger Rail
Stakeholders:
One approach taken by the five countries we visited was a shift in the
roles and responsibilities of the stakeholders involved in intercity
passenger rail--primarily the national and regional governments. This
was generally undertaken to remove political and state interests from
the operation of the rail system in order to increase efficiency.
* Shift from service operator to service regulator/oversight. In both
the U.K. and Germany, the national government shifted from being the
operator of intercity passenger rail service to taking on more of a
regulatory role, overseeing the competitive bidding process used by
private operators.[Footnote 62] By taking on an oversight role, these
governments are facilitating competition and, in turn, supporting their
objective of creating a more cost effective and transparent use of
public funds. A more cost effective and transparent use of public funds
helps facilitate improved operational performance of intercity
passenger rail operators.
* Shift away from infrastructure manager, yet remaining owner. In the
countries we visited, some of the national governments no longer
provide day-to-day management of the infrastructure; however, they
remain the owner of the infrastructure companies in order to ensure
that the state's best interests with respect to decision making can be
maintained. For example, in France and Germany, government-owned
private companies were established to manage and maintain the entire
rail infrastructure, including granting access to operators and
collecting access fees.[Footnote 63] In the U.K., a member-owned
private company handles infrastructure matters. By moving away from the
day-to-day management of the infrastructure, governments are able to
put those tasks in the hands of individuals best suited to manage the
infrastructure, while still being able to set the strategic direction.
Shifting away from day-to-day management allows the government to be
more of a customer of the infrastructure manager, thereby enhancing
transparency in costs as well as accountability in the financial
performance of the infrastructure companies.
* Devolving decision-making authority to local and regional
governments. One of the most prevalent changes made in two of the three
European Union countries we visited was the devolution of specific
roles and responsibilities from the national government to local or
regional governments. These roles included decision making (e.g.,
selecting the operator through a bidding process), as well as
determining the quantity and frequency of intercity passenger rail
service. By letting governments that were geographically closest to the
service make decisions about it, the national governments have been
able to be more cost effective by targeting public and transportation
benefits to the specific preferences of the localities. In cases where
the localities are able to select their operator through competitive
bidding, service can be purchased for the lowest bid--as opposed to
having no choice if there were only one operator to choose
from.[Footnote 64] For example, in Germany, all of the national
operation subsidies are given directly to the Länder (analogous to U.S.
states); the Länder are then able to issue a request for proposal
outlining specific service needs, and receive competing bids for the
level of service they request.
* Shift from service operator to customer. The U.K. and Germany, as
well as France and Canada, have transitioned their relationships with
rail operators from that of operator to that of customer--the
governments determine what type of service they want to make available
to their citizens, and then purchase that service from the rail
operators. Frequently, the governments establish performance metrics to
hold the operators accountable. In the U.K. and Germany there are
multiple operators that can bid to provide this service, but in France
and Canada the service is provided by a single national
operator.[Footnote 65] By taking on a customer role--even if the
national provider is still fully owned by the government--these nations
have been better able to define the type of service they want, and then
pay for those services. This can lead to more cost-effective service,
and better provision of public benefits and transportation benefits.
For example, officials in the Ile de-France region (greater Paris area)
told us that they have received better service from the national
operator since they were able to deal with them directly, and in 2004
the operator received 1.8€ million[Footnote 66] in bonus payments from
the region for meeting metrics such as the handling of passenger claims
and station cleanliness.
Changing the Public Funding Structure Used to Support Intercity
Passenger Rail:
Another approach taken by some of the countries we visited involved
changing the public funding structure used to support intercity
passenger rail.
* Changes to government commitment to funding. In all the countries we
visited, the national governments made commitments to fund intercity
passenger rail. Four of these countries dedicated annual funding
towards investing in the intercity passenger rail system in order to
provide the resources needed to achieve a desired level of rail
service. Japan established a one-time fund for its railroads that
needed financial assistance, allowing the railroads to invest these
funds in order to operate off the interest earned on these investments.
Changing the commitment to funding allows these countries to get the
best value for their money by requiring rail operators to provide
specified levels of service for the amount of funds required to conduct
these services. Also, as shown by Canada, cuts to the level of annual
funding can push an operator to improve its operations, reduce costs,
and grow revenues in order to operate within its funding limits.
* Changes to funding mechanisms for infrastructure. Another major
funding change made in the three European Union countries we visited
was the establishment of new funding mechanisms (i.e., grants and
loans) for intercity passenger rail operations and infrastructure. By
splitting the funding sources for these two distinct functions, the
governments are better able to determine what the subsidy is being used
for and increase the transparency in the use of public funds; in
addition, constant and expensive infrastructure projects now have a
specific source of funding, allowing infrastructure managers to better
plan for future projects.
* Changes to funding dissemination. Another funding change made by both
France and Germany occurred in conjunction with the devolution of
decision making to local and regional governments. These two countries
now provide national funds directly to local and regional governments
in order to support the purchase of intercity passenger rail service.
By doing this, these countries have enabled local and regional
governments to be more flexible and purchase service that best fits the
preferences of the users; funds can therefore be targeted at the
transportation benefits and public benefits preferred by local areas.
In addition to these changes in the structure of the public funds,
another factor played an important role in changing the funding
structure--a national commitment to provide stable sustainable funding.
For example, in Germany, part of the motor fuel excise tax was
dedicated to rail; meanwhile, Japan created Business Stabilization
Funds in order to support operations and capital improvements of the
three island railway companies with smaller passenger rail markets. In
Canada, officials told us the national government has informally made
an ongoing commitment to support intercity passenger rail operations by
consistently providing the same level of funding each year.[Footnote
67] By committing to provide the funds each year, all the national
governments above allowed rail operators to better manage their
resources and planning capabilities.
As part of this commitment, four of the five countries we visited
transferred or reduced the debt that the railways were carrying. In
Germany, reform took place in 1994 and the debt was transferred to the
government; a new public agency was then created to take over and pay
off the 35€ billion in debt (about $39 billion)[Footnote 68] incurred
by the preexisting railways, as well as by the employees of the former
railways. In Japan, during the 1987 reform, the national government
relieved the railway of its ¥37.1 trillion debt (about $257
billion)[Footnote 69] by transferring most of it--along with part of
the railway's employee pensions--to the national government, and
splitting the remainder of the debt among the operators.[Footnote 70]
In France, the 1997 reform resulted in 20€ billion in debt (about $24
billion) being transferred to the new infrastructure manager. In
exchange, the new manager received the country's entire rail
infrastructure at no cost; the remaining 10€ billion in debt (about $12
billion) was transferred to the national operator.[Footnote 71] While
the British government wrote off the initial debt of the railway in
1994, the U.K. is currently carrying an infrastructure debt of about
£18 billion (currently about $34 billion). According to U.K. officials
we interviewed, this amount is expected to increase to £21 billion
(currently about $39 billion) by 2009. Officials with U.K.'s
infrastructure manager noted, though, that borrowing is limited to 85
percent of the value of its regulatory asset base. Canada did not have
debt at the time of their restructurings.[Footnote 72] Relieving the
debt of the rail operators created a viable capital structure for the
new railways to operate in, and has been an important factor in their
ability to move forward more cost effectively.
Changing the Organization of Existing Passenger Rail Systems:
Restructuring the organization of existing passenger rail systems is
another approach often taken by governments when reforming their rail
systems. Historically, most national rail systems have been comprised
of monolithic government-owned and government-managed entities, where
the two major functions--managing infrastructure (e.g., tracks and
stations) and managing daily operations--were integrated. The three
European countries we visited began their reform by separating the
operational and infrastructure functions of their passenger rail
systems. Separating these two functions from each other can result in
more transparency and a better estimate of what the costs for each
function are.
This separation can take place in a variety of ways. For example, the
U.K. went from a government monopoly with full control over both
functions to a private company owned by "members" that own and manage
all of the rail infrastructure; operations were turned over to private
operators in 1993. In France, the government monopoly was separated
into two separate government-owned companies. One company is
responsible for managing all rail operations and the other is
responsible for managing the infrastructure. In Germany the government
rail monopoly was turned over to a private state-owned holding company,
with separate independent subsidiary business units in charge of
infrastructure and operations. Additionally, in Germany, although the
same holding company that owns the infrastructure also includes the
primary passenger rail operator, other private operators are permitted
to provide intercity passenger rail service on their tracks.
Conversely, in Japan, the infrastructure and operational function of
the passenger rail system have remained integrated--instead, the
country divided its rail system into six distinct geographic regions
allowing each area of the country to address issues specific to its
passenger markets. Restructuring the rail system is generally
implemented to create more transparency in the costs incurred by the
rail companies; once accurate costs are known, companies can better
gauge how much to charge for their services, as well as identify
opportunities for cost savings.
Introducing Competition and Privatization in Intercity Passenger Rail
Operations:
The introduction of competition and/or privatization in rail operations
is another approach to reform intercity passenger rail. This approach
was used by some of the countries we visited.[Footnote 73] Over the
past two decades, countries have been reforming their railway systems
through various forms of privatization in order to improve the quality
of service and efficiency offered to customers, and to reduce costs.
Competition and privatization are two market mechanisms that are often
used to improve service efficiency while meeting financial objectives.
The use of competition and privatization can lead to a market that is
more responsive to customers as well as investors. However, regardless
of the degree of success, deep and continuing government involvement
will likely continue to be necessary in order to balance the financial
needs of the railways with the transportation coverage desired by the
state.
Competition and privatization have been particularly prevalent in
Europe, where a European Union directive requires the existence of
competition in the freight rail industry; an additional directive has
been proposed requiring the allowance of competition in the
international passenger rail industry as well, although some countries
have already opened their markets to multiple operators. Germany makes
extensive use of private operators, with over 300 operators providing
rail service on many regional routes. In the U.K., all passenger rail
services are franchised and open to competitive bidding by operators.
The introduction of competition and privatization is largely dependent
on the government changing its role to that of a customer, with the
primary focus on purchasing the best service for the best price. In
Germany, the dissemination of national funding to regional governments
has facilitated the extensive presence of multiple operators. Japan,
meanwhile, aims to have its passenger rail system completely
privatized; currently three of Japan's six passenger rail systems are
managed by individual private companies. By turning its passenger rails
over to the private sector, Japan has improved its quality of service
and substantially reduced the number of its employees; the demand for
railway service continues to increase.
Foreign Countries Addressed Key Reform Elements in Implementing New
Approaches to Intercity Passenger Rail:
Several key reform elements were addressed by the five countries we
visited as part of their planning and implementation of new approaches
to intercity passenger rail. Based on our review, implementing these
approaches appears to improve the cost effectiveness of intercity
passenger rail service. For example, officials with the primary
operator in Germany told us that their company has seen a 187-percent
increase in staff productivity between 1993 and 2004; at the same time,
the company was able to reduce its workforce by 40 percent.[Footnote
74] These officials stated that the German rail reform resulted in
taxpayers paying 44€ billion less during this time period than what
they would have been expected to pay if there had been no reform. The
key reform elements addressed throughout implementation of these
approaches include:
* Establishing clearly defined national policy goals. In making major
changes to an intercity passenger rail system, it is essential that the
national government establish a clear vision for what the goals of the
system should include while making decisions to implement new
approaches to meet these goals. During our review of the five countries
we visited, we observed that each country established goals that their
reforms were intended to achieve. As we reported in February 2005, a
key component in reforming a national program includes determining if
there is a clear federal role and mission.[Footnote 75] All of the
approaches taken by the five countries we visited were tailored to meet
the specific national policy goals established by those countries. For
example, in the U.K., there was a national goal to reduce the role
government played in managing the passenger rail system. To meet this
national goal, the U.K. used approaches such as introducing competition
in its system, and changing the role of the national government from
service operator to that of a customer of private rail operating
companies.
* Clearly defining government and stakeholder roles. The second key
reform element we learned about during our site visits is that
government and stakeholder roles should be clearly defined prior to (or
during) implementation of any reform approach. Deciding what these
roles should be was the first step in several of the approaches. For
example, in order to shift the national government's role, the
responsibilities of the government first needed to be defined; it then
had to be decided which of these responsibilities would continue to be
government functions, and which would be those of other stakeholders.
* Establishing consistent, committed funding. Consistent, committed
funding is the final reform element key to successful implementation of
a new approach to intercity passenger rail. In the five countries we
visited, the national governments made a commitment to provide
intercity passenger rail service. The governments also committed to
provide the system, on an annual basis, with the funds necessary to
maintain this service. Whether the approach taken was to increase the
annual subsidy, provide subsidies to regional levels of government, or
establish a consistent subsidy for each year, all of these governments
made financial commitments to provide intercity passenger rail service.
See app. III for more detailed information about each of the countries
we reviewed.
The United States is Not Well Positioned for Reform:
The United States is not well positioned to reform or restructure
intercity passenger rail service. Based on our review of foreign
intercity passenger rail reforms, a more fundamental reexamination of
the system by policymakers than has taken place to date will be needed
if the United States wants to better position itself to improve the
performance and benefits of the intercity passenger rail system in this
country. The national governments of the countries we visited addressed
three main elements through the process of reforming or restructuring
their intercity passenger rail systems: (1) clearly defining national
policy goals, (2) clearly defining the various roles and
responsibilities of public and private sector entities involved, and
(3) establishing consistent committed funding for intercity passenger
rail. Currently, the goals and expected outcomes of U.S. passenger rail
policy are ambiguous, stakeholder roles are unclear, and funding is
limited because of other priorities and a lack of consensus on the
level of funding to devote to goals. As the primary provider of U.S.
intercity passenger rail, Amtrak has the authority to take a number of
actions, but has a history of poor financial and operating performance.
Amtrak has recently proposed a reform strategy and is undertaking
efforts to reduce costs and increase corporate efficiency. However,
constraints, such as expensive labor protection payments that may be
triggered by possible route and service changes, limit the benefits
Amtrak can achieve on its own. Even if Amtrak were to fully exercise
its authority, Amtrak is not in a position to address the key elements
of reform we observed in other countries. Federal leadership will be
needed to fundamentally improve the performance of intercity passenger
rail.
United States Will Need to Address Three Key Elements to Improve the
Benefits of Intercity Passenger Rail:
We found that other countries we visited addressed key reform elements
in the process of reforming or restructuring their intercity passenger
rail systems. U.S. policymakers will need to reexamine national policy
goals and objectives, stakeholder roles and responsibilities, and
funding mechanisms for intercity passenger rail if the United States
wants to better position itself to improve the performance and benefits
of federal expenditures on intercity passenger rail.
Policy Goals:
Based on our review of intercity passenger rail systems in five
countries, we found that, in the process of reforming or restructuring
their systems all five national governments clearly defined national
policy goals and objectives for the system. For example, a specific
goal of the reform process in France, Germany and the U.K. was to
increase transparency in the use of public funds and restructuring
included separating the management of their rail infrastructure and
passenger operations. In Germany, the government's objectives in
consolidating two state railways into one private holding company,
Deutsche Bahn AG (DB), was to improve efficiency, and to allow DB to
function independently of the government and manage its railway like a
private business. During the restructuring process in Japan, by
defining specific goals and outcomes for the system, the national
government was able to determine an overall structure for the system.
Some of the goals Japan defined for the railway before restructuring it
were reducing the accumulated debt, minimizing the national
government's role in maintaining the railway, increasing efficiency,
and strengthening competitiveness. Additionally, a desired outcome of
restructuring the state-owned provider into six private regional
passenger rail operating companies was to better position rail service
to compete for passengers.
Goals provided by Congress focus narrowly on Amtrak management, rather
than providing guidance and direction for the entire U.S intercity
passenger rail system. The current legislation governing Amtrak directs
it to operate a national passenger rail transportation system that ties
together existing and emerging regional corridors and other intermodal
service. However, it does not provide specific objectives for the
system Amtrak is required to operate, such as defining transportation
benefits and public benefits or increasing the transparency of public
funds, nor does it specify how the system should be structured to
achieve certain outcomes. This broad mandate, as previously discussed,
has resulted in the current intercity passenger rail system--a system
that does not target markets where rail may have a comparative
advantage over other transportation modes nor makes the most cost-
effective choices to meet public transportation needs. In April 2005,
Amtrak released a set of proposed strategic reform initiatives, which
included a vision for the future of intercity passenger rail service
and Amtrak's role. Recently, Amtrak developed a mission statement,
which aims to improve financial and operational performance by tying
specific goals to the mission statement. Although the vision and
mission statement provide a direction for the company, senior Amtrak
officials told us that this mission for the company should not be a
substitute for Congress setting a national intercity passenger rail
policy. Furthermore, they said that a national rail policy should be
explicit and clearly indicate the transportation services that the
federal government wants operators to offer; Congress should then
provide funding for the desired level of service.
Determining the system's structure, as well as determining how to
position passenger rail within the entire U.S. transportation system,
will remain uncertain without specific goals and outcomes for intercity
passenger rail. To change the current structure of intercity passenger
rail, policy decisions need to be made. As the Congressional Research
Service (CRS) reported in December 2004, maintaining the status quo of
passenger rail policy allows policymakers to avoid making decisions,
such as shutting down Amtrak and eliminating its long distance routes
or alternatively, committing to a major financial program.[Footnote 76]
Without a more explicit national policy, the future role of intercity
passenger rail in the national transportation system is uncertain.
Stakeholder Roles and Responsibilities:
Similarly, establishing clear stakeholder roles and responsibilities
was important to helping improve the efficiency of intercity passenger
rail systems in several of the countries we reviewed. For example, the
U.K. reorganized its structure by creating separate organizations
(e.g., organizations to provide train service, manage the rail
infrastructure, and regulate infrastructure access fees and costs).
Each of these organizations has defined responsibilities and is
transparent with respect to the responsibility of achieving specific
goals. According to a U.K. official, in privatizing some of these
organizations, the U.K. sought greater efficiency, tighter cost
control, a reduction in government interference in the railway
industry, and more consistent and reliable funding. Our study also
showed that clarifying stakeholder roles and responsibilities may
require the creation of new entities. For instance, when Japan National
Railways restructured its railways in 1987, the government created the
Japan National Railways Settlement Corporation to settle the
accumulated debt of Japan National Railways. In addition, an official
from Japan's Ministry of Land, Infrastructure, and Transport told us
that the railway split into six passenger railroads in order to have
more efficient regional service.
In the United States, stakeholder roles and responsibilities for
managing, operating, and funding intercity passenger rail services are
unclear. For example:
* It is unclear what Amtrak's main responsibility should be as the
primary intercity passenger rail operator in the United States, given
that the purposes of Amtrak are in conflict. Although Amtrak is
incorporated as a for-profit corporation, any expectation of being a
profitable company has not been realized--partly because it is
responsible for maintaining an intercity passenger rail system with
many unprofitable routes.[Footnote 77]
* The federal role in intercity passenger rail service has primarily
been to subsidize Amtrak's operations and, in the past, manage capital
improvements to the infrastructure along the NEC.[Footnote 78] Only
recently has the Secretary of Transportation been tasked with
overseeing these funds, but such funding has been tied to Amtrak's
business plan and not a national policy or vision that articulates
goals, objectives, and outcomes for intercity passenger rail services.
* Current law offers states a narrow role in decision making, but
permits states to subsidize additional intercity passenger rail
service. Some states see benefits to subsidizing intercity passenger
rail and choose to spend their own funds for additional service not
provided as part of Amtrak's national route system--a system that has
not had substantial changes since 1971. Those states have had a role in
making decisions, such as what stations will be served and whether food
service will be provided on the subsidized route, unlike states that do
not provide funding. Forty-two states receive basic long distance
service with no state support, while 13 of these states have decided to
subsidize additional corridor services based, partly, on demand. For
example, Amtrak's legacy route system has provided service on some
corridors without state support, (e.g., from Pittsburgh, Pennsylvania,
to New York City), but on other corridors, states have subsidized
additional service, such as Washington state paying for additional
frequencies for the Cascades Service between Seattle, Washington, and
Portland, Oregon. Additionally, in December 2004, CRS reported that
there are those who view that state governments may be better
positioned to make regional service decisions.[Footnote 79] The
administration's proposal also favors giving states a greater role in
decision making with respect to rail service and capital improvements.
* The role that freight railroads should play in shaping the future of
intercity passenger rail service is not defined. Management of and
access to infrastructure is dominated by the freight railroads. Since
passenger railroads and freight railroads must often share access to
privately owned tracks, the freight railroads' control over
infrastructure has an influence on both national passenger rail policy
and day-to-day passenger rail operations. Specifically, freight
railroads may be concerned with intercity passenger rail policy
decisions that affect access to their rights-of-way and capacity on
existing tracks; these decisions could potentially affect the freight
business. While their decisions may influence passenger rail service,
freight railroads do not have a defined role in decision making or the
funding of intercity passenger rail.
Funding:
Finally, as part of their overall restructuring process, all of the
countries we reviewed committed to funding intercity passenger rail
service. For example, in the U.K., the Secretary of State for Transport
is tasked with determining what services the railway should deliver.
This determination is made through a document called the High Level
Output Specification: available funds for these services over a 5-year
planning period are set down in a statement of funds
available.[Footnote 80] An official in the U.K. Department for
Transport told us that this funding cannot be reallocated for other
purposes without great political and financial risk. In addition, a
2002 CRS report observed that reorganization of the railways in several
countries required substantial political and financial commitment over
an extended period. [Footnote 81] Besides establishing funding tied to
goals, countries we visited also devoted funds to capital improvements
separate from operating subsidies. In France, about 2€ billion per year
(currently this is approximately $2.5 billion) is provided for new rail
lines: additionally, the government also offers interest-free loans to
support new infrastructure projects. In addition to providing funding
specifically for capital improvements, three of the five countries
disseminate the national subsidy to regional governments, allowing
passenger rail subsidy options to be decided by regional governments
instead of the national governments. For instance, about 7€ billion per
year (about $8.9 billion) in operating subsidies is divided among the
15 German Länder to be used at their discretion, and in France a 2€
billion per year (currently this is about $2.5 billion) subsidy is
divided among the 21 regions to support operations.
The U.S. federal government has annually subsidized Amtrak since its
inception. The funding for intercity passenger rail has been
constrained due to competing priorities; possibly, funding has also
been constrained due to the inability to reach consensus over the
federal role in intercity passenger rail, which is demonstrated in the
status of Amtrak's reauthorization. Grants to Amtrak have not been
expressly reauthorized since its previous 5-year authorization expired
in 2002, despite the number of proposals presented to the
Congress.[Footnote 82] Nonetheless, Amtrak developed a 5-year strategic
plan (covering the period of fiscal years 2005 to 2009) that was
designed to address its immediate needs.[Footnote 83] (The plan
identified inadequate and uncertain levels of funding as a risk.) In
recent years, Amtrak has received over $1 billion in annual operating
grants and capital grants through the annual appropriations process.
Some other transportation programs have established funding mechanisms
that share costs between the federal government and other parties. For
example, the Federal-aid Highway Program--a portion of which is subject
to the annual appropriations process for budget authority--has a
dedicated trust fund, the Highway Account, which is mainly funded by
highway user fees, such as taxes on motor fuels, tires, and
trucks.[Footnote 84] Transit projects have access to the Federal
Transit Administration's full-funding grant agreement--a mechanism that
requires identifying and committing federal and nonfederal funds to
support the multiyear capital needs of construction projects. According
to the Federal Transit Administration, dependable levels of funding for
the full-funding grant agreements have improved the ability of transit
agencies to finance, plan, and execute projects.[Footnote 85] Without
consensus over the federal role in funding intercity passenger rail and
competing priorities for federal funds, Amtrak will continue to operate
in an uncertain environment--impairing its ability to make strategic
and operational decisions, and often deferring capital and
infrastructure maintenance.
Amtrak Can Take Actions to Reduce Costs and Increase Efficiency but It
Is Not Positioned to Address Key Reform Elements:
In general, Amtrak's Board of Directors and management have the
flexibility to make numerous changes in its corporate direction and
organizational structure to improve financial performance. However,
Amtrak has a history of poor financial and operating performance. As we
have previously reported, many of its efforts at internal restructuring
over the last decade have largely failed and the company lacks many
basic management and reporting practices. More recently, in April 2005,
Amtrak proposed a more strategic approach for the company with a broad
set of reform initiatives. Amtrak is taking actions within its existing
authority to implement these initiatives, although most of the actions
currently being taken are operating in nature. While the Amtrak Reform
and Accountability Act of 1997 provided Amtrak with greater flexibility
to make more significant improvements, constraints limit the benefits
that can be achieved from this increased freedom. For example, although
Amtrak no longer requires approval by the Secretary of Transportation
to make changes to its route structure, route changes that result in
elimination of service could trigger expensive labor protection
requirements.[Footnote 86] Regardless of the internal changes Amtrak
could make to manage its operations more efficiently, Amtrak, as an
operator, is not in a position to address the key elements of reform.
Federal leadership is needed to establish national policy goals and
stakeholder roles related to these goals, and to identify funding
levels needed to support these goals.
Amtrak Has the Authority to Take a Number of Actions to Reduce Costs
and Increase Corporate Efficiency:
Amtrak's Board of Directors and management have the authority to make
numerous changes and have made changes in its corporate direction and
organizational structure. Amtrak is incorporated as a for-profit
corporation, but has been the recipient of substantial federal
financial assistance since its inception and has historically struggled
to earn sufficient revenues and operate efficiently. Without annual
federal subsidies for Amtrak's operating costs, the corporation would
not survive as presently configured and operated. Amtrak's financial
condition has never been strong and it has been on the edge of
bankruptcy several times. In 2001, Amtrak lost about $1.2 billion and
mortgaged a portion of Pennsylvania Station in New York City to
generate enough cash to meet its expenses. In July 2002, Amtrak also
received a federal loan of $100 million to meet expenses.
Management of Amtrak has also generally been ineffective and the
company lacks basic tools for comprehensive planning. For example, some
of Amtrak's internal changes over the last decade, such as establishing
strategic business units and modifying Amtrak's routes, have not met
expectations. Instead, Amtrak's financial condition deteriorated.
Additionally, as we reported in February 2004, Amtrak's ineffective
management of a large-scale infrastructure project resulted in the
incompletion of many critical elements of the project, increased
project costs, and the project goal--a 3 hour trip time between Boston
and New York City--was not achieved.[Footnote 87] Finally, in October
2005, we reported that the corporation lacked many basic management and
financial reporting practices.[Footnote 88] Among other things, we
found that much of the financial information Amtrak used for day-to-day
management purposes lacked certain relevant information or was of
questionable reliability.
Amtrak's Board of Directors and management have recently taken actions
to address these concerns. These actions include appointing a new
president and creating a planning and analysis department to develop
and manage a company-wide strategic plan. However, impacts on the
corporation's performance remain to be seen. Additionally, in April
2005, Amtrak's Board of Directors and management proposed a set of
broad strategic reform initiatives designed to improve the operational
efficiency of the company, transition Amtrak into one of a number of
competitors to provide intercity passenger rail service, and change how
federal subsidies are distributed for intercity passenger
rail.[Footnote 89] Specifically, changes outlined include reinforcing
management controls, organizing planning and reporting by lines of
business, and cultivating competition and private commercial activity
in passenger rail functions and services.
Amtrak's proposed initiatives are a step toward a more strategic
approach for the corporation and include both reforms Amtrak could
pursue internally, such as changes to its maintenance services and
facilities, and those that require legislative action, such as the
enactment of a federal-state capital matching program for corridor
development in partnership with states. However, according to senior
Amtrak officials, Amtrak is initially focused on internal reforms that
Amtrak believes it has greater control over. Currently, Amtrak is
implementing operational changes in 15 areas based on the broader
proposed set of strategic reform initiatives. (See app. IV for a list
of Amtrak's operational initiatives and their status.) These efforts
are primarily associated with improving business efficiency and
reducing costs. For example, Amtrak's management proposed to redesign
some aspects of the sleeper car service offered on long-distance
trains, such as reducing the number of sleeper cars and offering new
sleeper service products targeted at different markets. This effort is
projected to reduce Amtrak's losses from offering sleeper service by
about 46 percent.[Footnote 90]
Although Amtrak's recent efforts are expected to result in some
savings, these changes alone will not be sufficient to address broader
structural issues. According to a July 2006 DOT OIG report, Amtrak's 15
operational changes have resulted in a $46 million reduction in annual
operating losses through May 2006. But the projected incremental
operating savings from full implementation of Amtrak's operational
changes over the next 5 or 6 years will not be sufficient to fund
needed improvements to the intercity passenger rail system such as
addressing capital and maintenance needs, returning the system to a
state-of-good repair, and promoting corridor development.[Footnote 91]
In April 2005, Amtrak estimated that the strategic reform initiatives
could achieve total operating savings of nearly $550 million by fiscal
year 2011. Amtrak said achieving these savings would require a number
of legislative actions, such as the enactment of an 80 percent federal
capital match for state intercity passenger rail funds, as well as
realizing increased revenues from passengers, obtaining additional
state operating contributions for corridor trains, and having the
federal government cover Amtrak's legacy debt obligations. Some or all
of these could increase federal costs.
Benefits of the Legislative Freedoms Are Limited by Constraints:
The Amtrak Reform and Accountability Act of 1997 provided Amtrak with
greater flexibility to alter its route network and undertake other cost
saving changes to meet the goal of operating self-sufficiency by the
end of December 2002, which Amtrak did not achieve. However, the
benefits that Amtrak can achieve from these provisions are limited by
practical constraints. For example, while the act eliminated the
statutory ban on Amtrak contracting out or outsourcing work, except for
food and beverage service that could already be contracted
out,[Footnote 92] it made outsourcing a part of the collective
bargaining process. Amtrak officials also told us that this provides
less flexibility rather than more since it is more difficult to change
collective bargaining agreements with unions than for Congress to
change a statutory requirement.[Footnote 93] This could limit the
extent to which Amtrak could contract out services, depending on the
outcome of negotiations with unions. Amtrak officials told us that
little progress has been made on labor negotiations since only three
contracts (of the 24 collective bargaining agreements Amtrak maintains
with its agreement employees) have been signed and these all
technically expired on December 31, 2004. As a result, Amtrak is
currently in negotiations with all of its unions and employee councils
over collective bargaining agreements.
The benefits of making route changes to better meet the demands of the
public may also be limited as a result of labor protection
requirements, which are also part of the collective bargaining process.
The Amtrak Reform and Accountability Act of 1997 relieved Amtrak from
getting approval from the Secretary of Transportation to make changes
to its route structure and allowed Amtrak to discontinue routes without
having to preserve the "basic system" formerly mandated by Congress, as
long as the remaining route structure tied existing and emergent
regional rail passenger service and other intermodal passenger
service.[Footnote 94] One Amtrak official told us that while Amtrak is
legally allowed to change the route network, decisions are often met
with a variety of reactions including resistance by Congress. In
addition, if route changes result in the elimination of jobs, Amtrak
employees may be entitled to labor protection benefits. As we reported
in September 2002, if Amtrak had been liquidated on December 31, 2001,
potential Amtrak employee claims for immediate labor protection
payments could have been as much as $3.2 billion.[Footnote 95] Further,
if an employee loses his or her job as a result of a reduction in
service on a route or closing of a maintenance shop, then he or she
could receive labor protection benefits for up to 5 years.[Footnote 96]
Finally, several potential constraints exist in gaining benefits from
Amtrak adopting a "user pays" principle for the provision of its
services. Under the user pay concept, costs to build and maintain rail
infrastructure, including along the NEC, would be paid for by the full
range of users of the system, including states, commuter rail agencies,
freight railroads, and the public. If adopted, a better matching of
fees paid to costs incurred by the diverse users of the NEC could
provide incentives for both public and private users to make modal
choices and transportation options based on true costs.[Footnote 97]
One issue in implementing this approach is Amtrak's ability to
accurately define the true costs of intercity passenger rail services.
We discussed examples of this issue in two recent reports. In October
2005, we reported concerns with how Amtrak captured and reported
financial information, such as Amtrak's overreliance on indirect cost
allocation methods.[Footnote 98] In April 2006, we reported that it is
difficult to determine Amtrak's revenues and costs associated with
providing services and access to infrastructure to commuter rail
agencies, in part due to the limitations of Amtrak's accounting
practices.[Footnote 99] Since then, Amtrak has made some changes to its
reporting and financial systems, but according to Amtrak officials and
progress reports, more work is needed. A senior Amtrak official told us
that identifying direct route costs may be difficult since Amtrak uses
many different systems to capture costs.
Another constraint may be the ability and willingness of users to pay
additional fees. For example, we recently reported that the ability and
willingness of private rail companies to invest in infrastructure
capacity to meet projected future demand for freight rail
transportation is uncertain.[Footnote 100] While some states see a
benefit to intercity passenger rail and pay for additional service, two
state officials we spoke with opined that a proposal which required
states to further subsidize existing intercity passenger rail service
would face political opposition at the state level unless a federal
capital matching program comparable to other transportation modes is
enacted. In addition, commuter rail agencies that use the NEC raised
several concerns about FRA's efforts to establish a fee on them as
mandated in Amtrak's fiscal year 2006 appropriations. Among other
concerns, these agencies stated that their usage of the NEC is
different from Amtrak's, which should dictate different levels of
payment for use of the same infrastructure.
Amtrak Is Not Positioned to Address the Three Key Reform Elements:
Amtrak, as an operator, is not in a position to adopt and ultimately
implement key elements to begin reforming intercity passenger rail in
the United States. Amtrak's efforts will not likely change the
structure of intercity passenger rail without legislative action. Most
of all, Amtrak cannot address the three key elements of reform we
observed in other countries: 1) clearly defining national policy goals,
2) clearly defining the various roles and responsibilities of public
and private sector entities involved, and 3) establishing a level of
funding to devote to these goals.
Amtrak's role is to provide intercity passenger rail service to the
public. Congress sets the national policy and goals for intercity
passenger rail, especially in the context of the entire national
transportation system. Since 2002, federal policymakers have been
struggling with what to do about U.S. intercity passenger rail in
general. Policymakers have not adopted the legislative actions in
Amtrak's strategic reform proposal. Additionally, in June 2006, CRS
reported that policymakers have not endorsed Amtrak's strategy of
maintaining its current route network while restoring its
infrastructure to a state of good repair, nor did they provide Amtrak
with the requested funds to meet these goals. CBO also said there has
been a lack of consensus about the role intercity passenger rail
service should play in the national transportation system and Amtrak's
role in providing such services. While Amtrak's efforts are a step to
improving the corporation's financial and operating performance, these
changes do not address the reform elements necessary to maximize
transportation and public benefits of, and the effectiveness of federal
expenditures for, intercity passenger rail service. Any fundamental
change of intercity passenger rail will involve a number of difficult
operational challenges and policy decisions and all of them will
require federal leadership.
Addressing Reform Elements for Intercity Passenger Rail Will Require
Overcoming Stakeholder and Funding Challenges:
There are a number of challenges associated with addressing the key
elements of reform for intercity passenger rail. The variety of
stakeholders, all with different interests and issues, makes it
difficult to reach consensus on any change. Central among federal
challenges is determining what the vision and role for intercity
passenger rail in the United States should be, the federal role, if
any, within this vision, and the reconciliation of the wide diversity
of views on how the intercity passenger rail service fits into the
national transportation system. Challenges in promoting a more
equitable federal-state partnership include the varying ability and
willingness of states to participate in funding intercity passenger
rail and identifying appropriate policy changes to overcome the
disadvantages intercity passenger rail faces relative to the leveraging
of federal funds. Currently, states are challenged to leverage their
expenditures on such service. However, federal-state cost sharing is
common in highway and transit programs where investment is encouraged
through matching grants. Other challenges include freight railroad
concerns about infrastructure access and capacity, workforce issues,
and the role of the private sector. Addressing funding issues will also
present challenges. This includes identifying funding sources to
achieve national policy goals and developing incentives for state
participation. Each of these challenges presents opportunities to
increase the benefits of federal and nonfederal expenditures on
intercity passenger rail; not addressing them will likely continue the
stalemate in moving toward a well-defined role for federal subsidies
for intercity passenger rail in the United States.
Variety of Stakeholder Interests and Challenges Makes Reaching
Consensus on Change Difficult:
One of the most difficult aspects of addressing reform elements for
intercity passenger rail will be reaching consensus among stakeholders
on the topic of change. Stakeholders include federal and state
governments, freight and commuter railroads, the passenger rail
workforce, and potential private sector operators. There are a variety
of stakeholder interests in intercity passenger rail and, at virtually
every level, there are challenges that will need to be overcome before
consensus can be reached to change any policies, goals, or stakeholder
roles involved with intercity passenger rail.
Federal Issues and Challenges:
The federal government's interest, as laid out in statute, is in seeing
that intercity passenger rail service is provided on a national basis.
However, the Amtrak Reform and Accountability Act of 1997 removed
direct federal involvement in making route decisions, and DOT and FRA
have, until recently, largely taken a "hands-off" approach to Amtrak
and intercity passenger rail. As we reported in October 2005, FRA
officials have told us that, even though FRA has a seat on Amtrak's
Board of Directors, the agency has historically refrained from
advocating a particular approach to running Amtrak; neither has it
specifically held Amtrak management accountable for meeting particular
goals.[Footnote 101] In addition, an FRA official told us that the
agency must be careful about its involvement with management decisions
since, legally, Amtrak is a private for-profit corporation. Since
fiscal year 2003, Congress has imposed measures to increase the
Secretary of Transportation's responsibility for providing oversight
of, and accountability for, the federal funds used for intercity
passenger rail service. Among other things, these measures require
Amtrak to transmit a business plan to the Secretary of Transportation
and Congress and provide monthly reports about this plan. In response
to these measures, FRA has entered into grant agreements with Amtrak.
Although measures are in place to increase FRA's oversight of Amtrak's
operations through grant agreements, FRA attributed the lack of
resources for its limited and focused approach to Amtrak oversight.
These measures address oversight and accountability but do not
necessarily address establishing a vision for intercity passenger rail
service, and the role of such service, in the national transportation
system. DOT commented that FRA's role has never been to "establish a
vision for intercity passenger rail" regardless of resources available.
The challenges of establishing a national policy vision for intercity
passenger rail and the federal role, if any, within this vision are
illustrated by the wide diversity of intercity passenger rail service
proposals introduced in recent years. For example, one recent
congressional proposal would largely keep Amtrak intact and instead
focus on various reforms related to improving financial management,
corporate governance, and the development of metrics and standards for
measuring performance and the quality of service. This proposal would,
among other things, require Amtrak to develop a capital spending plan
for restoring the NEC to a state of good repair, and would allow
freight railroads to bid for operating long-distance trains.[Footnote
102] In contrast, a proposal by the administration would significantly
restructure Amtrak. This proposal includes splitting Amtrak into three
functionally independent entities: a corporate entity to oversee the
restructuring and manage residual responsibilities; a passenger
operating company; and an infrastructure management company. It would
also, among other things, encourage the creation of an interstate
compact made up of northeastern states and the District of Columbia, to
operate the NEC.[Footnote 103] Amtrak itself has recognized the need
for change. In April 2005, Amtrak's management released a proposed set
of strategic reform initiatives that, if fully implemented, could
substantially change how it is operated. Under this proposal, states
would play a larger role in deciding what services to offer, and there
would be increased opportunities for competition in providing intercity
passenger rail service.
Federal-State Partnership Issues and Challenges:
There are also a variety of interests and challenges in promoting a
more equitable federal-state partnership that make reaching consensus
difficult. One is the number of states that have the interest or
willingness to participate in intercity passenger rail. On the one
hand, there are a number of states that are willing to participate in
subsidizing intercity passenger rail and have made commitments to do
so. In fiscal year 2005, 13 states paid about $140 million to subsidize
additional service from Amtrak. Amtrak also received about $130 million
from 8 states and 3 state agencies for capital improvements on
passenger rail corridors and at stations. In addition, a coalition of
27 states--called the States for Passenger Rail--have come together to
promote the development, implementation, and expansion of intercity
passenger rail services with the involvement and support from state
governments. This organization's policy statement indicates that states
have taken, and will continue to take, a lead role in the planning and
development of new, expanded and enhanced regional passenger rail
corridor services. The states in the organization maintain that these
systems cannot be fully programmed and implemented without a federal-
state funding partnership similar to existing highway, transit, and
aviation programs. On the other hand, there are a number of states that
receive the benefits of intercity passenger rail service but do not
subsidize such service, and may or may not be willing to do so. This
situation reflects the legacy service that existed when Amtrak was
created in the early 1970s. For example, as of April 2006, there were
12 Amtrak trains scheduled to operate daily Monday through Friday
between New York City and Albany, New York. The state subsidizes only 1
of these trains--the Adirondack. Even on this train the state only
subsidizes service north of Albany to Montreal, Canada. New York City
to Albany is part of the legacy service that dates to when Amtrak began
service in 1971. The extent to which states would be willing to pay for
the intercity passenger rail service currently received for free is an
open question.
Another federal-state challenge is the leveraging of financial
assistance to intercity passenger rail. Recent surface transportation
acts have authorized some federal financial assistance for the
development of high-speed rail and other passenger rail corridors. In
addition, states can finance passenger rail projects through the
Federal Highway Administration's Congestion Mitigation and Air Quality
Improvement program when the project will result in demonstrable air
quality improvements. However, states are challenged to leverage their
expenditures on intercity passenger rail. In general, states work
directly with Amtrak to obtain service above the basic service
provided. Some states also work directly with Amtrak to finance
intercity passenger rail capital improvement projects that benefit
their state. An FRA official told us that states could start their own
intercity passenger rail service, but doing so would be difficult given
the potential cost and lack of statutory access to infrastructure at
the incremental cost that Amtrak currently enjoys. Some other
transportation programs--such as the interstate highway program and the
Federal Transit Administration's New Starts program for transit
systems--share responsibility for planning, design, and funding between
the federal government and state and local governments. Federal
agencies generally set the design and quality standards for projects
and encourage investment through matching grants. State and local
governments prepare transportation plans which identify the need for
investment, develop a business case for the investment, and contribute
a portion of the funding.
Finally, reform initiatives designed to increase state roles in
intercity passenger rail will likely face the challenge of finding
mechanisms for states to work cooperatively together in the development
of routes and corridors that cross state lines. One mechanism is an
interstate compact. Interstate compacts for intercity passenger rail
were proposed in the Amtrak Reform and Accountability Act of 1997.
Interstate compacts are agreements between states that are
constitutionally permitted when approved by Congress. Several
interstate compacts are currently being used to study the feasibility
of, or advocate for, intercity passenger rail service. These include
the Midwest Interstate Rail Passenger Compact and the Interstate High
Speed Intercity Passenger Rail Compact. Currently, however, there are
few passenger rail systems being operated under an interstate compact.
State officials have told us that interstate compacts are a very
difficult mechanism to use when more than two states are involved. They
said that not only do compacts take a substantial amount of time and
burden to create, but, in the context of passenger rail, there are
practical issues involved--such as deciding what service is provided,
how the costs of such service are allocated to participants, and what
happens when one or more states do not fulfill their financial
obligations to the compact.
There may be other mechanisms available for states to work
cooperatively with each other. For example, the Appalachian Regional
Commission (ARC) is a federal-state partnership that, in general, was
created to promote economic development in Appalachia.[Footnote 104]
Although the current definition of Appalachia includes 13 states, the
governance structure is made up of only two co-chairs--one representing
the federal government and one representing the collective interests of
13 member states. Each co-chair has one vote on ARC matters. ARC
officials told us that because of the governance structure of ARC,
virtually all decisions are reached by consensus. In fact, they said
that one of the advantages of ARC is that more can be accomplished
together than separately. They also cited as a disadvantage the
difficulties in reaching decisions.
Freight Railroad Issues and Challenges:
Freight railroads play an integral role in intercity passenger rail.
Over 95 percent of Amtrak's route system operates over lines owned by
freight railroads. As such, the freight railroads have a keen interest
in the volume of passenger rail service provided and the potential
impacts of such service on their business. One of the main challenges
associated with passenger and freight railroads is infrastructure
access and the cost of such access. Since Amtrak's creation, federal
law has generally required freight railroads to give Amtrak trains
priority access and charge Amtrak an incremental cost--rather than the
full cost--associated with the use of their tracks. These legal rights
currently apply only to Amtrak. However, efforts to reform intercity
passenger rail service raise questions about the status of Amtrak's
priority access and incremental charge rights--that is, can, or should,
these rights be transferred to non-Amtrak operators or will some other
arrangement need to be made? Other arrangements could significantly
increase both the difficulty and cost of introducing non-Amtrak
operators, possibly through competitive bidding for subsidies, to
provide intercity passenger rail service.
Commuter rail service offers an example of access negotiations on
commercial, rather than incremental, cost terms. As we reported in
January 2004, unlike Amtrak, commuter rail agencies do not possess
statutory rights of access to freight railroad track.[Footnote 105] As
a result, commuter rail agencies must negotiate with freight railroads
to purchase, lease, or pay to access the railroads' right-of-way.
Negotiations for these agreements can last from a few months to several
years. Our report noted that when negotiating a lease or access
agreement, freight railroads typically want to be compensated for all
operating, capital, and other costs associated with hosting commuter
and other trains. These costs would include direct costs, such as
dispatching trains and maintaining the rights-of-way, and indirect
costs, such as the cost of foregone opportunities (e.g., the
incremental value of "lost" train slots). Infrastructure access is also
difficult from the perspective of a freight railroad company. Since
freight service is the companies' core business, the ability to move
freight through the system must be protected. Freight railroad
officials with whom we spoke for our earlier report insisted that they
must protect their systems' capacity to handle both today's freight
traffic as well as future traffic projections. Protecting capacity
becomes difficult when passenger trains, either intercity or commuter,
consume available capacity without some sort of infrastructure
enhancement, expansion, or market-based compensation for line capacity
used.
In addition to infrastructure access, capacity and capacity-
availability issues--that is, the ability of rail lines and
infrastructure to handle current and future traffic volumes--are also
of concern to freight railroad companies. After years of reducing
infrastructure and rationalizing their property, plant, and equipment,
freight railroads have recently experienced a substantial growth in
traffic--a growth that some project will continue into the future. In
January 2006, the CBO reported that total freight carried by all modes
of transportation in the United States has been growing.[Footnote 106]
CBO indicated that railroads, in particular, experienced a sharp
increase in traffic in the 1990s, with traffic increasing more than 50
percent between 1990 and 2003 (from about 1 trillion ton-miles to about
1.6 trillion ton-miles).[Footnote 107] This growth is expected to
continue. For example, the Department of Energy's Energy Information
Administration has projected that railroad ton-miles will increase 1.7
percent annually between 2004 and 2030, reaching about 2.4 trillion ton-
miles in 2030.[Footnote 108] Other organizations have similarly
predicted increases. This growth has acted to limit available capacity
on the rail network, at least in some locations. In April 2006
testimony before the U.S. House Committee on Transportation and
Infrastructure, Subcommittee on Railroads, the president and chief
executive officer of the Association of American Railroads said that
the traffic density (i.e., ton-miles per route-mile owned) for Class I
railroads had more than doubled from 1990 to 2005 (see fig.
12).[Footnote 109] He went on to say that the traffic increases had
resulted in capacity constraints and service issues at certain
junctions and corridors within the rail network. These constraints and
service issues will all affect the ability of both passenger and
freight rail carriers to provide the quality and frequency of service
the carriers may be asked to provide.
Figure 12: Class I Ton-Miles per Route-Mile Owned:
[See PDF for image] - graphic text:
Source: Association of American Railroads.
[End of figure] - graphic text:
Any reform that changes the type and frequency of intercity passenger
rail service will need to address system infrastructure access and
capacity issues. In doing so, any federal policy responses regarding
freight infrastructure should consider several things in this regard:
(1) subsidies can distort the performance of markets; (2) the federal
fiscal environment is constrained; (3) policy responses should occur
within the context of a National Freight Policy that reflects system-
performance-based goals and a framework for intergovernmental and
public-private cooperation; and (4) federal involvement should occur
where demonstrable wide-ranging public benefits--and mechanisms to
appropriately allocate the cost of financing these benefits--exist
between the public and private sectors.[Footnote 110] In addition,
federal involvement should focus on benefits that are more national
than local in scope.
Freight railroads have other concerns as well. These include concerns
about liability issues--that is, adequate protection against the risks
of accidents involving passenger trains using their lines. In general,
freight railroads seek full indemnification against any risks that
might exist because of passenger rail service. See appendix V for a
more complete discussion of infrastructure access, capacity, and
liability issues.
Workforce Issues and Challenges:
Finally, efforts to reform intercity passenger rail require
consideration of workforce issues. That is, having enough people with
the requisite knowledge and skills to provide the amount and type of
service called for in a reformed system. There are several issues that
need to be considered in this regard, including the following:
* Availability of a qualified labor pool. The reform of intercity
passenger rail resulting in new services or operators will require that
there be sufficient staff to provide service, conduct maintenance, and
perform other duties related to running passenger railroads. In the
short term, obtaining sufficient staff could be a challenge. As we
reported in April 2006 (in the context of commuter railroad services),
if Amtrak were to abruptly cease to provide service, some commuter
railroad agencies would be able to replace Amtrak employees dedicated
to their particular commuter rail service with employees from another
railroad.[Footnote 111] However, there were a number of agencies that
said they would not be able to quickly replace current Amtrak employees
because of workforce limitations, such as the availability of a
qualified labor pool.
* Workforce flexibility and productivity. Reform of intercity passenger
rail resulting in new services or operators will also require
consideration of workforce flexibility and the extent that labor
productivity can be increased. One key to providing cost effective
intercity passenger rail service is to have high levels of labor
productivity. Collective bargaining agreements and their related work
rules specify the work that employees are expected to do and the amount
of compensation they will receive for performing this work. Although
such agreements can and do include changes designed to increase
employee productivity by increasing or broadening the types of tasks
that employees can perform, such agreements can also affect
productivity by limiting the amount or type of work that employees can
perform.
* Potential labor protection payments. If, as the result of a reform of
intercity passenger rail, Amtrak employees lose their jobs, there could
be liability for labor protection payments. In general, labor
protection payments are made to employees who lose their jobs as a
result of a discontinuation of service. The Amtrak Reform and
Accountability Act of 1997 made a number of changes to labor
protection, including eliminating the statutory right to such
protection; this made labor protection subject to collective
bargaining, and required Amtrak to negotiate new labor protection
arrangements with its employees. Amtrak labor-relations officials
observed that bringing labor protection under collective bargaining
(and therefore subject to the constraints of the Railway Labor Act), as
opposed to being statutorily mandated, has actually limited Amtrak's
flexibility to respond to marketplace changes. They observed that their
flexibility was reduced because it is generally easier to change a
statutory requirement than it is to change a collective bargaining
agreement. With regard to the potential magnitude of labor protection
payments, in September 2002 we reported that Amtrak would have had
potential unsecured labor protection claims of about $3.2 billion had
it been liquidated on December 31, 2001.[Footnote 112] Although any
restructuring might not involve a bankruptcy, potential labor
protection payments could still be substantial if employees lose their
jobs.
Workforce challenges also include determining how a potentially
reformed intercity passenger rail system fits into the current scheme
of railroad-specific labor-management relations, retirement, and injury-
compensation systems. Amtrak is currently subject to, among other laws,
the Railway Labor Act, the Railroad Retirement Act of 1974, and the
Federal Employers' Liability Act, which govern labor-management
relations, retirement, and injury compensation, respectively, in the
railroad industry. Amtrak's collective bargaining agreements generally
do not expire and are subject to requirements designed to reduce labor
strikes; Amtrak participates in, and provides financial contributions
to, the railroad retirement-system (approximately $400 million
annually);[Footnote 113] and Amtrak and its employees are subject to a
tort-based injury compensation system under the Federal Employers'
Liability Act.[Footnote 114] We have reported that these legal
requirements raise railroad costs compared to nonrailroad
industries.[Footnote 115] Amtrak's April 2005 Strategic Reform
Initiatives also suggested that meaningful reform of intercity
passenger rail will require changing how some of these requirements
apply to passenger rail. On the other hand, rail labor has argued for
the importance of these laws in protecting employee rights, providing
critical retirement benefits, and adequately compensating employees
injured on the job.
State officials with whom we spoke expressed general concerns about the
potential impact of Amtrak's labor agreements and obligations on the
future of passenger rail. Some state officials viewed Amtrak's labor
agreements as a significant barrier to restructuring. One official
stated that serious labor reform is needed for intercity passenger rail
reform to succeed. State officials also questioned whether alternative
operators would be bound by Amtrak's labor agreements and thought that
it was unlikely another operator could provide significant improvements
in cost savings if they were. Another official stated that Amtrak's
labor agreements would put Amtrak at a considerable disadvantage over
alternative operators in a competitive market if the alternative
operators were not bound by the same agreements.
Rail labor union officials with whom we spoke expressed several
concerns about the effects any potential reform of intercity passenger
rail might have on their members. First and foremost, union officials
told us of their concern about the history of Amtrak's successive
reforms and said these reforms had a detrimental effect on union
employees. In their view, past Amtrak reforms have brought fewer union
jobs and the loss of health and safety programs with no real
improvement in Amtrak's financial performance or service to the public.
Union officials also told us that any reform should attempt to make
Amtrak, among other things, find new leadership dedicated to working
with employees and growing the business, fix basic business practices,
and improve customer service. Finally, union officials emphasized that
rail labor is the monopoly workforce for passenger rail. Any reforms of
intercity passenger rail would still require any operator--Amtrak,
alternative operators, or a successor to Amtrak--to work through the
unions to maintain a labor force. Rail union officials noted the
success of the Massachusetts Bay Commuter Railroad, which provides
commuter rail service in and around Boston, Massachusetts. In this
instance, a private operator took over operations from Amtrak and was
able to maintain existing work rules (collective bargaining agreement
provisions that specify tasks employees can perform) while offering a
24-percent increase in wages.[Footnote 116]
See appendix VI for more information about workforce issues.
Private Sector Issues and Challenges:
Private sector issues and challenges primarily focus on what role, if
any, the private sector will play in any reformed intercity passenger
rail system. Currently, there is little private sector involvement
beyond the infrastructure provided by freight railroads to operate
intercity passenger rail service. Amtrak is the sole operator of
intercity passenger rail service, and, although organized as a private,
for-profit corporation, is heavily dependent on federal subsidies to
remain solvent. In general, there are no other private sector operators
outside of leisure travel providers such as GrandLuxe Rail Journeys
(previously American Orient Express). This contrasts with the pre-1971
situation when, before Amtrak began service, freight railroads provided
all intercity passenger rail service.
There are suggestions that the private sector could play a larger role,
including being contract operators under a system in which competition
and bidding is used to select service providers. For example, Amtrak's
April 2005 Strategic Reform Initiatives suggests that there are
opportunities for increased competition, and part of Amtrak's vision
for itself under these initiatives is to evolve into one of a number of
competitors for contracts to provide passenger rail service. However,
there are a number of issues associated with increasing the private
sector role in intercity passenger rail.[Footnote 117] These issues
include the following:
* Availability of potential private sector operators. Since Amtrak is
the sole provider of intercity passenger rail service, there has been
little opportunity to test the market for potential new
operators.[Footnote 118] However, there are indications that potential
operators may exist and may be willing to participate in any
opportunities that might arise, especially corridor service. For
example, an official of one firm with worldwide rail and transportation
operations said he believes there is a U.S. market for rail service in
corridors--especially corridors with city-pairs 100 to 300 miles apart.
An official from another firm with extensive passenger rail operations
in the U.K. said his firm is very much interested in entering the U.S.
passenger rail market, especially in operating the NEC. In his opinion,
the NEC is a very viable corridor and could be wholly or partially
privatized.
* Costs of private sector operators and the need for public subsidies.
One of the key questions associated with competition and the use of
private sector operators is how costs will change, and whether public
subsidies can be reduced or eliminated. Again, since the U.S. market
has not been tested, it is difficult to know what the specific cost or
subsidy impacts from competition might be. On the one hand, European
experience has shown that franchising and competitive bidding has not
necessarily reduced the need for government subsidies. In fact, in 2 of
the European countries we visited (Germany and the U.K.) there is
substantial government financial involvement in competitively bid
systems. On the other hand, in the U.K., some franchise operators have
recently been financially successful enough to allow them to pay the
government a premium for excess profits they have made.[Footnote 119]
Aside from government financial assistance, foreign officials also
pointed to other things--such as increases in ridership and quality of
service--as the benefits of a more competitive system. For example,
data from the Association of Train Operating Companies indicate that
passenger rail ridership in the U.K. increased about 38 percent over
roughly the last decade (from about 745 million trips to just over 1
billion trips annually).[Footnote 120] The largest growth was in the
long-distance market.[Footnote 121] Similarly, government data show
that the number of complaints per 100,000 passenger trips in the U.K.
generally decreased from about 120 in April 1999 to 70 in April
2005.[Footnote 122]
* Potential requirements to encourage private sector participation.
There may be certain requirements for encouraging private sector
participation in providing intercity passenger rail service. These
requirements may include maintaining Amtrak's current statutory rights
of infrastructure access. An official from one firm with worldwide
transportation operations with whom we spoke emphasized that access to
tracks, stations, rights-of-way, and maintenance facilities would be
key for his firm and other operators to be successful participants in
the intercity passenger rail market. This firm would look to states or
Amtrak to provide these access arrangements prior to their taking over
operations. Officials from all 5 states we talked to agreed there would
be a number of barriers to competition and that access issues would be
a critical issue. Flexibility in allowing firms to branch into nonrail
operations may also be important. In Japan, passenger rail officials
told us that their firms not only provide passenger rail service but
are also involved in other activities such as real estate development,
retail stores, and light manufacturing.
Funding Issues also Present Challenges:
There are also a number of challenges associated with funding for
intercity passenger rail service. One is identifying funding sources to
meet long-term funding needs. Being in a capital intensive business,
intercity passenger rail has substantial ongoing and long-term funding
needs. For example, Amtrak is currently receiving over $1 billion
annually in federal subsidies and it has an estimated $6 billion in
deferred capital backlog of infrastructure improvements, including
about $4 billion on the NEC. In March 2006, the DOT OIG reported that,
for fiscal year 2007, Amtrak would need about $1.4 billion just to
maintain Amtrak and keep its system from falling into further
disrepair.[Footnote 123] This would not include amounts to address the
backlog of capital maintenance, invest in short-distance corridors, or
renew equipment. This official went on to say that none of the
corridors around the country, including the NEC, can provide the type
of mobility needed without significant capital investment. This
limitation applies to the development of new corridors as well,
including high-speed rail corridors. As we testified in April 2003, the
total cost to develop high-speed rail corridors is unknown because
these types of corridors are in various stages of planning.[Footnote
124] However, the costs could be substantial. The American Association
of State Highway and Transportation Officials--a trade association of
state and local transportation officials--has reported that about $60
billion would be required to develop these corridors, including
Amtrak's NEC, over a 20-year period.
Funding challenges also include finding funding sources to meet
whatever national intercity passenger rail policy goals are
established. Currently, virtually all federal funding for intercity
passenger rail comes from general appropriations; therefore, intercity
passenger rail must compete with a myriad of other needs to obtain
funding. This practice allows Congress to set spending priorities. As
discussed earlier, the existence of funding sources to meet national
policy goals was a component in many foreign passenger rail reform
efforts. Even in Canada, where there was no major restructuring, the
government was willing to commit, albeit not on a formal basis, to
identifying funding amounts so as to provide a stable level of annual
operating funding for its intercity passenger rail provider, VIA Rail.
This commitment has continued for about 8 years[Footnote 125] and
through several changes in government. According to Transport Canada
officials, this commitment allowed VIA Rail management some stability
in planning. They also said that, while there was no explicit rationale
for the amounts provided, the objective was clearly to "set VIA's feet
to the fire" by not increasing the subsidy. However, reducing the level
of support would make it difficult to preserve services. Finding
funding sources to meet national policy goals for intercity passenger
rail will not be easy, especially as the nation faces increasing fiscal
constraints at the federal level. As discussed earlier in this report,
the federal government faces significant fiscal challenges in future
years and will need to reexamine its role and financial support for
virtually all federal programs, including intercity passenger rail. The
challenge will be in finding a funding source(s) that can meet long-
term needs while retaining the accountability of an annual
appropriations process.
Funding challenges include aligning the decision making for, and the
benefits of, intercity passenger rail service with the responsibility
for paying for such service. Currently, there is a basic misalignment
in these elements. Historically, states have not been required to
subsidize basic intercity passenger rail service. States may subsidize
additional service that would benefit residents. As discussed earlier,
in fiscal year 2005, 13 states paid about $140 million to subsidize
additional service from Amtrak. However, there were over 30 states that
did not subsidize intercity passenger rail service even though such
service was provided in their state. In general, Amtrak is the focal
point for decision making about what intercity passenger rail service
is provided and where.[Footnote 126] Under this structure, some states
benefit from having intercity passenger rail service but play little
role in deciding what service is provided or in subsidizing the
services received. Some states are aware of the benefits of this
structure--for example, an official from one state we contacted told us
that Amtrak is "a great deal" for the state because the state pays
nothing for service, even though there are numerous Amtrak trains that
operate daily within the state. This official said his state would like
to see additional service, but the state has little voice in the matter
because the state does not pay. On the other hand, an official with
another state said his state believes it is paying an inequitable
amount for service compared to other states. As we reported in April
2003, the willingness and ability of states to provide and maintain
financial support for intercity passenger rail is unknown.[Footnote
127] This willingness and ability is a challenge that will need to be
considered in aligning the decision making and benefits of intercity
passenger rail with payment for such benefits.
Finally, funding challenges will involve developing incentives to
ensure participation and cost sharing by states and other stakeholders.
Currently, there are few means for cost sharing of federal and
nonfederal expenditures on intercity passenger rail. The current
funding structure provides appropriations for both federal operating
and capital improvement funds directly to Amtrak by way of grant
agreements. These grant agreements specify what federal funds are to be
used for but do not require Amtrak or others to contribute matching
funds, either for operating or capital purposes. Some other federal
surface transportation programs require matching contributions to
create incentives and leverage federal funds. For example, the Federal-
aid Highway program generally limits the federal financial share of the
cost of highway projects (generally 80 percent of costs) and requires
states or others to contribute matching funds for the remaining cost of
such projects. Similarly, federal statute limits the maximum federal
share for some mass transit projects and requires project sponsors to
contribute matching funds.[Footnote 128] In fact, one of the criteria
the Federal Transit Administration considers in selecting new transit
projects to finance under its New Starts program is the amount of local
financial commitment. The absence of similar cost sharing mechanisms
makes it difficult for intercity passenger rail projects to compete for
federal or state dollars.
The equitable and sustainable response to funding challenges is more
complex than providing some "comparable" funding for intercity
passenger rail to that provided for other transport modes. First, while
advocates for increased federal support for passenger rail often cite
the billions of dollars provided to highways and airports, in fact
these funds are derived from explicit taxes or user fees. Second, in
spite of the historical user-based funding of these modes, we have
recently reported that commitments made are no longer sustainable;
there is an urgent need for identifying new, more sustainable, and
adequate funding to support the defined federal role.[Footnote 129]
Finally, the modal comparisons of the magnitude of federal funding are
most appropriately grounded in the magnitude of current and potential
public benefits. As such, the order of magnitude of public funds to
support intercity passenger rail would appropriately be grounded in the
role intercity passenger rail does (or could) play in national
mobility, relative to the dominance of highway and air travel for
medium-and long-distance travel and the public benefits that would
result. Any consideration of dedicated funding for intercity passenger
rail also needs to account for the potential downsides of such funding.
In May 2006, we reported that, despite the advantages of dedicated
funding, there are risks of revenue volatility and loss of budgetary
flexibility. That is, there is a risk that revenues may fluctuate and
not meet funding expectations; and, that setting government funds aside
for a specific use may affect the funding available for other spending
priorities.[Footnote 130]
Not Addressing Challenges Will Hinder Opportunities to Increase the
Benefits of Federal and Nonfederal Intercity Passenger Rail
Expenditures:
Not addressing the challenges discussed earlier may very well hinder
opportunities to increase the benefits of both federal and nonfederal
expenditures on intercity passenger rail. Amtrak has efforts under way
to analyze and implement various changes to its operations to reduce
costs, increase efficiency, and move states closer to paying for the
services they receive. Although these efforts are a step in the right
direction, they are expected to have only marginal impacts on the
financial performance of intercity passenger rail service. These
efforts will not, and should not be expected to, address some of the
more fundamental reform elements (e.g., clearly defining both a
national policy and stakeholder roles for intercity passenger rail
service, and finding funding to support national policy goals)
associated with increasing public benefits provided by intercity
passenger rail service. Amtrak itself has said that its existence is
not a substitute for a national policy. The incremental changes being
taken by Amtrak do not necessarily go to the root of the challenges
that policymakers need to address to bring about increased public
benefits of any federal expenditure on intercity passenger rail
service.
Not addressing the challenges makes it likely that a well-defined role
for federal subsidies for intercity passenger rail in the United States
will also remain elusive. As CRS reported in June 2006, Congress has
essentially reached a stalemate with respect to Amtrak and intercity
passenger rail.[Footnote 131] This stalemate was illustrated by the
fact that both the 107TH and 108TH Congresses were unable to
reauthorize funding for Amtrak or reach consensus on what kind of
passenger rail system it would be willing to fund. This stalemate has
largely continued in the 109TH Congress. As discussed earlier, part of
this stalemate has resulted from the wide diversity of views and
opinions on how the intercity passenger rail system should be
structured, what role the federal government, states, and others should
play in the system, and required funding levels. All of these speak to
the fundamental challenges described above.
Finally, addressing challenges has been integral to reform efforts
elsewhere in the world. Although passenger rail reform efforts
worldwide are still largely evolving and continue to face challenges,
addressing such challenges has been part of moving forward. For
example, in the early 2000s, the U.K. realized it faced problems with
insufficient infrastructure investment and rising costs of train
operators. In response, a new structure was developed that changed the
infrastructure manager and the governance structure of this manager,
and significantly increased government involvement in specifying the
services to be provided by train operating franchises. The U.K. has
also established a process that will develop expected national outputs
for its passenger rail system in 2007, develop a cost estimate for
these outputs, and ensure that adequate funds are available to support
these outputs. Accompanying this output document will be a broader and
longer-term strategy document looking ahead to about 2035. Similarly,
to address the costs of intercity passenger rail service and growing
federal budget pressures, Canada initially considerably reduced VIA
Rail's annual subsidy from 1992 to 1998 from $344 million (Canadian) to
$171 million (Canadian), then imposed informal caps on VIA Rail's
operating subsidy. Along with the caps came informal funding
commitments designed to facilitate management stability in planning.
The funding also came with incentives by allowing VIA Rail to finance
capital improvements or meet operating shortfalls by retaining any
annual operating subsidy amounts not used.[Footnote 132] Further, Japan
addressed funding challenges associated with financially weak passenger
rail systems by establishing a business stabilization fund that is
expected to provide sufficient income to continue operations without
using an annual federal subsidy. Japanese rail officials told us that
the business stabilization fund has allowed smaller railroads to
operate more independently of government interference.
Options for the Future of Intercity Passenger Rail Will Determine the
Level of Federal Involvement:
As the federal government is the primary provider of funds, oversight,
and direction for intercity passenger rail service, federal policy
makers should take the lead in deciding what the federal government's
role in intercity passenger rail service should be and what changes, if
any, need to be made to its goals, structure, and funding. Using our
previous work, the work of other government agencies, and our review of
other selected countries, we defined four basic options that represent
the potential range of options for reforming intercity passenger rail
service in the United States. They are maintaining the status quo,
introducing incremental changes within the existing structure,
discontinuing federal support, and restructuring the entire intercity
passenger rail system. This section discusses each option separately,
although some combination of these options could also be implemented.
All four options for the future of intercity passenger rail present
challenges that could impede both their selection and their
effectiveness once chosen. Of the four options, however, restructuring
presents the opportunity to substantially improve the intercity
passenger rail system. This option would allow Congress and
policymakers to establish intercity passenger rail's goals, define the
roles of stakeholders, and develop funding mechanisms that provide
performance and accountability for intercity passenger rail
expenditures. Any substantial reorganization of intercity passenger
rail will be difficult and can be expected to occur over a long period
of time.
In the sections that follow, we (1) lay out the framework for examining
the options, (2) describe each option in more detail, and (3) offer
observations on the advantages, disadvantages, and challenges
associated with each option.
Fundamental Reexamination Criteria and Key Components of Decision-
Making Framework Could Help Guide Consideration of Options for Future
Federal Role in Intercity Passenger Rail:
It is important for federal policy makers to determine whether or not
the federal government should be involved in intercity passenger rail
and, if so, how federal participation can be both cost-effective and
sustainable, particularly in light of the federal government's long-
term structural fiscal imbalance. In our report on 21ST century
challenges facing the federal government, we defined a set of
fundamental reexamination criteria that are useful for evaluating the
federal role in any government program, policy, function or activity.
The criteria are designed to address the legislative basis for the
program, its purpose and continued relevance, its effectiveness in
achieving goals and outcomes, its efficiency and targeting, its
affordability, its sustainability, and its management. These
fundamental criteria can be used to inform and evaluate the continued
federal involvement in intercity passenger rail service (see table 4
below for an example of how these criteria may be applied).
Table 4: Application of Critical Reexamination Questions Defining the
Federal Role in Intercity Passenger Rail:
Fundamental criteria: Relevance and purpose of the federal role;
Critical questions: Does intercity passenger rail, as currently
provided, have a clear federal role and mission?.
Fundamental criteria: Measuring success;
Critical questions: Does intercity passenger rail, as currently
provided, have outcome-based performance measures?.
Fundamental criteria: Targeting benefits;
Critical questions: Do current intercity passenger rail expenditures
target areas with the greatest needs and least capacity?.
Fundamental criteria: Affordability and cost effectiveness;
Critical questions: Do these expenditures encourage state and local
governments, and the private sector, to invest their own resources?;
Are these expenditures affordable and sustainable in the long term?.
Source: GAO analysis.
[End of table]
If policy makers determine that there is a clear federal role in
subsidization of intercity passenger rail service, the implementation
of that role should have several essential elements. From our past work
on federal investments in transportation,[Footnote 133] and our
analysis of foreign efforts on intercity passenger rail reform, we have
defined a framework that can guide the implementation of any of the
basic options for the future of intercity passenger rail. This
framework includes three components: creation of solid goals,
establishment of clear stakeholders' roles, and the provision of
sustainable funding. This framework has three components (see table 5).
Table 5: Three Components of Framework for Defining Federal Involvement
in Intercity Passenger Rail:
Component: Set national goals for the system;
Description: These goals, which would establish what federal
participation in the system is designed to accomplish, should be
specific, measurable, achievable, and outcome-based.
Component: Establish and clearly define stakeholder roles, especially
the federal role relative to state, local, and private-business
transportation roles;
Description: The federal government is one of many stakeholders
involved in intercity passenger rail service. Others include state and
local governments and riders themselves, all of whom benefit from
intercity passenger rail service. Given the broad range of
beneficiaries, it is important in order to gain consensus as to what
the system is to achieve and to help ensure that the federal role does
not negatively affect the participation or transportation role of other
stakeholders.
Component: Determine which funding approaches, such as cost sharing for
investment in new infrastructure, will maximize the impact of any
federal expenditures and investment;
Description: This component can help expand the ability to provide
funding resources and to promote cost sharing responsibilities. Given
the current budgetary environment and the long-range fiscal challenges
confronting the country, federal funding for future transportation
projects involving intercity passenger rail service will require a high
level of justification. This justification should have a solid vision
and identify funding that will deliver maximum public benefits for
money expended for intercity passenger rail.
Source: GAO analysis.
[End of table]
All four basic options we identified would also benefit from a process
for evaluating performance periodically to determine if the anticipated
benefits are being realized. Evaluations also provide a means to
periodically reexamine established goals, stakeholder roles and funding
approaches, and provide a basis to modify them, as necessary. Leading
private and public organizations we have studied in the past, such as
General Electric and the state of Washington, have stressed the
importance of developing performance measures and then linking
investment decisions and their expected outcomes to overall strategic
goals and objectives.[Footnote 134]While federal funding is currently a
major source of financial support for intercity passenger rail service
in the United States, currently there are no requirements for a
periodic, regular evaluation of the use of federal funds (outside of
annual appropriations legislation and yearly FRA grant
reviews).[Footnote 135]
Each of the four options we identified has different implications for
the three elements of our framework--goals, roles, and funding. (See
fig. 13 for an overview.) For example, the federal role changes from
managing the different aspects of a federal exit from intercity
passenger rail service in the discontinuance option to one where it
provides strategic direction and targeted funding to increase the
benefits of intercity passenger rail service in the restructuring
option.
Figure 13: Applying the Framework for Deciding the Future of Federal
Involvement in U.S. Intercity Passenger Rail:
[See PDF for image] - graphic text:
Source: GAO.
[End of figure] - graphic text:
First Option: Keep Existing Structure and Funding of Intercity
Passenger Rail:
This option would continue the existing structure and about the same
level of federal funding for intercity passenger rail service. Under
this option, the federal government would continue to ensure that a
national intercity passenger rail system exists. However, the existing
inefficiencies, uneven service levels, and limited capital investment
would also continue.
Establish Goals to Maintain Current Structure:
The goal of this option would be to preserve and maintain the current
intercity passenger rail structure and federal funding levels. This
option would also maintain the current route structure and levels of
capital investment. The federal mandate to have a national route
structure connecting intercity corridors would continue to influence
the route structure of the intercity passenger rail system. With no
increased federal direction to change Amtrak, intercity passenger rail
operations would continue without any major structural changes or
increased federal expenditure.
Define the Federal Role within the Current Structure:
The federal role under this option would be to continue to support the
current structure of intercity passenger rail. The federal requirement
to run a national system would remain and Amtrak's route structure and
management of the NEC would continue. The current stakeholder roles of
the federal government, state and local governments, freight railroads,
and commuter rail agencies would also remain the same. This option
would also retain the current relationships between Amtrak and the
states and commuter rail agencies, which in some cases are uneven. For
example, extensive service provided by Amtrak for some city pairs
allows some states to benefit from basic or "free" intercity corridor
services from Amtrak, while other states pay Amtrak to run corridor
services that were not part of Amtrak's original service structure.
Likewise, some commuter rail agencies would continue to pay lower
access fees than other commuter rail agencies for using Amtrak-owned
infrastructure. These access fee differences, the result of a 1982
Interstate Commerce Commission ruling, are depicted in figure 14.
Figure 14: Commuter Rail Agency Contributions to Amtrak on the NEC:
[See PDF for image] - graphic text:
Source: GAO; Amtrak; Corel (map).
Commuter Railroads and Transit Agencies:
Long Island Rail Road (LIRR) Maryland Rail Commuter Service (MARC)
Massachusetts Bay Transportation Authority (MBTA) Metro North Commuter
Railroad (MNCR) State of New York Metropolitan Transit Authority (MTA)
New Jersey Transit (NJT) Connecticut Department of Transportation's
Shore Line East service (SLE) Southeastern Pennsylvania Transportation
Authority (SEPTA):
Departments of Transportation Delaware Department of Transportation
(DelDOT) Connecticut Department of Transportation (CDOT):
[End of figure] - graphic text:
Continue Existing Funding:
Federal funding to support Amtrak's operations and capital expenditures
would continue at current levels (between $1.25 billion and $1.5
billion per year) under this option. Although a small portion of the
overall federal transportation budget, this level of expenditure could
maintain Amtrak's current operations and level of capital investment in
the short term. However, the longer this level of expenditure continues
without any other changes in Amtrak's route structure or expenditures,
the less likely that Amtrak will be able to cover any losses from
extended operational difficulties (such as the Acela brake issue in
April 2005 or the loss of electrical power on the NEC in June 2006), or
be able to start improving the condition of its core asset, the NEC.
Second Option: Incremental Change within Existing Intercity Passenger
Rail Structure:
Federal policy makers could determine that the current level of federal
involvement in, and funding of, intercity passenger rail is generally
adequate and appropriate, as in the first option. Under this second
option, however, federal policy makers could introduce incentives for
incremental improved operational and financial performance and
accountability within the current intercity passenger rail structure,
such as financial, accounting, or operational improvements. These
incremental improvements could come from federal policymakers or
Amtrak's management. The aim of this option would be to make some
positive financial and operational improvements without substantially
changing Amtrak's financial situation or the current structure of
intercity passenger rail in the national transportation system.
Establish Goals to Improve Performance within Existing Structure:
Under this option, the goal of federal involvement could be defined as
continuing to support the current intercity passenger rail structure
while incrementally improving its performance. This goal would be
achievable within the current system and funding structure and would
focus on incremental operational and financial improvements. For
example, provisions in Amtrak's fiscal year 2006 appropriations
legislation specify that Amtrak must show savings from operational
reforms or federal funds could not be used to cover losses from sleeper
or food and beverage services.
Another improvement federal policy makers could consider is making
Amtrak subject to basic requirements that are consistent with either
federal-entity or public-company financial reporting and accountability
requirements. Many of the basic accountability practices and
requirements of federal entities or public companies would improve
Amtrak's accountability and transparency to Congress, the public, and
key stakeholders; and could be implemented while streamlining current
practices. An integral step in this process would be to first evaluate
Amtrak's current practices and requirements in comparison with those of
federal entities and public companies and use the evaluation as the
basis for a plan to move forward.
Currently, Amtrak is not subject to many of the basic accountability
requirements of either federal entities or public companies due to its
status as a government-established private corporation. However, the
current financial reporting and accountability requirements specific to
Amtrak require it to submit annual audited financial statements and an
operations report to Congress.[Footnote 136] Amtrak is also subject to
additional reporting requirements as a result of its current funding
structure, where annual grant agreements for operating and capital
expenses are established and a prior loan agreement remains in effect.
The monthly performance report--an extensive report containing
financial results, route performance, workforce statistics, and
performance indicators--is one of the various daily, monthly, and
annual reports that Amtrak is required to provide under these
agreements. In our October 2005 report on Amtrak's management and
performance, we noted that certain relevant information was not
included in monthly performance reports and the information in the
monthly performance reports was of questionable reliability.[Footnote
137] We also noted in our October 2005 report that Amtrak had made
improvements in its financial information, and we recommended including
relevant information and increasing the reliability of the information
in the monthly performance report, as well as preparing an action plan
to put certain financial management and reporting mechanisms in place.
Although financial reporting requirements of federal entities vary
somewhat, most federal entities are required to issue annual
performance and accountability reports (PAR). These PARs contain
audited financial statements; management's discussion and analysis of
the current year in comparison to the prior year; an analysis of the
agency's overall financial position, the results of its operations, and
a discussion of key financial related measures; and management's
assurance statement on the effectiveness of internal control, including
a report on identified material weaknesses and corrective actions. OMB,
which oversees the financial reporting of federal entities, reviews the
PARs submitted by agencies.[Footnote 138] In addition, agency
Inspectors General report semi-annually on their assessments of the
agencies' most serious management and performance challenges.
Public companies, in addition to annual reports, are required to (1)
provide, with their annual financial statements (management's
discussion and analysis), information relevant to an assessment of
financial condition and the results of operations; (2) issue quarterly
financial statements that are reviewed by external auditors; (3) have
the chief executive officer and chief financial officer certify that
the financial statements do not contain any untrue statements; and (4)
have management assess and report on the effectiveness of internal
controls over financial reporting. Independent audit committees provide
oversight of public companies' financial reporting, internal control,
and the audit process. The Securities and Exchange Commission oversees
accountability at public companies through reviewing the financial
reports and other filings of public companies. (See app. VII for a more
detailed discussion of financial accountability standards and oversight
that could be applied to Amtrak.)
Define the Federal Role within the Current Structure:
As this option would not represent a dramatic shift in the current
intercity passenger rail structure, a clear definition of roles may not
occur. The current roles for states, local governments, Amtrak, freight
railroads, and commuter railroads, would stay the same. As in the first
option, this option would perpetuate Amtrak's current service structure
that provides more basic intercity service between some city pairs than
others. It would also perpetuate its current relationship with commuter
rail agencies on the NEC.
Determine the Appropriate Federal Funding Mechanisms to Improve
Performance:
One approach would be to reach an agreement among key legislative and
executive branch decision makers on a multiyear funding level for
federal operating of subsidies for intercity passenger rail service.
Such a multiyear agreement was successful in Canada when VIA Rail used
the imposition of a cap on its operating subsidies from the Canadian
government to reduce its operating costs. Although the spending cap was
originally intended to save the Canadian government money during a time
of high fiscal deficits, VIA Rail used its imposition to increase its
emphasis on internal cost control by reducing its labor costs for
managers by 50 percent and its equipment maintenance costs by 65
percent. The operating funds are planned for over 10 years, giving VIA
Rail the stability to plan its operational expenditures over that time.
While the funds are not adjusted for inflation, VIA Rail is allowed to
retain any amount of its operating subsidy it does not use from year to
year to save for capital improvement projects or other needs.
While the funding approach could take several forms, federal support
under this option would likely not rise substantially, as the goal of
the option is to make incremental improvements without substantially
changing the federal commitment. While some savings could result from
incremental reforms, it is likely that, as with the first option,
Amtrak would remain unable to cover any losses from extended
operational difficulties or to start improving the condition of the
NEC.
Third Option: Discontinue Federal Role in Intercity Passenger Rail:
Under this option, the federal government would end its financial
support of the intercity passenger rail system. This would shift
responsibility for all intercity passenger rail service and federally
owned rail infrastructure in the Northeast to state and local
governments and other stakeholders. While this option could ultimately
reduce federal expenditures by eliminating operating and capital funds
for Amtrak, according to CBO, discontinuing federal support for
intercity passenger rail could also force a liquidation of
Amtrak.[Footnote 139] Consequently, federal funds could be needed in
the immediate and long terms to cover implementation costs of Amtrak
liquidation, including labor protection payments and the disposition of
Amtrak's assets.[Footnote 140] Also, although this option could create
opportunities for states to contract for intercity passenger rail
service from other operators,[Footnote 141] many states may not be able
or willing to fund existing intercity passenger rail service with state
transportation funds without access to federal capital matching funds.
Any federal exit strategy and transition plan would also need to be
comprehensive and detailed.
Establish Goals that Discontinue the Federal Role:
Under this option, federal policy makers would determine that there is
no federal role in the support of intercity passenger rail service. A
goal of successfully implementing this option could be an orderly
withdrawal of federal support and involvement from long distance and
corridor intercity passenger rail service. The federal government would
create an exit strategy that would enact this goal, in part by creating
a detailed and comprehensive transition plan that would address several
important issues resulting from federal withdrawal of support. One of
these issues is the disposal of the federal interest in Amtrak and in
Amtrak owned portions of the NEC.[Footnote 142] The NEC is the busiest
rail corridor in the United States, with over 1,800 intercity
passenger, commuter, and freight trains using its tracks per day.
Amtrak owns a substantial portion of the NEC, including portions over
which several commuter rail agencies and freight railroads operate.
Amtrak operates trains, controls the movement of train traffic over the
NEC, and maintains most of the NEC.
One example of how to handle the NEC under this option could be similar
to how the Mexican government sold franchise agreements for different
segments of its freight rail network.[Footnote 143] Following
privatization efforts in Argentina and Brazil, the Mexican government,
between 1996 and 2000, sold nine different 50-year franchises (each
with a 50-year renewal option) to private bidders to operate freight
rail service.[Footnote 144] According to the World Bank, considerable
care was taken by the Mexican government when creating the franchises
to preserve competition and avoid cross-holding and cross-subsidization
between the bidders and eventual franchise operators. Since
privatization, freight traffic has grown and substantial investments in
the rail infrastructure have been made by the private operators.
As we pointed out in our April 2006 report on Amtrak and commuter rail
issues,[Footnote 145] access to Amtrak's skilled labor and its
infrastructure are two critical issues to commuter railroads--
especially to those railroads that operate over the NEC. Some commuter
rail agencies could not continue to fully operate service--or would
cease service altogether--without access to Amtrak's skilled labor and
infrastructure. Any transition plan would also need to include, among
other things, strategies for addressing the challenges identified
earlier in this report (e.g., federal-state partnerships, and
infrastructure access and capacity), the financial viability of Amtrak,
and concerns of freight railroads and others about the viability of the
railroad retirement system.
Define the Appropriate Stakeholder Roles:
The heart of any federal exit strategy and transition plan would be to
define the appropriate role for freight and commuter railroads, Amtrak,
and any new owner or manager of the NEC in relation to any continued
intercity passenger rail service. Since following this option would
involve a major shift in national transportation policy, the federal
exit strategy and transition plan would need to clearly define the
roles of stakeholders in the new intercity passenger rail structure in
the United States. The federal role would be discontinued and
responsibility for any continued intercity passenger rail service could
be transferred to states (either to individual states or to groups),
local governments, or the private sector. Amtrak, as a private
corporation, could potentially continue as a provider of service; other
private transportation companies could also compete for subsidies to
provide service on current or new routes sponsored by the states.
However, many states may choose not to invest their scarce
transportation funds in a transportation mode for which there are no
federal capital matching funds--especially considering passenger rail's
capital costs. For example, two state transportation officials said
their states would be willing to consider taking over operational
responsibility for corridor Amtrak service in their states, but only if
the federal government would match state capital funds at an 80-percent
to 20-percent rate, similar to highway and airport expenditures.
The financial incentive for private transportation companies to
continue or start any intercity passenger rail service would be
reduced, or may not exist at all, without federal subsidies for either
operations or capital projects. For example, officials from one private
transportation company with whom we spoke stated that virtually every
intercity passenger route would require public subsidies. However,
according to the official, if competition for intercity passenger rail
service were introduced, it could motivate private transportation
companies to reduce their costs. While probably not enough to eliminate
the public subsidy, competition could lead to lower overall costs.
If states did want to continue intercity passenger rail service
(especially across state borders) without direct federal involvement,
different intergovernmental structures could be adopted. One structure
could be interstate compacts, under which a group of states can work
together to achieve a common regional goal or provide a regional
service without direct federal involvement. An example is the
Washington, D.C., Metropolitan Area Transit Authority (WMATA). WMATA is
an agency created by an interstate compact (although the federal
government is also a signatory to the compact) that provides bus and
rail transit service in Virginia, Maryland, and Washington, D.C. WMATA
operations are funded by fare and non-fare revenue and contributions
from local governments, the two states and Washington, D.C. Capital
projects are funded by these states and Washington, D.C., and are
matched by the federal government.
Determine Funding Level for Federal Exit Strategy:
While the federal government could eventually save the amount of
Amtrak's annual capital and operating subsidy if it decided not to
support intercity passenger rail service, this option could have
substantial immediate and long-term costs to the federal government,
especially if Amtrak were liquidated as a result of withdrawal of
federal support.[Footnote 146] In our 2002 report on potential issues
associated with an Amtrak liquidation,[Footnote 147] we identified $44
billion in total claims against Amtrak's estate--including $3.2 billion
for potential payments Amtrak would owe its terminated employees (if
Amtrak had been liquidated on December 31, 2001). Payments to the
railroad retirement system could be as high as $400 million annually if
former Amtrak employees were not reemployed in the railroad industry.
In addition, currently, Amtrak has about $3.5 billion in long-term debt
and capital lease obligations that could be unfunded in an Amtrak
liquidation. The federal government may also decide to fund Amtrak's
other liabilities as a last resort if the sale of Amtrak assets does
not cover them.[Footnote 148] In addition, as we found in 2002, the
market value of Amtrak's most valuable asset, its portion of the NEC,
has not been tested. The corridor clearly has substantial value and
some consideration could be given to a long-term lease to a private
operator. However, the railroad is subject to numerous easements and
has, as of our October 2005 report, over $3.8 billion of deferred
capital maintenance that any future owner or operator would need to
address for continued safe, reliable operations.
Fourth Option: Restructure Intercity Passenger Rail Service:
Substantial restructuring of intercity passenger rail service could
take many different forms. However, the core challenge of this approach
is that critical decisions would have to be made with all stakeholders
about what goals the restructured intercity passenger rail system
should try to meet, what roles the various stakeholders should play,
and what federal funding sources and mechanisms would be available to
operate and maintain the restructured system while maximizing cost
sharing by all who benefit from intercity passenger rail. Some examples
of ways that substantial restructuring could be implemented could
include the following:
* continuing corridor intercity routes where the benefits of intercity
passenger rail are higher while discontinuing long distance routes
where the benefits are lower;
* restructuring Amtrak into separate companies;
* transferring Amtrak-owned infrastructure to a compact or commission
of states to oversee its operations and improvements;
* creating competition for federal-and state-subsidized routes between
private operators and Amtrak;
* providing a one-time endowment to Amtrak as an incentive for it to
run as a more market-oriented business without continued federal
involvement and support; or:
* providing states flexible capital matching grants to create their own
solutions to transportation needs, including intercity passenger rail
service.
Establish Goals for Restructured Intercity Passenger Rail Service:
Under this option, policy makers would determine that there are
sufficient public benefits at a national level to justify subsidies for
an intercity passenger rail service that is different from the current
structure. The primary goal for the federal government, under this
option, would focus on increasing the national transportation benefits
and public benefits of intercity passenger rail service relative to the
federal expenditure. For example, furthering this goal could include
using federal subsidies for intercity passenger rail to: reduce highway
congestion, increase intermodal connectivity, provide environmental
benefits, or increase redundancy in regional or urban transportation.
Specifically, one of the goals under this option could be to increase
the use of intercity passenger rail service between major cities with
trip times under 3 hours. Two examples of how this goal could be
achieved include the U.K. model of intercity passenger rail service or
the German model for regional rail service.[Footnote 149] In both
models, passenger rail operating companies openly bid for the lowest
amount of government subsidy to operate a specific route. These
franchise agreements are multiyear contracts backed by either national
or regional government subsidies. The operator would collect ticket
revenues and the agreed-upon government subsidy to operate a specific
level of service over the route. This approach makes the government an
explicit buyer of intercity passenger rail services from a private
operator and increases the transparency of costs for a given level of
service. Contracts for service could include operational and capital
expenditures and specify such things as service frequency, trip length,
stops, a payment schedule, and performance metrics.
Importantly, spending federal funds for intercity passenger rail
service to increase public benefits will not necessarily lower the cost
of providing intercity passenger rail service. As discussed earlier in
this report, in many of the countries we visited the level of federal
expenditures on passenger rail after reform remained high or increased.
Define the Federal and Other Stakeholder Roles in a New Intercity
Passenger Rail Structure:
There are many different ways that the federal government and other
stakeholders could define their respective roles within a new intercity
passenger rail structure. The federal government could narrow or expand
its role in the new structure. However, the key opportunity of a
restructuring effort is in defining the roles of all stakeholders to
create incentives and promote equity across all beneficiaries, both
public and private, in the new structure. For example, the federal
government could determine--in partnership with states, local
governments, Amtrak, and various transportation providers (including
freight and commuter railroads)--the route structure, service
frequency, and infrastructure access arrangements for all intercity
passenger rail routes. In order to ensure that intercity passenger rail
service does not significantly interfere with freight rail service, any
restructuring approach should also take into consideration the national
freight transportation policy currently being developed by DOT.
One of the more challenging areas to define roles is the NEC, where
Amtrak is the owner of most of the infrastructure while many other
railroads are the main users. As discussed above, participation is
uneven and the vital infrastructure is not being maintained
effectively. One structure that could facilitate a federal-state
partnership to manage the NEC could resemble the Delta Regional
Commission or the Appalachian Regional Commission. These commissions
consist of a group of states and a federal representative to foster
partnerships between state and federal government entities and
distribute economic development funds throughout a specified
economically distressed region. For example, the federal government and
thirteen states make up the Appalachian Regional Commission to
distribute economic development and highway construction funds
throughout the 410-county Appalachian region. Federal economic
development grant funds are distributed to member states according to
criteria based on such factors as population, land area, and economic
need.
Recognizing its fiscal constraints, the federal government could
provide matching funds (either for operating or capital expenditures,
or both) for routes that meet certain goal-related criteria (such as
reducing highway congestion or increasing intermodal connectivity) and
that are partially funded and proposed by states or groups of states
under a process similar to the New Starts program for federal transit
funding. However, regardless of the eventual structure or tools used to
implement the structure, federal leadership would be needed to reach a
consensus on goals, structure, and funding with all stakeholders.
Determine the Appropriate Federal Funding Sources:
Given the long term federal fiscal imbalance, finding federal funds
necessary to fund a substantial restructuring of intercity passenger
rail could be a significant challenge. In four out of the five
countries we visited, the national government currently provides a
substantial amount of funding for intercity passenger rail
service.[Footnote 150] Finding sufficient funding could be crucial in
order to restructure current service, attract increased capital
investment from nonfederal sources and give other transportation
providers the incentive to provide intercity passenger rail service by
significantly increasing the incentives for non-federal partners.
However, the scarcity of federal funds puts a premium on sharing costs
of equipment, infrastructure, and service. State and local governments
may be willing to invest to support continued, expanded or new
intercity passenger rail service. Moreover, increased state
participation would more effectively integrate decision making on
intercity passenger rail priorities with investments in competing and
complementary modes including highways, airports and mass transit.
An example of how costs could be shared across stakeholders could be
seen in the Federal Highway Administration's Innovative Financing
Program. This program includes several different forms of highway
financing, which are designed to stimulate additional investment and
private participation. Different financing approaches in the program
include the use of state infrastructure banks and credit assistance
under the Transportation Infrastructure Finance and Innovation Act.
These financing approaches could be adapted to allow states to leverage
federal funds for investment in intercity passenger rail projects.
Funding for intercity passenger rail could come from a number of
sources. For example, some funding to subsidize federal and state
intercity passenger rail service could be provided through taxes paid
by, or franchise payments received from, private operators on those
routes that may be profitable and not require a subsidy (as is the case
for some railroads in Japan). Capital funds used to increase capacity,
reduce bottlenecks, and increase train speeds (especially on freight
railroad owned track) could come from existing federal taxes, including
taxes on railroads or fuel taxes. For example, regional governments in
Germany are allocated funds from a federal automobile fuel tax to
support regional (i.e., short-distance, intraregion) passenger rail
service. This is not necessarily a new tax--rather, it is a change in
how these funds are allocated by the German federal government. Another
funding option would be for the federal government to create an
endowment or "business stabilization fund," such as was used in Japan,
to stabilize its smaller privatized railroads. This endowment would
help Amtrak transition from being dependent on federal support to being
a more market-based company. Any funding for a stabilization fund would
need to recognize the fiscal constraints on the federal government and
competing priorities. During the privatization of its national railroad
system, the Japanese national government identified the railroads that
were least likely to be profitable and provided them with a one-time
set-aside of government funds to provide continuous interest income for
those railroads. While the companies were prohibited from using the
invested capital to cover expenses, the earned interest could be used
to stabilize the business and provide long-term funds not subject to
annual government appropriations.
Each Option Carries Advantages, Disadvantages, and Challenges, However
Restructuring Presents Substantial Opportunity for Improving the
Intercity Passenger Rail System:
All four options for the future of intercity passenger rail present
challenges that could impede both their selection and their
effectiveness once chosen. Of the four options, however, restructuring
presents the opportunity to substantially improve the intercity
passenger rail system. This option allows all stakeholders to establish
intercity passenger rail's goals, the roles of stakeholders and the
funding mechanisms that provide performance and accountability for
intercity passenger rail expenditures. Consensus on any change to the
current intercity passenger rail structure has been difficult to
achieve in the past. As a result, if a decision is made to proceed with
restructuring, a commission may be a useful mechanism for reaching
consensus on a method of restructuring among stakeholders and for
recommending a restructuring approach.
Keeping the Status Quo Forgoes Benefits that May Accrue from Improving
the System:
While keeping intercity passenger rail's current structure and federal
funding levels would preserve a federal role in intercity passenger
rail, it would also preserve all of the current problems and
limitations. States and commuter rail agencies would continue to have
unequal relationships with Amtrak. The current route structure would
continue to dilute the public benefits of federal intercity passenger
rail expenditures. Investment in and the quality of commuter and
intercity service on the NEC would likely continue to decline and in
states where intercity passenger rail could provide the most public
benefits states' transportation funds would continue to be spent on
other modes without considering public benefits from spending on
intercity passenger rail. Any extended operational difficulties may
leave Amtrak without significant cash reserves to cover lost revenues
and may result in more financial difficulty.
With the current general level of federal funding, Amtrak will continue
to be faced with a deteriorating infrastructure and aging equipment
that will increase its operating costs and limit its ability to provide
its current levels of service. Without a significant capital infusion,
the capital maintenance backlog on the Amtrak-owned portion of the NEC
will continue to increase, negatively affecting Amtrak's performance on
its key route and diminishing the benefits of intercity passenger rail
in the most densely populated area of the country. In addition, any new
equipment (or a refurbishment of old equipment) would have to be
financed either with Amtrak's limited capital funds or with commercial
debt, which would increase Amtrak's operating expenses. With current
levels of funding and the lack of a clear definition of roles for
intercity passenger rail service, significant opportunities--for
instance, cost sharing for service in corridors where the public
benefits of such service may be high--could go unrealized. Amtrak will
also face the continued annual uncertainty about its financial
situation, which will damage its relationship with its creditors,
suppliers, freight railroads and its riders. Freight railroads will
receive the same compensation from Amtrak for the use of increasingly
scarce capacity on their major rail lines in addition to not benefiting
from increased public investment to increase capacity for passenger and
freight traffic where they co-exist on their rail lines.
Intercity passenger rail riders could also face disadvantages under
this option. A deterioration in service and equipment could force
Amtrak to raise ticket prices for a lower quality service (which may
also be affected by increased freight rail traffic). In addition to the
uncertainty surrounding federal and state investment in intercity
passenger rail service, this deterioration of service may drive away
current and future riders and increase highway and airway congestion in
areas where intercity passenger rail has made progress in increasing
ridership, such as on the NEC and in California. Finally, the federal
government would receive no increased benefits, and may receive less
benefit due to declining capital investment, for its expenditures and
would have no accountability or performance measures in place to gauge
the effectiveness of those expenditures. In addition, no performance or
outcome based goals would be established for intercity passenger rail
service, clear stakeholder roles would not be defined, and there would
be no opportunity to restructure funding mechanisms to include share
costs across all stakeholders.
Incremental Change Does Not Address Fundamental Flaws in the Current
System:
Though there may be some increase in public benefits, incremental
change within the existing intercity passenger rail structure retains
many of the same problems that would be retained under the first
option. States and commuter rail agencies may still have unequal roles
and face declining investment in Amtrak's infrastructure. While some
savings could result from incremental reforms, the need for federal
subsidies would remain, continuing the uncertainty of Amtrak's
financial future. Freight railroads would continue to receive the same
level of compensation for increasingly constrained rail capacity and
may not see more investment where public demand for intercity passenger
rail service on their railroads increases. Riders could also face
reductions in amenities due to cost cutting measures in addition to the
same or decreased service levels due to, among other things, increased
freight traffic and deteriorating equipment that could reduce ridership
on some routes.
With current levels of funding and the lack of a clear definition of
roles for intercity passenger rail service, significant opportunities-
-for instance, to share the costs of intercity passenger rail service
in corridors where the public benefits of such service may be high--
could go unrealized. While the federal government or Amtrak may impose
new accountability and performance measures, the route structure may
stay generally the same, still diluting the impact of federal
expenditures. Also, no overall goals will be established for federal
expenditures, roles will not be clarified and costs of intercity
passenger rail service will not be equally shared across all
beneficiaries.
Discontinuing Federal Involvement May Reduce Services and Would Require
Detailed Planning and Substantial Federal Expenditures:
Discontinuing the federal role presents strong challenges to all
intercity passenger rail stakeholders. The federal government will need
to create a comprehensive transition plan and exit strategy, especially
in disposing of the NEC. The federal government could also face
pressure from states, commuter rail agencies, and Amtrak's creditors
and workforce to continue infrastructure investment in the NEC, and to
cover Amtrak's outstanding debts and labor protection payments,
respectively. Amtrak would face bankruptcy and a possible shutdown of
all services without federal financial support. States will likely need
to take on the responsibility to continue intercity passenger rail
service, which may result in some routes being discontinued if they are
not financially viable and states or others are not willing or able to
subsidize service. In addition, an Amtrak bankruptcy may take away its
equipment and its right of access to freight rail infrastructure.
Without a comprehensive federal transition plan, commuter rail agencies
that rely on Amtrak for services or infrastructure would face service
disruptions and financial difficulties. This would be especially acute
in the NEC, where most commuter railroads rely on Amtrak infrastructure
or services. Freight railroads may gain increased capacity on some of
their network, but would have to separately negotiate with individual
or groups of states that wished to continue intercity passenger rail
service on their railroads and deal with any new intercity passenger
rail operators as well. Finally, riders could be forced to other modes
of intercity and commuter transportation as a result of the federal
exit from intercity passenger rail, either temporarily or permanently,
increasing congestion on those modes. Under the discontinuation option
there could be gaps in the national transportation system to the extent
there are areas where the public relies solely on intercity passenger
rail for mobility or travel between regions if states or groups of
states choose not to retain the service.
Restructuring Provides Path to Increased Transportation and Public
Benefits from National Intercity Passenger Rail Network:
The restructuring option provides the opportunity to address the key
reform elements necessary for a sustainable, equitable, intercity
passenger rail system that delivers increased public benefits for
federal and nonfederal expenditure where the other options do not. The
status quo and incremental change options do not allow for a
reexamination by all stakeholders of the goals, roles and funding
mechanisms of the system and would not significantly increase the
potential benefits of the system relative to the expenditures required.
Discontinuing federal support would transfer responsibility for the
system to other stakeholders, possibly creating disruption and loss of
benefits for a possible decrease in federal expenditures. Although
specific approaches may vary as to the goals, roles, funding and
challenges faced by different stakeholders, restructuring the intercity
passenger rail system potentially allows each stakeholder to more fully
participate and build consensus toward addressing these key reform
elements and to move toward a more equitable sharing of costs between
the federal government and other beneficiaries of intercity passenger
rail service.
Several challenges would need to be addressed before a restructured
intercity passenger rail system could provide increased public benefits
and accountability for federal expenditures. Federal policymakers will
need to determine the goals of the restructured system, the roles of
all the stakeholders, how federal expenditures will support the new
system and mechanisms for its implementation. Increased funding for
private operators may be needed to create a competitive marketplace for
intercity passenger rail, as well as increased funding or financial
backing for capital improvements in the NEC to ensure higher quality
service. Federal policymakers could also face pressure to compensate
those who might lose intercity passenger rail service or jobs due to
the restructuring. States and commuter rail agencies may have to
shoulder more of the financial, maintenance, and management burden in a
restructured intercity passenger rail system, especially in the NEC,
but may receive other benefits (such as improved service) in return.
Amtrak would need to adjust to the new intercity passenger rail
structure or face bankruptcy. Freight railroads may face increased
public pressure for the use of their infrastructure for intercity
passenger rail service and may need to accommodate non-Amtrak intercity
passenger rail operators on their railroads. Riders may experience some
disruption as routes are re-routed or discontinued.
Due to the complex nature of intercity passenger rail issues and the
wide diversity of views about the future of intercity passenger rail
service, an independent and properly designed commission may be an
effective mechanism for building a consensus that helps determine a
restructuring approach. For example, a commission might be able to
facilitate public dialogue around a variety of options. While it may be
difficult for citizens to discuss the federal role in the abstract,
preferences about that role can be inferred from their reactions to and
comments on the various restructuring approaches. By facilitating
public dialogue focused on feasible alternatives, the commission could
help the President and the Congress as they define the role for the
federal government in providing or subsidizing such service and
specifying how the service could fit into our national transportation
system. As discussed above, reaching consensus about federal policy
toward intercity passenger rail has been difficult. While the stalemate
in part reflects widely divergent views of the appropriate federal
role, the debate has been stymied by the lack of objective, rigorous
exploration of the operating challenges, costs, and distributional
impacts of alternative strategies.
Prior commissions[Footnote 151] and initiatives have recommended
options for restructuring intercity passenger rail service; however,
their recommendations have not been implemented. This inaction is due,
in part, to the challenges facing Amtrak as stated earlier in this
report and, in part, to a failure to reach public consensus on the
recommended restructuring approaches, which more fundamentally,
requires a consensus on the future role of intercity rail in the
nation's transportation system. Although motivated to define the
federal role in intercity passenger rail, these prior commissions and
current strategic initiatives have assumed a federal role in intercity
passenger rail service without explicitly stating what that role is,
what other stakeholders' roles are, and how that federal role will be
funded.
Conclusions:
If the role of intercity passenger rail is to be effectively integrated
into the national transportation system and federal support is to be
targeted to assure its performance, results and accountability, we
believe that there is a clear need to change the current structure of
and the federal role in intercity passenger rail in the United States.
This change would be consistent with GAO's position that all federal
activities should be reexamined with an eye to whether they fit in the
changing world of the 21ST century. The current and future fiscal
imbalance underscores the importance of assuring that all federal
programs and policies, including those for intercity passenger rail
service, are subject to reexamination, review and possible change. The
extended stalemate in developing a clear vision for how intercity
passenger rail can be a part of the national transportation system has
reflected the significant challenge in achieving consensus. As recently
reported by the CBO, in the absence of any consensus on intercity
passenger rail issues, Amtrak is likely to continue "limping along" as
it has since its inception. We agree that without any changes to its
current structure, roles, and funding, the current intercity passenger
rail structure will continue to underserve, underinvest, and
underachieve.
Consensus will be needed, in addition to legislative action--both in
the short and long term--to improve the focus, performance, and
sustainability of federal support for intercity passenger rail.
Development of a national passenger rail policy to guide investments of
federal funds should have: a clearly defined federal role, outcome-
based policy goals, an approach to financing that stimulates investment
by others commensurate with their benefits, and appropriate
accountability mechanisms. The current U.S. intercity passenger rail
structure meets none of these criteria--it does not have clear
transportation related goals, the roles of stakeholders have grown
haphazardly over time, federal funding is not based on cost sharing and
not focused on maximizing public benefits, and its results are not
outcome-based. With regard to its accountability and financial
reporting, Amtrak is not subject to the same basic requirements for
financial reporting, internal control and governance that are typically
required of federal entities or public companies.
Recommendations for Executive Action:
To improve Amtrak's financial and internal control reporting and
overall accountability, we recommend that the president of Amtrak:
Immediately take steps to evaluate Amtrak's accountability--
particularly its financial reporting, internal control, and governance
practices--and formulate a plan to bring the financial reporting,
internal control, and governance practices in-line with the basic
requirements that federal entities or public companies practice, while
also identifying opportunities to improve and streamline current
reporting practices. The evaluation should include a comparison of
Amtrak's current accountability requirements and practices to those of
federal entities as well as public companies. This evaluation should
serve as the basis for the formulation of Amtrak's plan to bring
Amtrak's financial reporting, internal control, and governance
practices in-line with the basic requirements that federal entities and
public companies practice, based on a determination of which practices
are most appropriate given Amtrak's overall mission, funding sources,
and current situation. The plan should include developing management
discussion and analysis as part of its annual financial reporting and
developing management's assessment of internal control over financial
reporting, while identifying opportunities to streamline other
reporting practices. The plan should be submitted to Amtrak's
Congressional oversight committees.
Matter for Congressional Consideration:
In order to address longer term needs to maximize the transportation
benefits and public benefits of intercity passenger rail service and
any federal funds expended on this service, we recommend that Congress
consider restructuring the approach for the provision of intercity
passenger rail service in the United States. Only Congress can provide
the national vision and has the authority to put in place a wide-
ranging restructuring effort. This restructuring should include
establishing clear goals for the system, defining the roles for states
and the federal government, if any, commuter rail agencies, freight
railroads and other stakeholders, focusing expenditures where they will
achieve the most public benefits, and developing funding mechanisms
that include cost sharing between the government and beneficiaries.
In undertaking this restructuring, it will be important to solicit
input from all stakeholders, particularly DOT and FRA given their
responsibility for transportation and rail matters. Evaluation of
restructuring approaches should also consider the relationship between
passenger and freight railroads and give due consideration to the
national freight transportation policy being developed by DOT. Due to
the complex nature of intercity passenger rail issues and the wide
diversity of views about the future of intercity passenger rail
service, an independent and properly designed commission may be an
effective mechanism for developing a consensus over the future of
intercity passenger rail service and helping determine a restructuring
approach.
By addressing the key reform elements, Congress can create a structure
that not only efficiently and effectively serves travelers but also
promotes performance and accountability and the chance for increased
transportation and public benefits from federal expenditures for
intercity passenger rail.
Agency Comments and Our Evaluation:
We provided copies of the draft report to Amtrak and DOT for comment
prior to finalizing the report. Amtrak provided its comments in a
letter from its president and chief executive officer (see app. VIII).
In general, Amtrak did not take an overall position on the report or
the Matter for Congressional Consideration. However, Amtrak agreed that
intercity passenger rail in the United States has come to a critical
juncture and that a national dialogue about the future direction of
rail service is needed. Amtrak also said that the three key elements to
comprehensive reform of intercity passenger rail are establishing
clearly defined national policy goals, clearly defining government and
stakeholder roles, and establishing committed funding. Finally, Amtrak
commented that a more efficient, improved, and expanded intercity
passenger rail service can play an important role in relieving
congestion, both in the air and on the highways, and that rail has
unique advantages compared to other transport modes. We agree and our
report discusses the importance of the three key elements of reform and
the role they have played in reform efforts in foreign countries. We
also agree that intercity passenger rail can play an important role in
the nation's transportation system. For this reason, as well as the
fact that intercity passenger rail service does not currently provide
the most transportation benefits and public benefits that it can and
the growing federal fiscal challenges, it is more important than ever
for serious efforts to begin on identifying how intercity passenger
rail service can be restructured to focus on its comparative
advantages. We believe that success of this restructuring effort can
best be achieved in the context of national policies and goals for
intercity passenger rail--goals that are performance and outcome based.
In addition, all relevant stakeholders need to participate and
realistic assessments need to be made of potentially available funds
for sustaining the restructured system. It will be very difficult to
maximize the transportation benefits and public benefits of intercity
passenger rail service without these foundations.
In response to our recommendation that Amtrak evaluate its
accountability--particularly its financial reporting, internal control,
and governance practices--Amtrak offered comments about specific steps
that could be taken in that regard. For instance, Amtrak agreed that
creating a Management Discussion & Analysis with its annual audited
financials is reasonable and could help the uninformed readers
understand the results and trends. Amtrak took exception with other
examples of oversight such as the CEO and CFO certifying Amtrak's
financial statements similar to those done under Section 302 of
Sarbanes-Oxley Act. However, our recommendation notes some general
steps that Amtrak needs to take in order to evaluate Amtrak's current
accountability practices in order to formulate a plan to bring Amtrak's
practices in-line with the basic practices of federal entities or
public companies, while identifying opportunities to streamline
Amtrak's current reporting practices. In its response, Amtrak did not
specifically address our recommendation to conduct such an evaluation
for purposes of formulating a plan. Therefore, we have included
additional information to our recommendation further elaborating on the
objectives of the evaluation and the formulation of a plan to bring
Amtrak's practices in-line with the basic practices of federal entities
and public companies.
In its comments, Amtrak also pointed out that among the Federal
Railroad Administration, the Department of Transportation Inspector
General's office and the independent Amtrak Inspector General's office
they have three existing oversight agencies that oversee Amtrak on a
monthly, quarterly and annual basis and increasing oversight by adding
the Securities and Exchange Commission seems an unnecessary use of
federal funds with little real benefit for stakeholders. While we
recognize that Amtrak is subject to oversight already, we believe there
are opportunities to improve reporting practices, while identifying
opportunities for potential streamlining of Amtrak's current reporting
and related oversight. These opportunities should be considered as part
of the evaluation of Amtrak's current accountability requirements and
practices.
Amtrak also commented on a number of other issues. These included (1)
the Amtrak deficit, (2) passenger revenues, (3) public benefits of
Amtrak services, (4) state corridors, and (5) freight railroad impacts.
These comments and our evaluation can be found in appendix VIII.
Finally, Amtrak offered technical comments that we incorporated where
appropriate.
DOT provided its comments in an e-mail message on October 12, 2006. The
department did not indicate agreement or disagreement with the report
or its recommendations but primarily provided technical comments that
we incorporated where appropriate. However, the department did observe
that effectively targeting federal funds where they may achieve the
greatest level of public benefits is not one of the existing goals for
Amtrak. The department also commented that it has never been FRA's role
to "establish a vision for intercity passenger rail" regardless of
resources that might be available to the agency. While we recognize
that FRA's involvement with and oversight of Amtrak has increased in
recent years, our report makes it clear that, as currently structured,
intercity passenger rail does not maximize either transportation
benefits or public benefits for federal funds expended. Although
Congress will play the key role in establishing a national vision for
intercity passenger rail service and putting in place a structure for
maximizing the benefits from this service, we believe executive branch
leadership, particularly from DOT as being responsible for
transportation issues and FRA for rail matters, would be helpful in
establishing this vision. DOT and FRA leadership will also be essential
for identifying the optimum structure for meeting this vision and the
role stakeholders will be expected to play within this structure, as
well as in identifying potential funding sources to ensure
sustainability of the system. Such leadership and participation by
these agencies will be even more important in light of the growing
fiscal challenges faced by the federal government and the resulting
constraints these challenges will place on resources provided to all
modes of transportation.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 14 days
from the report date. We will then send copies to other appropriate
congressional committees, the President of Amtrak, the Secretary of
Transportation, the Administrator of the Federal Railroad
Administration, and the Director, Office of Management and Budget. We
will also make copies available to others upon request. In addition,
the report will be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-2834 or heckerj@gao.gov. Contact points for our
Office of Congressional Relations and Public Affairs Office may be
found on the last page of this report. GAO staff that made major
contributions to this report are listed in appendix IX.
Sincerely yours,
Signed by:
JayEtta Z. Hecker:
Director:
Physical Infrastructure Issues:
[End of section]
Appendix I: Scope and Methodology:
Our work was focused on identifying the critical issues and options
that Congress could consider in providing more cost-effective intercity
passenger rail. In particular, we focused on: (1) the characteristics
of the U.S. intercity passenger rail system and the value and benefits
provided by this system, (2) foreign experiences with passenger rail
reform and lessons learned for the United States, (3) how well the
United States is positioned to reform intercity passenger rail, (4)
challenges that must be addressed in any reform efforts, and (5)
potential options for the federal role in intercity passenger rail. Our
scope was primarily limited to identifying the financial
characteristics and other characteristics of the U.S. intercity
passenger rail system from fiscal years 2001 to 2005. In reviewing
route-related information, it was not the intent of our work to suggest
that any particular routes or services be retained or eliminated.
Similarly, in reviewing potential options for the federal role in
intercity passenger rail it was not our intent to suggest that any
particular option should be selected over any other option. Rather, the
scope of our work was intended to identify a series of options that
might exist for addressing the future federal role in intercity
passenger rail service.
To determine the characteristics of the current U.S. intercity
passenger rail system we collected information on all of the National
Railroad Passenger Corporation's (Amtrak) routes, including ridership,
revenues and costs, federal grants and state payments to Amtrak, and on-
time performance for fiscal years 2000 through 2005. We also gathered
and analyzed data provided by Amtrak to determine passenger
demographics, connectivity between routes, and the potential
transportation benefits and public benefits provided by Amtrak's
different route types. We utilized route ridership data provided by
Amtrak from their "data warehouse" database. To assess the reliability
of this data and address discrepancies from figures reported in
Amtrak's Route Profitability System (RPS), we conducted interviews with
Amtrak officials and assessed the methodology used to develop this
database. Based on this assessment, we determined that the data were
sufficiently reliable for our purposes. To evaluate the financial
performance of Amtrak's routes, we utilized information from the RPS
database. Due to previously identified concerns regarding the
reliability of this database, we conducted an interview with Amtrak's
Chief Financial Officer, reviewed documentation of RPS's sources and
methodology, and compared route-related financial information to
Amtrak's "data warehouse" database to determine any major
discrepancies. While these databases exhibit some variation due to the
reporting format and source information, we determined that the
financial information provided by the RPS database was sufficiently
reliable to illustrate aggregate route-related costs, and general
trends between Amtrak's different route types, for the purposes of this
report. For the purposes of reporting on-time performance we utilized
data provided by Amtrak. We compared these figures to other reports
issued by Amtrak and the Department of Transportation (DOT) and
determined that the data were sufficiently reliable for our purposes.
To determine passenger demographic information, we utilized survey data
for all long-distance routes and select corridor routes in the
Northeast and California in 2004 and 2005; these data were provided by
Amtrak and collected by a third party contractor to Amtrak. We did not
independently determine the accuracy or precision of Amtrak's survey
estimates, however, based on our understanding of the overall survey
methodology, we determined that the estimates were sufficiently
reliable for our purposes in illustrating general demographic
differences in riders across route types. Finally, to identify
potential transportation benefits and public benefits provided by
intercity passenger rail, we spoke with officials in five
states;[Footnote 152] private transportation companies; and
transportation officials in several foreign countries. We also reviewed
our previous work and reports issued by the Congressional Budget Office
(CBO), Congressional Research Service, the Bureau of Transportation
Statistics, the American Association of State Highway and
Transportation Officials, and statements by officials at DOT.
To learn about foreign experiences with passenger rail restructuring
and lessons learned for the United States, we collected data on several
foreign countries that have reformed their intercity passenger rail
system. This data included reports from the World Bank, the European
Commission, the Congressional Research Service, as well as reports
drafted by several private consulting firms at the request of the
European Union. We conducted interviews with World Bank and European
Commission officials, and using these reports and interviews, we
developed criteria for selecting countries for site visits. These
criteria included: the extent of rail privatization or competition
introduced, geographic characteristics, market characteristics,
national funding levels and sources, and the legislative regulatory
environment. We reviewed data for Australia, Canada, France, Germany,
Japan, Sweden, and the United Kingdom (U.K.) Five countries--Canada,
France, Germany, Japan, and the U.K.--were all selected because they
represented a wide range of reform experiences, and implemented a
variety of approaches in reforming their systems. We conducted site
visits to these countries, which included interviews with the
Ministries of Transport for each of these countries. We also
interviewed the primary rail operators in Canada, France, Germany, and
Japan. In the U.K. we conducted interviews with one train operator, as
well as the Association of Train Operating Companies. In France,
Germany, the U.K., and Japan we also met with the infrastructure
managers. Additionally, we met with other rail industry groups, such as
Angel Trains and HSBC (rolling stock leasing companies) in the U.K.,
and the Paris Ile de France Public Transport Authority.
To determine the extent to which the United States is positioned to
reform intercity passenger rail we analyzed the information we learned
from the experiences of the five countries described above, and
reviewed statutes related to intercity passenger rail, historical
information on federal grants requested by and provided to Amtrak,
government and association reports on Amtrak, and our past reports on
various issues (including reports on Amtrak's management, commuter rail
issues, and funding for other modes of transportation). We used the
three key lessons learned from the five countries as our criteria for
assessing how well the United States is positioned to reform intercity
passenger rail; these criteria were (1) clearly defining national
policy goals; (2) clearly defining the various roles and
responsibilities of all government entities involved; and (3)
establishing consistent committed funding for intercity passenger rail.
For example, we compared the current U.S. intercity passenger rail
policy to policies formed in other countries during the process of
reform. A limitation of our assessment is that we only focused on
comparing the United States to five countries with relatively different
compositions in railroad infrastructure ownership, freight and
passenger railroad markets, geography, and demographics. To determine
the extent to which Amtrak's efforts address the three criteria, we
obtained and analyzed a list of planned and under-way initiatives from
Amtrak. We also reviewed Amtrak's April 2005 Strategic Reform
Initiatives, congressional hearings on intercity passenger rail, and
DOT's financial study on Amtrak's initiatives. In addition, we
interviewed Amtrak officials about the status of reform initiatives and
intercity passenger rail reform in general.
To address the challenges associated with addressing reform elements we
reviewed pertinent legislation related to federal involvement with
Amtrak and intercity passenger rail issues. We also reviewed various
legislative proposals that have been introduced in recent years
addressing intercity passenger rail issues and reviewed Amtrak's April
2005 Strategic Reform Initiatives to identify the wide diversity of
views on what intercity passenger rail service can and should be. We
also obtained data from Amtrak showing state payments in fiscal year
2005 for additional passenger rail service and state contributions for
capital improvement projects. We reviewed our previous reports
addressing, among other things, infrastructure access and workforce
issues, as well as Amtrak management and performance issues. We also
reviewed reports from the CBO and the Department of Energy, and
testimony from the Association of American Railroads on infrastructure
capacity issues. As part of our work we solicited information from both
Amtrak and selected commuter railroads about infrastructure access and
liability costs.[Footnote 153] We used the types and amounts of costs
incurred by Amtrak and the commuter railroads to develop a comparison
that highlights the differences between Amtrak's access agreements and
access agreements negotiated under commercial arrangements. We did not
perform a quantitative analysis of the differences in access charges
between Amtrak and commuter railroads. Rather, our focus was limited to
a qualitative description of the types and ranges of costs. Finally, we
interviewed officials from Amtrak, the Federal Railroad Administration
(FRA), state departments of transportation, rail labor unions, and
freight railroads about issues they see in addressing the potential
reform of intercity passenger rail. We also interviewed officials from
the Appalachian Regional Commission about the structure of the
organization, how it is governed, and the potential application of this
federal-state governance structure to intercity passenger rail service.
To address future intercity passenger rail options, we reviewed
pertinent legislation and our past reports, along with reports from the
World Bank, the DOT Inspector General, the CBO, and the Congressional
Research Service. We also interviewed railroad and government officials
in the United States and the countries we visited. We reviewed the
reports of various commissions including: the House Committee on
Transportation and Infrastructure's Working Group on Intercity
Passenger Rail, the Amtrak Reform Council, the President's Commission
on the United States Postal Service, and the National Commission of
Social Security Reform. The criteria for a fundamental reexamination of
the federal role were developed in our report on 21st Century
Challenges, and the framework to guide the implementation of the
options was reported in several of our previous reports and
testimonies.
Our work was conducted from January 2006 to October 2006 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Selected Performance Characteristics of Amtrak Long-
Distance and Corridor Routes:
The following are selected performance characteristics of Amtrak's long
distance and corridor routes.
Table 6: Coach Class versus Sleeper Class: Net Loss per Passenger,
Fiscal Year 2004:
Sunset Limited;
Operating basis: Coach: 286;
Operating basis: Sleepers: 366;
Fully-allocated basis[A]: Coach: 416;
Fully- allocated basis[A]: Sleepers: 627.
Crescent;
Operating basis: Coach: 114;
Operating basis: Sleepers: 330;
Fully-allocated basis[A]: Coach: 194;
Fully- allocated basis[A]: Sleepers: 552.
Southwest Chief;
Operating basis: Coach: 198;
Operating basis: Sleepers: 307;
Fully-allocated basis[A]: Coach: 279;
Fully- allocated basis[A]: Sleepers: 484.
Silver Service;
Operating basis: Coach: 99;
Operating basis: Sleepers: 244;
Fully-allocated basis[A]: Coach: 168;
Fully- allocated basis[A]: Sleepers: 439.
Cardinal;
Operating basis: Coach: 129;
Operating basis: Sleepers: 238;
Fully-allocated basis[A]: Coach: 175;
Fully- allocated basis[A]: Sleepers: 420.
California Zephyr;
Operating basis: Coach: 140;
Operating basis: Sleepers: 234;
Fully-allocated basis[A]: Coach: 202;
Fully-allocated basis[A]: Sleepers: 416.
Lake Shore Limited;
Operating basis: Coach: 106;
Operating basis: Sleepers: 225;
Fully-allocated basis[A]: Coach: 195;
Fully-allocated basis[A]: Sleepers: 379.
City of New Orleans;
Operating basis: Coach: 88;
Operating basis: Sleepers: 217;
Fully-allocated basis[A]: Coach: 165;
Fully-allocated basis[A]: Sleepers: 352.
Capitol Limited;
Operating basis: Coach: 112;
Operating basis: Sleepers: 208;
Fully-allocated basis[A]: Coach: 159;
Fully- allocated basis[A]: Sleepers: 321.
Texas Eagle;
Operating basis: Coach: 111;
Operating basis: Sleepers: 198;
Fully-allocated basis[A]: Coach: 132;
Fully- allocated basis[A]: Sleepers: 311.
Coast Starlight;
Operating basis: Coach: 81;
Operating basis: Sleepers: 157;
Fully-allocated basis[A]: Coach: 139;
Fully- allocated basis[A]: Sleepers: 290.
Empire Builder;
Operating basis: Coach: 94;
Operating basis: Sleepers: 154;
Fully-allocated basis[A]: Coach: 126;
Fully- allocated basis[A]: Sleepers: 283.
Auto Train;
Operating basis: Coach: 26;
Operating basis: Sleepers: 124;
Fully-allocated basis[A]: Coach: 117;
Fully- allocated basis[A]: Sleepers: 269.
Average loss per passenger;
Operating basis: Coach: 121.8;
Operating basis: Sleepers: 230.9;
Fully-allocated basis[A]: Coach: 189.8;
Fully-allocated basis[A]: Sleepers: 395.6.
Source: DOT OIG analysis of Amtrak Fiscal Year 2004 data.
[A] "Fully-allocated" loss includes capital depreciation and interest
expenses.
[End of table]
Table 7: On-Time Performance of Long-Distance Trains, Fiscal Year 2005:
Routes: Auto Train;
Percent on-time: 37.7%;
Average minutes late: 80.
Routes: California Zephyr;
Percent on-time: 24.4;
Average minutes late: 158.
Routes: Capitol Limited;
Percent on-time: 26.4;
Average minutes late: 90.
Routes: Cardinal;
Percent on-time: 38.0;
Average minutes late: 89.
Routes: City of New Orleans;
Percent on-time: 83.0;
Average minutes late: 21.
Routes: Coast Starlight;
Percent on-time: 23.3;
Average minutes late: 173.
Routes: Crescent;
Percent on-time: 57.3;
Average minutes late: 48.
Routes: Empire Builder;
Percent on-time: 68.3;
Average minutes late: 39.
Routes: Lake Shore Ltd;
Percent on-time: 20.3;
Average minutes late: 99.
Routes: Silver Service;
Percent on-time: 25.9;
Average minutes late: 120.
Routes: Southwest Chief;
Percent on-time: 71.6;
Average minutes late: 37.
Routes: Sunset Limited;
Percent on-time: 7.1;
Average minutes late: 300.
Routes: Texas Eagle;
Percent on-time: 53.1;
Average minutes late: 60.
Routes: Three Rivers;
Percent on-time: 58.6%;
Average minutes late: 54.
Source: GAO analysis of Amtrak data.
[End of table]
Table 8: List of States with Corridor Services, Fiscal Year 2005:
California;
Pacific Surfliner;
Capitols;
San Joaquins.
Connecticut;
New Haven-Springfield.
Indiana;
Hoosier State;
Wolverine.
Illinois;
Chicago-St. Louis;
Illini;
Illinois Zephyr;
Hiawatha (with Wisconsin).
Maine;
The Downeaster.
Massachusetts;
The Downeaster;
New Haven- Springfield.
Michigan;
Wolverine;
Blue Water;
Pere Marquette.
Missouri;
Kansas City-St. Louis;
Chicago-St. Louis.
New Hampshire;
The Downeaster;
Vermonter;
New York;
Empire;
Adirondack;
Ethan Allen.
North Carolina;
Carolinian;
Piedmont.
Oklahoma;
Heartland Flyer.
Oregon;
Cascades (with Washington).
Pennsylvania;
Keystone;
Pennsylvanian.
Texas;
Heartland Flyer.
Washington;
Cascades (with Oregon).
Wisconsin;
Hiawatha (with Illinois).
Vermont;
Ethan Allen;
Vermonter.
Virginia;
Carolinian;
Washington-Newport News.
Source: Amtrak.
Note: The Hoosier State service between Indianapolis and Chicago is
currently classified by Amtrak as a corridor route but was not included
in the original DOT analysis. Does not include Regional and Keystone
service on Boston-Washington NEC Spine. Illinois listing does not
include routes that serve only Chicago. Texas has recently indicated
that it will begin funding Heartland Flyer service.
[End of table]
Figure 15: Amtrak's Market Share Compared to Air Services for Selected
Origins and Destinations:
[See PDF for image] - graphic text:
Source: McKinsey and Company.
[End of figure] - graphic text:
Figure 16: Amtrak's Route System--1971:
[See PDF for image]
Sources: National Association of rail Passengers, GAO, Corel(map).
[End of figure]
[End of section]
Appendix III: Reform Overviews in Five Site Visit Countries:
The following is an overview of the five countries we visited as part
of this review.
Canada:
Background:
Reformation of Canada's intercity passenger rail system initially took
place in 1978 with the creation of VIA Rail, a state-owned corporation.
Prior to this, both the passenger and freight rail systems were
integrated and service was provided by two companies, Canadian National
Railway and Canadian Pacific Railway. While there has been no major
organizational changes since its creation, VIA Rail was subject to
several national policy actions throughout the 1990s leading to
significant changes in how the rail operator conducted its business, in
addition to the changes in the amount of funding it receives.
Snapshot of the Canadian Rail System;
* Monopoly state owned operator, VIA Rail;
* Almost all infrastructure is owned by two freight rail companies;
* Operating subsidies are consistent from year to year in order to
force efficiencies and enable better planning for VIA Rail's
management;
* VIA's corporate plan is approved annually by the federal cabinet.
[End of table]
Operations:
The primary provider of intercity passenger rail operations in Canada
is VIA Rail, a government-owned corporation with shares held solely by
the Canadian government. However, the government agency, Transport
Canada, is responsible for overseeing VIA Rail. VIA Rail operates
almost all of the intercity corridor and long-distance routes
throughout Canada, and has some flexibility in setting its routes and
services: however, all route and service changes must be approved by
Transport Canada, the Canadian Minister of Transport, and the Canadian
government. The majority of VIA Rail's usage occurs on a corridor that
runs between Québec City, Québec, and Windsor, Ontario. (This corridor
is in the southeast part of the country, and shares similarities with
the Amtrak's Northeast Corridor, but with a lower population density.)
Similar to the United States, Canada's long-distance routes operated
with higher losses than the corridor service, and because of this in
1992 a reevaluation of the Canadian (a long-distance train which runs
across the country from Toronto, Ontario, to Vancouver, British
Columbia) was conducted. Analysis of this route revealed that it was
primarily serving a leisure/tourist market, and a decision was made to
transition service on the Canadian to a luxury train offering "premium
service at a premium price" along with its coach service. In addition,
cutbacks in all cost categories and labor renegotiations, combined with
substantial revenue growth, allowed VIA Rail to operate more
efficiently within its budget.
Infrastructure:
VIA Rail does not own most of the tracks on which it operates, and
similar to Amtrak, operates on private tracks owned by freight
rail.[Footnote 154] VIA Rail does not have any statutory guarantee of
access to tracks, and must negotiate access agreements with the freight
operators. Current access agreements with freight railroads are 10-year
agreements and are set to expire in 2008. VIA Rail owns and maintain
most of its stations.
Funding and Debt:
VIA Rail receives an annual subsidy from the Canadian Parliament.
Currently VIA Rail receives about $170 million (CAD) annually to
support its rail operations.[Footnote 155] In 1991, the Canadian
government began informally capping the subsidy received by VIA Rail.
The subsidy at the time was $350 million (CAD)[Footnote 156] and, due
to governmentwide cost cutting, was gradually reduced to its current
level. Despite the decrease in its subsidy, VIA Rail did not make any
reductions in its service offerings--it concentrated on improving
customer service while reducing costs through more efficient
management, instead. This operating subsidy does not include funds for
capital improvements. VIA Rail does not receive a capital subsidy each
year, but instead must request special capital subsidies from
Parliament.
The last funding it received for capital improvements was in 2000 for
$400 million (CAD)[Footnote 157] to replace locomotives and rolling
stock, and to perform work on its Montreal, Québec-Ottawa, Ontario,
line. VIA Rail has no authority to issue debt instruments, or to go
into the debt market to fund rail operations. Any attempt to do this
would require permission from Transport Canada, the Minister of
Transport, and the Minister of Finance. At the time of its creation,
VIA Rail did not have any debt, and currently has no authority to issue
debt instruments or to go into the debt market to raise funds.
France:
Background:
The French intercity passenger rail system was reformed in 1997 in
order to create an infrastructure manager distinct from the national
operator and address the financial crisis that had been created by the
fully integrated intercity passenger rail system. The monopoly
intercity passenger rail operator in France is Société Nationale des
Chemins de Fer Français (SNCF), a public company with 100 percent of
its assets owned by the state. Until the 1997 reform, SNCF was
responsible for both intercity passenger rail operations, as well as
for managing the country's rail infrastructure. During the reform,
Réseau Ferré de France (RFF) was created to take over management of the
infrastructure. RFF is also a public company with 100 percent of its
assets owned by the state.
Snapshot of the French Rail System;
* Monopoly operator and infrastructure manager; both are state-owned
public companies;
* National subsidies for intercity passenger rail operations are
provided to the regions, and not directly to the operator;
* System comprises the largest use of high-speed trains in the world
(6,000 miles operated by Train a Grande Vitesse trains);
* Will be required by the European Union to begin to open its passenger
rail market to competition by 2010-2012 (freight market already open to
competion).
[End of table]
Operations:
SNCF is the monopoly intercity passenger rail operator in France. SNCF
primarily provides intercity rail service through contracts with 20
geographical regions of France. At the time of the 1997 reform, the
French government began experimenting with regionalization of its
intercity passenger rail system. Through this experiment six geographic
regions were provided with subsidies so that intercity passenger rail
needs could be purchased from SNCF. This was successful, and, as of
2002, 20 regions in France are given direct subsidies to purchase
intercity passenger rail service. This allows the regions to enter into
contracts with SNCF for the appropriate quantity and frequency of
service needed to meet the unique characteristics of the region's
passengers. In addition to operating passenger rail services, SNCF
provides infrastructure management services under contract with RFF.
SNCF performs traffic management on the national network, and operates
and maintains the national safety system.
Infrastructure:
RFF was created through the reform in order to establish an
infrastructure manager separate from the national operator. This was
intended to clarify the responsibilities and costs for rail
infrastructure in France. All rail infrastructure is owned by RFF, and
it was given the mission of ensuring coherence of the French rail
network through improving existing lines, developing the network
through building new lines, and enhancing the network by selling land
property and lines not in use. RFF's main sources of income are access
charges for use of the rail network, income relative to land properties
included in the network, and a state subsidy. As part of the creation
of RFF, two-thirds of the former SNCF's debt was transferred to RFF in
exchange for SNCF's infrastructure assets (31,000 km of
track).[Footnote 158]
Funding and Debt:
Funding for both RFF and SNCF is provided by the French Ministry for
Transport. The state provides about 7.5€ billion[Footnote 159] to
subsidize the rail system each year including 2€ billion[Footnote 160]
to France's 21 geographic regions so that intercity passenger rail
service can be purchased from SNCF. The state provides RFF about 800€
million[Footnote 161] annually to pay off the debt it inherited during
the reform, and about 900€ million[Footnote 162] each year to perform
infrastructure renewal. The cost of track maintenance is supported
through infrastructure access fees. RFF contracts with SNCF to perform
some infrastructure management, and in 2004 RFF paid SNCF 2.6€ billion
(approximately $3.2 billion (USD))[Footnote 163] for its services. SNCF
pays RFF access fees in order to operate its trains on RFF tracks, and
in 2004 it paid 2.16€ billion (approximately $2.6 billion
(USD))[Footnote 164] in access fees. Since the reform, these access
fees have continued to increase, and the public subsidy for
infrastructure is decreasing proportionally. At the time of the reform,
SNCF was carrying about 30€ billion in debt (approximately $25 billion
(USD)), and was operating with a 2€ billion (approximately $2.4 billion
(USD)) deficit. 20€ billion (approximately $18 billion) of this debt
was transferred to RFF in exchange for infrastructure, and the
remainder stayed with SNCF. RFF's debt has stabilized since the 1997
reform, and a public financial agency for funding transportation
infrastructure was recently formed to provide infrastructure subsidies
and zero-percent interest loans for new projects. RFF receives on
average 2€ billion annually for capital investments for new lines and
anticipates 7.5€ billion from this agency for 2005 through 2012
(currently this is approximately $9.6 billion).
Germany:
Background:
In 1994, Germany implemented its first rail reform initiative.[Footnote
165] Germany began by separating its governmental and commercial rail-
related tasks and by opening its markets to competition. This was done
by merging the two preexisting national railway properties, Deutsche
Bundesbahn (West Germany) and Deutsche Reichsbahn (East Germany) into
the Federal Railway Property Agency (BEV).[Footnote 166] The commercial
section of BEV was then separated and transformed into DB, a state-
owned joint-stock company that acts independently in the transport
market, and includes separate business units for both long and short
distance passenger rail operations and infrastructure management.
Although DB owns the entire rail infrastructure network in Germany, all
shares of the DB infrastructure company are held by the state. The
German intercity passenger rail system is also open to competition. Any
rail operator who wants to enter the market is free to bid on contracts
to provide service, and while this has yielded a large number of
intercity passenger rail operators in Germany, DB remains the primary
operator in most markets.
Snapshot of the German Rail System;
* Multiple operators, market open to competition (over 300 competing
operators);
* Single infrastructure manager; private company that is part of a
state owned holding company;
* National subsidies for regional passenger rail operations are
provided to the Länder (the German federal states), and not directly to
the operators.
[End of table]
Operations:
The German passenger rail market is open to competition, and currently
there are over 300 different operators providing rail service in
Germany. Despite this, most rail service in Germany is operated by DB.
National funding for short-distance passenger rail service is provided
directly to the Länder by the national government and the Länder then
receive bids for service from operators based on the specific needs
they outline in a request for proposal. Länder are not required to
tender the service to multiple operators, and can provide payment
directly to DB for it to continue operating preexisting service. The
contracts established with operators are generally for about 10-15
years. If the Länder want to purchase service that exceeds the amount
of the subsidy available to them, they are welcome to do so, and can
spend their own funds to do this. In some cases, the Länder have
further delegated the authority to decide rail services to the local
level. In addition to winning contracts to provide regional service,
passenger operators can provide long-distance service at their own
risk. However, long-distance rail operators are required to pay
infrastructure access fees. After reform, several of the money-losing
long-distance routes that were in existence were shut down by DB, in
compliance with public law.
Infrastructure:
Most of the infrastructure in Germany is owned by DB Netz, one of DB's
corporate business units. Currently DB Netz is part of a state owned
holding company. All operators that use infrastructure in Germany pay
access fees to DB Netz, including other DB business units (freight,
commuter rail and intercity passenger rail). Currently there is ongoing
debate about transforming DB's status as a state-owned private-stock
company to a publicly traded company. The largest issue at hand is
whether or not to include DB Netz as part of the initial public
offering. According to DB officials, the company sees an advantage to
including the infrastructure in an initial public offering. Based on
several reports, government representatives also expect significant
public financial benefits from an integrated initial public offering,
but some fear this model will lessen their ability to influence
infrastructure decisions.
Funding and Debt:
The national government provides about 7€ billion annually[Footnote
167] to the Länder to operate regional passenger rail. The source of
this federal subsidy is a transportation fund, which is supported by an
automobile fuel tax. DB Netz receives about 4€ billion[Footnote 168]
each year in federal subsidies in order to renew and develop new
infrastructure (including stations). About 2.5€ billion of this goes
towards maintaining the current infrastructure, and about 1.5€ billion
goes towards renewal and new infrastructure.[Footnote 169] By
establishing DB, the German government relieved it of approximately 35€
billion debt (approximately $38 billion at the time of reform in 1994)
and transferred the responsibility for paying and managing this debt to
BEV. About 10€ billion per year[Footnote 170] is paid to BEV for debt
relief and other administrative responsibilities (e.g., pensions).
Japan:
Background:
Reform of the Japanese rail system through privatization was initiated
in 1987. Before reform, the Japanese railway was a fully integrated
state-owned monolithic railway entity, Japan National Railways, which
operated at considerable cost to the government and carried extensive
debt. After reform, Japan kept its intercity passenger rail system
vertically integrated, that is, it did not separate out operations from
infrastructure, but instead it divided the system geographically, and
created separate private intercity passenger railways for the country
based on six distinct geographic regions (and a separate company for
freight rail). The government also assumed the majority of the debt for
the preexisting state-owned system, which at about $300 billion was a
substantial sum.
Snapshot of Japanese Rail System;
* Vertically integrated operations and infrastructure; market split
into six geographic regions;
* Each region has its own rail company;
* Debt of pre-existing state owned railway divided among three largest
passenger rail companies, JR Freight, Shinkansen Holding Corporation,
and JNR Settlement Corporation;
* Three largest intercity passenger rail companies are fully private,
while government supports the other three.
[End of table]
Operations:
After the reform, the fully integrated state owned operator, Japan
National Rail, was broken up into six passenger rail entities based on
six geographic regions. Three of these regions are on the mainland (JR
East, JR Central, and JR West) and the other three are each on an
island (JR Hokkaido, JR Shikoku, and JR Kyushu). A freight company was
also created to serve the entire country. Each of these six passenger
rail operations are vertically integrated, that is within each rail
company infrastructure and operations are both managed by the same
company. The three companies on the mainland are fully privatized, and
do not receive any financial assistance from the government. The other
three passenger companies have not yet reached a point where they are
financially independent from the state.
Infrastructure:
The six passenger railway companies own their own tracks and JR Freight
has legal access to the JR's tracks at marginal or incremental cost. In
1991, JR West, East and Central purchased their tracks from the
Shinkansen Holding Company and the proceeds went toward paying down the
company's portion of Japan National Railway's long term debt. The Japan
National Railway developed an implementation plan for its division that
included how much land was needed for each railroad, which was approved
by the Ministry of Land, Infrastructure and Transport. The companies
were then given existing stations and offices from the old Japan
National Railway. Some of the non-railroad-oriented land was retained
by the Japan National Railway Settlement Corporation because it was not
needed by the new railroads for operations. JR Freight pays a
relatively low state-determined access fee for using the tracks of the
other passenger railroads. Japan also has Shinkansen (high-speed) lines
that connect most of the highly populated cities. The Japan Railway
Construction, Transportation, and Technology Agency builds new
Shinkansen lines; it also holds title to some existing Shinkansen lines
and leases them to the passenger railroads for high-speed train
operations.
Funding and Debt:
When reform occurred in 1987, the Japanese government provided a one-
time Business Stabilization Fund, which provided funding for three
passenger railroads that were not yet privatized and needed subsidies
to survive. JR Hokkaido was given ¥682 billion,[Footnote 171] JR
Shikoku was given ¥208 billion,[Footnote 172] and JR Kyushu was given
about ¥388 billion.[Footnote 173] These three railroads were allowed to
invest these funds and use any money made from them for operations and
capital improvements. However, they were not allowed to draw down any
principal--only the profits or interest from investments. Therefore,
currently the three companies have maintained the original amounts
given to them by the state in 1987. However, the performance of the
fund has been declining as Japanese interest rates have declined since
the establishment of the fund. It is not clear what will happen to
these amounts if any of these three companies are fully privatized at a
later date. However, Japanese Board of Audit officials feel that it
will be a long time, if ever, before the three companies are
financially able to achieve privatization. Of these three passenger
railroads, only JR Kyushu is given a reasonable chance of achieving the
financial stability necessary to privatize.
There are two other forms of assistance to JR Hokkaido, JR Shikoku, and
JR Kyushu. A guaranteed interest rate was offered for the stabilization
fund that was higher than the market rate available to the three
mainland JR's. The government reduced the tax rate on fixed railroad
assets as well. In addition, at the time of reform, the Japan National
Railways had accumulated about ¥37 trillion[Footnote 174] of long-term
debt. About ¥25.5 trillion[Footnote 175] was placed with a newly
created entity, called the Japan National Railways Settlement
Corporation, and the remaining debt was distributed among the three
mainland railroads, JR Freight, and the Shinkansen Holding Company. The
state government determined the debt allocation, apparently on the
basis of expected future profits of each entity. The Hokkaido, Shikoku,
and Kyushu railroads were not allocated any of this debt because of
their more precarious financial positions.
The United Kingdom:
Background:
The U.K. began its major reform in 1993 in an effort to privatize its
rail system, and then undertook another significant restructuring
effort in its 2004. The 1993 reform took place over 5 years and
involved radical restructuring. The preexisting monolith, British
Railways, was broken up into many pieces, including a private
infrastructure company, Railtrack, which was replaced in 2002 with
Network Rail, over 20 train operating companies, three rolling stock
ownership and leasing companies, and three government regulators
(currently there is only one entity, the Office of Rail Regulations).
In 2004, the U.K. restructured again to restore the long-term
efficiency and keep the affordability of rail within the level of
public expenditures defined by the British government, as well as to
recover performance levels, maintain high standards of safety, and
enable the industry to meet its customers' needs.
Snapshot of the U.K. Rail System;
* Multiple operators; market split into franchises which are open to
competition;
* Single infrastructure manager; owned "members" consisting of
representatives from a range of industry interests;
* British Rail's rolling stock was divided between the three rolling
stock ownership and leasing companies and is available for lease to
interested operators;
* The national government was unable to completely exit the industry,
and mainly plays a role in setting the strategic direction for the
railways.
[End of table]
Operations:
After the initial reform effort, intercity passenger rail operations
were no longer conducted by British Railways but were instead turned
over to the private sector. The rail network was broken up into
different franchises, and private operators were permitted to bid on
franchises for the provision of services. These operators are
essentially private companies that enter into franchise agreements with
the government, where the government will subsidize unprofitable
service or receive a premium for services that see excess profits. In
addition, these operators pay access fees to the infrastructure manager
in order to access the tracks, and the U.K. government adjusts subsides
paid to, or premium received from, operators to compensate for any
change to the fixed access charge made by the independent regulator.
Infrastructure:
Rail infrastructure in the U.K. is currently all managed by Network
Rail. Network Rail is a private corporation, run by a board of
directors, and overseen by more than 100 members of the railroad
industry and some members of the general public. The members do not
have day-to-day responsibilities for making management decisions, but
they do elect and dismiss the board of directors, approve the long-term
remuneration of board members, approve Networks Rail's annual report,
and approve specific resolutions put forth before the membership.
Network Rail was not the first infrastructure company formed after the
U.K.'s reform. At the time of reform, a private for-profit corporation,
Railtrack, was established to own and manage all of the U.K.'s
infrastructure. In 2001, Railtrack went bankrupt, and Network Rail's
bid to take over Railtrack was accepted; it then assumed control over
the infrastructure in 2002. Currently, Network Rail earns income from
three sources--network access fees paid by the operators (and which are
set by the Office of Rail Regulation), direct government grants, and
other income such as commercial property.
Funding and Debt:
Although privatized, the intercity passenger rail system in the U.K.
receives operating subsidies from the government. Generally about 50
percent of all costs are covered through public subsidies, but U.K.
government officials expect this percentage to fall in the future.
Total debt for Network Rail is currently at £18 billion and is
projected to peak at £21 billion between 2008-2009.[Footnote 176] This
debt did not exist at the time of reform, and was incurred through
paying for enhancements to its regulatory asset base. Network Rail also
assumed £8 billion[Footnote 177] of this debt from Railtrack.
[End of section]
Appendix IV: Current Amtrak Reform Efforts:
In April 2005, Amtrak's board of directors and management proposed a
set of broad strategic reform initiatives. Since the release of these
initiatives, Amtrak formed a new planning and analysis department to
manage the strategic reform initiative plan and implementation, among
other duties (such as developing a capital and asset plan). Thus far,
15 operational initiatives have been developed, which are described as
either corporate or business-line initiatives (see table 9). Recently,
to further develop these initiatives, Amtrak has begun to refine the
structure of these initiatives into five issue areas: (1) business
efficiencies, (2) service levels, (3) cost recovery, (4) labor, and (5)
legislative. According to Amtrak, most of the 15 initiatives will fall
into the business efficiency category, which the company views as
having greater control over. The labor, long-distance, corridor, and
infrastructure initiatives will fall within more than one of the
categories, and full implementation of these initiatives would require
legislative action. In addition, initiatives associated with each of
the train operations business lines (long distance, NEC, and state
corridor) will fall under all five categories.
Amtrak's 15 initiatives are largely designed to reduce costs, increase
revenue, and improve its financial reporting. Among the initiatives
Amtrak has planned or undertaken to reduce costs is the overhead
function initiative, which it estimates will save $5.1 million in
fiscal year 2006 through reductions in outside legal fees, software,
and communications costs. The NEC operations initiative is designed to
increase revenue, partly through the implementation of revenue
management on NEC's Regional Service, by charging variable
rates.[Footnote 178] The management information initiative calls for
reforming how Amtrak currently reports financial and operating
information. Amtrak's Chief Financial Officer told us that reports to
management will focus more on performance outcomes, such as performance
per passenger mile. In addition, Amtrak is in the process of developing
a new cost-accounting system as directed through fiscal year 2006
appropriations to improve accountability. As of May 2006, the
operational initiatives have resulted in annual savings of $46 million
for fiscal year 2006, but are expected to save $190 million a year when
fully implemented.
Table 9: Objectives and Status of Amtrak's 15 Reform Initiatives:
Corporate.
Type of initiative and description: Food and beverage;
Objective: Enhance service flexibility, redesign equipment, and
outsource certain service;
Status:
* The contract for Gate Gourmet, Amtrak's food vendor, is being
renegotiated. Amtrak expects savings of close to $1 million in fiscal
year 2006;
* The Simplified Dining program has been implemented,which, through
June 2006, resulted in savings of $3.7 million.[A];
* Amtrak is redesigning cars to offer continuous, restaurant-style
dining service and enhanced customer service;
* Amtrak will continue to monitor and evaluate service levels, staffing
models, and savings, against goals for food and beverage services.
Type of initiative and description: Mechanical;
Objective: Adopt reliability-centered maintenance, consolidate
facilities, and outsource selected activities;
Status:
* Amtrak plans to evaluate its facility locations for cost savings;
* A review of maintenance requirements is under way to minimize costs
and maximize reliability;
* As of July 2006, one maintenance service has been identified for
outsourcing, but a request for proposal has not been posted.
Type of initiative and description: Customer service;
Objective: Modernize ticket issuance, collection, and reporting
processes; and improve service quality measurement and delivery;
Status:
* On July 5, 2006, Amtrak completed training and deployment of service
managers on long-distance trains to create consistency in supervision
of customer service delivery;
* Amtrak is developing an e-ticketing system to replace the paper
ticket system and a customer service quality measurement system, and
has begun planning for route/product-level management oversight.
Type of initiative and description: Management information;
Objective: Develop more accurate and timely; information on costs of
routes, individual activities, and functions;
Status:
* Amtrak is in the process of evaluating its current financial
information system as the initial step to replacing it with an
integrated financial system;
* A report on the activity-based management system project is being
finalized; * The Route Profitability System (RPS) is being updated to
ensure its reliability. Changes to the RPS system are expected to be
completed by the end of FY 2007.
Type of initiative and description: Improve and update stations;
Objective: Address Americans with Disabilities Act (ADA) compliance,
state-of-good-repair, and reduce station operating costs;
Status:
* The analysis of stations is under way to reduce operating cost;
* Amtrak is currently monitoring the impact of staffing changes on ADA
service to customers and plans to continue this process.
Type of initiative and description: Call centers;
Objective: Reduce ticketing costs by reducing staffing, increasing
utilization of lower cost distribution channels, and outsourcing;
Status:
* Amtrak plans to solicit vendors for proposal to outsource call center
positions.
Type of initiative and description: Overhead functions; Objective:
Reduce unit costs of corporate support functions through selective
outsourcing, staffing reductions, skills development, and greater use
of technology; Status: * Amtrak has planned and implemented some
savings through technology-and energy-management efficiencies.
Type of initiative and description: Service reliability;
Objective: Improve on-time performance of Acela and NEC trains through
operational modifications and targeted investments;
Status:
* Amtrak officials discussed on-time performance improvements to Acela
trains with FRA for plan approval.
Type of initiative and description: Labor contracts;
Objective: Reduce unit costs and increase flexibility by negotiating
new labor agreements that eliminate certain work-rule and outsourcing
restrictions, and base wages on market levels;
Status:
* Amtrak has been advocating legislative changes to amend the railroad
retirement-system to make Amtrak competitive with other operators, but
as of August 2006 no legislative action has taken place.
Type of initiative and description: Ongoing efficiencies;
Objective: Enhance financial performance of other activities and
functions through continued business improvements (e.g., operating crew
optimization, maintenance-of-way productivity)
Status:
* Amtrak has focused on improving efficiencies in four areas to reduce
cost--safety, engineering productivity, fuel conservation, and labor.
Business line.
Type of initiative and description: Long distance;
Objective: Improve performance of all routes by redefining sub-brands,
restructuring services/routes, selected luxury outsourcing,; and
corporate initiatives;
Status:
* Amtrak completed an analysis of the overall performance of long-
distance routes to identify poorly performing routes;
Amtrak developed a plan to restructure the sleeper service offered on
long-distance trains to reduce cost. This plan includes evaluating new
sleeper products and reconfiguring the number of cars;
* Amtrak developed a plan to evaluate Amtrak's entire route network,
which will establish network goals, match structure to national trends,
and provide network options.
Type of initiative and description: NEC operations;
Objective: Boost financial contribution through improved load factors,
adjusted service patterns, re-launching sub-brands, trip time
investments, and corporate initiatives;
Status:
* Short-, mid-, and long-term plans have been developed to improve
Acela service to increase customer satisfaction, ridership, revenue,
and market share.
Type of initiative and description: Corridors;
Objective: Improve competitiveness of state services, establish a pilot
competition project, and; transition states to full cost recovery for
all corridor routes;
Status:
* Amtrak launched a state competition pilot project with support from
FRA to promote competition. As of July 2006, four proposals have been
evaluated for implementation;
* Amtrak developed a plan to transition states to full operating cost
recovery, but the plan hinges on legislative changes to funding
structure.
Type of initiative and description: Fleet utilization;
Objective: Optimize use of fleet, maximize load factors, and increase
revenues by making train configurations more efficient and retiring or
redeploying excess equipment;
Status:
* Amtrak is developing a multiyear fleet plan for fleet optimization.
Type of initiative and description: Infrastructure;
Objective: Develop a long-term capital master plan and operate NEC
efficiently on behalf of all users, while establishing a fair sharing
of operating and capital costs among all users;
Status:
* Amtrak is developing a long-range plan to bring the corridor into a
state of good repair over 20 years, which includes a long-term capital
plan;
* Amtrak has met with stakeholders regarding an advisory committee for
the NEC.
Source: GAO analysis of DOT OIG and Amtrak data.
[A] The Simplified Dining program provides pre-plated meals that
utilize less labor.
[End of table]
[End of section]
Appendix V: Operational Challenges Associated with Access, Capacity,
and Liability Issues:
Any effort to reform the United States' intercity passenger rail system
must recognize that there are access, capacity, liability, and
workforce issues. For instance, Amtrak benefits from a number of
statutory access rights that mask the potential capacity impacts of
passenger rail service on freight traffic. In addition, the potential
liability associated with operating passenger rail must be accounted
for, as must statutory and contractual workforce requirements.
Currently, the liability framework surrounding intercity passenger rail
is complex, with statutory exceptions and negotiated indemnification
agreements altering default negligence rules.
Infrastructure Access and Capacity Issues:
Amtrak's statutory access and priority rights for intercity passenger
service--and the subsequent impact on freight capacity--is a source of
contention in the rail industry. Amtrak owns very little of the
infrastructure that it uses, and, in fact, most of the 22,000 miles of
rail lines that Amtrak uses are owned by four private, U.S.-based Class
I freight companies--CSX, Union Pacific, BNSF, and Norfolk Southern.
Amtrak has three statutory rights to privately owned rail
infrastructure that no other operator has: (1) access to tracks and
facilities of railroads and regional transportation authorities; (2)
access charges at incremental cost; and (3) priority over freight
trains.
No other passenger rail service receives the benefit of statutory
rights. For instance, commuter rail agencies must negotiate with host
railroads for infrastructure access.[Footnote 179] Similarly, any
private operator of intercity passenger rail in the United States would
have to negotiate for access to host-railroad infrastructure without
the benefit of these statutory rights. Because other operators do not
have these statutory rights, one state official said that his state
feels "stuck" with Amtrak. This state official said his state is
frustrated because there is no real alternative to Amtrak as long as
these rights belong solely to Amtrak. The freight railroad industry is
adamantly opposed to permitting a transfer of Amtrak access and
incremental charge rights to non-Amtrak operators, which was confirmed
by officials from freight railroads with whom we spoke.
One state official told us that, without Amtrak's access rights,
passenger rail access fees are a "seller's market"--that is, freight
railroads can charge whatever they want. State officials with whom we
spoke generally estimate that Amtrak's per train-mile costs are
approximately one quarter to one half of what the freight railroads
would charge another operator. Similarly, an official from one freight
railroad estimated that infrastructure access costs for an intercity
passenger rail operator negotiating "at arm's length" would be three to
four times Amtrak's current costs, and possibly as high as ten times as
much as current rates. According to this official, even these rates
would not capture the full impact of passenger trains on freight line
capacity.
While Amtrak's access costs cannot be directly compared with a
competing intercity passenger rail operator, a comparison with commuter
rail access costs is informative. According to information provided by
Amtrak, on average, Amtrak paid $1.16 per train-mile for access to
freight-owned infrastructure in fiscal year 2005.[Footnote 180] In
contrast, commuter rail agencies with whom we spoke that operate
primarily on freight railroad infrastructure identified three types of
access charges: per train-mile fees, fixed-access fees, and capital
contributions.[Footnote 181] All of these commuter agencies reported
paying per train-mile access fees for each line, with a range from
$3.38 to $40 per train-mile. These agencies reported paying either a
one-time up front access fee or an annual access fee for most lines as
well (see table 10). In addition, all four commuter rail agencies with
whom we spoke made capital contributions to freight infrastructure for
each line, either to gain initial access to the freight infrastructure
or to expand established commuter rail operations.[Footnote 182]
According to Amtrak, commuter rail trains--which are concentrated in
the morning and evening weekday peak periods and have long track
occupancy due to frequent stops--require greater rail line capacity,
and therefore, impose much higher costs on the track owner than a
comparable number of intercity passenger rail trains that are spread
throughout the day or week.
Table 10: Examples of Costs Paid by Commuter Rail Agencies to Gain
Infrastructure Access:
Fixed-access fee[A]:
Description: One-time, up front fee;
Range of cost reported by commuter rail agencies: $4,000,000 to
$23,700,000.
Description: Annual fee;
Range of cost reported by commuter rail agencies: 80,000 to 1,800,000.
Capital contribution[B]:
Description: Annual capital contribution;
Range of cost reported by commuter rail agencies: 400,000 to 3,000,000.
Description: Up front fee (for additional train frequencies);
Range of cost reported by commuter rail agencies: 60,000 to
350,000,000.
Source: GAO analysis of commuter rail data.
[A] Most commuter rail agencies we contacted paid a one-time up front
fixed-access fee or an annual fee as part of their access agreement for
each line on which they provided service.
[B] All commuter rail agencies with whom we spoke made capital
contributions, either to gain access to freight infrastructure or to
add train frequencies.
[End of table]
According to several state officials, increases in intercity passenger
rail service, particularly corridor services, could conflict with
freight rail traffic for line capacity. For example, one state official
stated that the rail lines between New York City and Albany, New York,
are heavily used by freight railroads, commuter rail service, and
Amtrak. Even today this line has congestion problems, leading to delays
for both passenger and freight traffic. Desired improvements to address
capacity restrictions will cost about $700 million in capital
improvements. An official with another state, talking about the line
between Washington, D.C., and Richmond, Virginia, said that--between
freight, Amtrak, and commuter service--the amount of traffic on the
corridor is increasing and delays are becoming more common. Further,
capacity constraints are causing delays that cause dissatisfaction
among riders.
Freight railroad officials have emphasized the growing challenge
associated with infrastructure capacity issues. An official at one
railroad said that, while freight traffic on his railroad had grown and
decreased capacity, nothing in the Amtrak model had changed, which he
described as increasing his railroad's subsidy to Amtrak. An official
of another railroad stated that under the current Amtrak model--with
guaranteed access to track at incremental cost--freight railroads do
not recover the lost value created when freight trains are delayed
because of passenger train priority. He also stated that the current
Amtrak model skews the incremental value of freight and passenger train
slots on a line in such a way that freight railroads cannot capture the
difference in value between low value passenger train slots and higher
value freight train slots. This official went on to say that, without
new capacity, there would be ripple effects throughout the entire
freight railroad industry as both freight and passenger railroads try
to accommodate ever-increasing traffic on a fixed-infrastructure
network. He also stated that for intercity passenger rail to be
successful it must be attractive, efficient, and reliable.
In addressing capacity issues associated with passenger rail reform it
will be important to recognize balancing public and private investment
with public and private benefits. An official with the Washington State
Department of Transportation said his state is willing to pay for
capital projects that benefit passenger rail, and that freight
railroads should pay for projects, or parts of projects, that benefit
their operations. This official said most states use the "but for"
argument in determining public rail infrastructure investments--that
is, would there be a need for investment but for the passenger rail
service? Similarly, the state of Virginia works with host railroads to
fund rail projects that increase both the freight and passenger rail
capacity of privately owned rail infrastructure in the state to achieve
public benefits. As we testified in June 2006, federal involvement with
rail infrastructure should depend on identifying wide-ranging public
benefits from potential projects and appropriately allocate the cost of
financing these benefits between public and private sectors, and, to
the extent possible, focus investments that yield national rather than
just local benefits.[Footnote 183]
Liability against Accident Risks:
In addition to the access-to-infrastructure issues, there are also
challenges associated with liability against accident and other train-
related risks. If a passenger rail accident should occur, injured
passengers may sue the transportation provider for their damages. As
our January 2004 report on commuter rail noted, freight railroads have
been traditionally sheltered from this exposure when they haul
freight.[Footnote 184] However, when a freight railroad allows a
commuter rail service (or intercity passenger rail service) to operate
over its rights-of-way, the freight railroad becomes exposed to these
risks--as passengers may sue the commuter rail's (or intercity
passenger rail's) provider and owner of the tracks. Consequently,
freight railroads do not want to allow such service on their rights-of-
way unless they are protected from liability. Freight railroads often
use the "but for" argument for requiring passenger rail operators to
assume all risks associated with their presence--that is, but for the
presence of the service, the freight railroad would not be exposed to
certain risks and therefore should be held harmless. Freight railroad
officials have stated that they must take this position to protect
their businesses and shareholders from lawsuits. As a result, passenger
rail operators must contractually indemnify freight railroads against
all liability and obtain insurance as a guarantee that payments will be
made for any damages.
Amtrak currently has no fault liability agreements with most freight
railroads to cover risks associated with its operations. Under these
agreements, Amtrak indemnifies the host railroads against liability
resulting from any damages that occur to Amtrak passengers, equipment,
or employees regardless of fault if an Amtrak train is involved.
Similarly, the host railroads indemnify Amtrak against any liability
resulting from damages to host railroad employees and property
regardless of fault.[Footnote 185] At one time, Amtrak compensated the
host railroads for the risk that they bear by paying a negotiated risk
charge of 7.34 cents per train-mile to the host railroad. Amtrak has
subsequently negotiated away this charge for all but one line. In
contrast, commuter rail operators with whom we spoke manage liability
with the freight railroads their own way. In the view of one commuter
rail official, the host railroads charge his company more per train-
mile for infrastructure access that Amtrak to compensate for the
liability costs associated with commuter rail operations. Another
commuter rail official stated that in addition to the per train-mile
fees, his agency purchases an insurance policy that indemnifies the
host railroads against all liability, including gross negligence and
willful misconduct.
Both railroad and state officials with whom we spoke believe liability
will be a major issue should competition for intercity passenger rail
service be introduced. Officials from all 5 states cited concerns about
liability issues, particularly the potential cost of liability
coverage. An official from one state, Washington, told us that his
state would not be able to pay for the liability coverage freight
railroads would require if Amtrak ceased operating intercity passenger
rail service and this service was taken over by the state--the cost
would be too prohibitive. An official from California also said that
liability would be a significant issue associated with competition.
Besides cost, this official said California is prohibited by law from
providing full indemnification to third parties. Consequently, any non-
Amtrak passenger rail operators would have to provide their own
liability coverage that would indemnify not only the state, but also
any freight railroads they operated over. Freight railroad operators
also expressed concern about liability issues. An official from one
freight railroad said his company would not "bet the company" on the
liability risk that could exist with multiple passenger rail operators,
and that his company would expect full indemnity against liability
risks created by passenger rail operators. It would also be expected
that this indemnity be backed up with sufficient insurance coverage
similar to the arrangement this company currently has with Amtrak.
Similar sentiments were expressed by another freight railroad official.
Recognizing the freight railroads' exposure to liability when hosting
passenger rail trains, Congress established liability provisions in the
Amtrak Reform and Accountability Act of 1997. Specifically, the act
limits the aggregate overall damages that may be awarded to all
passengers for all claims (including punitive damages) from a
particular rail accident to $200 million. The act also permits Amtrak
and other providers of rail transportation to enter into
indemnification agreements allocating financial responsibility for
passenger claims arising from accidents involving passenger rail. As we
reported in January 2004, our review of this legislation concluded that
the liability cap applies to commuter rail operations on the basis of
the plain language of the statute and our review of pertinent
legislative history. Our review of the statute and legislative history
also indicates this cap would apply to non-Amtrak providers of
intercity passenger rail service. However, our report goes on to note
that there are limitations to the protections provided by the
legislation, such as the fact that the legislation does not limit
damages for claims brought by nonpassengers; in addition, the
application of the liability cap has not been tested in federal court.
As a result of these limitations many carriers are being "super
cautious" in requiring high levels of insurance.
[End of section]
Appendix VI: Workforce Issues Associated with Intercity Passenger Rail
Reform:
Efforts to reform or restructure intercity passenger rail require
consideration of workforce issues that is, having enough people with
the requisite knowledge and skills to provide the amount and type of
service called for in a restructured system. This may not be as easy as
it seems.
Amtrak employees currently provide a number of services that are
integral to operation of intercity passenger rail. This includes train
and engine crews that operate trains, on-board staff such as conductors
and attendants that take tickets and arrange for sleeping
accommodations, and maintenance staff that repair equipment and
maintain the rights-of-way over which trains operate. In addition,
Amtrak employees dispatch trains and maintain communication and signal
systems, among other things. Over the last several years Amtrak has
reduced its employment levels as it has tried to control costs (see
fig. 17). In fiscal year 2005, 87 percent of Amtrak's workforce was
unionized (14 unions and two councils covering a variety of crafts and
skills) and covered by collective bargaining agreements. These
employees are referred to as agreement employees. The collective
bargaining agreements specify not only wage and benefit rates but also
specific duties (defined in work rules) that employees can perform.
Between fiscal years 2001 and 2005 the number of unionized employees
decreased from 22,163 to 16,687 (a 25 percent decrease).[Footnote 186]
There has also been an overall 7 percent decrease in non-union
employees over this time period, with a slight increase in the number
of non-union employees between fiscal years 2003 and 2005. While these
decreases might have benefits in terms of cost reduction, they might
also limit the pool of qualified people available to operate intercity
passenger rail under a restructuring scenario.
Figure 17: Changes in Amtrak's Union and Nonunion Workforce, Fiscal
Years 2001 through 2005:
[See PDF for image]
Source: GAO analysis of Amtrak data.
Note: Amtrak labor-relations officials estimate that one-half to two-
thirds of Amtrak's total employment is dedicated to directly or
indirectly supporting long-distance services.
[End of figure]
There are several workforce issues that will likely present challenges
in efforts to reform or restructure intercity passenger rail. These
include:
* Availability of a qualified labor pool. Reform of intercity passenger
rail that results in new services or operators will require that there
be sufficient staff to provide service, conduct maintenance, and
perform other duties related to running passenger railroads. In the
short term, obtaining sufficient staff could be a challenge. As we
reported in April 2006, in the context of commuter railroad service, if
Amtrak were to abruptly cease to provide service, some commuter
railroad agencies might be able to replace Amtrak employees dedicated
to their particular commuter rail service with employees from another
railroad.[Footnote 187] However, according to agency officials, a
number of agencies would not be able to quickly replace current Amtrak
employees because of workforce limitations, such as the availability of
a qualified labor pool. In part, this is because of strains on the
current workforce due to growth in the demand for freight rail
transportation.[Footnote 188] In addition, it was estimated that it
could take months to train replacements if Amtrak train crews were
unavailable. Over the short term it is feasible that a restructuring
that resulted in new intercity passenger rail services could face a
shortage of qualified employees if (1) Amtrak employees did not
transfer to the new services or operators, (2) they retire or leave the
railroad industry, or (3) there are insufficient applicants with
necessarily skills to provide the employees needed.
* Workforce flexibility and productivity. Reform of intercity passenger
rail resulting in new services or operators will also require
consideration of workforce flexibility and the extent labor
productivity can be increased. One key to providing cost-effective
service is to have high levels of labor productivity. Collective
bargaining agreements and their related work rules specify the work
that employees are expected to do and the amount of compensation they
will receive for performing this work. Although such agreements can and
do include changes designed to increase employee productivity by
increasing or broadening the types of tasks that employees can perform,
such agreements can also affect productivity by limiting the amount or
type of work that employees can perform. Foreign passenger rail reform
efforts have included actions to increase workforce flexibility and
productivity. For example, from 1993 to 1998, as a result of revenue
growth and an increased focus on cost control, VIA Rail entered into
negotiations with rail labor in order to obtain more flexibility in its
workforce.[Footnote 189] Among other things, these negotiations
resulted in a significant consolidation of jobs. According to VIA Rail,
union members got enhanced pension benefits in return for reduced
employment levels and increased job responsibility. The latter included
consolidating a number of on-board service and conductor positions into
one customer-service manager who has the flexibility to interchange
positions for on-board service staff and is responsible for everything
that goes on inside a train.
* Potential labor protection payments. If, as the result of reforming
intercity passenger rail, Amtrak employees lose their jobs, there could
be liability for labor protection payments. In general, labor
protection payments are made to employees who lose their jobs as a
result of a discontinuation of service. The Amtrak Reform and
Accountability Act of 1997 made a number of changes to labor
protection, including eliminating existing rights to such protection--
again subjecting labor protection to collective bargaining, and
requiring Amtrak to negotiate new labor protection arrangements with
its employees. As we have previously reported, after Amtrak and its
employees could not reach agreement, an October 1999 arbitration
decision (1) capped labor protection payments at a 5-year maximum
(rather than 6 years under the statutory arrangement), (2) made
employees with less than 2 years of service ineligible for payments,
and (3) based payments on a sliding scale that provided less payout for
each year worked than did the previous system.[Footnote 190] Even with
these changes, in September 2002, we reported that Amtrak would have
had unsecured labor protection claims of about $3.2 billion had Amtrak
been liquidated on December 31, 2001.[Footnote 191] Although a reform
of intercity passenger rail may or may not involve a liquidation of
Amtrak, it is clear that should Amtrak employees lose their jobs as the
result of a discontinuation of service there could be substantial
financial obligations as a result. To the extent that Amtrak employees
can and do accept jobs elsewhere (whether in the railroad industry or
not) this obligation could be reduced. In general, should this be the
case, then labor protection payments would be limited to the
differences, if any, between what the employees were previously making
at Amtrak and their wages at the new jobs.
Amtrak labor-relations officials state that a significant barrier to
any attempts to reform--or to negotiating their collective bargaining
agreements even in the absence of broader corporate restructuring--is
the lack of flexibility in the current labor agreements. First, the
provision of the Amtrak Reform and Accountability Act of 1997 that
altered rail labor protection--eliminating the statutory labor
protection provision and allowing Amtrak and the affected labor unions
to negotiate contractual labor protection arrangements in their place-
-did not give Amtrak as much flexibility as it had hoped. Although
significant changes resulted from negotiations about new labor
protection arrangements (such as limiting the maximum number of years'
wages that could be received in the event of job loss to 5 years
instead of 6), Amtrak is still bound by expensive labor protection
obligations if jobs are lost because of route cancellations or service
reductions.[Footnote 192] Amtrak officials referred to rail labor
protection as the "last of the last" of the old type of unemployment
benefits. As such, labor protection continues to be a stumbling block
in Amtrak's internal restructuring efforts, as well as collective
bargaining. In addition, Amtrak officials stated that Amtrak would like
additional flexibility in the work rules that define the tasks that
employees can perform to improve productivity. The current work rules
allow most employees to perform tasks outside their enumerated work
duties only 2 hours per day. According to Amtrak labor relations
officials, current work rules allow Acela employees 4 hours of
flexibility per day. Amtrak would like to extend this to all labor
contracts. Amtrak officials stated that Amtrak wants the increase to 4
hours of flexibility to gain desired improvements in efficiency of
operations. Without the work rule change, these improvements will be
difficult to achieve.
Workforce challenges also include determining how a potentially
reformed intercity passenger rail system fits into the current scheme
of railroad-specific labor-management, retirement, and injury
compensation systems. Amtrak is currently subject to, among other
things, the Railway Labor Act, the Railroad Retirement Tax Act, and the
Federal Employers' Liability Act, which govern labor-management
relations, retirement, and injury compensation, respectively, in the
railroad industry. Amtrak's collective bargaining agreements generally
do not expire and are subject to requirements designed to reduce labor
strikes; Amtrak participates in, and provides financial contributions
to, the railroad retirement-system[Footnote 193] (approximately $400
million annually); and Amtrak and its employees are subject to a tort-
based injury compensation system under the Federal Employers' Liability
Act.[Footnote 194] We have reported that these legal requirements raise
railroad costs compared to nonrailroad industries. Amtrak's April 2005
Strategic Reform Initiatives also suggested that meaningful reform of
intercity passenger rail will require changing how these apply to
passenger rail. On the other hand, rail labor has argued for the
importance of these laws in protecting employee rights, ensuring a
sustainable retirement system, and adequately compensating employees
injured on the job.
State officials we interviewed expressed more general concern about the
potential impact of Amtrak's labor agreements and obligations on the
future of passenger rail. Some state officials viewed Amtrak's labor
agreements as a significant barrier to reform. One official stated that
serious labor reform is needed for intercity passenger rail reform to
succeed. Some state officials with whom we spoke also questioned
whether alternative operators would be bound by Amtrak's labor
agreements and thought that it was unlikely another operator could
provide significant improvements in cost savings or quality of service
if they were. Another official stated that Amtrak's labor agreements
would put Amtrak at a considerable disadvantage over alternative
operators in a competitive market if the alternative operators were not
bound by the same agreements.
Rail labor union officials with whom we spoke expressed several
concerns about the effects any potential reform of intercity passenger
rail might have on their members. Foremost, union officials expressed
concern about the history of Amtrak's successive "reforms" and the
detrimental effects on labor-management relations and employee morale.
In their view, past Amtrak reforms have brought fewer union jobs and
the loss of health and safety programs with no improvement in Amtrak's
service to the public, while it continues to flounder with funding
uncertainty. A union official stated that the first step should be
getting Amtrak to operate like other for-profit businesses, including
the freight railroads. The emphasis should be on applying basic
business principles, including transparent accounting, and repairing
its relationship with the unions and improving national railroad
passenger service--rather than on reducing the federal subsidy. This
should be addressed before moving on to something other than the
current system and route structure. In addition, union officials
emphasized that some union members are highly skilled and highly
specialized and cannot be easily replaced. Any restructuring of
intercity passenger rail would still require any operator--Amtrak,
alternative operators, or a successor to Amtrak--to work through the
unions to maintain a labor force or to train additional workers. Total
compensation for employees moving forward is another concern; however,
union officials told us, where alternative operators have succeeded
Amtrak in operating commuter railroads, unionized employees have been
offered more compensation than they received from Amtrak with no
accompanying change in work rules.
[End of section]
Appendix VII: Financial Reporting, Internal Control, and Governance
Requirements and Practices for Federal Entities and Public Companies:
Current Accountability Requirements and Practices:
The Amtrak Reform and Accountability Act of 1997[Footnote 195] removed
Amtrak from the list of government corporations subject to the
Government Corporation Control Act of 1945.[Footnote 196] The 1997 act,
however, did not change Amtrak's status as a private, for-profit
corporation established to provide intercity and commuter rail
passenger transportation in the United States and is neither an agency
nor an instrumentality of the U.S. government, nor an issuer of
securities to the public. Consequently, Amtrak is not subject to the
basic accountability requirements of either federal entities or public
companies, but has been subject to specific reporting requirements
contained in its grant and loan agreements and Amtrak-specific
statutory provisions in Title 49 of the U.S. Code. Following are the
basic accountability requirements that encompass financial reporting,
internal controls, and governance at these organizations.
Federal Entities:
Financial Reporting:
The Chief Financial Officers Act of 1990 (CFO Act), as amended by the
Government Management Reform Act of 1994 (GMRA), requires the major 24
agencies[Footnote 197] of the federal government to submit annual
audited financial statements to the Office of Management and Budget
(OMB).[Footnote 198] The Accountability of Tax Dollars Act of 2002
(ATDA) expanded this requirement[Footnote 199] to include most other
executive agencies.[Footnote 200] Federal government corporations had
been subject to financial reporting requirements for many years under
the Government Corporation Control Act.[Footnote 201] Quarterly, the
executive agencies required to submit annual financial statements under
the CFO Act, GMRA, and ATDA (31 U.S.C. § 3515) are required by OMB to
submit unaudited financial information to OMB. These interim unaudited
financial statements, required on a quarterly basis, may be submitted
without footnotes and limited to a balance sheet, statement of net
cost, and statement of budgetary resources. Management discussion and
analysis and supplementary information are not required for quarterly
reporting. Chapter 91 of Title 31 of the U.S. Code, commonly known as
the Government Corporations Control Act, requires government
corporations to submit annual management reports to Congress (with
copies to the President, OMB, and us) no later than 180 days after the
end of the government corporation's fiscal year. OMB has accelerated
the submission deadline to no later than 45 days after the end of the
government corporation's fiscal year.[Footnote 202] Annual management
reports are therefore required to include the following:
* a statement of financial position;
* a statement of operations;
* a statement of cash flows;
* reconciliation to the budget report of the corporation, if
applicable;
* a statement of internal accounting and administrative control systems
by the head of corporation management, consistent with the requirements
under amendments to the act made by 31 U.S.C. § 3512 (c), (d), commonly
referred to as the Federal Managers' Financial Integrity Act of 1982
(FMFIA);
* a financial statement audit report; and:
* any other information necessary to inform Congress about the
operations and financial condition of the corporation.[Footnote 203]
Government corporations are not required by OMB to submit quarterly
information. The federal government does not have a certification for
government corporations or federal agencies comparable to section 302
of the Sarbanes-Oxley Act of 2002,[Footnote 204] which requires the
chief executive officers (CEO) and chief financial officers (CFO) of
public companies to certify their company's financial statements.
Under OMB Circular No. A-136, Financial Reporting Requirements (rev.
July 24, 2006), annual performance and accountability reports (PAR)
issued by federal government agencies consist of the Annual Performance
Report required by the Government Performance and Results Act of 1993
(GPRA)[Footnote 205] with audited financial statements and other
disclosures, such as agencies' (1) assurances on internal control, (2)
accountability reports by agency heads, and (3) Inspectors General's
assessments of the agencies' most serious management and performance
challenges.[Footnote 206] OMB Circular No. A-136 states that PARs are
intended to provide financial and performance information to enable the
President, Congress, and the public to assess the performance of an
agency relative to its mission and to demonstrate the agency's
accountability. The PAR's management's discussion and analysis (MD&A)
section, which serves as a brief overview of the entire PAR,[Footnote
207] should include the most important matters that could lead to
significant actions or proposals by top management of the reporting
unit; are significant to the managing, budgeting, and oversight
functions of Congress and the administration; or could significantly
affect the judgment of citizens about the efficiency and effectiveness
of their federal government.
OMB Circular No. A-136 also requires federal entities in their MD&A to
include information to help users understand the entity's financial
results, position, and condition as conveyed in the principal financial
statements. The MD&A also includes comparisons of the current year to
the prior year and should provide an analysis of the agency's overall
financial position and results of operations to assist users in
assessing whether that financial position has improved or deteriorated
as a result of the year's activities. The MD&A should also include a
discussion of key financial measures that emphasize financial trends
and assess financial operations.
Internal Control:
According to OMB, the passage of the Sarbanes-Oxley Act of 2002 served
as an impetus for the federal government to reevaluate its current
policies related to internal control over financial reporting and
management's related responsibilities.[Footnote 208] While section 404
of the Sarbanes-Oxley Act created a new requirement for managers of
publicly traded companies to report on the internal controls over
financial reporting, federal managers have been subject to similar
internal-control reporting requirements for many years.
Federal agencies are subject to many legislative and regulatory
requirements that promote and support effective internal control:
* 31 U.S.C. § 3512(c), (d), commonly referred to as FMFIA, provides the
statutory basis for management's responsibility for, and assessment of,
internal control. OMB Circular No. A-123, Management's Responsibility
for Internal Control (rev. Dec. 21, 2004), sets out the guidance for
implementing the statute's provisions.
* The CFO Act of 1990 requires agency CFOs to maintain an integrated
accounting and financial management system that includes financial
reporting and internal controls. 31 U.S.C. § 902(a)(3).
* The Federal Financial Management Improvement Act (FFMIA) of
1996,[Footnote 209] as implemented by OMB Circular No. A-127, Financial
Management Systems (rev. Dec. 1, 2004), requires the 24 CFO Act
agencies to implement and maintain integrated financial management
systems that comply substantially with federal financial management
system requirements, applicable federal accounting standards, and the
U.S. Standard Government Ledger at the transaction level.
* The Inspector General Act of 1978, as amended, requires Inspectors
General to submit semiannual reports to Congress on significant abuses
and deficiencies identified during agency reviews, and recommended
actions to correct those deficiencies. 5 U.S.C. Appx. § 5.
* Government Auditing Standards, GAO-03-673G (rev. June 2003) (commonly
referred to as the "Yellow Book"), and OMB Bulletin No. 06-03, Audit
Requirements for Federal Financial Statements, (Aug. 23, 2006), require
auditors to report on internal control as part of a federal agency
financial-statement audit, including a description of reportable
conditions and material weaknesses in internal control over financial
reporting.
Recent federal governmentwide initiatives have contributed to
improvements in financial management and placed greater emphasis on
implementing and maintaining effective internal control over financial
reporting. In December 2004, OMB issued a significant update to its
Circular No. A-123, the implementing guidance for FMFIA. The update
requires the 24 CFO Act agencies to include the FMFIA annual report in
their PAR, under the heading "Management Assurances." The FMFIA annual
report must include a separate assurance on internal control over
financial reporting, along with a report on identified material
weaknesses and actions taken by management to correct those weaknesses.
FMFIA and OMB Circular No. A-123 apply to each of the three objectives
of internal control outlined in our Standards For Internal Control in
the Federal Government: effective and efficient operations, reliable
financial reporting, and compliance with applicable laws and
regulations. OMB Circular No. A-123 calls for internal control
standards to be applied consistently toward each of the objectives. The
circular's new Appendix A, which applies only to the 24 CFO Act
agencies, requires management to document the process and methodology
for applying A-123 standards when assessing internal control over
financial reporting. Appendix A also requires management to use a
separate materiality level when assessing internal control over
financial reporting. The agency head's annual assurance statement on
the effectiveness of internal control over financial reporting required
by Appendix A is a subset of the assurance statement required under
FMFIA on the overall internal control of the agency.
Governance (Audit Committee):
Audit committees are becoming increasingly important in federal
entities and public companies as a mechanism to improve accountability
and enhance oversight. Overall, in the federal government, audit
committees are intended to protect the public interest by promoting and
facilitating effective accountability and financial management, which
is accomplished by providing management with independent, objective,
and experienced advice and counsel.
In 2002, the Government Finance Officers Association (GFOA)--a
professional association of state and local finance officers--
recommended that every government entity establish an audit committee
or its equivalent.[Footnote 210] An audit committee can facilitate
communication between management, the auditor, and the governing board,
according to GFOA, and is also useful in focusing on and documenting
the process for managing the organization's financial statement audit.
GFOA's guidelines for establishing an audit committee include
recommendations that (1) the audit committee should be formally
established by charter, enabling resolution, or other appropriate legal
means; (2) the members of the audit committee collectively should
possess the expertise and experience in accounting, auditing, financial
reporting, and finance needed to understand and resolve issues raised
by the independent audit of the financial statements; and (3) a
majority of the members of the audit committee should be selected from
outside of management. GFOA also states that the audit committee's
primary responsibility should be to oversee the independent audit of
the government's financial statements, from the selection of the
independent auditor to the resolution of audit findings. GFOA further
recommends that the audit committee should present annually to the
governing board and management a written report of how it has
discharged its duties and met its responsibilities, and that the report
be made public.
Public Companies:
The corporate failures and fraud that resulted in substantial financial
losses to institutional and individual investors at the turn of the
21ST century led to renewed focus on accountability and governance in
public companies[Footnote 211] and culminated in the enactment of the
Sarbanes-Oxley Act of 2002, which enhanced the disclosure and internal
control requirements imposed by the Securities Exchange Act of 1934 as
amended (Exchange Act);[Footnote 212] the Sarbanes-Oxley Act also
implemented new accounting reforms for public companies. The Sarbanes-
Oxley Act contains provisions for the governance, auditing, and
financial reporting of public companies, including provisions intended
to deter corporate accounting fraud and corruption and to punish
violators. The 2002 act generally applies to companies required to file
reports with the Securities and Exchange Commission (SEC) under the
Securities and Exchange Act of 1934.
Financial Reporting:
The Exchange Act, including SEC implementing regulations, requires
publicly traded companies to make periodic filings with the SEC that
disclose their financial status and changes in financial condition,
including annual and quarterly financial reports. Annually, public
companies file reports containing audited financial statements prepared
in conformity with generally accepted accounting principles (GAAP) and
audited by registered accounting firms. Quarterly reports, which may be
unaudited, contain financial statements and the MD&A. In addition to
the company's financial statements, annual filings contain information
including (1) selected financial data, (2) supplementary financial
information, and (3) the MD&A of the company's financial condition and
results of operations. The objective of the MD&A is to enable the
reader to assess material changes in financial condition and the
results of operations of the company. The MD&A is not audited; however,
the auditor is required to consider whether the information is
materially consistent with information appearing in the financial
statements. The SEC reviews a selection of annual and quarterly filings
for compliance with accounting and disclosure requirements. Generally,
the MD&A is required to contain a discussion of material changes in
liquidity, capital resources, off-balance sheet arrangements, aggregate
contractual obligations, and results of operations; known material
trends, events, and uncertainties that could render historical
financial information non-indicative of future operations or financial
condition; the cause of material changes in line items of the interim
financial statements from prior-period amounts; and any other
information necessary for an understanding of the company's financial
condition, changes in financial condition, and results of
operations.[Footnote 213]
Since the enactment in 2002 of the Sarbanes-Oxley Act, public companies
have been required by section 404 to file annual reports with the SEC
that include (1) management's assessment of the effectiveness of
internal controls over financial reporting, and (2) the auditor's
attestation and report on management's assessment.[Footnote 214] Public
companies are also required to disclose in both quarterly and annual
reports filed with the SEC any changes in their internal control over
financial reporting that occurred during the last fiscal quarter that
has materially affected, or is reasonably likely to affect, the
company's internal control over financial reporting. In addition, most
companies are required to evaluate the effectiveness, as of the end of
each fiscal quarter, of its disclosure controls and procedures and
disclose in its quarterly report filed with the SEC the conclusions of
the company's CEO and CFO regarding the effectiveness of such
procedures.[Footnote 215]
Under SEC rules adopted pursuant to section 302 of the Sarbanes-Oxley
Act, each annual and quarterly report a public company files with the
SEC must include, as an exhibit, the certification signed by the
company's CEO and CFO stating in pertinent part that they each have
reviewed the report being filed and that, based on their knowledge, it
does not contain untrue statements or omissions of a material fact
resulting in a misleading report and that, based on their knowledge,
the financial information in the report is fairly presented.[Footnote
216] The act includes criminal penalties for certifying the financial
statements while knowing that the financial statements do not fairly
present the financial condition and results of the public
company.[Footnote 217] The certification requirement motivated
corporate executives and managers to increase their scrutiny of the
company financial statements and, in many cases, put specific
accountability mechanisms in place in their companies to help assure
reliable financial statements.
The SEC's Division of Corporate Finance reviews public company filings
periodically to determine whether publicly held companies are meeting
their disclosure requirements and whether improvements are needed in
the quality of the disclosures. To meet the SEC's requirements for
disclosure, a company issuing securities must make available all
information, whether it is positive or negative, that might be relevant
to an investor's decision to buy, sell, or hold securities in the
company.
Internal Controls:
Internal control serves as a first line of defense in safeguarding
assets, preventing and detecting errors and fraud, and in providing
assurance over the reliability of financial reporting. Internal control
is defined as a process that is effected by an entity's board of
directors, management, and other personnel, and is designed to provide
reasonable assurance regarding the achievement of the following
objectives: (1) effectiveness and efficiency of operations; (2)
reliability of financial reporting; and (3) compliance with laws and
regulations.[Footnote 218]
Section 404 of the Sarbanes-Oxley Act establishes requirements on
internal control for companies and auditors. It requires companies to
publicly report on (1) management's responsibility for establishing and
maintaining an adequate internal control structure, including controls
over financial reporting and (2) the results of management's assessment
of the effectiveness of internal control over financial reporting.
Section 404 requires accounting firms that serve as external auditors
for public companies to (1) attest to the assessment made by the
companies' management and (2) report on the results of their
attestation and whether they agree with management's assessment of the
company's internal control over financial reporting.
Internal control over financial reporting is further defined in SEC
regulations implementing Section 404.[Footnote 219] These regulations
define internal control over financial reporting as a process providing
reasonable assurance regarding the preparation of financial statements
and the reliability of financial reporting, including policies and
procedures that do the following:
* pertain to the maintenance of records that accurately and fairly
reflect the transactions and dispositions of company assets;
* provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in conformity
with GAAP, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors
of the company; and:
* provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of company assets.
Governance (Audit Committees):
Independent audit committees have become, within public companies, an
integral part of governance and oversight over financial reporting,
internal control, and the audit process. The 1987 Treadway Commission's
Report on Fraudulent Financial Reporting recognized as a key practice
in reducing fraudulent financial reporting the establishment by the
company's board of directors of "an informed, vigilant, and effective"
audit committee to oversee the financial reporting process. In 1998,
the New York Stock Exchange (NYSE) and the National Association of
Securities Dealers (NASD) formed the Blue Ribbon Committee on Improving
the Effectiveness of Corporate Audit Committees. The committee released
a 10-point plan in 1999 toward improving audit committee effectiveness.
NYSE-, Amex-, and NASD-listing standards--which were the primary
guidance for audit committees of public companies--were changed to
reflect the recommendations of the Blue Ribbon Committee. Although this
guidance, as well as recommendations of the Treadway Commission,
existed prior to enactment of the Sarbanes-Oxley Act of 2002, the act
provided a statutory basis--primarily in sections 202, 204, 301, and
407--for the composition and responsibilities of public-company audit
committees in provisions similar to the Treadway Commission and the
Blue Ribbon Committee recommendations.
Section 301 of the Sarbanes-Oxley Act of 2002 requires that audit
committee members be selected from the company's board of directors and
that they be independent (i.e., unaffiliated with the company and
receiving no consulting fee, advisory fee, or other compensatory fee
from the company). The audit committee is responsible for the
appointment, compensation, and oversight of the auditor, oversight of
company management regarding financial reporting, and the resolution of
disagreements between management and the auditor. Finally, Section 301
provides that the audit committee should have the authority and funding
to engage advisors when necessary; ensure that processes are in place
for the receipt, retention, and treatment of any complaints from
"whistle-blowers" about accounting, internal controls, or auditing
issues; and maintain open channels for employees to use in
communicating knowledge of malfeasance or errors to the audit committee
without fear of management retaliation.
Section 202 of the act requires the audit committee to preapprove all
audit and nonaudit services by an auditor to guard against potential
conflicts that could occur if services such as bookkeeping and
information-system design and implementation are provided by the
company's auditor.
Section 204 of the act requires that the auditor report to the audit
committee all critical accounting policies followed in the course of an
audit, all alternative accounting treatments within GAAP related to
material items discussed with company management, and other material
written communications between the auditor and company management.
Finally, Section 407 of the act and implementing SEC regulations
requires public companies to disclose whether the audit committee has
at least one financial expert,[Footnote 220] the expert's name, and the
expert's independence from management. If the company does not have a
financial expert on the audit committee, it is required to explain why.
Amtrak:
Financial Reporting:
Until 1997, Amtrak was classified as a mixed-ownership government
corporation under the Government Corporation Control Act. Government
Corporation Control Act was intended to make government corporations
accountable to Congress for their operations while allowing them the
flexibility and autonomy needed for their commercial activities.
Generally, a mixed-ownership corporation can be defined as a
corporation with both government and private equity. In the case of
Amtrak, the federal government held its preferred stock, and there were
private entities that held common stock (three railroads and a holding
company). The Amtrak Reform and Accountability Act of 1997 changed
Amtrak's status as a mixed-ownership government corporation by removing
Amtrak from the list of mixed-ownership government corporations in the
context of making Amtrak operationally self-sufficient by 2002. As we
noted in our October 2005 report, today Amtrak is most similar to a
"government-established private corporation."[Footnote 221]
Consistent with Amtrak-specific statutory provisions in Title 49 of the
U.S. Code,[Footnote 222] Amtrak's management and Board of Directors
annually shall submit the financial statements to Congress with its
operations reports. The annual financial report prepared and issued by
Amtrak includes the audited financial statements and accompanying
notes. However, the report does not include an MD&A section. Amtrak's
annual financial statements are required to be submitted to Congress,
but are not submitted to, or formally reviewed by, OMB or any
regulatory agency. However, Amtrak is required in its grant and loan
agreement to produce a variety of daily, monthly, and annual reports
that are submitted to its board, Congress, and FRA. The monthly
performance report is an extensive report averaging 80 to 90 pages that
contains financial results, route performance, workforce statistics,
and performance indicators; it is also posted to Amtrak's Web site.
Internal Control:
As a government-established private corporation, Amtrak is not subject
to the internal control requirements that govern either federal
entities or publicly traded companies, and thus its annual report does
not include a management report on internal control. An annual audit is
performed using Government Auditing Standards; therefore, Amtrak's
management and Board of Directors receive a report on internal controls
and compliance with laws, regulations, contracts, and grant agreements.
However, the internal control report is not included in Amtrak's annual
report.[Footnote 223] In our October 2005 report, we noted that DOT
officials told us that they receive the internal control and compliance
report. We also stated in our October 2005 report that Amtrak officials
were not able to provide us with a distribution list and they had no
recollection of the report being requested by, or sent to, any external
party.
Governance (Audit Committee):
In its original authorizing legislation in 1970, Amtrak's Board of
Directors was authorized for 15 members, but there have never been more
than 13 members serving. The current limit of 7 members was a reduction
from 9 made by the Amtrak Reform and Accountability Act of 1997. The
members are appointed by the President with the advice and consent of
the Senate.[Footnote 224] The board has operated with less than a full
complement of 7 voting members since July 2003. Between October 2003
and June 2004, the board had only 2 voting members (excluding the
Secretary of Transportation or his designee). As of September 2006, the
board had 5 members (excluding the Secretary of Transportation or his
designee and the President of Amtrak); however, the term of 2 members
is expiring in January 2007, so the board will be back to 3 members.
Amtrak's bylaws also authorize the establishment of committees to
assist the board in carrying out its management responsibilities. In
March 2002, the board eliminated ad hoc committees, along with the
Corporate Strategy Committee and the Safety, Service, and Quality
Committee. At that time, committees were established for audits,
corporate affairs, finance, compensation and personnel, and legal
affairs. Amtrak's bylaws permit it to conduct periodic meetings between
the Board of Directors and the shareholders, as necessary. Following
enactment of the Amtrak Improvement Act of 1981, which abolished the
election of any members of the Board of Directors by the common or
preferred shareholders,[Footnote 225] Amtrak has not held a
shareholders' meeting.
Currently the board is using the former audit committee charter in
carrying out its responsibilities for the oversight of its accounting
and financial reporting processes and the audits of Amtrak's financial
statements by an independent auditor. Since the Board of Directors
includes the President and CEO, the audit committee would not be
considered "independent" under the requirements and practices for
public companies, as provided in section 301 of the Sarbanes-Oxley Act
of 2002.
In commenting on a draft of our October 2005 report, both DOT and
Amtrak officials told us that, given the limited number of board
members, Amtrak's full board of directors had assumed the functions of
the audit committee.[Footnote 226] DOT officials said these functions
included meeting with Amtrak's auditor to discuss audit and internal
control issues, and that some of these meetings were held without the
presence of Amtrak management. Our analysis showed that the board
performed some audit committee oversight functions. Currently, the
board is using the audit committee charter in carrying out its
responsibilities for the oversight of the corporation's accounting and
financial reporting processes and the audits of Amtrak's financial
statements by an independent auditor.
Opportunities for Improvement at Amtrak:
Financial Reporting:
MD&A:
Currently, Amtrak's financial statements do not include an MD&A, an
important part of financial statements that is required for federal
entities and public companies. The MD&A provides users with information
relevant to an assessment of the organization's financial condition and
the results of its operations as determined by an evaluation of the
amounts and certainty of cash flows from operations and from outside
sources.[Footnote 227] For a hybrid organization such as Amtrak--a for-
profit corporation that receives substantial federal subsidies[Footnote
228]--an MD&A would seem especially important to understand the numbers
presented in its financial statements, and for users of the financial
statements to interpret material changes in financial condition and the
results of operations.
Quarterly Financial Statements:
Currently, Amtrak does issue a variety of reports, but does not issue
quarterly financial statements that include footnotes. Public companies
are required to file quarterly financial statements with footnotes and
MD&A with the SEC. Under OMB Circular No. A-136, the executive agencies
required to submit annual financial statements under the CFO Act, GMRA,
and ATDA (whose requirements are now all codified at 31 U.S.C. § 3515)
are also required to submit quarterly financial statements without
footnotes to OMB. To issue quarterly financial statements, an
organization must adopt a rigorous financial reporting process that, by
its frequency, becomes more practiced and routine. Companies that are
more successful at closing their accounting systems and issuing
financial statements on a regular basis tend to have more automated
systems and routine processes, which can minimize fraud and errors. We
previously recommended that Amtrak should engage an independent public
accountant to provide review-level attestation work on Amtrak's
quarterly financial statements in order to strengthen financial
reporting procedures. Preparation of quarterly financial statements
with footnotes is a basic financial reporting function that contributes
to the overall effectiveness of financial reporting and the
organization's control environment.
Certification by CEO and CFO:
An important provision of the Sarbanes-Oxley Act, section 302, requires
the CEO and CFO of public companies to certify that they have reviewed
the company's financial statements and that, based on their knowledge,
the financial statements do not contain any untrue statements or
omissions of material fact; also, they must certify that the financial
statements are fairly presented. Amtrak's executives are not required
to so certify the organization's financial statements. Amtrak's CEO and
CFO would need to implement additional internal processes and controls
to allow them to make such a certification. Because Amtrak relies
heavily on federal subsidies, such a certification process would be
useful for those charged with making decisions about the level of
financial subsidies that are being used.
Review of Financial Statements:
Currently, Amtrak is required to provide various financial and
performance reports to FRA and/or DOT; however, Amtrak's financial
statements are not reviewed by OMB or any other regulatory agency.
Requiring Amtrak's financial statements to be filed with, and subject
to review by, SEC or OMB (or both) could further strengthen
accountability and assurance that Amtrak's financial statements
represent its true financial condition. If Congress were to require
Amtrak to file annual reports and other periodic reports with the SEC,
Amtrak would need to adhere to the SEC's regulations and guidance,
which require consistent disclosure of financial and operations
information. If Congress were to require Amtrak to submit its financial
report to OMB, Amtrak would need to comply with appropriate OMB and
federal financial reporting regulations and guidance, and respond to
OMB's inquiries about Amtrak's reported financial information.
Internal Control:
Management's Assessment and Report on Internal Controls:
Currently, Amtrak does not have requirements for management to evaluate
and report on internal control effectiveness. A management evaluation
of the effectiveness of internal control and a management report on the
results of the assessment holds management accountable for
understanding the organization's internal control, recognizing and
correcting deficiencies, and maintaining effective internal controls.
FMFIA and OMB Circular No. A-123 and section 404(a) of the Sarbanes-
Oxley Act have requirements for management's assessment of internal
controls for federal agencies and public companies, respectively.
Auditor's Attestation:
An auditor's opinion on the effectiveness of internal control provides
an independent assessment of management's assessment of its internal
controls. Although not required for federal entities, we support
internal control opinions as an important accountability mechanism. In
addition, an independent auditor's opinion on internal control was a
key provision of the Sarbanes-Oxley Act. Under section 404(b), public
companies are required to have an independent auditor attest to, and
report on, management's assessment of the effectiveness of internal
control over financial reporting.
Governance (Audit Committee):
Amtrak currently does not have an audit committee separate from its
Board of Directors due to its current board size. A minimum of three
audit committee members is required for NYSE-listed companies, and a
minimum of three members was recommended by the Blue Ribbon Committee
on Improving the Effectiveness of Corporate Audit Committees. Because
Amtrak relies heavily on federal subsidies, an audit committee with
duties and responsibilities that mirror those of publicly traded
companies and meets regularly is important to oversight of Amtrak's
accountability for federal funds.
[End of section]
Appendix VIII: Comments from National Railroad Passenger Corporation:
National Railroad Passenger Corporation:
60 Massachusetts Avenue, NE,
Washington, DC 20002
tel: 202 906.3960
fax 202 906.2850:
Alex Kummant:
President and Chief Executive Officer:
October 23, 2006:
Ms. JayEtta Z. Hecker:
Director, Physical Infrastructure:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Hecker:
As requested by GAO, Amtrak has reviewed a draft of GAO Report No. GAO-
07-15, Intercity Passenger Rail: National Policy and Strategies Needed
to Maximize Public Benefits from Federal Expenditures. Amtrak's
comments on this report are set forth below. We are also appending to
this letter a list of a few minor factual clarifications and
corrections.
I. Essential Elements for Reform:
Amtrak strongly agrees with GAO's conclusion (pp. 54-55) that the three
key elements to comprehensive reform of intercity passenger rail are:
(i) establishing clearly defined national policy goals;
(ii) clearly defining government and stakeholder roles; and:
(iii) establishing consistent and committed funding.
As Amtrak stated in its April 2005 Strategic Reform Initiatives
("SRIs"), intercity passenger rail will not realize its unique
potential to alleviate our nation's impending transportation crisis
unless there is clear direction from federal policymakers; clearly
defined decision-making and funding roles for federal and state
governments and other stakeholders; and consistent, reliable federal
funding that includes a capital matching grant program comparable to
those available for other modes.
As GAO recognizes, the statutory/policy directives under which Amtrak
operates are mutually inconsistent in many respects; create an unlevel
playing field for Amtrak and other potential providers of intercity
passenger rail; and do not provide Amtrak and other stakeholders with
all of the tools and funding required to implement comprehensive
reforms. Comprehensive reform will require legislative direction.
Amtrak's SRIs identify the limited but important legislative changes
that Amtrak believes are necessary for full implementation of
meaningful reforms.
However, improvements in the cost effectiveness, efficiency, and
reliability of Amtrak's services are possible - and indeed essential -
without awaiting comprehensive legislative action. Amtrak is encouraged
by the successes it has already achieved as it continues to implement
its strategic initiatives, and appreciates GAO's support for and
encouragement of these efforts.
II. The Amtrak "Deficit"
The lack of clarity regarding federal policy objectives for intercity
passenger rail is reflected in the opening paragraph of GAO's report
(p. 1). GAO states that Amtrak "continues to rely heavily on federal
subsidies - over $1 billion annually in recent years." GAO returns to
this theme later in its report, declaring that Amtrak has "struggled to
become financially solvent" and "has run a deficit each year" (p. 10).
These comments suggest that Amtrak's mission is to generate profits
rather than to provide services that produce public benefits but do not
cover all of their costs. Contrary to GAO's impression (p. 59),
profitability was not one of Congress's goals when it created
Amtrak.[Footnote 229] The fact that Amtrak requires some level of
government funding --like the passenger rail services in the five other
countries GAO examined --is therefore of no significance. References to
Amtrak "subsidies" of "over $1 billion annually" (p. 1) also miss the
important distinction between Amtrak's federal operating grants and the
capital funding provided to Amtrak for investments in intercity
passenger rail service.
GAO also states that Amtrak has "an annual operating deficit . of over
$1 billion" and that "operating losses have, and are expected to,
increase" (pp. 1, 15). In fact, Amtrak's operating loss has decreased
from $494 million in FY2002 to a projected $473 million in the recently
concluded FY2006, without adjustment for inflation.
GAO indicates in a footnote (p. 15, n. 13) that, in calculating
Amtrak's operating loss for this purpose, it included both "non-cash"
depreciation charges and interest payments on debt. This approach is
inconsistent with the manner in which GAO calculates Amtrak's operating
losses elsewhere in the report.[Footnote 230] Moreover, since capital
investments increase the asset book values on which depreciation
charges are based, the investments Amtrak is making to restore state of
good repair will increase (non-cash) "operating losses" under GAO's
approach, even though those investments have contributed to a reduction
in Amtrak's cash operating losses.[Footnote 231]
For purposes of clarity, we recommend that GAO use a consistent
approach to calculating Amtrak's "operating losses" in the report. We
also believe that non-cash depreciation charges and interest should be
excluded.
III. Passenger Revenues:
GAO states (p. 16) that passenger revenues are "stagnating" and have
"declined" since 2002. These statements are not correct. Amtrak's
passenger revenues in FY2006 were the highest ever and are projected to
be 10% ahead of the FY2005 level. This information was provided to GAO.
IV. Public Benefits of Amtrak Services:
An important issue for policymakers on which GAO focuses attention is
whether current federal policies and Amtrak services "maximize the
public benefits for federal expenditures for intercity passenger rail"
(p. 3). Amtrak has three observations regarding GAO's discussion of the
relative benefits of long distance and corridor services:
* GAO indicates (p. 22) that on the Northeast Corridor "a much higher
percentage of the ridership is comprised of commuters and business
travelers" while long distance trains carry larger numbers of
"retirees" and what GAO characterizes as "leisure" travelers (p. 30).
It is true that the average Northeast Corridor passenger is younger,
and much more likely to be traveling for work-related purposes, than
the average passenger on a long distance train. However, trips on long
distance trains that are not work-related are not necessarily for
"leisure" purposes. As reflected in the Amtrak survey data on which GAO
relied, two-thirds of the long distance passengers that GAO
characterized as "leisure travelers" indicated that they were traveling
to "visit family/ friends or [for] personal/family business." Trips for
"vacation/ recreation" accounted for only 29% of long distance train
travel.
* Noting that nearly half of long distance passengers travel less than
500 miles, GAO suggests that many long distance train passengers could
be served by "potential high speed rail corridors" (pp. 21-22). It is
certainly true that future corridor trains could serve some passengers
who currently utilize long distance trains. However, figures based
solely upon passenger trip length - without regard to whether the
passenger's origin and destination are both within a potential corridor
- significantly overstate this potential. While Rugby, North Dakota and
Malta, Montana on the Empire Builder route are less than 500 miles
apart, it is unlikely that they will ever be linked by corridor
trains.[Footnote 232]
* Regarding federal costs, GAO emphasizes that long distance trains
serve a relatively small percentage of Amtrak passengers (15%) but
account for a relatively large percentage (about 80%) of Amtrak's
federally funded operating losses. See "Highlights"; pp. 4, 20.
However, the significance of this comparison may be undercut by the
facts that:
(i) long distance travelers account for almost half (47%) of Amtrak's
passenger miles (p. 21); and:
(ii) differences in federal subsidies per passenger mile between long
distance and other non-NEC trains are primarily attributable to state
funding for many corridor trains (see p. 32) rather than to lower
farebox recovery ratios.
V. State Corridors:
As indicated in the SRIs, Amtrak agrees with GAO that improved and
increased corridor services offer the greatest potential for attracting
additional passengers to rail, improving mobility, and relieving
congestion on other modes. GAO's statement (pp. 38-39) that "[t]he
current intercity passenger rail system exists much as it did when
Amtrak began 35 years ago" overlooks the enormous growth, referenced
elsewhere in GAO's report, that has already occurred in state-supported
corridor services outside of the Northeast Corridor. For example,
corridor train service in the three rapidly growing West Coast states
has increased from 8 trains per day in 1971 on two routes totaling just
300 miles to nearly 80 daily corridor trains that operate over 1300
route miles. The predominantly state-funded growth in these services -
most of which has occurred since the early 1990s - demonstrates that
increased federal investments in corridor development could produce
significant public benefits.
GAO also indicates that states currently have a "limited decision-
making role" with respect to intercity passenger rail (p. 59). That is
certainly (and appropriately) true of states that do not provide
funding. However, on state-supported routes, the funding states are the
decisionmakers with respect to schedules and frequencies (subject only
to operational and host railroad constraints); what stations will be
served; whether food service will be provided; route marketing
strategies; etc. In addition, the funding states are free to utilize
non-Amtrak providers for many services, including food service,
reservations and ticketing, route marketing, and maintenance of state-
owned equipment, as a number of states already do.
VI. Freight Railroad Impacts:
The discussion of the impacts of intercity passenger rail service on
freight railroads (pp. 140-44) depicts freight railroads and Amtrak as
adversaries fighting over a finite amount of rail network capacity to
which Amtrak has claim under an inequitable arrangement. That
characterization overlooks the fact that increasing rail network
capacity is an important national policy issue on which the interests
of passenger and freight rail should be aligned. Freight railroads,
Amtrak, and the federal and state governments have a common need to
ensure that sufficient rail network capacity is provided to accommodate
growth in freight and passenger traffic that will cause gridlock if
forced onto other, even more congested, transportation modes.
As GAO has noted in a recent report[Footnote 233], it is not clear that
the privately-owned freight railroad industry will be able to fund all
of the investments required to handle record demand for rail freight
transportation. States that fund Amtrak services have made major
investments in freight-railroad owned infrastructure (including on the
New York-Albany and Washington-Richmond lines referenced in the report)
to add capacity to accommodate additional passenger services.
Encouraging such investments by leveraging them with federal matching
funds, as is the case for other transportation modes, will be of even
greater importance going forward if rail capacity is to be increased.
The public benefits from expanded and improved passenger rail service
provide an additional justification for government funding of
improvements that will also increase capacity for rail freight
operations.
Finally, in comparing the charges paid by Amtrak and commuter railroads
for operations over freight railroad-owned lines (pp. 141-42), it is
important to recognize:
* the significant state-funded capital investments to increase capacity
on freight-railroad owned rail lines used by Amtrak trains that are
discussed above;
* that the Rail Passenger Service Act is "a public bargain that was
struck with the nation's freight railroads, whereby the freight
railroads were relieved of any duty to provide passenger service in
exchange for making their tracks available to Amtrak at incremental
costs"[Footnote 234]; and:
* that commuter trains - which are concentrated in morning and evening
weekday peak periods, and have longer track occupancy due to frequent
stops - require greater rail line capacity, and therefore impose much
higher costs on the track owner, than a comparable number of intercity
passenger trains that are spread throughout the day/week.
VII. Financial Reporting & Governance:
Amtrak has a number of comments on Appendix VII to the report
("Financial Reporting, Internal Control and Governance Requirements and
Practices for Federal Entities and Public Companies"):
* The suggestion of creating an MD&A with our annual audited financials
is a reasonable idea. Financial Statements are never self explanatory
and an MD&A could help uninformed readers understand the results and
trends. It should be noted, however, that Amtrak does expend a great
deal of time and effort to ensure that key stakeholders, such as, its
Board, various regulatory agencies and anyone accessing the Amtrak
website have ample financial information available. In addition,
Amtrak's Board meets about ten times each year. Every meeting includes
information regarding Amtrak's financial condition. Many of these
meetings also include presentations from Amtrak's external auditors to
provide an independent assessment of Amtrak's financial position.
* The recommendation that Amtrak should report under full SEC
regulations would not be cost effective. Amtrak would need to hire
additional staff in several departments, pay for the production of a
significant amount of documentation for SEC filings, and require
additional services from our independent auditors. The additional cost
to Amtrak is estimated to exceed $2 million annually. In recent years
Amtrak's financials have stood up to the scrutiny of our independent
auditors without any material adjustments. SEC reporting is designed
for companies that are actively traded on stock exchanges. This level
of reporting is not appropriate or cost effective for organizations
like Amtrak. In addition, Amtrak has an Inspector General group with an
annual budget of $14 million that continually audits Amtrak's
Operations and Financial processes.
* GAO asserts that Amtrak's CEO and CFO are not required to certify the
organization's financial statements under Section 302 of the Sarbanes
Oxley Act. Since Amtrak is not subject to the Act this is a true
statement. On the other hand, it should be noted that five of Amtrak's
officers, including the CEO and CFO sign a Letter of Representation
each year. This is a standard practice that is followed with Amtrak's
independent auditors prior to the issuance of Amtrak's annual financial
statements and the auditor's opinion letter. The Letter of
Representation for the FY2005 audit contains eighty-one different
representations pertaining to various aspects of Amtrak's internal
controls and financial statements. These representations include
statements similar to those required under Section 302 of the Sarbanes
Oxley Act. This letter is addressed to the independent auditors and a
signed copy is provided to the Chairman of Amtrak's board. It has not
historically been a public document but Amtrak's Inspector General
Office has reviewed these letters.
* As GAO recognized in a report last year[Footnote 235], the following
agencies oversee Amtrak on a monthly, quarterly and annual basis: the
Federal Railroad Administration, the Department of Transportation
Inspector General's office and the independent Amtrak Inspector
General's office. The GAO went on to recommend increased oversight of
Amtrak by the Federal Railroad Administration. Considering the
impressive amount of oversight, cooperation and transparency Amtrak has
with the three existing oversight agencies, adding the time and
multimillion dollar cost burden of the Securities and Exchange
Commission seems an unnecessary use of federal funds with little real
benefit for stakeholders. It is also important to note that Amtrak
produces a monthly performance report which includes key operating and
financial statistics. The report is sent to key congressional oversight
committees, other stakeholders including the ones listed above, and is
publicly available on our website.
Conclusion:
Amtrak agrees with GAO's opening statement that intercity passenger
rail service in the United States has come to a critical juncture. A
national dialogue about the future direction of rail service --
passenger and freight --is urgently needed.
A more efficient, improved and expanded intercity passenger rail
service can play an important role in relieving congestion in the air
and on the highways. Rail has unique advantages over other modes. Rail
transportation is much less dependent on high priced oil, and increases
in rail line capacity (although not cheap) are often less expensive and
much less disruptive than building new highways or airport runways.
Amtrak looks forward to participating in a dialogue about the future of
the U.S. rail system with. policymakers and stakeholders. We
particularly hope that the discussion of the future role of intercity
passenger rail can move beyond the acrimonious debates and sound bites
of the past, and that consensus on policy goals, stakeholder roles, and
funding can be achieved.
Sincerely,
Signed by:
Alex Kummant:
President and Chief Executive Officer:
Attachments:
The following are GAO's comments on National Railroad Passenger
Corporation's letter dated October 23, 2006.
GAO Comments:
1. Our report is not intended to imply that Amtrak's mission is to
generate profits rather than provide services that produce public
benefits on a break-even basis. In fact, the first section of the
report discusses the characteristics (both financial and non-financial)
of the types of service provided by intercity passenger rail in the
United States and the types of service that could increase the
transportation benefits and public benefits of intercity passenger
rail. Regarding operating losses, we recognize that Amtrak's operating
loss is projected to decrease in fiscal year 2006 and have changed the
report to reflect that, instead of increasing, operating losses
continue to remain high. Finally, we do not believe our report is
inconsistent in how operating loss is portrayed. Non-cash items such as
depreciation and interest expenses are legitimate expenses to the
business and were reported based on Amtrak's audited financial
statements. The report also includes a figure excluding these items to
illustrate their relative contribution over Amtrak's reported cash
losses. In our discussion of the financial performance of routes, we
used the route financial data provided to us by Amtrak, which does not
include non-cash items such as depreciation charges.
2. The trend in passenger rail revenue between fiscal years 2002 and
2005 was stable. Based on data provided by Amtrak we included a
footnote to recognize the projected increase in passenger rail revenue
in fiscal year 2006. We have eliminated any reference to "promotional
pricing" being the reason for revenue decreases.
3. We recognize that a significant percentage of long distance
passengers that are not traveling for work purposes may be traveling
for family or personal/family business reasons. This is still a form of
leisure travel and we have modified our definition of "leisure" to
include travel for family or personal business reasons. Regarding long
distance passengers traveling less than 500 miles, our report notes
that many--but certainly not all--of these passenger trips may have
characteristics similar to those on corridor routes. The example cited
in the report, on the Empire Builder route, is intended to illustrate
the type of circumstances where this may apply. Regarding the financial
performance of long distance routes, we agree that on a per passenger
mile basis the difference between long distance service and other non-
NEC trains may be attributable to state subsidies. Our report notes
that one reason for the wide variance in financial performance among
corridor routes is the level of state support.
4. Our report also recognizes the growth in state-supported services
and that these services are the fastest growing in terms of ridership
and illustrate the significant potential for further growth. Finally,
we agree that on state-supported routes, states play a much greater
decision making role. We have changed our report to recognize this
role.
5. We agree that rail network capacity is an important national policy
issue and that freight and passenger railroads, as well as governments
at all levels need to work together to address this issue. This will be
particularly important in the future as rail infrastructure capacity
continues to become constrained. Our report discusses the challenges
associated with addressing this issue. We also address the issue of
cost sharing between the federal and state governments and how this is
common in some transportation modes other than intercity passenger
rail. Moreover, we identify factors that need to be considered in
making federal investments in private infrastructure. Finally, the
report identifies some of the factors as to why commuter railroads pay
amounts different from incremental cost to access freight and other
privately owned infrastructure. It was for this reason that we made a
qualitative, rather than a quantitative, comparison between Amtrak and
commuter rail infrastructure access costs.
[End of section]
Appendix IX: GAO Contact and Staff Acknowledgments:
GAO Contact:
JayEtta Z. Hecker, (202) 512-2834 or heckerj@gao.gov:
Acknowledgments:
In addition to the above individual, Randy Williamson (Assistant
Director), Tida Barakat, Jay Cherlow, Jeanette Franzel, Greg Hanna,
Bert Japikse, Richard Jorgenson, Ryan Lambert, Kimberly McGatlin, John
Saylor, Stan Stenersen, Lacy Vong, and Diana Zinkl made key
contributions to this report.
(544117):
FOOTNOTES
[1] "State of good repair" is the outcome expected from the capital
investment needed to restore Amtrak's right-of-way (track, signals, and
auxiliary structures), other infrastructure (e.g., stations), and
equipment to a condition that requires only routine maintenance.
[2] GAO, 21ST Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: Feb. 2005).
[3] The benefits that might be obtained from use of the intercity
passenger rail system include both private transportation benefits and
public benefits. By transportation benefits, we mean the benefits that
individuals receive from completing trips from their origin to their
destination. Because passenger rail trips have value to the individuals
making them, economic reasoning suggests that the individuals would be
willing to pay fares to make these trips, as long as the fares do not
exceed the benefits that they receive. These trips may also generate
public benefits, such as reductions in highway congestion, air
congestion, or air pollution; or the social benefits of connecting
individuals throughout the country. These are considered public
benefits because they do not accrue specifically to the travelers
themselves and travelers do not have an economic incentive to consider
public benefits in making their travel decisions. For this reason,
government subsidies would be needed to help fund the system if the
fares passengers are willing to pay to obtain private transportation
benefits are not sufficient to cover the cost of providing the service.
[4] For purposes of this report, the word reform is intended to cover
both incremental changes that might be made within the current
structure of intercity passenger rail, as well as more significant
changes that could be made, including wholesale restructuring in how
intercity passenger rail service is provided.
[5] We defined long-distance routes to be 750 miles or more and to
generally involve an overnight trip; we defined short-distance corridor
routes to generally be 500 miles or less.
[6] Intercity passenger rail service is also provided by the state of
Alaska via the Alaska Railroad. For the purposes of this report,
intercity passenger rail service does not include commuter rail service
between cities in metropolitan areas or service provided by the Alaska
Railroad.
[7] 49 U.S.C.§24701.
[8] Amtrak runs 15 long-distance trains on 14 routes. One of the 14
long-distance routes, the Silver Service, is comprised of three
different trains: The Silver Star, Silver Meteor, and the Palmetto,
with service between New York City, Georgia, and Florida.
[9] "Legacy routes" refer to routes that were established when Amtrak
began operating a basic system in 1971. In this report, the term "state
supported" refers to routes that receive financial assistance from a
state for some or all of its distance.
[10] 49 U.S.C. § 24101 Note § 203(g).
[11] Amount in nominal dollars and includes about $4 billion for the
Northeast Corridor Improvement Project.
[12] Pub. L. No. 105-134, § 415, 111 Stat. 2570, 2590 (1997).
[13] The administration's proposal was introduced as H.R. 1713,
Passenger Rail Investment Reform Act.
[14] DOT, in comments on a draft of this report, observed that this is
not one of the existing goals for Amtrak.
[15] The Amtrak Reform and Accountability Act of 1997 placed Amtrak on
notice that it was expected not to use federal funds for operating
expenses after 2002. However, Congress has opted to specifically
appropriate funds to Amtrak for operating expenses each fiscal year
beyond that date, through fiscal year 2007.
[16] The operating loss is the net result per Amtrak's statement of
operations. This figure includes additional income and expenses, such
as capital depreciation, employee benefits, state capital payments, and
net interest expenses. The cash loss excludes depreciation expenses and
other non-cash items.
[17] Amtrak, Amtrak Strategic Plan, FY 2005-2009 (June 29, 2004).
Amtrak officials have since stated that the 2005 Strategic Reform
Initiatives, and subsequent reports on these initiatives, indicate that
the company has taken, and plans to take, actions to reduce annual
operating losses.
[18] As of September 2006 Amtrak estimated that revenues for fiscal
year 2006 will be approximately 10 percent above fiscal year 2005
levels ($1.29 billion).
[19] Mark R. Dayton, Senior Economist, U.S. Department of
Transportation, Office of Inspector General, Intercity Passenger Rail
and Amtrak. Testimony before the House Committee on Appropriations,
Subcommittee on Transportation, Treasury, the Judiciary, Housing and
Urban Development, and Related Agencies, March 16, 2006. Jeffrey A
Rosen, General Counsel, U.S. Department of Transportation. Testimony
before the Subcommittee on Railroads, Committee on Transportation and
Infrastructure, House of Representatives, September 21, 2005.
[20] GAO, Intercity Passenger Rail: Issues for Consideration in
Developing an Intercity Passenger Rail Policy, GAO-03-712T (Washington,
D.C.: Apr. 30, 2003). In April 2005, the Department of Transportation
Office of Inspector General estimated this backlog at about $5 billion.
[21] Rolling stock refers to locomotives and passenger or other cars,
such as sleeping or dining cars.
[22] This amount includes long-term debt and capital lease obligations
(about $3.5 billion) plus the current maturities of long-term debt and
capital lease obligations (about $138 million).
[23] Working capital is generally defined as current assets minus
current liabilities. Amtrak and DOT officials indicate additional
working capital may also function similar to a line of credit,
bolstering cash reserves and reducing the risk to the corporation as a
result of unexpected events.
[24] Dayton, p. 2.
[25] In April 2005, Amtrak removed all Acela services on the NEC
following the discovery of cracks in many of the trains' brake discs.
The service did not return to full operation until September 26, 2005.
Amtrak's premium Acela service and its companion Metroliner service are
Amtrak's only train operations that make a positive financial
contribution (excluding depreciation and capital expenses).
[26] Data on route financial performance are based on Amtrak's Route
Profitability System (RPS). We have previously identified concerns with
this database related to the reliability of cost-allocation methods for
individual routes. See GAO, Amtrak Management: Systemic Problems
Require Actions to Improve Efficiency, Effectiveness, and
Accountability, GAO-06-145 (Washington D.C.: Oct. 4, 2005). However, we
believe the data are reasonably sufficient to illustrate aggregate
financial trends and make general comparisons between route types for
the purposes of this report.
[27] A passenger mile is one passenger traveling one mile.
[28] Kenneth M. Mead, The Future of Intercity Passenger Rail Service
and Amtrak, Statement before the Committee on Commerce, Science, and
Transportation, U.S. Senate, Oct. 2, 2003. In this analysis, the
Pennsylvanian is included as a long-distance train; however, Amtrak
currently classifies this route as a corridor service. Omitting this
route revises the estimate to 30 percent.
[29] FRA does not define high-speed rail transportation in terms of the
speed of travel, but in terms of an intercity passenger service that is
time-competitive with airplanes or automobiles on a door-to-door basis
for trips ranging from 100 to 500 miles. The 10 designated corridors
are generally in various stages of planning.
[30] Survey data were collected by a third-party contractor in 2005,
via 5,400 phone interviews sampled among customers who traveled on each
of Amtrak's long-distance routes in each of the four seasons of the
year. We did not assess the accuracy or precision of these estimates.
[31] Amtrak reported financial losses on individual long-distance
routes ranging from $84 to $433 in fiscal year 2005. However, we have
previously identified concerns related to the accuracy of Amtrak's
allocation of costs to individual routes (See GAO-06-145).
[32] According to Amtrak, most of the decrease in revenue is
attributable to the elimination of mail and express business. Express
is the transportation of higher-value, time-sensitive merchandise, such
as food and automobile parts. In addition, Amtrak attributed revenue
decreases to the elimination or truncation of three long distance
routes, deterioration in on-time performance on some host railroads,
and excessive bad weather events.
[33] Sleeper-class service includes a sleeping room and prepaid meals
in the train's dining car; coach-class passengers on long-distance
trains sleep in their seats on overnight trips and generally purchase
food in the train's lounge car.
[34] Inspector General, Department of Transportation, Analysis of Cost-
Savings on Amtrak's Long-Distance Services, Report Number CR-2005-068,
July 22, 2005.
[35] As part of the rail reforms implemented in Canada, VIA Rail, the
primary operator of intercity passenger rail, largely remarketed the
Canadian--its principal long distance route--as a premium service for a
premium price, which led to improvements in cost-recovery for that
route. Amtrak initiated a similar effort in fiscal year 2005 to improve
operating margins by relaunching the Empire Builder with upgraded
equipment and improved customer service. As of April 2006, operating
losses on this route were $4.2 million below the prior year level,
likely indicating positive financial impact from these changes;
however, the route continued to post a $29.2 million loss over this
period.
[36] For this analysis, the Bureau of Transportation Statistics defined
as rural any area that the Census Bureau did not identify as either an
"urbanized area" or an "urban cluster."
[37] DOT, Bureau of Transportation Statistics, Scheduled Intercity
Transportation: Rural Service Areas in the United States, June 2005.
[38] DOT, Study of Intercity Bus Service, Report to the United States
Congress, July 2005.
[39] We have previously reported on potential options to improve the
long-term viability and effectiveness of other federal programs
targeted to smaller communities, such as the Essential Air Service
program. These options included redefining or clarifying program
criteria and potentially shifting federal subsidies from air carriers
to local grants administered directly to communities with identified
needs. See GAO, Options to Enhance the Long-Term Viability of the
Essential Air Service Program, GAO-02-997R (Washington, D.C.: Aug. 30,
2002).
[40] All long-distance trains are currently scheduled for one daily
departure except the Cardinal and the Sunset Limited, which have three
weekly departures.
[41] Delays for which the host railroad is responsible include, among
others, delays caused by freight trains; temporary slow orders; meeting
up or following other passenger trains; and signal, routing,
dispatching, or detour delays.
[42] In fiscal year 2005, a 30-minute tolerance from scheduled arrivals
was used to determine on-time performance for long-distance trains.
[43] These routes include the Empire Service between New York City, New
York, and Toronto, Canada; and the Pacific Surfliner, Capitols, and San
Joaquin services that operate within California.
[44] Amtrak's Regional Service operates primarily on sections of the
NEC between Newport News, Virginia, and Boston, Massachusetts.
[45] We have previously identified potential data reliability concerns
related to Amtrak's allocation of costs to individual routes (see GAO-
06-145). However, for the purposes of this report, we believe the data
are the best available and reasonably sufficient to illustrate general
financial trends between Amtrak's different routes.
[46] As part of its Strategic Reform Initiatives, Amtrak is currently
undertaking efforts to transition the states to paying the full subsidy
of operating corridor services, which would include allocation of
additional overhead costs and other shared costs (excluding
depreciation and interest), as well as an applicable equipment charge
that Amtrak envisions will be eligible for a federal capital match (if
one were enacted). Under this initiative, starting in fiscal year 2008,
state funding requirements would be stepped up by 25 percent each year
over a 4-year period until the full subsidy for operating these routes
is recovered.
[47] Amtrak officials indicated that the Hoosier Service also operates
for the purpose of moving equipment to and from Amtrak's Beech Grove
maintenance facility near Indianapolis. According to Amtrak, there have
been preliminary discussions with the Indiana Department of
Transportation about making this a state-supported route.
[48] GAO, Intercity Passenger Rail: Congress Faces Critical Decisions
in Developing a National Policy, GAO-02-522T (Washington, D.C.: Apr.
11, 2002).
[49] American Association of State Highway and Transportation
Officials, Intercity Passenger Rail Transportation, Standing Committee
on Rail Transportation, 2002.
[50] The nine member states of the Midwest Regional Rail Initiative
include: Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri,
Nebraska, Ohio, and Wisconsin.
[51] Amtrak defines Acela Express trains as "on-time" if they arrive
within 10 minutes of their scheduled time. Regional trains are defined
with a higher degree of tolerance based on route mileage: 10 minutes
for trips less than 250 miles, up to a maximum of 30 minutes for trips
exceeding 551 miles.
[52] Amtrak officials indicated that on-time performance of the primary
trains operating on the NEC was 81 percent for fiscal year 2006 (as of
September 8, 2006).
[53] We have previously reported shortcomings in Amtrak's coordination
with applicable states along the NEC to effectively identify and
prioritize capital projects. See GAO, Intercity Passenger Rail:
Amtrak's Management of Northeast Corridor Improvements Demonstrates
Need for Applying Best Practices, GAO-04-94 (Washington, D.C.: Feb. 27,
2004).
[54] Amtrak does not own the track between Washington, D.C., and
Richmond, Virginia, but operates both corridor and long-distance trains
along this route.
[55] I-95 Corridor Coalition, Mid-Atlantic Rail Operations Study -
Summary Report, April 2002.
[56] The American Association of State Highway and Transportation
Officials, 2002.
[57] Rosen, 2005.
[58] CBO, The Past and Present of U.S. Passenger Rail Service, Sept.
2003.
[59] Amtrak survey data indicates an average household income of
$83,000 per year for Sleeper/First Class passengers compared with
$60,000 for coach-class passengers. However, we have not assessed the
accuracy or precision of these estimates. In comparison, the U.S.
Census Bureau reported that the median household income in 2005 was
about $46,200 (in 2005 inflation-adjusted dollars).
[60] Rail systems consist of two main functions--infrastructure
management and operations. To varying degrees, these two functions can
be integrated, that is, conducted by the same entity, or separated from
each other.
[61] Canada, France, Germany, Japan, and the U.K.
[62] Although the German government no longer operates the intercity
passenger rail system, the primary operator, DeutscheBahn AG, is a
private state-owned, joint-stock company whose rail components are 100
percent owned by the German government.
[63] In France, this took the form of a new monopoly company
established by the government to manage the infrastructure; in Germany
one of the businesses of DeutscheBahn AG is dedicated to infrastructure
management.
[64] The European Union directive requires countries to accept the
lowest bid despite other possible selection criteria, such as service
or quality.
[65] This is expected to change in France after the European Union's
"Third Railway Package" is enacted. This package will require all
member states to open their passenger rail services to multiple
operators. This process already exists in their freight industry.
French officials anticipate that this package will be considered for
enactment by 2010. In Canada, while the shift in roles was not as
significant as in other countries, the Canadian government mainly
determines the supply of rail services it wants VIA Rail to provide to
citizens.
[66] Approximately $1.3 million in December 2004.
[67] Transport Canada officials said that the government agreed to
provide VIA Rail with an annual base subsidy of $171 million (CAD) per
year starting in 1998. This subsidy was subsequently reduced to $169
million (CAD) in 2003 following a governmentwide expenditure-review
exercise. VIA Rail officials said this subsidy is not set in law and
can vary from year to year. However, it has remained essentially the
same since 1998. VIA Rail officials also noted that this subsidy is
fixed and does not include an allowance for inflation. The operating
subsidy does not include money for capital improvements.
[68] Congressional Research Service, Foreign Intercity Passenger Rail:
Lessons for Amtrak? (Washington, D.C.: 2002).
[69] Ibid.
[70] Before Japanese reforms were initiated in 1987, that national
railway's current deficit reached 4.9 percent of the total national
budget and 0.9 percent of the gross domestic product.
[71] Conversion of France's debt to U.S. dollars was done using the
exchange rate for the Euro introduced in January 1999, and therefore is
not the exact value of the actual debt in 1997.
[72] In Canada, the operator has no authority to issue debt instruments
or to go into debt markets to raise funds.
[73] Competition in rail operations can take the form of multiple train
operators competing on the same track. However, competition more often
takes the form of franchises bidding for government contracts to
perform rail services.
[74] DeutscheBahn AG officials define staff productivity in thousand
passenger-ton kilometers/individual staff member.
[75] See GAO-05-325SP.
[76] Congressional Research Service, Amtrak Historical Background to
the Political and Social Aspects of Federal Intercity Passenger Rail
Policy (Washington, D.C.: December 2004.
[77] Today, Amtrak is a private corporation in which the government has
substantial ownership interests and control over selection of the Board
of Directors. The government's direct legal control over Amtrak takes
the form of a grantor-grantee relationship.
[78] The Secretary of Transportation also currently has a seat on
Amtrak's Board of Directors and FRA is responsible for rail safety
issues, including Amtrak.
[79] Ibid., p.6.
[80] The Secretary of State for Transport is expected to produce the
High Level Output Specification and a statement of funds available by
July 2007.
[81] CRS, 2002. The Congressional Research Service also reported on
Argentina and Mexico, in addition to the five countries we report on
here.
[82] The Amtrak Reform and Accountability Act of 1997 authorized
funding for Amtrak for fiscal years 1998 through 2002.
[83] Amtrak, Amtrak Strategic Plan, FY2005--2009, (Washington, D.C.:
2004).
[84] The Highway Trust Fund was established in 1956 to ensure a
dependable source of funding for the national system of interstate and
defense highways and also as the source of funding for the remainder of
the Federal-aid Highway Program. In 1983, the Highway Trust Fund was
divided into two accounts: the Highway Account and the Mass Transit
Account.
[85] DOT, Federal Transit Administration. Testimony before the
Subcommittee on Housing and Transportation, Committee on Banking,
Housing, and Urban Affairs. U.S. Senate, April 25, 2002.
[86] Labor protection refers to payments, stemming from collective
bargaining agreements, that Amtrak would owe to terminated employees.
[87] GAO, Intercity Passenger Rail: Amtrak's Management of Northeast
Corridor Improvement Demonstrates Need for Applying Best Practices, GAO-
04-94 (Washington, D.C.: February 27, 2004).
[88] See GAO-06-145.
[89] Amtrak Strategic Reform Initiatives and FY06 Grant Request, April
2005.
[90] The baseline operating loss estimate for sleeper service for
fiscal year 2005 was $92 million.
[91] U.S. Department of Transportation, Office of the Inspector
General. Third Quarterly Report on Amtrak Financial Status, July 13,
2006.
[92] 49 U.S.C. §24312(b).
[93] This is directly related to provisions in the Railway Labor Act
that keep provisions of earlier contracts in place when they expire.
[94] Amtrak is still subject to notification requirements prior to
discontinuing routes.
[95] GAO, Intercity Passenger Rail: Potential Financial Issues in the
Event That Amtrak Undergoes Liquidation, GAO-02-871 (Washington, D.C.:
September 20, 2002).
[96] The reduction in service on a route would have to be to less than
three times per week before Amtrak would be required to pay wages and
benefits.
[97] Better alignment of fees with the full costs of the use of
infrastructure, including highways, airports, and airspace, is an issue
far broader than national intercity passenger rail policy. In fact,
better alignment of fees and costs across all transportation modes
could increase the demand for rail services even if fees paid by users
of rail were to be increased.
[98] GAO-06-145, p. 68.
[99] GAO, Commuter Rail: Commuter Rail Issues Should Be Considered in
Debate over Amtrak, GAO-06-470 (Washington, D. C.: Apr. 21, 2006).
[100] GAO, Freight Railroads: Industry Health Has Improved, but
Concerns about Competition and Capacity Should Be Addressed, GAO-07-94
(Washington, D.C.: Oct. 6, 2006).
[101] GAO-06-145.
[102] This proposal, S. 1516, would also authorize the issuance of $13
billion in tax credit bonds to finance capital improvements.
[103] The administration's proposal (H.R. 1713) would also require
applicants to contribute matching funds for capital projects that
qualify under planning and other criteria, and phase out operating
subsidies for long-distance service.
[104] ARC officials said ARC is a federal-state partnership with a
model of governance designed to manage federal-state interactions and
to force consensus in reaching decisions about Appalachia. The agency
employs 11 federal staff and about 50 state employees.
[105] GAO, Commuter Rail: Information and Guidance Could Help
Facilitate Commuter and Freight Rail Access Negotiations, GAO-04-240
(Washington, D.C.: Jan. 9, 2004).
[106] CBO, Freight Rail Transportation: Long-Term Issues (Washington,
D.C.: Jan. 2006).
[107] Statistics include Class I, Class II, and Class III railroads.
The three classes of railroads are designated by the Surface
Transportation Board, the federal agency responsible for the economic
regulation of the rail industry. In 2004, Class I railroads had $277.7
million or more in annual revenue. A ton-mile is one ton of freight
transported 1 mile.
[108] Energy Information Administration, Annual Energy Outlook 2006
(Washington, D.C.: Feb. 2006).
[109] Association of American Railroads, Statement of Edward R.
Hamberger, President and Chief Executive Officer, Association of
American Railroads Before the U.S. House of Representatives, Committee
on Transportation and Infrastructure, Subcommittee on Railroads, April
26, 2006. The Association of American Railroads is a trade organization
for the railroad industry.
[110] GAO, Freight Railroads: Preliminary Observations on Rates,
Competition, and Capacity Issues, GAO-06-898T (Washington, D.C.: June
21, 2006).
[111] GAO-06-470, p. 27.
[112] GAO, Intercity Passenger Rail: Potential Financial Issues in the
Event That Amtrak Undergoes Liquidation, GAO-02-871 (Washington, D.C.:
Sept. 20, 2002).
[113] The railroad retirement system is administered by a federal
agency, the Railroad Retirement Board, and includes both passenger and
freight railroads. Amtrak participates in the railroad retirement-
system, under which each participating railroad pays a portion of the
total railroad retirement benefit-costs for industry employees.
[114] Under a tort-based compensation system such as the Federal
Employers' Liability Act, employees must demonstrate that the employer,
its employees, or agents were negligent, in order to receive
compensation for employment-related injuries.
[115] GAO, Railroad Competitiveness: Federal Laws Affect Railroad
Competitiveness, GAO/RCED-92-16 (Washington, D.C.: Nov. 5, 1991).
[116] Amtrak operated Massachusetts Bay Transportation Authority trains
and maintained their equipment and infrastructure under a contract that
expired on June 30, 2003. The contract is currently held by a
partnership that includes Veolia Transportation, Bombardier, and
Alternative Concepts, Inc.
[117] Amtrak noted there are currently statutory restrictions on its
ability to outsource. Amtrak cited section 121(c) of the Amtrak Reform
and Accountability Act of 1997, which prohibits outsourcing that
results in layoffs of employees other than food and beverage employees
(unless negotiated with Amtrak's unions pursuant to the Railway Labor
Act). Amtrak also cited 49 U.S.C. § 24305, which requires Amtrak to
"operate and control directly, to the extent practicable, all aspects
of the rail transportation it provides."
[118] In April 2006, Amtrak issued a request for proposal to solicit
bids from states for private companies to operate state-supported
routes. As of July 2006, Amtrak was in the process of evaluating
proposals from four states to do such things as designing and
restructuring service on a state-supported route in Vermont and to
develop and test a new reservations system.
[119] Train operating companies in the U.K. pay fees to access tracks
and stations owned by the infrastructure manager, Network Rail, to
provide service. These fees are largely paid by the train operating
companies and are considered during the franchise award process.
According to an official with the Department for Transport, U.K.
franchise agreements contain provisions allowing the regulation of
profit and loss. In general, if franchise revenue growth exceeds a
certain level specified in the franchise agreement, then 50 percent of
the additional revenue growth is shared with the government.
[120] The Association of Train Operating Companies is a trade
association representing the interests of the U.K.'s train operating
companies.
[121] According to the Association of Train Operating Companies, in
general, trains run by long distance operators in the U.K. travel
anywhere from about 120 miles up to about 600 miles and may or may not
include sleeper cars.
[122] Office of Rail Regulation, National Rail Trends Yearbook 2005-
2006 (covering the period April 2005 to March 2006).
[123] See Mark Dayton testimony.
[124] GAO, Intercity Passenger Rail: Issues for Consideration in
Developing an Intercity Passenger Rail Policy, GAO-03-712T (Washington,
D.C.: Apr. 30, 2003).
[125] In 1998, the government committed to providing VIA Rail with ten
years of stable operating funding at $171 million CAD per year. This
was reduced in 2004 by $2 million CAD as part of a government wide
review of expenditures.
[126] Although states are not required to subsidize basic intercity
passenger rail service, federal statute (49 U.S.C. §24706) does require
Amtrak to provide notification 180 days prior to discontinuance of
service to give states, a regional or local authority, or another
entity the opportunity to agree to share or assume the cost of any part
of the train, route, or service to be discontinued.
[127] GAO-03-712T.
[128] The New Starts program is a Federal Transit Administration
program for starting fixed guideway projects. The program funds up to
80 percent of a project's net capital cost. See GAO, Public
Transportation: Preliminary Information on FTA's Implementation of
SAFETEA-LU Changes, GAO-06-910T (Washington, D.C.: June 27, 2006).
[129] GAO-05-325SP; GAO, Highway Trust Fund: Overview of Highway Trust
Fund Estimates, GAO-06-572T (Washington, D.C.: Apr. 4, 2006).
[130] GAO, Mass Transit: Issues Related to Providing Dedicated Funding
for the Washington Metropolitan Area Transit Authority, GAO-06-516
(Washington, D.C.: May 15, 2006).
[131] Congressional Research Service, Amtrak: Budget and
Reauthorization, Order Code RL33492 (Washington, D.C.: June 22, 2006).
[132] VIA Rail also receives capital improvement funds from Parliament.
Canadian officials said VIA Rail last received such funds (about $402
million CAD) in 2000 to be spent over a 5 year period.
[133] GAO, Intermodal Transportation: Potential Strategies Would
Redefine Federal Role in Developing Airport Intermodal Capabilities,
GAO-05-727 (Washington D.C.: July 26, 2005); GAO, Marine
Transportation: Federal Financing and a Framework for Infrastructure
Investments, GAO-02-1033 (Washington D.C.: Sept. 9, 2002); and GAO,
Freight Transportation: Short Sea Shipping Option Shows Importance of
Systematic Approach to Public Investment Decisions, GAO-05-768
(Washington D.C.: July 29, 2005).
[134] GAO, Executive Guide: Leading Practices in Capital Decision-
Making, GAO-AIMD-99-32 (Washington, D.C.: Dec. 1998).
[135] Amtrak also makes certain information available about its
business. Each year, Amtrak is required to submit to Congress, by
February 15TH, an annual operations report that identifies such things
as ridership, revenues, and federal subsidies for each of its intercity
routes. Amtrak is also required to annually submit to Congress a
general and legislative report that discusses its operations and
activities and includes a statement of revenues and expenditures for
the prior fiscal year.
[136] 49 U.S.C. § 24315.
[137] GAO-06-145.
[138] These requirements are found in OMB Circular No. A-136, Financial
Reporting Requirements (rev. July 24, 2006), which implements 31 U.S.C.
3515(d) requiring OMB to prescribe the form and content of financial-
entity financial statements.
[139] Congressional Budget Office, The Past and Future of U.S.
Passenger Rail Service (Washington D.C.: Sept. 2003).
[140] As we reported in September 2002, we concluded that the United
States would not be legally liable for either secured or unsecured
creditors' claims in the event of an Amtrak liquidation. Nevertheless,
we recognize that creditors may attempt to recover losses from the U.S.
government. See GAO, Intercity Passenger Rail: Potential Financial
Issues in the Event That Amtrak Undergoes Liquidation, GAO-02-871
(Washington D.C.: Sept. 20, 2002).
[141] This would be similar to the relatively competitive current
marketplace for commuter rail service in some states.
[142] While Amtrak owns portions of the NEC, the federal government
owns a promissory note issued by Amtrak representing a secured interest
in those portions.
[143] The World Bank, Results of Railway Privatization in Latin America
(Washington D.C.: Sept. 2005).
[144] While the Mexican government retained its ownership of its
railroad infrastructure, the length of franchise agreements and the
minimization of government involvement could serve as an example for
the federal government to franchise the NEC.
[145] GAO-06-470.
[146] Amtrak officials and the Congressional Budget Office have stated
that withdrawal of federal capital and operating support would force
Amtrak into bankruptcy, which may lead to its liquidation.
[147] See GAO-02-871.
[148] Again, as we concluded in GAO-02-871, the United States would not
be legally liable for either secured or unsecured creditors' claims in
the event of an Amtrak liquidation.
[149] Although DB is the largest regional passenger rail operator in
Germany with 84 percent of the market, it runs all of its regional
routes under contract and must meet specified performance criteria;
bonuses and penalties depend upon performance. DB is also one of over
20 different passenger rail operating companies in Germany.
[150] Japan is the one country that is an exception. In Japan, the
major intercity passenger rail providers are privatized and do not
receive any direct government subsidy; most of Japan's population is
concentrated in 20 percent of its land area in densely populated major
cities. This geographical situation is ideally suited for intercity
passenger rail service. For example, intercity passenger trains have an
80-percent market share of all intercity passenger trips about 200-400
miles in length. The Japanese government still subsidizes new high
speed and other rail line construction, however.
[151] Committee on Transportation and Infrastructure, Working Group on
Intercity Passenger Rail, A New Vision for America's Passenger Rail,
(Washington D.C.: June 23,1997); and the Amtrak Reform Council, An
Action Plan for the Restructuring and Rationalization of the National
Intercity Rail Passenger System, (Washington D.C.: February 7, 2002).
[152] We spoke with officials in New York, Virginia, California,
Washington, and Wisconsin. These states were chosen based on their
diverse geographic location and the unique passenger travel markets in
their respective regions. In addition, the type and extent of intercity
passenger rail services vary considerably in these states, as well as
the level of investment that each state has historically provided to
support Amtrak operations.
[153] The commuter railroads included in our review were Altamont
Commuter Express (California), Metrolink (California), Sound Transit
(Washington), and Virginia Railway Express (Virginia and Washington,
D.C.)
[154] VIA Rail does own some track between Montreal, Québec, Ottawa,
Ontario, and Kingston, Ontario.
[155] As of September 2006, the dollar equivalent is approximately $152
million (USD). All dollar value equivalents in this report are as of
September 2006 unless otherwise noted.
[156] Approximately $313 million (USD).
[157] Approximately $358 million (USD).
[158] A national commission was set up to allocate assets between RFF
and SNCF and offer solutions in case of litigation on assets
allocation. RFF was granted tracks, marshalling yards, and signals.
SNCF received stations, storage sidings, and workshops.
[159] Approximately $9.6 billion.
[160] Approximately $2.5 billion.
[161] Approximately $1.0 billion.
[162] Approximately $1.1 billion.
[163] Based on June 30, 2004 exchange rate.
[164] Based on June 30, 2004 exchange rate.
[165] According to a German official, Germany makes a distinction
between regional/commuter and intercity/long-distance transport.
However, for purposes of this report, we included regional/commuter
service as "intercity" since transport on regional (short-distance)
trains can be between cities.
[166] Bundeseisenbahnvermögen.
[167] Approximately $8.9 billion.
[168] Approximately $5.1 billion.
[169] Currently $1.9 billion and $3.2 billion respectively.
[170] Due to fluctuations in exchange rate, the subsidy varied from
approximately $8.5 to $12.7 billion between 1999-2006.
[171] In 1987, this amount was approximately equal to $4.7 billion. All
subsequent currency conversion amounts reported for Japan in this
appendix use the average exchange rate during 1987, the year the
railway was reformed.
[172] Approximately $1.4 billion.
[173] Approximately $2.7 billion.
[174] Approximately $255.8 billion.
[175] Approimately $176.3 billion.
[176] £18 billion in debt is approximately $34 billion, and the value
of the £21 billion in debt (in 2009) is approximately $37 billion.
[177] Approximately $1.5 billion in 2006.
[178] The NEC's Regional Service is Amtrak's service that primarily
operates between Washington, D.C., and Boston, Massachusetts. This
service includes 22 state-corridor trains through Massachusetts, New
York, and Virginia.
[179] The statutory right to priority over freight trains does extend
to commuter rail services operated by Amtrak.
[180] Amtrak provided this figure as a nationwide average. We were
unable to determine how Amtrak's infrastructure access charges varied
by railroad or by line. The average does not include on-time
performance incentives.
[181] The commuter rail agencies we contacted were Altamont Commuter
Express (California), Metrolink (California), Sound Transit
(Washington), and Virginia Railway Express (Virginia-Washington, D.C.)
[182] In some instances, these capital contributions were made by state
governments on behalf of the commuter rail agency.
[183] GAO, Freight Railroads: Preliminary Observations on Rates,
Competition, and Capacity Issues, GAO-06-898T (Washington, D.C.: June
21, 2006).
[184] GAO-04-240, p. 17.
[185] According to Amtrak, these agreements typically contain no
explicit exception for aggravated conduct (i.e., something exceeding
ordinary negligence).
[186] Thirteen hundred of these employees (5 percent) were transferred
to Massachusetts Bay Commuter Rail (MBCR) when Amtrak lost the contract
for operating the Massachusetts Bay Transportation Authority (MBTA)
service.
[187] GAO, Commuter Rail: Commuter Rail Issues Should Be Considered in
Debate over Amtrak, GAO-06-470 (Washington, D.C.: Apr. 21, 2006).
[188] According to AAR, over the past 2 years Class I freight-railroad
employment has risen after 60 years of general decline. This was
especially true for train and engine employees, where increases went
from about 61,100 employees in December 2003 to about 69,700 employees
in December 2005. Total Class I employment increased 8 percent over
this same period.
[189] VIA Rail is the intercity passenger rail provider in Canada.
[190] GAO-02-871, p. 17.
[191] GAO, Intercity Passenger Rail: Potential Financial Issues in the
Event That Amtrak Undergoes Liquidation, GAO-02-871 (Washington, D.C.:
Sept. 20, 2002).
[192] Only service reductions to less than three trains per week will
trigger labor protection.
[193] The railroad retirement-system is administered by a federal
agency, the Railroad Retirement Board, and includes both passenger and
freight railroads. Amtrak participates in the railroad retirement-
system, under which each participating railroad pays a portion of the
total railroad retirement benefit costs for industry employees.
[194] Under a tort-based compensation system like the Federal
Employers' Liability Act, employees must show negligence of the
employer, its employees, or agents, in order to receive compensation
for employment-related injuries.
[195] Pub. L. No. 105-134, § 415, 111 Stat. 2570, 2590 (1997).
[196] Codified at 31 U.S.C. §§ 9101-9110.
[197] The current 24 CFO Act Agencies are: the Department of
Agriculture, the Department of Commerce, the Department of Defense, the
Department of Education, the Department of Energy, the Department of
Health and Human Services, the Department of Homeland Security, the
Department of Housing and Urban Development, the Department of the
Interior, the Department of Justice, the Department of Labor, the
Department of State, the Department of Transportation, the Department
of the Treasury, the Department of Veterans Affairs, the Environmental
Protection Agency, the National Aeronautics and Space Administration,
the Agency for International Development, the General Services
Administration, the National Science Foundation, the Nuclear Regulatory
Commission, the Office of Personnel Management, the Small Business
Administration and the Social Security Administration. 31 U.S.C. §
901(b).
[198] The Reports Consolidation Act of 2000, Pub. L. No. 106-531, §
4(a), 114 Stat. 2537, 2539 (Nov. 22, 2000), added a requirement that
the audited financial statements shall also be submitted to Congress.
[199] The requirement for submitting annual audited financial
statements to OMB and Congress under the CFO Act, GRMA, and ATDA has
been codified, as amended, at 31 U.S.C. § 3515.
[200] OMB specifically identified 76 agencies to which the ATDA
expanded the annual financial reporting requirement in Appendix A of M-
04-22, a July 2004 memorandum titled "Amendments to OMB Bulletin No. 01-
02, Audit Requirements for Federal Financial Statements." This bulletin
and related memoranda have been superseded by OMB Bulletin No. 06-03,
Audit Requirements for Federal Financial Statements (Aug. 23, 2006),
which in Appendix C identifies 75 entities to which the ATDA expanded
the annual financial reporting requirement.
[201] Requirements for annual management reports for government
corporations have been codified, as amended, at 31 U.S.C. § 9106.
[202] OMB Circular No. A-136, Financial Reporting Requirements, Part
I.5 (rev. July 24, 2006).
[203] 31 U.S.C. § 9106(a)(2).
[204] Pub. L. No. 107-204, 116 Stat. 745 (July 30, 2002)(codified at 15
U.S.C. §§ 7201 - 7266).
[205] 31 U.S.C. § 3516.
[206] The Reports Consolidation Act of 2000 (Pub. L. No. 106-531, 114
Stat. 2537 (Nov. 22, 2000)(codified at 31 U.S.C. § 3516)) permits
agencies to submit combined reports in implementing statutory
requirements for financial and performance management reporting to
improve the efficiency of executive branch performance. These reports
are combined in the PAR. In its guidance on financial reporting in OMB
Circular No. A-136, OMB converted the PAR option to a mandatory
requirement.
[207] Federal entities required to prepare audited financial statements
following the guidance in OMB Circular No. A-136 are defined in the CFO
Act, GMRA, ATDA and the Government Corporation Control Act, except any
corporation that is required to register a class of its equity
securities with the SEC. OMB Circular No. A-136, at ¶ I.3.
[208] OMB Circular No. A-123, Management's Responsibility for Internal
Control, at App. A, Part I (rev. Dec. 21, 2004).
[209] FFMIA, Pub. L. No. 104-208, div. A., § 101(f), tit.VIII, 110
Stat. 3009, 3009-389 (Sept. 30, 1996)(reprinted in 31 U.S.C. § 3512
note).
[210] GFOA, GFOA Recommended Practice: Establishment of Audit
Committees (1997 and 2002) (Oct. 25, 2002), available at [Hyperlink,
http://www.gfoa.org/services/rp/caafr-establishment-audit-
committee.pdf].
[211] Committee on Financial Services, U.S. House of Representatives,
Corporate and Auditing Accountability, Responsibility, and Transparency
Act of 2002, to accompany H.R. 3763, H.R. Rep. No. 107- 414, at 16-19
(Apr. 22, 2002).
[212] The Exchange Act, which created the SEC and gave it broad powers
to regulate the securities markets, is codified, as amended, at 15
U.S.C. §§ 78a-78nn.
[213] 17 C.F.R. § 229.303.
[214] The term "internal control over financial reporting" refers to
the process designed by the issuer to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP. 17
C.F.R. § 240.13a-15(f) (2006).
[215] The term "disclosure controls and procedures" refers to the
controls and other procedures of the company that are designed to
ensure that information required to be disclosed in reports filed under
the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms. See 17 C.F.R.
§ 240.13a-15(e) (2006). Internal control over financial reporting is
distinct, but not mutually exclusive from disclosure control and
procedures, as some internal accounting controls may be subsumed in the
company's disclosure controls and vice versa.
[216] SEC rules prescribe the specific form and content of the required
certifications. 17 C.F.R. §§ 228.601(31), 229.601(31) (2006).
[217] This provision of the Sarbanes Oxley-Act was included in Title
IX, which the act states may be cited as the White-Collar Crime Penalty
Enhancement Act of 2002, Pub. L. No. 107-204, § 906(a), 116 Stat. 804,
806 (July 30, 2002)(codified at 18 U.S.C. § 1350(a)).
[218] GAO, Sarbanes-Oxley Act: Consideration of Principles Needed in
Addressing Implementation for Smaller Public Companies, GAO-06-361
(Washington, D.C.: April 2006).
[219] 17 C.F.R. § 240.13a-15(f)(2006).
[220] Consistent with the criteria set out in section 407(b) of the
Sarbanes-Oxley Act, the SEC issued regulations defining a financial
expert as a person who has, through education and experience as a
public accountant, auditor, or other principal financial officer, an
understanding of GAAP and financial statements, experience in the
preparation or auditing of financial statements, and the application of
such principles in connection with the accounting for estimates,
accruals, and reserves. The financial expert should also have
experience with internal accounting controls and an understanding of
audit committee functions. 17 C.F.R. § 229.407.
[221] GAO-06-145.
[222] 49 U.S.C. § 24315.
[223] The scope of the reports does not constitute an auditor's opinion
on internal control, but rather, contains any significant deficiencies
or noncompliance noted during the audit.
[224] 49 U.S.C.§ 24302(a)(2)(A).
[225] Pub. L. No. 97-35, tit. XI, subtit. F, § 1174, 95 Stat. 687, 689
(Aug. 13, 1981).
[226] GAO-06-145.
[227] For a general discussion of the purpose of the MD&A, see FASAB
SFFAC (Statement of Federal Financial Accounting Concepts) No. 3,
Management Discussion and Analysis (April 1999), available at
[Hyperlink, http://www.fasab.gov/concepts.html]
[228] See, e.g., Transportation, Treasury, Independent Agencies, and
General Government Appropriations Act, 2005, Pub. L. No. 108-447, div.
H, tit. I, 118 Stat. 2809, 3220 (Dec. 8, 2004); Department of
Transportation Appropriations Act, 2006, Pub. L. No.109-115, div. A,
tit. I, 119 Stat. 2396, 2413 (Nov. 30, 2005).
[229] The House report on the Rail Passenger Service Act of 1970
suggested only that intercity passenger rail service "along certain
corridors can be made a profitable commercial undertaking, particularly
with new equipment or advanced vehicles." H.R. Rep. No. 91-1580, p. 1
(emphasis added). During the House debate, three congressmen expressed
a "hope" or "possibility" that the new entity created by the Act could
eventually become profitable, but one of them added that "it is
possible that this new program will have to be funded by the Congress
on an annual basis." 116 Cong. Rec. H11074, H10101, H10103 (Oct. 13-
14,1970). While Amtrak was originally deemed a "for profit
corporation", that statutory language was amended in 1978 to "conform
the law to reality . Amtrak is not a for-profit corporation." H.R. Rep.
No. 95-421, p. 15.
[230] See, e.g., p. 20, in which GAO excluded depreciation and interest
costs in calculating the percentage of Amtrak's "financial losses"
attributable to long distance trains. Since the majority of Amtrak's
depreciation charges and interest costs are associated with Northeast
Corridor assets, inclusion of depreciation and interest in this
calculation might have led GAO to reach a different conclusion about
the relative performance of long distance trains.
[231] As for interest payments, Amtrak has reduced its preexisting debt
and made no new borrowings since FY2002.
[232] Appendix 11 of GAO's report also includes a table (p. 118) that
quantifies the "corridor ridership" on each long distance train based
upon six-year old ridership data. Whatever definition of "corridor" was
used in calculating these numbers is inconsistent with GAO's definition
of that term (p. 3), and produces facially illogical results. For
example, the table indicates that all Auto Train passengers are
"corridor riders", even though the two Auto Train terminals are 855
miles apart and any ultra high speed corridor service that might
someday connect them would not likely accommodate automobiles.
[233] GAO, Freight Railroads: Industry Health Has Improved, but
Concerns about Competition and Capacity Should Be Addressed, GAO-07-94
(Washington, DC: October 2006), pp. 55-56.
[234] Interstate Commerce Commission, Study of Interstate Commerce
Commission Regulatory Responsibilities, Oct. 25, 1994, p. 62.
[235] GAO, Amtrak Management - Systemic Problems Require Actions to
Improve Efficiency, Effectiveness, and Accountability, GAO-06-145-94
(Washington, DC: November 2005).
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