as a Senate Republican alternative sets the stage for a showdown between two conflicting policies on the proper federal role, but with little evidence that Congress will actually be able to break from its pattern of keeping Amtrak alive, on starvation rations. The administration bill would implement the conviction that the federal government should get out of the passenger rail business, while a competing Senate bill would provide multi-year capital and operating funds above even the level sought by the railroad. Also last week, the Senate Appropriations Committee made official that it would not mark up a Transportation/Treasury Postal spending measure until September (see below). Meanwhile, Treasury Department Secretary John Snow sent a letter to Capitol Hill putting lawmakers on notice that if the transit bonding proposal being floated by Senate Finance Committee Chairman Charles Grassley (R-IA) and ranking member Max Baucus (D-MT) makes its way into a final highway and transit reauthorization package, he would recommend that the president veto the legislation (see below).

The White House last week officially unveiled its long-awaited proposal to make the nation’s only intercity passenger rail system profitable, or else. The administration plan, The Passenger Rail Investment Reform Act of 2003, which has taken nearly three years to develop, would almost certainly lead to the elimination of Amtrak’s long-distance routes and force states to spend more on intercity rail service. It is the first comprehensive intercity passenger rail proposal in thirty years. “If properly implemented, this could be as dramatic as the establishment of the Interstate highway system in the Eisenhower years,” Rep. John Mica, (R-FL), a senior member of the House transportation committee told the Associated Press (see below).

Amtrak’s Needs. The railroad’s budget request for ’04 lays out the case for the $1.8 billion that it warns is needed to stay in operation. The proposal includes $1.04 billion for capital needs and $768 million to support operations. According to the railroad’s figures for 1997 to 2003, combined federal capital and operating support for Amtrak averaged $1.1 billion, not enough to keep the railroad out of the red. Amtrak President & CEO David Gunn pointed out that “Another year without an adequate capital budget means playing Russian Roulette with our revenue and service assumptions, with the operability of our Northeast Corridor infrastructure and system trains, and, most importantly, with the safety of our passengers.” Gunn added, “Failure to fully fund this request, I fear, will quickly bring on the next crisis. This railroad simply cannot continue to operate without an adequate maintenance budget.”

Gunn said the importance of spending money on capital projects immediately cannot be overstated. For example, two weeks ago, aging catenary wires fell apart in New York. This one incident disrupted service for 24 hours between New York and Boston. Two moveable bridges in Connecticut dating from the early 1900s - the Thames River and the Niantic River bridges - are in danger of failing said Gunn, and if they do, it will stop service between New Haven and Boston until they are fixed or replaced.

Amtrak Enlisting States’ Help. Gilbert Mallery, Amtrak’s business development vice president, told a group of state lawmakers at the annual National Conference of State Legislatures in San Francisco that they need to hit Capitol Hill and encourage Congress to increase its share for rail projects that increasingly have been picked up by states. This issue has become of particular interest to states because in recent years they have been forced to pick up a bigger percentage of passenger rail costs. For example, the state of California paid $1.7 billion for rail cars and buses for the railroad. Not all states, however, are in a position to pick up more of the tab, said Warren Weber, chief of the California Department of Transportation Division of Rail. Weber told the Bureau of National Affairs Daily Report for Executives (BNA) that Oregon and Washington cannot pay more to fund the line that runs from Los Angeles to Seattle. Weber added the same goes for states along the Zephyr line that runs from Chicago to Oakland.

Critics Say Restructuring Is Long Overdue. Opponents of the railroad argue that drastic reform is needed because Amtrak loses about $1 billion a year, thanks in part they claim to money-losing long-distance lines like the Sunset Limited between Orlando and Los Angeles. Senate Commerce Committee Chairman John McCain (R-AZ), one of Amtrak’s harshest critics, said reform is clearly needed. “Since 1970, the American taxpayers have invested over $26 billion in Amtrak, which still has less than a 1 percent share of the intercity travel market and continues to operate routes with losses of over $400 per passenger,” McCain told the Washington Post.

Supporters Try To Deflect White House Criticism. Amtrak supporters expressed disappointment. Ross Capon, executive director of the National Association of Railroad Passengers was quoted in the Boston Globe as saying, “This plan is not a solution, but a Trojan Horse that, if implemented, would mean the end of much, if not all, intercity passenger rail.” Supporters of the financially beleaguered railroad also question whether state and local governments can afford to pick up the additional costs. Budget data released by the National Governors Association (NGA) and National Association of State Budget Officers (NASBO) indicate that thirty-seven states were forced to reduce already enacted budgets by nearly $14.5 billion. “If the White House gets its way, all the reform proposals in the world won’t matter because there won’t be any operating railroad to reform,” said Sen. Patty Murray, (D-WA), ranking Democrat on the Transportation Appropriations Subcommittee. Senator Trent Lott (R-MS), who has several Amtrak lines that run through his state, was quoted in Congressional Quarterly (CQ), as saying the administration plan “is a non-starter and for the most part will get no attention in the Senate, which is what it deserves.”

DOT’s Amtrak Principles. The Department of Transportation (DOT) said that the legislation includes the five principles that the president argues should be part of any successful reform of intercity passenger rail service. The reform principles were no surprise; they have been the subject of numerous Congressional hearings since being announced by DOT Secretary Norm Mineta last June. The administration principles are to create a system driven by sound economics; establish a long-term partnership between the states and the federal government to support intercity passenger rail service; require that Amtrak transition to a pure operating company; create an effective public partnership, after a reasonable transition, to manage the capital assets of the Northeast Corridor (NEC); and introduce carefully managed competition to provide higher quality rail services at reasonable prices.

Restructuring Amtrak. The administration plan supports an authorization period of six years rather than four, allowing time to fully implement the needed restructuring in one authorization cycle. Under the White House plan, the role that the federal government would play in passenger rail would be reshaped to parallel the federal transit program. However, the government would continue to define rail safety standards and enforce them. The DOT would still provide capital grants directly to states or interstate consortia operating passenger rail, although the plan allows state government agencies to determine the level of passenger service needed and the price for such service. States would contract with third-party operators to provide long-distance and corridor trains, subsidizing any operating losses.

States Given More Flexibility. The administration argues that its plan would bring investment in intercity passenger rail in line with all other transportation modes by creating a system in which states and local communities, using capital investments supported by federal funds, operate rail service in their areas. The proposal would be funded through the annual appropriations process, leaving it to future Congresses to decide whether to fulfill this promise.

The Cascades Model. The proposal uses as its model the Cascades service between Portland, OR and Seattle, WA, and other state-funded trains in California and Illinois. Over the past ten years, the states of Washington and Oregon have invested roughly $170 million to boost passenger rail service from Portland, OR to Seattle, WA. With freight carriers kicking in, the two states have upgraded track, cutting travel time, added new trains and refurbished stations while subsidizing Amtrak to run the trains. DOT argues that had the administration’s plan been in place, Washington and Oregon could have turned to the federal government to cover 50 percent of the cost of the station and track upgrades and purchase of the trains. The administration claims that states, while picking up operating losses, would have had a meaningful choice in selecting a company to operate the trains - with the potential cost savings that could have resulted from competition for the contract. Other states are exploring the potential of such multi-state coalitions for the planning of intercity passenger rail service and eventually high-speed rail service.

The New Northeast Corridor Model. The bill proposes to transfer Amtrak’s current property on the Northeast Corridor to the federal government, which would fund its significant capital backlog over a period of several years, leasing the corridor to a Northeast Corridor Compact composed of the corridor states. During a multi-year transition period, Amtrak, followed by the newly created passenger rail service provider company, would hold the contract for train operations on the corridor. The passenger rail infrastructure company would hold the contract for corridor maintenance and upgrades, signaling and switching during this transition. At the end of the transition, the Northeast Corridor Compact would take bids from private sector companies and public sector transit agencies for both contracts - bringing competition to the system and bringing Northeast Corridor passenger rail financing and investment in line with the new passenger rail model proposed by the bill.

State and Regional Rail Operating Companies. The administration’s proposal would authorize multi-state interstate compacts to operate intercity rail in areas served by access to freight railroad tracks. Either individual states or Regional Rail Operating Companies (RROCs) formed for this purpose could apply for and receive capital grants from DOT for corridor modernization. They would also have the authority to enter private debt markets to finance capital improvements. The states and RROCs would contract initially with Amtrak Operations for corridor and long distance rail services. After a transitional period to be determined, such entities would be required to solicit competitive bids to operate intercity passenger trains supported by federal funds. The Feds role, according to the administration, would ultimately be similar to the Federal Transit Administration’s relationship with local transit authorities. During the transition period, the federal government the government could help to move the process along by awarding organizational funding grants.

The plan left critics asking a lot of questions that the administration will have a tough time answering to the satisfaction of Amtrak’s congressional supporters. One key issue for areas outside the Northeast is whether states or the quasi-private Amtrak successors will have continued access to freight railroad trackage at affordable rates. Next is the lack of evidence that there will be even one bidder for operating or maintenance contracts, much less the competition that the White House plan assumes will keep costs low. The absence of interest from any of the operating freight carriers in once again serving passengers on their lines is a silent indictment of the administration proposal. Also, the plan would strip Amtrak of the extensive real estate assets that now underpin what there is of a financial plan.

Senate Republicans Introduce Alternative. Finally, there is the question of whether Congress, especially members from outside the Northeast and West Coast corridors, will be willing to drop their historic insistence on continued Amtrak service to their states, even if the service is poor. Senate Transportation and Infrastructure Subcommittee Chairwomen Kay Bailey Hutchison (R-TX) and three other Republicans last Wednesday introduced their own Amtrak proposal. The Hutchison package totals $60 billion over 6 years. It authorizes $12 billion in operating expenses from the general fund for Amtrak, $48 billion is allocated for bonding for capital expenses, which will be used for repairs and improvements to the national system and the NEC, divided at a ratio of 4-1. The plan also establishes an independent nonprofit organization, The Rail Infrastructure Finance Corporation (RIFCO), to underwrite government-backed tax credit bonds and administer a trust fund to repay the bonds over 20 years. The corporation will have $48 billion in bond authority.

Outlook. Money on the scale required by Hutchison’s plan will be tough to come by from Congress for the foreseeable future, and the proposal for tax-credit bonding is just the latest in a series of major spending plans dependent on this device that have been tossed on the table in the last several months (see below). Nor, given the current political landscape on Capitol Hill, is it likely that the administration plan will cross the finish line in its current form. This proposal is going to have to compete with the House Transportation & Infrastructure (T&I) Committee legislation H.R. 2752, a three-year, $2 billion a year Amtrak authorization, which was approved June 26th and has broad bipartisan support. Finally, given the backlog of appropriations measures that need to be approved in the House and Senate by October 1st, it is uncertain if any Amtrak reauthorization legislation will move this year. The pressures once more are pushing the lawmakers toward their usual solution, a short-term extension of Amtrak in its current form, without the jolt of capital that the railroad and most parties agree is needed.

rather than go along with a plan to boost transit trust fund assets with bond revenues, as lawmakers on Capitol Hill continue to struggle to find creative and innovative ways to fund the successor to TEA-21, which is set to expire in less than two months. Treasury Secretary John Snow said in a letter sent to Senate Budget Committee Chairman Don Nickles (R-OK) that any highway and transit reauthorization bill that includes bonding to increase highway trust fund revenues would be subject to the president’s veto pen.

This not the first time that administration officials, presumably at White House bidding, have threatened a “veto” of the surface transportation reauthorization legislation. DOT Secretary Norm Mineta said a month ago that “President Bush would veto any TEA-21 reauthorization legislation that included indexing or increasing the gas tax” (see July 7, 2003 issue). Mineta’s veto threat coupled with Snow’s letter have all but slammed the door shut on all the ideas floated so far to boost highway trust fund revenues.

Reauthorization Update. Senate Environment and Public Works (EPW) Committee leaders said last week they plan to mark up the highway portion of the reauthorization bill sometime in the first week of September. EPW Committee Chairman James Inhofe (R-OK) has informed Senate Majority Leader Bill Frist (R-TN) of his plan and has asked him to set aside time during the second and third weeks of September for floor debate.

Letter From Nickles To Snow. The current veto threat is in response to a July 9, 2003 letter from Nickles to Snow, requesting his department’s input on a number of bonding proposals that have been floating around Capitol Hill in recent weeks. A spokeswoman for Nickles told the BNA that the senator wanted a second opinion after reading a comparison of bonding proposals put together by the Congressional Budget Office (CBO) in June. CBO’s analysis concludes that financing transit programs through the proposed bonds would generally be more expensive to the federal government than financing an equivalent amount through appropriations. The report also indicated that investors would likely view the proposed bonds as more risky and less liquid than Treasury bonds and therefore would demand a higher return—making financing through the tax-credit special-purpose bonds more costly than conventional financing. Even under the most favorable circumstances, the report says those bond mechanisms would impose costs for issuance and administration that appropriations would not.

Issuing bonds (that is, borrowing) to finance transit programs could shift the cost of those programs from the highway trust fund to the general fund of the Treasury because the general fund would pay the interest or tax-credit costs. Even though the highway trust fund is essentially an accounting mechanism that shows how much tax revenue is received from highway users and how much is spent on highways and mass transit, it influences spending on surface transportation programs. Increasing the amount of money that is designated for transit programs through bonding could result in more spending for highways if sufficient amounts were raised to offset trust fund revenue.

What Are Tax Credit Bonds? In contrast to conventional bonds, which pay interest annually (or semiannually) in the form of cash or a discount in the purchase price of the bond, tax-credit bonds pay “interest” in the form of credits against federal income tax liability. The Treasury would set the credit rate for the bonds before they were issued. An investor holding a $1,000 tax-credit bond with a credit rate of 5 percent would report $50 in income on his tax return even though he would not actually receive $50 in cash. After calculating his tax liability, the bondholder would be entitled to claim a credit of $50. If his marginal tax rate was 30 percent, the tax liability on the $50 of income would be $15. But after taking into account the tax credit of $50, the investor would net $35. That is exactly the same amount that he would net after taxes if he had received the $50 in cash income as interest on a conventional $1,000 bond paying five percent interest.

From the standpoint of the federal budget, tax-credit and conventional bonds (of the same principal, maturity, and interest or tax-credit rate) issued by the federal government would have similar effects on the deficit or surplus. In the case of conventional bonds, the interest would be counted as an outlay; in the case of tax-credit bonds, the tax credit would be reflected as a reduction in tax revenues. In either case, the financing of such spending would increase the deficit.

Treasury Steadfastly Opposes Bonding Proposal. Treasury has historically resisted all proposals to pay for anything with tax breaks on bonds as drains on Treasury revenues, and continues to resist long-standing tax breaks on municipal bonds, especially the “private purpose” bonds, which Congress continues to authorize anyway. After reviewing the plans, Snow concluded that the bonding proposals being floated by lawmakers “represent a grave threat — both themselves and as precedents.” Snow added, “If legislation including these or similar proposals were to be presented to the president, I would recommend that he veto.” Snow was concerned that the bonding proposal would cost taxpayers between $8 billion to $48 billion over 20 years. Snow added, “I want to emphasize that these strong objections exist whether the proceeds of these bonds are used to finance mass transit, highways, or any other form of federal spending.”

subject to review and overrule by Congress. After a week of partisan wrangling over how to finish the omnibus energy bill (S. 14) before the Senate’s month-long August recess, Republicans and Democrats reached an agreement to scrap this year’s energy legislation in favor of the Democratic energy bill that passed the Senate late last year, admittedly a placeholder that faces major changes in House-Senate conference. The Senate passed last year’s energy bill last Friday by an 84-14 vote, but the measure died with the end of the last session of Congress. The new bill has been bounced on and off the floor several times since debate started back in May. Senate Republicans were quick to claim victory and vowed to rewrite the legislation during conference. The legislation contained a provision offered by Senators Carl Levin (D-MI) and Christopher Bond (R-MO), concerning current corporate average fuel economy (CAFE) standards for cars and light trucks. The CAFE standards have increasingly become a target within the Congress. The passenger car standard, currently at 27.5 mpg, has not been changed since the 1986 model year, with the G.O.P. majority blocking any consideration of changes as part of annual appropriations bills for most of the last decade. The light truck standard is set annually. The Energy Policy and Conservation Act of 1975 required passenger car and light truck manufacturers to meet CAFE standards. The CAFE standards are applied on a fleet-wide basis for each manufacturer, i.e., the fuel economy ratings for a manufacturer’s entire line of passenger cars must average at least 27.5 mpg for the manufacturer to comply with the standard.

The Levin/Bond provision ensures that the National Highway Traffic Safety Administration (NHTSA) will set fuel economy standards after considering a range of factors such as the impact on U.S. employment, safety, technological feasibility, the cost and lead time necessary for new technologies, and the effect that near-term expenditures to meet increased fuel economy standards will have on the resources available to develop leap-ahead advanced technologies. That’s a list of factors crafted by Detroit to reflect the current law’s lack of consideration for the impact of CAFE standards on anything but fuel economy. So far, automakers have had the political muscle to either tie these new considerations to any CAFE proposals or to simply defeat the proposals outright. Under the provision, the DOT would be given 15 months to complete the rulemaking for light trucks and 24 months for passenger cars. For electric vehicles, the amendment would increase the existing electric vehicle tax credit up to a maximum of $6,000 for six years beginning this year going through 2007. For fuel cell vehicles, the legislation would establish a tax credit up to a maximum of $11,000 for fuel cell vehicles for eight years, beginning in ’04 and ending in ’11. For hybrid electric vehicles, the Levin/Bond amendment would establish a tax credit up to a maximum of $5,000 for six years beginning in ’04.

Senate Energy Committee Chairman Pete Domenici, (R-NM) told CQ he would not support language in the House bill in support of President Bush’s goal to open up the Arctic National Wildlife Refuge (ANWR) to oil and natural gas exploration. Domenici kept ANWR provisions out of his bill in the face of a threatened filibuster. The legislation is now headed to a House-Senate conference, which is expected to be controlled by Domenici and House Energy Committee Chairman Billy Tauzin (R-LA). Tauzin told reporters last week that he expected a fast conference since many of the issues had been worked out last year during last year’s unfinished conference on the previous energy package.

The DOT has announced that two Intelligent Transportation Systems (ITS) pilot programs are being conducted to expedite emergency services such as ambulances and medical personnel by improving electronic communication between public safety and transportation agencies. The tests are being conducted in Washington and Utah in partnership with state and local transportation officials in each state. The two ITS projects are part of DOT’s effort to enhance public safety operations by improving information-sharing across organizational and jurisdictional boundaries. Use of the same information and compatible communications systems by police, fire and transportation agencies helps provide for faster dispatch of emergency response vehicles, faster clearance of traffic crashes and safer accident scenes. Cross-agency communication has been a high-visibility issue since 9/11 rescue and evacuation operations at the World Trade Center were crippled by the inability of New York City’s police and fire departments to talk to each other.

Utah Project. Utah’s Department of Transportation (UDOT) and Department of Public Safety are integrating their advanced transportation management systems and computer-aided dispatch systems. A key goal of the Utah project is to demonstrate that incident data can be formatted and managed so that each agency receives only useful and relevant information. Also, the project uses automated vehicle location and digital mapping functions to more quickly identify incident locations. Although the state departments have been working together for years, the federal grant lets them expand their abilities and share the results with the rest of the country, said John Njord, executive director of the Utah transportation agency, in Federal Computer Week.

Washington Project. The Seattle project integrates the Washington State Patrol’s new computer-aided dispatch system into the Washington State Department of Transportation’s Condition Acquisition and Reporting System (CARS). The CARS network is a secure Internet-based system that allows state, local and regional agencies to collect and share information regarding road incidents, weather conditions, traffic delays and other situations. The project will demonstrate how open communication between Washington State’s computer-aided dispatch system and the CARS network can improve emergency response and traveler information distribution without causing additional burdens on the already busy emergency response and radio operations staff.

Cost Of The Projects. The projects are expected to be completed in late 2005. The Utah project cost is $1.25 million with a federal share of $1 million. The Washington project cost is $462,194 with a federal share of $294,596. For additional information on ITS applications, go to DOT’s ITS website at www.its.dot.gov.

Senate Transportation Appropriations Measure Delayed Until September. The Senate Appropriations Committee last week officially postponed any action on a Transportation/Treasury Postal appropriations bill until after the Senate’s summer recess. Senate staff expect a subcommittee markup during the first week of September. The spending measure is one of four appropriations bills awaiting committee markup, the others being Commerce/Justice/State, District of Columbia and VA-HUD. This action was only one of several moves evident in the Senate over the last two weeks that point toward a showdown in the fall over transportation spending for the fiscal year that begins October 1st.

Senate Democrats Trying To Defeat FAA Reauthorization Conference Report. Sen. Frank Lautenberg (D-NJ) said last week that he is organizing an effort to defeat the Federal Aviation Administration (FAA) reauthorization conference report, which the Senate will take up after the summer recess. Lautenberg’s main objection is to language that House conferees added that would privatize air traffic control operations and allow for the privatization of 69 contract towers, 11 of which serve the nation’s 50 busiest airports. However, the provision would not take effect until ’07. Since a conference report can not be amended, Lautenberg’s options are limited. One would be to move to recommit the report, which, if successful would force the bill back to conference. A second option at Lautenberg’s disposal would be to filibuster the conference report, a move he has discussed with Senate Democratic leadership. A successful Lautenberg filibuster would also kill the legislation, because Republican’s would need 60 votes to defeat it.

Senate Commerce Committee Approves Coast Guard Reauthorization Bill. The Senate Commerce, Science and Transportation Committee has approved legislation authorizing nearly $7 billion for the U.S. Coast Guard for FY ’04, a 15 percent increase over the ’03 enacted level. The funding level is $200 million more than the White House’s FY ’04. The authorization will help restore the Coast Guard’s non-homeland security missions such as search and rescue, fisheries enforcement, and marine environmental protection to near their pre-September 11, 2001 levels. The legislation authorizes $4.7 billion for Operating Expenses; $775 million for Capital Acquisitions; $1.02 billion for Retirement Pay; and $702 million for the Integrated Deepwater Systems (IDS) program. The bill also mandates that the Coast Guard increase its active duty military personnel to 45,500 by the end the year. The legislation is similar to HR 2443, which was approved by the House T&I Committee on June 25th.