Statement of Governor Edward G. Rendell

 

Subcommittee on Surface Transportation

and Merchant Marine Infrastructure, Safety and Security

 

February 27, 2007

 

 

 

Good morning.  First I would like to thank you Senator Lautenberg for your longstanding commitment to transportation policy and transportation funding.  We need more voices like yours in Washington.  And  I applaud the leadership provided by many others on this issue as well; in particular the dedication Senator Lott has shown to Amtrak over the years.  And many others have contributed as well – Senator Smith, Senator Carper, of course my friend Senator Specter.  And we will all get a lot of help from Pennsylvania’s newest Senator, Bob Casey.  All of your dedication to supporting Amtrak across party lines has helped this issue remain bipartisan and the country is the better for it.  

 

Our particular focus today of course is Amtrak.  The Northeast Corridor (NEC) is a vital link for the economy of Philadelphia and all of southeastern Pennsylvania, and it is crucial that federal support for this service and the people who provide it continues.  I am not telling you anything you don’t already know but I will say it nonetheless: it is vital that Amtrak funding be re-authorized without any interruption.  Too many people’s lives and livelihoods depend on it.

 

One illustration of the importance of the Northeast Corridor to our regional economy comes from the our own local CEO Council, which is made up of over 60 CEOs of major corporations in the Philadelphia region.  These CEOs have made preserving and improving intercity and commuter service on the NEC one of their top priorities and they hope to work with business groups throughout the Northeast to ensure that Congress takes action to address the infrastructure needs on the NEC.  I hope that they can help educate critics within the Bush Administration about the importance business leaders place in fast and reliable rail service.

 

While bringing the NEC back to a state of good repair is critical, I hope that we can also seek to move to the next level and address trip time and capacity issues as well.

 

The NEC is the most advanced corridor in the nation, but there are many other corridors that hold great potential to be a relevant transportation alternative if only Congress would provide the same federal capital matching funds for intercity passenger rail that it does for other modes of transportation.

 

The Keystone Corridor between Philadelphia and Harrisburg is a great example of what a federal-state partnership can accomplish.  Under the administration of my predecessor Governor Ridge – a Republican, I might add, in case anyone has forgotten – the Commonwealth of Pennsylvania and Amtrak entered into a partnership to invest in a major upgrade to this line to make it more reliable, faster and more attractive.  During my administration there was some question as to whether Amtrak would keep its end of the bargain due to its dire financial condition, but we worked with David Gunn to renew the partnership and finish the job.

 

Altogether we each put in $74 million.  The result is substantially quicker trip times and big increases in ridership; the new service has been fully implemented in just the last few months and already we have seen a jump in ridership of 12 percent.  And I might add that the users of the service are paying a share as well – fares went up as the new service was implemented but this has had no effect that we can see on usage. 

 

The moral of the story here is simple – people want better servive and within reason they’re willing to pay for it.  This is true for state government and it is true for riders.  But by themselves neither of these groups can bring about the improvements in service they so badly want.  Amtrak and the federal government have to take the lead or it will not happen. 

 

There are other similar corridors with great potential in many other states: California, Washington, Oregon, Illinois, Wisconsin, Virginia and Maine and many more.  Many of these states have been putting money into these corridors on their own, but the progress they can make is limited without a reliable federal partner.

 

Unfortunately, Amtrak's current policy threatens to take corridors in exactly the wrong direction.  Rather than promote and encourage these corridors, Amtrak is asking states to pay a higher share of current operating expenses.  I and many of my fellow Governors are willing to have a conversation about paying more to get better service, but asking the states to pay more just so the Federal government can avoid its responsibility to support a first class transportation system is just wrong.  

 

This is what our former Secretary of Transportation Norm Mineta famously labeled “the shift and the shaft.”  Originally the states were told that we would be asked to pay higher operating expenses only in conjunction with a federal capital matching program, and in Pennsylvania we agreed to do so.  Investments were made in some corridors, but overall the much anticipated federal capital matching program was never created.  And yet Amtrak has continued to ask states with emerging corridors to increase their share of the costs.

 

For my part, I see this debate over Amtrak as just one piece of the larger challenge that faces us on transportation and infrastructure overall.  In all of the areas that matter so much to our future – intercity rail, public transit, roads and bridges, clean water, aviation, you name it – the federal government pays for long term capital investments in infrastructure out of annual operating funds.  In some cases -- for example, the Highway Trust Fund – we have managed to create a dedicated fund, but even here our level of spending in any given year is dependent on how much comes in.  For Amtrak and other areas needing investment we don’t even have that, and investment levels are completely unpredictable from one year to the next.  This is no way to run a railroad.

 

More to the point, it’s not how the private sector actually runs railroads, and for good reason.  Outside the federal government, most big companies and governments that have large capital investment programs finance capital and operations differently.  Operating costs are paid from operating revenues as they come it, and capital costs are paid for through borrowing, with the term of the borrowing matched to the likely useful life of the asset being built or purchased.  You wouldn’t buy a house with cash and we shouldn’t buy our bridges that way either.  This is a basic principle of finance called capital budgeting that everyone seems to have figured out but us. 

 

Adoption of a capital budget allows those who manage the system to make long term capital plans and invest in their facilities at the time when the investment makes the most sense.  In practical terms this means we repair or replace an asset when it makes sense to do so from a life-cycle cost point of view, rather than when the cash flow looks good.  This is exactly how we financed our share of the Philadelphia-to-Harrisburg improvements I mentioned a moment ago, and as a result the investment happened on the front end even though the easiest way for us to pay for it is a little bit every year over time.  Which is just how we are experiencing the benefits of the project.  At its core, capital budgeting aligns costs with benefits over time, and it is a basic practice of good business.

 

I believe it will be very hard for us to really fix Amtrak’s financial mess or make the investments we need to into roads and bridges, wastewater and other infrastructure systems until the federal government adopts a capital budget. 

 

Getting back to our rail system, we have been at this for too long with too little progress.  Intercity rail corridors hold so much potential to improve mobility and get people off the roads into more energy efficient and environment-friendly trains.  With your leadership, I have renewed hope that we can end the tiresome yearly debates about whether Amtrak should exist and actually make progress on the Northeast Corridor, on the Cascades Corridor, on the Hiawatha line, on the Capital Corridor, and elsewhere.  I urge you to pass S. 294 and give this nation a rail policy that moves beyond ideological debates and gives us a new transportation alternative. Thank you for your leadership and I stand ready to assist you in any way possible.

#