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Amtrak Announces Strategic Reform Initiatives

WASHINGTON, D.C., APRIL 21, 2005 -- Amtrak Chairman David Laney and President and CEO David L. Gunn today announced a series of bold and comprehensive strategic reform initiatives the railroad is undertaking as corporate actions and pursuing in legislation to revitalize U.S. passenger rail service, according to this release issued by the passenger carrier.

Additionally, the railroad will seek $1.82-billion in federal funding to support critical FY '06 capital investment programs and to support national operations.

The initiatives seek to transform the funding and development of passenger rail service, and introduce competition, efficiency and cost-savings. "These are dynamic measures to strengthen passenger rail service at a time when our nation needs it most," said Laney.

Together, they advance four fundamental objectives:

• Development of passenger rail corridors utilizing a federal/state matching approach common to all other modes (generally 80/20). States, not Amtrak, would lead the development of the corridors, a number of which have already been federally designated, and Amtrak may, among others, competitively bid to provide the service.
• Return of the Northeast Corridor infrastructure to a state-of-good-repair and operational reliability, with phased-in financial responsibility for capital and operating costs assumed on a proportionate basis by all users, including Amtrak, freight and commuter railroads.
• Establishment of phased-in financial performance thresholds for Amtrak's existing 15 long-distance trains and any future similar proposed service. Amtrak is initiating a series of actions to improve the financial performance of these trains. Services falling below the thresholds could be continued through support by states or other authorities, reconfigured or eliminated.
• Creation of markets for competition, private commercial participation and industrial reforms in various rail functions. This includes competition among operators, including Amtrak, for new corridor routes.

"Business as Usual Cannot Continue"

"Despite the record number of passengers being served by the railroad today, Amtrak cannot continue business as usual, nor can the snail pace of passenger rail development continue to lag behind the growing need in high-demand regions of the country," said Laney. "These initiatives will both continue fundamental reform at Amtrak and help spur a rational and much-needed growth of the passenger rail network. It is Amtrak's belief that the leadership of such development is the role of states and the federal government - not Amtrak. Instead, Amtrak must in the long run transform itself to a competitive provider of passenger rail services, with the recognition that in the near term it will remain the steward of the national passenger rail system as it is today."

Amtrak Reforms

In 2002, Amtrak eliminated its unwieldy business-unit structure and began a series of other reforms: reduction of management layers, zero-based budgeting, strict GAAP accounting and other cost controls, including the reduction and elimination of several routes. Amtrak also returned its focus to the railroad's core business of passenger service and asset rebuilding. More than 5,000 positions were eliminated and the growth in operating costs was brought under control.

Building on these efforts, Amtrak will for FY '06 align financial accounting, planning and management accountability along five business lines to facilitate future decision-making. The five business lines are: Amtrak-owned infrastructure management (principally the Northeast Corridor (NEC)); NEC operations; state corridor operations; national long-distance operations and ancillary businesses. These lines are not a return to the business unit structure and do not separate NEC operations and capital project management. Amtrak has reviewed various proposals to separate the management of NEC operations and infrastructure, but concluded that complexities and risks of separation outweigh the benefits, and therefore that such a separation is not advisable at this time.

With an ultimate goal of a vibrant passenger rail system with multiple service options and a competitive supply industry, Amtrak will undertake a wide range of reforms, including the clarification of individual business activity costs, increased outsourcing, and the initial facilitation of competition for selected routes and functions.

Public Sector and Legislative Reforms

While internal reforms at Amtrak will help provide a foundation for a competitive and efficient national passenger rail system, strong federal and state leadership is essential if passenger rail is to meet the demand for service. Among the legislative changes called for to accomplish the reform objectives are:

• Establishment of a federal/state capital match program for passenger rail development, comparable to other modes of transportation. This long-proven federal transportation funding mechanism through which the U.S. Department of Transportation annually provides more than $40-billion for highway and transit projects.
• Designation of a federal agency to oversee the transition to a competitive passenger rail environment, including the distribution of federal funding, selected assets and rights of access.
• Revisions allowing the transition to a method by which all users of the NEC fund their proportionate share of its costs.
• Ultimately, extension of Amtrak access rights on freight railroads to qualified competitors for state-managed services.
• Targeted revisions to allow labor agreements to terminate at the conclusion of the term of their agreement.

Federal Funding for Fiscal Year 2006

As Amtrak will undertake the internal reforms addressed earlier and pursue public sector and legislative reforms, little reduction in the need for federal support will be realized in FY '06. In fact, funding for operations, critical assets such as the Northeast Corridor and other needs are essential to the success of the reform initiatives Amtrak has outlined

Consequently, Amtrak is seeking federal funding in FY '06 of $1.82-billion. This request includes $787-million for capital infrastructure projects, $560-million to support train operations, $278-million for service on existing debt, $175-million in working capital and $20-million for transition costs associated with the reforms previously outlined.

Current federal Amtrak funding (FY '05) is $1.2-billion. However, Amtrak cautioned that an appropriation at this level would be insufficient in FY '06 to sustain operations and the backlog of capital projects the railroad is working to erase. Amtrak's Board and management want to emphasize that Amtrak cannot continue to operate at the current funding level of $1.2-billion in FY06.

[Amtrak, 4-21-05]

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