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Jacob J. Lew - July 17, 1997

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July 17, 1997

Mr. Chairman and distinguished members of the Subcommittee. I am Jack Lew, Deputy Director of the Office of Management and Budget. After my brief statement I will be happy to answer your questions.

This past Tuesday, the Subcommittee met to consider the appropriations for the Department of Transportation and Related Agencies. As part of this consideration, the Subcommittee addressed the question of the appropriate level of operating assistance for Amtrak. During both this Subcommittee's and the House Appropriations Committee's consideration of operating assistance for Amtrak, questions have arisen about a May 23, 1997, letter written by OMB Director Frank Raines to Chairwoman Susan Molinari of the House Transportation and Infrastructure Subcommittee on Railroads. This letter discussed the technical question of how to best measure the increment between Amtrak's corporate liability for contributions to the Railroad Retirement Board and benefits received by retirees who are not Amtrak employees. I ask that a copy of this letter be made an official part of the Subcommittee's record in considering this issue.

We stand behind the May 23, 1997, letter. This letter states that Amtrak needs $344 million in operating assistance in Fiscal Year 1998. In that letter, while explaining the technical details of Amtrak's contributions to the Railroad Retirement Board, we emphatically and strongly reaffirmed our support for the full $344 million in operating funds for Amtrak in FY 1998. Director Raines wrote:

"These funds are an integral part of Amtrak's efforts to remain viable. Although we differ with Amtrak over the minor technical issues you raise in your March 19 letter, our differences in no way affect our commitment to the funding level sought in the President's budget."

Portions of this May 23 letter have been cited by the House Appropriations Committee and this Subcommittee to support an operating level for Amtrak in FY 1998 of $283 million, or $61 million lower than we seek in the President's budget. These citations of the May 23 letter are selective and do not accurately represent the Administration's position.

The May 23 letter notes that Amtrak mistakenly includes certain expenses of doing business in the category of so-called "excess retirement" costs. The letter notes that these expenses are salary costs for Amtrak but not salary costs properly allocated to the so- called "excess retirement" category. Accordingly, even though Amtrak has misclassified these costs and allocated them to the "wrong" category, these costs remain expenses of the Corporation and the total expenses of the Corporation remain unchanged.

In determining how much operating support Amtrak needs in FY 1998, the Administration, in formulating its budget, evaluated the gap between Amtrak's projected revenues and expenses. In 1998, as in every year where the Federal government has provided operating subsidies to Amtrak, the operating assistance is meant to help close the gap between Amtrak's expenses and revenues. This assistance is not the only way we expect Amtrak to try to close the gap between expenses and revenues. We expect Amtrak to pursue new business opportunities such as the recently signed deal to lease use of the Northeast Corridor for telecommunications ventures and to cut expenses by pursuing efficiencies in business activities. Nevertheless, regardless of the steps Amtrak takes to close this gap (whether cost cutting, or revenue increases), each dollar of the $344 million in Federal assistance goes to close the gap.

As part of Amtrak's expenses, it must, under current law, like all railroads, remit tax payments to the Railroad Retirement Board (RRB) to cover the costs of the corporation's share of railroad retirement taxes and it must remit tax payments to the RRB to cover amounts withheld from employees' paychecks to fund retirement benefits. Amtrak must remit over $300 million each year to the Railroad Retirement Board. The size of this remittance will not change regardless of the level of operating support provided by this Subcommittee and regardless of how Amtrak characterizes its corporate liability to the Railroad Retirement Board. The amount of this remittance is calculated under the provisions of the Railroad Retirement Act


The decision by this Subcommittee and the House Appropriations Committee to reduce Amtrak's operating level by $61 million below that level sought by the President guarantees that some expense, whether a portion of the over $300 million owed to the Railroad Retirement Board, a portion of the millions of dollars in costs of train operations, a portion of the millions of dollars in costs of facilities operations, or a portion of the millions of dollars in other costs, will not be met.

The failure to fund this $61 million places Amtrak in jeopardy of not being able to carry out its planned operations for FY 1998. The consequences of not funding this $61 million could result in the insolvency of Amtrak -- at a cost to the taxpayers far greater than the $61 million in dispute.

Our appropriations request recognizes an essential fact -- the $344 million total operating assistance amount is fungible. Our request for $344 million in operating assistance goes only part way in permitting Amtrak to cover its expenses of doing business. Because these funds are fungible, we anticipate that the $344 million in funds would cover a series of expenses owed by Amtrak. Our proposed appropriations language does not earmark portions of the operating assistance to cover specific expenses -- whether they be train operations, employee salaries, advertising costs, or costs owed to the Railroad Retirement Board.

Let me add one more point -- we feel that our May 23, 1997, letter accurately describes the amount that Amtrak's liability to the Railroad Retirement System exceeds the benefits received by non-Amtrak employees. We do not think that Amtrak's description in its budget submission to Congress is completely accurate. As we stated there, Amtrak's inclusion, as part of its calculation of its corporate liability for railroad retirement taxes, improperly included $43 million in payments for which employees are liable. We view Amtrak as acting as a withholding agent in this case and that these withholdings are liabilities of the employees, not Amtrak. Further, we feel that Amtrak has improperly excluded, as part of the calculation of benefits received by its employees, $18 million in so-called non-Social Security Equivalent Benefits which are paid to Amtrak retirees. The inclusion of the $43 million in employee liabilities and the exclusion of the $18 million in retiree benefits has led to Amtrak overstating the level of excess retirement benefits by $61 million.

Even so, Amtrak, OMB, and DOT share a common view that Amtrak has enormous costs of doing business and that it cannot meet them through its revenues alone. The $344 million in operating assistance the President seeks is the appropriate level. We hope this Subcommittee will agree. With only $283 million in operating assistance, not the $344 million in federal operating assistance sought in the President's budget, we do not think that the necessary funds will be available to support the current national passenger rail system.

We look forward to working with the Subcommittee and full committee in identifying possible offsets within the Committee's mark to allow full funding of Amtrak's operating needs. This full funding is necessary to avoid the unacceptable alternative of possible insolvency. I would be happy to answer your questions.

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