STATEMENT OF JACOB J. LEW
OFFICE OF MANAGEMENT AND BUDGET
TRANSPORTATION AND RELATED AGENCIES SUBCOMMITTEE
SENATE APPROPRIATIONS COMMITTEE
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
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
"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
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
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
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.