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Senate Subcommittee testimony given by David Gunn, the new Presdient and CED of Amtrak

Many of you may have read newspaper reports about Amtrak's current funding crisis and even about the possibility of a summer shut-down for the system. Following is the Senate Subcommittee testimony given by David Gunn, the new Presdient and CEO of Amtrak.

Testimony
6/20/02 - Testimony of David Gunn Before Senate Committee on Appropriations Subcommittee on Transportation and Related Agencies

The following testimony was given by Amtrak President and CEO David L. Gunn before the Senate Committee on Appropriations Subcommittee on Transportation and Related Agencies on June 20, 2002.

Madame Chairwoman and members of the Subcommittee, I thank you for the opportunity to appear here today. My name is David Gunn and I have been Amtrak's President for the past five weeks. I want you to know that when I accepted the position, I did so with both eyes open knowing that the company had some very significant and immediate problems. The company had lost credibility on many fronts and its management structure was ineffectual. The company made bad decisions while pursuing an impossible goal of self-sufficiency mandated by Congress. Despite these problems, Amtrak and the service it provides are well worth saving. How it has conducted its business over the last few years is something that must be changed immediately if we are to survive.

I have been in one form or another in railroading all my adult life and I firmly believe that rail service and public transit in general must assume a greater role in our lives if we wish to avoid gradual loss of personal mobility. I have run larger organizations than Amtrak, but I do not recall in nearly 40 years of service taking the reins of a company with such immediate and significant problems. Let me tell you exactly where we are in getting through the immediate cash flow crisis and then I want to spend a few short moments outlining what I plan to do over the next 12 months.

As many of you know, we have been working since the beginning of the year with our auditors to close the books for 2001 and receive an audit opinion that will allow us to have access to short-term borrowing. At this time, we have come to closure on Amtrak's FY01 financial statements with the auditors. However, we have not come to closure with the auditors on a final opinion. This fact plus the fundamentals of our business means that our ability to obtain a short-term loan is in serious jeopardy.

We are pursuing other options at this time before the company runs out of cash. Since time is of the essence, we notified the Administration that securing a loan guarantee is the only real option available to us to obtain short-term financing. On Monday, we took a proposal for a loan guarantee to the Federal Railroad Administration and, since then, we have been working closely with them to hammer out the details of this proposal. If the Administration were unable, or unwilling, to give us a loan guarantee, then the only other options would be for Congress to direct the Secretary of Transportation to guarantee a loan or, as a last resort, to step in with short-term bridge funding for the balance of the fiscal year. The window for fixing this problem in this way is short. Unless we are able to secure access to these funds either through a loan guarantee or another form of funding, I will have no choice but to announce a shutdown of the entire system. We are in the process of contingency planning and hope that it does not come to that. However, I have to reinforce that our cash will run out in July and we have but the next few days to find a resolution to this short-term problem.

Senator Murray and members of the Subcommittee, my home is on Cape Breton Island. I do get the newspapers out of Halifax and Toronto and even with just that source of information, I knew last summer that Amtrak was in deep trouble. When you have to mortgage your busiest station just to make payroll, you are only a step or two before the precipice. The announcement in February threatening to cut long-haul services was not based on reality, since Amtrak's problems will not be solved by such an action.

My approach to running Amtrak hinges on the fact that I cannot imagine a country such as ours without a national passenger railroad system. That means, I would expect that Amtrak will be around for a while. Second, the basic Amtrak model can and should work. Third, no passenger system in the world operates without some form of governmental subsidy. That means that Amtrak will never (a) be profitable, and (b) will always need, just like every other mode of transportation, some form of public investment, or subsidy. Lastly, no amount of councils, commissions, study groups, panels, or symposiums will find a painless answer to what to do about Amtrak. Recent proposals to privatize or restructure are exercises in problem avoidance. The federal government must decide what role rail should play just as it does with highways and air, even waterways.

Now about Amtrak. I am what most people would call a traditional manager. I believe in a small technically competent management staff with clear lines of authority and accountability.

Amtrak can be a good operator of rail passenger service. I have gotten around a bit and have found the employees to be friendly and dedicated, but very concerned about the railroad and their future. Despite years of equipment and infrastructure maintenance deferral, our employees have persevered.

Unfortunately, the plant and equipment, for the most part, suffers from neglect. Deferrals of maintenance and elimination of heavy overhauls have resulted in a multitude of problems. In addition, we have nearly 100 cars and locomotives in wreck repair status, the majority of which are cars used on long distance trains. With a fleet of 1500 cars, that is about 1 in 15 cars out of service, some of which have been so since the early 1990s. This will change.

Also, we have begun to reduce the number of consultants on the payroll. I have never been a fan of using consultants. My approach has been to build a strong management team that can solve and work through its own problems.

I will streamline the organization and establish clear lines of authority and responsibility. The first thing I asked for when I arrived were organization charts. I found we had nearly 85 people with titles of vice-president. Many of these titles had adjectives like senior, executive, or regional in front of the word vice-president. This is changing.

I found a budget process not based on the actual needs of the operation and inefficient as a way to enforce discipline throughout the company. Rather the budget was a document based on unrealistic assumptions regarding revenue and expenses. There was inadequate control over staffing. Next year, we will take a different approach by building the budget from the ground up, a zero-based approach. It will be detailed, based upon authorized positions and planned activities. If we are going to rebuild track, we will want to know where and when. You may choose not to fund everything we ask for, but you will know what is needed and what you are funding.

Driving the budget process, we will look at every route and service to improve efficiencies and cost recovery. Most of our trains lose money and they always will, but we can run them more efficiently. That is an achievable goal. Pursuing self-sufficiency was not. We will share our budget with you and we will report monthly on our progress.

I have found in life that anything worthwhile comes about through realistic goals, dedication, initiative and loyalty, not by wishing it so. In pursuing Congressionally-mandated self-sufficiency, the company tried too many initiatives simultaneously and pursued an array of financing arrangements to make up for budget shortfalls. The debt the company now carries is just under $4 billion and is unsustainable. Obviously, we cannot rewrite history. What we can do is learn from our mistakes, get back to basics, and move forward. I will return Amtrak to the basics of running a railroad.

Finally, while all of our focus has been to resolve the immediate short-term budget crisis, we have begun to plan for the fiscal year 2003 budget process. To that end, I cannot emphasize how important it is for Congress to fully fund Amtrak's $1.2 billion request for fiscal year 2003. This level of funding should allow us to begin the work that I have outlined in this testimony and start to rebuild the railroad. I also believe that during this time period Congress, the Administration and Amtrak will grapple with and hopefully come to closure on some of the larger fundamental issues that we need to resolve about the level of service and the way that it is paid for. Unless or until that occurs, we will always be living on the edge. Therefore, I reiterate the importance of our budget request of $1.2 billion for next year and to begin the work to resolve these larger fundamental questions.

It is my hope that you will see significant positive change in the months ahead -- better equipment, investment in infrastructure, a leaner organization and an open straightforward approach. Our budget requests will be transparent, realistic and understandable. We will build a better railroad and leave the politics to you.

I will stop here because I know you have a number of questions you want to ask. Thank you for your attention.