High Speed Rail: Development and Investment Issues in the 107th Congress

CRS Report for Congress
High-Speed Rail:
Development and Investment
Issues in the 107 Congress
Updated September 7, 2001
David Randall Peterman
Analyst in Transportation
Resources, Science and Industry Division
Steven Maguire
Economic Analyst
Government and Finance Division

Congressional Research Service ˜ The Library of Congress

High-Speed Rail: Development and Investment Issues
in the 107th Congress
Passenger train ridership in the U.S. has declined since the 1920s, as cars and
planes made travel faster and more convenient. Amtrak was created in 1971 to take
over passenger train service, freeing private railroad companies from that money-
losing operation. Since its creation, Amtrak has been given enough financial support
to survive, but apparently not enough to significantly improve service (except in the
Northeast Corridor). Train ridership has declined in other countries too. However,
the introduction of high-speed rail service–trains traveling at 125 miles per hour or
faster–in some countries has increased train ridership on those routes and shown that
fast trains can be competitive with auto and air travel. In the U.S., Amtrak’s most
successful route has been its only high-speed route, the Northeast Corridor.
Federal, state and local governments are interested in providing high-speed rail
service to relieve congested highways and airports throughout the U.S. However,
high-speed service of the type seen in Europe and Japan is based on a rail equivalent
of the Interstate Highway System: a separate system of tracks, dedicated to passenger
rail service, with gentle curves, shallow grades, and no at-grade road crossings. The
High-Speed Rail Investment Act of 2001 (S. 250/H. R. 2329) does not provide for
creation of dedicated high-speed routes. Instead, it would provide funds to upgrade
existing rail lines. This approach is much less expensive than a dedicated high-speed
rail system. However, the results are more modest: trains will not travel as fast as on
a dedicated system because passenger trains will share the tracks with slower freight
trains and will have to slow down at road crossings and on curved tracks for safety.
Amtrak’s capital plan calls for $1.5 billion in capital spending annually over the
next 20 years to maintain the current system and improve train speeds in designated
corridors. S. 250/H. R. 2329 would enable Amtrak to issue $12 billion in bonds over
10 years to finance capital improvements needed to increase train speeds in eleven
federally-designated high-speed rail corridors. No more than $3 billion could be spent
on any one corridor.
The bonds, called tax-credit bonds, do not pay interest but allow the holders to
claim a credit on their federal taxes in lieu of interest. The bonds do not require an
appropriation, but would reduce total federal revenue. The General Accounting
Office (GAO) estimates forgone revenues over the 30-year life of the program at $17-
19 billion; they estimate that equivalent annual appropriations or a one-time equivalent
appropriation are potentially cheaper alternatives.
Financing large-scale capital improvements with long-term debt (e.g., bonds)
rather than direct appropriations is a common principle in public finance. The capital
improvements provide benefits over time, thus, taxpayers who will ultimately be
eligible to enjoy the benefits are the ones who will repay the bonds. Direct
appropriations, conversely, have current taxpayers pay the cost for the improvements
that provide future benefits. This report will be updated as needed.

What is High-Speed Rail?.....................................1
Fast Trains in the U.S.........................................2
Does the U.S. Need High-Speed Rail?............................4
Improving the Existing Passenger Rail Infrastructure.................4
Capacity of the Rail Lines..................................6
Funding Options for High-Speed Rail.............................6
Direct Appropriation.....................................7
Trust Fund.............................................7
Allow States to Use Federal Highway Funds for Rail.............8
Tax-Favored Bonds......................................8
S. 250/H. R. 2329: The High-Speed Rail Investment Acts of 2001.......9
Differences between S. 250 and H. R. 2329...................10
Tax Credit Bonds Generally...................................11
Tax Credit Bonds for Amtrak as Proposed in S. 250/H. R. 2329.......12
The Amount...........................................12
The Credit............................................12
Amtrak Bond State Match and Trust Account.................13
Amtrak Bond Disqualification.............................13
Analysis of Amtrak Bonds....................................14
Comparative Cost......................................14
Repayment Risk........................................14
Appendix: Comparison of High-Speed Rail Investment Acts of 2000 with High-
Speed Rail Investment Acts of 2001.........................16

High-Speed Rail: Development and
Investment Issues in the 107 Congress
Amtrak was created in 1970 because Congress wanted to preserve passenger rail
service. The railroad companies were losing large sums of money on passenger
service and wanted out of the business. In the intervening decades Amtrak has
received enough support to keep going but not enough to significantly improve the
level of rail passenger service. The Amtrak Reform and Accountability Act (P.L. 105-
134) requires that Amtrak operate without federal support of its operating expenses
after FY2002, or face possible restructuring or liquidation.
Amtrak supporters argue that if given the resources Amtrak could offer a service
that is competitive with auto and air travel: high-speed trains. With this service in
place, supporters believe Amtrak would then have a chance of operating profitably.
At the same time, the success of modern high-speed train service in other countries,
and the growing congestion on our highways and in our airports, has led to interest
at the federal, state and local levels in having faster trains in many areas of the
Assuming there is political support for expansion of high-speed rail service, the
capital improvements necessary to allow for faster train travel would be easier to
accomplish with a stable source of funding because of the long-term scale of the
work. One proposed mechanism for providing this steady stream of funding for the
capital investment is bond finance. The High Speed Rail Investment Acts of 2001 (S.
250/H.R. 2329) would allow Amtrak to issue $1.2 billion in tax-credit bonds each
year for 10 years, with the proceeds spent on improving train speeds in federally
designated high-speed rail corridors.
This legislation raises several questions: Why doesn’t the United States have
high-speed rail already? Is high-speed rail in the United States a good investment?
How much would high-speed rail cost? How could it be paid for? This report
examines the issues involved in providing faster trains in the U.S., then analyzes tax-
credit bonds specifically. Finally, it reviews the provisions of S. 250 and H. R. 2329,
the High Speed Rail Investment Acts of 2001. This report will be updated to include
other legislative developments or Amtrak funding bills as warranted.
What is High-Speed Rail?
High-speed rail refers to two types of surface transportation: conventional trains,
in which steel wheels roll on steel rails, and magnetic levitation (maglev) trains, in
which superconducting magnets float the train above a guide track. Japan and
Germany have developed prototype maglev systems on test tracks, but there is
currently no commercial maglev route anywhere in the world. Several nations have

high-speed rail systems employing conventional trains. This report focuses on
conventional trains.1
The U.S. government defines ‘high-speed rail’ as ‘sustained speeds of more than
125 miles per hour’ (49 U.S.C. 26105(2)(A), ‘High-Speed Rail Assistance’). In
selecting high-speed rail corridors for funding to eliminate rail-highway grade crossing
hazards, however, the Secretary of the Department of Transportation (DOT) is
directed to ‘include rail lines where railroad speeds of 90 miles or more per hour are
occurring or can reasonably be expected to occur in the future’ (23 U.S.C.


Japan, France, Germany and Spain have high-speed rail systems capable of top
speeds of 175 miles per hour or more and average speeds of 125 miles per hour or
more. All such systems have two essential characteristics:
!separate tracks dedicated to high-speed passenger trains, with gentle curves
and shallow grades, and no road crossings–the railroad equivalent of the
Interstate Highway System; and
!trains powered by electricity (i.e. these lines have overhead electric wires, or
catenary, along their entire length to feed power to the trains).
Without dedicated tracks–that is, traveling on tracks shared with slower trains
and/or with road crossings–trains must travel more slowly for safety reasons. For
example, on non-dedicated tracks, the French and German high-speed trains travel
from 90 to 140 miles per hour. Electric-powered engines are lighter than internal-
combustion engines, enabling the trains to accelerate and decelerate faster as well as
operate at higher speeds. This is an important point for high-speed rail in the U.S.
because, of Amtrak’s 22,000 route-miles, the 400-mile route between Washington,
D.C. and Boston (the Northeast Corridor) is virtually the only section with overhead
electric lines to supply electricity to a train.2 All other trains in the United States rely
on internal-combustion engine locomotives for power. There are no dedicated high-
speed tracks in the U.S.
Fast Trains in the U.S.
In the 1930s there were dozens of trains in the U.S. reaching speeds of 100 miles
per hour or more. In the 1940s, the Federal government instituted safety regulations
that imposed speed limits on railroad tracks based on their characteristics and the type
of signaling system in use. The railroad companies decided that the necessary
improvements needed to operate trains at high speeds were not worth the cost. As

1For more information on maglev, see Maglev as a high speed ground transportation
alternative: background and developments, by John Fischer (CRS Report RS20613, June 28,


2To address this, the Federal Railroad Administration is working with a train manufacturer
to develop a high-speed diesel locomotive–i.e., one not requiring electricity as a power
source–capable of traveling at 150 miles per hour.

a result, with few exceptions, the maximum speed limit for railroad tracks in the U.S.
has been 79 miles per hour since then.
Only on Amtrak’s Northeast Corridor has the necessary investment been made
to reach high speeds3, and even on that corridor there are still places where trains
must slow down. The Northeast Corridor is owned by Amtrak; virtually all the rest
of Amtrak’s routes operate on tracks that are owned by freight railroad companies.
Amtrak has spent well over $3.3 billion to upgrade the Northeast Corridor for high-
speed service, and that work is not finished.
Congress has been interested in faster trains since at least the 1960s. The High-
Speed Ground Transportation Act of 1965 led to studies which identified the
Northeast Corridor as the most promising route for high-speed rail. In the 1980s
Congress funded studies of other potential high-speed corridors. The Intermodal
Surface Transportation Efficiency Act of 1991 (ISTEA) (P.L 102-240) discussed
high-speed rail as part of an intermodal transportation system for the U.S. ISTEA
directed the DOT to
lead and coordinate Federal efforts in the research and development of high-speed
ground transportation technologies in order to foster the implementation of
magnetic levitation and high-speed steel wheel on rail transportation systems as
alternatives to existing transportation systems.(P.L 102-240, Section 1036(a)).
ISTEA also authorized up to $1 billion in federally-guaranteed loans for
construction of high-speed rail corridors, though no money was ever appropriated for
this loan program. ISTEA also authorized the designation of five high-speed rail
corridors by the Secretary, and authorized $30 million for elimination of at grade
crossings in these corridors. The Transportation Equity Act for the 21st Century
(TEA21) (P.L.105-178) continued ISTEA’s limited support of high-speed rail by
authorizing $35 million annually for FY1998-2001. The direct appropriation from
general funds is for general assistance and planning for the technical development of
high-speed rail service.
Generally, the U.S. Government promotes high-speed rail, but has not
appropriated sums comparable to the tens of billions of dollars that other nations have
spent to construct and maintain their systems.4 To date, no private group has built
any high-speed rail segments in the United States.

3New York State is upgrading the line between New York City and Buffalo to 125 mph.
449 USC 302: Policy standards for transportation
(d)(1) It is the policy of the United States to promote the construction and
commercialization of high-speed ground transportation systems by -
(A) conducting economic and technological research;
(B) demonstrating advancements in high-speed ground transportation technologies;
(C) establishing a comprehensive policy for the development of such systems and the
effective integration of the various high-speed ground transportation technologies; and
(D) minimizing the long-term risks of investors.

Does the U.S. Need High-Speed Rail?
The nation’s highways and airports are increasingly congested, while the cost to
maintain the existing infrastructure has been rising. Expanding the capacity of these
modes is constrained by costs, by local opposition, and in some cases by
environmental restrictions. The same might be said of building new railroad tracks.
However, proponents of passenger rail argue that increased investment in passenger
rail service would diversify the transportation system and relieve the congestion on
airports and highways. While it is probably true that the implementation of high-
speed rail between large U.S. cities would increase the number of travelers opting for
rail travel, many observers question whether high-speed rail would noticeably
decrease congestion on other modes. At best, they believe that high-speed rail travel
might slow the growth in demand for air and highway travel in high-speed rail
Passenger rail currently carries less than 1% of travelers in the U.S. Critics note
that the proportion of travelers using trains has steadily declined, while air travel and
auto use has increased. They argue that the sprawling residential development
patterns of the U.S. are not suited to rail travel, which works best when carrying large
numbers of people between large population centers. They conclude that the
government should put its money into improvements to the air travel and highway
systems, not passenger rail service.
Proponents of passenger rail observe that highway and air travel have benefitted
from technological improvements and infrastructure investment in the past few
decades that have increased both speeds and capacity, while rail travel has not.
Passenger trains in the U.S. are no faster–and in most cases slower–than they were

60 years ago, and there are many fewer of them. They argue that if trains were time-

competitive with air travel, more people would ride trains. As evidence, they note
that the introduction of high-speed rail service in other countries has led to increased
ridership on those routes, and that Amtrak’s most successful route has been its fastest
service (between Washington, D.C. and New York City, 226 miles).5
The most promising market for passenger rail service in the U.S. appears to be
high-speed service between large cities that are 100 to 500 miles apart. At that
distance, high-speed trains are time-competitive with flying. Thus the focus of
Amtrak and the federal government on developing high-speed corridors between
other large cities.
Improving the Existing Passenger Rail Infrastructure
The overall speed of a train is a function of the train’s maximum speed, track
conditions, and signaling systems. This is true for automobiles too; a car can maintain
a higher average speed on a well-paved, well-signed Interstate Highway than on a
country road. In the past 35 years, Japan, France, Germany and Spain have built the

5Even before the introduction of Amtrak’s new Acela high-speed train, Amtrak carried 37%
of travelers who used either trains or planes to travel between these two cities

equivalent of Interstate Highway systems for their rail networks: dedicated high-speed
rail lines separate from the conventional rail network. The new tracks have gentle
curves and no at-grade road crossings. These dedicated networks not only allow high
speeds (175 miles per hour or more), but also high average speeds (125 miles per
hour or more). These dedicated tracks have come with a price; these nations have
spent, cumulatively, well over $100 billion on their high-speed rail infrastructure.
The U.S. does not have a dedicated high-speed rail route, nor has the federal
government shown any inclination to provide funding on the scale necessary to build
such a route. Private proposals to build high-speed lines in Florida and Texas were
abandoned, calling into question the financial viability of a private, independent rail
service in the U.S. Rather than build a new network of track, federal and state
governments and Amtrak want to improve existing sections of the rail network to
allow passenger trains to run faster than their current maximum of 79 miles per hour.
To achieve this goal, the Secretary of Transportation has designated eleven high-6
speed rail corridors in addition to the Northeast Corridor. The railroad tracks in
these corridors are owned by freight railroad companies.
This incremental approach has inherent limitations. The existing rail network
was built in the 19th century for trains with top speeds of much less than 100 mph.
To accommodate high-speed travel, curves must be straightened, road crossings
eliminated, and the quality of rail lines upgraded. These improvements must be made
by Amtrak or the federal or state governments–to the private property of freight
railroads. Investing public money in private property raises a variety of public policy
issues: e.g., What is the return to the taxpayer on this investment?
There is also a cost to the freight railroad companies. As private property, the
rail infrastructure of the U.S. is subject to state and local property taxes. The
improvements needed to allow high-speed travel will likely increase the value of that
property and could increase the property tax liability of the owners, the freight
railroads. While the freight railroads will benefit some from the improvements, that
benefit may not exceed the increased tax liability. The increased tax liability of the
freight railroad would then be passed on in part to the consumers of their services,
including Amtrak.
Improvements to the existing tracks will be costly, and are not the only change
needed to accommodate high-speed travel. Amtrak has spent nearly $5 billion over
the past 25 years maintaining and improving the 400-mile Northeast Corridor for
high-speed service. But there are still road crossings and relatively sharp curves
which have not yet been eliminated, forcing trains to slow down. In addition,

6California Corridor (San Diego-Los Angeles-San Francisco-Sacramento); Chicago Hub
(Chicago-Cincinnati, Chicago-Detroit, Chicago-Milwaukee-Minneapolis/St. Paul, Chicago-St.
Louis); Empire Corridor (New York City-Albany-Buffalo); Florida Corridor (Miami-Orlando-
Tampa); Gulf Coast Corridor (Houston-New Orleans-Birmingham-Atlanta); Keystone
Corridor (Philadelphia-Harrisburg-Pittsburgh); Northern New England (Boston-Montreal,
Boston-Portland); Pacific Northwest Corridor (Eugene-Portland-Seattle-Vancouver BC);
Southeast Corridor (Washington D.C.-Richmond-Charlotte-Atlanta-Jacksonville); South
Central Corridor (Dallas-San Antonio, Dallas-Tulsa, Dallas-Little Rock). For a map of these
corridors, see http://www.fra.dot.gov/o/hsgt/states/index.htm.

Amtrak’s high-speed trains have to share the tracks with slower freight and commuter
trains. As a result, while the Acela can reach 150 miles per hour in places between
New York City and Boston, its average speed is only 55 miles per hour. Between
New York City and Washington, D.C., track conditions are more consistent; top
speed in that section is limited to 125 miles per hour, but its nonstop service averages

90 miles per hour for the trip.

Capacity of the Rail Lines. Freight railroads in the U.S. are now facing
capacity limits on their remaining track. Track improvements would make it possible
for freight trains to travel faster as well, thus potentially increasing the capacity of the
existing rail network.
However, observers note that the capacity impact of track improvements is
unclear because of the speed differences between fast passenger trains and much
slower freight trains. Allowing passenger trains to run faster on tracks shared by slow
freight trains could, in fact, reduce the overall capacity of the tracks because of
scheduling. For example, imagine traffic on an Interstate Highway with only one lane
in each direction: the fast drivers would stack up behind the slow drivers. In order to
allow passenger trains to travel at high speeds, freight trains would have to scheduled
in a way that left long stretches of track open ahead of the departure of passenger
trains. This problem can be mitigated by adding additional lines of track, analogous
to the passing lanes on mountainous roads, to allow slower trains to get out of the
way of faster trains.
Even if Amtrak and federal and state governments spend the billions of dollars
necessary to upgrade existing tracks for high-speed service, coordinating high-speed
trains with slow freight trains on high-traffic lines will be challenging.
Funding Options for High-Speed Rail
Amtrak has estimated the cost of developing a nationwide high-speed rail
network, based in improvements to the existing rail network, at $50-100 billion over

20 years.7 By way of comparison, total annual highway spending in the U.S. was8

$117 billion in 1999.
Amtrak has estimated its capital investment needs over the next five years at
$973 million each year in order just to maintain its current level of service, and an
additional $584 million each year to begin developing high-speed corridors: a total of
around $1.5 billion each year. Over the past several years, Amtrak has received $520
million annually in federal appropriations.

7The GAO reports an Amtrak estimate of $50-70 billion (GAO-01-756R, High Speed Rail
Investment Act of 2001, p. 2); the Amtrak Reform Council reports an Amtrak estimate of
$80-100 billion, which includes both high-speed rail development and improvements to thend
non-high-speed rail corridors (Amtrak Reform Council , 2 Annual Report, March 20, 2001,
p. 52).
8Federal Highway Administration, Highway Statistics 1999, Table HF-10, p. IV-9.

There are several options for paying for the improvements needed to provide
high-speed rail service. The options include: 1) direct appropriations from general
revenue; 2) creating a trust fund for passenger rail, similar to those for highways and
mass transit; 3) allowing states to use their federal highway funds for rail; and 4)
allowing Amtrak to issue tax favored bonds. These options share the assumption that
investment in high-speed rail will not occur without some degree of federal financial
Direct Appropriation. A direct appropriation from general funds is the
funding method preferred by some, who value its transparency: the amount of
financial support going to a project is more easily seen than when tax credits are
given. Also, this approach does not intrinsically commit the government to long-term
However, direct appropriation levels are unpredictable from year to year.
Appropriations that are unpredictable make planning for large, long-term capital
improvements difficult. The Amtrak Reform Council observes that Amtrak’s ability
to provide high-quality service has been hindered by unreliable and likely inadequate
funding. Thus, they call for a stable and adequate source of federal funding for
Amtrak’s capital needs.9
The direct appropriation would also be politically vulnerable. A direct
appropriation would require Amtrak’s high-speed rail projects to compete with many
other programs each year for its funding. And, while the federally-designated high-
speed rail corridors include most of the large metropolitan areas of the country, they
only cross portions of 33 states, limiting the potential support for high-speed rail
Since the public benefits of large capital improvements usually are not seen for
several years, due to the years required for construction, many public finance experts
maintain that funding those improvements with long-term debt rather than up-front
appropriations better matches those who pay for the improvements and those who are
eligible to receive the benefits. Financing through direct appropriation has the costs
paid up-front by taxpayers, some of whom may never have the opportunity to ride the
faster trains.
Trust Fund. There have been repeated efforts over many years to dedicate a
portion of the federal fuel tax to an Amtrak trust fund, either by increasing the fuel tax
by a penny (currently set at 18.4 cents per gallon of gasoline and 24.4 cents per gallon10
of diesel) or diverting one cent per gallon from the existing tax. One cent per gallon
could raise approximately $1.6 billion annually. However, increasing the fuel tax and
designating the increase to a non-highway use would be very controversial. Also,
like direct appropriations, this method has current taxpayers funding future projects.

9Amtrak Reform Council, Second Annual Report, March 20, 2001.
10The federal fuel tax is currently 18.4 cents per gallon on gasoline, 24.4 cents per gallon on

An argument against dedicating a portion of the fuel tax to rail is that funding rail
capital improvements from the federal fuel tax would violate the principle of the fuel
tax. After all, opponents note, the original purpose of the fuel tax was to pay for
highway improvements; they characterize it as a “user fee” rather than a tax.
However, in 1982, public transit supporters succeeded in creating a Transit
Account within the Highway Trust Fund, and having a portion of the fuel tax
dedicated to that account. Supporters of this move argued that mass transit is
complementary to highway use in urban areas. Similar efforts by rail supporters have
been unsuccessful. Railroads also pay a separate fuel tax which is levied at a much
lower rate than that paid by highway users (4.4 cents per gallon). The revenue, about
$160 million annually, goes to the U.S. Treasury General Fund. Amtrak’s
contribution to that total is approximately $3.4 million annually.
Allow States to Use Federal Highway Funds for Rail. Many states are
interested in having faster trains for their citizens, and have been spending state funds
for this purpose. The largest source of transportation funds for most states is their
federal highway formula grants, but states are explicitly forbidden to use these funds
for intercity rail transportation; they are allowed to use some of these funds for public
transit. Many state officials argue that state governments are better judges of their
transportation needs than is the federal government. Thus, giving states the flexibility
to spend federal highway funds for rail projects would allow them to maintain a more
balanced transportation system.11 Total federal highway formula funding is around
$30 billion annually.
Opponents of more state flexibility argue that the capital investment needs of
highways are so great that even the current federal funding for highways is
insufficient. Therefore, states should not be allowed to divert funds from highway
projects. Also, opponents argue that the highway funds come from the federal fuel
tax, so spending them for non-highway projects would violate the “user fee” concept
behind the fuel tax.
Tax-Favored Bonds. Most public finance experts agree that issuing bonds
is the preferred way of funding long-term capital improvements. The projects
typically provide benefits well into the future and bond finance, where the payments
are also spread well into the future, better matches the financing cost to those who are
eligible to benefit from the project.
Financing high-speed rail improvements with bonds requires selling bonds to
willing buyers. However, Amtrak already has significant debt and Amtrak bonds may
be seen as a high-risk investment. In June 2001, the Secretary of Transportation
allowed Amtrak to mortgage part of Pennsylvania Station in New York City to raise
$300 million to cover operating expenses between June 2001 and the beginning of
FY2002. The Secretary has said that Amtrak faced very serious financial problems,

11The National Governor’s Association supported S. 1144 (106th Congress), which would
have given states this flexibility. See http://www.nga.org/nga/legislativeUpdate

and that Amtrak is not going to be self-sufficient by 2003.12 Under the Amtrak
Reform and Accountability Act, if Amtrak is unable to covering its operating expenses
by FY2003, Congress will vote on whether to restructure or liquidate Amtrak.13
Given these circumstances, the demand for Amtrak bonds may not be strong.
Of the various funding options, bond finance has been the most popular with
lawmakers. Bills to give Amtrak bonding authority were introduced in the secondth
session of the 106 Congress and received considerable support: H.R. 3700 had 167
sponsors; S. 1900 had 57 sponsors. The House approved passenger rail bonds
legislation as part of another bill, though the Senate excluded it from the Omnibus
Appropriation Act in December 2000. Acknowledging the significant support for
Amtrak bond legislation, Senate leaders promised to bring the legislation to the floor
in the 107th Congress. S. 250 currently has 57 sponsors. A similar House bill, H. R.

2329, has also been introduced; it has 170 sponsors.

S. 250/H. R. 2329: The High-Speed Rail Investment Acts of
These bills would enable Amtrak to raise $12 billion over 10 years by issuing up
to $1.2 billion in tax-credit bonds annually for passenger rail projects. At least $11
billion must be used for improvements to the 12 federally-designated high speed rail
corridors. No single rail corridor can receive more than $3 billion of bond proceeds.
No more than $1 billion of bond proceeds may be used for non-high-speed rail
Bonds cannot be issued until the following requirements are met: Amtrak must
have a qualified project approved by the Secretary of Transportation, including a
finding by the DOT Inspector General that the project will produce a profit; it must
have a 20% State match in hand; and for projects outside the Northeast Corridor, it
must have an agreement with the appropriate freight rail carriers. The matching funds
would be deposited into a trust fund, and the proceeds from these funds would be
used to pay back the principal to the bondholders over the life of the bonds.
There are three categories of qualified projects: 1) those affecting the Northeast
Corridor (Amtrak’s Washington D.C.-New York City-Boston high-speed corridor);
2) those affecting any of the other federally-designated high-speed rail corridors; and

3) those affecting any other non-high-speed intercity passenger rail corridor.

Both bills require an annual independent assessment of the costs and benefits of
the qualified projects, including an assessment of Amtrak’s investment evaluation
process (S. 250 requires Amtrak to contract for this; H. R. 2329 requires the
Secretary of Transportation to issue the contract).

12Don Phillips, “Amtrak Wants to Mortgage Penn Station,” Washington Post, June 6, 2001,
page E1.
13P.L. 105-134, Sections 204 and 205.

Differences between S. 250 and H. R. 2329.
While the general purpose of both bills is similar, there are some significant
differences in their treatment of various issues.
Qualified Projects. The language describing qualified project expenditures
is virtually identical for all three categories: “the acquisition, financing, or refinancing
of equipment, rolling stock, and other capital improvements...” Significant differences
!H. R. 2329 includes “the introduction of new high-speed technologies such as
magnetic levitation systems” as a qualified capital improvement; S. 250 does
not. This is probably inconsequential, since, given the relatively small amount
of money that would be raised by this bill, any significant improvements to
train speeds would require incremental improvements to the existing rail
network; the construction of a new network based on a completely different
train technology is not within the economic power of this bill.
!S. 250 requires that projects for intercity passenger rail corridors that are not
federally-designated high-speed rail corridors must increase railroad speeds to
at least 90 miles per hour; H. R. 2329 does not.
!S. 250 provides two additional selection criteria for the Secretary of
Transportation in choosing projects for approval: State matching contributions
of greater than 20%, and promoting a regional balance in infrastructure
investment. H. R. 2329 adds three more criteria: impacts on air traffic
congestion, improvement of commuter rail operations, and profitability.
State Matching Funds. Both bills require that states match 20 percent of the
cost of qualified projects. H.R. 2329 requires that Amtrak have that money in hand
before issuing bonds for a project; S. 250 requires only a binding commitment from
the states for the money. Both bills exempt the Alaska Railroad from the requirement
of providing a local match; H. R. 2329 also exempts improvements to the railroad
station at the James A. Farley Post Office Building in New York City. Both bill forbid
the use of federal Highway Trust Fund moneys by states as part of their match,
though S. 250 allows states to donate land purchased with federal transportation
funds as part of their match. This is a controversial item and is likely to be dropped;
when the substance of S. 250 was offered as an amendment (SA 676) to H. R. 1836,
this provision was omitted.14
Alaska Railroad. Under S. 250, the Secretary of Transportation would have
the authority to allocate part of the overall bond limitation for any year to the Alaska
Railroad, which would be allowed to issue its own bonds; under H. R. 2329, Amtrak
would agree to issue bonds for Alaska Railroad. No specific limit is placed on the
amount that the DOT Secretary could allocate to the Alaska Railroad; presumably,
this would be limited to no more than $100 million a year, or a maximum of $1 billion,
since any Alaska Railroad projects would fall into the third category of qualified

14Congressional Digest, May 17, 2001, S5173.

projects (non-high-speed rail corridor), which are limited to no more than $100
million a year. However, Alaska Railroad projects would not be required to produce
a speed of 90 miles per hour; and the requirement for a 20% state match is waived.
Since the funds to repay the principal to the bondholders is to come from the state
match, this means that the issuance of bonds for Alaska Railroad projects might well
result in a shortfall in the trust account used to repay the bond holders; presumably
the federal government would have to provide funds to make up the difference.
Property Tax Consequences. To address the issue of increased property
taxes from upgrading the rail lines, S. 250 exempts rail carriers from any federal, state
or local taxes on rail lines in high-speed corridors leased by Amtrak, and on any
improvements funded by qualified Amtrak bonds or any State or local bonds. This
provision is controversial. State and local officials are concerned that this provision
preempts their authority to tax property within their jurisdictions; also, the tax
revenues lost might be significant for some communities. State and local officials
suggest that there are other options for dealing with the tax consequences of these
improvements. Also, the provision appears overly broad; as written is appears to
exempt improvements funded by any state or local bond, whether or not those
improvements were made as part of qualified projects as defined in this legislation.
It appears likely that this provision would be amended. H. R. 2329 does not have any
provisions dealing with property tax consequences.
Tax Credit Bonds Generally
Tax credit bonds are financial instruments that offer the bondholder tax credits
rather than interest payments. Typically, the bondholder is allowed to claim a tax
credit equal to a fixed percentage of the amount loaned to the bond issuer for a fixed
number of years (or term). Because the credit is included in the bondholder’s income,
the credit rate must yield a rate of return close to alternative taxable investments of
equal risk and term.
For example, the credit rate on Qualified Zone Academy Bonds (QZABs) – to
date the only available tax credit bonds – is a blend of the prevailing interest rates on
a mix of ten-year, taxable bonds. The term of QZABs fluctuates with prevailing
interest rates and is currently set at 14 years. For more on QZABs, see CRS Report
RS20606, Qualified Zone Academy Bonds: A Description of Tax Credit Bonds.

Tax Credit Bonds for Amtrak as Proposed in S. 250/H. R. 2329
The Amount. S. 250/H. R. 2329 proposes an annual debt limit of $1.2 billion
for fiscal years 2002 through 2011. If the entire $12 billion of Amtrak bonds were
floated at an annual credit rate of 7%, the total federal revenue loss might be
approximately $11 billion over the 30-year life of the program. If interest rates
increase, the size of the decrease in Federal revenue resulting from the program would
increase as well.
The Credit. The annual credit rate on Amtrak bonds would be equal to an
‘average market yield (as of the day before the date of the issue) on outstanding long-
term corporate debt obligations.’15 In practice, Amtrak bond holders take one-fourth
of the credit on the 15th day of March, June, September, and December. The
quarterly credit, which is meant to roughly coincide with corporate tax filing
requirements, is a departure from the QZAB practice of providing credits on an
annual basis. The tax credit is non-refundable which means the bondholder cannot
claim credits that exceed annual tax liability, though any unused credits can be carried
forward to the following year. The carryforward provision makes the bonds more
attractive to investors.
Amtrak bond tax credits could be ‘stripped’ from the bond principal. The
stripping provision allows the bondholder to separate and sell the stream of future tax
credits while retaining the rights to the bond principal repayment. This provision
makes the bonds more attractive to potential bond investors because the risk
associated with credits is separated from the risk associated with principal repayment.
Generally, the stripping provision for Amtrak bonds makes the bonds comparable to
other bond instruments, thus improving the bond’s marketability.
The proceeds from Amtrak bonds are also subject to more generous bond
arbitrage rules. Bond arbitrage occurs when an issuer uses the proceeds from a bond
issue to invest in other assets unrelated to the bond’s stated purpose. For example,
if a state or local government sold tax-exempt bonds with a 5% interest rate to build
a public building and immediately invested the proceeds to buy taxable bonds with an

8% interest rate, the state and local government would be engaging in bond arbitrage.

The state or local government is earning 3% (8% less 5%) on every dollar of tax-
exempt bond proceeds. Once construction begins on the public building, the state or
local government would gradually liquidate its taxable bonds to pay for construction
costs. Bond arbitrage is restricted by the federal government and any excess earnings
from arbitrage must be remitted to the U.S. Treasury in most cases. Some
particularly abusive cases are also assessed penalties. Current bond arbitrage rules are
complicated, but the general rule is that at least 95% of the proceeds from tax-exempt
bonds used for construction must be spent within two years.16
For Amtrak bonds, 95% of the proceeds of an issue must be spent within five
years of the date of issue to maintain the bond’s qualified status. If less than 95% but

15Subpart H, Section 54(b)(3) of S. 250/H. R. 2329.
1626 U.S.C. 148(c).

greater than or equal to 75% of the proceeds are spent within the five-year window,
the bond issue can still qualify. However, any excess arbitrage earnings accruing in
the sixth year must be remitted to the Federal Government and 95% of the proceeds
must be spent within 90 days after the end of the sixth year.
Amtrak Bond State Match and Trust Account. A qualified Amtrak bond
must have a matching contribution equal to 20% or more of the project cost from one
or more of the states where bond proceeds are to be spent. The state matching
contribution cannot be from federal sources (with one exception: see next paragraph);
however, states can sell traditional tax-exempt bonds to meet the matching
requirement. Bonds issued for this purpose are excluded from the state’s private-
activity volume cap.17 The matching fund payment, which is held in an independent
trust for eventual repayment of bond principal, must be received before the tax credit
bonds are issued. The trust account requirement helps ensure that Amtrak will have
enough cash available to redeem outstanding tax credit bonds at maturity.
The exception for the use of federal revenue is that States may count the value
of land contributed for right-of-way toward their match. This match could include
land purchased with federal funds, including Highway Trust funds. This exception,
which would allow the use of Highway Trust funds for intercity passenger rail,
purposes, is controversial.18 23 U.S.C. 142(f) provides for joint use of federally-
purchased rights-of-way by highways and rail facilities.19 However, S. 250 would
allow sole use of such land for rail facilities.
Amtrak Bond Disqualification. If a project financed by tax credit bonds
ceases to qualify, Amtrak must repay the federal government the credits issued in the
year the bond was disqualified and the credits from the two years before
disqualification. The bondholders are the ultimate recipients of the tax credit; thus,
if Amtrak does not repay the credits, the holders of the disqualified Amtrak bonds are
levied a tax equal to three calendar years worth of credits “...which would have
resulted solely from denying any credit under this section with respect to such issue20
for such taxable years.” This rule generally mirrors the current rules for traditional
tax-exempt bonds.

17The federal government limits the amount of tax-exempt bonds that each state can issue for
certain private (non-governmental) activities.
18When the substance of S. 250 was offered as an amendment (SA 676) to HR 1836, the tax
bill, the provision allowing States to use land purchased with Highway Trust funds was
omitted. Congressional Digest, May 17, 2001, S5173.
19Where sufficient land exists for rail facilities within the public right-of-way of a highway
built with federal funds, the Secretary of Transportation shall authorize a State to make that
land available “with or without charge.”
20Subpart H, Section 54(i)(2) of S. 250; Subpart H, Section 54(h)(2) of H. R. 2329.

Analysis of Amtrak Bonds
The tax credit bonds proposed by S. 250/H. R. 2329 would lower Amtrak’s
interest expenses21 and subsidize Amtrak’s capital investment. These capital
investments, achieved with lower interest costs, could lead to increased revenue from
improved passenger service and package delivery.
Comparative Cost. Tax credit bonds, and Amtrak bonds specifically, do not
explicitly state the size of federal support; the size is dependent on tax and interest
rates. The cost of the bonds are limited by size of issue, not the associated federal tax
expenditure. In addition, part of the assistance is transmitted through Amtrak to some
bond investors.
The cost to the federal government of Amtrak bonds is the tax revenue forgone
to give bond holders the equivalent of interest on their investment. GAO estimated
the revenue loss from S. 250 (and thus H. R. 2329) would be between $16.9-19.1
billion over the 30-year life of the program.22
The GAO also estimated the cost of two alternatives for providing Amtrak $12
billion over 10 years: an annual appropriation for 10 years, and a one-time
appropriation that would be invested and draw interest until expended. In order to
compare these three alternatives, GAO converted all three estimates into present value
sums.23 Due to a variety of assumptions that had to be made, all the results are in a
range. GAO found that the bond bill was potentially the most expensive of the three
alternatives ($7.7-10.0 billion), with an annual appropriation ($7.3-8.2 billion) and a24
one-time appropriation ($7.0-8.4 billion) roughly equal in cost.
Repayment Risk. The question might arise as to whether Amtrak bonds
might have a hidden cost to the government. Amtrak has never yet generated enough
revenue to cover even their operating expenses, though it is required to after FY2002;
if Amtrak were unable to repay bond holders their principle, would the federal
government have to provide additional funds to Amtrak for that purpose?

21According to a 1998 Department of Transportation study, interest expenses were the ‘second
largest contributor to Amtrak expense increases over the past six years [1992 to 1997]’.
Amtrak’s interest expense increased from $32 million in 1994 to $76 million in 1997 and is
projected to increase to $139 million in 2003. U.S. Department of Transportation, Office of
Inspector General, Summary Report on the Independent Assessment of Amtrak’s Financial
Needs through Fiscal Year 2002, Report No. TR-1999-027 (Washington: November 1998),
p. 13.
22General Accounting Office, The High-Speed Rail Investment Act of 2001, GAO-01-756R,
June 25, 2001 (available at [http://www.gao.gov/cgi-bin/fetchrpt?rptno=GAO-01-756R]).
23The present value conversion allows one to compare the value of money spent or received
in the future to the value of money spent or received today; generally, one dollar in hand today
is more valuable than one dollar in hand a year from now.
24However, as noted earlier, the uncertainty of annual appropriations is a disadvantage in
long-term capital projects; consequently, from Amtrak’s perspective, the annual appropriation
alternative has a greater risk than the one-time appropriation.

Legally, no. Bonds created by S. 250/H. R. 2329 are not backed by the “full
faith and credit of the United States” guarantee. The legislation requires states to
provide a 20% match for qualified projects funded with proceeds of Amtrak bonds;
these matching funds are to be deposited in a trust account by a trustee independent
of Amtrak. These funds and any earnings on them shall be used to repay the principal
of the bonds. The Secretary of the Treasury is to report annually to the Congress
whether the trust account has enough funds to repay the outstanding bonds at
If states provided their matches in cash, the fund would receive $2.4 billion.
Combined with investment earnings, the state contributions would likely be sufficient
to redeem the bonds, perhaps with a surplus. If there were not enough money in the
trust fund to redeem the bonds, Amtrak would have to pay the difference, which
would be an operating expense. If Amtrak is not able to repay all the principle, the
bondholders may bring suit against Amtrak to gain possession of Amtrak assets.
There are several provisions in these bills which may result in the trust account
receiving less than $2.4 billion from the states. For one, up to $1 billion of the bond
authority could be given to the Alaska Railroad, whose projects do not require a state
match; that would subtract $200 million from the trust account. For another, H. R.
2329 also allows spending on the Farley Post Office/Penn Station redevelopment
without a local match, which could subtract another few dozen million dollars from
the trust account. Finally, S. 250 allows states to provide at least part of their match
in land rather than cash; this would also subtract money from the trust account.
In short, there is some risk that the trust account would not receive enough
funding to fully repay the bondholders. It is unlikely that Amtrak could make up the
difference out of operating revenues, since it has never yet generated enough revenues
to cover all its operating expenses. In that case, the federal government might choose
to bail out Amtrak by making up the difference, as it has chosen to rescue other
government sponsored enterprises over the years. The government would have
advance notice of this, since the Secretary of the Treasury would be reporting on the
trust account balance each year. The bond period is 20 years, so the government
would be faced with this expense in years 2022 through 2031, as the bonds come due.
And the amount to be made up would probably be only a small portion of the $12
billion bond authorization.

Appendix: Comparison of High-Speed Rail Investment Acts of
2000 with High-Speed Rail Investment Acts of 2001
There are several differences between H. R. 3700/S. 1900 (The High-Speed Rail
Investment Act of 2000), which received support in the 106th Congress, and S. 250/H.
R. 2329 (The High-Speed Rail Investment Act of 2001). While all authorize the
issuance of tax-credit bonds to fund improvements in passenger train speeds, the
amounts, authorized issuers, and oversight mechanisms vary.
Significant Differences Between H. R. 3700/S. 1900 and S. 250/
H. R. 2329
SubjectH. R. 3700/S. 1900thS. 250/H. R. 2329 (107th Congress)
(106 Congress)
IssuerH.R. 3700: AnyS. 250: Amtrak; Alaska Railroad
intercity passenger railH. R. 2329: Amtrak
carrier. S. 1900:
Amount$10 billion$12 billion
State match20%Both: 20%. S. 250: may be in the form of
land, the land may have been purchased with
Highway Trust funds. Both: No state match
required for Alaska Railroad projects. H. R.
2329: No match required for Farley Post
Office/Penn Station project in New York
HighwayNo referenceBoth: No Highway Trust Fund moneys can
Trust Fundbe used. S. 250: except that States may
donate land that was purchased with
Highway Trust funds.
FederalH.R. 3700: ExplicitNo reference
Backing ofdenial of any federal
bondsguarantee. S. 1900: no
ProjectDOT SecretaryDOT Secretary approval; DOT Inspector
selectionapprovalGeneral must find a reasonable likelihood
that a project will provide net revenue
TaxNo referenceS. 250: Exempts rail line improvements
exemptionsfrom State and local taxes; exempts high-
speed lines leased by Amtrak from State and
local taxes