I am pleased to be here today to report to you on rail infrastructure needs and the role of Railroad Rehabilitation and Improvement Financing (RRIF) Program in meeting these needs. I wish to commend the bi-partisan leadership of this Committee and Subcommittee for its foresight in making RRIF part of the Transportation Equity Act for the 21st Century (TEA-21).

RRIF is an important program that offers unparalleled opportunities for implementing a wide variety of railroad projects and meeting some of the critical capital investment needs of the rail industry. Under the RRIF Program, direct loans and loan guarantees are available for projects to acquire, improve, or rehabilitate intermodal or rail equipment or facilities, including track, components of track, bridges, yards, buildings, and shops, to refinance outstanding debt incurred for those purposes; or to develop or establish new intermodal or railroad facilities. Of the total $3.5 billion authorized, $1 billion is reserved for railroads other than Class I.

As you know, the RRIF program is unique and innovative. One of the most unique features is the payment of a "credit risk premium" in lieu of an appropriation equivalent to the estimated Federal Government’s cost of making the direct loan or loan guarantee. The "credit risk premium" may be paid by the borrower or any non-Federal infrastructure partners that wish to contribute. This not only allows the Federal Railroad Administration (FRA) to support, at no initial subsidy cost to the federal government, many important rail projects which otherwise would not be possible, but it also fosters infrastructure investment partnerships.

Implementation of a new program incorporating this innovative feature as well as the various restrictions on federal credit programs imposed by the Credit Reform Act required thorough discussion. This and the resolution of other issues delayed the issuance of the final regulations. I recognize the frustration of many, including the leadership of this Committee, in the extended time period that has passed but this does not make the railroad investments delayed by the process any less important. The staff of FRA are committed to making this program work and will implement the program as expeditiously as possible.

During the period between the Final Rule’s issuance on July 6, 2000, and its effective date

on September 5, 2000, FRA joined with the American Short Line and Regional Railroad Association in an outreach effort that included seminars in Philadelphia, Portland, Oakland, Atlanta, Dallas and Des Moines. FRA also participated in the Transportation Research Board’s National Conference on Transportation Finance in Scottsdale, Arizona and its innovative finance workshop during its annual meeting in Washington, D. C. Over the past seven months, we have met with 19 prospective applicants, who have potential projects exceeding a total of $500 million. Three additional pre-application submissions totaling $21.7 million were received last week alone.

To date, applications have been submitted by I & M Rail Link, the Arkansas & Missouri Railroad, the Texas Mexican Railway, and the Dakota, Minnesota & Eastern Railroad. The independent financial advisors retained by the applicants have completed evaluations of the creditworthiness of the transactions proposed by I&M Rail Link and the Arkansas & Missouri Railroad. The I&M Rail Link loan application is for a $100 million direct loan that will be used to refinance existing debt as part of a major recapitalization plan to ensure the long term viability of the railroad which serves over 900 customers in the States of Iowa, Illinois, Minnesota, Missouri and Wisconsin. We received the financial advisor’s final evaluation of the loan package on March 6^th, and the proposed loan is in its final stages of review. I am optimistic about its potential to be the first candidate for the RRIF program.

FRA is also very close to completing its review of the financial advisor’s evaluation of the application from the Arkansas & Missouri Railroad. This shortline railroad operating in northwest Arkansas and southwest Missouri has requested a total of $11 million to purchase the line it leases from Burlington Northern Santa Fe and to rehabilitate 30 miles of track. Like the Arkansas & Missouri Railroad, the Texas Mexican Railway, and the Dakota, Minnesota and

Eastern Railroad have requested direct loans for track rehabilitation. We anticipate reports from their financial advisors very soon.

In addition to these four formal applications, the pre-application submissions we have received reflect the wide variety of rail infrastructure needs that exist.

• Four shortline railroad prospective applicants are interested in purchasing locomotives and cars.

• Several prospective applicants are pursuing financing to construct new sidings.

• In addition to the pre-application submissions, FRA is aware that there are projects on Class I railroads which may be very important to States or localities but which may not be part of the railroad’s normal capital program. For example, Buffalo, New York, and

Moorhead, Minnesota, are considering partnerships with Class 1 railroads to fund the

construction of connections and the replacement of a bridge to eliminate the current rail congestion their communities are experiencing.

• Commuter railroads operating on freight track also need capital improvements and have had some preliminary discussions with FRA.

• Other community projects involving rail improvements, such as grade separations or upgrades to permit passenger service, are needed. For example, Jonesboro, Arkansas, is pursuing a track relocation project that would facilitate grade separation.

As FRA evaluates the applications submitted, by statute we will continue to give priority to projects that:

• Enhance public safety,
• Enhance the environment,
• Provide economic development,
• Enhance international competitiveness,
• Preserve and enhance rail or intermodal service to small communities and rural areas; and
• Are included in State transportation plans.

I recognize that the Committee has not been pleased with some aspects of the rule implementing the RRIF program. A rulemaking issue that I understand is of continued concern to the Committee is the requirement that an applicant provide a letter of rejection from a commercial lender, including the terms requested. Congressman Rahall has introduced H.R. 517 eliminating the requirement and the Committee leadership recently has written Secretary Mineta requesting that the requirement be removed from the final regulations.

The Notice of Proposed Rulemaking implementing the RRIF program required two letters of rejection. Based on the significant comments received on this subject, including the Committee leadership’s comments, and after extensive discussions within the Administration, it was decided that the Final Rule would require an applicant to submit only one letter of rejection from a private sector lender , including the terms requested. While I realize that the enabling legislation did not envision such a provision, its inclusion is a reasonable way to ensure that Federal financial assistance is provided only when it is not available in the private sector. In fact, this is not an unusual requirement, many other Federal loan programs have a similar one. None of the prospective applicants has indicated any difficulty in meeting this requirement, and the four applicants have provided letters of rejection. In addition, the requirement has resulted in increased awareness among commercial lenders of the need for rail infrastructure investment. Several commercial lenders have contacted us after having provided letters of rejection to discuss the capital needs of the rail industry.

As you know, our regulations permit applicants to retain a financial advisor to provide FRA an independent review of the creditworthiness of the proposed transaction in lieu of paying the

statutorily prescribed investigation charge. The role of the independent financial advisor was conceived because of the lack of authority for FRA to expend investigation charges to pay for administrative expenses. If FRA had authority to use investigation charges for administrative expenses, the RRIF program could directly retain consultants which would expedite the evaluation process necessary to make determinations and findings for each application. This would need to be clarified in the law. I would note that FRA directly retained consultants in implementing a loan and loan guarantee program authorized by Title V of the Railroad Rehabilitation and Regulatory Reform Act of 1976 and this direct relationship was beneficial to timely implementation of that program.

In concluding Mr. Chairman, I wish to reiterate that FRA is committed to making the RRIF application process as simple and expeditious as possible. FRA looks forward to making this program a model of customer responsiveness as well as fiscal responsibility.

I would be happy to answer any questions you may have.

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