information about their actual date of birth. that is how they make the determination of whether someone is above 13 or below 13 and presumably they could do the exact same fy natural and exercise at age 18 so this argument actually doesn't make sense to me. but what mr. sparapani said which i think is something that needs to be considered more carefully, and i understand where he is coming from, he said basically facebook the decision for shall from under 13 we just don't want to have them as users. in other words it is too complicated and because of the coppa obligations you're just going to say, you know, wait a few years basically. ..

don't discourage them. i agree it is a good service but as it is right now, it is not providing adequate protection. >> let me ask about age verification. i know some companies may differ with me on this but my impression is that there is really not a way that exist yet to truly get rocksolid age verification and filling in your birthdate obviously kids can put

in a different date and they may be off to the races. so, am i wrong on that? is there not a really good, solid way to do age verification yet or tell me what the problems are right now? >> it has always been a challenge and i think you are exactly right to say there is no rocksolid way to do it. there are a number of different techniques or go facebook itself i think as developed some pretty good systems to do age verification. i think they probably get it right at a very high level, which is to say i would be very surprised if it were a large number of accounts for kids under 13. there may be some out there. i would suspect that is true but i don't think it is a very large number and i think a similar effort to move the age line to 18, there will probably be some people who get in under but i don't think that is reason enough to do it and i think it would be a mistake actually to say because we can't get it 100%

we should just give up. >> senator, if i may respond. you are exactly right that there is no perfect age verification that there is another important distinction we have to understand here and it is+çt as simple as the fact if you sign up on facebook you are indeed as marcus mentioned required to give your age but you can indeed live making the critical difference here is, as the sites function today sites like facebook and the many other sites because this is not just about facebook but indeed about every site that allows you to share and poster comments like the blog that i run for example. when you sign-up for those that do are not required to verify your age for the use of a credit card. this is the key issue. my point here is if we were to move to a world where coppa apply to children under 18 you would have large numbers of sites that enable the sharing by users of information about themselves called user-generated content to have to age verify

and that is the fundamental difference from the current gime inhi asked for age and if you admit you are under certain age they block you as they are required to do and at that point you start to run into precisely the same constitutional issues as an coppa because coppa in a nutshell requires certain sites to assume again that older users might be children and therefore require all users to verify themselves with a credit card or similar tool. >> dr. montgomery let me ask you about the state of academia on this, and that is are there studies out there where people have really analyzed maybe child psychology or how the industry really operates? is there a body of academic work on this but the subcommittee can look at to get some insight on how things really work out there? >> there is a growing body of research about how young people

are interacting with on line social networks and other digital media. the mcarthur foundation deals with work in that area. none of it i have to say has really taken into account or looked at the commercial dimensions of the digital. >> or the privacy. >> or the privacy. there are some studies emerging on privacy that they are not looking at the whole picture of digital marketing. i will say also the experts in the food marketing area and i'm working closely with a number of them, because of the concerns about childhood obesity and the role of food marketing in that crisis had begun to pay more attention to the digital marketplace and i have been doing a lot of research in that area and in working with experts who are looking at adolescent development and the role of adolescents in the digital marketplace because they very much are at risk for childhood obesity and they are not necessarily in a position to be asking their parents about their

decisions about food. and, we know that many of those food marketers are using behavioral targeting and behavioral profiling to target and interactive games and other kinds of on line settings. precisely those kids who may be most vulnerable to that kind of marketing. so we are working with a number of people to conduct more research in that area. i would be happy to supply the committee with some of that research. >> i would like to see that. when you are talking about marketing, give me a scenario where that works. it sounds like to me that some kid may be walking down the street and there is a fast food restaurant and he may get a message on his or her phone that they should go in there. they get a coupon or something. >> that is where location marketing is going and first of all you know who the individual consumer is and as we are finding, it isn't always necessary to even know the name.

you simply need to know who that person is, using that particular mobilephone and put the ages and the other demographic characteristics as well as the behavioral characteristics, what kind of sites they go to an massive amount of data that are being pulled together by various tracking technologies and yes, the idea and we have seen some trials with this, with some of the fast food companies, would be that when you are near that restaurant, you would get a coupon that could say, you can get a discount for this particular product. we are also looking at interactive games and the kinds of behavioral profiling and targeting that is going on there. let's say you are a pizza lover. you are also addicted to interactive games and interactive games on line can then target you when you are most aroused by the game and

offer you pizza and even provide you with direct access to an on line site to order that pizza. we know also we are looking at i felt that enable you to order things right away so it is this kind of impulse buying. all that is tied into behavioral targeting. >> let me ask a follow-up there. you mentioned the iphone which is an apple product. so you have the manufacturer of the phone, but also what about the wireless companies, the cell phone companies themselves, the at&t's and verizon's of the world. are they providing this type of information to marketers? are they giving age and things like that? do we know that? >> mark you may be able to answer that better but they fall under a certain set of policy-- that apply to those companies that are separate from some of the on line companies.

>> were not specifically aware of how the telephone companies collect the data on customers but there was a very interesting proposal to do a so-called deep packet inspection by internet service providers which would actually reach much more deeply into the personal activity of people on line, literally looking at all of the e-mail traffic they were sending and trying to take pointers to commercial activity. i do want to make one further comment. i think mr. sparapani was correct when he said earlier that facebook doesn't the close -- might disclose user data to advertisers. that is right that facebook does disclose user data to application developers so that when a facebook user installs a facebook app, a favorite city or snowball fight or whatever it is, facebook at that point is making a decision to send a lot of the users social graph over to that company and what they announced just recently had to do

something similar with third-party web sites like cnn and pandora. so it is not the whole story, i think at least in the situation to say in terms of facebook that the data doesn't go to advertisers. there are other ways the data is released. >> thank you and mrs. rich i have not forgotten about you. let me ask you a few questions. first, did you have any follow-ups to anything you heard he wanted to qualify? >> i do have one follow-up from mr. rotenberg's statement that i do agree wholeheartedly with coppa privacy is important and we are very proud of our enforcement record. just in the last year even six months, we brought for data security cases, which process close to 30 data security cases that we have brought. we have issued an on line behavioral advertising report in done at least one case involving

deceptive tracking. we have been a case is designed to promote the integrity of self-regulation and i could go on and provide you mr. chairman with more but i did want to comment on that. >> in your statement, you said, and let me see if i got this right. whether the rules of admission internet adequately encompasses certain technologies like mobile communications. is the ftc looking at what we even mean by internet today and the definition of internet and local technology? are you reevaluating all of that in light of the explanation? >> yes, there was a standard definition that was very sci-fi sounding that says we are using in the statute, the worldwide infrastructure and it is a very

strange definition, and it is not clear whether that encompasses traditional on line activities or whether it would extend to interactive activities that don't actually go through the internet. so, we are looking at that very seriously. >> knowing what you know now in terms of the technology but also what ftc has done with looking at the statute, would you recommend that the senate revisited some of those definitions in the underlying lower right now? >> we are taking a hard look at that and in a few months we will have the benefit of hopefully many comments on it and at that point we will figure out what her next movie is, whether it's something we can address or not address in the world, meaning we have the authority or something would have to come back to congress on. >> one of our staff guys here just gave me a little device

that is a nintendo ts. i don't know if it is his or his trials but it has a pokémon attached to it. it has a phone on it and i don't know if it plays music or exactly what, but obviously it is a little game and has a little game cartridge in it but it also very easily and very quickly allows the child to connect to the internet. it has the camera. you can do shopping in that type of thing, so you know, this is a device that obviously didn't exist just a few years ago and i guess i would encourage the ftc as you were looking at this to think through all of the applications and maybe not, you know, i think it is probably hard to make a list of all the devices that just the functionality of it. if it is connecting to the internet and if it is mobile and things like that, because hopefully electronics industry will continue to innovate and

will continue to do great things in bring great things on the market and hopefully when ftc goes through your process you will define things in such a way that he will work with us to define things in certain way that when new products like this come onto the market, the statute captures that and we don't get out of date. speak and i just say that we have two of those in our house, one for my 12-year-old and one for my 9-year-old. when it does access the internet, i think we would be safe to say that is covered, because it is accessing the internet of the question is, if they are just speaking to each other and not up to the internet, this functionality can go machine to machine, is that covered? >> right. it is just an example of things the federal trade commission has to think through. i could actually spend a lot more time asking questions

because this is a very interesting and i know our members here had to move bond to either speaking on the floor or other committee meetings they had to get to, so let me just do this at this point. let me just ask the panel if there is anything anyone would like to say before we close down the hearing, because we have had a little bit of back-and-forth and i just want to give everybody a chance to respond or make one last final point. is there anybody who wants to add anything? >> very briefly i want to thank you for holding this hearing. i think there are a lot of people who appreciate coppa and believe it plays an important role in safeguarding on line privacy but also feel given new technologies and new business practices something more probably needs to be done so this is a very good place to start that discussion. >> if i may say just briefly, i wanted to stress in my testimony that cop is mutual. the example you gave i think

ms. rich is exactly right, we may not need changes to the statute. i think the ftc probably has the flexibility to apply the internet very broadly to all those services that touch upon and are integrated into the internet so again i want to stress here my concerns are not with the ftc updating the rules consistent with the statute that simply not making broad changes to the statute that have greater consequences for speech. >> thank you. yes maam. >> i again tank of the committee for holding this hearing. it is very heartening for me to hear, having struggled with many others in the '90s to get this law passed, that it has been a success and i'm very pleased about that and i'm very pleased to be working with the ftc to ensure that coppa is able to address the continuing rapid changes in the digital marketplace, but again, i would just like to make a plea that we

as a society and as a government and the industry not ignore the needs of the nation's teenagers. >> i again would like to thank you for holding this hearing today and the members of the committee for participating. a lot of discussion today around kids in a lot of discussion today around teens, and the age is not currently by coppa. our position and a number of the other panelists that coppa not be the right-- the teens face on line are somewhat different from what younger children face and the sites are quite different in many cases but others have expressed the need for some legal protection for teens and we agree, so we would encourage the committee to continue to look at the privacy issue more generally but looking at privacy legislation that would address privacy protections for not only teens but for adults as well.

>> what is new from our special guest-- perspective since the dawn of coppa is we are entering a moment in the information for the first time when we actually have the opportunity for technology to re-instilled privacy through new tools and user control model that facebook and a number of companies like us are trying to put forward is a really bad thing and it actually holds real promise for user privacy. what is more difficult is getting users to understand the new tools and use them and a wise manner and to frankly find them and exercise them. is specially hard with teenagers so that is someplace we will expend energy but thank you again for holding this hearing. >> i will echo the thanks to you mr. chairman and the other panelists were engaging on these important issues and also say that we should have a lot more to report after her comment period closes and after we have our workshop in june so we look forward to talking some more.

>> thankthank you. out would like to ask the ftc one last question and that is as part of your evaluation are you also looking at your manpower/resources there at the commission? some of the witnesses have said if you had more resources you could do more enforcement and be more effective in enforcing coppa. are you all evaluating that as well? ps we are. >> can you come back to the senate with a recommendation on that? >> sure. sure. >> thank you very much. in closing i would like to say we are going to be the record open for two weeks so don't be surprised if some of the senators are the staff here want to submit to more questions because there are some i didn't go into because i have taken too much of your time already, but we will probably submit some of these over the next couple of weeks. we would ask you to get those back as quickly as he can and always work at their staff but

in closing i would like to say this is maybe one of those areas that i think senator wicker kind of alluded to earlier. there is an old abraham lincoln quote that says government should do for people but people can't do for themselves and this is an area where we want people participating in the marketplace and using this technology and enhancing their lives but we just have to make sure that that marketplace is secure, that the right to privacy parameters are they are, the right legal structure is there and in the right enforcement and we just have to make sure that marketplace is working because people can't do this themselves. i think there is a level of government, certainly the private industry has got a lot of good actors in it that there are some bad actors as well so we are trying to find that balance. anyway, thank you all for your participation today. i know chairman rockefeller appreciated and i do to abella subcommittees of thank you very much and with that, we will adjourn the meeting.

thank you. [inaudible conversations]

now i senate hearing on the fy2011 budget request for amtrak and the federal railroad administration. we will hear about plans for high-speed rail projects and safety improvements. patty murray in washington chairs the appropriations subcommittee on transportation. this is just under two hours. >> on the president's budget request for the federal railroad administration and federal request of the national passenger railroad corporation or amtrak. we will be hearing testimony from two panels this morning. the first panel analogues of the administrator of the federal rail administration, mr. joseph szabo. the second panel will consist of three witnesses and tracks president ceo mr. joseph tan,

inspector general ted alves and deputy inspector general for the department of transportation ms. ann calvaresi barr. i want to welcome all of our witnesses at this time and thank you for being here this morning and i look forward to hearing all of your testimony. efficient rail transportation in america keiser communities together. it creates jobs and boost the economy reduces the prices of goods being shipped and it helps commuters around the country get to work. that is why i'm so glad this administration has expressed a level of interest in rail transportation we haven't seen in a long time. they understand the important role roe roots play in our transportation system. the subcommittee has seen too many budget request from previous administrations that would have guaranteed the bankruptcy of amtrak which would have been devastating to commanders in communities across the country. i know families in my home state of washington deeply value or amtrak service cascade line, has

set a new record for ridership is here and i personally heard from a lot of people who depend on it. i know communities around the country value their rail service as well. that is why i'm so glad to issue the request for a grant or amtrak which supports a railroad although it does not meet all the needs identified by amtrak itself. in addition the administration is requesting $1 billion for grants to support inner-city and high-speed rail. this funding builds on the $10.5 billion provided for these purposes through the fiscal year 2010 appropriations act and the american recovery and reinvestment act. including 590 million to improve high-speed rail in washington state. finally rail transportation is being included with roads and mass transit in discussions about the nation's larger network of transportation. in the recovery act we were able to provide states with the flexibility to invest their formula grants and freight and passenger rail. rail transportation is play

played an important part in the tiger grant program i thought to include but we still need to recognize all this work as well as recent proposals for additional funding is happening at a time when financial constraints are increasing and likely to become even greater. as families across the country look for ways to tighten our belts here in washington dd need to redouble our efforts to get spending under control and reduced our debt and deficit. that is why the budget president obama sent to congress freezes discretionary spending and the budget resolution passed in the senate budget committee goes a step further by reducing the spending by an additional $4 billion. rio to future generations to not burden them with debt that we also owe it to them to continue making the investments we know will strengthen our economy and make our country more competitive long-term. that is why i'm looking carefully for areas to cut spending and i also know that lower spending levels will make it more difficult for congress

and for this committee in particular to find ways to pay for important infrastructure programs. i know many people think the answer to this problem lies in funding-- winding a source of funding outside of the annual appropriations process. the highway program and the highway trust fund are offering easy examples of the dedicated and what is historically been a stable source of funding for transportation infrastructure but we should all understand that the financial constraints are just as real outside of the appropriations process. the highway trust fund has been threatened with insolvency for more than two years and we still have not seen any realistic proposal to stabilize the trust fund throughout the next authorization. not. the subcommittee is turned to appropriating funds directly from the general fund in order to provide additional investments in our nation's roads and transportation infrastructure during the current fiscal year. so there is no silver bullet and there is no way to avoid making difficult decisions in setting

priorities. while i believe the administration's budget request would make important investments in rail transportation there are still significant concerns that the subcommittee will have to consider for fiscal year 2011. the administration has failed to request any funding for positive train control and an important new technology for preventing rail collisions in derailment in the administration's budget request for grants to amtrak does not address the railroad to modernize its aging fleet. during this hearing will have the opportunity to look at those important issues. in addition we will be able to get additional details on the administration's effort to improve rail safety and its progress in implementing a risk-based safety program. however one of the biggest questions is how well the new leadership at the federal railroad administration and that amtrak can manage our investments in rail to transportation over the long-term. the very beginning of the obama administration the fra was passed with awarding a billion

dollars in grants for inner-city and high-speed rail. the program was brand-new and was part of the recovery act and needed to be set up immediately. added to these challenges the fra had never before administered such a significant grant programs. recent rail legislation has added significantly to the agency workload. authority to manage its responsibilities in building workforce that has skills necessary to successfully complete all of that work. amtrak also has new leadership and a new level of cooperation between its board and management team. they worked aggressively to complete a new strategic plan, build a system for prioritizing capital needs and develop a plan for modernizing its fleet. the real test of amtrak's leadership team will be at the railroad implemented its new plans. the subcommittee needs to see that the leadership at the fra in amtrak administrator program to manage their funding

effectively and responsibly. both organizations face significant challenges in the years ahead but we cannot afford to waste taxpayer dollars or squander this unique opportunity to make her prayer was work better for businesses and communities across the country. without i will turn it over to my ranking member, senator barnes. >> thank you and i join you in welcoming all of our witnesses today and i thank thank you for outlining the tremendous budget squeeze we are going to be facing this year. it is going to take a great deal of work to deal with the challenges we have in the limits which are placed on us. as the chair said, making an arty bad situation worse, the congressional budget office projects that the national debt will balloon to 90% of the economy by 20/20. if interest payments on the debt remain at the same interest rate level, we will have to pay

$800 billion. nobody knows anything about finance things we won't have a significantly increase in interest rates when our debt gets that hi. and other words we are drowning in debt, and the situation is going to get worse. the decision we make on the budget appropriations will be critical to future economic health of our nation and we have to find the right balance for spending and national priorities and madam chair, as you have already described, our general revenue programs compete against one another. transportation versus housing. both programs have, as well as compelling needs, and they seek to maximize funding for their priorities. ..

>> funding for housing programs that help the disabled. there's a need and great support in congress for them. how we balance those funding needs, both old and new programs and hud are difficult under whatever allocation we receive for the year. let alone in competition with substantial old and new transportation funding request and especially rail which are likely to require not just significant but huge increases in the subsequent fiscal year. i grew up as railroad fan.

i always loved trains. first time i got a chance. i loved it. i rode on the train. i got to be state governor for amtrak. there was nothing more fun than making any fun to jefferson city or state fair. i come here as a real fan. if we increase funds for transportation projects like amtrak when we have the other needs, we are in a very real way and danger of railroading the poor to pay for pail rather than housing programs. and housing programs are not optional. we have people who depend on housing. we can't walk away from them. i think it's important first to take a look at the unprecedented amount of money that rail projects that received. no one can deny there's a lot of money going to fund the rail these days, filing the passage

of the arra. in fact, the biggest winner government wide has been the fra. they are trying to manage grants when the passenger rail and investment improvement act of 2008 was signed into law. who would have anticipated paid for by the american taxpayer. these are not dedicated funds. these are general funds paid by all of our taxpayers. amtrak received a record $1.3 billion in '09 by high speed rail received $8 billion with an additional 2.5 billion in 2010. they had some experience. but a whole now $10.5 bill and all of the safety programs they are responsible for over seeing has to be a work in progress for

any administration. the sudden new inflex of billions of taxpayers dollars. i want to assure american taxpayers not only getting what they are paying for, but also know what they are paying for. with billions of more taxpayers dollars poored into amtrak, i want to ensure that these dollars are not victims of waste, fraud, and abuse. to ensure that taxpayers get the over sight and transparency they deserve. i asked the general accounting office to review the first 8 billion rewarded for high speed rail grants. i believe the american taxpayers need to know how the administration chooses the projects to fund with their money. that includes how projects are reviewed, ranked, and scored within the department. taxpayers also deserve to know how the department described the criteria. they need to know how the score is given to those selected and

which were rejected for funding. it's critical to under the nature and what extent they represent the departure from or a continuation of existing rail service and networks and how they will fit into the national rail plan through the committee on september 15 this year. what's the future of rail in america? what does the unprecedented amount of new funding mean? this to me is a very important question. the american public and private sector are unclear if the recent funding in america is a blimp or rail is here to stay. are we looking to fund beyond the $1 billion for high speed rail? are we supportive which over the period of 2040 will cost approximately $23 billion in '09 dollars. when taxpayers dollars are already scarce. where's the money coming from? come at the expense of critical

programs under hud or the funding needs of traditional transportation programs like highways, roads, and bridges. last year $1.5 turned into $1.5 -- $2.5 billion without any details or plans for the national infrastructure bank. when the national infrastructure bank failed to get needed support, we have general fund money on the table in my view should have gone to critical programs to help struggling families rather than the rail industry. if congress goes further to fund this year, we're definitely railroading the poor to pay for passenger rail. especially true this year when there's not a unified rail plan that includes passenger rail, high speed rail, amtrak, and a cost to complete estimate. right now when it comes to rail, no one has a complete picture. we're looking, what we're

looking to build. a map of the plan. how are we going to pay for it? how much will it cost? under last year, we're supposed to get the plan on september 15th. plans you can take a map which had been identified as high speed rail investment for the administration. we need cost estimates for these quarters and we should have benchmarks on an idea of how improvements along existing rail networks will benefiting the traveling public. they have to be integrated with the plans and existing lines. we should know the full cost of the equipment necessary to run the system. today, to be quite honest despite our inquiries we done know how much we're building, how much it will cost and whether rail investment in america is here to stay without dedicated funds because the cost seems to be going out the roof. the proposal so far has been a hand out with general revenue

when our country as i've indicated earlier is going further and further into debt. the worst part is under the recovery act in grants in 2010, we don't even know what they are building and whether the use of taxpayer dollars is appropriate because we don't have a plan. in march, secretary lahood testified before us on the budget and claimed that quote, when president eisenhower signed the bill, nobody knew how we were going to pay for all of it. i'm not going to sit here and tell you we know where all of the money is going to come from. i was impressed with that statement. it turned out that statement is false. according to research done by transportation weekly, the national interstate map predicted the act by 10 years. the 1944 highway act directed 48 states to designate jointly a

map for a national system of interstates up to 40,000 miles. the state designated 37,700 miles. and the map was approved by congress in august of '47. the map remained unchanged although added miles had been added throughout the year. on the cost of the map, congress did have an idea. because they acted of department of commerce to conduct a cost study and submit it by february '95. they required an updated state by state of the interstate system every four years. your national rail plan including detail map, a cost to complete estimate, i'm afraid i must assume the answer to those questions is no? for that reason in this appropriations bill, i ask that you provide us with a description of the funds

necessary for you to complete a true cost, at a true cost to complete the study map. we have to have that. in addition, i'd like your input, mr. administrator within or how much you believe it would be cost and how much it can be worked into the plans of completion. until we have this information, in my view, it would be inresponsible for the committee to get the high speed rail program any additional funds. along with the high speed rail plan we have amtrak which should be included in the rail plan. i think you would agree. i think the department would include the capital needs and requirements. i'm pleased for the first time, amtrak submitted the capital budget plan. however, as soon as we get a plan, we find an addendum to the plan. which is a sizable investment of $446 million in the amtrak fleet. is amtrak going to amend the

budget to include fleet? where we can see new fleet versus amtrak require manies and americans are disable act requirements, when we are dealing with the general fund we need to answer the questions before we provide the resources. amtrak send their addendum on march 212. it's not been -- march 22. it's not been cleared by omb. these are additional capitol funds amtrak is seeking for its aging fleet. it's not included in all of the planning. and included on the budget which we have to work. i'm thankful -- don't get me wrong, they finally submitted a fleet plan. at least there's a plan and cost to complete estimate unlike the national rail and high speed rail. there are no funding sources other than general funds and loans paid with paid interest by the general fund. in other words, these loans are going to be a burden on future

general revenue. once again amtrak is competing with hud. and potentially other forms of transportation. and potentially railroading the poor if the subcommittee agrees to pay $446 million in additional capital or agrees to incur original debt using general funds for loans they make take out in fleet on 2011 and beyond. all of these resources should be contained in one comprehensive national rail plan. if you agree with amtrak rail fleet, congress will agree over the next 30 years to pay for $23 billion in 2009 dollars. $46 billion in excoo -- escaladed and which is taken, it will be costly at the same time we're attempting to build high speed rail. and in the mind of the

administration, enhance state service of passenger oil. what's the priority? we have to establish some priorities. rail supporters have to know there are limits even in the best of the time in the pie in the sky request and other who are rail plans. given our current deficit, you have to admit the initial request in the budget and capital plan is inappropriate. why is amtrak asking for replacement for locomotives and single level long distance cars. replacing aging might be acceptable. because at least they are operating on a much lower cost her mile and per passenger subsidy. but long distance service last year only had $1.7 million with a cost of $15 . replacement of long distance in '09 is $4 billion. these are the most costly routes

on the current amtrak system. amtrak is proposing to ask for some of these cars first. where is the proposed money supposed to come from? will it be taxpayers at the expansion of the poor? if amtrak chooses to go the lone route, they will have to pay for service in the future. we are really bulking the poor to pay for future. long after i have stepped aside, general funds will be needed for funding decisions that will be made now. my closing note is all of this doesn't even touch the safety side and unmatched funding needs for positive train control by 2015. last year the committee provided 50 million in grants. the new regulation is estimated to cost upwards of $13 billion to $15 billion for the rail and there's nothing in the budget for the safety program. well, that $12 trillion in

federal budget, we can't throw federal funds at projects willy-nilly. we need to answer the tough questions. we need a road map for the future. and we need the balance scarce taxpayers dollars. i apologize, madame chair, for the time, but i think the magnitude of the problems, of the problems that we face deserve some answers. with that, i look forward to the testimony of the administrator. >> thank you very much, senator bond, i appreciate it. mr. stable we will turn to you for your opening statements. >> thank you, very much madame chair, and members of the subcommittee. i appreciate the opportunity to appear before you today for the fiscal year 2011 request. our $2.9 billion reflects the commitment to keeping the system safe and supports the pledge to provide the public with sound

transportation alternatives to flying or driving. without question, this is a transformational time at fra. the impact of the rail safety growth act which requires more than 40 rulemaking studies and reports, the passage of the passage rail and its new initiatives and bringing the states in as partners. and then, of course, the american recovery and reinvestment act has just set about an unprecedented time at our agency. over the past year, fra has executed its rail safety regulatory mission while simultaneously implementing an entirely new line of business. the design and management of the multimillion high speed rail grant program. this transportation does not come without obstacles, challenges, and lessons learned. considering fra's fiscal year 2011 budget request, i hope the

committee recognized the care that was taken to present a request that supports our key mission, rail safety. while also enhancing our capacity to manage high speed rail program. and i want to emphasize when we put the budget together, we didn't just look at last year's budget and start making adjustments. we started with a blank sheet of paper and started from scratching with looking at all of our new requirements and priorities. and from there developing a fresh budget. for fiscal year 2011 we're proposing a strong blend of safety program enhancements and technical budget changes. currently all of fra administrative and operational expenditures and several safety related programs are funded under a single account entitled safety and operations. in fiscal year 2011, we propose to eliminate the account and break it into two new accounts,

railroad safety and federal railroad operation. the proposed new account structure is more transparent and will provide greater insight into the cost of fra safety specific program activity and internal administrative operations. programmatically, under the new rail safety account, a total of $49.5 million is requested to carry out the mission critical railroad safety functions and activities. a total of $153.8 million and $948 are requested under the new federal railroad operation account to fund the administrative activities such as payroll, infrastructure, and other shared cost and provide the necessary human resources to ensure sound stewardship of the safety programs. this includes 62 new position that will enable fra to make

progress on the administration's high speed rail initiative. finally, fra budget activity include the rail safety user fee which is modeled after the fra administered fee in 1991 and 1995. fra estimated that $50 billion could be generated for the salaries and benefit cost of up to 330 of our rail safety inspectors across the country. a total of $40 million is requested to support fra railroad research and development program. specifically, in fiscal year 2011, fra will focus added resources on the system safety, train controlled testing and evaluations, and newly authorized rail cooperative research program. although the foundation for a federal-state partnership began, that's truly advance the high speed rail initiative. this year $1 billion continues

funding to advance passenger rail infrastructure and includes up to $50 million for program administration and over sight activities, $50 million for planning grants and $30 million for high speed rail research and development. fra and amtrak has shared a strong partnership for decades. the fiscal year 2011 for amtrak which totals 1.63 is the continuing support of the relationship. within the over all request, $563 million is requested for amtrak operation and to support the ongoing efforts to reshape the company by undertaking meaningful reforms. a total of 1.052 is requested for the capital needs and debt service. this includes $281 million to finance the ada requirements. finally, 22 million is requested for a direct grant to the amtrak

office of the inspector general. the past 18 months have just been filled with exciting but challenges at fra. but it's been a great challenge. even though it's been a challenge, it's been fun. and we're continuing to enhance the safety of our nation freight and passenger rail systems on the investment on the high speed passenger rail. with that, i look forward to the committee's questions. >> thank you very much. let me start by mentioning that last february they replaced some of the rail carts. as part of that plan, they requested $446 to fund the plan in fiscal year 2011. can you explain to the committee why the departments request are no additional funding for

replacing amtrak fleet? >> well, i think as you know, any time you are putting a budget together, there are a lot of very, very hard and difficult joyces. it's an excellent plan. it's a good vision. it has the opportunity to invigorate domestic manufacturing. we're sitting down with amtrak and trying to discuss the financing alternatives. >> well, they have structured their fleet plan so that it can support the domestic industry by spreading the orders over 30 year period. their demand for rail equipment maybe large enough and reliable enough to actually support the domestic industry. right now we don't have domestic manufacturing of rail equipment. but that could help revitalize the sector of american manufacturing and support the kinds of jobs we all want to see to get our economy back on

track. for this plan to work, manufacturers have to believe that it is going to be a reliable source of funding for its rail orders. i know they are looking for a variety of ways to pay from this committee and understand that it may apply for a loan through the fra program. can you share us with what kind of financing you think would help give our manufacturer the kind of insurance in the future? >> let me say first i think you are on the mark with manufacturing, there needs to be the believe that this is going to be sustainable. you know, the secretary pulled in all rail manufacturers into the summit over at the d.o.t. back in december. if we heard one thing, it was

clearly articulated the need to insure the orders could be excited about the areas. you're not going through the peaks and valley. if the orders were truly smoothed out over a period of time, they believed it was sustainable. that this would be what it would take to take the investment as a businessman that they would need to make in the plan and equipment and sink these cost into establishing these types of facilities here in the united states. as far as the financing solutions, again, we're at the table with amtrak. i think it's going to have to take a blend. i'm not sure that there's this one single silver bullet that's going to, you know, just solve all of the problems for financing the other plan, but, you know, certainly there's the potential for possible a rif loan, commercial lending. i think we need to take a look at all of the alternatives and

make sure that we come up with a sound financing plan. this is really important. that's what we do and we believe in it. we have to have consistent priorities and know it's going to be there to begin to development that. if we get a funding source, we won't know what's going to happen next year but we fund it this year? i don't think it's going to be enough for the manufacturing to make the kind of investments. would you agree? >> i would agree. your marks align with what we heard in the-ing. they need to know there's stability. >> what i'm saying is we need to van concrete plan not just for the the budget but for the future. >> i agree there needs to be the

appropriate mix. we need to find what the appropriate mix is. >> under the rail safety and improvement act, they are supposed to display the positive train controls by 2015. we know that's an important safety technology designed to prevent derailmented. but this is going to cost billions of dollars. what -- what -- now you announced i think $50 million in 2010 for rail safety technology. i want to know what you hope to accomplish with that funding and what are some of the additional challenges that need to be resolved so we can deploy the ptc? >> well, what we intend to do with the initial 50 million is instead of giving grants out to a single railroad or a small combination of railroads, using it for those kinds of things that can be broadly shared, those initial cost that in essence would benefit the

industry as a whole. and so frankly, that was part of the reason why we didn't make an additional request for 2011. we wanted the opportunity to roll out the initial 50 million in 2010, kind of test the waters with that. and then the opportunity exist for these broader-based funding programs that the d.o.t., where it's the tiger grants or through the high speed rail program or through the proposed infrastructure bank or for the funding of positive train control. >> well, senator, as i have mentioned were we're talking about billions of dollars. do you have a plan how to get there? >> at this point, the funding requirements below to the railroads. certainly we are looking at those alternatives that might offer some help. but again the responsibility at this point belongs to those rail

carriers that they regulation applies to. >> well, according to fra's regulations, railroads have to deploy positive train control on any line that carried passengers or certain hazardous materials into 2008. but for a lot of reasons, these routes shift before the 2015 deadline that's coming at us. in that case, the original rush now for deploying positive train control in those lines may not longer exist. now railroads will be given the opportunity, as i understand, to apply for an exemption to the ptc requirement along those railroads. can you share with the committee what criteria you will use to determine whether or not to grant the exception. >> the key is it's all about safety. there has to be the baseline from where you start. so we believe the regulation that we have drafted has the sufficient level of flexibility that we start with where we're

at today. but as those routes change, there's the ability to come in and verify, you know, the carriers would need to verify to united states the facts that the routes have changed. it allows for the appropriate level of checks and balances that as modifications are made for us to ensure that there are the appropriate modifications and the public safety is maintained. >> thank you very much. senator bond? >> thank you very much, mr. administrator. i am concerned that you talked about we need to find some alternatives. we don't know what they are. we have a request for $446 million out of the -- outside of the budget for omb's budget. for amtrak. and yet we don't -- we don't know how that's going to be paid for? we don't have our budget allocation.

and i can guarantee you, they were going to have to start making some hard choices because there are a whole lot of wonderful things out there for railroad. :

programs are perhaps not meeting the february 172011 timeline. would you comment on the side they provided in making this grant, making the grants to amtrak? >> let me say first of all i had a sit-down with the amtrak just this week and we discussed some of the findings in the report and we welcome that. that's the purpose of the ig. whether the problems exist today or whether it is potential developing and identify ones they have concern with regarding

the extraordinary measures they are her requiring from who double overtime i think with a citizen has the potential. we are comfortable through our discussion with amtrak and the oversight we are providing the we will achieve that appropriate balance between the need to quickly create jobs because that was the intent of these projects. we will also ensure there isn't any waste. >> what did you -- have you ever took that on denied contract? >> i don't know i can get to that answer. i have not but we can get an answer of what the history is on that. >> maybe you can tell what criteria you used, what judgment you exercise making the money available if you could provide that for the record.

what criteria do you go through before making those to amtrak. >> definitely. >> and in your view should the five-year capital plan include fleet, other assets and the requirements among the comprehensive fleet plan? is that going to be part of the plan? >> let me say this, one of the challenges historical in preparing our budget request is that historically it has been a mismatched cycle between the frn budget request and the budget amtrak has prepared and good news is under the leadership they are the financial officer that is changing which means the budget cycle would be more in sync with hours so in the future when they make this budget application to this committee it will be based on more sound facts rather than us trying to

estimate what we believe amtrak might need and then the budget developed too late. >> i suggest that is your problem, not ours. >> we are up against the wall now. in your budget request are there things that you have submitted many would like to reduce the offset to cover some of the 446 million requests for amtrak? >> we believe we have a very sound budget request -- >> so we should absolutely ignored the requests for amtrak? >> i don't think you ever ignore any information. >> please allow me to answer. else i said when we developed our budget there's always difficult choices that we have

to make. so we make some decisions and present our vision to you but that doesn't mean that you should ever ignore new information or additional information or different information somebody else brings to you. >> i assure you mr. administrator we will have to do that. but what we want to have going in is your best assessment if you think the budget should be amended to take account of the 446 million-dollar request from amtrak or some part of it we will ask you to provide that to us because at least we would have some grounds to know. we need to look at your budget request as a whole. we are coming in in and day gives us mixed signals on what the administration's properties are and based on what you've said and we have seen in the

past, i would have to say that this committee is being asked by the administration to fund other things but not at the exclusion of the amtrak request so that is something you are going to have to resolve as well as using some of the requests for locomotives on the northeast corridor should be included and other projects that you've requested should be eliminated to make room for. and finally coming your telling me that the train control and all of that is totally the freight rail, for 13 days and the 15 day is the freight rail responsibility and you're not going to recommend money for it? >> what i said is we do have other funding alternatives that are available through these broad based transportation programs but there is the tiger grant process for the passenger rail or the high-speed rail through the proposed infrastructure banks or even

through risk loans so we do have alternatives but again the responsibility that we can get some help, we can give some help but the responsibility does remain with those carriers. >> i hope that we will see that in the plan and i'm sure that the carriers will want to know how much will be expected to pick up. thank you. >> senator lautenberg. >> thanks, madam chairman. one thing i think if it is generally acknowledged and that is amtrak is critical for our society to function. critical. and when you see a disaster like september 11th or hurricane katrina it is amtrak that is called upon to move americans out of harm's way and in the northeast corridor, amtrak operates the only high-speed rail service in the country and as a matter of fact, if we didn't have amtrak running bear

in the northeast corridor you would have to run 243 more everyday with congested airspace in the country. you also have to add 30,000 more cars, 30,000 more cars and highway i-95. amtrak offers so many positive additions to our well-being and included in that is a commitment that all of us make here and that is to create jobs in this society. and you're not going to be able to do this overnight to get how long does it take you think mr. szabo from the time the equipment is ordered until the time it is delivered? >> actually he can probably give you more line on that i would say -- would we have, about a year? [inaudible conversations] roughly three years.

>> roughly three years. and the fact of the matter is that as we look at what amtrak has reduces our dependence on foreign leal and reduces pollution. it adds so many things and also says you can get there on time. surprise you can get where you're going on time. 90% of time if you take amtrak. i took an airplane the other day and was a 45 minute flight of to the laguardia airport but it took an hour and have to take off so that made the 45 minute flight a heckuva lot longer. amtrak cars rapidly deteriorated. the average age of an amtrak passenger car is over 24-years-old. and some are more than 60-years-old. the fact i regard that as young as not to do with what happens in the car. [laughter] and i ask you how essential is

it in your judgment for us to get replacements for the cars we have on the road right now in order for amtrak to be the functioning road we would like to see? is it important? >> i would say it is important from a safety standpoint as well as a reliable that the standpoint. >> is it critical would use a? >> it is getting very close to critical. >> it is not yet a criticality? mr. szabo, you are too well informed not to be able to share that. riding the real world, do you ever take the railroad? >> every chance i can get. >> how often is that? >> i would say a couple of times a month. now that i am not here in d.c. a couple of times a month.

>> why do it every week, and i can tell you my handwriting was never my best skill but when i get off of the amtrak train and i try to write some things that i have to take care of, it's not very readable because it shakes, rattles and rolls and it is ridiculous if we want to make this railroad a thing that america should be proud of like china or spain or countries that are far less able to do these things than we are coming and we are like a third or even a fourth rate country in terms of railroad. it is simple what happens with us. so, i agree with my colleagues here when we talk about replacing equipment. we need that 400 plus million dollars for new a command and we have got to get those orders out there. how much tax does it require on

the barrel to get the order skilling? when you pay the deposit, you know, like to want to buy a car you pay the deposit. >> it would be roughly $70 million. >> okay. that sounds like a start to me and we ought to work like the devil. i have heard you say that there is no silver bullet and these are difficult decisions. all of those deals are interesting but they don't get the job done. and so, i received a law that mandated real words install positive train controls on certain routes by the end of 2015 and created a grant program that helped the railroads meet the safety requirement. however the president's budget eliminates funding for this critical grant program.

what is the administration going to do to help public and private railroads meet this deadline? are they going to do anything about it? >> yes, again, we would have funding available through potentially the tiger program for the passenger rail possibly the high-speed rail program, the proposed infrastructure bank and potentially through the loans so we do believe there is some options out there. >> do you have any idea as to the amount of the funding that might be available? >> well again, it would depend on the amount of tighter money that is made available. these different pools they would vary over time. >> everything depends on something else. we know that. >> in my state of new jersey we have a bridge known as the portal bridge. it's over 100-years-old and the critical need of being refaced. one of the biggest factors is

and delay on the northeast corridor is the portal bridge. what is the plan to replace this bridges of high-speed rail service on the northeast corridor can be seriously developed? >> well, as i think you are aware through the high speed programs we have already allocated $38.5 million which is already being matched by 16.5 million from the state of new jersey from the final design of the replacement to the bridge and we will continue to work with the state dot to see what alternatives are appropriate. >> if i might, madam chair, just one last thing. the last environment intact statement for the northeast corridor was completed in 1978. in order for the corridor to receive this kind of high-speed rail investment that it needs, this assessment will need to be last year, as provided

$15 million to the barp mass transportation to move forward on this assessment. you know the status of this review is and when i will be complete? >> yes, the secretary has asked for submissions from the governors to establish to the northeast or study commission. that has been established and will be putting together the appropriate plans to bring the corridor to the next step to the next level. >> we are committed to that. >> madam share, thank you ramage. some of that we will have the record open so that we can submit questions. >> absolutely. thank you. >> mr. szabo, funding for high-speed rail has changed the work load at the fra and we cannot forget the fra is a safety organization. you are requesting 26 new positions for the inspectors and rail safety staff. can you describe your work force strategy for these positions?

>> roughly half of those will be field inspectors and then the remaining will be the headquarters utilize to make a shift away -- we have to always maintain a strong inspection program while we also should the more creative approach is through the risk reduction programs and the direction the congress sent under the safety improvements act so the remaining half would be the bench strength that we need to put together our new safety initiatives. >> you've proposed covering part of the $50 million fee for the industry. it's a lot of money especially when we are asking them to do the positive train control. can you expand a rationale for the choosing of the fees'? >> it isn't unprecedented when it comes to safety inside the d.o.t. model and the is it utilized in a couple of other modes but there is also some

history of using it at fra as you might be aware we have such a user fee through the band 90's from 90 to 95 so there is a basis for doing this and we believe it is appropriate to try to come up with revenue sources in that in some way we try to supplement the cost of the railroad safety program. again it is about public safety ensuring we have the resources and inspectors we need to keep the nation's railroad safe. >> in another arena before the recovery act states didn't extract several government to provide a significant amount of money for high-speed $10.5 billion to the inner city rail. that is an important long-term investment. we all know that it's not realistic to expect high-speed rail corridors to began operation in the next year but can you give an idea of what time frame you think will be

necessary to see the development of the high-speed quarters in the beginning of the service? >> it to keep the cony to keep in mind the congress developed the program as a state driven process so it's the states in their regions them develop their vision for their surface and then they apply to the federal government for the capitol money to construct and i beseech of those states and regions earned a different maturity level as far as where they are red with their plans. in the case of those that got some of the early awards these are state dot is that have been investing and planning in the state programs for many years in the case of california, the case of your state, washington state in the midwest, north carolina these states have been at this for almost a decade. 200-mile an hour service like california is going to take a long time to build out.

now there can be small pieces that can be up and running and carrying passengers much more quickly but frankly it is going to be projects more like the midwest plan. the midwest regional rail initiative that can have service at 110-mile an hour quickly in the next couple of years as it continues to go out and develop. washington state, too invested a billion dollars. can you tell much excuse for inner-city projects and how much for the high-speed quarters? >> under the 2.5 billion that we have rolled out this year we've allocated about 85% of that high-speed rail and roughly 15% more than the intercity project and if you take a look at the percentages on the 8 billion that we have put out a lot is a roughly 45% was in that category of true high-speed rail over 150 miles per hour roughly

another 40% went to what i would call a emerging high-speed rail those in the 110 to 125-mile per hour category and then roughly about 15% in to the smaller projects and conventional service so that seems to be a good balance, good match. >> in order to decide which projects were going to fund through the program will have to rely on forecasts of writer ship levels and revenues and coverage of the benefit project cost and so far we haven't seen the new development of strong requirements and i know that the department is starting to investigate the process. can you tell us what you are doing to make sure the grand awards are based on sound because of forecasts on costs and benefits? >> we do make these types of analysis, but again there has to be an acknowledgment that this

is a brand new program its in its infancy and less than a year's time -- >> are you developing those? >> precisely. and that is kind of why i go back to become a lot of it is about the lessons when it comes to the writer ship. >> you see this in writing? >> i think we will be developing rules but again we are just going through utilizing the guidance we need to get the first round under our belt and experience -- we have to execute the first round before we can start taking a look at weeks that need to be made in future routes. >> i have one more question. under the americans with disabilities act amtrak stations are successful by july 26 this this year and amtrak has already admitted it will not be able to meet that deadline and started a five-year effort to invest in

station improvements come into compliance. do you believe that over the years amtrak did everything it could have done to comply with the ada? >> as the committee is probably aware no administration has ever made a ada request on behalf of amtrak so it put them behind the eightball and that is one of the reasons we can forward this year and have in fact made the 22 million-dollar request to start funding those legitimate needs. >> senator bond? >> i would just note one thing as a former governor that looking to the states to make massive investments in high-speed rail is not going to happen anytime soon on till the states get out of the whole year and in california. give mentioned probably somewhere up between greece and

spain and having budget problems. but madame chair, i'm going to submit questions in writing for the record and i need to have a lot more specifics, amounts, not just we are going to work on a plan, but a plan criteria priority before i can support any of these requests i need to know how they fit in in the overall budget. thank you for your testimony. mr. administrator, we have other witnesses and we will be communicating with you. thank you. >> thank you for a much. that will conclude the questions at this time. there will be questions from the committee that we will need responses and writing. ank u for your testimony today and with that i'd like the second panel to come forward. >> thank you.

[inaudible conversations] >> i would like to welcome our second panel today and mr. gordon, we will begin with you. >> you want to turn your microphone on, please. >> thank you, madame share. i appreciate the opportunity to speak with you today. before i begin to discuss about

amtrak funding i would like to share with the committee some good news announced on april 8 amtrak is on page to break its annual writers should record to reading the best ever 13.6 million passengers in the first six months of its fiscal year and with his starkly busy summer travel season ahead march 2010 to march 2010 writer should increase by 13.5% to the record to .4 million passengers for the month. in addition set every single amtrak carried more passengers with several experiencing double-digit growth. for the more one of the important things to see today is that we have had other wins. a win with moody's has upgraded the rating for amtrak from 82 to a one. there's been a weakness is found in our audits this is the first

time since 2004 that that has occurred and writer ship on the long-distance trains increased by 16% in march is up 5.2% for the first two quarters of 2010 and every one of those services with the missouri river where senator bond as it is up by 22.4% for march and 15.8% for the first half of amtrak. cascades increase by 11.4% and march saw a 16.7% increase for the first six months of the fiscal year. these numbers reinforce what so many others know about passenger rail if you provide a safe and reliable user-friendly system the travelling public will use at. i would like to spend time talking about what i think is the most important piece of what we are asking for and i know that in the last hearing there were several questions on it and it is the amtrak equipment plan

and needs which is by your table right now. just as an introduction to fleet truly is the key for customer perception and willingness to use the system. the operating reliability is particularly important and the cost of maintaining the fleet is critically important for the future. the railroad belongs to you. it belongs to the united states. it belongs to the at penetration and the congress and for the last 40 years. we cover 80% of operating costs from revenue. we are the most efficient railroad in the united states. we covered non-of our capital costs. just like highways, capital support comes from the federal government and the payment on debt comes from the federal government and that will continue to be that way for as long as you the owners of the railroad decided to operate a

real road. amtrak suffered insufficient federal cattle investment over the full 40 years it's been here. the ada has been around 20 years in every administration has failed and every congress has failed to deliver what it passed as a law to fund the requirements. and it was not the case in the rest of the most. these are not fitted against the for the year put against highways and aviation and real. in the rail car fleet and locomotive feet the strategy, the average age has already said to be 25-years-old or more than 24 of it i think are the birds. the fleet needs to be recapitalized. domestic production is needed both from employment and to secure a nation as we enter a

march higher cost of energy for the future we need railroads and passenger railroads. on the first table just identifying for you the plan locomotive procurement you can see the red and yellow lines the yellow lines are the car and red wines are the locomotives and the two high marks on the yellow lines are when you replace the train sets like the services and that is why they are higher. in the second table what you see is the average annual miles in the thousands the cars out rate and on the far right what you find is like the amtrak cars 180,000 miles a year in comparison to all the trends of operators that are on this side of the table being the most 66,000 miles a year.

amtrak is much higher than any other operation in the united states period. and they are all older for the average locomotive mileage and what you see is the closest competitor and they are not a considered the ari host as being assessed which has an 83,000-mile annual locomotive use for amtrak has 160 almost double the mileage is by the private railroads. and the slide that yet in front of you as the last one because there is a snapshot of the presence and its the locomotives which is the alleged locomotive on the northeast corridor, the

seventh the 1980's category and utilization use of a couple of minutes ago, it is the heritage car that was built in the 1950's it is the g minor sleeper cars which are the newest ones on the fleet, the heritage diner which is the same donner i was for 1958 and this one was born in 1958 and it's one of the things that keeps the feet down on the northeast corridor. you can only operate 177 kilometers, that's 110 -- excuse me that is 110 miles per hour and when we'd replace these we will be able to immediately go to 200 kph or 125 miles per hour by replacing the older cars which then reduces the time to travel on the northeast corridor then the coaches in the lounge to eight cars from 81 to 83. this is the florida down a silver star camaro and i think it demonstrates what we need for fleet for the future. thank you for the opportunity to

speak. >> thank you for a much. >> good morning, madame chairman and ranking member and members of the subcommittee. the key for the opportunity to discuss and truck's 2011 badger request. i would like to start by thanking mr. crocker the chairman board of directors, president boardman and members of the committee for the support i have received the past five months of the new inspector general. i am also pleased to report that amtrak management and the oig agreed to in a policy and the inspector general of the credit administration found that the new policy is consistent with the letter and the spirit of the act. i want to thank the subcommittee for including it's very helpful requirement in last year's appropriation act. today i will discuss the significant opportunities amtrak

has to provide increased levels of high quality passenger rail service and for important challenges management must address to to get advantage of these opportunities. first, the opportunities. the passenger rail investment and improvement act to amend the changed amtrak's role within the national passenger rail system. rather than relying on amtrak through the full amount of the new interested passenger rail services alone, mccaul one states supported with federal grants to share and developing new corridor and high-speed rail services to read as a result amtrak will become one of the traces the states have to provide rail services frederick the and the only practical option.

the first challenges amtrak needs to organize properly and operate more efficiently. amtrak is making organizational changes to help it successfully compete for the new contracts and it has taken steps to operate more efficiently. to illustrate the company has made significant progress implementing reliable the decentered maintenance practices in response to the 2005 oig report. using reliability centered maintenance on the fleet reduce cuts and generate $16 million of new revenue in 2009. amtrak should continue applying the maintenance concept across the fleet. however, amtrak can do more. for example we recently identified opportunities to adopt european best practices including better asset management systems and more advanced technologies. second, and chuck needs to improve its human capital

management practices. in the may 2009 report we made several recommendations that management agreed to implement. as a result, amtrak is focusing on strategic work force planning including identifying its critical skills and competency is, implementing a total compensation philosophy and improving recruitment and retention practices. fully implementing these corrective actions will require a concerted effort over several years. third, significant i.t. investments always involves risk. amtrak has four major technology initiatives underway and has taken a number of measures to address the risks including establishing discipline procedures to guide the project management technology development forming an independent team to enforce the standards and implementing refuse to insure the projects meet quality standards before proceeding to the next

development phase. to ensure that the project stay on track and achieve the anticipated benefits, amtrak should closely watch the progress, address the emerging problems quickly. the fourth challenge is managing the risk associated with the recovery act project. specifically, amtrak may have to take measures that could reduce productivity, adversely impact product quality or significantly diminished railroad operations in order to finish some projects by february 2011. amtrak faces this issue in part because the terms of the fra grant or stricter than the terms in the act. the act requires amtrak to take measures to complete the project by february, 2011. the fra grant on the other hand requires amtrak to take continuing measures and even extraordinary measures to complete the projects by that

date. as projects face slippages from amtrak is now considering taking extraordinary measures to meet the completion date. these measures include adding a second and third ships which studies indicate have a negative impact on productivity and reducing the scope of the projects which reduces the benefits associated with the final product. although the term extraordinary measures has not been defined, we do not believe amtrak should take actions the would significantly reduce productivity, adversely impact the quality of the final products or significantly diminish the railroad operations. madame chair, this concludes my testimony and i would be happy to answer any questions. >> thank you very much. >> members of the subcommittee thank you for the invitation to discuss ongoing efforts to strengthen the nation's passenger rail network. as you know, recent legislation calls for significant investment in rail and investment that

demands rigorous oversight to ensure passenger rail goals are achieved and taxpayers' dollars are used wisely. my statement today focuses on fra's expanded role and responsibility under the safety improvements act. the challenges fra faces in effectively carrying out the new role and the progress they've made in improving the op capital management process these. together these mandates call for fra to develop from the ground up a multibillion-dollar high-speed rail program and to undertake several new safety and passenger rail service enhancement initiatives. among the past for fra are the development of the performance metrics for the minimum passenger rail service requirement such as on-time performance levels. and the establishment of the discretionary program to develop

and deploy a positive trend technologies. the present several shelters for fra especially as they relate to implementing the high-speed rail program. to ensure program success, fra must develop a sound implementation strategy. while fra has developed product selection criteria it has yet to provide a grant applicants with a detailed methodology needed to adequately complete their application. for the sample fra has not issued guidance on how to prepare forecasts of private writer should and revenue and public benefits and high speed and inner city passenger rail. without such guidance, fra isn't in the position to effectively assess the merits of the grant applications and ensure sustainability of the server. fra muscles to enhance the internal policy and practices in order to effectively oversee

these larger project grants. according to the osp, the planning at the ministry sean indolent. finally come fra can take adequate steps with the right skill mix to oversee programs and implementation. the recovery act like the accelerated fra's rollout of a high-speed program further exacerbating fra challenges. within ten months after its enactment fra was required to issue a strategic high-speed rail plan established guidance and process all applications for the $8 billion stimulus investments. balancing responsibilities with its traditional responsibilities create even more challenges for fra. for example pria requires fra to coordinate with public and private stakeholders to establish a national plan that

addresses in turkoman activity with other modes of transportation and inform the development of state real plans and recognizes the need for sustainable funding mechanism. at the same time, fra must not leave site of the traditional responsibility. chief among them ensuring the safety and oversight of amtrak. effectively managing these critical programs requires sustained focus and oversight by fra and the d.o.t.. we've begun to shift three versus accordingly. specifically we have underway and evaluation of best practices for for testing high-speed writer shiastan revenue costs and public benefits. an audit of infrastructure agreements between the states and the freight to ensure effective agreement addressed schedule and performance goals.

and a quantitative analysis of amtrak's delay that will help the fra ensure investments yield the highest returns. given the important role amtrak plays in the inner city passenger rail or work on the financial management is relative to the investors the established key performance indicators to measure both the efficiency and effectiveness of its operational and financial performance. for example, an attractive a lot across recovery indicator to measure the proportion of expenses covered by revenues and writer ship. this approach appears to be a more efficient way to monitor and improve operating and financial performance than its previous approach of tracking savings from specific reform. our ongoing work for -- specifically in check as to what

long term plans for fleet and infrastructure, transparent process of prioritizing its capital needs and guidance on to investing post reviews of its capital investment will clearly amtrak success changes and effective implementation. in closing while we are dedicating additional resources to oversee the fra and its expanded role we are encouraged the amtrak oig under its leadership will enhance its oversight of amtrak related work. chairman murray, this concludes my prepared statement and i would be happy to answer any questions that you were other members of the subcommittee may have. thank you. >> thank you very much. mr. boardman, under the amtrak leadership we've seen important improvements in how the railroad has been managed and instead of limiting its focus the management team now has a strategic vision that started to

look at more long term planning. amtrak plan reflects the new creditor on strategic decision making but amtrak is still making requests for its capital plan and its fleet plan. if you do not get all of the funding that you requested for the fiscal year 2011 how will you decide on the two separate plans? >> we've been looking at ideas you are referring to basically we are almost a billion dollars over where the request came in from the administration and its accounted for all in capital. we are talking of a fleet and all the projects that are capital related on the northeast corridor and on the ada and all of the other projects needed so as amtrak has done in the past and needs to look today to the future we look at every opportunity to gain of those dollars every of them being the

preparation process and i think the administrator talked about it a little bit we are in discussion with the administration about either a federal loan or even going out into the commercial markets to borrow money. but in the end it all comes back to congress because all capital is subsidized by congress in one fashion form or another just like all capital for the highway or the aviation side is subsidized through congress. the of the different on methodology and the of a program that provides user funds for highways but those most also dustin to the transit which are not necessarily and i think we talked to the little bit earlier they are not paid for by the transit rider they are paid for under the same structure that the highway receives and in the same way that aviation receives those funds it comes back to the congress and making the decision. the need for amtrak is to put on the table to the congress with

the capitol needs are and we haven't been bashful about doing that because we need to rebuild the real world. >> in addition to replacing your aging locomotives and rail cars, as i talked about earlier, this could revitalize the domestic industry from manufacturing rail equipment and it really helped on focusing on manufacturing jobs here in the country. but realizing that goal as i mentioned earlier is going to require companies to have the confidence that amtrak has reliable long-term funding for the fleet plan. what will it take to you before the u.s. manufacturers to believe passenger equipment is a viable line of business? >> the commercial television sets by my product, fund my plan. >> they will need to know -- sprick there is a new understanding across the world today i think that we are in a

very different competitive environment for not only the economy but for enemy for the future and every country today is looking at how are they going to solve this problem and the rail becomes a key part of that. we've already seen that as a key part of it in terms of what the investments are with transit that transit needs to be connected to the rest of the world. or to the rest of the country. there are two key elements amtrak brings to the table. one is its work force, a key competitive advantage and the people that operate the road and know what needs to be done and the other is the connectivity across the country often down from border to border and coast-to-coast. this railroad will be a key reason why this nation can live in a more prosperous position in the future. >> so what you're saying is we have that goal as a country had its consistent and will send a message to domestic manufacturers that were in it. >> yes and i think that message is already getting there.

islamic in the past amtrak has purchased equipment from the company based in canada. is amtrak purchasing services and will let in the near term? >> yes, we continue to enhance relationship with ge and other manufacturers across the united states. >> and a stand that amtrak is still trying to decide on the best strategy for replacing the fleet which was originally provided. one option is to purchase additional cars to the fleet in order to expand capacity along the northeast corner or even though the new cards would be replaced after just a couple of years along with the original set of feet. how likely is it that amtrak would purchase additional cars before updating of the equipment for the northeast corridor? >> what we really looked at is that the fleet on the northeast corridor naturally covers 121%

of the costs so you are making money as compared to other modes and services on the corridor. so we looked at that we can improve the amount of revenue and enhance the writers should if we can extend the number of trains we operated that were like the train sets. so the opportunity is for us to increase our revenues if we can find about five train sets that we could add for high-speed service. certainly the services that you're existing are a proven design and we don't have to spend the time to go through the testing of an entirely new technology to provide that service. so there is a great trying to find the right were up there is a great opportunity for us to be able to do that but we have not made the decision. we haven't decided that is what we are going to do.

>> in my opening statement i talked about the fact i'm glad the administration is not submitting a budget requests the but guarantee amtrak but the request for capital grants is still lower than the real world request by about $500 million. what impact would the administration budget have on your capital investment? >> what mike marshall ready products available for us to do for the future of the funding becomes available. and what i mean is that we have as every state dot has a free operation has a list of projects that need to be done especially when you have a five to 7 billion-dollar backlog just from the northeast corridor but there's a lot of other projects that could be done. i know that senator dorgan may be talking about one in particular so we have opportunities should the money becomes available to get a job done. >> what about on the operating side? the request is $40 million.

what is yours? that have an back services we are a way we can make sure the service is continue to be provided that some decisions for example i still get messages from those who read from albany to new york city asking when are we going to return a cafe car which we don't have on there in the longer we eliminated that in order to reduce costs. so it impacts us it's not as convenient for people to ride the service now as it was before. >> senter pond? >> thank you, madame chair. mr. speed we just heard the testimony of sickening and third ships are reducing productivity and compromising the work that is done. without the 1.3 billion of funds

were for the shovel 40 projects. were they not schoeppel ready? was amtrak not schoeppel ready? why have you had to take these extraordinary steps which apparently are more costly and less productive? >> i think all of the projects were schoeppel ready and i think that the i.t. did an excellent job looking at the risks along the way. but the projects that he looked at one of them was the ridge there were positive projects and there was a frequency converter replacement project and los angeles maintenance facility where the top five that they are worried about for risk. when you look at the number of points and the look at acquisition environment schedule the objectives, complexity financial human capital management and fraud what you end up with is ten points for the first three that they were worried about nine for the fourth and eight for the fifth

and when you look at the tent what you find is the risk is environmental and sizing complexity. the things that he found is it is costing us more as it does in every capital area was when you try to get it done as quickly as we were trying to get it done you had to put on a second or third -- -- that was the mistake trying to put time deadline on. there was a mistake in terms of cost productivity. so that is a signal not to put time lines on i would hope the requests that you have to have reasonable time lines that are achievable and i didn't have anything to do with that bill, so i can't speak to that. you mentioned you are taking a look at different types of funding for amtrak and you mentioned is high on the

priority list in the private markets correct me if i am wrong if you borrow that means this budget, this committee but will have to pay the interest costs and debt service every year so there will be a charge on this budget. are there any dedicated sources of funding that you are looking at outside of putting trains on to generate a profit making things profitable and will give you the money you need? >> no. all capital comes from the federal government. >> all i would urge you to find out ways to emphasize what is possible and the emphasize that which is not possible because we are up against the wall as you probably heard me say year earlier. >> none of it is profitable.

>> but it has to be less costly. >> and that is happening but even if it is less costly though, sir, it doesn't mean that we can pay the capitol. it means that we can pay the operation. sprick they come out of the same funds if you are looking york doesn't matter whether you call them capital or operating capital will compete with your operating with you have to compete with housing. let me turn to mr. alvez to read a two-part question. beneteau are new to the office and we welcome you. in 2009 amtrak outlined the strategic guidance document and i would like to know what is being implemented and to what extent amtrak managers were others are being held responsible for achieving the performance indicators that have been developed and are the affecting the promotion? >> i'm not sure i can for the answer that question but i will

do my best. the strategic guidance identifies the key things amtrak is trying to achieve and amtrak has been taking steps under the new performance measurement system to develop performance measures and goals for the key executives and then to flows through the system to support net -- >> do the time in between or is their performance for those who need it? >> i am not sure about a bonus but the rating and the pay is going to be tied to those measures. >> all right. welcome. you have spoken about the problems that apparently came from putting too much money, too

many requirements on fra, in other words i think i interest you safe to say a bunch of money was dumped on them a bunch of requirements that were impossible to meet and that's why there have been failures to achieve what is expected from fra. is that a fair assessment? >> i think this is what on the point i really want to make is looking at the fra and what its traditional role really was as a small regulatory agency that has been asked to transform into a larger grant making organization so not only do they have to issue their own grants and develop their own internal policy for good solid project management and oversight, but they have to oversee a larger grant operation on behalf of amtrak. overly that with all of the new safety requirements that can out

of the safety act as it relates to positive train control and americans with disabilities and a host of other things that is a big challenge. that is a hugely expanded role and i think that if i had to characterize what it's like it's like leading to design and implement at the same time. that's difficult. >> are they able to handle the responsibility, the resources and the demand they are expecting or are they able to handle that? >> i think they are on their way. they've requested but they're nowhere close to where they want to be. >> finally, who is going to be -- the d.o.t. on eg and tracked oig, how are you going to relate the role of the two? >> i can start first. we've had discussions about this attwell we are thrilled she is in place and can pick up traditionally what we have been

focused on some of the amtrak issues. the way i guess i would divide the response with the subtly out pretty well the challenges fra had before it and i think yourself, mr. samet turkoman indicated the national plan is something that needs to be looked at very closely. that would be something we would look at. we would look at the of the mandates and the requirements and how well they are overseeing the project oversight and we would hope that the amtrak would continue doing what he's doing looking at some of those internal policies and practices and management challenges of and for what with their new requirements. islamic you've got the amtrak ball. >> i would like to see a couple of words about this if i could. i agree with what she's saying and the amtrak ig has capable people and has done some very good work. but our focus needs to be on the

major challenges that amtrak faces and its strategic goals outlined in that strategic guidance and we have put together a new strategic plan that builds on that strategic guidance and basically directs us. our goal is going to be to spend much more of our resources addressing the major issues and so i think that will sit with what you're looking for. ..

we are talking about other charters. how is that going to be paid for? >> is that directed to me senator? good to see you. first of all i think there is a lot of those corridors that we can extend the use of our existing equipment. for example springfield, massachusetts new haven for example. that is one of the things that is being funded and certainly there has been a lot of activity about how that will get finance for the future. when we extended the corridor to lynchburg, virginia we were able to use equipment that was available that extended from the northeast corridor that provided that service but there are areas as you say, for example one of the corridors that i think has great promise is to know what

walkie to madison corridor for the future. that will require the rebuilding of the tracks and it will require additional equipment and you have a state that has made a strong commitment in regard to that, dean wisconsin and both in terms of equipment they would die and pay for in some cases on their own and also applying for and rebuilding the line between the walkie and madison or at least part of that line that they own. i think that is where the key for-- that the states have taken a leadership role in those corridors for the future was not only adding tracks and facilities but also with the equipment. we are there to help them but they are going to have to take a role in that process and also use the federal money that has become available. >> a question that arises here, i looked at this and one thing

that we all know here, whether we like to look back and talk about all of the years of neglect and investment that we made. if you compare what amtrak, what is happened with amtrak on an annual basis, i think it runs something over a billion dollars a year since the 70s when it became amtrak as we know it. when you look in other places, and $10 billion a year in germany, you get high-speed rail and they did it or go it doesn't do us a lot of good to beat our chests hear about that, but the fact of the matter is this has been a case of sheer neglect on our part to step up to the

plate. when you look at these amounts of money, this is something that is coming in out of the blue. it is trying to make up for some lost time. >> well said, sir. >> when we look at for instance -- i want to ask a couple of questions about equipment. you pretty well gave an endorsement to the continuation of buying bombardier a. equipment. how about maintenance costs? how about the durability of the equipment? because i have heard, chatting around, that the maintenance costs right now are outrageously high. is that because the equipment has been overworked? >> right now, and i don't mean to interrupt you here, right now we are actually rebuilding at 10

years of the cost right now is somewhat higher. we expect these train sets to last for 20 years. one of the things we did with the fleet plan was we begin to recognize there was a commercial life and then there was the useful life. there were no manufactures other them bum bombard the eighth bit really built for heavy duty, long-lasting inner-city rail cars in the united states so we really had to have a spec and i'm kind of mixing terms here but we really had to have a spec that was heavy duty for the future that would drive a domestic manufacturing. part of the reason we are committed is because we are committed to-- we have 20 train sets that are up rating and i want to get rings done and keep things moving and i truly believe right to my core that we are sitting on the precipice of huge increases in fuel costs and our need to deliver for our nation and for the community is

going to mean that we need to move faster. somebody asked a question earlier, how long does it take to get these cars in here? three years? and maybe if we push them, two years. we are at $80 a barrel and we are going to be headed to 100 wiley some estimates it may be beyond that. it is when that happens that you begin to see a total break down in the aviation business model for short distance and those are the kinds of things that railroads can provide in in the most efficient manner, so i don't want to say that we have to buy bombardier for the high-speed rail said and i want a new generation of high-speed rail that is opening competitive but right now in order for us to really move the way we think we need to move them, we need the relationships with bombardier and we also need relationships and we are improving our relationships with general electric for example that we have over 200 of our diesel

locomotives are general electric locomotives that we are improving our relationship with them so that they will become longer-lasting and we are looking at the potential for a new generation, tier 3. >> can we get any acceleration-- you held out some hope there and made me glad for a minute but in this environment it is pretty hard. the fact is, with new equipment, you projected a real shortening of the trip from here to new york for example. >> we believe time savings can be. >> the midlife repairs you talk about, does that give you the kind of equipment advantage that in any way enhances the amount of time that we have to go on the northeast corridor to get to a destination? >> some but it does not get us

up to the speedo of the the celd it is not going to improve the handwriting because we have to have that infrastructure fixed as well. >> thank you mr. boardman. >> mr. boardman, thank you for being here. senator lautenberg and i were just talking about the fact that both of us think you are doing a good job and we were reminiscing with mr. dunn who used to run amtrak who i thought was a superb leader as well but thanks were sinking your teeth into this. this is a big challenge because you have not gotten the money from congress for capital to do what is necessary. i was in russia recently and was on a fast train from moscow to st. petersburg and i'm thinking, wait a second, why isn't this a fast train with faster and better equipment in russia then here? it makes no sense to me. i'm a big supporter of amtrak.

i think rail passenger service is an important part of the transportation and i know we have some of us who believe we shouldn't do this at all. the private sector won't do it and it shouldn't be done. i'm not one of those. i think it is an important adjunct to america's transportation system. having said all that and complemented you sufficiently. >> is devils lake on your mind senator? >> estevez. you mentioned the empire builder is one of the most successful long-distance trains and the amtrak system. the senator from washington note that because that is where the empire builder ends up. over half a million people get on a train from chicago to seattle and go through north dakota. we face a problem, as you know we have chronic lake flooding that has been going on for a dozen years now in what is called devils lake, dramatic flooding. it is the only circumstance other than the great salt lake where you have a closed basin.

we don't quite understand where all of this is going to go but the lake has increased in height of 25 feet now and it continues to rise. this year's addicts-- is expected to rise again. we have a bridge near churches vary on a track on by burlington northern where amtrak slows down to 25 miles an hour in order to cross that bridge but if the water goes much higher, perhaps another foot and half you won't be able to go over that bridge. we met in january about that. i'm hoping that's quick action can be taken to begin the work to resolve that issue. i don't think you want to avoid stopping at grand forks, rugby along the route of the empire builder. you get a lot of traffic in that area so tell me where we are in your mind and what can we do to fix this and do it on an urgent basis? >> we have been regularly meeting with the state and

burlington northern and so forth and nobody has stood up and volunteered to pay for a new bridge for example which is perhaps understandable. but it is time. it is time for all the parties to decide what part of this do they need to help pay for and how do we move this forward? i would propose to you with your blessing i hope, that we need the state and a more structured way with our senior folks to find a way to not only design and engineer but finance the appropriate bridge that solves this problem for the future. >> the track in the bridge belonged to burlington northern? >> they do. >> what will the design of the engineering? >> you know what, i had it and i was supposed to remember it that it is gone. i can provide that to you for the record. i think the construction of the bridge was around $60 million

usually it is about 10% of that but i think it was between four and 6 million to design it and then maybe more difficult part for the future was we had to replace some rails for the future and maintain it, which brought the whole thing up to maybe in the 100,000 plus or minus category. >> 100 million you mean. >> 100 million, yes. if it was 100,000 we would take care of. i was trying to convert kilometers. [inaudible] we seldom hear numbers like that. let me make a suggestion. i wonder if perhaps we shouldn't do a conference call. my staff has been involved with all of these calls. we have had some weekly calls but frankly nothing is happening. nothing constructive is happening and i wonder if we shouldn't do a conference call with the ceo of burlington northern, mr. rose, yourself in

the governor and the congressional delegation and in that call decide who is going to do what when and how we are going to get this fixed. i worry very much and we could come up to a time. making just a matter of weeks when something could persuade, structural issues and others could persuade you that you can't any longer run that amtrak train through devils lake, north dakota. >> you are very persuasive to me in a meeting we had in january that i would continue. >> i tried to be convincing but let me suggest, i will talk you following this hearing. why do we put together a conference call of principles first, make some judgments there about who is going to do what and when. again, you want this railroad to run well or go you believe in passenger service, as do i and i think the chairman of the subcommittee i know has very strong feelings about it. you just heard senator

lautenberg and nobody has been stronger than senator lautenberg you understand you have got a very strong support in the vice president's office and we watched him as a senator spent a lot of time on amtrak as well. i really want you to succeed but we need to find a way to get enough capital into this rail passenger system so that you can make decisions in an immediate and longer-term. it is the only way we are going to get to where we want to be a in need to be. we have a healthy rail passenger system that works well. so let me again madam chairman thank you for the time and i look forward to talking to you either late today mr. boardman or tomorrow. we will set up that call. thank you very much. >> thank you very much. i have one final area and that is in fiscal year 2010 amtrak committed to spending $144 million on station improvements to bring the rail system into compliance with the

ada. the original budget request for 2011 included 281 million for the second year of its five-year plan for ada compliance but today amtrak is lowering that and-- estimates by $50 million because of difficulty getting money out the door and understand part of that is due to the fact that you don't own the facility but i wanted to ask you today mr. boardman if you still believe amtrak will be able to bring all the stations into compliance with the ada within the next five years? >> i don't know that we can chairwoman. i am not happy with my organization that reduced the amount from the 181 down to the 131 and i don't yet have the answers from them as to what we are going to do to make that five-year deadline. if we have to drop of $50 million right this minute for me to testify to you that we can deliver it in five years, i don't think would be the

appropriate thing for me to do. >> i just want you to know this is a high priority for me. this is about people's civil rights and it is not going to get easier in the next five years so i'm going to continue to press you on this. with that come, i don't believe we have any other members that have questions so i want to thank thank all their witnesses for their testimony and i will resist this hearing until may 6 at 910 to 30 and at that time we will be taking testimony from hud secretary donovan and lahood on the administration of fiscal budget request related to community livability and sustainability. thank you very much.

coming up next a house hearing on the future of tv cable boxes, tivo and other video navigation devices. >> now i house hearing on the

future of devices such as tivo and other video navigation technology. communications executives talk about the government's new push to expand broadband access. rick boucher of virginia chairs the commerce subcommittee on technology and communications. this is about an hour and 45 minutes. >> is subcommittee will come to order. good morning to everyone. today the subcommittee considers the steps that will be necessary in order to enable television viewers to go to electronic stores and shop for set top docsis, much the way that people shop for television sets today. set-top boxes would be made by a variety of manufacturers who would compete with each other and offering various features, such as digital recording or internet-based functionality, competition would also be based on the price of the box. some of the more capable devices could become the hub for a home

entertainment center, switching information of all kinds throughout the household. the boxes, whether simple or sophisticated, would all have the key capability that is not present today, and that is the ability to receive the input of television channels from any cable or satellite company, and then display those channels on television sets. if that capability is assured, set-top boxes will become competitively available and a tremendous amount of innovation would then occur as a design, the manufacture and marketing of set top docsis. tv viewers will be able to make a one-time purchase of a set top dogs and then keep it in service, even if they switch their cable provider. we have long tried to achieve the goal of making what we call

navigation devices competitively available. in fact our efforts dates from the telecommunications act of 1996 in which we directed adopt rules to assure plug-and-play capability between competitively available set top boxes and all systems. now almost 15 years later, that plug-and-play capability remains an elusive goal. this morning we consider the next step that should be taken to help us achieve it. in the national broadband plan, recently released by the fcc, the commission appropriately highlighted the need for a direct to consumer market for navigation devices and the benefits that these devices with tv inputs and internet access can bring to our overall effort to enhance broadband adoption. i was pleased that the fcc

published a notice of inquiry as a first step in assuring that by the end of 2012, all cable and satellite tv providers include with their services a simple gateway device that converts the cable or satellite companies tv signal into a common output that then could be processed by whatever set top dogs the viewer may own. in the shorter term the commission is receiving what they a notice of proposed rulemaking with the goal of addressing the shortcomings in the existing cable car program as an interim measure of-- until gateway devices are employed. the cable card is used by tivo which is the major provider of digital video recorders that today are available at retail for conditional access to cable programs. a workable cable car system could bring other providers into this market as well.

to date the cable card regime has been riddled with complications. first the installation of cable card specifically involves several multiple hour visits by sometimes untrained technicians. secondly, pricing of the cable card has been inconsistent and is often very expensive. third, some cable operators have been moving programming to switch to digital video platforms to make more efficient use of their bandwidth but a cable card enabled device cannot access which digital video without substantial and somewhat awkward modifications that are difficult to achieve. revised cable card rules are therefore needed for the near-term as the commission moves to implement the gateway device proposal by the end of 2012. our witnesses today will speak to the barriers that we must overcome for tv viewers to realize the benefits of true

set-top box plug-and-play capability and i want to thank each of them for joining us here this morning. we will turn to your testimony shortly. that concludes my opening statement and i'm pleased to brag nice now the ranking republican member of our subcommittee, the gentleman from florida, mr. stearns. >> good morning and thank you mr. chairman and i welcome all of our witnesses this morning. the ftc issued their broadband plan which is almost 400 pages and the font was about eight fonts, so you go to page 49 and there's a paragraph called 4.2 devices. so you read through that and you get to the recommendation 4.1 to 12. now, you don't think too much about it but you read through it and you realize it has huge applications and that that is where witnesses are here and this is why this morning we are having this hearing. the video marketplace is

completely different today than it was when they pass the original set-top box provisions in 1992 and 1996. back then my colleagues cable providers are between 90 and 100% of subscription tv households. today there is a robust video competition as evidenced by the fact that satellite, phone companies now serve one third of subscription tv households and the video market is only getting more and more competitive. congress and the fcc need to be careful with that looks to impose a new regulation and perhaps some of the recommendations are outlined in this recommendation 4.12. being able to access the internet from a television is certainly an appealing idea to many consumers. as such the market seems to be delivering this service without any government assistance. according to the consumer electronics association and the next couple of years, every tv will be able to connect to the internet wirelessly.

in addition industry analysts predict that more than 70 million internet connected tvs will ship in 2012. up from 15 million in 2009 and a number of such tvs in the u.s. will reach 80 million by the year 2013. furthermore we have seen that the reverse, people using their computers to watch tv, shows and music is a booming industry. roulette.com for example that almost a million videos viewed in just february. congress and the fcc need to tread carefully in my opinion when attempting to impose technology mandates. let the past be our guide. the fcc has been unsuccessful trying to artificially create set-top box competition through technology mandates for almost 20 years. despite all of their regulatory efforts, the the fcc concedes attempts to manufacture a third-party device market has failed. cable operators have been required to foist approximately

20 million cable cards at a cost of more than $1 billion to subscribers that elect to use operator provided devices. subscribers on the other hand have chosen to use only 500,000 cable cards with third-party devices. in response, most manufacturers have decided not to develop cable card devices. part of the problem is that the subscription tv and device markets continue to develop rapidly. this has had two interrelated consequences. first, technology has outpaced the rules, making the inflexible cable card regime less than useful. second, rather than by set-top boxes and risk obsolescence, most customers rent from the cable operator and simply upgrade when cable operators roll out their new features such as high-definition. video-on-demand and interactive services. trying to artificially create set-top box competition by forcing tv providers to support

one-size-fits-all gateway devices is unlikely to fare any better than similar attempts by the fcc through their technology mandates for the past 20 years. but the fcc could not accomplish when subscription tv was an analog cable centered, linear video platform will only be harder for digital interactive, internet enabled video platform populated by diverse cable satellite and phone company architectures. while the gateway device proposal stems from a national broadband plan recommendation, the question is, how this mandate promotes broadband is not quite clear. since most subscription tv households likely are we have rock band. making the government a gateway between providers and the customer is unlikely in my opinion to be productive and at best micromanaging the device, the provider must increase cost

to consumers, hinder investment and slow innovation. at worst it is a veiled attempt to advance network neutrality and other regulations of that sort. the lack of set-top box competition in the past has not -- was not caused by a market failure but because there was no market. with the rise of alternative subscription tv providers and the internet, consumer needs are evolving. the market for third-party devices is following suit in the fcc would do better to avoid mandates that allow current innovation to simply continue and if worse. thank you mr. chairman for the hearing and i look forward to where witnesses. >> thank you very much mr. stearns. gentlelady from california, ms. issue is recognized. >> thank you for holding this hearing on the recommendation for the fcc's national broadband plan. as you know i represent the heart of silicon valley and it is a place where many companies

and industries live by the mantra, innovate or die. the issues of innovation and competition in the plan reflect a legislative initiative that i have pursued on behalf of my district for many years. in 1996 when congress passed the telecommunications act that partnered with my great pal, ed markey, i'm including a provision, section 609 to encourage innovation through competition and the set-top box market. in the 14 year sense, we have only seen minor steps forward in creating new technologies. is true the cable industry did take it upon themselves to create cable card as a follow-up to the order to implement section 629 but as the fcc recognizes in its national broadband plan, quote despite congressional and fcc intentions cable card to fail to stimulate the competitive retail market for set top boxes.

the fcc's recommendation to address this assessment is to have all monthly video programming distributors install a gateway device in subscribers homes by december 31 in 2012. in the interim they also recommend that cable operators fix the problem associated with cable cards no later than october of this year. that is not that far away. i am encouraged by principles released by the cable industry and their announced commitment to work with the fcc and the set-top talks industry to create consumer choice and drive innovation. i am interested to hear how the rest of the panelists here today think these principles will be applied. we haven't discussed the cable card set-top boxes in this committee for a number of years. i remember the issue well. it is important to revisit it so

that we can leapfrog into the future, so i look forward to hearing from all of the witnesses and mr. chairman again thank you for these hearings on the fcc's national broadband plan. >> thank you very much ms. eshoo. the gentleman from illinois, mr. shimkus is recognized for two minutes. >> thank you mr. chairman. i'm still trying to figure out the problem. we have a national broadband plan. we need to map those areas that are unserved or underserved and we need to use the market in our capabilities to make sure everybody has at least a level high-speed internet access. i don't get with the frustration or misunderstanding of the capitalist market is all about. it is the consumers who drive demand. it is a system that works. every time we intervene and try

to push a service on the public through government, we fail. listen, we have got video on watches. we have video an automobile's. we have got video on phone. we get video over copper. we get video over cable. we get video trish early. we get video over the satellite. we are to be focusing on getting high-speed internet access to underserved areas. and underserved areas. and that is where our focus should a. and let the competitive marketplace meet the demand that the public wants to be mad and not use government to force the demand in an area where the public is not going. thank you mr. chairman and i yield back. >> thank you very much mr. shimkus. the gentleman from pennsylvania,

mr. doyle, is recognized for two minutes. >> thank you mr. chairman. i will give you a little known fact about myself. i like bands like earth, wind and fire. be like to watch soul train reruns and much to our delight our respective cable companies offer those services. but the only way i can fill my house back in pittsburgh with a hit the strip in america was with a cable box provided with the cable company, not for me boxer tv. even if i think that box gives me a better user experience than adds features like maybe internet connectivity, according to the census bureau 30% of americans have never used the internet but 99% of americans have a television and over 85% of americans have some form of pay-tv service. those numbers overlap. i agree with chairman boucher on this issue and i've are shaded

and respect his leadership which is why i'm glad the fcc national broadband plan identifies it as an issue that can help drive demand for internet access. i look forward to a final rule fixing with issues from cable card technology and look forward to all the witnesses today talking about the fcc's notice think worry about how all devices can work with all of video providers in the future and without mr. chairman i will yield back. >> thank you very much mr. doyle. i haven't had to worry about hair care products in quite some time now but i'm glad you are still concerned. [laughter] the gentleman from michigan, mr. upton, is recognized for two minutes. he is no longer with us. the gentleman from indiana, mr. buyer passes and will have two minutes added to his questioning time. the gentlelady from california, is recognized for 10 minutes. >> good morning chairman boucher

ranking member's terms and distinguished panel. the subject matter before us today is highly complex. we are confronting issues concerning howell the increased use of our television as a means of accessing the internet. both involve capital areas of our economy and i think the efficacy should proceed with extreme caution. at the outset i would like to record to express my support for policies that provide individuals and companies with the freedom to renovate. such freedom allows bright lines to develop products like video video-on-demand in vbr. therefore beyond the quibble application of the existing laws and regulations i'm wary of the government mandating technical standards beyond section 629 or the regulation surrounding commissions implementation of that law. in addition to my concern surrounding technical mandates i also would like to remind the committee about the importance of content. few people are investing in

set-top boxes to watch hearings like this one on c-span now matter how exhilarating they might think this discussion ultimately is. especially with mr. doyle's admission of earth, wind and fire. the viewing experiences of the consumer artwork of a large number of people who have to get paid. the only way they get paid is when their content is protected and sold, not stolen. as such the manufactures of set-top boxes play a role in the delivery and protection of content. i believe no matter how we alternately move forward discussion of content should remain a high-priority. to further make this point i would like to submit a letter from the motion picture association of america. thank you mr. chairman and i look forward to today's discussion and i yield back my time. >> thank you are much missed bono mack and it will be made a part of our record. the gentleman from massachusetts, mr. markey is recognized for two minutes.

>> thank you mr. chairman and thank you for your leadership on this issue. back in 1993 when i was chairman of the subcommittee i worked with jack peels on the national communications competition and information infrastructure act. h.r. 3636. like the national broadband plan recommendation on set-top boxes, our bill was to line his-- designed to unleash competition in the retail marketplace enabling consumers to buy this up on other choice, independent of their network provider. the bill passed the house overwhelmingly in june of 1994, 423-but it wasn't until the next congress that the set-top box language was included as a politely markey amendment incorporated into the 1996 telecommunications act, becoming section 629 of the statute.

in the age of the smartphone, we can think of these devices now as smart boxes, converter boxes, set-top boxes. the devices that ideally would help them navigate to the video and information sources of their choice. 14 years is an eternity in telecommunications policy. we might as well be talking about the peloponnesian wars are the last time the bruins won the stanley cup, but it is clear however that over the last 14 years, the promise of the box provision has not fulfilled. while there have been tremendous innovations and two of the three main devices for connecting broadband services, smart phones and personal computers, the set-top boxes has been that box that time forgot. it is not as smart or is available as it should be and

that is about to change with the april 21 is to enter the notice of inquiry and a further notice of proposed rulemaking as recommended by the national broadband plan. the fcc is now beginning to seek ways to effectively implement section 62914 years ago. to give greater choice to consumers and increased broadband adoption. this is going to be a huge change. it will make the consumer king, which should be our goal, to get out of the way, let them have the technology to let them go anywhere they want to go, do anything they want to do. thank you mr. chairman for having this hearing. we are on the dawn of a brand-new and i think best era we have ever had in telecommunications. >> thank you very much mr. markey. the gentlemanrom vermont,

mr. welch come is recognized for two minutes. >> thank you mr. chairman. i will pass. >> thank you mr. welch and we will add to minister time for questioning our panel today. all members have been wrecked nice for their statements and we are now pleased to turn to our panel of witnesses and we thank each of you for your attendance here this morning. mr. michael williams is the executive vice president executive vice president and general counsel of sony electronics. mr. kyle mcslarrow is the president and chief executive officer of the national cable and telecommunications association. mr. matthews then is the senior vice president general counsel and chief privacy officer for tivo. mr. eric shanks is the executive vice president of entertainment at directv. mr. harold sills is the legal director for public knowledge and mr. david young is the vice president of central regulatory affairs at verizon.

each of these gentlemen is deeply knowledgeable about the matters we are discussing here this morning and we want to thank all of you for coming and joining us and sharing your views with us. without objection your fault prepared written statement will be made a part of our record. we welcome your oral presentations and add to that, try to keep those to approximately five minutes and that will give us ample time to exchange ideas and ask questions of you. mr. williams we will be happy to begin with you and i would ask that you pull your microphone is close to you as you can. i think even closer than that would be good. we can hear you much better. be sure you have turned it on. >> good morning chairman boucher, ranking member stearns and distinguished members of the subcommittee. thank you allowing for sony electronics this opportunity to testify on this issue. sony is here today to lend its

support to the fcc's broadband plan and specifically to the gateway device proposal it describes. when implemented, it will bring consumers better value in a nearly infinite number of choices for new information and entertainment. the gateway device will allow true competition among content owners, service providers and device manufacturers like sony and we all know there is true robust competition, prices drop and services improve. the concept of an mvp the gateway is not something new or revolutionary. in fact, the service model has been discussed among device manufacturers in the community for many years. the gateway concept is the natural evolutionary step in the progression of television viewing. for the first 50 years what we might call tv 1.0 consumers receive video through one national standard that applies

to all over the air broadcasters. it was easy to use, it works well and allowed for a host of innovations and competition in a the television receiver market. starting in the 1970s we entered into the mvp dvh first to cable and most recently telephone companies. tv 2.0 expanded consumer choice from a handful of channels to hundreds and the technologies evolve from one to many. but it came with a price. now we are at the dawn of tv three-point oh, it ate consulate of internet and traditional mvp d. services. it will leverage the power of the internet to allow consumers to tailor their television viewing in ways we can only imagine.

it will enable viewers to interact with the program they receive and with each other. more importantly it will give consumers the tools they need to manage their programming choices to get what they want, when they wanted and to decide where they will view it. now you may ask what does this new tv 3.0 world have to do with set-top boxes and why does the fcc need to be involved? the answer, we look back and we change from tb 1.0 to 2.0. for the air broadcast relied on a single nationwide standard to transmit a television signal from the station to the viewer. and the sparapani age there is no single nationwide transmission standard. every cable operator and every satellite operator uses something different. consumers simply subscribe to one mvpd provider and they don't want to spend the extra money to buy the device to receive any

one of these different signals. the genius of this universal gateway device in its approach is that it combines the best of both worlds. dramatically facilitates the integration of internet delivered video and data along with traditional mvpd services. simply put, the gateway device is a translator that takes the transmission signal from the service provider and translated into an output signal that all retail consumer devices can understand. now there were other elements that are necessary for the gateway to work or go first consumer devices such as television, need to operate on a level playing field. against each other which requires the use of a national standard. second in order to provide an innovative consumer experience the device needs to be able to tell the consumer what content is available and how to access it. third, the output from the gateway device must be simple and open, like the existing wifi

or usb standard. this output standard should not come with extraneous licensing or technical obligations that would hinder innovation, impair widespread implementation and offer consumers little value. is clear there were details that need to be filled and that the committee should understand the technology necessary to implement this gateway device are in wide use today and that existed for many years. sony believes the gateway device is a workable solution to implement the congressional mandate contained in section 629 all of us, this committee, the fcc, the service providers, manufacturers and consumers have a stake in bringing television into its third age. sony is convinced that the commission gateway proposal can and will succeed for all stakeholders and we look forward to joining the stakeholders to make tv 3.0 a reality. thank you very much. >> thank you mr. williams.

mr. mcslarrow. >> thank you mr. chairman, ranking member stearns and distinguished members of the subcommittee. let me first aid at the outset we are very supportive of the direction the fcc is going, both with its inquiry and the mpr and. what they presented as a very thoughtful case for innovation that ties together really two strands that i think it is worth taking just a moment to unpack. the first strand as you have identified mr. chairman and others goes back to section 629 which is how do you create a competitive retail market for devices, not just set-top box, televisions or other navigation devices? that market lace has not taken off principally for two reasons. one, cable cards were functionally deployed at a time in one-way devices at a time when the world was turning to a

say you have one-way devices with cable cards in there really is no consumer demand for one-way devices. really at this moment in time, tivo is the only remaining successful player in that field. the second reason it didn't take off his obvious. right now cable cards with the exception of verizon are only used by cable companies and therefore if you buy a device, with the cable car device you can actually take it to another competitor in today's world in 2010, four out of 10 consumers take a multichannel video service from somebody other than a cable company. the second strand is what was identified as the broadband plan which is totally apart from whether or not there is a retail market. what do we do? what are the opportunities and challenges of integrating television and video on the internet? and i think that they tried to do is put those two together in a way that we are actually intrigued by.

i think there are a lot of unanswered questions and to be fair to the fcc they tee'd up most of those questions which is why they started with and analyze. but i think i'll roll as chairman of the cable industry is to think about not so much the past but what with the opportunities are for the future and to that end, ms. eshoo said, we actually submitted to the fcc and the subcommittee a set of consumer principles. what are the goals here? we have identified a couple that we think everybody should be able to sign up to. one, we do think consumers ought to be able to connect devices to their multichannel video service without it least the set-top box. they have to have a retail market. number 2, we think the consumers ought to be able to take those devices they do purchase at retail and move them one provider to another which promotes competition. we think the consumer should have the option of eating able

to access the internet and in part or to access internet video. forth, we think or than that they have to have the ability to search across all of the platforms so they can identify videos on whatever multichannel services providing weather video-on-demand or a lendale-- linear channel or netflix or some other server is emerging on the internet platform. the caution we have is that we are skeptics of government technology mandates, but that doesn't mean we shouldn't be at the table doing the hard work necessary to try to achieve those goals and we have committed to the fcc and we commit to you that we will do that. there is still a host of issues that are unanswered. we have actually conceptually talked about ideas like the gateway device that michael was talking about a moment ago. i am not sure a gateway device is fully fleshed out right now.

at the conceptual level there should be some interface we have to be able to work toward that allows us to accomplish those goals. but there is still enormous issues relating to content protection. a lot of the promotional transactional and advertising issues surrounding each of these platforms. we obviously have other providers here today. we have different technology platforms. i think as mike said a moment ago technology probably exists and if there is a will for all of the providers, they manufacturers, the content providers, to work together with the fcc i think we can achieve it. >> thank you very much mr. mcslarrow. mr. zinn and please pull the microphone very close. >> as far as it can go. chairman dodd, ranking member stearns thank you for inviting me to discuss the national broadband plan. consumers love tivo products because they combine the ability to find come record and play

cable programming with the ability to find record and play broadband programming, netflix, all-in-one user interface. tivo puts the consumer in charge of its scheduled while respecting the rights and concerns of copyright holders. tivo's idea is never equaled by video service providers get tivo boxes that never been placed on an equal footing in terms of access to programming, pricing, selection and support. the cable card was designed by the cable industry itself so the consumer need only turn on the product, read two sets of numbers on the screen and call them into his local cop -- by cable operator. these are being supported this way in a few systems around the country but by and large installation and support have been woefully inadequate and even when cable card reliance devices have been supported cable operators have been making channels unavailable to consumers who rely on these

devices. at me show you what i'm talking about in terms of access to cable programming. here is a web sight showing a channel lineup for a cable operator system in utica, new york or go next slide. you can clear the web site and then you can search by programming package so the next slide shows we have searched by the programming package entitled, not available on cable card. a funny title for a programming package that contains over 200 channels that are not available on cable card according to this web site. the next slide shows what is in that package. there are a lot of movie channels that consumers are being told are not available on cable card. next slide. no-op leg as manual on cable card. next slideif you buy an hd dogs and you have an hdtv you

kind of want hd movies. not available on cable card. sports, anybody like sports? not available on cable card. 21 of the top 25 top-rated channels in hd are not available on cable card according to the web site. my point is not to take on a particular cable operator or cable system, only to graphically show the unequal competitive situations for retail set-top boxes. the fact is most of these channels may be accessed by tivo but there is no mention of switch digital, no mention of tuning adapter. of the consumer sees is not available on cable card and most consumers look at that and say i'm not going to buy a retail box. said any-- even if you get past the programming issue, then you have pricing issues. how much is a cable card? do i have to pay for release it least box and they cable card

and then there are installation issues, and sellers who failed to bring cable cards were not familiar with them, multiple truck rolls to do a single install and so on. fortunately congress anticipated the video service providers might foreclose the competition and innovation. the consumer electronics availability act directed the fcc to ensure in its regulation the commercial availability of competitive devices for multichannel video programming providers. the subcommittee's bill became section 629 in 1996, the telecommunications act. after many years of inconsistent efforts to foster video device competition chairman genachowski proposed to advance the ball into provisions. to proceedings. versus rulemaking to allow products such as tivo which rely on cable cards to work on cable systems free of technical handicaps and the second is a notice of inquiry to consider a gateway for competitive and

invaded products to operate on cable satellite telephone video systems much of personal computers and portable products over wi-fi connections. my earlier slideshow the cable operators have recently made ordinary subscription channels unavailable to competitive products of you and though our customers must continue to pay for them. cable operators do this with a switch digital technique in which certain of these channels must now be electronically requested from the head and. tivo devices have the capability to send the necessary request to the head and using broadband but tivo's license does not allow products to be configured to make the simple request and cable systems currently are not set up to receive them. a regime in which a cable subscriber is required to use an operator provided set top dogs to receive a significant amount of programming is the very antithesis of what a competitive set-top box policy is designed to achieve. where are encouraged it is

recognized it in his statement a person to bulls and we look forward to working with the cable to address this critical issue. reapplied chairman genachowski's were proposing these solutions and in summary cable card is not the fix and we are not asking for much. we are asking for installation support which is in the law and we are asking for pricing transparency and nondiscrimination and we are asking for upstream signaling so retail boxes and regular cable programming without an operator provides set-top box. all of these are what is supposed to be provided by the plug-and-play agreement signed into law in 2003. thank you. >> thank you mr. zinn. mr. shanks. >> good morning. >> please turner mike on. >> i'm executive vice president of entertainment at directv and thank you for allowing me to testify today. to foster innovation and increased broadband adoption fcc is considering a plan to stimulate the retail market for

smart video devices. while directv supports the goal of innovation in broadband adoption we have concerns with this proposal. specifically the fcc may require cable, satellite and other video providers to develop an all video adapter whose sole function is to connect its service with third-party devices. manufactures of these devices could strip out our service and replace it with their own. this government intervention is both unnecessary and harmful. innovation in the convergence of broadband and tv are prevalent in the market today and growing. directv is driving this effort by including ethernet ports on all of our hd boxes and access to some of popular internet sites like flicker, facebook and twitter. ignoring what is occurring in the market today the proposal will have the opposite effect of what it intends. and would give cable a clear

competitive advantage. would place place our innovative services at risk and result in increased costs in inferior customer service. we built our business nearly 20 years ago through renovation and it is imperative we do even more today to remain competitive. in the last 15 months alone we downloaded 76 new features to our set top talks. we do more than simply transmit plain-vanilla programming. features and services you are about to see create the video screens unique to directv. please roll the video. >> should i come back to the video later? there we go.