Intercity Passenger Rail:

Issues Associated With a Possible Amtrak Liquidation

RCED-98-60: Published: Mar 2, 1998. Publicly Released: Mar 2, 1998.

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John H. Anderson, Jr
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Pursuant to a legislative requirement, GAO reviewed the financial and other issues associated with a possible Amtrak bankruptcy and liquidation, focusing on: (1) uncertainties in estimating the potential costs associated with a liquidation; (2) possible financial impacts on creditors, including the federal government; (3) possible financial impacts on participants in the railroad retirement and unemployment systems; and (4) possible impacts on intercity, commuter, and other rail service.

GAO noted that: (1) Amtrak has estimated that the net cost to creditors and others of a possible liquidation could be as much as $10 billion to $14 billion over a 6-year period; (2) however, the costs associated with a possible liquidation are difficult to predict because they will depend on a few uncertainties; (3) Amtrak's financial obligations, if any, to employees who lose their jobs as a result of a liquidation would depend on the results of negotiations between Amtrak and its unions; (4) in addition, most of the costs identified by Amtrak are not liquidation costs; (5) existing commuter rail agencies and others that operate on Amtrak tracks might assume some of these costs; (6) Amtrak's creditors might face losses in the event of a liquidation; (7) the extent to which these creditors' claims could be paid would depend in large part on the market value of assets available to satisfy such claims; (8) with the exception of its interest in the Northeast Corridor and certain other real property, the federal government's financial interests in the event of liquidation would generally be subordinate to other creditors'; (9) for participants in the railroad retirement and unemployment systems, an Amtrak liquidation would result in higher payroll taxes on employers and employees of other railroads or a reduction in benefits to compensate for the loss of Amtrak's annual contributions; (10) according to the Railroad Retirement Board, which administers these systems, if no actions were taken to increase payroll taxes or reduce benefit levels, the balance of the railroad retirement account would start to decline by 2000 and would be depleted by 2026.; (11) the railroad unemployment account, on the other hand, would experience more immediate financial problems requiring the imposition of surcharges on participants as well as borrowing from the retirement account; (12) according to the Railroad Retirement Board, these measures would be required for 2 to 3 years to maintain financial solvency in the unemployment account; (13) the liquidation of Amtrak could also disrupt intercity and other passenger rail service; (14) a number of factors could affect the continuation of rail service, including access to the tracks and stations that are owned by Amtrak and others, and the ability of states and commuter railroads to absorb the cost of continuing service; and (15) some freight railroads use the Northeast Corridor and may also face the potential loss of millions of dollars of business to the extent that they are unable to retain access to the Corridor.

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