Creditor Claims and Ownership Interests Were Not Likely to Have Been Satisfied if Amtrak Had Been Liquidated

If Amtrak had been liquidated on December 31, 2001, secured and unsecured creditors, including the federal government and Amtrak’s employees, and stockholders (preferred and common) would have had about $44 billion in potential claims against and ownership interests in Amtrak’s estate. It is not likely that secured and unsecured creditors’ claims and would have been fully satisfied, because Amtrak’s assets—other than the Northeast Corridor—available to satisfy these claims and interests (such as equipment and materials and supplies) are old, have little value, or might not have a value equal to the claims against them. Liquidation Would Have Adversely Affected the Railroad Retirement and Unemployment Systems

The Railroad Retirement Board estimated that Amtrak’s liquidation would have caused the railroad retirement system to run out of funds in 2024 if all Amtrak employees had lost their jobs and were not reemployed in the railroad industry. A loss of Amtrak’s contribution would have had a significant financial impact on the system. The Board estimated that, if Amtrak had been liquidated on December 31, 2001, and no action had been taken to increase tier II payroll taxes beyond that already planned or to reduce benefit levels, the railroad retirement account would start to decline in 2006 and would first have a negative balance (of $742 million) in 2024. Adverse Effects on Railroad Unemployment System Would Be Short- Term

Finally, participants in the railroad unemployment system would also have been adversely affected by an Amtrak liquidation. Financial effects would have been immediate, but short-term. The cash reserves of the unemployment system would have been exhausted in 2002, and a total of $338 million would have to have been borrowed from the railroad retirement account, as permitted by statute, from 2002 through 2004 to make these benefit payments. According to the Board, between 2002 and 2004, the average tax rate would have had to increase from about 4 percent to 12.5 percent—before decreasing to 9.6 percent in 2005. Appendix II: Comments from the National Railroad Passenger Corporation
What GAO Found

The National Railroad Passenger Corporation (Amtrak), the nation's intercity passenger rail operator, was created by Congress in 1970 after the nation's railroads found passenger service to be unprofitable. It is a private corporation. Its financial situation has never been strong, and it has been on the edge of bankruptcy several times. Early this year, Amtrak stated that federal financial assistance would have to more than double for the corporation to survive. Given Amtrak's worsening financial condition and the potential for intercity passenger rail to play a larger role in the nation's transportation system, there is growing agreement that the mission, funding, and structure of the current approach to providing intercity passenger rail merits reexamination. If Amtrak had been liquidated on December 31, 2001, secured creditors and unsecured creditors--including the federal government and Amtrak employees--and stockholders would have had $44 billion in potential claims against and ownership interests in Amtrak's estate. It is unlikely that secured and unsecured creditors' claims would have been fully satisfied, because Amtrak's assets available to satisfy these claims and interests are old, have little value, or appear unlikely to have a value equal to the claims against them. An Amtrak liquidation would have adversely affected participants in the railroad retirement and unemployment systems. If all the Amtrak employees had lost their jobs on December 31, 2001, and were not reemployed in the railroad industry, the railroad retirement system would have lost over $400 million in annual contributions from Amtrak payroll taxes. The Railroad Retirement Board estimated that the railroad retirement account would being to decline in 2006 and would be in a deficit by 2024 if no actions were taken to increase payroll taxes or reduce benefits. The financial impact on the railroad unemployment system would have been immediate, but short term. According to the Board, the unemployment account would have been exhausted in 2002, the unemployment account would have had to borrow $338 million from the railroad retirement account, and unemployment taxes would have had to increase from 4 percent to 12.5 percent between 2002 and 2004 for the system to maintain its financial health.