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ple, many of them living in the East, made an enormous sum of money out of what the Government had donated to the railroads in the process of line construction.

So, it isn't just as though the railroads were orphans of the Federal Government. They are not by any means. They have had a lot of help in the past.

I would say one other thing. I want to compliment you on your statement to the committee, which I think brings up some facts which had not been brought out previously as clearly as I would like it; namely, some of the tax help that Rhode Island has given to the railroad to try and help. I didn't know that this had happened.

Senator PASTORE. We waited for the Governor, naturally.

Senator DOMINICK. One of the things that the Governor says is that operating subsidies are needed. In Mr. Kirk's exhibits that he put in the other day, he shows that an operating basis, the railroad since 1954 and up to today, has had a substantial operating profit, and where it has losses is on the taxes and rents.

This has been going on since 1954, the combined amount of taxes and rents have been what has overcome the operating revenue and the operating profits. I realize this is both passenger and freight.. It isn't just passenger. Nevertheless, the taxes on this rental problem seem to be the main thing straight from a computing figure basis.

Senator PASTORE. I don't think Mr. Kirk agrees with that.

Senator DOMINICK. I don't mind a bit. I will be glad to have this commitment. Only figures show you had a $6 million operating revenue profit, not revenue, but a profit in 1964.

Mr. KIRK. I thought I stated yesterday that those tax figures—and as I indicated this morning—more than half of those taxes are Federal employee taxes.

Senator DOMINICK. I understand.

Mr. KIRK. They are part of the operating expenses of this railroad. Now, as to rents, I think I indicated to you that this railroad as a true operating expense is called upon to bear enormous expenses in the payment of rentals for foreign railroad cars that must perforce come on to our lines by virtue of the fact that we bring into the area much more freight than we ship out.

Again, those figures also include enormous expenditures for facilities of a joint nature such as we operate the Boston Terminal jointly with the New York Central.

It is merely a matter of ICC accounting that the schedules are presented in this manner. Let me say, I think a more accurate portrayal of the financial operating condition of this railroad is expressed in my exhibit No. 4, where you will see the overall passenger deficit, the overall freight deficit.

We have not had a profit in freight on this railroad since 1959 and the freight profit has not equaled the passenger loss since 1957 when the difference was the paltry sum of $400,000.

Let me add further that in spite of all the tax relief granted by the States, (1) all that relief was granted prior to the bankruptcy; (2) a portion of that relief was taken away by the State of New York after the bankruptcy. But in spite of that help, which is greatly needed, and all that the State of Connecticut has done, the fact remains that the figures speak for themselves.

This railroad with the freight operating deficit is being called upon to incur a passenger loss in excess of $12 million.

Ladies and gentlemen, from the standpoint of economics that can't continue much longer.

Senator DOMINICK. I completely agree. That is why we are here.
Mr. Chairman, I don't think I have any more.
Senator PASTORE. Senator Neuberger.

Senator NEUBERGER. I can't refrain from recalling an incident that happened to me in Rhode Island. One of the most pleasant years I ever spent was when I was an exchange teacher and taught at Classical High School in Providence.

It was a little less than 30 years ago and it was somewhat of a curiosity in your State because very few people from beyond the setting sun and the shining mountains had ever been there.

It was also at a time when President Roosevelt was going out to dedicate the great power project at Bonneville Dam and Grand Coulee was underway. The school authorities allowed me release time to go around to speak to chambers of commerce and Kiwanis clubs, and so on, about the West. And always in the question period, I got the question, “Do you think it is right for us taxpayers in Rhode Island and New England to spend money to build the great power project way out there in that desert mountain country and we will not get any benefit from them.”

I see somewhat of a reversal here. I don't believe that revenge is sweet at all, but I thought I would just tell you that story for it illustrates how our thinking changes as time goes on.

As I see more and more of the testimony here, and of the honorable trustee, maybe somebody should put a bill in to nationalize this railroad.

If the excessive taxes are contributing to its downfall, then the Government would be paying taxes to itself at least in this way. We do need to equalize this problem across the country and, believe me, I am in sympathy. I probably will support some composite bill that comes out of this committee. I find it intriguing that so many States are saying that they don't want any Federal help, they don't want any Federal interference, they will manage themselves. Then some crisis occurs and we get all the Governors back here demanding Federal help.

I would like to see a little more cooperation and less criticism of the Federal Government all over this country.

Because we are all one Union, in the West, in New England and the South, and everywhere else. But I am getting awfully sick of stories about how terrible the Federal Government is and I think we have had an example here of how we all need each other.

Thank you.
Senator PASTORE. Amen. Senator Prouty!

Senator PROUTY. Governor, you have made a most impressive statement. I might point out for the record that not too many years ago, or I might suggest now, that it would have been possible for me to reach my own northeastern Vermont by rail. Twenty-five years ago or perhaps less than that we had several well-equipped operating passenger trains running between Montreal, Quebec, New York, and Vermont.

Now, we do not have a single passenger train left on that road. So we are very much concerned with an approach of some kind which is going to assist the entire area and I certainly would agree with Senator Neuberger and others that we are not confining it to New England alone.

We think this is a national problem and I think Senator Ribicoff's bill particularly merits a great deal of thought. At the present time I have no questions.

Senator PASTORE. Mr. Chafee, speaking again on the Pell bill which you have endorsed in part and made some comment as to other parts of it, your objection to it is that it does not provide for Federal subsidy with reference to picking up the deficit; is that correct? It leaves it entirely to the States?

Governor CHAFEE. Yes, sir; and also the Pell bill really isn't going to help in this immediate problem.

Senator PASTORE. It isn't intended for that--never intended for that. As I said in my opening remarks, the Pell bill is the long-range solution. In other words, the Pell bill will never come into being if, for instance, there is an inclusion of passenger service in the merger proposal.

If New York Central and Pennsylvania Railroad actually agree to take over the freight service and take over the passenger service too, if arrangements can be worked out, there would be no necessity, I would suppose, for any permanent authority to run the railroad because they would run it.

I think that they would run it very efficiently and maybe that would be the answer to it, because, if there is going to be a deficit, that deficit would be kept at its lowest level if you have experts who have been in the business and have achieved proficiency.

But, in the event it is not included in the merger, then beyond this temporary help that you would get from the Ribicoff bill, you have to look to a horizon that is quite distant. You have to look to a permanent solution to this problem and that is the reason why the Pell bill came into being. The Pell bill, of course, specifies that the authority may borrow $500 million with Government guarantee for

modernization, capital expenditures, but it also stipulates that the States themselves will meet the deficit.

Now, in the event that this Congress does pass that bill and the matter comes before you as Governor of the State of Rhode Island, would you resist it because there is no Federal subsidy in meeting this deficit ?

In other words, what I said here yesterday, there is no need of us considering any bill that forces any obligations upon the States unless the States agree to it because we would just be wasting our time and we don't propose to do that.

Now, I think that the desirable solution for this would be for the New York Central and the Pennsylvania to say, "Okay, we will take the whole caboodle.” They haven't said it. They said, “We will take the freight provided you don't force us to take the passenger.”

Now, we are hoping in the process that the ICC will act in the public interest and make the proper decision after they have heard all of the facts. Governor Dempsey has taken the position here that they are going to save so much money in this merger that they ought to assume the obligation of the passenger service.

Senator Kennedy of New York took the same position. He took exactly the same position. But then, of course, it was explained to us by Chairman Webb of the ICC that inclusion of the passenger service is not the main issue in the merger but if in the public interest they saw fit that should be done, of course, they would consider it at that time.

We can't resolve that question now. But I think I should point out to you Governors that question will not be finally resolved, as I have been told, either until the latter part of this year or the beginning of next year, which means that in the meantime we have a lot to be worried about.

We have a lot to be worried about. What is going to become of the freight service and what is going to become of the passenger service. Now, the trustees say this, “Until the States and the Government do something about this,” in order for us to preserve the freight service, which you want to preserve at any cost

Governor CHAFEE. That is right.

Senator PASTORE (continuing). “We have to discontinue passenger service.” Now, if you believe them to be right, then if you want to continue the passenger service, somebody has to do something about it.

My personal feeling at the moment is that the nearest approach to it, of course, depending upon whether the Congress will accept it, would be the Ribicoff solution. Do we agree on that, gentlemen?

Governor CHAFEE. Mr. Volpe? Governor VOLPE. Yes. Governor DEMPSEY. Yes. Senator PASTORE. Governor Volpe, we are honored to have you, Senator PELL. I am only a guest here on the committee but I would like to congratulate the Governor of our State for the very fine statement and also for bringing out the fact that the condition in Rhode Island is a little different from the other States in that only 15 percent of our passengers, as Governor Chafee mentioned, are really commuter passengers.

Basically, our problem is more of a Federal problem. That is, more of an interstate problem. I congratulate him for bringing that point out. From a constitutional viewpoint, as I understand it, there is no constitutional limitation.

If S. 348 were passed that would permit the guaranteeing of the money. It could be done by legislation and not constitutional guarantee. Would that be correct?

Governor CHAFEE. I am not sure what you mean, sir, by legislative rather than constitutional guarantee.

Senator PELL. In other words, would we have to amend our constitution in our State of Rhode Island ?

Governor CHAFEE. To participate in this?
Mr. PELL. Yes.
Governor CHAFEE. I don't think so.

Senator PELL. I don't think so either and I wanted to bring that point out.

Senator PASTORE. Has that been researched, Governor?
Governor CHAFEE. It has not.

Senator PASTORE. We do have provision in the Rhode Island constitution that you could not pledge the credit of the State beyond $50,000

without the vote of people. That would have to be by way of referendum.

Governor CHATEE. Yes.

Senator PASTORE. And possibly this would have to happen. But, I think that is an important point that you have raised, Mr. Pell, and I think it ought to be officially explored.

Senator PELL. I have the situation here. I think it has to be done by referendum, but does not mean a change in the constitution.

Senator PASTORE. But, you would have to have a vote of the people.

Governor CHAFEE. That is bond money and we were thinking in terms of annual appropriation.

Senator PASTORE. You cannot pledge the credit of the State beyond $50,000. It might be that your share of the deficit would be in excess of $50,000 and that might raise the question whether or not constitutionally you could do it by an act of legislature without going to the people for a vote.

I think that the State ought to explore that so that we wouldn't be caught by surprise. Do you agree?

Governor CHAFEE. Yes; that is the same problem we had before.

(The following information was submitted subsequently for the record :)

STATE OF RHODE ISLAND,
DEPARTMENT OF THE ATTORNEY GENERAL,

Providence, March 22, 1965.
Hon. JOHN H. CHAFEE,
Governor of the State of Rhode Island and Providence Plantations, Statehouse,

Providence, R.I. YOUR EXCELLENCY: This will acknowledge receipt of your letter of March 10, 1965, together with a copy of certain legislation (S. 348), which bill is presently pending in the U.S. Senate and is designed to encourage the preservation and development of a modern and efficient passenger rail transportation service in the northeastern seaboard area by granting the consent and approval of Congress to the States of Massachusetts, Rhode Island, Connecticut, and New York to negotiate and enter into a compact to create their own Northeast Rail Authority, and by guaranteeing certain loans and other credit to such authority.

You have specifically requested my opinion as to whether or not article VII of S. 348 would be subject to the provisions of article XXXI of the amendments to the constitution of this State.

Article VII provides that when the revenues from the operation of said system are inadequate to meet the expenses of the authority, such expenses shall be borne by each of the signatories, in accordance with a certain formula.

We all know that the New Haven Railroad has been in receivership since July of 1961, and its reorganization has been frustrated by a chronic and overwhelming financial crisis. It operated at a deficit of $12,264,275 in 1963, and the trustees in their report to the U.S. district court in New Haven last March reported that the New Haven's operating revenues continued to decline in 1963, posing a critical challenge to the road's survival and practically nullifying the effects of drastic measures taken to cut operating expenses.

The crux of the New Haven's problem clearly is the fact that so much of its business is in high-cost passenger service. Of a net railway operating deficit of $10,090,136 in 1963, $8,587,416 was attributed to passenger service.

The Federal Government has already poured over $28 million of the taxpayers' money in the New Haven Railroad, and S. 348 is designed to commit the States of Massachusetts, Rhode Island, Connecticut, and New York to underwrite the operation of the passenger service of the railroad on a yearly basis ; the exact liability of each State to be determined in ratio to the total passenger miles traveled on the railroad used within the boundaries of each State. It is quite possible that Rhode Island's liability on a yearly basis would amount to well over $1 million,

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