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New Haven under cooperative arrangements with the Federal Government and State and local governing bodies.
We are gratified to learn of the constructive consultations between New York and Connecticut with respect to a proposed demonstration project, and longer range proposals to rehabilitate the commuter service. We await further confirmation.
It is appropriate at this time to say a few words about the northeast corridor transportation project, the subject of a Presidential letter to Congress on Thursday, March 4. This project is still in the research and development phase. It includes demonstration projects to test improved intercity rail transport using present technology
Longer distance, intercity types of transportation will be stressed in this program, not shorter range mass commuter problems. The project is a part of a comprehensive program of the administration to deal with all transportation needs, and is not intended to duplicate the program to aid mass transportation already available through the Housing and Home Finance Agency. Our researchers will not guarantee that high-speed rail lines for intercity service will be necessary, but they will be considered and tested along with other possible means of transport.
This demonstration program has no immediate relevance to the problem of the New Haven, particularly its commuter aspects. In any case, we do not anticipate Federal financing of the operating expenses of any high-speed rail system which it might later be decided to build or acquire. In general,
then, the Federal Government is committed by policy to assistance to longrun capital improvement programs acting in conjunction with well-considered State and local plans. This is true in the Federal-aid highway program, the Federal-aid airport program, the assistance provided in the Urban Mass Transportation Act of 1964, and in the urban programs administered by the Housing and Home Finance Agency. With respect to other domestic transport programs, the Federal Government is actively seeking to minimize or terminate subsidy. We do not believe that an exception to this wellestablished and sound policy should be made for the New Haven Railroad.
In other words, we believe that Federal policy in this area is clear and consistent. It can be a very constructive force if a suitable response is forthcoming from State and local governments and from the railroad industry. State representatives have already indicated in these hearings that they recognize a major responsibility. We would urge them to develop specific plans of action.
State and local governments have the obligation to meet short-term emergency situations which are of immediate concern to their citizens. They also have the obligation to provide basic public action plans for long-range rehabilitation of service and to use these plans as the basis for cooperation with Federal agencies and railroad interests.
We appreciate the constraints upon State and local governments. The numbers of States and local jurisdictions involved require intricate intergovernmental agreements. In the 4 years that have elapsed since the New Haven went into receivership, the States and localities of the region have not come forth with an agreed program either for short- or long-range actions. It is vital that such agreements be reached so that the State and local obligations can be discharged.
The State and local authorities, despite these constraints, have taken some actions. They have granted some tax relief. In the New Haven case this is of limited practical significance because of the bankrupt condition of the line. One State-Connecticut-has provided for more direct action and awaits favorable action by neighboring States.
Other commuter problems outside the New Haven area have been handled by constructive State and local actions. In Massachusetts, a comprehensive program to assist the Boston & Maine in the provision of commuter service has been approved. New Jersey has offered emergency subsidy relief to commuter railroads and is considering more fundamental programs. Philadelphia is making direct payments to railroads to cover operating losses. In San Francisco a very basic program of rapid transit development has been approved and financing has been provided from local resources. Similar programs are under active consideration in other areas.
Federal policy is designed to be coordinated with such State and local programs. Effective action in the New Haven case can be taken in a short time, because so much is already known about the problem. The report of ICC Commissioner Webb in docket No. 33332 on November 21, 1960, presented the detailed background as well as any other source. In 1962 the Department of Commerce commissioned Frederic B. Whitman, of the Western Pacific Railroad, to survey the New Haven property in conjunction with a team of experts recruited from the railroad industry. A more detailed recent study dealing with the commuter problem was completed in 1963 by the Institute of Public Administration under a grant from the Ford Foundation. State and local officials themselves have given the problem long consideration.
From these detailed sources of information it is evident that several outstanding factors have combined to cause the New Haven problem. There is, of course, the intricate history of past mismanagement with its legacy of physical neglect and financial disaster. But this alone was not enough to destroy the railroad's position. Freight traffic has not grown with sufficient rapidity to offset cost increases or to offset the cost of other service obligations. Finally, the continuation of the passenger service obligation has added the burden of a chronic deficit to the railroad's operation. A principal contributor to this deficit has been the cost of the commuter service into New York City.
Federal, State, and local authorities have plain obligations to act, each within his sphere of influence, in this matter. There is also an obligation on the part of the railroad industry, both management and labor. New Haven has great importance for the railroads outside the region. About 90 percent of all New Haven freight traffic is interchanged with other railroads, and this is an important volume for several lines. The industry has the technical capacity to improve the long-run efficiency of the New Haven, to analyze its freight potential, to develop rationalization plans necessary to achieve a profitable freight service, and to cooperate with State and local authorities in perfecting a commuter service supported with public funds. The initiative of the industry is necessary to provide meaningful merger solutions to include the New Haven.
We understand the constraints which have inhibited rai' in assisting with the New Haven problem. The burden obligations, including debt, passenger service deficits, needs for rehabilitation are indeed formidable. If the
cises initiative in this field, public support of the commuter passenger service is essential. We understand that the trunkline railroads have been considering a series of proposals to deal with the New England railroad problem.
On the basis of the foregoing analysis, State and local, Federal and railroad interests have definite spheres of operation in dealing with the New Haven problem. On the other hand, each interest is faced with major constraints and limitations which have curtailed its liberty to act. A coordinated series of acts by each of the three interests is called for. The bills under consideration by your committee must be judged in the light of their contribution to such a coordinated program.
S. 325 provides an authorization of $100 million to be administered by the Interstate Commerce Commission to provide emergency cash grants to railroad passenger service. The Commission would determine the needs of applicant railroads and could make payments covering the costs of maintaining rights-of-way and structures wh are directly or indirectly attributable to passenger service. In addition, these funds could be used for passenger equipment acquisition or improvement. S. 1289 is similar but provides an authorization of $75 million. A sliding scale of Federal and State contributions is provided, beginning with 100 percent Federal contribution the first year and declining thereafter for a period of 5 years when the program would end.
S. 325 and S. 1278 are at variance with all the long-standing features of Federal policy discussed earlier and are, therefore, unacceptable as a basis for solving the New Haven's problem. These bills would undermine the provisions of the Urban Mass Transportation Act of 1964. State and local responsibilities would be minimized.
S. 348 provides for an interstate compact of New York, Connecticut, Rhode Island, and Massachusetts. An authority would be formed under this compact to acquire and operate, either directly or by compact, railroad passenger service in the area. The authority would issue bonds up to $500 million. These tax-exempt bonds would be guaranteed by the Federal Government upon the recommendation of the Secretary of Commerce, who would be represented on the governing body of the authority. This bill suggests an unusual and, we believe, undesirable procedure for the formation of an interstate compact dealing with such complex problems. Normally such compacts are first negotiated by the States and then presented to Congress for ratification in accordance with the provisions of the Constitution. In this case, the compact would be approved by the States after the enactment of the bill and would contain a number of provisions unacceptable to the Federal Government, including especially provision for Federal guarantees of loans up to $500 million.
A similar bill is S. 1234, which would confine the compact arrangement to two States, New York and Connecticut. A credit of $500 million would be guaranteed by the Federal Government. Federal
pay. ment of a share of railroad operating deficit would also be authorized.
The administration would, however, encourage New York and Connecticut, or any group of States, to negotiate a compact to provide for maintenance and improvement for passenger rail services. Such a compact organization would be very helpful in administering and
planning a transportation service. The Federal Government could appropriately deal with such a compact organization in the administration of its own programs. The absence of such an authority appears to be a major handicap to the governments of the New Haven area in utilizing the Urban Mass Transportation Act to provide capital improvements to the New Haven commuter service.
A compact organization might also be a very suitable mechanism to provide emergency State and local relief to the New Haven to meet the operating deficit in the commuter service. We cannot, however, accept any Federal proposal which would build into a compact organization the payment of any operating subsidy. We also question the advisability of advance approval of a $500 million credit in the absence of a carefully developed State program.
Guarantee of tax-exempt bonds has implications far beyond the limited problem of commuter deficits on the New Haven Railroad. The guarantee of State credit generally has great fiscal implications, due to the tax-exempt status of such securities and the precedent established of Federal participation in overall State and local financing
In summary, we believe that the nature of the New Haven problem is such that definite roles are assignable to State and local, Federal, and railroad interests. Each must act effectively within his sphere before this problem can be solved.
We cannot recommend legislation which provides unilateral Federal solutions. The legislation before us today relies too much on Federal activity, performing without the assurance of State and local or industry participation.
Until a better basis for coordinated policy is developed through State and local action, Federal programs of whatever character cannot be effective. When an appropriate basis for coordinated policy is evident, the administration will cooperate in every possible way.
Senator PASTORE. I am only going to ask you a question or two and then I will resume my questioning when the others are through, and then I will turn it over to Mr. Lausche and Mr. Pell and Mr. Irwin, or any other member of the committee who might appear.
You say that the administration is opposed to these four measures. Would you elaborate upon that? Whom do we mean by “the administration"? Do you mean you? Do you mean the Commerce Department? Was this taken up with the executive branch-when I say that, I mean 1600 Pennsylvania Avenue just so we get this in good perspective, because I think now we are beginning to get at the core of this problem. We are getting into policy, and I would like to get that, because we have had so much testimony here. We had the ICC who took a position. We had the Governors who took a position. We had Members of Congress who were taking a position, especially the sponsors and the cosponsors of this legislation. Just so we can crystallize exactly whom we mean by "administration," could you elaborate on that, Mr. Martin? And I mean that as respectfully as I can say it.
Mr. MARTIN. Mr. Chairman, this testimony has been coordinated by the Bureau of the Budget, Executive Office of the President. We have had meetings on an ad hoc basis formally of the Department of Justice, the Treasury Department, the HHFA, and Council of Economic
Advisers and Department of Commerce, and the position that I have outlined is the unanimous opinion of those agencies. I wouldn't want to imply, of course, that this had been coordinated by the Bureau of the Budget. I wouldn't want to lock the President and say this is the President's position, because to the best of my knowledge, the President hasn't reflected on this.
Senator PASTORE. And in these conversations were these four bills discussed?
Mr. MARTIN. Yes, sir; they were.
Mr. MARTIN. Each of the agencies had knowledge of the bills. They had copies of them, the provisions of them, they were discussed. The discussions were generally along what was felt to be sound policy and posture for the administration to take with regard to these bills.
Senator PASTORE. Mr. Lausche.
Now, when Mr. Pell talks on this subject, he is talking on-name your bill.
Senator PELL. S. 348.
Senator PELL. First, before I address my question to Mr. Martin, I would like formally, on the record, to express my gratitude as one Senator to Senator Pastore for taking the interest that he has in this, because if he had not, the committee and also the chairman of the Ground Transportation Subcommittee of the committee would not be having these hearings. And I thank Senator Pastore very much and Senator Lausche for being here and also thank him for his hospitality letting me, as a guest, be up here on the dais.
One point here was raised the other day, and that was the question of the definition of "operating costs,” and I assured the chairman that I would give a more specific definition than I did the other day. I would like to read it into the record. Senator PASTORE. All right, you may proceed in any way you desire.
Senator PELL. The article VII of the compact as proposed in S. 348 would be amended to provide that the word "expenses" as used in paragraphs 1 and 2 shall be construed to mean all normal operating and maintenance costs and, in addition, all costs associated with the servicing and retirement of debt.
This point was covered in the colloquy between Senator Pastore and myself, but not as specifically as it should have been by me.
The language to cover the servicing and retirement of debt in the usage of the ICC is as follows, quoting from the ICC:
The payment of principal and interest in debt also discounts of debt expenses such as fees for drafting mortgages and trust deeds, fees for issuing or recording evidences of debt, cost of engraving and printing bonds and certificates of indebtedness, fees paid trustees, fees for legal services, fees and commissions paid underwriters, brokers, salesmen for marketing such evidences of debt, fees, and expenses of soliciting exchanges, and other like costs.
I just want the record to show clearly that operating costs are construed at least by me as the author of the bill to include debt service and debt maintenance.