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rights of labor, which I do not want done and I do not think that the general American public wants done.
Are you familiar with the situation as it prevails in these Scandinavian countries ? Mr. MARTIN. Not to that detail, Senator. Senator LAUSCHE. You are not ?' Mr. MARTIN. No, sir, I am not.
Senator LAUSCHE. I am contemplating getting the report on Norway and Denmark in addition to this one.
Why are you concerned about entering into the guarantee program as suggested by Mr. Pell? It just want your reasons why the five agencies felt that they should not subscribe to this.
Mr. MARTIN. Well, we are concerned about the Federal funds being channeled into the operations of the railroad. We are concerned about the guarantee portion which Senator Pell explained. We think that the compact idea is essential, it is a matter of strategy and tactics. How you get it accomplished at the earliest moment, that is one of the great questions, without Federal assistance.
Senator LAUSCHE. Is it your understanding that under the Pell Act there would be no pledging of the full faith and credit of the four States to the payment of the bonds; that is, the bondholders could not call upon the States to meet the obligaion, but that it would, in effect, be a primary obligation of the Federal Government? It would be a secondary obligation of the Federal Government, the primary obligation being in the Authority but not in the States. What is your understanding of that?
Mr. MARTIN. I am not clear on that, Senator Lausche. I have only had the explanation that the chairman has given and the questioning of Senator Pell.
Senator LAUSCHE. Well, I will ask Senator Pell. Would the primary obligation under your bill, Senator Pell, be that of the Authority as distinguished from the obligation of the four States that are members of the compact ?
Senator PELL. My thought and philosophy in it was that the prime responsibility, the first responsibility is the Authority. If the Authority falls short in repayment, it would fall on the States, that full faith and credit would not necessarily be pledged. It would be subject to negotiation, of course, of the compact in the drafting of the bill, and the Federal Government would then be responsible afterwards.
Senator LAUSCHE. Under what has thus far been offered, the Authority would be primarily responsible, the States would not be primarily responsible but would have a sort of a moral obligation.
Mr. MARTIN. That is right, they would be like a first mortgage and the Federal Government would have the ultimate responsibility.
Senator PASTORE. I think you are both getting it all mixed up.
Senator LAUSCHE. No, let us not appeal to the chairman as an authority on this.
Senator PASTORE. No, I am not an authority on it.
Senator LAUSCHE. But you say we are getting it mixed up because there are three parties involved.
Senator PASTORE. All right, let me explain.
Senator LAUSCHE. There are three parties involved, the Authority, the States, and the Federal Government, and all I want is a clear understanding of who the primary obligors are. In my judgment, under what is before us, the primary obligor is the Authority. It has nothing. It has no assets. It does not own the railroad. The secondary obligor is the Federal Government, and the States have no obligation whatsoever. Now I will hear what the Senator from Rhode Island has to say.
Senator PASTORE. I will get this down very plain and simply. First of all, the Pell bill provides for a compact. This compact obligates the States. The States are obligated under that compact agreement. The States would either have to buy the railroad or they would have to lease for a price the railroad from the New Haven through the Authority that is created.
Bonds issued by the Authority would be guaranteed by the Federal Government up to $500 million. These bonds will have to be repaid. The repayment of these bonds become a charge against the railroad itself, for which the States are responsible. These debt services become chargeable against the operating expense of the railroad, an expense that has to be met by the States under the law. And in the event that there is any default in meeting this operating deficit, the States are responsible
under the compact. If the States default on the debt service, the Federal Government is responsible, but these claims will become a lien upon the railroad assets, which are far, far, far in excess of the $500 million.
So as I see this—and if anyone can dispute this, I would like to hear that, in very simple English-the only advantage in this guarantee on the part of the Federal Government is that you can market the bonds at a very reasonable and attractive rate of interest. Now that is the whole story:
Senator LAUSCHE. I hope that the Senator is right in what he said, because that will ameliorate the problem very clearly. But let us remember while we are discussing this subject that the Authority will have only that which is given to it by the railroads. It is contemplated
Senator PASTORE. No, by the State, Frank, not by the railroad.
Senator PASTORE. The State through the authority has either got to buy it or lease it.
Senator LAUSCHE. All right, if they lease it, all that you can pledge for the payment of the bond is the lease.
Senator PASTORE. That is right.
Senator LAUSCHE. The lease means nothing. I have been through that. I was connected with a bank that loaned $200,000 on a 99-year lease.
Senator PASTORE. I realize that, Frank.
Senator LAUSCHE. The lease became defaulted and you had nothing left.
Senator PASTORE. But under the compact agreement the States are agreeing to assume the deficit in operation and the debt charges be
come part of that, so the States, under their compact, are agreeing to pay this.
Senator LAUSCHE. That is one subject, that is operation, but we are talking about the debt service. But I am talking of the principal obligation. But we cannot settle this in our discussion between ourselves. If what the Senator from Rhode Island has said is true
Senator PELL. And may I interpolate here and say that I think that the chairman articulated absolutely clearly the concept that was in my mind and the bill's mind. · Senator LAUSCHE. All right, that is if the bill does not carry into effect what you had in mind and what the chairman has discussed.
Senator PELL. Yes.
Senator LAUSCHE. You feel that that is what you intend, that the States shall be primarily responsible for the debt?"
Senator PELL. That is right. That is what the record should show. Senator PASTORE. That is right.
Senator LAUSCHE. Now, I think that the Department ought to take a look at this and see if the Pell bill will do that.
Senator PASTORE. Oh, well, I mean, we have got to modify this, and I quite agree with the Senator from Ohio. I do not think we could possibly pass a bill here that did not carry out the explanation that I have just made as I did. I do not think that the taxpayers of this country are going to dip in their pockets and continue to pay an operating deficit. Now, we are talking about a permanent setup when we are talking about the Pell bill.
I think I have covered the Pell bill enough. When it comes my turn to interrogate you, I would like to come to the Ribicoff bill, when the Senator is through.
Senator LAUSCHE. May I ask you about the Ribicoff bill? That is the one that provides $100 million in general subsidy; is that correct? Mr. MARTIN. That is correct.
Senator LAUSCHE. Well, you have expressed opposition to the Ribicoff bill. You have it on page 9, S. 325.
Mr. MARTIN. To the extent that it goes to maintenance would be part of the regular expense of the operating expense of the road we would be opposed to it.
Senator LAUSCHE. Repeat that.
Mr. MARTIN. We are opposed to the public funds going to the maintenance or the operating expense of the railroad. It goes to operating expense.
Senator LAUSCHE. What is your opinion that if you do adopt this subsidy for the New Haven, whether or not other railroads throughout the country will start coming in for similar help?
Mr. MARTIN. I think this, Senator: This bill provides any other railroad could come in and get under the same provisions. This isn't just restricted to New Haven, but is specific to the railroads. Or any bill that went specifically to the railroads, I think you are correct, it would just be a question of time until somebody else would come in and get in on the act.
Senator LAUSCHE. I think I ought to notify Ohio communities that they better come to Washington because a new spigot is going to be opened.
Senator PASTORE. I wish you would. That would make my job easier.
Senator LAUSCHE. I know it would.
Senator PELL. Mr. Chairman, I think the record should show that transportation operating subsidies are presently being paid for other means of transportation, and I cite the administration's budget request for an operating-differential subsidy, $190 million, for the Maritime Administration for ships, and there has also been a subsidy in effect for some years on helicopters.
Senator PASTORE. But your bill does not require Federal subsidy.
Senator PASTORE. You say that there are existing programs now in operation that will take care of any problem covered by these three bills or the four bills; is that correct? Mr. MARTIN. No, sir.
Senator PASTORE. That is what you said. · Mr. MARTIN. I am speaking only as to the commuter aspect of it.
Senator PASTORE. All right. Well, now, the Ribicoff bill has nothing to do with the commuter aspect alone; has it? It includes the long haul as well; does it not?
Mr. MARTIN. That is correct, sir. That is my understanding of it.
Senator PASTORE. That is the part of the bill I would like to discuss with you. Of course, I want to make the record clear that we talk here about the philosophy of socialization and all that, which, of course, makes very pleasant talk and very pleasant listening, but let us talk about the little problem that brings us here today.
Here is a railroad that runs from Boston to New York, and from time immemorial it has done a magnificent job, efficient job, until recently, because of the evolution in our economic development. We have developed many other ways of transportation.
Now, it is true the railroads, like many other industries in the complex of our economy, have been bled dry by certain interests and by certain individuals, so much so that what happened to the New Haven Railroad in 1960, or up to 1960, led to the point of bankruptcy and it got into the Federal court under Judge Anderson. Judge Anderson appointed three trustees.
Now, in order to make the record clear, Mr. Martin, would you say here this morning that these three trustees are guilty of mismanagement of that railroad?
Mr. MARTIN. No, sir; I would not want to say that.
Senator PASTORE. Would you admit that they have been running that railroad as any prudent businessman might, as far as you know? And you are a businessman.
Mr. MARTIN. Let me say this, Mr. Chairman. I think that the trustees have to look at the entire total situation. They are the end and arms of Judge Anderson.
Senator PASTORE. All right. Now let me put the question this way. You, being an expert, because you have been connected with this transportation problem nationally in your capacity in Governmentand I have the highest respect for your competence please do not misunderstand me at any point that I am being critical of you. You
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are doing your job here like I am trying to do my job, no personal aggrandizement either for you or for me. We are both trying to render a public service.
As you sit there, can you find any fault with the trustees as they have run this railroad since 1961 ?
Mr. MARTIN. I have not looked at it from that viewpoint, Mr. Chairman. I do not think I would be able to pass a judgment.
Senator PASTORE. You stated there has been gross mismanagement. I am trying to tie this thing down. I am trying to get this picture in the proper context.
Mr. MARTIN. As referred to in the text, it goes back to the earlier years.
Senator PASTORE. Now I am becoming specific, because this generalization is not going to do anybody any good. I will talk from the time that the trustees took over this railroad. Is there anything that they have done with which you can find any fault in management ?
Mr. MARTIN. I do not think I should comment on that.
Senator PASTORE. All right. Well, I hope that sometime you would look into this and make that categorical statement for the record, because I think this is important.
What I am leading to is this: Even after the trustees took over the New Haven it began to slide downward, and the thing for us to determine is whether this sliding downward is attributable to mismanagement or to the vicissitudes. I think that is important, because we have to establish in the public mind why we are considering these bills.
Now, the point that I am making is this: I am willing to take the position today that those trustees have done a conscientious job under the circumstances.
Mr. MARTIN. I would agree to that, sir.
Senator PASTORE. They took over the management of this railroad under the direction of the court, and they tried to run it as best they could. They have come before this committee and they have testified that in spite of everything that we have done, because of the lack of passenger service, because of the inherent problems that are connected with commuter service, both around the Boston area and the New York area, there is nothing that they could do to salvage this railroad. As a matter of fact, they have been carrying the passenger service under the profits that they made from the freight service. But even that has changed, because since they built the Connecticut Turnpike even the freight service shows an operating deficit of $6 million or better, and can no longer salvage the passenger deficit, which is in the neighborhood of $12 million a year. Therefore the trustees have reached the point that because they can save the freight service if the Pennsylvania and the New York Central will take it over in their merger they have petitioned the court and the ICC for a discontinuance of the passenger service.
Do you follow the chronology that I am building up here?
Senator PASTORE. I am not trying to make a speech. I am trying to clarify the record here.
Now, as the problem now stands, whether we talk about socialism, whether we talk about Norway and Sweden, whether we talk about