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Our basic philosophy is that the States, and, possibly including within the term “States," some of the larger municipalities, should provide the operating losses, just as they provide maintenance on the highway program.
But the bulk of the capital expenditures needed must come from the Federal Government.
We have two precedents in this interstate highway program and Mass Transportation Act where, I think, one or more of the costs are provided by the Federal Government.
Senator PASTORE. Do you see any difference, Mr. Bradford, in government responsibility, between a resident of Westchester County who wants to go and goes to work, let's say, in Manhattan, and with a person who lives, say, in the Bronx, who wants to go to Manhattan?
What is the difference, really?
Mr. BRADFORD. The man who lives in the Bronx, and goes to work in Manhattan, is, to some extent, himself subsidized.
Senator PASTORE. By whom?
Why do you say that there is a Federal responsibility just because that individual wants to live in Westchester County where the air is beautiful, and the lawns are very green?
Mr. BRADFORD. As I look at the total picture, the New York metropolitan region, the commuter railroad is bringing in travelers from Long Island, Connecticut, and Westchester County, and to northern New Jersey, and we see a network of rail transportation which must be rescued.
I think, when it comes to reaching decisions as to how this is done, you will have to look at the availability of resources.
New York City has already undertaken a major share of movement of workers into the central business district by providing subway transportation.
New York State has just evidenced its program on the Long Island Railroad.
All the temporary bills that have been proposed in Connecticut and New York will provide only short-term relief for the New Haven.
Senator PASTORE. I am not trying to be- I want this clearly understood—I am not indulging in any impertinence here. I would like to provoke the thinking of these witnesses, because these arguments are thrown at us when we get on the floor of the Senate.
Is there a distinction between the Long Island Railroad, as to who should support the operating deficit, and, let's say, the New Haven out of Stamford or Pelham or Riverside or Westchester County?
Is there a difference?
Should the Federal Government step in to accommodate a person who wants to live in suburbia but work in the city?
Is there any difference? I mean, I am getting into this question here of national policy. In other words, once you go so far as to say this, and, if we do, if we do indulge in a policy which assumes operating deficits on the part of the Federal Government for a commuter service which stretches over more than one State, is there just as much reason for the Federal Government to participate in commuter services that are intrastate?
Mr. BRADFORD. Our only thinking on the subject, Mr. Chairman, is we draw no distinction between the major railroads that are entirely intrastate and the ones that are interstate.
Senator PASTORE. That is what I wanted to know.
Mr. BRADFORD. We feel the problem is moving the commuters into the New York central business district.
As we look at the New York metropolitan area, we see an area that is absolutely vital to the Nation's economy, not only as a financial center, but, in our 22-county areas in 3 States, we have 10 percent of the population of the entire United States. We have 10 percent or more of almost any slice you want to take in terms of business, and there are more financial businesses, cultural areas, and our area provides a great deal more than 10 percent, probably close to 20 percent, of the total Federal income tax revenues.
We think it is vital, in the interests of the U.S. Government to preserve this revenue-producing area.
And we know it can exist only if people can get to work in the morning and get back at night.
We think it is a good investment of Federal funds to rebuild the entire rail commuter service in the New York City area, to preserve this national asset, income-producing asset, without which other Federal programs cannot be supported.
Senator PASTORE. All right, thank you very much, Mr. Bradford. Mr. BRADFORD. Thank you, sir.
Senator PASTORE. Incidentally, before we go further, I have a telegram here from Mr. Dodd, which I would like to read. (The telegram follows:)
WASHINGTON, D.C., March 11, 1965. Hon. JOHN PASTORE, U.S. Army Reserve Training Center, New Haven, Conn.:
I would appreciate it very much if you would read this brief statement during your hearing today.
“Although I did testify last week, I want to make a brief statement at this hearing, to reafirm my deep and continuing concern over the New Haven problem.
"As you know I have introduced legislation to meet both the immediate and the interim financial needs of the New Haven Railroad. Federal help is essential if commuter and passenger services are to be kept going until an interstate agency can be established.
“Fifty million dollars or so now and during the next 4 years will save us billions of dollars, the billions in rail equipment and tax revenues we would lose and the large sums we would have to spend on alternative means of transportation, such as highway construction.
"A Federal subsidy is the only way out for us. If we do not come through with one, each and every one of the commuters who are represented here today will face the future with absolutely no assurance that there will be adequate, or any, rail transportation available.
"I am hopeful, indeed optimistic, about Congress taking the necessary steps to initiate Federal assistance. And I hope we can obtain administration support for the final proposal we work out on the basis of my bill, Senator Ribicoff's, and the two bills to set up interstate passenger authorities.
"The unfavorable testimony, before this committee yesterday, of Clarence Martin, a Commerce Department spokesman, in which he expressed opposition to all four of the railroad bills, has had the effect of making me want to fight even harder both for short-term Federal funds and for Federal support of an interstate rail passenger authority. And I am sure many of my colleagues will react in the same way.
“Anyone who can sit before this committee and state that the New Haven Railroad is a State and local problem and one that should be solved without Federal intervention and assistance, giving an unenlightened opinion as far as I am concerned.
"It is an opinion which is sadly put out of touch with the realities of the problem. Yet Mr. Martin told this committee, which has held hearings for almost 2 weeks on what the Federal Government can do to assist, that we should not do anything.
“We have to work together to overcome this bias against Federal assistance for railroad passenger travel and I will cooperate with Senator Pastore and my other colleagues to accomplish this.
"And I think I can promise that we will do our very best to bring adequate and prompt Federal help to the New Haven Railroad and to the commuters."
THOMAS J. DODD, U.S. Senate. Senator PASTORE. If the press would like to see this, they are welcome.
All right, sir.
Mr. Schámus. May it please the committee, my name is Sanford Schamus.
(The statement of Sanford L. Schamus follows:)
STATEMENT BY SANFORD L. SCHAMUS, ATTORNEY AT LAW May it please the committee, I appear today as an individual attorney at law who has specialized in matters of corporation law and finance since admission to the bar of New York in 1937 and who has specialized in railroad matters for the last few years. For reasons that appear in a report I shall identify in a moment, I ask to be considered as a qualified expert in these matters who has made a long-range study of New Haven affairs for the last 2 years. In November, I submitted a comprehensive report on the “Pell Proposal for a High-Speed Transportation System From Boston to Washington" to Dr. Robert Nelson. Dr. Nelson is project manager of the so-called Northeast corridor transportation project in the Department of Commerce in which has been centered the administration's studies of northeastern rail problems. As will appear from the list of distributees in appendix B of this report, it was submitted for the consideration of key members of the executive branch of the Federal Government, experts in corporation law and finance in the great universities and interested Members of the Senate. Senator Ribicoff is familiar with the report and has suggested that it be offered to this committee for inclusion in the printed record of the hearings. Copies of the report have been furnished to members of the committee and I shall take the liberty of referring to it as I proceed.
In the limited time available to me I shall highlight my conclusions on the Pell proposal which is embodied in S. 348 and represents a major attack on the overall problems epitomized by the plight of the New Haven. As Senator Pell observed in his appearance before this committee, his proposal is a long-range solution, not an immediate rescue operation. Before commenting on his proposal, I would like to make clear the basic assumptions upon which my testimony is based.
First, no effective solution can be achieved without understanding the basic causes of the plight of the New Haven.
Second, in attempting to meet the crisis now upon us, it must be recognized that obvious solutions by way of subsidy may entail fatal consequences unless careful safeguards are built in by this committee.
Third, the problem is more than a railroad problem; it is a New England problem which must be tackled on a regional basis not a piecemeal basis.
Fourth, the Federal Government should support a takeover of New Haven passenger service only if public ownership proves the only possible solution.
Fifth, there is a workable alternative to public ownership.
On the cause of the plight of the New Haven very little of real substance has been said in the hearings. The Interstate Commerce Commission Investigation of 1960–61 produced a comprehensive analysis of the causation of New Haven's declining freight and passenger revenues. This analysis should be thoroughly considered by this committee before it acts on the proposals now before it. Essentially the freight revenues have declined not merely because of the subsidized competition of the truckers moving over the taxpayer-built superhighways of southern New England. They have declined because freight rates are too high. And because they are too high, they have helped-along with other major causes—in driving New England industry to the south. Until you reverse this major process and bring back New England industry on a large
scale, there is little hope that the New Haven will resume its place as a solvent, indeed a profitable, railroad. The passenger rates are much too high, particularly the commuter rates. Over the years it has been very easy for the management of this railroad to keep increasing its commuter fares, each time with a plea to the public authorities involved that the revenue was needed to balance mounting commuter losses. Each time more commuters dropped out. Now the trustees admit they have reached the end of that line; they don't dare raise them further. They also state that in the Boston area tests reducing rates show reductions are not desirable. Of course not, so long as the equipment is incredibly shoddy and the service tolerable at best. Look to Philadelphia where the Pennsylvania Railroad, under a plan worked out with the city of Philadelphia, has put in fine new commuter service equipment, stepped up schedules, and sharply reduced rates. Excellent results have been achieved. It can be done if the line's rescue operation involves more than a simple revenue bailout and more than a token purchase by New York and Connecticut of commuter cars. The New Haven once was a fine railroad; it ran a very profitable operation. Its securities were in the portfolios of every Boston trustee. Do we dare dream that it can happen again. Gentlemen, it can be done and that's no dream.
You need a short-range rescue operation, in cooperation with State governments who have finally come forward with offers to do their part. Redraft these bills into a new measure to give this system a 2-year breathing spell, and in that time a real job can be done. In my memorandum on Senator Pell's proposal, embodied in the report, I outline an alternative to his governmental authority approach to the problems of the New Haven. At Senator Pell's request I submitted a second memorandum, assuming that his authority were adopted as a matter of public policy, outlining what might be done to include the basic elements of my suggestions. In essence my own proposals call for the creation of a federally chartered enterprise, by an Act of Congress which includes authorization for an interstate compact, to assist such an enterprise. It presupposes that the New Haven will be taken over lock-stocsk-and barrel for a cash purchase price paid to the trustees under court order in the reorganization proceedings before Judge Anderson, such price suggested at $75 million. This is a realistic figure for the present value of the New Haven as an operating property, free and clear of liens. In November I asked Dr. Nelson his opinion of the present value, based on the studies of his group. His answer was close to mine, $80 million.
Add to the New Haven the other New England lines, as proposed by the managements of the New York Central and Pennsylvania Railroads during the proceedings before the ICC on their merger proposal. I am aware that studies were made of his approach a few years ago. The project was abandoned by the New England railroad presidents' conference, chiefly because of the mounting passenger deficits of the New Haven and the Boston & Maine. May I observe that of the 63 principal railroads in the United States, other than the Long Island which operates under a special tax shelter, only the Chicago & Northwestern Railway shows a profit on its commuter service. But then, they have a good management which has pioneered the way to modern commuter equipment and lowered fares.
Let's get one thing straight; the New Haven was badly mismanaged for years and New England is paying the penalty. Aside from mismanagement, it is unlikely in our generation that any major railroad will have a profitable passenger service. That doesn't mean that the Federal Government should take over passenger service and run it at the expense of the taxpayer. It merely means that we recognize that in modern industrial America freight service is profitable enough to carry passenger service and should continue to do so. I would remind this committee that the New Haven and its components, innumerable smaller lines acquired over the years, were all enfranchised as passenger lines. To abandon passenger service would be a violation of the franchise which a given State gives a railroad to serve the public under monopoly of semimonopoly conditions.
The proposed New England Railway system would be a great railroad system given a revival of New England industry. My proposals center on achieving that goal, starting with quid-pro-quo subsidies from the States against each reduction in freight rates. Add the Connecticut approach to removal of property taxes, State by State. Add a requirement that a proportion of the revenues of the system be devoted, through a subsidiary to be known as New England Development Corp., to bringing industry back to New England and actively encouraging new enterprises. Within 5 years you would have such a
revival of freight traffic that the problems of management would change substantially. Above all, modernize the system. This presupposes cooperation of the Federal Government, particularly passage of the proposals embodied in President Kennedy's 1962 transportation message. This includes giving flexibility for lowering rates to railway management.
On this basis, my overall plan is financially feasible by resort to normal private investment banking methods. I have consulted with leading investment bankers on the feasibility of the plan, as is made clear in the report. I have been told my approach is realistic. This job can be done in the traditional American way, without crutches from the Federal Treasury.
Mr. SCHAMUS. Sir, I am admitted to the bar of the Interstate Commerce Commission. And I am a participant in the PennsylvaniaCentral merger proceedings.
Senator PASTORE. In what capacity?
Mr. SCHAMUS. I represent the West Side Chamber of Commerce of the City of New York in that proceeding.
At this point, I would like permission of the committee to file a report which I had submitted.
Senator PASTORE. How voluminous is it?
Mr. SCHAMUS. It is a voluminous report, and about 30 papers deal with the Pell proposal specifically.
Senator PASTORE. What we will do, we will incorporate it by reference. It will be in our files, and we will mark it, and look at it. Otherwise, we are going to get ourselves into a tremendous hearing record.
Mr. SCHAMUS. Yes, of course. It represents a major attack on the overall problems epitomized by the plight of the New Haven Railroad. But, of course, it goes beyond that.
It involves, as you said before, Mr. Chairman, a major policy question, involving the entire railroad industry.
As a matter of fact, this report came out of the original suggestion made by the President's office for a national policy looking toward a long-range merger of the entire industry, the seven major railroad lines, for national defense purposes,
5 years ago, and these subjects have come up ever since, by treating the problem of the railroad commuter, as such, from a railroad point of view.
First, I would like to make clear my basic assumptions.
My first assumption is that no effective solution can be achieved without understanding the basic causes of the plight of the New Haven.
And, second, that an attempt to meet the crisis which is now upon us, it must be recognized that obvious solutions by way of subsidy may entail fatal consequences unless careful safeguards are built in by this committee.
Third, the problem is more than a railroad problem of the New Haven, as such. It is a New England problem, which should be tackled on a regional basis and not on a piecemeal basis.
Fourth, the Federal Government should support a takeover of the New Haven passenger service only if public ownership proves to be the only possible solution.
Finally, in my belief, there is a workable alternative to public ownership
That came up