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under section 13a involving railroads which have received grants or loans under S. 325, or similar legislation, the Commission will presume the trains involved to be required by the public convenience and necessity and their continued operation will not be an undue burden on interstate commerce, said presumption being subject to rebuttal by properly adduced evidence, and that the Commission give weight to a consideration of whether the particular carrier involved has made every reasonable effort to maintain the quality of its service. The Government should not permit itself to be confronted with a situation in which it is pouring money into a bottomless pit. It must have some assurance of a return on its investment.

As Senator Robert F. Kennedy pointed out in his testimony to this committee, the experience of the Federal Government as a creditor of the New Haven to the extent of more than $36.5 million indicates the danger of pouring more money into a rapidly increasing operating deficit without some firm guarantee that the funds will be used for modernization and improved service. To insure that any new Federal money given to the New Haven is used for improvements that will benefit the carrier and the public over the long run, the Interstate Commerce Commission, in our view, should be given authority to regulate the quality and the quantity of the passenger service of any railroad receiving such aid.

At its recent meeting, the AFL-CIO executive council adopted a statement on railroad passenger service in which it called for amendment of seection 13a to restore safeguards of the public interest. The RLEA also believes that such amendment is the essential first step toward the preservation of railroad passenger service in this country, and we urge your committee to also consider this problem in connection with your present deliberations.

In closing, I request that the text of the AFL-CIO executive council statement be included in the record at the conclusion of my remarks. A copy is attached.


In recent years, section 13(a) (1) of the Interstate Commerce Act has enabled the railroads to abandon interstate passenger trains on a wholesale basis. Abandonments have included prominent, well-patronized, and even profitable trains. Lacking any safeguard to protect the quality of passenger train service, the statute has served as an inducement for management to deliberately downgrade the service to justify subsequent abandonment.

We will support legislation which would restore safeguards of the public interest. Such legislation would require the carrier to file application for abandonment; it would require public hearing; and it would shift the burden of proof from the public to the carrier applicant. The Interstate Commerce Commission would be required to issue a certificate of findings that public convenience and necessity required discontinuance or change in operation of the service, and that continuance would constitute an unjust and undue burden upon interstate commerce. Such legislation would give the ICC authority over the quality of the service and would authorize the Commission to impose conditions for the protection of employees adversely affected by abandonments. It would require compliance under penalty of fines or imprisonment, and generally follow the statutory provisions of section 1(18) which govern track abandonments, etc.

STATEMENT OF NATIONAL ASSOCIATION OF MOTOR Bus OWNERS The National Association of Motor Bus Owners is the national trade association for the intercity bus industry and, in this capacity, serves as spokesman for those intercity motors carriers of passengers who provide somewhat more than three-fourths of the volume of such transportation in the Nation. Included in the association's membership are Greyhound Lines, Inc., affiliates of the National Trailways Bus system as well as independent operators.

This association, commonly known as NAMBO, has consistently taken the position that the furnishing of intercity transportation by whatever means is properly the responsibility of private enterprise and that no mode should be the beneficiary of Federal subsidies, particularly where such assistance to one mode results in worsening the competitive position of one mode vis-a-vis another.

This is precisely what occurred in the demonstration project, financed in part by a grant from the Housing and Home Finance Agency, involving the

Boston & Maine Railroad commuter service as pointed out in the statement to your committee by Mr. George M. Sage on behalf of the Short Line, Inc., Interstate Buses Corp., and Englander Coach Lines on March 12 during the New Haven session of these hearings.

The attention of the committee is called to the report issued by Chairman Webb of the Interstate Commerce Commission following a weeklong investigation of substitute bus service which was instituted following curtailment of railroad commuter service between Boston and suburbs to the north. The Commission's investigators found that the bus service now available to former riders of the Boston & Maine is "able fully to meet the needs of the traveling public.” The chairman stated further that “the frequency, cost, travel time, and comfort of those substituted services placed them on the average, at least at par with formerly available rail services. Moreover, motor carriers providing the substituted services have indicated a commendable willingness to continue such operations and, where necessary, to respond to changes in public user demand levels.” It was further noted that the substituted bus service on one typical route provided more frequent service, running times almost identical with the former rail service and fares well below the level of the rail fares.

We recognize the seriousness of the problem faced by carriers engaged primarily in providing commuter services, but we reiterate our view that these situations should be dealt with by the political subdivisions involved and not by the Federal Government.

Specifically with respect to the four bills under consideration, NAMBO wishes to associate itself with the views expressed by the Honorable C. D. Martin, Jr., Under Secretary of Commerce for Transportation and the Honorable John C. Kohl, Assistant Administrator for Transportation, Housing and Home Finance Agency. As pointed out on pages 2 and 3 of Under Secretary Martin's statement, the New Haven Railroad has already received extremely substantial aid from the Federal Government. Nevertheless, this has not resulted in a solution to the problem which, as pointed out by Governor Rockefeller's statement, is attributable to "a long and unhappy history of poor management, in some instances just plain mismanagement * * *." While the two situations might not be precisely comparable, it is significant to note that President Heineman of the Chicago & Northwestern reports that the suburban (commuter) service of the Northwestern brought in $14.9 million in revenue last year and made a profit of $706,00—three times the figure of the previous year.

While the primary interest of NAMBO in the situation involving the New Haven Railroad is in the long-haul phase of the operation as distinguished from commuter service, these two types of passenger service are carried out by the New Haven as integral parts of the same business enterprise and they are not economically separable. In this connection it is important to note that the motor carrier industry, including both buses and trucks, is the only existing form of transportation which has not been the beneficiary of some form of public subsidy. The development of rail transportation was assisted by the land-grant system ; the airlines originally received substantial subsidies in the form of airmail pay and continue to be assisted by the furnishing of airport facilities in some cases as well as navigational aids; and the inland waterway operators are not required to pay user charges.

Widspread allegations to the contrary, bus operators, along with other users of the highways are not subsidized by the accelerated program of highway construction. Users of the highways are now paying and have been paying the entire cost of the Federal-aid highway program—both the interstate and the $1 billion per year for State primary and secondary roads and urban streetsas well as most of the highway taxes assessed by the States. In addition to this total of nearly $55 billion in taxes dedicated to the highway trust fund over the 1956–72 program, highway users are also paying more than $244 billion a year into the general fund which is used for purposes other than highways. Further, highway users paid some $28 billion in automative taxes into the general fund between 1917 and the initiation of the accelerated program in 1956. This amounted to $8 billion more than the $20 billion appropriated for roads from the general fund during this period.

Specifically with regard to the intercity bus industry, the average tax burden on each and every coach owned by the class 1 intercity motor carriers of passengers amounts to $902 annually paid into the highway trust fund alone while another $35 per bus goes into the general fund of the U.S. Treasury and is not used for highway purposes. Further, a total of $2,083 per vehicle is paid to the State and local subdivisions for fuel and oil taxes, license and registration

fees, and tolls for a total of over $3,000 or nearly 4 cents for every mile these vehicles are operated.

It is an established fact that the intercity bus industry, which now transports some one-half billion passengers annually or about one-fifth more than the railroads and airlines combined, has developed without public aid in any form. In fact, it has literally lifted itself up by its own financial bootstraps. This remarkable achievement has been accomplished by dint of hard work and by constantly plowing back into the operations such profits as it was able to realize by enlightened management and sound regulatory procedures under the Interstate Commerce Act.

In the light of the foregoing, we vigorously oppose Federal assistance to competitive modes of transportation as contrary to the Nation's traditional private enterprise system and particularly where such assistance is proposed to deal with a situation which has arisen in large measure as a result of mismanagement.



My name is James R. Nelson. I am Charles E. Merrill professor of economics at Amherst College, Amherst, Mass. My interest in New England railroad problems and the problems of the New Haven in particular extends back to 1956. I was a witness before the Department of Public Utilities of the Commonwealth of Massachusetts in that year. In 1961, I acted as a consultant to the Council of Economics Advisers to the President on problems connected with Federal loans to the New Haven. In 1963 and 1964, as chairman of the board of economic advisers to Governor Endicott Peabody of Massachusetts, I represented the Governor on various New England transportation committees. I was also a member of President Johnson's Task Force on Transportation in the autumn of 1964.

I have just completed perusal of the hearings on S. 325, S. 348, S. 1234, and S. 1289 which were held in Washington and in New Haven, Conn., between the 2d and the 10th of March 1965. This statement is designed to bring my experience with national-and New Haven-railroad problems to bear on certain of the basic issues raised in the hearings:

First, for an issue raised repeatedly by Senators Lausche and Dominick: Why should the New Haven Railroad be subsidized by the Federal Government with respect to part or all of its passenger service, when other railroads are not?

This issue has two aspects, both of which appear in a question by Senator Dominick, made in the form of a statement (hearings, p. 369):

"I have a hard time seeing why in one railroad the freight should carry the passenger load, and in another railroad where they haven't generated the freight, the Federal Government should carry the passenger load."

This problem of discriminatory treatment recurs throughout the hearings.

The truth is that the New Haven, and southern New England, are now being discriminated against in two fundamental ways:

The first is that most railroads in the country, including the vast majority of the railroads providing passenger service west of Chicago and south of the Ohio River, are already receiving a passenger subsidy from the Federal Government equal to 50 percent of their passenger deficits. This subsidy is a product of their liability to Federal income tax. As long as their operating income is high enough to subject them to this liability, then every dollar's reduction of this income due to passenger deficit is accompanied by a 50-cent reduction in accrued Federal income tax. So the deficit is split 50–50: half to be borne by the stockholder, and half to be borne by U.S. taxpayers as a whole. It should be noted, in addition, that the extent of this Federal subsidy is solely at the discretion of the railroads on the one hand, and to a diminishing extent, the regulatory authorities on the other. Otherwise, and as viewed from the standpoint of the Federal Government, it is an open end commitment.

This point has already been recognized in the Doyle report, submitted to the Committee on Commerce so recently that it is the latest thoroughgoing study available, but already a classic. The Doyle report considered only one aspect of the problem, however: How to prevent half of State and local assistance to passenger service from being consumed by the Federal income tax.

The problem raised by the Doyle report is exactly the problem raised here.

The only difference is that I am concentrating on the problem itself rather than on the effects of one particular remedy.

Several railroads east of Chicago and north of the Ohio River pay no income tax. In terms of distance from any possible income-tax payment, the New Haven is perhaps the most obvious example. For a railroad, such as the New Haven, which would pay no income tax even without passenger service and its attendant deficits, every dollar of passenger losses means another dollar of additional deficit, with no cushion from the 50-percent Federal subsidy available to most other railroads. Hence, the effects of several of the bills now being considered would not be to create a discriminatory situation, but in one way or another to eliminate it. This result is particularly evident in the bill submitted by Senator Dodd (S. 1289, sec. 604 (c)).

The second form of discrimination against the New Haven and against southern New England, relates to Senator Dominick's reference to railroads which “haven't generated the freight.” A railroad may generate the freight in three different ways: It may originate, it may terminate, it may act as a bridge line. Aside from Maine paper and Maine potatoes, the New Haven has limited potential as a bridge line for overhead traffic moving from north to south. In view of the sparseness of the population of northern New England, there are similar limits to movements from south to north. But the normal meaning of the word "generate” is to "originate or terminate.” Without shippers and customers, no freight could ever move. Here is the record of the southern New England States for originating and terminating freight per mile of railroad in 1960, as compared with the rest of the United States:

[blocks in formation]

2, 428

5, 007

29, 252




3, 875

7, 526

21, 971
51, 675

26, 518 101, 617



Rhode Island:


United States: Terminating.

2, 649

4, 560

36, 823


2, 743
4, 319

6, 655

27, 865
46, 486

32, 758 89, 282

3, 531

4, 860

37, 171

61, 020


5, 546

16, 512

33, 760

Source: Interstate Commerce Commission, Carload Waybill Sample, 1960.

Thus, if the word “generated" is taken to be equivalent to “originated or terminated," each southern New England State was far above the U.S. average for manufactures and miscellaneous tonnage, and not much below for total tonnage. Due to the favorable product mix of New England freight (or “freight consist”), as well as to unusually long hauls for the total trip to and from New England, revenues generated by New England freight ranged from 50 percent higher (Connecticut) to almost twice as high (Massachusetts and Rhode Island) as the national average per mile of rail line. The year 1960 was chosen, incidentally, for three reasons: The Connecticut Turnpike was fully open for all of 1960 for its first calendar year of operation; the ICC data are not available for years since 1961; and 1961 was relatively a worse year for the country than for New England.

The trouble with the New England railroads, of course, is that they get to keep so small a proportion of the freight revenues they generate. Thus, revenues from shipments of freight which moved wholly within southern New England provided less than 1.7 percent of total revenues for freight originating and

terminating in southern New England. By contrast, freight shipments between New England and the States west of the Mississippi River provided almost 31.5 percent of total revenues from New England originations and terminations, and shipments moving between New England and other States beyond the Middle Atlantic group of New York, Pennsylvania, and New Jersey provided another 44.2 percent of total revenues.

So it can scarcely be maintained that New England rail deficits are a product solely of New England conditions. They are, rather, a product of the fact that New England railroads often have to feed the cow, via expensive terminal operations, while railroads in other sections are in a position to milk it via profitable long hauls. Again, New England is being discriminated against in the sense that it is helping to create freight revenues which it cannot retain. It is popularly believed that the New Haven Railroad is amply compensated for its terminal operations by favorable rate divisions. The ton-mile figures seem to bear this out. For example, in 1960 they showed that New Haven receipts per ton-mile were some 78 percent above the national average. But if these figures are converted to a car-mile basis, and corrected for differences in commodity mix and length of haul, New Haven receipts are actually below the national average.

Another point that may require emphasis concerns relative tax loads. On a per capita basis, State and local tax accruals for the southern New England States were far below the national average of $1.87 in 1960 : Rhode Island, $1.35, Massachusetts, $0.93, Connecticut, $0.47. These may also be compared with New York, $2.38, and New Jersey, $3.04. Massachusetts is unique among Eastern States, and perhaps in the country, in levying no tax against railroad rights-ofway and the rail lines built on them—and in having levied no such tax since the 1810's. Connecticut has now eliminated all railroad taxation, and Rhode Island has reduced it by about 50 percent. It should be stressed, therefore, that the southern New England States had already done more for the railroads in the way of lightening their State and local tax burdens than most other States even before the New Haven crisis. If State aid to the New Haven and other passenger railroads were to include all State tax reductions, then obviously States like New York and New Jersey which have always levied much heavier taxes against railroads would get credit for a larger subsidy simply because they had previously imposed a more onerous burden.

Third, it is evident that New York is in quite a different position from the three New England States. As Governor Rockefeller candidly pointed out:

* * * no enthusiasm for supporting through traffic" exists in New York State, and this, doubtless, for an obvious reason. New England travelers have many reasons for going to, and through New York, New York travelers have fewer reasons for going through southern New England. This attitude on the part of certain States was one of the main reasons for the ratification of the U.S. Constitution in place of the Articles of Confederation. It became painfully evident that individual States not only could not provide for the common defense, but also could not satisfactorily develop commerce among themselves. The phrase "more perfect union" may not be grammatically correct, but it is eminently sensible to an economist. It clearly indicates the importance of interstate relations, The commerce clause, in turn, has become the very fulcrum of the Federal Government's leverage in all portions of the national economy. Therefore it comes as a shock, constitutionally as well as economically, to read the testimony of Under Secretary Martin, which seems to retreat even back of a "horse and buggy" constitution. The anxiety to divorce the Federal Government from the immediate problems of long-distance rail passenger service seems to be not so much unconstitutional as preconstitutional. As Senator Pastore commented:

* * * I cannot see why the Federal Government should be interested in the commuter service and save it and not be interested in the real lifeblood of the railroad itself, which means the long haul * **. (P. 509.)

On the face of the evidence, the only answer would seem to be that the Federal Government has transposed the words "intrastate” and “interstate."

Fourth, and arising directly from the previous point, is an apparent confusion between primary Federal responsibility and primary Federal financing. In view of the difference in interest between New York, on the one hand, and the New England States, on the other, the chances of a joint approach on the basis of State initiative appear slight indeed. At best, New York authorities have shown only intermittent interest in supporting commuter traffic, and even this has been watered down by allegations that the New York commuter deficit is very

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