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wait for ICC or anybody else, because they are taking too long, it could preserve the trust estate under its organic bankruptcy power, and we are of the feeling that there is mighty little that might be able to be done about that if we dally too long.
Senator PASTORE. To go a step further, realizing that you do have an open end, and I don't care how soon or how long it takes, the fact of the matter is that at some point you have to segregate this problem. That is, there is an accounting problem as to how much of this deficit is chargeable to commuter, as against the enitre system itself. It strikes me that what we are actually saying here is that it would be in the interest of all if all of the States began to act speedily to see if they can't work out some arrangement whereby this contract that you are talking about could be for the whole system.
Senator Javits. Mr. Chairman, may I return the Chair's compliment? The Chair is very astute on that and for this reason. Whatever may be the law, whatever may be the provision of my bill, whatever may be the provision of the other bill, it is a fact that when contracts are being made and signed, that is the time for the small partners to get in on the deal. And in my judgment the best chance of Massachusetts and Rhode Island getting the service continued as a general passenger service will be right now, when the deal is on the table to be signed is when they are the most likely to get an effective result for themselves because it is my understanding that what the big roads are going to try to do, if they have to take in the New Haven, and I hope and pray that the Department of Justice doesn't let up on that one, because we would really be in trouble if that is the case, but assuming that they do have to take in the New Haven, they are going to start by trying to strip it of its whole passenger service and say they will operate that, sure, if they are paid for it.
Their second rampart is going to be the commuter service where they possibly, have a better case, because the losses perhaps really would make it impossible to actually take the New Haven. Therefore, I think that this is the time when the other States should get into the act and do their utmost to see that their service is also preserved while he commuter service is being preserved so that you begin to have the lines of business arrangement upon which New York, New Haven, and Hartford can intelligently be made part of the merged picture and the fundamental viability economically will already have been established.
I thoroughly agree with the Chair that it is not a legal question. It is a question of policy.
Senator PASTORE. It is a question of practical negotiation.
Senator Javits. Exactly, and I would hope that those States, those Governors would move into it just as rapidly and just as actively, realizing not that their service is about to be closed down as quickly as the commuter, which is in imminent danger, but they are up, just as sure as the commuter is, and this is the time to get in the tent which is being built by the two States with the major interests.
Senator PASTORE. Any questions of Mr. Javits?
So, Mr. Chairman, the bill, our bill, I think I have already given a general description of the situation, but I would like to give a little idea of the orders of magnitude. The trustees themselves of the New
Haven contend that the commuter service is responsible for $5.5 million of the overall current deficit in net income of $12 million. And there is even a considerable amount of argument about that, Mr. Chairman, because it is claimed that certain revenues of the New Haven, which result from the ownership of real estate around Grand Central Station, should be used to reduce that deficit. And the reason I mention that is because that here is the road suffering the major loss and in the most imminent danger, and when you get down to the practicalities and begin to compare what is involved here with this and other commuter services with what we are spending, and as I have given an order of magnitude, in the airlines, for example, of $84 million, ships, in highways, it seems to me that you begin to get to the doctrine of de minimis, in other words, as we have already crossed the hill on the question of subsidies, what is involved here in order to keep this situation viable so that you can ultimately do something about it is really not a very great figure.
The bill also provides that the subsidy program is limited to 2 years and that the Federal share that is sought is one-third.
In addition, the bill carries over the $500 million capital expenditure bond issue proposition, which Senator Pell has in his bill, except it leaves it open that the bonds may be guaranteed either by a bi-State or tri-State or four-State authority, or by the Federal Government or by both, leaves that all open to contract. And I would like to answer the chairman's question about who carries the debt service.
Debt service is part of the operation and so if the States split the deficit two-thirds, one-third, with the Federal Government, they will have to underwrite two-thirds of the debt service.
In short, the capital issue, as I understand business and finance, represents a separate activity by the Federal Government from any subsidization, underwriting, and therefore the capital carrying costs would be an element of the carrying charges for each particular road to be shared based upon how they share the carrying charges.
That, it seems to me, is elementary except for this one point, which I think needs to be emphasized. In any case, equipment will continue to be owned by the authority and by the United States and we are talking only about equipment loans, and banking experience has shown that equipment loans are pretty good loans, so I do not think that we have to contemplate $500 million as going down the drain, any more than we contemplate that the $61 million in the mass transportation bill, which we have already appropriated, is going down the drain.
Equipment is pretty good security in and of itself. It can be used on this or be used on any other road, and therefore I believe that should be emphasized, that the guarantee of the bonds will be the Federal Government and the States or whatever they do by contract, the carrying charges will be part of operations, but the bonds themselves are issued on pretty good security.
Equipment loans generally have been pretty good even for private banking firms, and this will be secured by the equipment.
Senator PASTORE. If you had a Federal guarantee of bonds for new equipment and replacements for modernization, tell me, why do you include the one-third Government participation in the deficit?
Senator Javits. I include it because I think that this is a situation in which the Federal Government ought to liquefy the situation by helping with the deficit.
The States are going to pay very heavy proportions of it and it is an incentive, as it were, on the Federal level as these are interstate roads.
Passengers, for example, who pass along these roads are not necessarily terminating in the States which are paying the tariff. They may be going on to other States. They may have come from other States. Senator Prouty raised the very essential point and therefore there is a Federal interest, not just the States themselves that are concerned.
We do our best, and with a very rough measure of justice on that score. The committee, I assume, will apply its intelligence to what the Federal share should be.
For example, this morning, in the Labor and Public Welfare, we made the Federal share in MCTA only 10 percent, because it was our judgment that was right for that situation.
In other matters, you make it very much greater. There are inverted formulas which result in States paying 70 or 80 percent in different things. We are giving, at least I am, and I am sure Senator Dodd is, the best rough measure of justice we can as to the division.
Senator PASTORE. But you do feel that, in addition to the guarantee of the Government bonds, bonds by the Government, that there ought to be some participation in operating deficit ?
Senator JAVITS. For a limited period. May I say, I know Senator Pell wants to be recognized on his basic point, but may I finish?
Senator PELL. I am a guest.
Senator JAVITS. The only thing I would like to ask, Mr. Chairman, is the limited-period concept is very intelligent and for this reason: There is a road which is showing that with good advertising, modern equipment, more schedules rather than less schedules, you can make commuter service pay, and that is the Chicago & North Western, where Mr. Heineman is doing a brilliant job.
Brilliant, because it is a pilot plan, because it is showing you how to do it. Therefore I do believe the thing that has wrecked these railroads, even on commuter services, is that they have gone downhill because they have drained the commuter service, whatever it is capable of, for the total passenger service. Therefore the equipment has gotten out of date, trains have been very late and they have lost customers.
Railroads, like everybody else, have got to give the best service in order to attract customers. Therefore I advocate a limited period of subsidy during which the lifeblood shall be pumped into these roads, so they can be kept going in order to preserve a national asset of great consequence and then getting to the point with equipment loans and other modernization concepts, perhaps new signaling or raising the platforms, I am told is necessary so that you can have greater automation and emission and egress.
You can have ticket buying like you do it in Europe, instead of on the train like you do it in the United States. All of these things would directly contribute to the break-even point. Therefore it is logical in this matter not to think about a subsidy going on and on and on, but of one of limited duration.
Senator Dodd suggested 5 years. I suggest only 2 years. And then, taking another hard look at it, because I think it is manageable within those periods based upon the equipment concept, which will
bring these commuter railroads up to par and get them doing business where they can pay their own way.
It is interesting, Mr. Chairman, that the average fare to the commuter is $1.60 for all commuting railroads.
Now, the Chair and all of us Senators who aren't living in dream worlds, are all very familiar with the ratios of patronage to cost.
These cars, during off hours, travel three-fourths or more empty and this is all a problem of management and a problem of salesmanship which, if you have something to sell, you can make these railroads pay.
So, I think the concept of limited subsidy for a limited time is a valid one. It is not just trying to make it more palatable. It is really valid in terms of the economics involved.
Senator PASTORE. Do you want to ask a question ?
Senator PELL. Thank you. I am a double guest because I guess I am out of turn.
I thank you very much, Mr. Chairman.
Senator Javits brought out the point that I perhaps did not answer clearly enough when you asked me whether the operating costs would include the interest and amortization.
If my bill was passed, per se, then the Federal Government would have the ultimate responsibility on that and have to pay for it. But my approach is fused with the Dodd or Ribicoff approach. Then, as Senator Dominick brought out, one might get a double kick which might be a bit too much. One would have to, in my mind, come up with some sort of formula like Mr. Javits has. Senator Javits said, “Prorate the Federal and State guarantees, amortization, and interest of the bonds." That, to my mind, sounds quite right if the two bills are not fused.
Senator PASTORE. We will now recess until 2 o'clock, at which time we will hear Senator Kennedy of New York, Senator Saltonstall of Massachusetts, Congressman Fogarty of Rhode Island, Congressman Giaimo of Connecticut, Congressman St Germain of Rhode Island, and Congressman Reid of New York.
(Whereupon, the committee was recessed at 12:25 p.m., to reconvene at 2 p.m., this same day.)
AFTERNOON SESSION Senator PASTORE. All right, this hearing will please come to order. This is a continuation of our session this morning.
I have two statements, one from Representative John E. Fogarty, of Rhode Island.
If there is no objection, I ask that it be placed in the record at this point.
(The statement follows:)
STATEMENT BY REPRESENTATIVE JOHN E. FOGARTY, DEMOCRAT, OF RHODE ISLAND
Mr. Chairman, I appear before this committee to testify in full support of S. 348 to establish a Northeast Rail Authority to operate the passenger service of the New Haven Railroad. I commend our colleagues Senator Pastore and Senator Pell, for their work in connection with this legislation, and I want you to be assured that we in the House of Representatives are going to do everything we can to resolve the New Haven crisis.
I speak as a Representative of an area that has a substantial direct stake in the survival of the New Haven's passenger service. The railroad runs nearly the whole length of the Second Congressional District in Rhode Island; the 44
miles of track between Westerly and Providence are virtually the transportation axis of my district.
On these tracks essential and vital service is rendered that would be very hard to duplicate if the New Haven passenger service is allowed to die.
I was interested to note a press story recently that said there are at least 117 Rhode Islanders who commute daily all the way to New York City. Most of them do travel via the New Haven, and many of them come from my district.
The great flow of essential commuter traffic in our area is, of course, in the other direction, north to Boston. Perhaps our most celebrated train in this service is the 508 which is made up in Connecticut each morning, crosses Rhode Island, and services the Providence metropolitan area and then proceeds on to Boston.
The 508 is a striking example of the need for firm and binding interstate arrangements to preserve passenger service, as provided in the Pell bill. Here is a train that serves portions of three States, providing convenient transportation to work for hundreds of residents of Connecticut, Rhode Island, and Massachusetts. Clearly, it would be very difficult to continue and sustain such interstate service on any patchwork plan of public assistance that doesn't recognize the basic regional nature of the New Haven's passenger service. It is equally clear that trains like the 508 could well be lost in the shuffle if all public attention is directed to solving the New York metropolitan commuter problem. The New Haven problem is a regional, multistate problem and S. 348 is the only sensible way to handle it.
I want to say, also, that I fully support the provisions of the Pell bill for sharing the financial burden of this regional service, with the States making up the operating deficit and the Federal Government guaranteeing the capitalization of the agency. It is high time that the States made a firm commitment to carry their share of the load, particularly in view of the fact that the Federal Government already has paid out a total of $28 million to cover loans defaulted by the New Haven. There can be no further pledging of Federal credit for the railroad unless the States contract to do their part, and Senator Pell's bill sets forth a very reasonable and explicit formula by which the States could do their part. I fully support the plan, and I hope that the Senate will see fit to take favorable action. I assure you we will make every effort to match your efforts promptly in the House.
Senator PASTORE. I also have a statement here from Congressman St Germain, of Rhode Island.
If there is no objection, I ask that it be made part of the record at this point.
(The statement follows:)
STATEMENT BY REPRESENTATIVE FERNAND ST GERMAIN (DEMOCRAT OF
RHODE ISLAND) Mr. Chairman, I appreciate this opportunity to appear before this committee to express my concern over the plight of the New Haven Railroad and to express my support for S. 348, Senator Pell's bill to establish a Northeast Rail Authority to operate the New Haven's passenger service on a fully guaranteed basis.
My concern is both immediate and long range. Immediately, we are faced with the problem of preserving an essential public service without which our area, and my district in particular, would be hard pressed to provide alternatives. The main line of the New Haven Railroad connecting Providence and Boston bisects the northern part of my district. Approximately 22 passenger trains a day each way make the Boston to Providence run, and although over half of them are long-haul carriers, they all offer convenient service to my district.
A recent press survey in Rhode Island showed that approximately 10,000 Rhode Islanders travel daily by common carrier to the Boston metropolitan area to work. Not all of them go by railroad, and I note that the official figure for commutation on the Providence-Boston line in both States is 6,000 daily. That there is considerable flexibility in this market was shown during 1963 and 1964 when a demonstration project involving increased frequency of service and lower fares produced a 27 percent increase in ridership between downtown Boston and the Rhode Island line,
The New Haven Railroad's passenger service thus is important to my district at present and could be even more so in the future. For this reason it seems to