thereof, which, in the judgment of the Commission, is reasonably related to the purposes and policies of the Federal assistance legislation.

"(4) In determining the benefit derived by the carrier from the aid programs of State and local governments and instrumentalities thereof, and the extent to which such benefits are reasonably related to the continuance of passenger train operations required by the present or future public convenience and necessity, the decision of the Commission shall be final.

"(5) In the determination of any proposed discontinuance of service filed pursuant to the provisions of section 13a (1) of the act, the Commission shall give appropriate weight to any representations relative to public convenience and necessity which may have been made by the carrier under this assistance act and to the amount of aid extended to the carrier by the State or States, municipalities, and political subdivisions and instrumentalities thereof directly affected by such proposed discontinuance."

Attached as appendix G to our report in the New Haven case, docket No. 33332 (incorporated by reference in the record of the hearings on August 30 on the decline of the Nation's common carrier industry) is a "Statement of Passenger Revenues, Passenger Deficits, and Expenses of Maintenance of Way and Structures" for class I railroads conducting passenger service for the year 1960. The fifth column of figures in that appendix shows the amount of aid potentially available for each such railroad in 1961 under paragraph (1) of the above recommendation if the legislation were now in effect. The sixth column of figures, subject to the same qualifications, represents the maximum amount of aid that could be extended under paragraph (3) of the recommended legislation to class I railroads. Figures for class II and electric railroads having annual passenger revenues in excess of $500,000 are set forth in appendix H to the report in docket No. 33332. No separation is made of expenses between freight and passenger services since the Commission's separation rules apply solely to class I railroads. In any event, Federal aid under the recommended legislation would be negligible for this group of carriers.

Viewing the legislative recommendation in the light of the desirable characteristics of a Federal assistance program, we believe that the following conclusions are warranted:

(1) Inasmuch as the amount of financial aid is not directly and primarily dedependent upon the size of the passenger deficit, management would have a strong incentive to cut losses arising out of the performance of passenger services.

(2) There would be no necessity for the Federal Government, therefore, to limit the number of passenger trains that might be run.

(3) We estimate that no more than 10 accountants would be required for the administration of the aid program in addition to the number of field accountants already requested for fiscal year 1962-63. Furthermore, we believe that the other administrative requirements of the recommended aid program could be absorbed by the Commission with the addition of no more than 5 or 10 other employees.

(4) Since the Commission's separation rules are already in existence and reflected in rail carrier accounts, little or no discretion would be involved in computing the amount of aid based on maintenance of way and structures directly assignable to passenger service or on the allocation of common expenses between freight and passenger service. Nor would any broad discretion be involved in determining the additional expenses incurred by State and local governments in the preceding calendar year in the maintenance of way and structures which would otherwise be incurred by carriers and directly assignable to passenger operations. Little exercise of discretion would be required in determining whether or not specified passenger operations set forth in the application for aid represents a substantial part of the applicant's total passenger operations. A considerable amount of discretion would at times be involved in determining how much benefit the carrier derived from the aid program of State and local governments. For example, the tax relief legislation recently enacted by the Commonwealth of Massachusetts may prove to be of no benefit to the New Haven Railroad because of its restrictive provisions relative to termination of employment.

(5) The legislation recommended above should encourage the enactment of tax relief and other assistance programs by State and local governments with a view toward insuring the continuance of passenger operations required by the public convenience and necessity. As indicated, the amount of assistance received by the carrier by virtue of that portion of maintenance of way and structure expenses allocated to the passenger service is determined by the amount of aid extended by State and local authorities.

(6) The amount of Federal aid available under the proposed legislation is not so large as to encourage the continuance of passenger operations not required by the public convenience and necessity. In proceedings arising under section 13a (1) of the act, the Commission has held that costs attributable to maintenance of way and structures may not be included as out-of-pocket costs. Great Northern Ry. Co. Discontinuance of Service, 307 ICC 59. Accordingly, the amount of aid extended under the proposed legislation could never be so large as to discourage the discontinuance of passenger trains seldom used by the traveling public.

(7) We believe that the amount of Federal aid herein recommended is large enough, however, in conjunction with State and local assistance, to insure the continuance of essential passenger operations. If it should develop, for example, that the New Haven would benefit at least to the extent of $5 million as a result of the tax relief and other assistance measures recently enacted by the States of New York, Rhode Island, Connecticut, and Massachusetts, it could qualify for aid from the Federal Government in the total amount of its maintenance of way and structure expenses attributable to its passenger and allied services under the Commission's separation rules. Thus, as was shown in the fourth column of figures in appendix G to our report in docket No. 33332, the New Haven would be entitled to receive $7,339,348 in any year in which the proposed Federal legislation and existing State and local legislation were fully effective, and assuming also, of course, that revenues and expenses in the prior year were identical with those of 1960. Approximately that amount of assistance from the Federal Government is necessary to enable the trustees to rehabilitate the railroad and to prepare a feasible plan of reorganization and in order for the New Haven, thereafter, to survive as a privately owned enterprise.

(8) If the program recommended were now in effect, we estimate that the maximum cost thereof for the current calender year, based on the 1960 figures shown in appendix G to the report in docket No. 33332, would not be in excess of $52 million even on the improbable assumption that all of the railroads in the United States would apply for and receive all the assistance potentially available under the legislation. Any increase in the cost of the program would be most heartening inasmuch as the extent of the increase would be measured by the amount of self-help exercised at State and local levels. It is reasonable to conclude, however, that any increase in the cost of the program would be offset to some extent by the discontinuance of passenger train operations which satisfy no significant public demand for service.

(9) We believe that the program is sound in concept. It recognizes an obligation on the part of the Federal Government to pay for a portion of the cost of maintaining the railroad right-of-way in view of the obligations already undertaken by the Federal Government relative to construction and maintenance of airways and highways. The responsibility of the Federal Government in preserving essential railroad passenger service may be expressed in terms of the cost of alternate transport facilities and in terms of military preparedness. First, the American Municipal Association, in a survey of mass transportation in New York, Boston, Chicago, Philadelphia, and Cleveland, estimate that if these five cities were to lose their rail commuter service, it would cost $31 billion to build the highways required to serve those commuters. Although rail communication service is generally unprofitable for the carriers, it seems clearly to represent the most economical and efficient means of suburban mass transit, all costs considered. Secondly, the railroads handled 97 percent of all organized intercity troop movements during World War II. While it is unlikely that the railroads will be expected to match that record in the future, it seems reasonably certain that more railroad passenger-carrying capacity will be required for essential military and civilian travel in any future war or grave national emergency than will be available if the present trend of discontinuance is not checked.

The approximate amount of assistance potentially available to most of the major commuter railroads may be roughly estimated by adding to the fifth column of figures in appendix G of our report in docket No. 33332 the benefit derived from State tax relief and other assistance programs not in excess of the amount shown in the sixth column of figures. For the New York Central the sum would be approximately $6,876,000 ($4,032,000 plus estimated benefit of $2,844,000 from 1961 legislation of the State of New York); for the Long Island Railroad approximately $4,842,000 ($1,724,000 plus estimated benefit of $3,118,000 from New York legislation); and for the Pennsylvania Railroad $4,005,089 plus the amount of assistance extended by the State of New Jersey and the city of Philadelphia.

We hope that this will be useful to the committee in its consideration of the Commission's recommendations.

Sincerely,

EVERETT HUTCHINSON, Chairman. Senator LAUSCHE. I might say with respect to those recommendations, except probably tax relief on passengers, none of them was put into effect.

Now this question, shall we keep dealing with this railroad problem on an ad hoc basis, when it arises like this one, or has the time come when we have got to approach it generally with a view of removing whatever inequities exist?

May I have your view on that?

Mr. WEBB. Yes, sir. It is my view, Senator Lausche, that unless we begin to deal with the railroad problem and other problems generally, that we are going to have a recurrent crisis, such as this.

Senator LAUSCHE. If we provide this subsidy relief at present to the New Haven, what is your opinion as to whether in addition to the Lackawanna and others, there will be a general surge for passenger relief aid from the Federal Government?

Mr. WEBB. I detect no great interest in this matter from railroads other than those which are in critical condition.

Senator LAUSCHE. Which ones are they?

Mr. WEBB. The New Haven, of course, the Erie Lackawanna, Central of New Jersey, the Reading Railroad, the Long Island. Most of the Long Island's business is passenger business. It will be in critical condition, I think, if its special legislation which runs out next year is not replaced by some form of assistance, and there are several others.

Senator LAUSCHE. Is the Boston & Maine?

Mr. WEBB. The Boston & Maine is certainly in that category, but their passenger deficit problem has now largely been taken care of. Senator LAUSCHE. Where does the Lackawanna serve mainly?

Mr. WEBB. Commuter service is from New Jersey into New York. Senator LAUSCHE. All of these railroads that are in this passenger service difficulty are in the New York-New Jersey, Massachusetts, Rhode Island and Connecticut area?

Mr. WEBB. Yes, sir, that is true. Pennsylvania does have some commutation service. Philadelphia area.

Senator LAUSCHE. Philadelphia area, that is right. Except for them, is there a problem in other places where they are clamoring for Federal financial aid?

Mr. WEBB. No, there is not, sir.

Senator LAUSCHE. Why does this problem exist in this particular area and not in other areas?

Mr. WEBB. I am not too sure, Senator Lausche. As I am sure you know, the suburban service of the Chicago Northwestern is showing a small profit. One of the difficulties of the New Haven and the other eastern carriers, I think, is that they have been in such financial ill health for so long, that it has-they have been unable to get the capital necessary to improve their plant and the more dilapidated and decrepit their condition becomes, the more expensive it becomes to operate. So I would think that if they can get on their feet and get rehabilitated, that the amount of the passenger service losses ought to be a great deal less than they are today.

(Supplemental information supplied by Chairman Webb for the record follows:)

Roads on the eastern seaboard which would probably apply for aid under S. 325 due to their poor financial condition. Table shows maximum (estimated) amounts they would be entitled to under the bill

[Figures are based on data for calendar year 1963 and are in thousands]

1 The Boston & Maine has discontinued most of its passenger operations. The amount of aid it would be entitled to under S. 325 is not known. However, the aid, if any, would be relatively minor in amount. 2 The Long Island has been receiving relief from governmental bodies in New York in amounts adequate to cover losses from passenger operations. The deficit in net income for the year 1964 resulted from its freight operations. It is pointed out, however, that the relief presently being granted the carrier under the 12-year plan adopted in 1954 for the redevelopment of the Long Island expires in 1966.

Senator LAUSCHE. I am just thinking out loud. According to what the trustees said, it appears that the more passengers they carry the more money they lose. And that may be one of the answers.

But you also have the situation, if I may state it, Mr. Chairman, in a city in Ohio, I will not identify it, the local mass transportation system said they needed a 10-cent fare in order to survive.

The council would not give it. They said you shall have a 5-cent fare. So it was put on the ballot: Shall the local transportation system charge 10 cents or 5 cents? It claims it could not survive.

To the great consternation of the politicians, the people voted a 10cent fare.

That is all I have to say.

Senator DOMINICK. Mr. Chairman.

Senator PASTORE. Senator Dominick?

Senator DOMINICK. Mr. Chairman, I was unfortunately unable to be here this morning, but exhibit 3 was presented, I guess, by Mr. Kirk. Senator PASTORE. Mr. Kirk is here. Would you mind taking this chair at the end of the table?

Mr. KIRK. Yes, sir.

Senator DOMINICK. Mr. Kirk, I don't mean to really do any intensive examination on this, but I was really curious in your titles. It becomes obvious from exhibit 3 that you had an operating, or that the New Haven Railroad has had an operating surplus in every single year since 1954, but that what has caused the net deficit is taxes and

rents.

Now, what is meant by rents?

Mr. KIRK. That is rental of equipment, per diem charges of foreign cars on our railroad. It has meant rent for joint facilities used in conjunction with the New York Central and that sort of thing.

Taxes we explained this morning. If I can recall the figures, roughly half of them are Federal employment taxes, some $2,850,000 are accrued but unpaid real estate taxes and that sort of thing.

Senator DOMINICK. Federal employment taxes are included in here as well as the real estate and local and State taxes?

Mr. KIRK. That is correct. Senator DOMINICK. I see. Is it ordinary for the New Haven to have a net deficit on the rental side?

Mr. KIRK. Yes, it is. We are very heavily involved in that. Bear in mind that as a minimum, for each-let me express it this way-one car comes in loaded, two go out unloaded. By that I mean we have a very adverse flow of traffic. Much of the finished goods in the area we serve is sent out by rail, even though much of the raw material is brought in by rail.

We have a very unbalanced movement, with the result that we have much more in the way of foreign cars on our lines than we have our own cars. And the per diem charges accruing against the New Haven Railroad are very substantial indeed.

Senator DOMINICK. We in the west have complained about this from time to time.

Mr. KIRK. Yes; I understand that you do.

Senator DOMINICK. Mr. Kirk, the reason that I asked these questions and tried to get this information is because I want to see what difference there might be if you had a four-State compact operating authority. What difference is there going to be between that position with that authority running it and the present trustees operating a railroad? Are you going to have tax exemptions that you otherwise wouldn't have, or are you going to have

Mr. KIRK. I would rather expect that if a publicly constituted owned authority were to take over the operation of the passenger service of the New Haven Railroad that such service would not be subject to, or not involved therein, subject to real estate taxes.

Senator DOMINICK. The State of Connecticut has already waived them, as I understood from Senator Ribicoff.

Mr. KIRK. That is correct.

Senator DOMINICK. The State of Massachusetts I gather has taken some steps in this direction.

Mr. KIRK. Quite the contrary. The State of Massachusetts purported to render tax relief to this railroad but never successfully did so. Senator DOMINICK. How about Rhode Island and New York?

Mr. KIRK. Rhode Island and New York. Rhode Island has given us some tax relief in the order of magnitude, I think, of roughly $500,000, as I indicated this morning.

The State of New York, which had granted tax relief prior to the bankruptcy, has already removed part of the tax relief since the institution of trusteeship..

Senator DOMINICK. Then with the exception of Massachusetts, you don't gain very much by the removal of real estate taxes, because the other States have already moved in that direction.

Mr. KIRK. I can answer that question by saying this, that if these taxes were removed in their entirety, the railroady would benefit to the extent of $2,850,000 which is the real estate tax figure accrued and showing in the item taxes under this exhibit 3.

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