According to Senator Ribicoff, who introduced S. 325, Federal assistance would not exceed whatever financial aid is available from the States, including tax forgiveness. Page 295, Congressional Record for January 7, 1965. Subsection 604 (b) might be made somewhat clearer in this respect if the word subsection were substituted for the word paragraph in lines 3 and 4 on page 5 of the bill. Subsection 604 (c) makes final the decision of the Commission as to the amount of aid to be extended. Such a provision would appear to limit the applicability of section 305 of the Budget and Accounting Act, 1921, 31 U.S.C. 71, requiring that all claims and demands by or against the United States shall be settled and adjusted in the General Accounting Office. We recommend that section 604 (c) be removed or modified. Additionally, it is noted that section 604 of the bill does not provide any specific criteria for determining the actual amount (within the maximum amount determinable under the formula set forth) of financial aid to be granted. If it is not intended that the maximum amount generally will be the actual amount paid in each instance, your committee may wish to include some such specific criteria. Section 605 of the bill provides for application by any railroad in passenger service for financial aid in the acquisition and modernization of passenger equipment. As in the case of section 604, some specific criteria relative to the actual amount to be granted may be appropriate for inclusion. The bill differs substantially in scope from the railroad loan guarantee program in effect until June 30, 1963, part V of the Interstate Commerce Act, 49 U.S.C. 1231 et seq. Under that program the Government guaranteed loans made to the railroads by various banking institutions. The present bill proposes direct aid by the Government to the applicant railroads to the maximum extent that similar aid is granted by any State. No provision is made for the ultimate reimbursement of such financial aid as may be granted under this bill. Since S. 325 provides for the expenditure of appropriated funds, disbursement for the financial aid to the railroads provided in the bill, including contracts and all pertinent records would be subject to audit and review by our Office with reports to the Congress by the Comptroller General as he may deem necessary under the provisions of the Budget and Accounting Act, 1921 (31 U.S.C. 53), and Accounting and Auditing Act of 1950 (31 U.S.C. 67). This would require the Interstate Commerce Commission to make its records fully available to the General Accounting Office. We mention this in view of our experience in seeking information from the Interstate Commerce Commission concerning the certain records we believed were necessary for us to make an adequate, independent and objective audit of a large loan to a railroad under the Railroad Loan Guaranty program. On July 13, 1962, we furnished your committee a report on this denial. We believe that access to the pertinent records of the applicant carriers is necessary for the adequate administration and audit of the proposed financial assistance program and we recommend that a provision somewhat similar to section 393 (b) of Public Law 87-447, 76 Stat. 66, be included in S. 325. Section 393 (b) reads: "The Secretary and the Comptroller General of the United States, or any of their duly authorized representatives, shall have access for the purpose of audit and examination to any books, documents, papers, and records of the recipient that are pertinent to assistance received under this part [Part IV of the Communications Act of 1934, as amended]." A somewhat similar provision is incorporated in section 9(b) of the Urban Mass Transportation Act of 1964 (49 U.S.C. 1608(b)), relative to negotiated construction or improvement contracts. Other similar provisions appear in section 318 (b) of the Trade Expansion Act of 1962 (19 U.S.C. 1918 (b)); section 393 (b) of the Communications Act of 1934 as added by the Educational Television Act of May 1, 1962 (47 U.S.C. 393 (b)); section 11(b) of the Clean Air Act as amended by the act of December 17, 1963, (42 U.S.C. 1857j (b)); and section 21(b) of the Federal Airport Act as added by section 13 of the act of March 11, 1964 (49 U.S.C.A. 1120 (b)). The maintenance of commuter train service in metropolitan areas and passenger train service generally seems to be in the public interest. The question of the desirability of such relief as proposed in S. 325 is, however, a matter of congressional policy and, except for the several suggestions made as to possible changes in the present form of the bill, we have no recommendation to make as to its consideration by your committee. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. GENERAL COUNSEL OF THE DEPARTMENT OF DEFENSE, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, DEAR MR. CHAIRMAN: This is in reply to your request for the views of the Department of Defense on S. 325, 89th Congress, a bill to amend the Interstate Commerce Act, as amended, to authorize the Interstate Commerce Commission to assist common carriers of passengers by railroad in preserving and improving essential passenger train services and facilities, and for other purposes. The purpose of the bill is stated in its title. The Department of Defense is interested in a strong, reliable national transportation system for both freight and passengers. However, we defer to the Department of Commerce as to the merits of S. 325. The Bureau of the Budget advises that, from the standpoint of the administration's program, there is no objection to the presentation of this report for the consideration of the committee. Sincerely, L. NIEDERLEHNER, Acting General Counsel. THE GENERAL COUNSEL OF THE TREASURY, Hon. WARREN G. MAGNUSON, DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 325, to amend the Interstate Commerce Act, as amended, to authorize the Interstate Commerce Commission to assist common carriers of passengers by railroad in preserving and improving essential passenger train services and facilities, and for other purposes. The bill would authorize the Interstate Commerce Commission to extend financial aid to any railroad subject to the Interstate Commerce Act for the operation of passenger trains, and the acquisition and modernization of passenger cars. Appropriations up to $100 million for financial aid would be authorized by the bill. The Department has no independent knowledge as to the need for the proposed legislation and consequently is not in a position to comment on its general merits. The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee. Sincerely yours, EDWIN F. RAINS, Acting General Counsel. Hon. WARREN G. MAGNUSON, COMPTROLLER GENERAL OF THE UNITED STATES, Chairman, Committee on Commerce, DEAR MR. CHAIRMAN: Reference is made to your letter of February 10, 1965, requesting our comments on S. 348. The bill would grant the consent of Congress to the States of Massachusetts, Rhode Island, Connecticut, and New York to enter into a compact to create their own Northeast Rail Authority, and would guarantee certain loans and other credit to such authority. We have no special information concerning the advisability of the proposed legislation. We therefore have no comments to offer with respect to its merits or recommendations regarding its enactment. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. THE GENERAL COUNSEL OF THE TREASURY Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 348, the proposed Northeast Rail Authority Act of 1965. The proposed legislation would grant the consent and approval of Congress to Massachusetts, Rhode Island, Connecticut, and New York to enter into a compact for the purpose of creating a multistate authority to own, lease, or otherwise acquire the right to operate a passenger rail transportation system within the Northeastern States. The Northeast Rail Authority so created would be authorized to issue bonds, up to $500 million outstanding, to finance its operations. Such bonds would be exempt from taxation by the signatory States, but the authority could not pledge the credit of any signatory. In addition, the bill would authorize the Secretary of Commerce, after consultation with the Interstate Commerce Commission, to guarantee any bonds issued by the authority for the purpose of financing or refinancing capital and maintenance expenditures. A Federal representative to the authority, appointed by the Secretary, would have the power to veto any matter relating to the issue and sale of bonds guaranteed by the Federal Government. The Secretary would be authorized to collect a guarantee fee, but the fee would be limited to such amounts as would be necessary to cover administrtaive costs. Any payment required to be made under a guarantee would be made by the Secretary of the Treasury from funds appropriated for such purpose. Since the proposed Northeast Rail Authority would be regarded, under the compact, as an instrumentality of the signatory States, the interest on the obligations of the authority would presumably be exempt from Federal income taxation. The proposed Federal guarantee of the authority's obligations raises critical issues of Federal financial policy of direct concern to the Treasury Department. This proposed financing device would have distinctly undesirable implications from the standpoint of the orderly management of the public debt, would be contrary to long-established public policy, and would set an unfortunate precedent with respect to any further programs of Federal aid to State and local governments that might be considered in the future. The immediate effect of the proposal would be to create a new category of highly marketable debt issues substantially more attractive to investors than Treasury bonds themselves. The Federal guarantee would assure the investor that there is no risk of default, just as in the case of Treasury bonds. The new obligations would be readily tradable in a highly organized market comparable to that available for Treasury bonds. And, they would be exempt from Federal taxation, thus providing to all taxable investors an instrument with advantages that could be matched by no Treasury bond. A very large amount of debt, with the credit risk largely or entirely underwritten by the Federal Government, is already outstanding, and the volume can be expected to grow further in coming years. The diversion of the interest of many investors from direct Treasury issues to guaranteed issues has in itself created some serious new problems for debt management, even though the great bulk of this guaranteed debt is not nearly so readily marketable as direct Treasury obligations and may entail significant servicing costs or other disadvantages not present in the case of direct Treasury issues. The Treasury fully recognizes the public purposes supported by these Federal credit programs, and the desirability in some instances of providing financial assistance by means of Federal guarantees rather than by other devices and is fully prepared to conduct its own debt operations within this framework. However, the Treasury cannot look with complacency upon a proposal to extend this guarantee procedure to a large volume of freely marketable tax-exempt issues, thereby creating for the investor a ready supply of obligations more attractive than those available from the Treasury itself, and more attractive than those issued to finance other worthy projects of State and local governments. The importance of this aspect is magnified by the possibility that guarantees of tax-exempt bonds, in this instance confined to Northeast Rail Authority issues, would lead to strong pressures to extend Federal guarantees to tax-exempt State or municipal bonds issued for other purposes, each perhaps clearly desirable in itself. Over $90 billion of State and local government obligations are outstanding today, with the total having risen by an average of more than $5 billion per year over the past decade, and by an even larger amount in recent years. An end to that upward trend is not yet in sight. Should any significant fraction of that growing total eventually have the benefit of a Government guarantee, in addition to tax exemption, the position of any Secretary of the Treasury charged with responsibility for the management of the Federal debt would quickly become at the least-extremely awkward. It should also be emphasized that Congress has long recognized that the issuance of tax-exempt bonds under Federal aegis is contrary to public policy. Taxexempt bonds are a source of market distortion; they open the possibility of very great inequities in the impact of income taxes on investors in different situations; they entail on balance a larger loss of revenue than any interest savings made possible; and they influence the allocation of savings in an essentially arbitrary and capricious manner. One effect is a diversion of funds of relatively wealthy individuals well able to bear the risks attached to investments in new businesses and new products-the sort of investment that has a key role to play in economic growth-into relatively safe investments that would otherwise be readily purchased by those that must by necessity attach a high priority to safety in shaping their investment policies. These factors were recognized in the elimination of tax exemption for direct Treasury obligations in 1941, shortly after the level of Federal income taxes reached the point where these distortions and inequities became important. Whatever the desirability on other grounds of maintaining tax-exemption for direct State and local issues, a decision by the Congress to further stimulate the issuance of such bonds by providing a Federal guarantee must inevitably entail a full review of the fundamental approach embodied in the 1941 legislation. These remarks should in no way be interpreted as reflecting a lack of concern for the transportation problems of the Nation, and in particular, for those of the northeastern segment of the country. The Department of Commerce is making progress on a comprehensive analysis of intercity transportation problems and the Housing and Home Finance Agency is already administering a Federal program of assistance to States and localities for the preservation and improvement of mass transportation facilities. The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee. Sincerely yours, EDWIN F. RAINS, Acting General Counsel. THE GENERAL COUNSEL OF THE TREASURY, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, DEAR MR. CHAIRMAN: This is in further reply to your request for the views of this Department on S. 348, a bill introduced by Senator Pell, to encourage the preservation and development of a modern and efficient passenger rail transportation service in the northeastern seaboard area by granting the consent and approval of Congress to the States of Massachusetts, Rhode Island, Connecticut, and New York to negotiate and enter into a compact to create their own Northeast Rail Authority, and by guaranteeing certain loans and other credit to such authority. The Treasury Department advised you by letter of March 3, 1965 of the debt management and other problems which would arise from a Federal guarantee of tax-exempt obligations of the Northeast Rail Authority proposed in S. 348. On March 9, 1965 Senator Pell's office informally requested a letter from the Treasury Department by March 10, 1965, stating the position of this Department on S. 348 if amended to preclude Federal tax exemption of the obligations of the authority and if further amended to require that the signatory States agree to bear any expenses of the authority, including principal and interest payments on the authority's obligations, which cannot be met from the revenues of the authority. As we understand the proposed amendments, the obligations of the authority would not be regarded as State obligations for Federal tax purposes but would in effect be backed by the signatory States. The Treasury Department would, of course, prefer to withhold comment on proposed amendments to S. 348 until such time as precise language is submitted for review. However, in view of the urgency of Senator Pell's request, the Department has considered the above informal proposals and sees no objection in principal to such financing arrangements insofar as they relate to the guarantee of taxable securities and the financial backing by the signatory States. This Department is not in a position to evaluate the provisions or S. 848, aside from the guarantee provisions, in relationship to the needs of the area and the overall transportation program of the administration. Time has not permitted securing advice from the Bureau of the Budget as to the relationship of this report to the program of the President. Sincerely yours, EDWIN F. RAINS, Acting General Counsel, COMPTROLLER GENERAL OF THE UNITED STATES, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, DEAR MR. CHAIRMAN: We refer to your letter of February 24, 1965, in which you request our comments on S. 1234. Under this bill the Congress would grant its consent and approval to the States of New York and Connecticut to introduce and negotiate a compact for the purpose of creating a New York-Connecticut Rail Authority. The authority would own, or lease, and operate a passenger or commuter rail transportation system within those States. The bill also would provide a Federal guarantee program to be administered by the Secretary of Commerce for bonds or other evidences of indebtedness issued by the rail authority. A similar bill, H.R. 5308, has been introduced in the House of Representatives. According to Senator Javits, who introduced S. 1234, the bill represents an attempt to find a workable short term solution to the passenger transportation problems affecting railroads, principally the New York, New Haven & Hartford Railroad, in the two States. Other current proposals for aiding railroads and improving passenger transporation services are contained in S. 348 and 8. 825. S. 348 would grant the consent of the Congress to the States of Massachusetts, Rhode Island, Connecticut, and New York to enter into a multistate compact to create a Northeast Rail Authority. The bill, while containing financing provisions different from those in S. 1234, contains similar bond guarantee program provisions. S. 325 proposes to add to the Interstate Commerce Act, 49 U.S.C. 1 et seq., n new part to be designated "part VI," concerned with making direct financial aid available to railroads performing passenger services. Title III of S. 1234, which would establish the bond guarantee program, apparently is modeled to some extent on the railroad loan guarantee program in effect until June 30, 1963, under part V of the Interstate Commerce Act, 49 U.S.C. 1231 et seq., and parallels an aircraft loan guarantee program which is administered by the Secretary of Commerce. Act of September 7, 1957, Public Law M5 807, 71 Stat. 629, as amended by the act of October 15, 1962, Public Law 87 820, 76 Stat. 936. Section 307 (a) of title III of the bill would direct the Secretary of Commerce to pay to the rail authority, for each year during which the cost of operations conducted by the rail authority exceeded revenues, an amount equal to 83% percent of such excess. Section 307(b) would authorize the Secretary to receive any reimbursement by the rail authority of amounts so paid. Article VII of the compact, set forth in title II (page 9, lines 12-17), would make the reimbursement discretionary on the part of the rail authority, If it is decided that the determinations to be left to the discretion of the rail authority should be removed or modified, your committee may wish to include a definite formula or other specific criteria for those purposes. The committee may also wish to amend section 207(a) to give the Secretary authority to withhold or to reduce the amount of the Federal payment on account of an operating deficit in any year in which he determines that the deficit should more appropriately be met in full or in part from accumulated revenues of the rail authority. We note that the two limitations upon guarantee action in section 202 of the bill are relatively moderate compared to those in section 504 of the former railroad loan guarantee program, 49 US.C. 1234, Additionally, the inclusion of a termination provision, as in 49 U.S.C. 1240, may be desirable in M. 1224 We believe that determinations as to whether bonds should be guaranteed |