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:

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 1840'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

minor. Regardless of the source of funds for maintaining New Haven long-haul service, the planning initiative must therefore come from the Federal Government. This fact has already been recognized with respect to long-range plans, often involving exotic and untried forms of transportation, which cannot possibly be started for at least 5 or 10 years. But, on the record, the Federal Government seems content to let the demand for such service ebb away as existing facilities disappear in the face of plans to supply some such service once demand has languished.

Fifth, and most important, the question of which methods of transportation are subsidized, and to what extent, must pale before the essential question: what will happen if alternative forms of transportation must take over the New Haven passenger load? The key to this problem is in the New York area, whether or not this fact is recognized by the Governor of New York. New York airports are now so overcrowded that a cloudy sky can delay planes by an hour even on a Thursday night: on my last passage through New York, for example, one airline showed flights to all Western European points "on time" and flights to Boston, which involved connections with planes eastbound into New York, up to 2 hours late. The Port of New York Authority is struggling with the problem of whether to build a new airport, and if so where to build it in face of the fact that everyone wants an airport nearby and no one wants it really nearby. Communications of New England with the rest of the country depend on a decision which lies between the Port of New York Authority and the residents of, e.g., Morristown, N.J. The Federal Government must assume responsibility for the main structure of interstate commerce in the Northeast corridor-by rail, by road, by air. As long as the New York airport situation is still utterly nebulous, and as long as the Civil Aeronautics Board can, at will, cut New England airlines off from the rest of the country (in both the Northeast-Florida decision and the Northeast-TWA decision), then the Federal Government must either fill the vacuum it is helping to create or admit that it is abdicating its constitutional responsibilities with respect to interstate commerce.

These observations suggest: (1) Federal initiative with respect to the New Haven long-haul passenger service, at the very least in the form of Federal leadership in shaping the appropriate authority; (2) with operating deficits, if any, to be split 50-50 between the Federal Government and the States served; (3) with tax relief credited as State aid only as against some appropriate average standard of State taxes, and only if total tax relief is granted for passenger services; (4) with the maximum physical segregation of assets required for the New York commuter service from assets required for long-haul passengers; (5) with a time limit of, say, 5 years to permit blending the New Haven longhaul operation into a long-term plan for all forms of transportation in the Northeast corridor.

No one of the bills now before the Committee on Commerce contains all of these features. But each of them contains at least some of them.

Percentage distribution of revenues from rail freight originating or terminating in the three southern New England States, 1960