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That brings me to the bills which are now under consideration by the committee. Directing myself first to S. 348, I think I can sum up the views of the trustees very quickly We feel that the public interest may well require the program envisaged by S. 348. From our point of view, however, this program cannot become effective in the period which would save our passenger service as it now exists. It does not meet the problems which concern us at this time of finding a means of meeting the railroad's day-to-day cash requirements and ending the wasting of the assets of its creditors, as pointed out by Judge Anderson.

Accordingly, as laudable and as significant as the results contemplated by S. 348 might be in the public interest, we must consider that it does not furnish any answer to our immediate problems.

S. 325 does attempt to meet the current problems. It proposes immediate cash assistance measured by expenditures for maintenance of way and structures which are related to passenger service. If the bill stopped with that test, we could most wholeheartedly endorse it insofar as the New Haven is concerned. However, the bill goes on to limit such cash assistance to an amount not in excess of assistance received from the States.

Obviously, we have no control over what the States might do. For example, prior to bankruptcy, the four States served by the New Haven undertook by agreement among themselves to provide tax and other relief for the New Haven estimated to equal approximately $6,400,000 annually. Connecticut has furnished the relief pursuant to this undertaking. Rhode Island has, in part, furnished its share of the relief. New York furnished the relief for a time and then rescinded it in 1963, notwithstanding the existence of the New Haven's bankruptcy.

Massachusetts, which purported to furnish tax relief for a 3-year period, in fact provided no relief. Thus, based on 1964 facts, the cash help which would be provided by S. 325 would, we believe, be limited to a maximum of approximately $3.5 to $4 million, which clearly would not be sufficient to assure continuance of passenger service.

The formula in S. 325, matched with some $6,400,000 of relief, would certainly have helped the New Haven 4 years ago, so that bankruptcy probably would not have occurred. Such help, however, while satisfactory on an ad hoc 1964 basis, if $6,400,000 of relief were, in fact, received, cannot be presumed to be adequate in future years, even assuming the necessary tax relief. Maintenanceof-way costs have no fixed relationship to operating costs, particularly in a period of rising wages and decreasing patronage.

In order to insure continuance of passenger service, whether in the form which is now operated or in some other form which public authorities determine is desired, the basis of assistance must be the cost of the service rendered.

Let me point out to the committee that insofar as the New Haven is concerned with the bills under consideration, there are essentially four different passenger services involved. One of these is a commuter service in eastern Massachusetts and Rhode Island and another is the commuter service in Connecticut and New York. The two remaining services are the New York-Boston service, and the New York-Hartford-Springfield service. There is also a small amount of ancillary branch line service. The solutions for these various services may well be quite different, or, in one or more of these instances, there may be no solution except termination.

Thus, perhaps consideration should be given by the committee to a method of requiring the service regions either to participate on a matching basis in some manner such as proposed in S. 325 or, failing the same, to be presumed conclusively to have determined that the public interest does not require the particular regional service. If such presumption could then be binding upon the regulatory agencies which would have jurisdiction to pass upon passenger discontinuance cases, the New Haven could move without delay or expense to curtail or discontinue a service in which the public had evidenced no interest.

Provisions of this nature would protect the contribution made by one State against the failure of another State to fulfill its responsibility in favor of the possibility of getting a free ride. From the point of view of the New Haven, the ability to move promptly to cut costs, where the public authorities by inaction have indicated a negative public interest, is of extreme importance.

For example, our petition for discontinuance of three of our five Boston suburban lines has been pending since November 1963 before first the State agency and currently the ICC. When one adds preparation time to the time required for the administrative process, that case which involves only some 2,800 persons

has been on our own calendar for well over one and a half years. Let me note that I do not intend by these comments to tax the ICC with the delay. In large part delay in cases of this nature is inherent in our system of law.

Turning to the provisions in S. 325 for assistance in acquisition of equipment, we would like to point out that while this provision also could be of great benefit, it does not solve the problem of operating costs, except to the extent by which equipment maintenance costs are reduced by the use of new rather than old equipment. While significant savings may be derived in this fashion, our estimates of the effect on the New Haven indicate that such savings cannot be relied upon as a basis for solving our problems, although they would make a contribution.

We have recently received S. 1234, and have not had an opportunity to make a full study of it. However, we do have some preliminary views which may be of help to the committee.

In its basic approach, the bill represents a constructive attempt to meet the New Haven's commuter problem. However, it appears to us that, in its present form, he bill would not be an effective instrument for a considerable period, either for protection of commuter service in the New York-Connecticut area, or for assistance to the New Haven. Our conclusion in this regard is based on these features which are either expressed or inherent in the bill:

1. The law would not become effective until 90 days after adoption by the two States. Assuming that several months would be required in the Federal and State legislative processes, one would have to anticipate that even on the best basis, the bill would not become an actuality for possibly 6 months.

2. It is necessary under the bill that New York and Connecticut agree on a formula for sharing costs. We do not question that the States will make a good faith attempt to resolve the cost-sharing problem. However, we know from experience that this task is extremely complicated, involving, among other matters, such factors as numbers of passengers, passenger car miles, passenger train miles, passenger gross-ton miles, station expenses, and overhead expenses. The passengers carried in this service range from those within less than 17 miles from New York City to those who are more than 70 miles. In addition, there is intermediate riding on these commuter trains which is wholly within the State of Connecticut, other intermediate riding wholly within the State of New York, and other intermediate riding which is interstate, but not involving New York City.

3. Fundamental to the ultimate action to be taken by the authority is determination of the types of service, types of equipment and operating procedures, together with possible engineering determinations. These matters, one must reasonably assume, will require considerable time for resolution.

Even after all of the foregoing decisions have been made, there would remain the conducting of negotiations either with respect to a purchase price or of a lease rental. Matters of this kind, with all the complexities inherent in resolving some form of joint usage of the lines by the New Have and he authority, will require considerable time, including necessary court approvals. In addition, time will be necessary for the authority to complete its bond financing.

Accordingly, it appears to us that we would be overly optimistic if we assumed that less than a year would be necessary before the actual commencement of operations by the authority could occur.

Thus, this bill by itself would appear to us not to solve the immediate problem of continuance of the commuter service. We can appreciate, however, that this bill, coupled with the kind of direct interim relief proposed in S. 325, might offer both a short-term and a permanent solution.

In two respects we do have specific problems with the bill. The first of these is that the authority apparently could not enter into a contract merely for the continuation of commuter service, as we propose to do in Massachusetts. It appaers that the authority is confined to owning or leasing physical property, although it can contract for the operation of such property by a carrier after it has been acquired.

Second, it seems to us that the right of condemnation given to the authority under the bill is unrealistic, if not unfair. The lines involved here are essential for the through-passenger service and for freight service, as well as commuter operations. Such matters as signaling and operation of the presently completely integrated system cannot be left to the vagaries of a condemnation action without raising substantial questions of public safety and the interests of more members of the public than are represented by the commuters who would be protected by the bill.

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funds, broad and extensive highways which can be used by private carriers and public motor carriers.

Also, it runs along the seaboard and the cities it serves largely are within the ambit of water competition.

But despite this, we and our advisers, who have studied in very great detail, have concluded that rail service, the continuation of rail service, particularly the freight service, is of vital importance to New England and we believe that if it is of vital importance to New England, it is of vital importance to the country at large.

It is unthinkable that rich area of population, of great financial resources, of concentration of some of the finest and most precise type of

, industrial activity in the entire world, I say it is unthinkable that that

I territory in the national interest should be deprived of a continuation of effective and necessary transportation by rail.

Yet, as Mr. Kirk will demonstrate in the material which he is about to present to you, this is the alternative, this is the alternative in our judgment, unless we, as trustees on our part and the responsible public authorities on their part, are able to work out some basis for covering the cost of providing this essential service.

Now our program, to avoid the elimination of rail service in New England, is to tie in the freight business with the freight operations of a trunkline system.

As you know, we have been negotiating intensely with representatives of the Pennsylvania Railroad and the New York Central Railroad for the purpose of working out a basis upon which the New Haven system for the transportation of freight could become a part of a merged system of the New York Central and the Pennsylvania Railroad.

We are now in agreement in principal that that can and will be done, provided there is a merger at all.

If we, as I confidently expect we shall, reach an agreement, a final agreement with the Pennsylvania and the New York Central to that end, there will be a basis for improving and extending the freight service to the important industries of New England.

Senator PASTORE. May I recapitulate at this moment in order to make the record plain and concise on the point. You are actually saying that if a merger is allowed of the New York Central and the Pennsylvania by the ICC, that you have a fast assurance that the freight service of the New Haven Railroad will be taken over.

Mr. SMITH. That is correct, sir. But a condition of that agreement, the principles of which are, as I say settled, is, and in our opinion must be, from our point of view that, in some way or other, the question of continuing the passenger service must be settled first.

We have not been able to negotiate for a continuation of our freight service on any basis that would involve the taking over of the passenger service by the Penn-Central group.

As a matter of fact, we have agreed that their taking over of our system will be conditioned upon the fact that there will be either a discontinuance of passenger service or an appropriate underwriting of that service by public authorities.

Senator PASTORE. Now you have been in consultation with the New York Central and the Pennsylvania with regard to this problem. Have you, at any time, been joined in these discussions or approached at any time by the Governors of the four States involved ?

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We inherit as trustees many of the management problems of the previous years. These problems we try to solve as we can in carrying out the operations of the railroad.

But our basic function is as trustees of the U.S. district court and those functions are circumscribed by the requirements of law under the National Bankruptcy Act.

We concluded very early in our trusteeship that the railroad could not be reorganized as a going concern unless some effective measure was taken by public authorities to underwrite the passenger losses.

Concomitantly we did conclude that it would be possible to reorganize this railroad as a freight-carrying railroad, provided there was an effective corporate integration of its activities with those of a trunkline.

Now as to the first point, whether there should be a public underwriting of the passenger service or such passenger service as it would be deemed in the public interest to continue, we have felt that our function was to present that problem, but not to state the way in which such underwriting should take place or the relative parts that should be played by the National or Federal Government and by the States in which we operate.

Senator PASTORE. If I may interrupt you at this juncture, Mr. Smith, I realize your limitations with regard to your official capacity as a trustee, but I would hope during the development of this hearing that you gentlemen would be cooperative enough to venture your own personal opinion with regard to that because I think that the problem that confronts us, is that if some of these agreements or proposals that we have been hearing about and reading about in the newspapers are ever going to be carried out, somewhere along the line someone will have to tell us what the deficit is on the long haul and what the deficit is on the commuter run.

I would hope that you would be courageous enough, or may I presume bold enough, to give your own personal opinion.

Mr. Smith. We are prepared to give our opinion, sir, on those points which you have stated and Mr. Kirk, particularly, will have the data in a few moments which will go directly to that point.

Senator PASTORE. I noticed that is one of the points Judge Anderson made in his opinion, too, that it was up to the trustees to decide how you were going to do this.

Mr. Smith. We do, however, recognize that there is a national interest in the continuation of railroad service in southern New England.

It is a territory that has 17 million in population. It has numerous and important and key military and naval facilities in operation. It has many defense industries and the lines which were operating are now physically tied in with the national network of railroad service.

On the other hand, as is well known now, particularly as a result of the exhaustive study made by this committee and brought together in the excellent Doyle report several years ago, the New England railroads and particularly the New Haven Railroad has been peculiarly susceptible to erosion in its business by competing modes of transportation

It is a relatively short line. It has very heavy terminal expenses and throughout its entire area there have been erected, with public funds, broad and extensive highways which can be used by private carriers and public motor carriers.

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Also, it runs along the seaboard and the cities it serves largely are within the ambit of water competition.

But despite this, we and our advisers, who have studied in very great detail, have concluded that rail service, the continuation of rail service, particularly the freight service, is of vital importance to New England and we believe that if it is of vital importance to New England, it is of vital importance to the country at large.

It is unthinkable that rich area of population, of great financial resources, of concentration of some of the finest and most precise type of industrial activity in the entire world, I say it is unthinkable that that territory in the national interest should be deprived of a continuation of effective and necessary transportation by rail.

Yet, as Mr. Kirk will demonstrate in the material which he is about to present to you, this is the alternative, this is the alternative in our judgment, unless we, as trustees on our part and the responsible public authorities on their part, are able to work out some basis for covering the cost of providing this essential service.

Now our program, to avoid the elimination of rail service in New England, is to tie in the freight business with the freight operations of a trunkline system.

As you know, we have been negotiating intensely with representatives of the Pennsylvania Railroad and the New York Central Railroad for the purpose of working out a basis upon which the New Haven system for the transportation of freight could become a part of a merged system of the New York Central and the Pennsylvania Railroad.

We are now in agreement in principal that that can and will be done, provided there is a merger at all.

If we, as I confidently expect we shall, reach an agreement, a final agreement with the Pennsylvania and the New York Central to that end, there will be a basis for improving and extending the freight service to the important industries of New England.

Senator PASTORE. May I recapitulate at this moment in order to make the record plain and concise on the point. You are actually saying that if a merger is allowed of the New York Central and the Pennsylvania by the ICC, that you have a fast assurance that the freight service of the New Haven Railroad will be taken over.

Mr. SMITH. That is correct, sir. But a condition of that agreement, the principles of which are, as I say settled, is, and in our opinion must be, from our point of view that, in some way or other, the question of continuing the passenger service must be settled first.

We have not been able to negotiate for a continuation of our freight service on any basis that would involve the taking over of the passenger service by the Penn-Central group.

As a matter of fact, we have agreed that their taking over of our system will be conditioned upon the fact that there will be either a discontinuance of passenger service or an appropriate underwriting of that service by public authorities.

Senator PASTORE. Now you have been in consultation with the New York Central and the Pennsylvania with regard to this problem. Have you, at any time, been joined in these discussions or approached at any time by the Governors of the four States involved?

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