Mr. SMITH. On the problem of negotiating Senator PASTORE. Of negotiating an agreement of inclusion in the merger by the New York Central and the Pennsylvania with regard to the freight service and also the passenger service? Mr. SMITH. We haven't been joined in the negotiations, sir, by any of the representatives of the States. However, we have endeavored to keep the authorities of the various States advised of the basis upon which we were negotiating. I should say, also, that I have been assured by the representatives of Pennsylvania and New York Central that they, on their part, are prepared to negotiate with public authorities for an acceptable basis upon which they, taking over our freight service, would also arrange to continue the passenger service. I have reason to believe that there may be some independent negotiations between Penn-Central and some of the State authorities going on at this time. Senator PASTORE. With reference to the commuter service in New York and Connecticut? Mr. SMITII. Yes, sir. Senator PASTORE. But that is about as far as it goes?. Mr. SMITH. I haven't been in on any of those negotiations, so I can't say, Mr. Chairman. Senator PASTORE. Let's recapitulate a little bit just to get this thing in proper focus. You have been in consultation with the officials of the New York Central and the Pennsylvania, who have petitioned the ICC for merger with regard to the inclusion in the merger of the operations of the New Haven. Thus far, you have an assurance that they are perfectly willing to include in the merger and accept the freight service, but insofar as the passenger service is concerned, they are ready and willing to talk about it on the grounds that there must be some kind of cooperation and assistance on the part of the States involved. Mr. SMITH. That is correct. Senator PASTORE. Whether it be State or Federal Government. Senator PASTORE. Well, I have been saying that for the last 3 months and I can't at this point, and I don't want to be critical about this, but I can't for the life of me understand why, up to this time, the representatives of these States have not gathered themselves together and sat down at least and talked about this, in view of the fact that there has been willingness on the part of the officials of the New York Central and the Pennsylvania to speak about this problem, as I understand from you now. Mr. SMITH. That is my understanding. That is the representations that have been made to me. Now I should say, however, that I think that there have in recent weeks been exactly that kind of negotiation, at least Senator PASTORE. I am talking about months, and you are talking about recent weeks. Go ahead, Mr. Smith. Senator LAUSCHE. May I at this point ask a question? How far back does this problem go? You are talking now of 3 months and the period that you have been trustees. Mr. SMITH. Three and one-half years. Senator LAUSCHE. But how far back of 32 years does it go? Senator LAUSCHE. The problem of commuter service. Mr. SMITH. The problem of commuter service became critical at the time that our freight business fell off to the extent that it could not carry the losses of the commuter service. That has been a situation roughly about 1956, when that happened. Senator LAUSCHE. So it has been in existence for at least 8 years. I do know when we held our extensive hearings in 1958, the subject of commuter service on the Boston & Maine, and on the New Haven was a matter of keen concern. Now then, about these States trying to solve the problem. How far back does their beginning of effort manifest itself? Mr. SMITH. Well, sir, when it became apparent that the financial condition of the New Haven Railroad was desperate prior to 1961, the various State governments did confer with the representatives of the management of the railroad and they did extend tax relief at that time in an effort to avoid, to help avoid the bankruptcy of the railroad. Senator LAUSCHE. I would want to question on this subject of tax relief at a later date, but it doesn't fit in at this time. Mr. SMITH. Mr. Kirk will be able to answer in great detail these financial questions. The only further thing I want to say in this opening phase of our presentation is that following Mr. Kirk's presentation of the financial aspects of our problem, we will be prepared to express an opinion, if you so desire, on the various bills that are before the committee. Senator PASTORE. Yes, sir. All right. Mr. Smith. Mr. KIRK. Mr. Chairman, gentlemen, I had prepared a statement for the committee supported by exhibits containing numerous financial figures. In the interests of brevity, I would like to refer to a portion of that statement and in the interest of accuracy I would like to read that portion in view of the figures involved in it. Senator PASTORE. All right, sir, and at this moment we shall insert in the record your statement in its entirety and you may proceed as you like. Mr. KIRK. Mr. Chairman, would you also include the insertion of my exhibits, together with the statement? Senator PASTORE. Are they contained in the statement? Mr. KIRK. Separate from the statement. Senator PASTORE. All right, the exhibits as well will be included in the record. Mr. KIRK. My name is William J. Kirk, I reside at 20 Morse Road, Newtonville, Mass. Together with Richard Joyce Smith and Harry W. Dorigan, I am one of the trustees of the property of the New York, New Haven & Hartford Railroad Co. I was graduated from Massachusetts Institute of Technology with a degree of bachelor of science in 1928, and in 1930 received the degree of master of business administration with high distinction from Harvard Graduate School of Business Administration. I received the degree of bachelor of laws from Boston College Law School in 1942 and was admitted to the bar of the Commonwealth of Massachusetts in that year. With the exception of the war years, 1942-45, when I was on active duty with the U.S. Navy, attaining rank of commander in the latter year, I have been continuously employed from 1932 to the present time by the firm of John P. Chase, Inc. of Boston and Geneva, Switzerland. I am president of that firm, which is engaged in the business of investment counsel and financial adviser to numerous individuals, business, corporations, law firms, charities, schools and colleges, as well as investment adviser to a number of investment companies registered with the Securities and Exchange Commission under the Investment Company Act of 1940. As Mr. Smith has testified, I intend to furnish the committee with considerable data on the New Haven's financial situation, as well as various pertinent passenger and freight statistics. The New Haven conducts both a substantial freight and passenger business. In 1964, for example, the New Haven derived $67,400,000 of revenues from its freight business and $54,200,000 of revenues from its passenger and allied business. I have here for the committee a condensed statement of the New Haven's operating income account for passenger and allied services for the 11 years 1954 through 1964, which I have marked "Exhibit 1." As exhibit 2, I have a condensed statement of operating income account for freight service for the 11 years 1954 through 1964. As exhibit 3, I have a condensed statement of the total operating income account for the same years. Exhibit 3 shows the downward trend in operating revenues which has occurred since 1957, when they exceeded $164 million, until 1964, when they were about $122 million. It will be noted that during this period operating revenues decreased steadily each year from those of the year before. Exhibit 4 compares the passenger service deficit with freight service income or deficit in each of the years shown in exhibits 1, 2, and 3. It will be noted that during the years 1954 through 1959, when the railroad still enjoyed a net railway operating income in its freight service, the passenger deficit required the devotion of a major portion of freight net railway operating income each year, and that in 1958, the passenger deficit exceeded freight income. Since 1958, as shown by exhibit 4, there was freight net railway operating income only in 1959, when it represented less than one-third of the passenger deficit. Since 1959, the New Haven has not had any freight operating income. In exhibit 5, I have shown the committee the rate of return which the New Haven has received on its net investment in transportation property in each of the years from 1954 to 1964. It will be noted from exhibit 5 that in the best of the last 11 years, namely, 1954, the New Haven's rate of return was slightly in excess of 2 percent. It will further be noted that since 1957 the New Haven has had no return on its investment in transportation property. In this connection, I would call to the committee's attention that the investment which has been made in his transportation property, as shown by exhibit 5, exceeded $400 million during part of this period and, even at the present time, substantially exceeds $300 million. Turning specifically to the passenger service, the most heavily traveled passenger route in the United States is the line that runs through the almost continuous urban area between Boston and Washington, D.C. The New Haven operates the northern half of this route between New York City and Boston, while the Pennsylvania Railroad operates the southern half between Washington and New York City. The New Haven was the first railroad in the United States built along a shoreline parallel to and in direct competition with coastwise steamer services. By the end of the 19th century the New Haven was providing an integrated passenger service between New York City and Boston, Worcester, Springfield, and Pittsfield, Mass. The New Haven's lines spread throughout southern New England and, with its ancillary steamer lines, the New Haven was the prime means of intercity travel between New York City and southern New England points. At about the beginning of the 20th century, substantial demands were made for additional transportation service in the southern New England area. At that time certain lines were double tracked and even four tracked. Lines which were at ground level were installed in cuts or elevated on viaducts and embankments so that road crossings at grade could be eliminated. Lines leading into New York City were electrified. In response to the movement of persons to suburbs, the New Haven made increasing investment in grade separation, additional trackage, signaling, yards and terminal construction, rolling stock, and electrification. This was done in order to operate a very large number of trains within a very restricted time, each morning and afternoon, at the highest practicable average overall speed, without schedule conflicts or delays. In exhibit 6, I have shown the number of passengers into and out of Grand Central Terminal and 125th Street Stations in New York City on the New Haven Railroad for various years running back for 40 years. The table also shows these statistics for each year since 1944 to the extent presently available. It will be noted that during the 1944 war year the New Haven carried nearly 30 million passengers into and out of Grand Central and 125th Street Stations. This total was even increased in 1945, and was never matched either before or after in the New Haven's history. This is clear evidence of the significance of the New Haven to the Nation in a wartime period when the private automobile must be restricted by reason of shortages or petroleum and rubber. Since the peak of 1945 the total passenger traffic into and out of these stations in New York has gradually eroded. This was true also of the commuter passengers in and out of these stations. The commuter passenger peak was not reached during wartime but in the year 1948, and remained relatively steady through the following years until 1959 when it began a rather steady downward trend. Even today, however, the level of commuter passengers into and out of these stations in New York is higher than at any period in the New Haven's history prior to World War II. The total revenue passengers carried by the New Haven is shown by exhibit 7 for selected years since 1924. It will be noted that the New Haven carried over 68 million revenue passengers in the war year 1944. What I have said previously with respect to the New Haven in times of national emergency would be equally applicable to these statistics. The members of the committee may have heard the charge that the New Haven's passenger service is operated inefficiently. Among railroad people, considerable weight is given to the statistical result known as the operating ratio. In exhibit 8, I have shown the New Haven's passenger service operating ratios for all years from 1947 through 1963. The operating ratio, of course, does not reflect the impact on the passenger service of taxes and rents. Year after Year after year the New Haven has had one of the lowest passenger operating ratios of any railroad in the country. The latest available statistics show that the New Haven had the second-best passenger operating ratio in the country in 1963. The problems of handling commutation traffic are well known: inherently short hauls; lower revenue return per passenger mile; twice a day Monday to Friday characteristics; manpower requirments caused by the time spread between the two movements being longer than 8 hours; difficulty in usefully employing crews who man commuter trains during periods before or after the rush hour; enormous equipment investment; practical impossibility on most railroads in getting even two morning and two evening rush-hour runs on any particular train of cars. The Doyle report to this committee in 1961 presents a convincing analysis of the inherent unprofitability of commuter service. It is also well known to the committee that even the high-density, publicly-operated, short-haul transportation systems in the United States are hard pressed to operate at a break-even level. The largest such system in the country is that of the New York Transit Authority; it carried approximately 1,800 million passengers per year and receives passenger revenues of some $284 million, and cannot operate in the black. The Massachusetts Bay Transportation Authority system, which operates in Greater Boston, carries approximately 200 million passengers a year and receives approximately $35 million in passenger revenues. Its deficit currently runs about $20 million. Other publicly supported transportation systems have similar problems. Yet, invariably these public transportation systems themselves pay no taxes and have their capital requirements met by public appropriations and general taxes. The commutation operations of the New Haven are much smaller in scale than these public authority operations which I have mentioned But, even today, the New Haven carries approximately 14 million commuter passengers a year, and they ride a longer average distance than on any other railroad, except the Jersey Central, with any volume of this type of traffic. In exhibit 9 I have shown, for 15 principal passenger railroads, the number of commuter passengers carried, the miles per commuter, and the 1963 commuter passenger revenue. It will be noted that the New Haven is in sixth place in terms of numbers of commuters carried, in second place in terms of miles per commuter, and in third place in terms of commuter revenue. In exhibit 10, I have shown the New Haven's commuter passengers and commuter revenue for all years from 1947 through 1963. It will be noted from this exhibit that, while the index of passengers carried in any year as compared to 1947 has decreased, the revenue has generally increased. This has come about because of commutation fare increases which have occurred principally since 1956. The New Haven's commutation fares today are generally higher than those of any other railroad with commutation traffic. Since the trusteeship, we have increased all of the New Haven's passenger fares, including commutation fares. The point has been reached, in the trustees' opinion, where very |