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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:)

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Roads on the eastern seaboard which would probably apply for aid under 8. 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)

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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.

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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.


Senator DOMINICK. That is still not going to do the job though, is it?

Mr. KIRK. I think as the Chairman of the Interstate Commerce Commission, Mr. Webb, has pointed out, if we are gaining relief presently in the order of magnitude of $4 million in the aggregate tax relief, and if $2.5 million more tax relief is granted, and if the Federal Government matched this with $6.25 million, then for that period at least, we would get that kind of money, we will be operating our passenger service on a break-even basis.

But these are big “ifs.” This takes a lot of doing, cooperation among the States, Federal Government, et cetera, and time is running out.

Senator DOMINICK. This is what I am trying to find out. In other words, we are not talking about providing a solution under which the railroad will generate enough revenue to more than pay its own way.

Mr. KIRK. That is correct.

Senator DOMINICK. We are talking about a subsidized service from beginning to end no matter who operates.

Mr. KIRK. Senator, I don't wish to enter into the question of semantics here, but just for the record let me state we are not asking for a subsidy. That is not so. We expect the public to pay for the service they are using and which the public authorities tell us to operate. This in no sense, to our way of thinking, is a subsidy in any way, shape, or manner.

Senator DOMINICK. I don't want to argue semantics with you, either. What we are talking about, however, is that it isn't going to generate enough revenue from its passengers its

own way

and either the States and/or the Federal Government are going to have

to pay

to pay.

Mr. KIRK. Either that or the service go out.

Senator PASTORE. And on that point, that is precisely what the Pell bill does. It sets up this four-State authority that will run it, but it provides, it provides that the States shall take up the operating deficit. Isn't that correct?

Mr. KIRK. Yes, Mr. Chairman. The problem we have is time. Now, reference is made here to the Ribicoff bill, and matching funds from the State, but as I pointed out, that takes a cooperative action on the part of everyone, agreements up and down the line, all of which is time consuming.

In my 31,2 years on this job, I have some question in my own mind whether such is possible within the time limit open to us.

Senator PASTORE. May I make a suggestion at this point? I realize what a burden this is upon you gentlemen. You are all busy people, all very important people, but we have three Governors coming here tomorrow morning and I would hope you all could come back and listen, because these are the questions that are going to

put to these Governors.

I don't want to embarrass anybody, and certainly it isn't going to be the intention of this committee to embarrass anyone.

Mr. KIRK. I understand. Senator PASTORE. I think it is quite proper for us, in view of the fact that these bills have been introduced, that we ask categorically each Governor just how he feels about these bills and how he feels about this crisis and how he intends his own State to participate.

If the Governors come here tomorrow and say, we will have nothing to do with this, I am just going to wrap everything up and forget it. I mean that is where it stands.

Mr. KIRK. Mr. Chairman, may I state

Senator PASTORE. After all, each one of these bills calls for some kind of State participation, with the possible exception of the socalled Dodd bill, which provides for a certain amount of unmatched Federal contribution for 1 year. But that is not an answer to the problem.

It will take some time to get this whole matter straightened out, as our distinguished Chairman of the Interstate Commerce Commission has already pointed out.

These people have some rights under the law and it takes time, and it might well be, the chances are it might go beyond this year before this whole matter is resolved one way or the other.

In the meantime, something has got to happen. And that is what we are trying to find out here.

Now if the Governors come in here tomorrow and say, well, we can't approve the Pell bill, because we don't want to take up the deficit, and we don't go along with the Ribicoff bill because we don't want to put up our share, and if that happens to be their attitude and I hope it is not—we are faced with a very difficult situation. I was very surprised when I read the report the other day when they said this requires more Federal money.

Well, I don't think that is going to be easy to do. I think there has got to be a stronger effort on the part of the individual States and I would hope that we can develop something here tomorrow that will begin to make sense on one plan, because unless we get one plan here we will accomplish nothing.

The fact of the matter is, now Mr. Lausche said that, I think he misquoted himself, he said the more passengers you put on the more money you lose. Now no one said that. We only said this, that even though the fares were increased, the passenger load decreased.

Mr. KIRK. That's correct, Mr. Chairman. I had made arrangements to be present here tomorrow to assist in any way I can, looking toward a solution of this problem.

This is one of our responsibilities and if I can be of any assistance in answering further questions, either put by you or the Governors, I will be here and try to do so.

Senator PASTORE. I want to thank you, Mr. Kirk, and I would hope that maybe some representatives,

Mr. WEBB. I will be here, Mr. Chairman.

Senator PASTORE. It is just as well that we listen to one another and see what our intentions are so that we can resolve this. I quite agree with you gentlemen. Time is short. It is running out.

Now I think that the States ought to find out whether or not the Federal Government wants to do anything, and I think the Federal Government ought to find out if the States want to do anything and then take it from there.

Otherwise, in the meantime, the petition has been filed to discontinue this passenger service, and as the chairman has already pointed out, there is a distinct possibility it might happen.

Now that is where we are.

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