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Senator PASTORE. Well, it will surprise you to know that is about the problem we have here. This is the New Haven, and our hard job is going to be to convince that Senator out in California.

Governor ROCKEFELLER. I can well understand, Mr. Chairman, the problem. And it is, therefore, it seems to me, only in the context of a national policy that the Congress, I would think, would be willing to act on regional problems because there are comparable problems in other parts of the country and I would assume that if the Congress decided it was going to have an overall policy, it would then be willing to deal with them in whatever area of the country they developed and, therefore, would have broad support from all sections of the country.

Senator PASTORE. Well, of course, being where you are, I guess you understand this even better than I do. You have a very serious practical question here. It is pretty much conceded that a passenger service is not a paying proposition on most of our railroads. But the problem has been postponed and postponed because the freight profits were sufficient to offset that. Here in the New Haven Railroad, of course, you have the double malady. We were showing a profit in the freight up until they built the Connecticut Turnpike, and now the deficit from freight is about $7 million, so you have it coming both ways.

Whether or not the passenger service goes, we do know one thing, that you would stagnate and suffocate the industries of New England in the event that you closed down the freight service.

One refreshing thing even in the application for merger is the fact that the New York Central and the Pennsylvania are willing to take over the freight service.

Now, I suppose it could be argued that while it is desirable to have the passenger service, why if you couldn't take a train, you could take a bus, or drive your car, or take a plane. That being the situation, of course, no one gets too excited about it. But the minute that begins to happen, a very important heritage will pass from the American economic scene which we can't afford to let happen.

Now, Governor Volpe, Governor Dempsey, and Governor Chafee have endorsed the so-called Pell bill, and I am afraid that unless we can get unanimity of thought on this, we are going to have trouble. We would have trouble even with unaniminity of thought. You take the position today that insofar as you are concerned, it would be a very difficult problem in the State of New York to get approval of a compact which would require that the State assume a portion of the operating deficit of the New York-New Haven. Would this be so even if it included the deficit of the commuter service?

Governor ROCKEFELLER. I left out the commuter services. I am just talking long haul. I think that the plan we have can cope with the problem of the commuter service and I might say there, Mr. Chair man, that there is an interesting development taking place on an evolutionary basis where the two States are each setting up their separate authorities, not a bi-State authority, but two separate authorities, and we plan to contract with each other, which keeps the subsidy and the amount of money that each State spends strictly within its own borders and its own hands.

Senator PASTORE. Of course, the problem you are going to have there is how are you going to allocate this deficit? I am one of those who feel that if you gentlemen would admit the deficit of the com

over.

muter service, and I know you are not admitting this was $6 million, and that the deficit in the Boston area was $1.5 million, that would reduce the deficit of the long haul to only $6 million and in that event I think that the New York Central and Pennsylvania would take it

Now, I think the hardest job you are going to have in your negotiations is on this question of allocations of deficit, because if you want to handle this commuter service separately, you have to separate it from the whole problem. And when you separate it from the whole problem, you have to determine what the proportionate share of deficit might be.

The thing that surprises me in these negotiations that have taken place between the State of New York and the State of Connecticut is the fact that you haven't brought the New Haven trustees into these discussions. They will be a party to whatever agreement is reached. If you separate the commuter service, it makes a big difference on the load that Rhode Island will have to carry, the load that Connecticut will have to carry, and the load that Massachusetts will have to carry on the long haul.

I think that is going to be your biggest problem especially when you have a situation where the trustees say that the commuter deficit west of New Haven is $6 million, and you are saying it is only $400,000. You are worlds apart.

Governor ROCKEFELLER. Mr. Chairman, I think that you are correct certainly in what you are saying in that we are far apart, and perhaps there may be some usefulness in the fact that we are not saying we will subsidize an existing service. We are going to them and saying we would like to contract with you and the New York Central, bringing in a new group, for the management of a specified service which we will specify.

Now, this then has to be calculated by the railroad as an operation which they will undertake, at our request, under specifications and they will have to give specifically the cost for the carrying out of that service.

Now, if this is to be a profit for the operation of the service, which I assume there is bound to be some managerial compensation, that will stand out as a profit, not a return on investment. We will be investing money in the new cars so that will not be a problem to them. We will be investing the money in the maintenance of their old cars. We will be operating the station, so it becomes a much clearer, simpler picture and with new people coming in, that is New York Central people, they will be looking at this fresh and I think that it will simplify this disparity between costs which now exist between our estimate and theirs.

Senator PASTORE. Do you envision your own employees, your own locomotives? Do you envision all of that, or are you still going to use property of New Haven?

Governor ROCKEFELLER. We would lease the tracks, build the cars, and we would employ the management.

Senator PASTORE. And run it as a separate enterprise! Governor ROCKEFELLER. Yes, sir; under contract through the authorities by the railroad. Now this is a new concept. It developed from our problem with the Long Island, which has been in this special

corporate structure created by the State of New York some 11 years ago. It has a 12-year life. It goes out next year.

There are no taxes paid, no interest on bonds, no profit on investment, and they have not generated enough money to keep pace with modern trends, even though we have built cars for them, and therefore we are going to buy the railroad, put it in the authority, contract for its operation,

and then modernize it at our expense. Senator PASTORE. As a legal proposition, can you do this together with the State of Connecticut without a compact ? Can you do that by agreement between your two transportation authorities

Governor ROCKEFELLER. In that case I was talking about the Long Island Rail Road. In the case of Connecticut, they would own half the cars, and we would own half the cars and we would contract on a contract we both sign with the management, or we could sign a contract between us and one of the two authorities contract for the service with the railroads.

Senator PASTORE. But New Haven would still be in the picture?

Governor ROCKEFELLER. Oh, yes; they would, and they would manage their stations and pay for them, and they would own their cars. We would manage through Westchester our stations, own our cars, and put up the

money for modernization in our own areas. Senator PASTORE. Which reduces it to the basic question I started out with, how far they go with you depends also on the status of the rest of the line.

Governor ROCKEFELLER. That is correct. I certainly agree; that is correct.

Now I might say–excuse me, one more thought. I had a call from Governor Volpe. He asked if I would join him and the two Governors from Connecticut and Rhode Island in a conference in Massachusetts. I said I should be delighted to do so, providing we were coming there to discuss the problem with no commitments in advance. These are the terms on which we will meet and we will discuss then the problem which you so clearly portray, which is the long-haul passenger service that has an impact on the communities, and what responsibility, or what share of responsibility can and will the States take

Senator PASTORE. The thing that has amazed me heretofore, and I think what they are doing is carrying out a suggestion that I made to them here last Thursday, that up to this time, as far as I know, none of the Governors actually sat down either individually or as a group with the management of the New York Central and the Pennsylvania.

They have been barraged by threatening letters, “Don't you let this merger go through unless you include the freight service and the passenger service of the New Haven." You have been around long enough and longer than myself to know that isn't the way to do it.

You have to sit down and talk it over with these people and find out who is willing to do what, to see if this problem can be resolved and I think that is what they are talking about.

I think it would be a good idea if the four Governors did sit down with the management and see if we can't separate this problem of commuter service from the long haul and see, after we have done that, what this combine is willing to do providing the ȚCC is willing to allow the merger.

Governor ROCKEFELLER. Mr. Chairman, I think you are right. We are going to sit down among ourselves first, without the railroads so that we develop a common policy of the four Governors.

I would point out one thing. We have been meeting with the New York Central-Pennsylvania people, as have most of the other Governors and most of the Senators and Congressmen who are involved.

This is also true of the J. & T. trust people.

We have been in this now for 5 years and we have had meetings with not only the Governors, but the legislative leaders from the various communities.

One of our problems has been that we go to negotiate, and this is a trading proposition, too, you are negotiating with trustees who are trying to get the best deal they can for the bondholders.

Now one of our problems has been, we come up with a proposal, and go to negotiate, and then somebody comes along and says, “Oh, no, that proposal is not enough, you ought to give them $5 million a year," and then that is topped by someone else who says you ought to give them $12 million a year.

Well, frankly, when people in authority are constantly upping your bid, it makes it very difficult to negotiate with people who are anxious to get everything they can out of it, so that this has been a rather interesting and unusual situation.

Senator PASTORE. What is your reaction to the so-called Ribicoff bill? Are you familiar with that?

Governor ROCKEFELLER. Yes, sir; I am. I think that has more possibility, frankly, as providing a possible useful channel

Senator PASTORE. That has a matching element.

Governor ROCKEFELLER. Yes; it does, but the matching element relates to what the States are spending and we feel, and tax exemptions, and we feel what we are doing is sufficient that if it has to go a great deal more, that maybe we ought to be willing to consider some more.

Senator PASTORE. Would you support the so-called Ribicoff bill or would you want to withhold your judgment on that?

Governor ROCKEFELLER. I

Senator PASTORE. We would like to get some definitive statements if we may.

Governor ROCKEFELLER. I will support the principle of the bill, if I might, Mr. Chairman, support the principle of the bill and plead guilty to not having had the opportunity to sit down with counsel to study its detailed implications and, therefore, if I could

Senator PASTORE. Could you assign someone to do that?
Governor ROCKEFELLER. Yes, sir.

Senator PASTORE. And sit with our staff and study it so that we could get a reaction from you?

Governor ROCKEFELLER. I will be glad to.

Senator PASTORE. Because as I look at this whole problem, somewhere along the line we have got to get unanimous consent here, otherwise we get nothing accomplished.

Governor ROCKEFELLER. Mr. Chairman, one other thing I would like to point out and that is this, that with all this discussion which is necessary and productive, but where amounts are being accepted; namely, the $6 million for the commuter service, which includes interest on the bonds, and profit, and so forth, it is interesting to note that the

bonds of the New Haven have gone from 6 to 22, so the stockholders, I mean the bondholders, are rather enjoying these discussions and the topping of bids as to what the States are going to do to help the railroad.

Senator PASTORE. Doesn't that depend on when you bought it? Governor ROCKEFELLER. It depends on when you bought itSenator PASTORE. If you bought it at 6 and now it is 22, that is all right. But if you get in the middle there will

Governor ROCKEFELLER. It is an indication that the market feels that there is a lot of money coming into this.

Senator PASTORE. I want to thank you very much, Governor.
Senator Scott?

Senator Scott. Governor, I noticed the testimony of the HHFA is certainly not altogether hostile to some of your proposals. Mr. Kohl testified this morning. There he indicatedthat the demonstration provisions of this program offered immediate resource for temporary use while necessary interstate compact and long-term financial assistance arrangemennts are being worked out by the States.

And he points out the States of Connecticut and New York, working with the Tri-State Committee, have already submitted a draft of a proposal for a demonstration project, which he describes, and have indicated that about $1.5 million of State funds will be available for the required local one-third contribution to the approximately $4.5 million project.

He concludes that this could provide substantial interim assistance in continuing the essential services now under curtailment action by the trustees. He also suggests that it might provide guidelines and time for the States and localities to work out long-term arrangements with the trustees for assuming responsibilities regarding the commuter service. Have

you any comment on that? Governor ROCKEFELLER. Yes, Senator Scott. I first say that reflects exactly the situation as we understand it. I would like to say Mr. Kohl has been most cooperative, so has the HHFA, and so has the Interstate Commerce Commission, in coping with these problems and we are very grateful for their time and thought and willingness to work with the States.

Senator SCOTT. I suppose I need some guidance—but I suppose it is within the competency of the ICC to say to the Penn Central people that favorable consideration would be deferred unless there was some arrangement to pick up passenger service as well as freight service.

Of course, that would probably chill the merger pretty badly, but do you know of any interim position between the one purportedly taken by Penn Central of taking over freight service and refusal to take over the passenger service? Is there any area for negotiation with the Penn and New York Central people there at all?

Governor ROCKEFELLER. We have had a long discussion with them about this whole question. Their position has been as you state it.

However, we feel that what you have just suggested is a real possibility and that if arrangements were made to take the commuter problem off their backs, and they felt it was hard and firm, that perhaps a reduced basis of some kind in relation to the long haul, that this would not block the merger and might well be a reality, particularly if it was to continue until such time as the Federal Government's $20 million

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