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INTERSTATE COMMERCE COMMISSION

MARCH 17, 1965. Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, Washington, D.C.

DEAR CHAIRMAN MAGNUSON: This report is submitted in response to your request of February 26, 1965, for the Commission's comments on S. 1289, introduced by Senators Dodd and Pell, “To amend the Interstate Commerce Act, as amended, to authorize the Interstate Commerce Commission to assist common carriers of passengers by railroad in preserving and improving essential passenger train services and facilities, and for other purposes."

Section 1 of our report (pp. 3–26) to the Senate Commerce Committee dated March 1, 1965, on the bills, S. 325, S. 348, and S. 1234, entitled "Economic Background Information and Analysis of the Rail Passenger Situation With Emphasis on the Problems of Southern New England" contains background information which is generally applicable to S. 1289. Our general comments in support of S. 325 on pages 39-48 of the same report are also generally applicable to S. 1289.

Specific comments on provisions of S. 1289 which are not covered in the abovementioned report follows: Section 603. Application for aid; conditions precedent to granting

This section contains an additional provision which gives the Commission "power to approve such applications subject to such terms and conditions as in its judgment may be required to carry out the purposes of this part.” The Commission favors this provision because it would insure that Federal aid, in excess of the amount required to defray operating losses, be used to modernize and improve rail passenger services and facilities. Section 604. Determination of amount of grant

This section corresponds to section 604 of S. 325, but it provides a different method of determining the amount of Federal assistance. In general, section 604 authorizes Federal assistance to be extended to an applicant on a State matching basis for a period of 5 years.

In the first year the maximum amount of Federal assistance to any applicant would be the lesser amount of $20 million or the total of expenses solely related to railroad passenger service and that portion of common expenses apportionable to rail passenger services in the maintenance of way and structures incurred by the applicant or any State, municipality, or other political subdivision in the 2 preceding years. The States would not be required to match any Federal assistance in the first year, although any expenses mentioned above incurred by the States would increase the maximum amount of the Federal assistance for that year. Applying this provision to the New Haven, the maximum amount available in the first year would be approximately $13.5 million. In the secon

year, the

nterstate Commerce Commission would be rec ired to determine the total amount of financial assistance, State and Federal, required by an applicant to continue for 1 year the operation of passenger train service qualifying for such aid. The maximum amount of Federal assistance would be 80 percent of the total amount mentioned above, provided the State, municipalities, and public instrumentalities provide financial aid which would amount to the remaining 20 percent. The financial aid the States and local agencies of government would be required to provide would include direct grants, tax relief, and expenses incurred by them in maintenance of way and structures set out in section 602(d) of the bill.

In the third, fourth, and fifth years the maximum amount of the Federal share would be 70, 60, and 50 percent, respectively, of the total amount of Federal-State aid deemed necessary by the Commission, provided the States contribute the remaining amount of financial aid deemed necessary to insure continued operation of essential passenger train services.

Federal assistance under this bill would terminate after the fifth year. The Commission is in favor of limiting Federal assistance to 5 years. We do not regard any permanent program of direct Federal financial assistance to railroads providing essential passenger services as desirable. A long-term solution, we would hope, can be found in legislation under which the States would assume responsibility for operating losses, with the Federal Government's assistance limited primarily to the utilization of its credit under appropriate safeguards.

The Commission recognizes that it may be desirable to extend a greater amount of Federal aid in the first year and assistance on a declining scale thereafter, as

provided in S. 1289. This would not only enable a rail passenger carrier to survive but would also permit rehabilitation of equipment and improvement in service resulting in decreased maintenance expenses and an increased number of revenue passengers. S. 608. Appropriations

S. 1289 would authorize $75 million to be appropriated to carry out the purposes of the bill.

There are several technical amendments that the Commission believes are necessary to insure effective administration of the bill. They are as follows:

Section 602(b) defines "expense” but a more precise definition of "expenses incurred in maintenance of way and structures" is necessary to determine the amount of aid available under section 604. The necessary change can be accomplished by amending section 602(b) to read as follows:

"(b) Expenses incurred in the maintenance of way and structures, in referring herein to expenses assignable to railroad passenger service, means expenditures incurred for labor, material, services and other costs incurred in repairing and maintaining roadbed, track, and other roadway facilities and structures which are chargeable to the maintenance of way and structure operating expense accounts in accordance with the uniform system of accounts or other rules and regulations prescribed or issued by the Commission in lieu thereof in determining the amount of aid to be extended to an applicant under the provisions of section 604."

Section 602(c) refers to expenses directly assignable as solely related to railroad passenger service and to that portion of common expenses assignable to passenger service. Assignment of expenses between directly assigned and common expenses is not made by all carriers in a uniform manner nor with precision. Because of this situation we recommend that paragraph (c) of section 602 be modified so that, in the administration of that section, the Commission will not be bound exclusively by presently published rules governing separation of expenses, but will be empowered to promulgate rules and regulations to meet actual conditions. This modification can be accomplished by a revision of paragraph (c) of section 602, striking the last four words of the paragraph and inserting on line 9, page 3 of the bill, after the word "service," the following additional words: “or under other rules and regulations prescribed or issued by the Commission in lieu thereof in determining the amount of aid to be extended to an applicant under the provisions of section 604."

Section 604 requires the Commission to determine the total amount of FederalState assistance required to continue for 1 year the operation of passenger train services qualifying for such aid. The Commission's determination should be final. To effect this, section 604 (d) should be amended by adding the following new sentence at the end thereof : “The decision of the Commission shall be final."

Section 604 does not specifically provide that if a State or local agency of government does not contribute its full share, an applicant, nevertheless, will be entitled to Federal assistance prorated on the reduced amount of State assistance. If this is intended it should be stated specifically in the bill. Such language could be inserted as a new sentence at the end of section 604 (b). Section--Rules and regulations

It is further recommended that a new section be added to empower the Commission to prescribe rules and regulations as follows:

In order to effectuate the purposes of this part, the Commission is authorized to prescribe such rules and regulations as may be necessary, including rules and regulations for recovery of overpayments of aid.

In our opinion, a cash infusion of approximately $9 million would be required to insure the continued operation of the New Haven for another year and to enable it to initiate a modest program for the rehabilitation of its plant and for service improvements. Approximately $13.5 million could be made available in the first year. We believe that the enactment of S. 1289 would insure the continuance of New Haven's operations during the year ahead and would enable it to undertake vitally needed plant, equipment, and service improvements.

With the amendments suggested earlier in this report, we recommend that S. 1289 be favorably considered and that either S. 325 or S. 1289, or a combination of the best features of both, be approved. Sincerely yours,

CHARLES A. WEBB, Chairman.

Senator PASTORE. Accordingly, on February 18, 1965, the trustees filed notice with the ICC that the New Haven will terminate certain commuter service by March 29, 1965.

Under the law, however, the Commission may require the railroad to continue this service for 4 months. After hearings and a finding that the service is required by public convenience and necessity and will not unduly burden interstate commerce, the ICC may order that the service be continued for an additional period not to exceed 1 year.

But in the interim, cash attrition and ancient equipment may deal the death blow to the New Haven. There is little time left for a solution to be found.

At this point, I would like to comment on the economic decline of the New Haven to emphasize the problems we confront in seeking a solution to the immediate crisis-cessation of passenger service.

The New Haven Railroad, a product of the merger and consolidation of 18 railroads, some of which had grown out of still smaller combinations, came into being at the end of the 19th century. The New Haven was created in response to the needs of the traveling public and the industrial and agricultural complexes which grew up in the Northeast.

The road flourished. At the height of its success in the early 1920's the New Haven boasted 2,300 miles of track and 38,000 employees. Today the New Haven operates approximately 1,600 miles of track and employs less than 10,000 people.

Judge Anderson attributes the decline of the New Haven to the operation of economic forces and to competition.

Characteristic of other railroads, the New Haven for many years lost millions of dollars on its passenger operation which it equalized from its freight profits. But a few months after the Connecticut Turnpike opened in 1959, the New Haven freight revenues began to show a loss and the railroad has failed to show an operating profit since that time.

Judge Anderson has graphically described the smothering effect other modes of transportation have had on the New Haven:

A train proceeding from New York to Boston has truck competition on one side, seaborne competition on the other, and air competition overhead. All of these other forms of transportation directly or indirectly are subsidized by governmental assistance. Meanwhile the railroad has to maintain its track, roadbed, and other facilities and is heavily taxed in addition.

There is a dispute as to whether or not the Federal Government subsidizes other modes of transportation.

The fact is, however, that in 1964, the Federal Government allocated $5.3 billion for transport expenditures. Of this amount $4 billion was scheduled for construction and maintenance of highways, $777 million for the Federal airways system, $85 million for airport development administration and research, $85 million for cash subsidies to domestic airlines and helicopter carriers, and $341 million for water transportation.

To this grand Federal outlay we must add the sums contributed by the various States to highway and airport construction. Meanwhile, the New Haven has been required to maintain its own track, roadbed, and other facilities and to pay taxes to boot on its holdings.

In July 1961, the New Haven filed a petition in bankruptcy in the Federal District Court for the District of Connecticut. The railroad

had sustained net operating deficits continuously since 1958, in amounts ranging from $4.3 million in that year, to a peak of $19.5 million in 1961. In 1962 and 1963, while under receivership, the operating deficits were $12.7 and $12.3 million, respectively. Last year the deficit increased to about $17 million.

The New Haven has survived despite these massive deficits mainly because of Federal aid.

In answer to those who contend the Federal Government has done nothing, in 1955 and 1956, the Federal Government guaranteed $16 million in flood loans after disastrous storms caused extensive damage to the right-of-way. Only $2 million of these guaranteed loans were subsequently repaid.

Under the Transportation Act of 1958, the Interstate Commerce Commission during 1959 through 1961 guaranteed $23.1 million in special loans to the New Haven. After the railroad entered receivership in 1961, it defaulted on payment of the $14 million balance of the flood loans, and on an additional $14.3 million of the special loans. The U.S. Treasury then paid the railroad creditors $28.3 million.

Since the receivership commenced, the ICC has guaranteed an additional $12.5 million of loans for the New Haven. Of this amount, $8 million has been used. The trustees will soon draw down the remaining $4.5 million. Thus, loans to the New Haven totaling $51.6 million have been guaranteed by the Federal Government, of which the taxpayers have already had to make good on more than $28 million.

The four States involved have made some contribution to the railroad. In 1962 and 1963 they granted the New Haven tax relief amounting to approximately $3 million per year. Most of the relief came from Connecticut and Rhode Island.

The monthly New Haven payroll now averages $6 million. Cash attrition is such that very shortly there will be insufficient money to fill the pay envelopes.

The trustees have survived thus far by Federal aid and by divesting themselves of capital assets. They raised $4.5 million over the past 2 years by selling off scrap, expendable rolling stock, and real estate. They deferred all but absolutely essential maintenance on equipment. There is little else they can do now to prolong the New Haven's operation.

In short, there is nothing wrong with the New Haven that cash won't cure. The only question is how much cash is required, who is going to put it up, and how.

I hope that out of these hearings in a spirit of cooperation, the Governors, the trustees, the heads of the Federal agencies, the commuter and passenger associations, and the members of this committee might evolve one sensible plan-a plan acceptable to all—to preserve the New Haven passenger service.

I want to emphasize this point now. This is a Solomon task if ever there was one. The taxpayers of this country have already had to make good about $28 million, loans defaulted by the New Haven.

Now, there are four States involved here. The State of Massachusetts, the State of New York, the State of Connecticut and the State of Rhode Island. All seem to understand the problem but each has his own solution. Unless we arrive at one solution, one proposal, one program, at best we are going to have a tough job and at least we won't get a thing accomplished.

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I think that this is a very serious problem. I think this committee is ready and willing to grapple with it. I hope that we can evolve a solution that will be acceptable to all and that in the end, we can save this very important mode of transportation for the four States involved.

Now, a question arose in what order shall we hear our witnesses. That is always a very touchy thing when you have Senators and Congressmen who are ready to testify, so we have decided that we will hear our witnesses, our Senators and our Congressmen in the order that they introduced their bills.

The first bill was introduced by the very illustrious and distinguished Senator from Connecticut, Mr. Abraham Ribicoff, and he is our first witness this morning.

Mr. Ribicoff, we are very happy and honored to have you here and, unless there are any comments that my two colleagues would like to make at this juncture, we are ready to hear your testimony. STATEMENT OF HON. ABRAHAM RIBICOFF, U.S. SENATOR FROM

THE STATE OF CONNECTICUT Senator RIBICOFF. Thank you, Mr. Chairman, for giving me this opportunity to appear before this committee. Having lived with this problem for many years, I would like to add that you have posed the problem in a nutshell, and now it is up to all of us to grasp the nettle.

I feel that under your leadership, as chairman of this committee, acting as a goad and also acting as a Solomon, we are going to be able to come out of these hearings with a better idea of our responsibilities.

This morning 25,000 commuters traveled to work in New York City from their homes in suburban New York and Connecticut on the New Haven Railroad. They did not travel in any great style. They moved in drafty, creaking, ancient coaches. They waited through the usual delays. Tonight they will travel home again—in the same ancient equipment, and enduring the same delays. But they moved this morning—and they will, we hope, travel home again tonight.

The delays are long, the service inadequate, the cars obsolete; but the service has continued.

Commuter service on the New Haven, however, is reaching the end of the line. The railroad went into receivership in 1961. It has run at a deficit since 1958. And now the trustees of the New Haven have petitioned the Interstate Commerce Commission for permission to institute a curtailment and eventual abandonment of commuter service in the New York area, effective March 29, 1965. That petition is new pending before the Commission, and under the law must be considered and decided within 4 months from March 29.

This is not the first crisis in the history of the New Haven's commuter service. Suburban residents of the New York metropolitan area have lived under the threat of curtailed or abandoned service for years. But if we are realistic, we must face the fact that this could well be the last crisis, that commuter service could end.

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