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(The above article follows:)
A RAILROAD BREAKS DOWN-WHO WILL SAVE THE NEW HAVEN?
(By Senator Claiborne Pell)
When the trustees of the bankrupt New Haven Railroad, on February 4, set in motion an appeal to abandon their commuter service into New York City, and utimately all passenger traffic, they threw down a gauntlet whose impact may well be felt across the country.
Immediately at stake is daily transportation to and from jobs in New York City of some 25,000 residents of suburban Westchester County in southern New York State and the nearby areas of western Connecticut. The long-range issue is the survival of all rail passenger service between New York and Boston, a matter which is of special importance to me as a Senator from Rhode Islanda State served by no other railroad. I am doubly involved in the problem because since 1962 I have urged the establishment of high-speed passenger rail service the whole length of the Boston-Washington megalopolis. This project has now been embraced in President Johnson's Great Society.
The manner in which the New Haven's crisis is solved, if it is solved, is important to the whole Nation. A basic and difficult public policy decision must be made as to who shall pay for a service which appears to be essential but which nearly everyone agrees is basically unprofitable. If a formula for survival can be worked out for the New Haven, it could have important applications in almost every other major metropolitan area in the country. If no rescue operation is undertaken, there may soon be nothing left to save.
Whatever the ultimate decision, the court-appointed trustees of the New Haven have indicated that they cannot continue passenger operations in the framework of private business; lacking assurance of public support they now propose to terminate the service altogether. There could be no clearer demonstration that in this case the usual laws of the marketplace won't work. Future historians may marvel that the New Haven continued for so long to dispense a charitable passenger service in the name of private enterprise.
I hasten to acknowledge, at the outset, that a venturesome group of prominent New York bankers and businessmen-under the leadership of Frank P. Davidson, whose Technical Projects, Ltd., has been active in the English Channel tunnel development—are at this moment conducting a study to determine whether they might buy the New Haven's commuter operation outright and run it on a breakeven basis through massive modernization of equipment. They expect a verdict by spring, and we in the political realm wish them well; their success would solve many problems for us. It must be said, though, that the record of the New Haven does not permit us to pin much hope on this venture.
The New Haven has run at a net operating deficit continuously since 1958, in amounts ranging from $4.3 million in that year to a peak of $19.5 million in 1961, when the line went into receivership.
During 1962 and 1963, the court-appointed trustees dutifully whittled the operating deficit down to $12.7 and $12.3 million, respectively, but last year it shot up again to an estimated $17.7 million-a rise caused in part by wage increases that totaled $3.2 million. Faced with more than normal environmental hazards (disastrous floods in 1955 resulted in Federal relief of $14 million, and blizzards in 1961 cost the line approximately $3.9 million in lost revenue and added expenses) the railroad has maintained service on a precarious hand-tomouth basis. The trustees have survived by self-cannibalization, selling scrap, expendable rolling stock and real estate worth $4.5 million over the past 2 years to make ends meet. In spite of this, there has sometimes been barely enough money in the bank to meet the monthly payroll, which currently averages about $6 million.
Faced with these abysmal prospects, the trustees decided that the only hope for reorganizing the bankrupt line would be through its inclusion in the pending Penn-Central merger, and they so petitioned before the Interstate Commerce Commission in February 1963. But to make this a feasible solution, they felt that they would have to lop off those parts of the operation which accumulated the biggest deficit. Thus, in January of this year, they served notice that they would ask the U.S. district court in New Haven for permission to discontinue passenger operations, beginning with the commuter runs.
The balance sheets for recent years make it clear why the passenger service is seen as the villain. People are significantly more expensive and less profitable to carry than is freight, and in recent years the New Haven has been 46-135-65- -6
second only to the Long Island Railroad in its high ratio of passengers to freight. In 1963, total passenger fares on the New Haven were approximately 45 percent of its total operating income. Passenger service in recent years has accounted for about 50 percent of total operating expenses, and as much as 75 percent of total train miles.
This high concentration of passenger business accounts for a large percentage of the operating deficit-between 62 and 85 percent of the annual deficits in the past 4 years. The estimated passenger deficit for 1964 is $11.4 million out of a total deficit of $17.7 million-or about 64 percent.
Of special significance is the fact that much of this service is provided for communters. The 54 commuter trains which the New Haven runs daily into and out of Grand Central Station produced about one-third of the line's passenger revenue, and approximately 40 percent of its passenger miles. They also incur an inordinate proportion of cost because of the peaking nature of commuter traffic.
Equipment stands idle and labor costs escalate often not without justification, considering the hours involved.
The implications of the problem in terms of payroll were described in vivid detail by the Interstate Commerce Commission's study, "Railroad Passenger Train Deficit," in May 1959. The reports cited a typical case:
"An assistant conductor reports for duty at a New York suburban station at 5:14 a.m. for a run to New York City, and is released from duty at 8:03 a.m. with nothing to do thereafter until 4:10 p.m. when he reports for work on an afternoon run to the same suburban station, where he is released from duty at 7:50 p.m. The spread of assignment is 14 hours 36 minutes, involving 6 hours 29 minutes of time actually worked and 8 hours 7 minutes of uninterrupted release time in the middle of the day. Under the present rules the compensation for this service consists of 1 basic day's pay and 5 hours 36 minutes of overtime."
The alternative to overtime is the hiring of two sets of crews to meet peak demand. But as the socalled Whitman report on the New Haven stated: "These crews are paid on a full-day basis even though there is very little opportunity to make efficient use of their services otherwise during slack periods."
In an attempt to plug the offpeak gap, the New Haven in 1963 participated in an experimental program in the Boston metropolitan area that involved reduced fares and more frequent service during the slack hours. The hope was that housewives and others on flexible schedules would take advantage of the service. The experiment, which was financed by the Massachusetts Mass Transportation Commission, did succeed in generating a substantial offpeak patronage on the Boston-Providence line, but the New Haven trustees concluded that the response was not sufficient to offset the normal commutation deficit.
In the New York area, circumstances, in the form of superhighways, have conspired to nibble away at the surviving offpeak rail patronage. The trustees reported for 1962 and 1963 a decrease of $98,400, or 4.5 percent, in offpeak patronage from Westchester stations. The drop, they said, reflected completion of the New York Thruway-Connecticut Turnpike approaches to Manhattan. Time and again, the New Haven has sought to balance its books by wringing the money out of its patrons. Time and again fare increases have been granted. Beginning with a 22.5-percent hike on some tickets in 1956, fares rose a total of 15 percent in 1957 and 1958, and in 1959 a substantial adjustment raised some tickets 23.8 percent. Between 1960 and early 1962, fares jumped 40 percent in four successive stages. The result, as any student of economics would predict, has been a marked decline in patronage. From the 45,703,199 passengers carried in 1956, the total had dropped by 1963 to 25,880,977. In 1964, the trustees advised the U.S. court that "the New Haven has exhausted this form of self-help and further fare increases would be self-defeating because of the diversion to other modes of transport which would ensue."
It is not surprising that the New Haven, plagued by these manifold difficulties, has not been able to maintain its physical plant in proper working order. In particular, the line has had to curtail any systematic replacement of rolling stock, and this neglect has in itself aggravated the operating deficit, since obsolete equipment costs more to operate.
The senility of the New York commuter fleet, for example, is depressing to contemplate. Of a total of 190 cars, the 100 newest are 10 years old, and the remainder, almost half the fleet, vary in age from 30 to 50 years. None of the antiques, purchased between 1914 and 1931, is air conditioned and "all are deteriorating rapidly," according to the trustees.
It is small wonder that we in Congress are deluged with letters like the one I received from an irate Connecticut commuter recently who said: "The New Haven Railroad situation is becoming desperate, terribly uncomfortable, late trains, broken windows, broken doors, holes in floors of cars, cars steaming hot or bitter cold."
The penalty for operating such ancient equipment is massive. The cars from the 1914-31 period averaged 5.91 malfunctions per 100,000 car-miles in 1963, as against 3.46 for the younger models. And repair costs for the old cars averaged 45.17 cents per car-mile, as against 19.62 cents per car-mile for the new cars. The old cars ran up repair costs of $833,214 in 1963, while accounting for only 31.5 percent of the car-miles; the new cars had repair costs of $787,356. Obviously, the New Haven could have saved substantial sums if it had been able to maintain a systematic schedule of replacement in recent years.
The casual reader of this dismal record of the New Haven's decline may be tempted to ask what the fuss is all about. If the New Haven's passenger service is so clearly unable to support itself, why not let it go down the drain? The answer is that, sick as it is, the New Haven performs a vital public service that cannot be duplicated more economically in any other manner.
Although the New York commuter problem is the most dramatic element of the New Haven's passenger-carrying operations, the entire length of the 229mile route benefits from the public service. About 6,000 commuters ride to and from work daily on New Haven trains in the Boston and Providence metropolitan areas. In 1963, the New Haven carried approximately 25 million passengers, who generated more than $41 million in fares, only about one-third of which was officially classified as commutation revenue. As is often the case, the true value of this dependable intercity service is not fully appreciated until the weather turns bad. As a frequent rider on the Federal, which offers overnight sleeper service between Washington and New England, I know how reassuring it is that the New Haven will still run more or less on time, whatever the weather.
If curtailment of these services in New England would cause inconvenience and consternation, the effect on the Metropolitan New York area would be sheer chaos. The New Haven trustees estimated last year that if their New York commuters were to take to their automobiles, the 24 lanes of highways leading into Manhattan "would simply fail to operate." The only possible alternative— but one which probably would offer inferior service at best-would combine bus and subway service at a cost of $156 million. The trustees concludeed that "analysis reveals no practical or adequate alternative to the use of rail transportation."
It is because this public service is essential and irreplaceable that public assistance from both the States and the Federal Government has already been administered in fairly massive-if ill-coordinated-doses. The Federal contribution to the New Haven has been substantial by any standard of public assistance to private industry. It has also been badly conceived from the viewpoint of long-range policy, with the result that Federal taxpayers have paid for emergency relief that contributed nothing to an effective program of reorganization and rehabilitation.
The Federal Government's involvement began in 1955 and 1956 when it guaranteed the $16 million in flood loans after disastrous storms in southern New England caused widespread damage to the right-of-way. (The railroad subsequently repaid $2 million of this amount.) Then during the 1959-61 period the Government guaranteed $23.1 million in special loans to the New Haven under the Transportation Act of 1958. When the New Haven went into receivership in July 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 Treasury promptly paid the creditors $28.3 million of the taxpayers' money.
Since the receivership, the trustees have obtained guarantees for an additional $12.5 million of which they have used $8 million. (They conceivably could draw on the remaining $4 million to relieve their current distress.) Thus loans to a grand total of $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 contribution of the States has been much less impressive. It has been in the form of tax relief amounting to approximately $3 million per year in 1962 and 1963. Most of it came from Connecticut, with New York's share diminishing sharply in 1963 because the State legislature attached conditions that
required the acquisition of new commuter cars. Rhode Island, I am happy to say, provided $550,000 in 1963, while tax relief from Massachusetts was described by the trustees as "wholly illusory."
Helpful as these State contributions have been, they fall far short of the annual $6.2 million recommended in 1960 by an interstate group as the necessary level of support from the four States. Clearly, the localities served by the railroad have not yet recognized that they must pay for a service they cannot afford to lose.
There have been repeated suggestions, most recently from the New England Governors' conference, that the Federal Government should bear most or all of the burden of the unprofitable passenger operations. These arguments overlook the fact that the Federal Government-meaning the Nation's taxpayers-has already paid out more than four times what the States themselves have been willing to spend. In view of this, it would seem to me virtually impossible to get any program of assistance through Congress until there is a clearer demonstration of concern from the States.
What is needed, I think, is a rational and orderly framework for the public financing of all the failing public service. Now that the trustees have in a sense given up the proposing to amputate the passenger service, we can no longer think in terms of the stopgap, patchwork palliatives that have characterized public assistance to date. We need now a master plan for resolution and recovery that looks to the future.
It was with this in mind that I introduced in the Senate on January 7 a bill (S. 348) to establish a four-State public authority under which Massachusetts, Rhode Island, Connecticut, and New York would take over and operate the New Haven's passenger operations. The States would be bound by the compact to make up the annual deficit of the authority in proportion to the passenger miles traveled in their borders; the Federal Government, for its part, would agree to pledge its credit to guarantee up to $500 million in bonded indebtedness of the authority-more than enough, I believe, to effect a complete recapitalization of the passenger-carrying service.
This bill, I believe, offers a sound formula for sharing the responsibility. It assigns to the Federal Government a basic responsibility by the capitalization of a national need. Through the device of the Federal loan guarantee, the authority can raise considerable quantities of capital at preferred rates and terms and without direct recourse to the public treasury. But unlike the previous loans by Washington, this one would be protected against default by virtue of the States' commitment to underwrite the operating deficit. Should the States not be willing to make up deficits from general revenue, it might be possible to vest the authority with its own taxing power-as has been done by the Bay Area Rapid Transit District in California.
I do not urge my proposal as a perfect solution, but as a workable framework within which a reasonable resolution of the problem can be made. There is no easy way out of this situation, because the New Haven crisis is a classic case in which classic problems have finally come to a head. The railroad's plight is bitter, but it is not unique. That is why we need new thinking and new techniques that will point the way to future resolution of such problems across the land. We can only hope that Congress and the States will show themselves equal to the task.
Senator PASTORE. Senator Dominick.
Senator DOMINICK. I am interested in a couple of things here, to enlarge a little bit on what the chairman said. You are gambling, as I understand it, that the four-State authority, if created, would be able to operate the railroad efficiently enough so that it could pay off the interest and the redemptions on the bonds. Is this right? Senator PELL. That is correct.
Senator DOMINICK. What you are saying is that you are asking the general taxpayers of the country to gamble $500 million on an operation which has, up to date, proved unsuccessful in private enterprise and also under the trustees?
Senator PELL. It depends on the outlook. It could be said that way, but it is not gambling because no benefits could accrue to the States, no profit, no taxing, or anything else, until the prime obligation of
the interest and amortization was repaid, and it would be unlikely that the full amount would go down the drain.
If it was a direct subsidy, I think you would be more concerned about that part because you would know it would then be spent.
Senator DOMINICK. Do you have any knowledge of the examination that may have been made either by the previous owners, or by the trustees on the effect of raising passenger fares?
Senator PELL. The trustees of the New Haven Railroad have conducted studies of this sort. I would like permission to submit whatever information we have on this later on for the record.
Senator PASTORE. Is there any objection on this? I think we ought to have it in the record. Without objection, so ordered.
(See supplemental exhibits, dated March 11, 1965. Submitted by the trustees, the New York, New Haven & Hartford Railroad Co., p. 318.)
Senator PELL. I do have one paragraph in the article I wrote in the Nation. If you like, I could read it in direct answer and response. Senator PASTORE. Go ahead. You are the witness. Senator PELL (reading):
Time and again fare increases have been granted. Beginning with a 22.5percent hike on some tickets in 1956, fares rose a total of 15 percent in 1957 and 1958, and in 1959 a substantial adjustment raised some tickets 23.8 percent. Between 1960 and early 1962, fares jumped 40 percent in four successive stages. The result, as any student of economics would predict, has been a marked decline in patronage. From the 45,703,199 passengers carried in 1956, the total had dropped by 1963 to 25,880,977. In 1964, the trustees advised the U.S. court that
I am not saying that is the only reason, but it has been a spiral that has gone the wrong way. Fares have gone up, service has gotten worse, fewer people have used it. Our problem is to try to reverse that spiral.
Senator DOMINICK. That is very helpful information.
Senator PELL. I think I can submit some more specific information on that, too.
Senator DOMINICK. I want one more thing just to make your position clear. Do I understand that you do not think that the passage of your bill alone will solve the problem?
Senator PELL. I think if my bill was passed immediately, it could solve the problem, but I am a realist, and I recognize that to get a compact through and approved by the four State legislatures and the authorities could not be done immediately, and the problem of the New Haven is acute.
That is why I would like to see my bill fused with Senator Dodd's bill or with the approach of some form of direct help.
The beauty of Senator Dodd's bill is that no matter what happens, there is no further Federal subsidy after a period of years.
Senator DOMINICK. But there is a substantial subsidy in those periods of years?
Senator PELL. Correct.
Senator DOMINICK. In addition to the $500 million risk that you have in your bill?
Senator PELL. Correct.
Senator DOMINICK. Thank you, Mr. Chairman.
Senator PASTORE. Mr. Prouty?