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The original documents are located in Box 23, folder "2/28/75 S281 Regional Rail
Reorganization Act Amendments of 1975" of the White House Records Office: Legislation
Case Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
Digitized from the White House Records Office: Legislation Case Files at the Gerald R. Ford Presidential Library
APPROVED FEB28
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
FEB 26 1975
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 281 - Regional Rail Reorganization
Act Amendments of 1975
Sponsors - Sen. Hartke (D) Indiana and Sen. Pearson
(R) Kansas
Last Day for Action
Immediate action is recommended since the Penn Central Railroad
has advised that without assistance it will run out of money
and have to shut down operations by February 28.
Purpose
Provides for increases totaling $347 million in authorizations
for grants and loan guarantees to bankrupt railroads in the
Northeast; authorizes the use of such funds for railroad main-
tenance and improvement programs; and provides for the inclusion
of certain other bankrupt Northeast railroads under the Regional
Rail Reorganization Act of 1973.
Agency Recommendations
Office of Management and Budget
Approval
Department of Transportation
Approval
Interstate Commerce Commission
Approval (informal)
National Railroad Passenger Corporation
Approval (informal)
U.S. Railway Association
Approval (informal)
Department of the Treasury
No objection (informal)
Department of Justice
No objection (informal)
Discussion
The Regional Rail Reorganization Act of 1973 (RRR Act) was
enacted to help revitalize and reorganize insolvent railroads
in the Northeast region (P.L. 93-236). Under that Act, the
ir. FORD LIBRARY
2
U.S. Railway Association (USRA) , a nonprofit Government corpora-
tion, was charged with responsibility to plan and finance a new
rail system for the region. That planning is currently going
on and will be subject to Congressional review. (If the plan
is not rejected by either House of Congress within 60 days of
its submission to Congress, it would go into effect.) A new
private corporation, the Consolidated Rail Corporation (ConRail)
would acquire and operate the new rail system designated by the
USRA plan.
The RRR Act authorized funds of $85 million in grants and
$150 million in loan guarantees for the upgrading of plant and
equipment before the planned transfer of rail properties to
ConRail, in January 1976 at the earliest. Because of the recent
coal strike, the economic downturn, and greatly increased operat-
ing costs, however, these funds are now insufficient. Less than
$4 million of the grant funds remain to be committed, and plans
have been agreed upon by DOT and USRA for commitment of all
$150 million of the authorized loan guarantees.
The Penn Central Railroad trustees have stated that the railroad
will exhaust its resources by February 28 and will be required
to cease all operations on that date if no Federal aid is forth-
coming. Other bankrupt railroads are experiencing similar cash
problems.
S. 281 would authorize financial resources to enable the
Penn Central and other railroads in the region to continue
transportation services until ConRail assumes operation in 1976.
It would increase the grant authorizations by $197 million and
the loan guarantee authorizations by $150 million.
Administration draft legislation to deal with this problem had
requested that the grant authorization be increased by $155
million, and the loan guarantee authority by $150 million. While
the enrolled bill thus increases the grant authorization by $42
million more than the Administration had requested, it does not
create a serious problem since not all the funds authorized
need be requested for appropriation.
Other major provisions of the bill are:
AMTRAK Improvements -- provides $25 million of the grant
authority, requested by the Administration, to repair and
improve tracks and roadbeds to ensure safe operation of Metro-
liners in the Northeast Corridor.
HERALD ? Assuell FORD
3
ICC Rate Increase Denials -- earmarks $50 million of the
grant authority, $20 million over the Administration request,
to cover loss of anticipated revenue increases as a result of
denials by the Interstate Commerce Commission of rate increases
requested by some of the railroads, including a recent 7%
increase denial. This difference in authorization levels is
not a serious budgetary problem since the bill would give the
Secretary of DOT authority to determine whether the payments
are to be made to the railroads.
Loan Guarantee Uses -- provides that the loan guarantees
could be used for two additional purposes:
1. permits DOT and USRA to take over, in whole or
in part, the regular track and roadway maintenance pro-
gram of a railroad thereby reducing a railroad's fore-
casted cash needs. In times of financial difficulty,
this is one of the areas the railroads have cut back
on. Such deferred maintenance over a number of years
has resulted in dangerous track and roadbed conditions
in many areas.
2. permits DOT and USRA to acquire railroad
facilities and equipment for ConRail that it will need
when it assumes operations, thus allowing preordering
of initial items which require a long wait for delivery.
Valuation of Railroad Property -- clarifies the RRR Act to
ensure that any increased value in a railroad's assets which
results from Federally financed maintenance or improvement
work would benefit ConRail or be returned to the Government, and
would not accrue to the bankrupt estates.
Cancellation of Loans to ConRail --- authorizes USRA, with
the approval of the Secretary of DOT, to indicate in its final
system plan which part of the loan guarantee obligations would
be assumed by ConRail and which would be cancelled, resulting
in the equivalent of a grant. Under the RRR Act, funds provided
under the loan guarantee section ultimately constitute obligations
which must be assumed by ConRail. This provision was requested
in the Administration bill on the premise that the burden of
carrying such debt might threaten the financial viability of
ConRail.
GERALD ? ASVESIT FORD
4
Erie Lackawanna/Boston and Maine Railroads -- allows the
Erie Lackawanna and the Boston and Maine Railroads to file for
reorganization, with court approval, under the RRR Act and
includes $25 million of grant authority for this purpose. Under
the RRR Act, only these two of the bankrupt Northeast railroads
decided they could reorganize under Section 77 of the Bankruptcy
Act and thus elected not to be included in the RRR Act. Recently,
however, the Erie announced that it could not reorganize under
Section 77 within a reasonable time, and would like to be
included in the RRR Act. The Administration had requested that
these two railroads be treated separately under the RRR Act
because there is some feeling that such late filing may give
a technical basis for further court challenges to the Act. It
was the Administration's position that separate treatment would
insulate the balance of the program from such litigation. S. 281,
however, does not separate out these two railroads but rather
adds them to the bill as originally enacted. DOT feels it can
implement the program even as the bill is enrolled with all
railroads treated alike.
*****
The appropriation bill for this program, H.J. Res. 210, has
passed the House. Final Senate committee and floor action is
expected the week of February 24.
In general, S. 281 as enrolled contains the essential elements
of what the Administration requested. Letting the bankrupt
Northeast railroads shut down would have an intolerable impact
on the Nation's economy. For this reason, your signature is
recommended as soon as possible.
Enclosures
Jost Jesh Director
F020 & LIGHARY
Please make certain
that 5.281 receives
the lowest Ph.
/5/2/28
APPROVED FEB28 28 1975
ACTION
THE WHITE HOUSE
Last Day: March 11
WASHINGTON
February 27, 1975
BREENIVES Polted too
MEMORANDUM FOR
THE PRESIDENT
FROM:
JIM CAVANAUGH
x
SUBJECT:
Enrolled Bill S. 281 - Regional Rail
Reorganization Act Amendments of 1975
Attached for your consideration is S. 281, sponsored by
Senators Hartke and Pearson, which:
-- Provides for increases totaling $347 million in
authorizations for grants and loan guarantees
to bankrupt railroads in the Northeast:
-- authorizes the use of such funds for railroad
maintenance and improvement programs;
-- provides for the inclusion of certain other
bankrupt railroads under the Regional Rail
Reorganization Act of 1973.
Additional information is provided in OMB's enrolled bill
report at Tab A.
Immediate action is recommended since the Penn Central
has advised that it will run out of money and will have
to shut down operations on February 28 if no Federal aid
is forthcoming.
DOT, OMB, Max Friedersdorf and Phil Areeda recommend
approval.
RECOMMENDATION
That you sign S. 281 at Tab B.
ORD LIBERTY and
OF
DEPARTMENT THE PEASURY
THE
THE GENERAL COUNSEL OF THE TREASURY
WASHINGTON, D.C. 20220
1789
FEB 27 1975
Director, Office of Management and Budget
Executive Office of the President
Washington, D. C. 20503
Attention: Assistant Director for Legislative
Reference
Sir:
Reference is made to your request for the views of this
Department on the enrolled enactment of S. 281, "Regional
Rail Reorganization Act Amendments of 1975."
The enrolled enactment, among other things, would provide
(1) for a study of express service by the United States Rail-
way Association, (2) a process for reconsideration of a decision
that the reorganization of a railroad under section 77 of the
Bankruptcy Act shall not be proceeded with, (3) an increased
authorization for appropriations for emergency assistance to
railroads in reorganization from $85,000,000 to $282,000,000,
and (4) an increase in the amount of obligations which the
Association may issue to finance interim maintenance until the
rail properties are conveyed to the Consolidated Rail Corporation
from $150,000,000 to $300,000,000.
The Department would have no objection to a recommendation
that the enrolled enactment be approved by the President.
Sincerely yours,
General Counsel
Richard R. Albrecht
BERALLO FORD 1
Interstate Commerce Commission
Mashington, D.C. 20423
OFFICE OF THE CHAIRMAN
February 28, 1975
Mr. J. F. C. Hyde, Jr.
Acting Assistant Director
for Legislative Reference
Office of Management and Budget
Washington, DC 20503
Dear Mr. Hyde:
This replies to your request of February 27, 1975 for the
Commission's recommendations concerning enrolled bill, S. 281, "Regional
Rail Reorganization Act Amendments of 1975. "
Because of the well established need of the Northeastern railroads
in reorganization for the emergency financial aid made available by this bill,
the Commission recommends that the President sign it into law. As indicated
in our testimony before the House Interstate and Foreign Commerce Committee
on H. R. 2051, which in its final form, is identical to S. 281, we do not support
all provisions of the bill; however, in light of the financial crisis facing the
Northeastern railroads, we do recommend that S. 281 be signed.
Thank you for the opportunity to comment on this bill.
Sincerely yours, Stapped
George/M.
Stafford
Chairman
BERALD LISTED ? YORD
Numbride
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
FEB 26 1975
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 281 - Regional Rail Reorganization
Act Amendments of 1975
Sponsors - Sen. Hartke (D) Indiana and Sen. Pearson
(R) Kansas
Last Day for Action
Immediate action is recommended since the Penn Central Railroad
has advised that without assistance it will run out of money
and have to shut down operations by February 28.
Purpose
Provides for increases totaling $347 million in authorizations
for grants and loan guarantees to bankrupt railroads in the
Northeast; authorizes the use of such funds for railroad main-
tenance and improvement programs; and provides for the inclusion
of certain other bankrupt Northeast railroads under the Regional
Rail Reorganization Act of 1973.
Agency Recommendations
Office of Management and Budget
Approval
Department of Transportation
Approval
Interstate Commerce Commission
Approval (informal)
National Railroad Passenger Corporation
Approval (informal)
U.S. Railway Association
Approval (informal)
Department of the Treasury
No objection (informal)
Department of Justice
No objection (informal)
Discussion
The Regional Rail Reorganization Act of 1973 (RRR Act) was
enacted to help revitalize and reorganize insolvent railroads
in the Northeast region (P.L. 93-236). Under that Act, the
2
U.S. Railway Association (USRA), a nonprofit Government corpora-
tion, was charged with responsibility to plan and finance a new
rail system for the region. That planning is currently going
on and will be subject to Congressional review. (If the plan
is not rejected by either House of Congress within 60 days of
its submission to Congress, it would go into effect.) A new
private corporation, the Consolidated Rail Corporation (ConRail),
would acquire and operate the new rail system designated by the
USRA plan.
The RRR Act authorized funds of $85 million in grants and
$150 million in loan guarantees for the upgrading of plant and
equipment before the planned transfer of rail properties to
ConRail, in January 1976 at the earliest. Because of the recent
coal strike, the economic downturn, and greatly increased operat-
ing costs, however, these funds are now insufficient. Less than
$4 million of the grant funds remain to be committed, and plans
have been agreed upon by DOT and USRA for commitment of all
$150 million of the authorized loan guarantees.
The Penn Central Railroad trustees have stated that the railroad
will exhaust its resources by February 28 and will be required
to cease all operations on that date if no Federal aid is forth-
coming. Other bankrupt railroads are experiencing similar cash
problems.
S. 281 would authorize financial resources to enable the
Penn Central and other railroads in the region to continue
transportation services until ConRail assumes operation in 1976.
It would increase the grant authorizations by $197 million and
the loan guarantee authorizations by $150 million.
Administration draft legislation to deal with this problem had
requested that the grant authorization be increased by $155
million, and the loan guarantee authority by $150 million. While
the enrolled bill thus increases the grant authorization by $42
million more than the Administration had requested, it does not
create a serious problem since not all the funds authorized
need be requested for appropriation.
Other major provisions of the bill are:
AMTRAK Improvements -- provides $25 million of the grant
authority, requested by the Administration, to repair and
improve tracks and roadbeds to ensure safe operation of Metro-
liners in the Northeast Corridor.
3
ICC Rate Increase Denials -- earmarks $50 million of the
grant authority, $20 million over the Administration request,
to cover loss of anticipated revenue increases as a result of
denials by the Interstate Commerce Commission of rate increases
requested by some of the railroads, including a recent 7%
increase denial. This difference in authorization levels is
not a serious budgetary problem since the bill would give the
Secretary of DOT authority to determine whether the payments
are to be made to the railroads.
Loan Guarantee Uses -- provides that the loan guarantees
could be used for two additional purposes:
1. permits DOT and USRA to take over, in whole or
in part, the regular track and roadway maintenance pro-
gram of a railroad thereby reducing a railroad's fore-
casted cash needs. In times of financial difficulty,
this is one of the areas the railroads have cut back
on. Such deferred maintenance over a number of years
has resulted in dangerous track and roadbed conditions
in many areas.
2. permits DOT and USRA to acquire railroad
facilities and equipment for ConRail that it will need
when it assumes operations, thus allowing preordering
of initial items which require a long wait for delivery.
Valuation of Railroad Property -- clarifies the RRR Act to
ensure that any increased value in a railroad's assets which
results from Federally financed maintenance or improvement
work would benefit ConRail or be returned to the Government, and
would not accrue to the bankrupt estates.
Cancellation of Loans to ConRail -- authorizes USRA, with
the approval of the Secretary of DOT, to indicate in its final
system plan which part of the loan guarantee obligations would
be assumed by ConRail and which would be cancelled, resulting
in the equivalent of a grant. Under the RRR Act, funds provided
under the loan guarantee section ultimately constitute obligations
which must be assumed by ConRail. This provision was requested
in the Administration bill on the premise that the burden of
carrying such debt might threaten the financial viability of
ConRail.
4
Erie Lackawanna/Boston and Maine Railroads -- allows the
Erie Lackawanna and the Boston and Maine Railroads to file for
reorganization, with court approval, under the RRR Act and
includes $25 million of grant authority for this purpose. Under
the RRR Act, only these two of the bankrupt Northeast railroads
decided they could reorganize under Section 77 of the Bankruptcy
Act and thus elected not to be included in the RRR Act. Recently,
however, the Erie announced that it could not reorganize under
Section 77 within a reasonable time, and would like to be
included in the RRR Act. The Administration had requested that
these two railroads be treated separately under the RRR Act
because there is some feeling that such late filing may give
a technical basis for further court challenges to the Act. It
was the Administration's position that separate treatment would
insulate the balance of the program from such litigation. S. 281,
however, does not separate out these two railroads but rather
adds them to the bill as originally enacted. DOT feels it can
implement the program even as the bill is enrolled with all
railroads treated alike.
*****
The appropriation bill for this program, H.J. Res. 210, has
passed the House. Final Senate committee and floor action is
expected the week of February 24.
In general, S. 281 as enrolled contains the essential elements
of what the Administration requested. Letting the bankrupt
Northeast railroads shut down would have an intolerable impact
on the Nation's economy. For this reason, your signature is
recommended as soon as possible.
Enclosures
Je
Jesh
T. Fy
Director
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 80
Date: February 27, 1975
Time: 12:30 p.m.
FOR ACTION: Mike Duval
CC (for information): Warren Hendriks
Max Friedersdorf
Jerry Jones
Phil Areeda oh
Jack Marsh
FROM THE STAFF SECRETARY
DUE: Date: February 27, 1975
Time: 3:130 pm.
SUBJECT:
Enrolled Bill S. 281 - Regional Rail Reorganization
Act Amendments of 1975
ACTION REQUESTED:
X
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
WASHINGTON
February 27, 1975
MEMORANDUM FOR:
WARREN HENDRIKS
FROM:
MAX L. FRIEDERSDORF m.6.
SUBJECT:
Action Memorandum - Log No.
80
Enrolled Bill S. 281 - Regional Rail
Reorganization Act Amendments of 1975
The Office of Legislative Affairs concurs with the Agencies
that the
subject enrolled bill should be signed.
Attachments
FORD is LIBRARY 03
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 80
Date: February 27, 1975
Time: 12:30 p.m.
FOR ACTION: Mike Duval
CC (for information): Warren Hendriks
Max Friedersdorf
Jerry Jones
Phil Areeda
Jack Marsh
FROM THE STAFF SECRETARY
DUE: Date: February 27, 1975
Time: 3:30 pm.
SUBJECT:
Enrolled Bill S. 281 - Regional Rail Reorganization
Act Amendments of 1975
ACTION REQUESTED:
X
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy Johnston, Ground Floor West Wing
Apprive P.Aued
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
Warren K. Hendriks
telephone the Staff Secretary immediately.
For the President
OF
COMMITMENT
THE SECRETARY OF TRANSPORTATION
*
*
WASHINGTON, D.C. 20590
UNITED STATES OF AMERICA
FEB 24 1975
Honorable James T. Lynn
Director
Office of Management and Budget
Executive Office Building
Washington, D. C. 20503
Dear Mr. Lynn:
This is in response to your request for the views of the
Department on S.281, an enrolled bill:
To amend the Regional Rail Reorganization Act
of 1973 to increase the financial assistance
available under section 213 and section 215, and
for other purposes.
Background
Under the Regional Rail Reorganization Act of 1973, the
Secretary is authorized to provide financial assistance to
railroads in reorganization under that Act to ensure the
continued operation of essential rail services pending the
implementation of a final system plan for restructuring rail
services in the Northeast and Midwest. In late November,
the Department was informed of the critical nature of the
railroads' financial posture and took steps to ensure that
the railroads exhausted all practical means available to them
to avoid a shutdown of operations and also to make use of
the existing financial-aid provisions of the Act in a manner
which would maximize our ability to keep the trains running.
We soon recognized, however, that additional funding authority
would have to be obtained from the Congress or some railroads
would soon run out of cash and the shutdown would follow.
On January 17, 1975, the Department submitted a bill to the
Congress designed to provide adequate funds to help keep the
bankrupt railroads operating pending the implementation of the
2
final system plan and also to improve the procedures for making
the funds available to the railroads. The enrolled bill is an
outgrowth of that proposal. While it has taken Congress a little
over a month to pass the bill, thereby pressing to the limit the
ability of some of the railroads to keep in operation, the positive
action of the Commerce Committees in both Houses has already
helped to avoid the imposition of traffic embargoes pending
enactment of this legislation. It is now clear that unless the
bill is signed into law immediately, essential service will be
shutdown in the Northeast and Midwest and there will ensue a
number of intolerable economic consequences including significantly
increased unemployment, higher prices for products, and shortages
of essential goods.
Description of the Bill
S.281 contains a number of changes to the Regional Rail Reorganization
Act of 1973 and the enclosure to this letter outlines those changes
in detail. In brief, however, the most important amendments to
the Act are the following:
(1)
Sections 213 and 215 are amended to increase the
financial assistance that may be provided to railroads in reorganization
under the Act pending implementation of the final system plan.
Under revised section 213, the authorization to make grants is
increased by $197 million (from $85 million to $282 million). However,
$50 million of that amount could be made available only to the extent
necessary to offset the loss of revenues attributable to suspension
by the ICC of tariff increases proposed by the railroads. Under
revised section 215, the ceiling on obligations which may be issued
by the United States Railway Association (USRA) is increased by
$150 million (from $150 million to $300 million) which will, among
other things, maximize the potential for getting a head start on
rehabilitating the rail system.
(2)
Sections 213 and 215 are amended to require the
imposition of conditions on financial assistance used for program
maintenance or improvement which will ensure that the value added
by that maintenance or improvement will go to the Consolidated
Railroad Corporation (ConRail) or to the Secretary. Amendments to
3
section 215 will also broaden somewhat the purposes for which
financial assistance can be used in order to maximize the potential
use of such funds to create equity for ConRail, and will provide
USRA and the Secretary flexibility to provide in the final system
plan which loans can be refinanced and on what terms, and the
extent to which ConRail shall be released from the requirement
to satisfy such obligations.
(3)
Section 207(b) is amended to permit the reconsideration
by bankruptcy courts of negative decisions, previously made by
them under that section, as to whether a railroad is reorganizable
on an income basis under section 77 of the Bankruptcy Act and
thus should be reorganized under the Regional Rail Act. This
amendment will permit the Erie Lackawanna to reverse its position
in this regard and, among other things, thereby become eligible
for financial assistance under sections 213 and 215, as well as
the labor protection benefits under Title V.
Comparison with Administration Bill
The bill submitted by the Department on January 17, 1975, laid
the groundwork for the enrolled bill. (The Department also
submitted amendments to the bill during the course of the House
hearings which provided additional funding to offset losses of
revenue anticipated from tariff increases suspended by the ICC
and to accommodate the needs of the Erie Lackawanna.)
There are important differences, however, between the Department's
proposal and the enrolled bill. First, the funding authorized by
the enrolled bill for grants under section 213 exceeds by $42 million
the revised funding level proposed by the Department. Secondly,
the enrolled bill establishes in section 207(b) of the Act a procedure
whereby the Erie Lackawanna may become classified as a railroad
in reorganization under the Act. Under the amendments we proposed
in the House hearings, the Erie could have become eligible for
financial aid under sections 213 and 215, and its employees would
have come under the labor protection provisions of Title V of the
Act. However, the Department's amendments omitted the establish-
ment of procedure under which the Erie could become a railroad
in reorganization for all purposes of the Act.
4
In the House hearings, the Department opposed the amendment to
section 207 (b) because (1) it held out the possibility of subjecting the
Government to liability to the Erie's estate under the Tucker Act
for both interim erosion of the estate pending implementation of
the final system plan and for any court-determined shortfall in the
a dequacy of compensation Erie receives for its rail assets conveyed
under the final system plan, and (2) it might lead to time-consuming
litigation by creditors or trustees of railroads already reorganizing
under the Act which could impede the implementation of the final
system plan and aggravate the need of these railroads for interim
financial aid. While we continue to believe that these risks are
substantial and that they could have been side-stepped by the adoption
of our amendments, we believe that there is not any choice but to
accept the provisions of the enrolled bill. Both the Senate and House
insisted on the Erie provisions in the enrolled bill. In addition, in
view of the immediate need to supply funds to the Penn Central and
other bankrupt railroads, there is not any time to seek reconsideration
of the measure.
The additional funding in the enrolled bill also should not stand in
the way of approval of the bill. First, the bill does not make it
mandatory that the Secretary use all of the funds authorized under
section 213. Secondly, there is a benefit in having additional funding
available under section 213 for use in case our estimates of railroad
costs and revenues are thrown off by additional changes in the economy
or by such factors as a prolonged failure on the part of the ICC to
permit increased tariffs to go into effect.
Recommendation
The Department submitted its bill to the Congress on January 17 to
meet a major crisis among the bankrupt railroads in the Northeast and
Midwest. The enrolled bill added undesirable features to the bill as
discussed above. However, the problems presented by those provisions
are greatly outweighed by the need to provide adequate means to
assure continuation of service by these railroads until the planning
process is completed and on terms which will accelerate rehabilitation
of the plant as well as provide equity for ConRail. Therefore, I
recommend that the President sign the enrolled bill, and that he do
so without delay.
Sincerely,
John W. Barnum
Acting Secretary
Attachment
Enclosure "A"
1.
Description of S.281
Section 213 of the Regional Rail Reorganization Act of 1973
authorizes the Secretary to make payments to railroads in
reorganization under the Act to ensure the continued provision
of essential transportation services by those railroads pending
implementation of the final system plan under the Act. Section
213 authorizes the appropriation of $85 million to carry out
the purposes of the section.
Section 215 of the Act authorizes the Secretary, with the approval
of the United States Railway Association (USRA), to enter into
agreements with railroads in reorganization under the Act for
the acquisition, maintenance, or improvement of railroad facilities
and equipment necessary to improve property that will be in
the final system plan. It authorizes USRA to issue obligations
in an aggregate amount not in excess of $150 million to finance
such agreements.
The Consolidated Railroad Corporation (ConRail) is required to
assume any such obligations and, under section 210(c) of the Act,
the Secretary, upon the request of USRA, is required to
guarantee the payment of the principal and interest on the obligations.
Section 6 of 281 amends section 213 of the Act to increase the
authorization from $85 million to $282 million. However; the
amendment states that $50 million of the $282 million is available
solely to make grants to railroads in reorganization under the
Act as may be necessary to provide them funds equal to revenues
attributable to tariff increases proposed by the railroads and suspended
by the ICC during 1975. Section 6 also amends section 213 to
require that agreements involving the use of section 213 funds to
perform program maintenance on designated rail properties until
the date rail properties are conveyed under the Act or to improve
such designated properties, contain the same conditions as are set
forth in the amendments to section 215 discussed below.
Section 7 of S. 281 revises section 215 of the Act in a number of
ways. First, it specifies that the Secretary may enter into agreements
with railroads in reorganization under the Act to acquire rail
properties for lease or loan to such railroads until the date such
rail properties are conveyed under the Act, and subsequently for
2
conveyance under the final system plan, or to acquire interests
in such rail properties owned or leased to such railroads or in
purchase money obligations therefor. (As in the case of existing
law, the Secretary may continue to enter into agreements with
railroads in reorganization under the Act to maintain or improve
rail properties of such railroads). Secondly, it requires the
inclusion in section 215 agreements of the following two conditions:
(A) to the extent that physical condition is used as a
basis for determining, in the final system plan or in post-transfer
proceedings of the special court, the value of properties subject
to such an agreement and designated for transfer to ConRail
under the final system plan, the physical condition of the properties
on the effective date of the agreement shall be used; and
(B) in the event that property subject to the agreement
is sold, leased, or transferred to an entity other than ConRail,
the railroad shall pay or assign to the Secretary that portion of
the proceeds of the sale, lease, or transfer that reflects value
attributable to the maintenance and improvement provided pursuant
to the agreement.
Section 7 also revises section 215 to increase from $150 million
to $300 million the amount of obligations that may be outstanding
at any one time, and to empower USRA, with the approval of the
Secretary, to designate in the final system plan that portion of
obligations issued which shall be refinanced and the terms of
such refinancing, and that portion from which the Corporation shall
be released of its obligations.
Section 4 of S. 281 amends section 207(b) of the Act to permit a
court having jurisdiction over a railroad subject to reorganization
under section 77 of the Bankruptcy Act to reconsider any negative
decision previously issued by the court under section 207(b) of the
Regional Rail Act as to whether the railroad is reorganizable under
section 77 and therefore should be reorganized under the Regional
Rail Act. The court is compelled to issue an order that the
reorganization of such a railroad be proceeded with under the Regional
Rail Act unless it finds that the Act does not provide a process
which would be fair and equitable. A tight schedule is established
for the completion of proceedings by the reorganization courts under
3
the amendment and for appeals to the special court. In addition,
USRA is empowered to take necessary steps to effectuate the
consequences of a revised order under the amendments, including
the preparation of any necessary supplements to the preliminary
system plan.
Other amendments to the Act include the following:
(1) Section 5 of the bill amends section 211 of the
Act to clarify that USRA loans under section 211
may be made prior to the implementation of the
final system plan;
(2) Section 8 of the bill amends section 303(c)(1)
of the Act to add to the duties of the special court
that it decide what portion of the proceeds received
by a railroad in reorganization from an entity other
than ConRail for the sale, lease, or transfer of
property subject to an agreement under section 213
or section 215 (a) (1) or (2) reflects value attributable
to the maintenance or improvement provided pursuant
to the agreement;
(3) Section 9 of the bill adds a new section 605
to the Act prohibiting a railroad in reorganization from
withholding from a State or a political subdivision of
a State the payment of the portion of any tax owned
by such railroad to the State or subdivision, which
portion has been collected by the railroad from one
of its tenants;
(4) Section 3 of the bill amends section 205 (d) (2) of
the Act to require the Rail Services Planning Office
to employ attorneys as required, to properly protect
the interests of communities and users of rail service
which might not otherwise be adequately represented
in the course of the reorganization process provided
by the Act. Such attorneys are now limited to
representing such parties in the course of hearings
and evaluations conducted by the office itself;
FORD is LIBRARY
4
(5) Section 2 of the bill amends section 202 (b) of
the Act to expand the scope of studies to be conducted
by USRA to take into account express service; and
(6) Section 4 of the bill amends section 207(a) (2) of
the Act to authorize the Rail Services Planning Office
to hold hearings on any supplement to the preliminary
system plan and to make available to USRA an analysis
of the evidence it receives in such hearings not later
than 30 days after the release of such a supplement.
Calendar No. 11
94TH CONGRESS
1st Session
}
{
REPORT
SENATE
No. 94-5
REGIONAL RAIL REORGANIZATION ACT
AMENDMENTS OF 1975
REPORT
OF THE
SENATE COMMITTEE ON COMMERCE
ON
S. 281
A BILL TO AMEND THE REGIONAL RAIL REORGANIZATION
ACT OF 1973 TO INCREASE THE FINANCIAL ASSISTANCE
AVAILABLE UNDER SECTION 213 AND SECTION 215, AND
FOR OTHER PURPOSES
1823
GERALD
JANUARY 27, 1975.-Ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
38-010
WASHINGTON : 1975
CONTENTS
Page
Purpose and description
1
Background and needs
2
Meeting the needs
5
Text of S. 281 as reported
7
Section-by-section analysis
9
Changes in existing law
11
(III)
Calendar No. 11
94TH CONGRESS
SENATE
REPORT
1st Session
No. 94-5
REGIONAL RAIL REORGANIZATION ACT AMENDMENTS
OF 1975
JANUARY 27, 1975.-Ordered to be printed
Mr. MAGNUSON, from the Committee on Commerce,
submitted the following
REPORT
[To accompany S. 281]
The Committee on Commerce, to which was referred the bill (S. 281)
to amend the Regional Rail Reorganization Act of 1973 to increase
the financial assistance available under section 213 and section 215,
and for other purposes, having considered the same, reports favorably
thereon with an amendment and recommends that the bill as amended
do pass.
PURPOSE AND DESCRIPTION
It is the purpose of this bill to insure the continuation of essential
rail services in the Northeast and Midwest and to enhance the reorga-
nization process that will lead to the creation of a unified and modern-
ized rail system in those parts of the country.
In the short-term, this bill insures the continuation of vital rail
services in the Midwest and Northeast by authorizing the appropria-
tion of an additional $125 million for the section 213 program and $150
million for the section 215 program, which were created by the Re-
gional Rail Reorganization Act (Public Law 93-236).
The interim financing originally authorized by the Regional Rail
Reorganization Act has been exhausted, and the economic downturn
and other adverse economic factors have brought the affected railroads
once again to the point where a complete termination of service is a
distinct possibility. This bill aims at preventing such service
disruption.
With regard to long-term programs, this bill enlarges and increases
the flexibility of the loan-guarantee program in the Regional Rail
Reorganization Act which allowed the Secretary of Transportation
to facilitate the rehabilitation of those parts and facilities of the bank-
(1)
2
rupt railroads which will become part of the consolidated system.
This bill authorizes an increase in the money available under that
program to $300 million from $150 million and sets down new ground-
rues for the use of that money which will give the Secretary more
flexibility in deciding how and when the guarantees will be used SO
that needed repair and rehabilitation activities on crucial parts of the
railroads are no longer delayed. The bill makes it explicitly clear,
however, that when the consolidated rail system is created, neither
that system nor the federal government is to reimburse railroads in
reorganizations for increases in value of their property caused by
improvements made at government expense.
It is also the purpose of this bill to provide a mechanism for allow-
ing a federal district court overseeing a reorganization to reconsider
the decision that a bankrupt railroad was capable of reorganization
on an income basis and thus outside of many parts of the Regional
Rail Reorganization Act. At the time that act was passed, there were
eight bankrupt railroads in the Northeast and Midwest. Subsequently,
courts decided that two of them were capable of income-based re-
organization. They were thus ineligible for the two maintenance aid
programs and were treated differently in the planning for the com-
prehensive system. Since those determinations, in at least one of the
cases, subsequent events have made income-based reorganization im-
possible. This bill amends the Regional Rail Reorganization Act to
make reconsideration of that decision possible and allows those rail-
roads, if necessary, to be brought fully under the act.
Finally, in collateral matters, the bill clarifies the position of the
Interstate Commerce Commission's Rail Services Planning Office dur-
ing the reorganization period with regard to representing the inter-
ests of the small communities and users during that process. This bill
makes it explicit that that role is to continue throughout the whole
reorganizing process. In a different area, this bill amends the Rail
Passenger Service Act (Public Law 91-518) to allow the Board of
Directors of the National Rail Passenger Corporation (Amtrak) to
offer a salary in excess of level I of the Executive schedule if it is
necessary to attract quality corporate officers. The salary which can
be offered is limited by the general level of salaries paid in comparable
positions in private railroads.
BACKGROUND AND NEEDS
On January 2, 1974, the President signed the Regional Rail Re-
organization Act (Public Law 93-236). That act provided a frame-
work for reorganizing eight major bankrupt Midwest and Northeast
railroads into a modernized, efficient rail system that could ensure
the continuation of essential rail service in the region. Its enactment
was prompted by the possibility that the financial distress of the rail-
roads would cause a breakdown of service throughout the area which
would, in turn, trigger economic disaster on a grand scale. The eight
railroads serve an area in which 42 percent of this country's people
live and in which 50 percent of this country's industrial goods are
produced. Railroad service is SO intertwined with that industrial pro-
3
duction that it was estimated that a one-month termination of serv-
ice in one state-Indiana-would mean a jobless rate in that state of
at least 24 percent. An eight-week shutdown would reduce the gross
national product by 2.7 percent and reduce the nation's overall eco-
nomic activity by 4 percent.
The adverse impact would not be limited to the Midwest and the
Northeast. The eight affected railroads are part of an indivisible net-
work which ties the country together. The Northeast railroads, for
example, receive over 300 cars a day from Alabama, over 640 cars a
day from California, and over 520 cars a day from Minnesota. In
return, the same railroads send over 680 cars a day to Texas, over 200
a day to Washington State, and over 550 cars a day to Tennessee.
To avert the threatened economic disaster, the Regional Rail Re-
organization Act required the Department of Transportation to pro-
vide short-term aid in the form of grants to ensure that essential serv-
ices were not disrupted. At the same time, a newly-created planning
body-the United States Railway Association-was charged with
identifying the essential parts of the bankrupt railroads and fashion-
ing a consolidated rail system, the Consolidated Railway Corporation,
to take over from the bankrupt railroads. The Secretary of Trans-
portation was required to aid this process by guaranteeing loans to the
railroads for the improvement and reorganization of those parts of
their operations which would be included as part of the consolidated
system. $85 million was authorized for the section 213 program; $150
million was authorized for improvements pursuant to section 215.
Eight class I railroads were in bankruptcy proceedings at the time
of passage of the Act: the Penn Central, Reading, Erie Lackawanna,
Lehigh Valley, Central of New Jersey, Boston and Maine, Ann Arbor,
and Lehigh and Hudson River. Reorganization courts subsequently
determined that two, the Boston and Maine and the Erie Lackawanna,
were capable of income-based reorganization and thus were not "rail-
roads in reorganization" for the purposes of the Act and, although they
probably would be involved in the final system, they were not eligible
for the interim grants or loan guarantees.
The twelve months following the passage and signing of the Re-
gional Rail Reorganization Act brought further economic difficulties
to the railroads. The difficulties have jeopardized the planning process
and have renewed the spectre of total termination of service in the
Midwest and Northeast. Inflation, increased costs and diminished
revenues eroded the railroads already precarious cash-flow positions.
For example, the Penn Central's fuel costs rose 100 percent during the
course of 1974. On top of inflation, the coal strike and then the sharp
economic down-turn reduced the amount of freight being hauled and
eroded the companies' financial conditions still further. In 1975, the
Penn Central's estimated revenues will be running at a level at least
7 percent below those of 1974. The Department of Transportation, at
hearings on S. 281, testified that this estimate may prove "optimistic"
as the recession deepens.
Since the passage of the Act, the loan guarantee mechanism which
was created to facilitate the rehabilitation of those rail segments and
4
facilities to be included in the Consolidated Railway Corporation has
had little impact on the deteriorating condition of the railroads' facili-
ties. Until very recently, the Department of Transportation had only
obligated $4 million of the available $150 million. The remaining $146
million is now committed in over 150 projects on which work should
be beginning shortly. The United States Railway Association is to
produce its preliminary plan on February 26 and as that emerges, the
Department of Transportation will need more money to undertake
more necessary projects and will need more flexibility in undertaking
projects SO they can be started without waiting for the approved
emergence of the final system plan. In the interim, the delay has made
the condition of the rail facilities worse and has contributed to driving
business away because of the inconvenience and lost time caused by
slow orders and rail mishaps. At the same time, inflation has added to
the cost of rehabilitation.
At the same time as the Penn Central has been sliding once again
toward total collapse, declining economic conditions have eroded the
position of the Erie-Lackawanna Railroad. The E-L's trustees and the
Department of Transportation are convinced it is now impossible to
reorganize that railroad on an income basis. As a result, it may no
longer make sense to consider the Erie Lackawanna apart from the six
railroads which have been held to be "railroads in reorganization"
under the Act. At present moment, there is no way that the Erie Lack-
awanna can be reorganized as a "railroad in reorganization" under
the act. In addition the planning work of the United States Railway
Association has been hampered because different considerations apply
to the process of bringing significant parts of the Erie Lackawanna
system into the final comprehensive rail system. A changeover to the
status of a "railroad in reorganization" would alleviate these planning
problems and streamline the process.
The impending disaster has been building during the past autumn
and now the Penn Central stands once again at the brink of total col-
lapse, with the other seven railroads not far behind. If nothing is done,
the Penn Central will be unable to meet its payroll on February 25 and,
in anticipation of the fact that it is unlikely its employees will work
without pay, it plans to embargo all traffic beginning on February 14.
Such an embargo would set in motion a chain of events that could
bring industry in the Northeast and Midwest to a virtual standstill and
prolong and intensify the current recession.
In addition, termination of service now would jeopardize all efforts
to create a more energy efficient national transportation system at a
time when the country is beginning to seek ways to reduce its depend-
ence on costly imported oil. A shutdown would cripple attempts to
get shippers to reverse the flow of freight away from the railroads.
Finally, termination of service in the Midwest and Northeast would
disrupt the flow of vitally needed coal and would prevent any eco-
nomic upturn by severely restricting the amount of transportation
available for the shipment of industrial goods.
Amtrak Salary Change
The Rail Passenger Services Act contains a limitation on the com-
pensation of corporate officers of the National Railroad Passenger
5
Corporation-the corporation which runs Amtrak (45 U.S.C. 543 (d))
The limitation is level I of the Executive Schedule of salaries, $60,000
per annum at the current time. That level of compensation is far below
the average salary paid to people in equivalent positions in private
railroads. The Committee recommends removal of the ceiling SO that
the Amtrak Board of Directors may offer a greater salary than is
currently possible if such an increase is necessary to secure the services
of qualified officers.
Rail Services Planning Office
One of the most important and successful parts of the Regional Rail
Reorganization Act was section 205 (d) (2), which required the Rail
Services Planning office of the ICC to hire attorneys to help represent
the interests of small communities and other rail users who might not
otherwise be heard during the planning process for the consolidated
system. To fulfill its duty, the Rail Services Planning Office created
the Office of Public Counsel. This Public Counsel has helped numerous
communities, companies, and individuals express their views on the
plans developed by the United States Railway Association. Its efforts
have focused attention on the problem and will probably help shape
the final system plan in the best interests of the region. However, the
original bill was vague on the Rail Services Planning Office attorney's
monitoring role once the preliminary plan was produced and, to ensure
continuing representation of the interests of small communities and
users during the whole reorganization process, a further definition of
the mandated role is necessary. The proposed amendment makes it
explicit that the interests of small communities and users is to receive
continual representation throughout the whole reorganizational
process.
MEETING THE NEEDS
These amendments are designed to alleviate the short-term cash
shortages of the Midwest and Northeast railroads and enhance the
ability of the United States Railway Association to improve the phys-
ical plant of the rail system in this area in the following ways:
Increase of Aid for Interim Operations and Improvements
This Act authorizes a $125 million appropriation to increase the
amount of money available for agreements to ensure continuation of
essential rail services. This money would be disbursed in section 213
of the Regional Rail Reorganization Act by the Secretary of Trans-
portation to ensure the continuation of essential rail services until the
planned Consolidated Railway Corporation takes over. The Depart-
ment of Transportation requested an authorization of $100 million
for this purpose but the Committee believes that the new eligibility of
the Erie Lackawanna will add about $10 million in needs, while the
economic turn-down is likely to be sharper than the Department of
Transportation estimates, necessitating the additional $25 million au-
thorization. The committee wished to emphasize that it hopes that the
predictions of the Department and USRA regarding the costs of re-
organization and rehabilitation are more accurate in the future. Re-
cent predictions of the ultimate cost of rehabilitation underscores the
S. Rept. 94-5-2
6
need for a more accurate prediction of costs by the Department and
USRA. For instance, the Department testified that the predictions of
the Penn Central trustees regarding the projected decrease in traffic
in the next year was "optimistic."
Increasing Flexibility of and Money for Loan Guaranteeing Program
To improve and speed the facility rehabilitation program for those
parts of the railroads in reorganization which will become part of the
consolidated system, this Act authorizes an additional $150 million to
be used for the section 215 loan guarantee program and alters the exist-
ing provisions of section 211 in order to allow the loan guarantee au-
thority of USRA under section 211 to be used to "implement the goals
of the Act". This will permit section 211 to be utilized upon enactment
of this Act. To make more explicit the existing legislative intent of sec-
tions 213 and 215, these sections would be amended.
The agreements that are to be negotiated under the amended pro-
visions of sections 213 and 215 will not attempt to fix the valuation of
the properties covered by the agreement; instead they will merely as-
sure that Conrail will not be required to compensate a railroad in re-
organization for any portion of the value of the properties subject to
the agreement and designated in the final system plan for transfer to
it which is in excess of the value of the property determined on the
basis of its physical condition on the date of the agreement. While
the valuation will be made by the Association and the Special Court,
the condition of the properties as of the date of the agreement will be
a touchstone for determining that value.
If an improved section does not enter the system but is sold off to
another interest, the bill provides that the government will be reim-
bursed for that part of the value attributable to improvements it
financed.
Providing a mechanism for Reconsideration of the Status of the Erie
Lakawanna
In order to solve the particular problems facing the Erie Lacka-
wanna, this Act provides for a reconsideration of the original Reorga-
nization Court decisions under section 207.
Amtrak Salary
The Act allows the Board of Directors of the National Railroad
Passenger Corporation to offer a salary in excess of the current ceil-
ing if it finds it necessary to secure the services of good corporate of-
ficers. The Board, however, is not to offer a salary in excess of the
general level of compensation paid officers of railroads in positions
of comparable responsibility. The Committee wished to emphasize
that this standard is an upper limit and is not to be taken as a guide in
fixing compensation for corporate officers.
Rail Services Planning Office
The Act clarifies the representation duties of the Rail Services Plan-
ning Office by specifying that the Office continue its representation of
communities and rail service users which might not otherwise be ade-
quately represented through the effective date of the final system plan.
7
TEXT OF S. 281, AS REPORTED
To amend the Regional Rail Reorganization Act of 1973 to increase the financial
assistance available under section 213 and section 215, and for other purposes
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. This Act may be cited as the "Regional Rail Reorganiza-
tion Act Amendments of 1975".
SEC. 2. (a) Section 211 (a) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 721 (a)) is amended by deleting the phrase "for
purposes of assisting in the implementation of the final system plan;
and inserting in its place "for purposes of achieving the goals of this
Act;".
(b) Section 211 (e) of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 721 (e) (1)) is amended by deleting the phrase "carry out
the final system plan" and inserting in its place "achieve the goals
of this Act".
(c) Section 211 (f) of the Regional Rail Reorganization Act of
1973 (45 U.S.C. 721 (f) is amended by deleting the phrase "goals of
the final system plan" and inserting in its place "goals of this Act".
SEC. 3. (a) Section 213 (a) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 723 (a)) is amended by adding the following at
the end thereof:
"Where the Secretary and the trustees agree that funds provided
pursuant to this section are to be used (together with funds provided
pursuant to section 215 of this Act, if any) to perform program main-
tenance on designated rail properties until the date rail properties are
conveyed under this Act or to improve such designated properties, such
agreement shall contain the conditions set forth in section 215 (b) of
this Act."
(b) Section 213 (b) of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 723 (b) is amended by striking out "$85,000,000" and in-
serting in lieu thereof "$210,000,000."
SEC. 4. Section 215 of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 725) is amended to read as follows:
"INTERIM AGREEMENTS
"SEC. 215. (a) PURPOSE.-Prior to the date upon which rail proper-
ties are conveyed to the Corporation under this Act, the Secretary,
with the approval of the Association, is authorized to enter into agree-
ments with the trustees of the railroads in reorganization in the region
(or railroads leased, operated, or controlled by railroads in reorganiza-
tion)
(1) to perform the program maintenance on designated rail
properties of such railroads until the date rail properties are con-
veyed under this Act;
" (2) to improve railroad facilities and equipment of such rail-
roads; and
'(3) to acquire railroad facilities or equipment for lease or loan
to any such railroads until the date rail properties are conveyed
8
under this Act, and subsequently for conveyance pursuant to the
final system plan, or to acquire interests in such facilities or equip-
ment owned by or leased to any such railroads or in purchase
money obligations therefor.
"(b) CONDITIONS-Agreements pursuant to subsection (a) of this
section shall contain such reasonable terms and conditions as the Secre-
tary may prescribe. In addition, agreements under paragraphs (1) and
(2) of subsection (a) of this section shall provide that-
'(1) the Corporation shall not be required under title III of this
Act to compensate a railroad in reorganization for any portion of
the value of the properties subject to the agreement and desig-
nated under the final system plan for transfer to the Corporation
which is attributable to the maintenance or improvement per-
formed pursuant to the agreement. The Association and the Spe-
cial Court shall, in determining value pursuant to section 303, take
into account the physical condition as of the effective date of the
agreement: and
(2) in the event that property subject to the agreement is sold,
leased or transferred to an entity other than the Corporation, the
trustees or railroad shall pay or assign to the Secretary that por-
tion of the proceeds of such sale, lease or transfer which reflects
value attributable to the maintenance and improvement provided
pursuant to the agreements.
(c) OBLIGATIONS.-Notwitlistanding section 210 (b) of this title, the
Association shall issue obligations under section 210 (a) of this title in
an amount sufficient to finance such agreements and shall require the
Corporation to assume any such obligations. The aggregate amount of
obligations issued under this section and outstanding at any one time
shall not exceeed $300,000,000. The Association, with the approval of
the Secretary, shall designate in the final system plan that portion of
such obligations issued or to be issued which shall be refinanced and
the terms thereof, and that portion from which the Corporation shall
be released of its obligations.
"(d) CONVEYANCE-The Secretary may convey to the Corporation,
with or without receipt of consideration, any property or interests
acquired by, transferred to, or otherwise held by the Secretary pur-
suant to this section or section 213 of this Act."
SEC. 5. Section 303 (c) (1) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 745 (c) (1)) is amended by deleting the last word
of paragraph (A) ; by deleting the period at the end of paragraph
(B) and inserting : and" in its place; and by inserting after para-
graph (B) the following new paragraph:
(C) what portion of the proceeds receievd by a railroad in reorga-
nization from an entity other than the Corporation for the sale, lease
or transfer of property subject to an agreement under section 213 or
section 215 (a) (1) or (2) of this Act reflects value attributable to the
maintenance or improvement provided pursuant to the agreement."
SEC. 6. Section 303 (d) of the Rail Passenger Service Act (45 U.S.C.
543 (d)) is amended by inserting immediately after the third sentence
the following:
"This limitation on compensation shall not apply, however, if the
Board determines with respect to a particular position or positions
9
that: (1) a higher level of compensation is necessary, and (2) is not
in excess of the general level of compensation paid officers of railroads
in positions of comparable responsibility.".
SEC. 7. Subsection (b) of section 207 of the Regional Rail Reorga-
nization Act of 1973 (45 U.S.C. 717 (b)) is amended (1) by inserting
"(1)" immediately before the first sentence thereof, and (2) by add-
ing at the end thereof the following two new paragraphs:
"
(2) Whenever a court having jurisdiction over a railroad subject
to reorganization under section 77 of the Bankruptcy Act (11 U.S.C.
205) has found, pursuant to a final order under paragraph (1) of
this subsection, that the reorganization of such railroad shall not be
proceeded with pursuant to this Act, such reorganization court may,
upon a petition which is filed within 10 days after the date of enact-
ment of this subsection by the trustees of such railroad, reconsider
such order. Such reorganization court shall (i) affirm its previous
order or (ii) issue an order that the reorganization of such railroad
be proceeded with pursuant to this Act unless it find that this Act
does not provide a process which would be fair and equitable. The pro-
visions of paragraph (1) of this subsection are applicable in such
reconsideration, except that (A) such reorganization court shall make
its decision within 30 days after such petition is filed, and (B) any
decision by the Special Court on appeal from such a decision shall be
rendered within 30 days after such reorganization court decision is
made. There shall be no review of the decision of the Special Court.
The Association shall take any steps it finds necessary, consistent with
time limitations and other provisions of this Act, to effectuate the
consequences of such a revised order, including the preparation and
submission of any necessary or appropriate supplements to the pre-
liminary system plan."
(3) The Office is authorized to hold public hearings on the pre-
liminary system plan and to make available to the Association a
summary and analysis of the evidence received in the course of such
proceedings, together with its critique and evaluation of the prelimi-
nary system plan, not later than 60 days after the date of release of
such plan. The Office is authorized to hold public hearings on the
supplement and to make available to the Association a summary and
analysis of the evidence received in the course of such proceedings,
together with its critique and evaluation of the supplement, not later
than 30 days after the date of release of such supplement."
SEC. 8. Paragraph (2) of subsection (d) of Section 205 of the
Regional Rail Reorganization Act of 1973 (45 U.S.C. 715(d) (2)) is
amended to read as follows:
(2) employ and utilize the services of attorneys and such other
personnel as may be required in order properly to protect the interests
of those communities and users of rail service which, for whatever
reason, such as their size or location, might not otherwise be adequately
represented in the course of the reorganization process as provided by
this Act.".
SECTION-BY-SECTION ANALYSIS
Section 1. This section states that the bill may be cited as the "Re-
gional Rail Reorganization Act Amendments of 1975".
10
Section 2. Subsection (a) amends section 211 (a) of the Regional
Rail Reorganization Act of 1973 ("Rail Act") (45 U.S.C. 721 (a)) to
make clear that loans to carry out the goals of the Act can be made
prior to the effective date of the final system plan. Subsections (b)
and (c) would amend sections 211 (e) (1) and 211 (f) of the Rail Act
to conform with the amended language in subsection (a).
Section 3. Subsection (a) amends subsection 213 (a) of the Rail Act
to provide that where the Secretary of Transportation ("Secretary")
and the trustees agree that funds provided under section 213 are to be
applied to improve or to conduct program maintenance on designated
rail properties, such assistance must be conditioned on the increase in
value of those properties attributable to such maintenance going to
the Consolidated Rail Corporation ("Conrail") or returning to the
Secretary.
Subsection 2 (b) amends subsection 213 (b) of the Rail Act to in-
crease the current authorization by $125 million (from $85 million to
$210 million).
Section 4. This section revises section 215 of the Rail Act by dividing
the section into four subsections. Subsection (a) would expand the
purposes for which section 215 funding can be used by authorizing
the Secretary, with the approval of the U.S. Railway Association
("Association"), to enter into agreements with the trustees of the rail-
roads in reorganization (or railroads leased, operated, or controlled
by railroads in reorganization) to: (1) perform program maintenance
on designated rail properties of such railroads; (2) improve railroad
facilities or equipment; and (3) acquire railroad facilities or equip-
ment for lease or loan to any such railroads or acquire interests in such
facilities or equipment owned by or leased to any such railroads or in
purchase money obligations therefor.
The new subsection (b) provides that all agreements pursuant to
subsection (a) shall contain such reasonable terms and conditions as
the Secretary may prescribe. Agreements relating to purposes (1)
and (2) of subsection (a) shall, in addition, provide that: (a) Conrail
shall not be required under title III of the Rail Act to compensate the
railroad in reorganization for any portion of the value of the prop-
erties subject to the agreement and designated for transfer to Conrail
which is in excess of the value of such properties determined as of the
effective date of the agreement and on the basis of its physical condi-
tion on that date; and (b) in the event that property subject to the
agreement is sold, leased or transferred to an entity other than Conrail,
the trustees or railroad shall pay or assign to the Secretary that por-
tion of the proceeds of such sale, lease or transfer which reflects value
attributable to the maintenance and improvement provided pursuant
to the agreement.
The new subsection (c) increases the current authorization of sec-
tion 215 by $150 million (from $150 million to $300 million). While
the subsection provides that the Association shall require Conrail to
assume any obligations issued by the Association to finance the sec-
tion 215 agreements, it also provides that the Association, with the
approval of the Secretary, shall have the expanded authority to desig-
nate in the final system plan which loans can be refinanced, and on
what terms, and to designate the extent to which Conrail shall be
released from the requirement to satisfy such obligations.
11
The new subsection (d) provides that the Secretary may convey to
Conrail, with or without receipt of consideration, any property or in-
terests which are held by the Secretary pursuant to section 213 or
section 215.
Section 5. This section amends section 303 (c) (1) of the Rail Act by
adding a new paragraph (C) which gives the Special Court jurisdic-
tion to decide, in situations where property maintained or improved
with section 213 or section 215 funds is sold, leased or transferred
pursuant to the final system plan to an entity other than Conrail, what
portion of the proceeds is value attributable to such maintenance or
improvement.
Section 6. This section amends section 303 of the Rail Passenger
Service Act to allow the Board of Directors of the National Railroad
Passenger Corporation, under certain circumstances, to make excep-
tions to the existing limitation on compensation of corporate officers
where such an exception is necessary to attract competent management.
The level of compensation may not exceed the general level of com-
pensation paid officers of railroads in positions of comparable re-
sponsibility.
Section 7. This section provides the trustees of railroads subject to
reorganization under section 77 of the Bankruptcy Act with a mecha-
nism to allow the federal district court supervising that reorganization
to reconsider a decision of income based reorganizability under section
207 of the Regional Rail Reorganization Act of 1973.
Section 8. This section clarifies the role of the Office of Public
Counsel within the Interstate Commerce Commission's Rail Services
Planning Office to make clear that the Public Counsel is to participate
in the reorganization process through the effective date of the final
system plan.
CHANGES IN EXISTING LAW
In compliance with subsection (4) of rule XXIX of the Standing
Rules of the Senate, changes in existing law made by the bill as re-
ported are shown as follows: existing law proposed to be omitted is
enclosed in black brackets, new matter is printed in italic and existing
law in which no change is proposed is shown in roman.
REGIONAL RAIL REORGANIZATION ACT OF 1973
(45 U.S.C. 701 ET SEQ.)
RAIL SERVICE PLANNING OFFICE
SEC. 205. * * *
(d) DUTIES.-In addition to its duties, and responsibilities under
other provisions of this Act, the Office shall-
(1) study and evaluate the Secretary's report on rail services in
the region required under section 204 (a) of this Act and submit
its report thereon to the Association within 120 days after the
date of enactment of this Act. The Office shall also solicit, study,
and evaluate the views with respect to present and future rail
service needs of the region from Governors of States within the
region; mayors and chief executives of political subdivisions
within such States; shippers; the Secretary of Defense; manufac-
12
turers, wholesalers, and retailers within the region; consumers of
goods and products shipped by rail; and all other interested per-
sons. The Office shall conduct public hearings to solicit comments
on such report and to receive such views;
(2) employ and utilize the services of attorneys and such other
personnel as may be required in order properly to protect the
interests of those communities and users of rail service which, for
whatever reason, such as their size or location, might not other-
wise be adequately represented in the course of [the hearings and
evaluations which the Office is required to conduct and perform
under other provisions of this Act] the reorganization process
as provided by this Act;
ADOPTION OF FINAL SYSTEM PLAN
SEC. 207. (a) PRELIMINARY SYSTEM PLAN.-(1) Within 300 days
after the date of enactment of this Act, the Association shall adopt and
release a preliminary system plan prepared by it on the basis of reports
and other information submitted to it by the Secretary, the Office, and
interested persons in accordance with this Act and on the basis of its
own investigations, consultations, research, evaluation, and analysis
pursuant to this Act. Copies of the preliminary system plan shall be
transmitted by the Association to the Secretary, the Office, the Gov-
ernor and public utility commission of each State in the region, the
Congress, each court having jurisdiction over a railroad in reorganiza-
tion in the region, the special court, and interested persons, and a copy
shall be published in the Federal Register. The Association shall invite
and afford interested persons an opportunity to submit comments on
the preliminary system plan to the Association within 60 days after
the date of its release.
(2) The Office is authorized and directed to hold public hearings on
the preliminary system plan and to make available to the Association
a summary and analysis of the evidence received in the course of such
proceedings, together with its critique and evaluation of the prelim-
inary system plan, not later than 60 days after the date of release of
such plan.
(b) APPROVAL.-(1) Within 120 days after the date of enactment
of this Act each United States district court or other court having
jurisdiction over a railroad in reorganization shall decide whether the
railroad is reorganizable on an income basis within a reasonable time
under section 77 of the Bankruptcy Act (11 U.S.C. 205) and that the
public interest would be better served by continuing the present re-
organization proceedings than by a reorganization under this Act.
Within 60 days after the submission of the report by the Office, under
section 205 (d) (1) of this title, on the Secretary's report on rail serv-
ices in the region, each United States district court or other court
having jurisdiction over a railroad in reorganization shall decide
whether or not such railroad shall be reorganized by means of trans-
ferring some of its rail properties to the Corporation pursuant to the
provisions of this Act. Because of the strong public interest in the
continuance of rail transportation in the region pursuant to a system
plan devised under the provisions of this Act. each such court shall
order that the reorganization be proceeded with pursuant to this Act
13
unless it (1) has found that the railroad is reorganizable on an income
basis within a reasonable time under section 77 of the Bankruptcy
Act (11 U.S.C. 205) and that the public interest would be better served
by such a reorganization than by a reorganization under this Act, or
(2) finds that this Act does not provide a process which would be fair
and equitable to the estate of the railroad in reorganization in which
case it shall dismiss the reorganization proceeding. If a court does not
enter an order or make a finding as required by this subsection, the
reorganization shall be proceeded with pursuant to this Act. An ap-
peal from an order made under this section may be made only to the
special court. Appeal to the special court shall be taken within 10 days
following entry of an order pursuant to this subsection, and the spe-
cial court shall complete its review and render its decision within 80
days after such appeal is taken. There shall be no review of the
decision of the special court.
(2) Whenever a court having jurisdiction over a railroad subject to
reorganization under section 77 of the Bankruptcy Act (11 U.S.C. 205)
has found, pursuant to a final order under paragraph (1) of this sub-
section, that the reorganization of such railroad shall not be proceeded
with pursuant to this Act, such reorganization court may, upon a pe-
tition which is filed within 10 days after. the date of enactment of this
subsection by the trustees of such railroad, reconsider such order. Such
reorganization court shall (i) affirm its previous order or (ii) issue
an order that the reorganization of such railroad be proceeded with
pursuant to this Act unless it finds that this Act does not provide a
process which would be fair and equitable. The provisions of para-
graph (1) of this subsection are applicable in such reconsideration,
except that (A) such reorganization court shall make its decision
within 30 days after such petition is filed, and (B) any decision by the
Special Court on appeal from such a decision shall be rendered within
30 days after such reorganization court decision is made. There shall
be no review of the decision of the Special Court. The Association shall
take any steps it finds necessary, consistent with time limitations and
other provisions of this Act, to effectuate the consequences of such a
revised order, including the preparation and submission of any neces-
sary or appropriate supplements to the preliminary system plan.
(3) The Office is authorized to hold public hearings on the prelim-
inary system plan and to make available to the Association a summary
and analysis of the evidence received in the course of such proceed-
ings, together with its critique and evaluation of the preliminary sys-
tem plan, not later than 60 days after the date of release of such plan,
The Office is authorized to hold public hearings on the supplement and
to make available to the Association a summary and analysis of the
evidence received in the course of such proceedings, together with its
critique and evaluation of the supplement, not later than 30 days after
the date of release of such supplement.
LOANS
SEC. 211. (a) GENERAL.-The Association is authorized, in accord-
ance with the provisions of this section and such rules and regulations
as it shall prescribe, to make loans to the Corporation, the National
Railroad Passenger Corporation, and other railroads (including a
S. Rept. 94-5-3
14
railroad in reorganization which has been found to be reorganizable
under section 77 of the Bankruptcy Act pursuant to section 207 (b)
of this title) in the region, [for purposes of assisting in the imple-
mentation of the final system plan; for purposes of achieving the
goals of this Act; to a State or local or regional transportation au-
thority pursuant to section 403 of this Act; and to provide assistance
in the form of loans to any railroad which (A) connects with a rail-
road in reorganization, and (B) is in need of financial assistance to
avoid reorganization proceedings under section 77 of the Bankruptcy
Act (11 U.S.C. 205). No such loan shall be made by the Association
to a railroad unless such loans shall, where applicable, be treated as an
expense of administration. The rights referred to in the last sentence
of section 77 (j) of the Bankruptcy Act (11 U.S.C. 205 (j)) shall in no
way be affected by this Act.
*
*
*
*
*
(e) PREREQUISITES.-The Association shall make a finding in writ-
ing, before making a loan to any applicant under this section, that-
(1) the loan is necessary to [carry out the final system plan]
achieve the goals of this act or to prevent insolvency;
(2) it is satisfied that the business affairs of the applicant will
be conducted in a reasonable and prudent manner; and
(3) the applicant has offered such security as the Association
deems necessary to protect reasonably the interests of the United
States.
(f) POLICY.-It is the intent of Congress that loans made under this
section shall be made on terms and conditions which furnish reasonable
assurance that the Corporation or the railroads to which such loans
are granted will be able to repay them within the time fixed and that
the [goals of the final system plan] goals of this act are reasonably
likely to be achieved.
*
*
*
*
*
EMERGENCY ASSISTANCE PENDING IMPLEMENTATION
SEC. 213. (a) EMERGENCY ASSISTANCE.-The Secretary is authorized,
pending the implementation of the final system plan, to pay to the
trustees of railroads in reorganization such sums as are necessary for
the continued provision of essential transportation services by such
railroads. Such payments shall be made by the Secretary upon such
reasonable terms and conditions as the Secretary establishes, except
that recipients must agree to maintain and provide service at a level
no less than that in effect on the date of enactment of this Act. Where
the Secretary and the trustees agree that funds provided pursuant to
this section are to be used (together with funds provided pursuant
to section 215 of this Act, if any) to perform program maintenance
on designated rail properties until the date rail properties are con-
veyed under this Act or to improve such designated properties, such
agreement shall contain the conditions set forth in section 215 (b) of
this Act.
15
(b) AUTHORIZATION FOR APPROPRIATIONS.--There are authorized to
be appropriated to the Secretary for carrying out this section such
sums as are necessary, not to exceed [$85,000,000] $210,000,000, to re-
main available until expended.
*
*
*
*
[MAINTENANCE AND IMPROVEMENT OF PLANT
[SEC. 215. Prior to the date upon which rail properties are conveyed
to the Corporation under this Act, the Secretary, with the approval
of the Association, is authorized to enter into agreements with
railroads in reorganization in the region (or railroads leased, oper-
ated, or controlled by railroads in reorganization) for the acquisition,
maintenance, or improvement of railroad facilities and equipment
necessary to improve property that will be in the final system plan.
Agreements entered into pursuant to this section shall specifically
identify the type and quality of improvements to be made pursuant
to such agreements. Notwithstanding section 210 (b) of this title, the
Association shall issue obligations under section 210 (a) of this title
in an amount sufficient to finance such agreements and shall require the
Corporation to assume any such obligations. However, the Association
may not issue obligations under this section in an aggregate amount
in excess of $150,000,000. The Secretary may not enter into any agree-
ments under this section until he issues regulations setting forth pro-
cedures and guidelines for the administration of this section. The Cor-
poration shall not be required under title III of this Act to compensate
any railroad in reorganization for that portion of the value of rail
properties transferred to it under this Act which is attributable to the
acquisition, maintenance, or improvement of such properties under
this section.]
INTERIM AGREEMENTS
SEC. 215. (a) PURPOSES.-Prior to the date upon which rail proper-
ties are conveyed to the Corporation under this Act, the Secretary,
with the approval of the Association, is authorized to enter into agree-
ments with the trustees of the railroads in reorganization in the
region (or railroads leased, operated, or controlled by railroads in
reorganization)-
(1) to perform the program maintenance on designated rail
properties of such railroads until the date rail properties are con-
veyed under this Act;
(2) to improve railroad facilities and equipment of such rail-
roads; and
(3) to acquire railroad facilities or equipment for lease or loan
to any such railroads until the date rail properties are conveyed
under this Act, and subsequently for conveyance pursuant to the
final system plan, or to acquire interests in such facilities or equip-
ment owned by or leased to any such railroads or in purchase
money obligations therefor.
16
(b) CONDITIONS.-Agreements pursuant to subsection (a) of this
section shall contain such reasonable terms and conditions as the Sec-
retary may prescribe. In addition, agreements under paragraphs (1)
and (2) of subsection (a) of this section shall provide that-
(1) the Corporation shall not be required under title III of this
Act to compensate a railroad in reorganization for any portion
of the value of the properties subject to the agreement and desig-
nated under the final system plan for transfer to the Corporation
which is attributable to the maintenance or improvement per-
formed pursuant to the agreement. The Association and the Spe-
cial Court shall, in determining value pursuant to section 303,
take into account the physical condition as of the effective date of
the agreement; and
(2) in the event that property subject to the agreement is sold,
leased or transferred to an entity other than the Corporation, the
trustees or railroad shall pay or assign to the Secretary that por-
tion of the proceeds of such sale, lease or transfer which reflects
value attributable to the maintenance and improvement provided
pursuant to the agreements.
(c) OBLIGATIONS.-Notwithstanding section 210(b) of this title,
the Association shall issue obligations under section 210(a) of this
title in an amount sufficient to finance such agreements and shall re-
quire the Corporation to assume any such obligations. The aggregate
amount of obligations issued under this section and outstanding at
any one time shall not exceed $300,000,000. The Association, with the
approval of the Secretary, shall designate in the final system plan
that portion of such obligations issued or to be issued which shall be
refinanced and the terms thereof, and that portion from which the
Carporation shall be released of its obligations.
(d) CONVEYANCE.-The Secretary may convey to the Corporation,
tion, with or without receipt of consideration, any property or inter-
ests acquired by, transferred to, or otherwise held by the Secretary
pursuant to this section or section 213 of this Act.
VALUATION AND CONVEYANCE OF RAIL PROPERTIES
SEC. 303.
(c) FINDINGS AND DISTRIBUTION.-(1) After the rail properties
have been conveyed to the Corporation and profitable railroads oper-
ating in the region under subsection (b) of this section, the special
court, giving due consideration to the findings contained in the final
system plan, shall decide-
(A) whether the transfers or conveyances-
(i) of rail properties of each railroad in reorganization,
or of each railroad leased, operated, or controlled by a rail-
road in reorganization, to the Corporation in exchange for
the securities and the other benefits accruing to such rail-
road as a result of such exchange, as provided in the final
system plan and this Act, and
(ii) of rail properties of each railroad in reorganization,
or of each railroad leased, operated, or controlled by a rail-
road in reorganization, to a profitable railroad operating in
the region, in accordance with the final system plan,
17
are in the public interest and are fair and equitable to the estate
of each railroad in reorganization in accordance with the standard
of fairness and equity applicable to the approval of a plan of
reorganization or a step in such a plan under section 77 of the
Bankruptcy Act (11 U.S.C. 205), or fair and equitable to a rail-
road that is not itself in reorganization but which is leased, oper-
ated, or controlled by a railroad in reorganization; [and]
(B) whether the transfers or conveyances are more fair and
equitable than is required as a constitutional minimum ; and
(C) what portion of the proceeds received by a railroad in
reorganization from an entity other than the Corporation for the
sale, lease or transfer of property subject to an agreement under
section 213 or section 215 (a) (1) or (2) of this Act reflects value
attributable to the maintenance or improvement provided pursuant
to the agreement.
(2) If the special court finds that the terms of one or more ex-
changes for securities and other benefits are not fair and equitable to
an estate of a railroad in reorganization, or to a railroad leased, op-
erated, or controlled by a railroad in reorganization, which has trans-
ferred rail properties pursuant to the final system plan, it shall-
(A) enter a judgment reallocating the securities of the Corpo-
ration in a fair and equitable manner if it has not been fairly
allocated among the railroads transferring rail properties to the
Corporation; and
(B) if the lack of fairness and equity cannot be completely
cured by a reallocation of the Corporation's securities, order the
Corporation to provide for the transfer to the railroad of other
securities of the Corporation or obligations of the Association as
designated in the final system plan in such nature and amount as
would make the exchange or exchanges fair and equitable; and
(C) if the lack of fairness and equity cannot be completely
cured by reallocation of the Corporation's securities or by pro-
viding for the transfer of other securities of the Corporation or
obligations of the Association as designated in the final system
plan, enter a judgment against the Corporation.
(3) If the special court finds that the terms of one or more con-
veyances of rail properties to a profitable railroad operating in the
region in accordance with the final system plan are not fair and equi-
table, it shall enter a judgment against such profitable railroad. If the
special court finds that the terms of one or more conveyances or
exchanges for securities or other benefits are fairer and more equitable
than is required as a constitutional minimum, then it shall order the
return of any excess securities, obligations, or compensation to the
Corporation or a profitable railroad SO as not to exceed the constitu-
tional minimum standard of fairness and equity.
(4) Upon making the findings referred to in this subsection, the
special court shall order distribution of the securities, obligations, and
compensation deposited with it under subsection (b) of this section to
the trustee or trustees of each railroad in reorganization in the region
who conveyed right, title, and interest in rail properties to the Corpo-
ration and the respective profitable railroads under such subsection.
18
RAIL PASSENGER SERVICE ACT (45 U.S.C. 501 et seq.)
*
*
*
*
*
*
DIRECTORS AND OFFICERS
SEC. 543. * * *
(d) APPOINTMENT; TENURE; DUTIES OF PRESIDENT AND OTHER OF-
FICERS.-The Corporation shall have a president and such other offi-
cers as may be named and appointed by the board. The rates of com-
pensation of all officers shall be fixed by the board. No officer of the
Corporation shall receive compensation at a rate in excess of that pre-
scribed for level I of the Executive Schedule under section 5312 of
Title 5.
This limitation on compensation shall not apply, however, if the
Board determines with respect to a particular position or positions
that: (1) a higher level of compensation is necessary, and (2) is not
in excess of the general level of compensation paid officers of railroads
in positions of comparable responsibility. Officers shall serve at the
pleasure of the board. No individual other than a citizen of the United
States may be an officer of the Corporation. No officer of the Corpora-
tion may have any direct or indirect employment or financial relation-
ship with any railroad during the time of his employment by the
Corporation.
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
1st Session
No. 94-7
REGIONAL, RAIL REORGANIZATION ACT
AMENDMENTS OF 1975
FEBRUARY 10, 1975.-Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Mr. STAGGERS, from the Committee on Interstate and Foreign
Commerce, submitted the following
REPORT
together with
MINORITY VIEWS
[To accompany H.R. 2051]
The Committee on Interstate and Foreign Commerce, to whom was
referred the bill (H.R. 2051) to amend the Regional Rail Reorganiza-
tion Act of 1973 to increase the financial assistance available under
section 213 and section 215, and for other purposes, having considered
the same, reports favorably thereon with an amendment and recom-
mends that the bill as amended do pass.
The amendment is as follows:
Strike out after the enacting clause and insert in lieu thereof the
following:
That this Act may be cited as the "Regional Rail Reorganization Act Amend-
ments of 1975".
SEC. 2. (a) Section 202(b) of the Regional Rail Reorganization Act of 1973 (45
U.S.C. 712(1)) is amended—
(1) in paragraph (2) by inserting "and express" immediately after "rail"
each time it appears;
(2) by striking out the period at the end of paragraph (7) and inserting in
lieu thereof "; and"; and
(3) by adding at the end thereof the following new paragraph:
"(8) study the feasibility of coordinating rail and express service in the
region.".
(b) Section 206(a) (1) of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 716) is amended by inserting "and express" immediately after
"rail".
38-006-75-1
2
SEC. 3. Section 205(d)( (2) of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 715(d) (2)) is amended to read as follows:
"(2) employ and utilize the services of attorneys and such other personnel
as may be required in order to properly protect the interests of those com-
munities and users of rail service which, for whatever reason, such as their
size or location, might not otherwise be adequately represented in the course
of the reorganization process as provided by this Act;".
SEC. 4. Section 207(b) of the Regional Rail Reorganization Act of 1973 (45
U.S.C. 717(b) is amended by inserting "(1)" immediately before the first sen-
tence thereof, and by adding at the end thereof the following new paragraph:
"(2) Whenever it has been finally determined pursuant to the procedures
of paragraph (1) of this subsection, that the reorganization of a railroad
subject to reorganization under section 77 of the Bankruptcy Act (11 U.S.C.
205) shall not be proceeded with pursuant to this Act, the court having
jurisdiction over such railroad may, upon a petition which is filed within 10
days after the date of enactment of the subsection by the trustees of such
railroad, reconsider such order. Such reorganization court shall (i) affirm its
previous order or (ii) issue an order that the reorganization of such railroad be
proceeded with pursuant to this Act unless if finds that this Act does not pro-
vide a process which would be fair and equitable. The provisions of para-
graph (1) of this subsection are applicable in such reconsideration, except
that (A) such reorganization court shall make its decision within 30 days
after such petition is filed, and (B) any decision by the special court on ap-
peal from such a decision shall be rendered within 30 days after such re-
organization court decision is made. There shall be no review of the decision
of the special court. The Association shall take any steps it finds necessary,
consistent with time limitations and other provisions of this Act, to ef-
fectuate the consequences of such a revised order, including the preparation
and submission of any necessary or appropriate supplements to the pre-
liminary system plan."
SEC. 5. (a) Section 211 (a) of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 721 (a)) is amended by striking out "for purposes of assisting in the
implementation of the final system plan;" and inserting in lieu thereof "for
purposes of achieving the goals of this Act;".
(b) Section 211 (1) of the Regional Rail Reorganization Act of 1973 (45
U.S.C. 721 (e) (1)) is amended by striking out "carry out the final system plan"
and inserting in lieu thereof "achieve the goals of this Act".
(c) Section 211(f) of the Regional Rail Reorganization Act of 1973 (45 U.S.C.
721(f)) is amended by striking out "goals of the final system plan" and inserting
in lieu thereof "goals of this Act".
SEC. 6. (a) Section 213(a) of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 723(a)) is amended by adding the following at the end thereof: "Where
the Secretary and the trustees agree that funds provided pursuant to this section
are to be used (together with funds provided pursuant to section 215 of this
Act, if any) to perform program maintenance on designated rail properties until
the date rail properties are conveyed under this Act or to improve such designated
properties, such agreement shall contain the conditions set forth in section
215(b) of this Act.".
(b) Section 213(b) of the Regional Rail Reorganization Act of 1973 (45 U.S.C.
723(b)) is amended-
(1) by striking out "$85,000,000" and inserting in lieu thereof "$282,000,-
000"; and
(2) by adding at the end thereof the following new sentence: "Of amounts
authorized to be appropriated under this subsection, $50,000,000 shall be
available solely to pay to the trustees of railroads in reorganization such sums
as may be necessary to provide such railroads with amounts equal to revenues
attributable to tariff increases proposed by such railroads and suspended by
the Interstate Commerce Commission during the calendar year 1975, if the
Secretary determines that such payments are necessary to carry out this
section.".
SEC. 7. Section 215 of the Regional Rail Reorganization Act of 1973 (45 U.S.C.
725) is amended to read as follows:
"INTERIM AGREEMENTS
"Sec. 215. (a) PURPOSES.-Prior to the date upon which rail properties are
conveyed to the Corporation under this Act, the Secretary, with the approval of
the Association, is authorized to enter into agreements with the trustees of the
3
railroads in reorganization in the region (or railroads leased, operated, or con-
trolled by railroads in reorganization)-
"(1) to perform the program maintenance on designated rail properties of
such railroads until the date rail properties are conveyed under this Act;
"(2) to improve rail properties of such railroads; and
"(3) to acquire rail properties for lease or loan to any such railroads until
the date such rail properties are conveyed under this Act, and subsequently
for conveyance pursuant to the final system plan, or to acquire interests in
such rail properties owned by or leased to any such railroads or in purchase
money obligations therefor.
"(b) CONDITIONS.-Agreements pursuant to subsection (a) of this section shall
contain such reasonable terms and conditions as the Secretary may prescribe. In
addition, agreements under paragraphs (1) and (2) of subsection (a) of this sec-
tion shall provide that-
"(1) the Corporation shall not be required under title III of this Act to
compensate a railroad in reorganization for any portion of the value of the
properties subject to the agreement and designated under the final system
plan for transfer to the Corporation which is attributable to the maintenance
or improvement performed pursuant to the agreement. The Association and
the special court shall, in determining value pursuant to section 303 of this
Act, take into account the physical condition as of the effective date of the
agreement; and
"(2) in the event that property subject to the agreement is sold, leased, or
transferred to an entity other than the Corporation, the trustees or railroad
shall pay or assign to the Secretary that portion of the proceeds of such
sale, lease, or transfer which reflects value attributable to the maintenance
and improvement provided pursuant to the agreement.
"(c) OBLIGATIONS.-Notwithstanding section 110(b) of this title, the Associa-
tion shall issue obligations under section 210(a) of this title in an amount sufficient
to finance such agreements and shall require the Corporation to assume any such
obligations. The aggregate amount of obligations issued under this section and
outstanding at any one time shall not exceed $300,000,000. The Association, with
the approval of the Secretary, shall designate in the final system plan that portion
of such obligations issued or to be issued which shall be refinanced and the terms
thereof, and that portion from which the Corporation shall be released of its
obligations.
"(d) CONVEYANCE.-The Secretary may convey to the Corporation, with or
without receipt of consideration, any property or interests acquired by, transferred
to, or otherwise held by the Secretary pursuant to this section or section 213 of
this Act.".
SEC. 8. Section 303(c) (1) of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 745(c) (1)) is amended by striking out the last word of paragraph
(A), by striking out the period at the end of paragraph (B) and inserting and"
in lieu thereof, and by inserting after paragraph (B) the following new paragraph:
"(C) what portion of the proceeds received by a railroad in reorganization
from an entity other than the Corporation for the sale, lease, or transfer of
property subject to an agreement under section 213 or section 215(a) (1) or
(2) of this Act reflects value attributable to the maintenance or improvement
provided pursuant to the agreement.".
SEC. 9. Title VI of the Regional Rail Reorganization Act of 1973 is amended by
adding at the end thereof the following new.section:
"TAX PAYMENTS TO STATES
"SEC. 605. (a) Notwithstanding any other provision of law, no railroad in
reorganization shall withhold from any State, or any political subdivision thereof,
the payment of the portion of any tax owed by such railroad to such State or
subdivision, which portion has been collected by such railroad from any tenant
thereof.
"(b) Any railroad which violates the provisions of subsection (a) of this
section by withholding any portion of a tax referred to in such subsection shall
be fined not more than $10,000 for each such violation.".
PURPOSE AND SUMMARY OF THIS LEGISLATION
The purpose of this bill is to provide emergency financial assistance
to bankrupt rail carriers in the Northeast and Midwest in order to
continue essential rail services. In addition, changes are made in the
4
Regional Rail Reorganization Act of 1973 (Public Law 93-236)
to enhance the reorganization process.
The interim financing provided by Public Law 93-236, designed to
maintain essential rail services at 1974 levels, has now been exhausted.
A complete cessation of service throughout the Northeast is possible
because of a lack of cash to meet the payroll costs of the Penn Central.
The reported bill provides an authorization of up to $197 million in
new emergency grants, and $150 million in new Federal guaranteed
loans, in order that the rail carriers can continue operations until the
first quarter of fiscal year 1976.
In addition, certain changes are made in the Regional Rail Reorgani-
zation Act which will give the Secretary of Transportation more
flexibility in regard to operation of the loan-guarantee program,
particularly in requiring conditions on the use of the loans to assure
that neither the government nor the new Consolidated Rail Corpora-
tion will reimburse railrcads for increases in value of their property
attributable to improvements made at government expense.
The reported bill also provides a means by which a Federal court
overseeing a railroad reorganizing under section 77 of the Bankruptcy
Act can reconsider the decision that a railroad was capable of reor-
ganization on an income basis and did not need to be reorganized
under the Regional Rail Reorganization Act. This provision will
benefit the Erie-Lackawanna Railroad, presently undergoing court-
ordered reorganization outside the provisions of P.L. 93-236.
Another provision of the reported bill makes sure that if a railroad
in reorganization collects a tax from a tenant of its property, such tax
shall not be withheld from any state or subdivision thereof.
Another provision of the reported bill allows the Interstate Com-
merce Commission's Rail Services Planning Office to employ and
utilize attorneys to represent communities and users of rail service
throughout the reorganization process.
The reported bill also mandates the United States Railway Associa-
tion to study express companies in the region.
Several technical amendments are also made to the 1973 Act.
HISTORY AND NEED
In the early months of 1973, this Committee originated the long and
arduous task of finding a legislative solution to the critical rail prob-
lems which plagued the Northeastern United States. Since 1970,
Congress has been passing emergency measures to prevent the region's
carriers from stopping essential rail service which would virtually
cripple the economy in this densely populated area (e.g., Public Law
92-591, 86 STAT 1304, "The Agnes Act", 1972; Public Law 91-663,
"Emergency Rail Services Act of 1970").
Your Committee initiated H.R. 9142, and in the fall of 1973, after
seven months of intensive work, reported the measure to the House,
where it passed and was sent to the Senate. The measure became
Public Law 93-236 on January 2, 1974.
The Regional Rail Reorganization Act of 1973 was designed to
supplement section 7 of the Bankruptcy Act (11 U.S.C. 204) and to
provide a means of reorganizing a number of rail carriers in the region
into a profitable system. The Congress realized that existing bank-
ruptcy statutes were inadequate to deal with multiple rail bank-
ruptcies. No one Federal judge could coordinate with others to plan a
single network of rail carriers. Thus the 1973 Act provided Federal
5
assistance and several new Federal agencies to coordinate the planning
and implementation of a new rail system. The Committee envisaged a
new for-profit railroad, Consolidated Rail Corporation, merged from at
least six of the then eight bankrupt carriers.
At the time of the enactment of the Regional Rail Reorganization
Act of 1973, eight Class I railroads were in bankruptcy proceedings.
These included the Penn Central, the nation's largest transportation
company-with 20,000 miles of track and over 100,000 employees;
the Reading, the Lehigh Valley, the Central of New Jersey, the Erie-
Lackawanna, the Boston and Maine, the Ann Arbor, and the Lehigh
and Hudson Valley. The Federal judges in charge of the reorganiza-
tion proceedings of all but two of these carriers (Erie-Lackawanna
and the Boston and Maine) subsequently ruled that reorganization
on an income basis under section 77 of the Bankruptcy Act was
impossible, and that these carriers should be reorganized under
Public Law 93-236. Thus the Erie-Lackawanna and the Boston and
Maine, while certainly involved in the final planning process, would
not be eligible for the special features of Public Law 93-236, including
emergency Federal grants and loan guarantees.
The constitutionality of the Act was challenged by creditors of
some of the carriers involved, and the Supreme Court upheld Public
Law 93-236 on December 16, 1974.
One. feature of the Act (section 213 and section 215) provided
Federal grants and loans to be made available to the trustees of the
bankrupt carriers during the interim planning period (i.e., between
enactment of Public Law 93-236 and the first quarter of fiscal year
1976, when Consolidated Rail Corporation would take over operation
of the rail services mandated in a Congressionally approved "Final
System Plan" devised by a new government agency, the United States
Railway Association). The Act authorized $85 million in grants and
$150 million in loan guarantees for interim operating expenses.
No one could foresee the severe downturn in the nation's economy
which directly affected the bankrupt carriers in the Northeast and
Midwest, particularly in the late fall of 1974. Penn Central, for
instance, paid almost 100 percent more for fuel in 1974 because of
price hikes. The coal strike sharply reduced revenue, and the economic
slump in the automobile manufacturing business had a serious impact
on the railroads during the last quarter of 1974. Projections for 1975
indicate revenues will be down sharply for all the bankrupt carriers.
The interim financing provided by Public Law 93-236 has been
exhausted and Penn Central has run out of cash. The trustees indi-
cated that they would be unable to meet the end-of-the-month
(February) payroll without a new infusion of cash. The Interstate
Commerce Commission, the Department of Transportation and the
United States Railway Association all conducted independent audits
and investigations of the situation and verified the financial needs of
the carriers. H.R. 2051 is the Administration-sponsored bill.
Consequences of a Shutdown
The consequences of a shutdown of the Penn Central and other
carriers are enormous. Together, these railroads employ more than
100,000 workers. The Penn Central alone operates in 16 states, the
District of Columbia and two Canadian provinces. The area served by
this carrier includes 55 percent of the nation's manufacturing plants
and 60 percent of the manufacturing employees. More than one million
tons of freight and more than 300,000 passengers move on Penn Central
6
track every 24 hours. More than 20 percent of all freight cars loaded
in the United States pass over Penn Central track. The nation's rail-
roads all inter-connect, and a shutdown in the Northeast would affect
shippers even on the West Coast. For instance, more than 640 freight
cars a day arrive on Penn Central track from California. In return,
the shipment of commodities and goods from the industrial Northeast
to the remainder of the nation is at stake. There are simply not
enough barges and trucks in the United States to handle the freight
needs in the Northeast-even if the material could be diverted
to other modes of traffic (and some of it simply cannot move by any
other means). In addition, the Penn Central alone provides service
to more than fifty U.S. military installations in the Northeast and
Midwest.
The Interstate Commerce Commission estimates that a complete
and abrupt shutdown of the Penn Central would result in a 5.2 percent
decrease in the rate of economic activity in the Northeast, and a 4
percent decrease in the rest of the nation. An eight-week shutdown
would cause the real Gross National Product, in view of the current
recession, to fall at a rate of between -9.3 and -9.6 percent (an-
nualized rate) as compared to the -9.1 percent decline (annualized
rate) recorded in the 4th quarter of 1974. The GNP growth rate would
therefore be expected to fall by an additional 3-5 percent, due to an
eight-week shutdown.
The following chart indicates the ICC estimate of the effect of an
eight-week shutdown of the Penn Central alone on the industries in
the Northeast:
EFFECTS OF PENN CENTRAL SHUTDOWN 1
Reduction
in value add
Percent factor (in millions
reduction
of deflated
Industrial sector
within sector
(1958) dollars)
Wholesale and retail trade
13
142
Chemicals and products
31
24
Primary nonferrous metals
38
23
Primary iron and steel
10
20
Electric energy
13
17
Motor vehicles
7
15
New construction
6
14
Printing and publishing
9
12
Food products
5
9
Rubber and plastics
8
7
1 Source: Interstate Commerce Commission.
2 Value added is a generally used indicator of economic activity. It is comprised of wages and salaries, interest, and rental
payments originating in that industry.
Note: In calculating these figures, the following factors were taken into account. It is difficult to completely substitute
other modes for some heavy bulk commodities, mainly coal, iron ore, nonmetallic minerals (sand and gravel), chlorine,
lumber, and grain, by nonrail modes; however, these commodities do move at present both by truck and by barge in
varying quantities. It is, for example, technically feasible and quite common to move both lumber and grain by truck
although such moves are increasingly uneconomical compared to rail as size of shipment and length of haul increases.
With the water mode, the limiting factor is accessibility to the waterways. Special analyses were made of mode substitution
for coal and iron ore in the northeast. There was found to be relatively limited substitution of water for rail on coal move-
ments. In the North-central States where coal is used most extensively, there are few waterways adjacent to generating
plants. In New England where many power plants are on the water, they now use oil (or receive coal by water already);
there remain only 4 plants in New England which use coal as the principal fuel. There would appear to be some possibility
for barge substitution on iron ore although at the expense of increased circuity. It should be mentioned that most lines
carrying these heavy bulk commodities over long distances are densely patronized lines which would continue to operate.
In the analysis, it was not assumed that any of these commodities would be impossible to carry by nonrail modes but
rather that a significant proportion could not be carried in the short run because of a lack of suitable equipment.
Technically, substitution of intermodal moves for current all rail moves in low volume lots, i.e., 2 or 3 cars per day per
shipper, is practical today for both merchandise and bulk materials. This would substitute largely motor carrier moves for
that portion of the all rail currently occurring on light density lines. Merchandise traffic is currently moved in piggyback
service by utilizing efficient mainline rail line haul service with truck pickup and delivery into light density areas. Inter-
modal service for bulk commodities, while not as well developed commercially as merchandise traffic, is currently being
provided and expanded. The major constraint to short term implementation of greater increased use of either merchandise
or bulk intermodal service exists in the need to expand both terminal and equipment capacity.
7
The Cash Flow Crisis
The slump in the automobile manufacturing market, and the coal
strike of late fall adversely affected the precarious cash flow position
of the Penn Central. Traffic volume, which was originally projected to
decline 7 percent from 1974 levels, is now expected to decline even
further in 1975 due to further large drops in automobiles and coal.
Heavy stockpiling of coal by shippers, in anticipation of a strike in
November, 1974, has resulted in lesser than anticipated coal traffic
in early 1975. Traffic volume, as measured by carloadings, was down
15 percent in January, 1975 from January, 1974.
The Penn Central originally projected an ordinary loss of $341.2
million for the year 1975, but it is now expected to be larger. This
would be the largest ordinary loss in the carrier's history and substan-
tially larger than the operating deficits reported for 1972, $197.9
million; 1973, $189.0 million and almost $200 million for 1974.
Four railway unions tentatively agreed to a new contract with
the railroad industry, covering three years beginning January 1, 1975.
The agreement (retroactive to January 1, 1975) calls for wage
increases of 10 percent; 5 percent on October 1, 1975; 3 percent on
April 1, 1976, and 4 percent on July 1, 1977. In addition, cost of living
adjustments would be paid on January 1 and July 1, of 1976 and
1977. Fringe benefits are also included in the settlement. Penn
Central estimates that its labor costs in 1975 alone will increase $130
million. The retroactive wage settlement will result in a $9 million
lump sum payment for January.
The severe cash flow problems of all the railroads in reorganization
has affected maintenance programs. Under the 1973 Act, the compa-
nies are required to maintain service at 1974 levels throughout the
calendar year 1975.
The Penn Central has simply been unable to generate a positive
cash flow since its bankruptcy in 1970 despite substantial deferment
of maintenance and capital expenditures, court-ordered deferment of
payments on pre-bankruptcy debt principal and interest (excluding
equipment obligations), leased line rentals and property taxes.
Cash from the federal government has virtually kept the Penn
Central from grinding to a halt (e.g., $100 million in government-
guaranteed trustees certificates in 1971 and 1972; $50.5 million re-
ceived from DOT under the 1973 Act).
In 1971, Penn Central had a year-end cash balance of $40.3 million;
in 1972, $24.1 million; in 1973, $40.2 million, and in 1974, $17.3 million.
Powers of the Interstate Commerce Commission
The Penn Central trustees, during questioning before this Com-
mittee, stated that an embargo on all new shipments would be insti-
tuted after February 24 if their cash needs could not be met.
One provision of Public Law 93-236 would give the Interstate
Commerce Commission authority to direct other rail carriers to
operate over the lines of any carrier which has shut down its services
in an emergency. Section 601 (c) of the Act added section 1(16) (b) to
the Interstate Commerce Act to give the ICC power to keep essential
rail service operating by the use of this power to order other railroads
to operate. The Commission is currently exercising this authority
over a small area of the Lehigh and Hudson River Railroad.
8
The Commission, however, testified that it does not feel the exercise
of (16) (b) powers can be used effectively over the giant Penn Central
system. While contingency plans are available to order several
outside, non-bankrupt carriers to run over some Penn Central lines
in the event of a cessation of services, the I.C.C. contends the expense
and administrative problems involved make such a tactic not feasible.
It is likely only a few strategic and critical services could be
maintained.
The Commission has been asked by the Committee to comment on
the legality of the trustees' threat to embargo shipments. Committee
Members expressed concern that an embargo on traffic amounts to a
de facto discontinuance of service, and as such, violates provisions of
the Interstate Commerce Act since the railroads, even though bank-
rupt, are not relieved of applicable statutory requirements regarding
certificates of convenience and public necessity. Further, under
section 304 (f) of the Regional Rail Reorganization Act, no railroad
in reorganization may discontinue or abandon service without per-
mission of the United States Railway Association. Moreover, the
Committee did not receive an adequate answer to queries whether
the trustees must seek permission from the Federal court overseeing
their reorganization for an embargo.
A letter from the General Counsel of the Interstate Commerce
Commission on this matter leaves the basic questions unanswered.
There is no doubt that this matter needs to be resolved, because to
leave the issue without a definitive answer would subject the Congress
and the taxpayers to virtual blackmail if trustees of any railroad
wanted to exercise unfettered embargo powers.
INTERSTATE COMMERCE COMMISSION,
OFFICE OF THE GENERAL COUNSEL,
Washington, D.C., February 6, 1975.
Hon. HARLEY O. STAGGERS,
Chairman, Committee on Interstate and Foreign Commerce, House of
Representatives, Washington, D.C.
DEAR CHAIRMAN STAGGERS: In response to the telephone call
yesterday afternoon from Mr. John L. Gamble of the staff of the
House Committee on Interstate and Foreign Commerce, I am pleased
to submit the following brief synopsis on the law pertaining to embar-
goes invoked by carriers subject to the jurisdiction of the Interstate
Commerce Commission.
The law imposes a duty upon a common carrier railroad to render
service. Section 1(4) of the Interstate Commerce Act, 49 U.S.C. 1(4),
expressly provides "it shall be the duty of every common carrier
subject to this part to provide and furnish transportation upon
reasonable request therefor."
As broad as that declaration appears to be, the railroads long have
been recognized to have an inherent right to refuse to handle shipments
in an emergency situation. As the Commission noted, in Coal from
Arkansas and Other States, 49 I.C.C. 727, 731, "Where physical disa-
bilities prevent the carriers from handling certain kinds of traffic for
destinations, or where the consignees are unable promptly to accept
delivery, the embargo is properly invoked."
9
An embargo is an emergency measure imposed normally because of
a physical inability by the carrier to perform the transportation.
Powell-Meyers Lumber Co. V. St. Louis, I. M. & S. Ry. Co., 45 I.C.C.
594; Murray V. Director General, 69 I.C.C. 477; Missouri & Illinois
Coal Co. V. Illinois Central R. Co., 22 I.C.C. 39.
An embargo may not be employed as a device for effecting a
discriminatory practice. Prudential Oil Corp. V. Merchants & Miners
Transp. Co., 43 I.C.C. 696; E. L. Rogers & Co. V. Philadelphia & R.
Ry. Co., 12 I.C.C. 308. Neither may an embargo be imposed to
accomplish results which the law requires shall be effected only by
means of published tariffs. Powell-Meyers Lumber Co., supra.
The carrier must give notice of an embargo. Eastern Ry. Co. V.
Littlefield, 237 U.S. 140, 145. The law does not require that the embargo
notice be published as schedules are published, American Wholesale
Lumber Assn. V. Director General, 66 I.C.C. 393, although it has been
the practice for such notices to be published through the Association
of American Railroads as if they were tariffs.
Since 1973, the Commission has had in effect regulations governing
the giving of notice of an embargo. 49 C.F.R. 1006. In essence, they
require that written notification, specifying the extent of the embargo,
the date on which it is to become effective and the reasons therefor,
shall be posted at each of the affected offices of the carrier and served
upon connecting railroads, as well as being mailed to the main and
regional offices of the ICC.
The leading and most recent case is New York Central Railroad Co.
V. United States, 201 F. Supp. 958 (S.D. N.Y. 1962), remanded for
mootness, 301 U.S. 805 (1962). That case arose from the efforts of the
New York Central Railroad to terminate less-than-carload service.
Frustrated by its unsuccessful efforts to obtain Commission author-
ization therefor, the railroad by an embargo notice announced that
it would no longer accept less-than-carload shipments. The Commis-
sion, without hearing, entered an order, Service Order No. 638, of its
Safety and Service Board No. 1, setting aside the embargo for the
reason that the embargo was not valid and that there was presently
a need for the service. The railroad brought suit to challenge the Com-
mission's action, alleging, among other things, that the Commission
did not have the statutory authority to annul the embargo and that
the Commission's order constituted unlawful interference with the
carrier's managerial discretion. The court rejected these contentions,
saying,
The right of carriers to limit their duty to provide transpor-
tation by the issuance of embargoes in the time of emergency is
not disputed. The question in this case is whether the fact that a
railroad is losing money on the operation of a particular service
justifies the issuance of an embargo suspending that service. In
almost all cases in which the laying of an embargo has been
approved, the embargoes were issued because whether conditions,
traffic congestion or other physical or operation conditions made
it impossible for the carrier to provide transportation to a partic-
ular area. Holt Motor Co. V. Nicholson Universal S.S. Co., 56
F. Supp. 585, D. Minn. 1944; Baltimore Chamber of Commerce
V. Baltimore & Ohio R.R. Co., 45 I.C.C. 40 (1917); Krauss
Brothers Lumber Co. V. Director General, 66 I.C.C. 637 (1922);
H.R. 7-2
10
Murray V. Director General, 69 I.C.C. 477 (1922); American
Mfg. Co. V. Director General, 77 I.C.C. 52 (1922). The Railroad
cites only one case in which an embargo issued because of financial
conditions was upheld and in that case, Gross V. Director General,
58 I.C.C. 604 (1920), the carrier, with the approval of the Com-
mission, was terminating its entire operation. New Orleans Traffic
& Transp. Bureau V. Mississippi Valley Barge Line Co., 280 I.C.C.
105 (1951), specifically held that financial losses on a carrier's
less-than-bargeload operation did not justify the imposition of
an embargo on that operation. We agree with the decision in New
Orleans Traffic that the unauthorized imposition of an embargo
on a particular service because the continuation of that service
would result in a financial loss is an unlawful practice and that
the Commission can annul such and embargo. Cf. Meyers V. Jay
Street Connecting Railroad, 2 Cir., 1958, 259 F. 2d 532.
On the basis of the foregoing, I am of the opinion that a railroad
may not employ an embargo to effect abandonments that would
require the advance authorization of the Commission or other public
body. The Commission has the power to look into the lawfulness of
an embargo and, even in the absence of a hearing, to order its revoca-
tion if determined to have been improperly imposed. On the other
hand, I am of the view that, if a railroad foresees an imminent in-
ability to perform transportation for reasons beyond its control, it
has not only the right, but, as I perceive it, the duty to give notice
of the impending shutdown to the shippers it serves and the railroads
with which it connects.
I trust the foregoing will be of some aid to you and the Committee,
but please let me know if I might be of further assistance.
Respectfully yours,
FRITZ R. Kahn,
General Counsel.
The Committee, in this regard, expressed dismay at the late date
on which the trustees of the Penn Central contacted Congress with
the facts of the latest emergency. The 94th Congress began on Janu-
ary 3, 1975, but the new Members were not sworn in until January 14,
1975. The Administration bill (H.R. 2051) was transmitted on
January 17, 1975. Thus this Committee was forced to act on the basis
of two days of testimony with little opportunity for a thorough, in-
dependent investigation of the facts. The Committee relied on the
investigations of the Interstate Commerce Commission, the United
States Railway Association, the Department of Transportation, and
the information elicited in the testimony of these agencies and the
trustees.
In regard to the crisis involving the Erie-Lackawanna, this Com-
mittee did not receive information concerning the plight of this rail-
road until January.
The Committee is aware that no one could have predicted the
sudden downturn in the economy which occurred late in 1973-and
that at best, the Penn Central is a month-to-month operation. However,
the Committee is most disturbed by the attitude of the trustees in
threatening to close down the railroad immediately if new Federal
funds are not forthcoming.
11
Likewise, the Committee notes this body passed the Surface Trans-
portation Act of 1974, which the other body did not. Upwards of $50
million in money authorized in this legislation (H.R. 2051) would be
unnecessary if the S.T.A. had become law because the powers of the
I.C.C. to suspend rates would be severely limited.
The Committee believes that continued "crises" of the nature we
have in this situation can only promote a sentiment, both in the
public and in the government, for nationalization-in one form or the
other-of railroads. The Committee has always strived for free enter-
prise solutions with minimum governmental involvement in railroad
problems, and will continue to do SO. However, Congress cannot
tolerate a public-be-damned attitude from any segment of the industry
where services are SO vital to the nation's well-being.
This Committee believes that the Regional Rail Reorganization
Act of 1973 can solve the long run Northeast rail problem, and it
hopes that further outlays of Federal funds will not be necessary.
Emergency Assistance
The Committee authorizes in the reported bill $347 million in new
financial assistance to keep the railroads in reorganization operating
at least at 1974 levels until the new Consolidated Rail Corporation
assumes their operation.
Of this $347 million, $197 million will be in Federal grants, and $150
million will be in government-backed loans.
The $347 million figure contemplates $222 million in cash assistance
to the Penn Central, roughly $25 million for other railroads in reor-
ganization, $25 million for badly needed improvements on Northeast
Corridor facilities, $20-$25 million for Erie-Lackawanna, and $50
million in revenue which the railroads would possibly receive but for a
suspension of tariff increases by the Interstate Commerce Commission.
The funds are not earmarked except for a caveat which prohibits
the Secretary from disbursing the $50 million for tariff increase rev-
enues unless the I.C.C. in fact maintains the suspension of the rate
increase proposal. Otherwise, the Secretary has discretion in the 1973
Act to disburse the funds on his judgment, subject to the 1973 Act and
the Amendments to that Act contained in this legislation.
The Erie-Lckawanna
The trustees of the Erie-Lackawanna, a railroad which has been
reorganizing under section 77 of the Bankruptcy Act since June 2, 1972,
requested Congress to allow inclusion under provisions of the 1973 Act.
The Erie-Lackawanna claim that it will have to shut down its
operations by the end of February unless Federal assistance is available.
The reported bill provides a mechanism for the Erie-Lackawanna to
be included in the reorganization under the 1973 Act if the Federal
; ourt overseeing their section 77 reorganization makes a new finding.
The Interstate Commerce Commission and the United States Railway
Association both recommended allowing the Erie-Lackawanna to be a
"railroad in reorganization" under provisions of the 1973 Act. The
Department of Transportation opposed the proposal.
The Committee felt that the Erie-Lackawanna would be important
to the planning process of the new Conrail system and that denial of
their inclusion might complicate the planning process. The Committee
does not feel there will be any legal complications from this amendment.
12
State Taxation
Many of the bankrupt roads in the region own real property which
they lease to tenants. Some of their leases for such property contain
so-called tax escalator clauses which provide that the lessor shall
collect, in addition to the rental payment, an amount necessary to
cover the property tax payments required to be made by the lessor.
In many cases, the money is collected by the lessor from his tenant
and it is not transferred to the appropriate taxing entity to which it is
due.
The Committee adopted an amendment to H.R. 5021 which would
prohibit this practice and make violators subject to a $10,000 fine.
The amendment in no way increases the tax liability of the bankrupt
railroads, nor does it require them to pay any taxes that they are not
paying now other than the amounts they collect from tenants to cover
property taxes.
Rail Services Planning Office
The reported bill provides a clarification to the 1973 Act by making
sure the I.C.C. Rail Services Planning Office continues to represent
communities and users which might not be adequately represented
through the effective date of the final system plan.
Express Study
The reported bill amends the 1973 Act to include express companies
in studies made by the Association in developing to the final system
plan. Express companies have traditionally been closely related to
adequate rail service needs in the region. Due to the current recession,
these companies are experiencing financial difficulties. It is not the
intention of this Committee to mandate the USRA to do more than
study the problem, since it relates to the overall transportation needs
of the region.
Increase Flexibility of Loan Guarantees
H.R. 2051, as introduced, required two conditions to any agreement
for program maintenance or improvement of rail properties under
sections 213 or 215. First, the Corporation will not be required, in
acquiring properties covered by such an agreement, to pay a value
in excess of that determined on the basis of the property's physical
condition on the date of the agreement. This condition has been
clarified by the Committee to assure that only the physical condition
component of the valuation process would be changed by the agree-
ment. It will require that, to the extent physical condition is used in
determining the value of a property subject to such an agreement and
transferred to Conrail, the Association and the Special Court will use
its physical condition on the effective date of the agreement. Using
this valuation basis, the Association and the Special Court will,
therefore, not be required to determine the value attributable to the
maintenance and improvements since the valuation process required
by this condition will not consider that work in determining the value
to be paid by the Corporation.
The second condition required will apply to those properties trans-
ferred to an entity other than the Corporation. Since the amount paid
by that entity would include the value attributable to the program
maintenance and improvements performed under a section 213 or 215
agreement, the Trustees must return that portion of the proceeds
13
which reflects the value of the transferred properties attributable to
such work.
COMMITTEE CONSIDERATION
The Committee on Interstate and Foreign Commerce held two
days of hearings, February 4-5 on H.R. 2051 and S. 281.
Witnesses testifying before the committee included the Acting
Secretary of the Department of Transportation, the Chairman of the
Board of the United States Railway Association, and the Trustees
in bankruptcy of the Penn Central Transportation Company and the
Erie-Lackawana Railroad Co. In addition, written statements were
filed by other interested parties.
The committee held a markup session on February 6, and reported
H.R. 2051 by voice vote, with an amendment.
COST ESTIMATE
In compliance with clause 7 of Rule XIII of the Rules of the House
of Representatives, the following statement is made relative to the
effect, on the revenues of this bill.
The reported bill amends Sec. 213(b) of P.L. 93-236 by increasing
grants available for expenditure by the Secretary of Transportation
from $85 million to $282 million. As of January 31, 1974, $3,895,996.58
remained unexpended from the original authorized and appropriated
$85 million. The reported bill authorizes $197,000,000 in new funds
under section 213. Your committee anticipates that all of this money,
if appropriated, will be disbursed by March, 1976.
In addition, the reported bill increases the maximum allowable
obligations outstanding under section 215 of Public Law 93-236 by
$150,000,000, to a new figure of $300,000,000. These loans become the
obligation of the Consolidated Rail Corporation, a federal chartered
but private rail operating company, which will assume rail services in
the region in early 1976. Obligations issued under section 215 shall be
used for maintenance and improvements of rail facilities and plant.
MATTERS REQUIRED FOR DISCUSSION UNDER HOUSE RULES
The committee makes the following oversight finding pursuant to
clause 2(1) (3) (A) of Rule XI of the Rules of the House of
Representatives:
The Committee believes that the appropriate federal agencies have
verified the need for emergency cash and loan assistance to various
railroads in reorganization in the Northeast and Midwest, and that
without such expenditure, the economy of the aforementioned region
would be severely effected.
In regard to Rule XI, 2(1) (3) (D), no oversight findings have been
submitted to the committee, and in regard to Rule XI 2(1) (3) (C) no
cost estimate or comparison has been submitted by the Congressional
Budget Office relative to the provisions of HR 2051.
Inflationary Impact Statement
With respect to Rule XI 2(1) (4), the committee makes the following
statement:
The reported bill provides a total of $347 million in additional
financial assistance to ensure the continued operation of Penn
Central and other railroads in reorganization in the Midwest and
14
Northeast, pending the implementation of the Final System Plan
pursuant to the Regional Rail Reorganization Act of 1973 (the
"Act"). The $347 million includes $197 million in grant authority
under Section 213 of the Act, and $150 in loan authority under
section 215. These amounts increase the total authorizations in
these two sections to $282 million under section 213, and $300
million under section 215.
The financial assistance provided under sections 213 and 215 of
the Act has no direct inflationary impact. The assistance that is
provided under these sections represents normal day to day funds
that the railroads in reorganization have to spend in order to be
able to continue the provision of essential rail services. This in-
cludes expenditures for such requirements as payrolls, fuel, utili-
ties, and interline settlements with other railroads-which have
to be made to keep the railroads going.
A failure to provide the necessary financial assistance to keep
the railroads in reorganization in operation would have a crippling
effect on the economy of the country, already weakened by a
severe downturn. Based on an earlier study by the Department
of Transportation, a close down of the Penn Central alone would
result in a 5.2 percent decrease in the rate of economic activity
in the Northeast, and a 4 percent decrease for the rest of the
country. Potentially, there would be a 2.7 percent decrease in
the gross National Product after only two months of cessation
of services, and unemployment would rise by 3 percent.
The program under which the additional assistance is to be
provided under the Act has been designed to provide the necessary
assistance at the least cost to the taxpayer while maximizing the
benefits to the restructured rail system which is to be developed
pursuant to the Act.
SECTION-BY-SECTION ANALYSIS
Section 1. This section provides a short title for the bill as the
"Regional Rail Reorganization Act Amendments of 1975."
Section 2. Subsection (a) of this section amends section 202(b) of
the Regional Rail Reorganization Act (the "Act") to include express
companies in the provision relating to studies by the United States
Railway Association. Further, the USRA will be mandated to specifi-
cally study the feasibility of coordinating rail and express service
in the region.
Subsection (b) of this section mandates the USRA to include in the
final system plan a recommendation, through a process of reorganiza-
tion, for a self sustaining express company(s) system.
Section 3. This section amends section 205(d)( (2) of the Act to
insure that the Interstate Commerce Commission's Rail Services
Planning Office employ attorneys within the office, and use these
attorneys and such other personnel as may be required to protect
the interests of communities and users of rail service in the region
which cannot otherwise represent themselves in the course of the
reorganization process (until the effective date of the final system
plan).
Section 4. This section provides a mechanism by which the trustees
of railroads subject to reorganization under section 77 of the Bank-
ruptcy Act can petition their Reorganization Court for a reconsidera-
15
tion of earlier decisions by said Court to deny that railroad permission
to reorganize under the provisions of Public Law 93-236. The trustees
must petition the court within 10 days after enactment of this sub-
section for reconsideration of the original order. If the court finds
that the Act provides a process which would be fair and equitable,
it must do SO within 30 days after the petition is filed. Any decision
by the Special Court on appeal for such a decision shall be rendered
within 30 days after the decision of the reorganization court is made.
No appeals can be had from the Special Court's decision.
Section 5. Subsection (a) amends section 211(a) of the Act to make
clear that loans to carry out the goals of the Act can be made prior
to the effective date of the final system plan. Subsections (b) and (c)
would amend sections 211(c) (1) and 211 (f) of the Act to conform with
the amended language in subsection (a).
Section 6. Subsection (a) amends subsection 213 (a) of the Act to
provide that where the Secretary of Transportation and the trustees
agree that funds provided under section 213 are to be applied to
improve or to conduct program maintenance on designated rail prop-
erties, such assistance must be conditioned on the increase in value
of those properties attributable to such maintenance going to the
Consolidated Rail Corporation or returning to the Secretary of
Transportation.
Subsection (b) amends subsection 213 (b) of the Act to increase the
authorization by $197 million (from $85 million to $282 million).
Further, this subsection ties $50 million of this authorization to
revenues attributable to tariff increases proposals pending before the
ICC during calendar year 1975. If the ICC grants such increases the
money shall not be expended except on a basis which takes into
account the revenue lost which can be attributed to the ICC suspen-
sion of the tariff proposal during calendar year 1975. The Secretary of
Transportation is given discretion to determine if these payments are
necessary to carry out section 213 of the Act.
Section 7. This section revises section 215 of the Rail Act by dividing
the section into four subsections. Subsection (a) would expand the
purposes for which section 215 funding can be used by authorizing
the Secretary, with the approval of the U.S. Railway Association
("Association"), to enter into agreements with the trustees of the rail-
roads in reorganization (or railroads leased, operated, or controlled
by railroads in reorganization) to: (1) perform program maintenance
on designated rail properties of such railroads; (2) improve railroad
properties; and (3) acquire railroad properties for lease or loan to any
such railroads or acquire interests in such properties owned by or
leased to any such railroads or in purchase money obligations therefor.
The new subsection (b) provides that all agreements pursuant to
subsection (a) shall contain such reasonable terms and conditions as
the Secretary may prescribe. Agreements relating to purposes (1)
and (2) of subsection (a) shall, in addition, provide that: (a) Conrail
shall not be required under title III of the Rail Act to compensate the
railroad in reorganization for any portion of the value of the prop-
erties subject to the agreement and designated for transfer to Conrail
which is in excess of the value of such properties determined as of the
effective date of the agreement and on the basis of its physical condi-
tion on that date; and (b) in the event that property subject to the
agreement is sold, leased or transferred to an entity other than Conrail,
16
the trustees or railroad shall pay or assign to the Secretary that por-
tion of the proceeds of such sale, lease or transfer which reflects value
attributable to the maintenance and improvement provided pursuant
to the agreement.
The new subsection (c) increases the current authorization of sec-
tion 215 by $150 million (from $150 million to $300 million). While
the subsection provides that the Association shall require Conrail to
assume any obligations issued by the Association to finance the sec-
tion 215 agreements, it also provides that the Association. with the
approval of the Secretary, shall have the expanded authority to desig-
nate in the final system plan which loans can be refinanced, and on
what terms, and to designate the extent to which Conrail shall be
released from the requirement to satisfy such obligations.
The new subsection (d) provides that the Secretary may convey to
Conrail, with or without receipt of consideration, any property or in-
terests which are held by the Secretary pursuant to section 213 or
section 215.
Section. 8. This section amends section 303(c) (1) of the Act by
adding a new paragraph (C) which will give the Special Court juris-
diction to decide, in situations where property maintained or improved
with section 213 or section 215 funds is sold, leased or transferred
pursuant to the final system plan to an entity other than Conrail,
what portion of the proceeds is value attributable to such maintehance
or attributable to such maintance or improvement.
Section 9. This section provides that a railroad in reorganization
shall not withhold from any state or political subdivision thereof,
any payment of the portion of any tax owed by such railroad to the
aforementioned taxing entity, if it collects such portion from a tenant
of the railroad in reorganization. Violations of this subsection subject
the railroad to a fine of not more than $10,000 for each such violation.
AGENCY COMMENTS
H.R. 2051, as reported, is an amended version of legislation trans-
mitted to the U.S. House of Representatives by the Department of
Transportation.
Written communications commenting on the bill were received
from the Department of Transportation and the Department of
Justice. The Interstate Commerce Commission, the United States
Railway Association and the Department of Transportation all
testified in hearings before the committee on H.R. 2051 and S. 281.
THE SECRETARY OF TRANSPORTATION,
Washington, D.C., January 17, 1975.
Hon. CARL B. ALBERT,
Speaker of the House of Representatives,
Washington, D.C.
DEAR MR. SPEAKER: There is transmitted herewith a proposed bill,
entitled the "Regional Rail Reorganization Act Amendments of
1975", together with a section-by-section analysis of the bill.
This proposed bill is recommended by the Department to provide
cash resources (a) to enable all railroads reorganizing under the
Regional Rail Reorganization Act of 1973 ("Rail Act") to continue
essential transportation services during the planning process called
17
for in the Rail Act, and (b) to perform maintenance and improvements
which are necessary for safe and efficient operations.
The railroads reorganizing under the Rail Act have experienced
significant losses in revenue and are facing serious cash shortages in
1975 and the first quarter of 1976 as a result of the recent coal strike
and the general economic downturn, especially in the automobile
industry. Although section 213 of the Rail Act authorized $85 million.
in financial assistance to meet the cash needs of these railroads, only
$4.5 million remains uncommitted. The Department has been closely
monitoring the financial condition of these railroads and our analysis
reveals that as a minimum, an estimated $245.5 million will be
required to enable these railroads to continue essential rail operations
through the first quarter of 1976 when the Consolidated Rail Corpora-
tion ("Conrail") would begin operations. A breakdown of this estimate
is shown in Attachment A.
Further, Penn Central and the other railroads reorganizing under
the Rail Act are facing by February 25, 1975 an immediate cash
shortage. of at least $18.0 million beyond the $4.5 million available
under section 213 (assuming no payments by then on a new labor
contract). Urgent action is required to meet this need and avoid a
complete shutdown of these railroads by the beginning of March.
In an attempt to forestall the cash problem arising from the decline
in traffic, the Trustees of the Penn Central Transportation Company
have implemented some cost-cutting measures which include reducing
the number of employees and freight trains operated consistent with
the reduced traffic levels. These management actions were not sufficient
to offset revenue losses, and on December 31, 1974, the Penn Central
Trustees informed the Department that unless a program for addi-
tional Federal assistance was developed, the railroad would be forced
to implement severe cuts in its right-of-way and equipment mainte-
nance programs and furlough a significant number of employees to
avoid a complete cessation of operations by late February or early
March. In letters dated December 30, 1974 and January 10, 1975, we
informed the Trustees that the Department was concerned that the
Trustees had not explored all cost-cutting measures which manage-
ment should be employing; we indicated our intent to explore further
with the Trustees alternative cost-cutting measures which manage-
ment might be able to adopt to meet the railroad's cash needs. In the
January 10 letter we also requested the Trustees not to institute their
proposed cutbacks, indicating our intent to seek from Congress the
additional resources necessary to sustain Penn Central through the
first quarter of 1976. On January 13, the Trustees advised the Depart-
ment that they would cancel their program for implementing the
proposed cutbacks. However, the Trustees emphasized that if the aid
contemplated by the Administration's program does not promptly
make cash available to Penn Central it will be necessary for the
Trustees to begin to embargo traffic in mid-February, in contemplation
of a complete cessation of rail operations for lack of cash in early
March.
It is clear that implementation by Penn Central of a severe cutback
in its maintenance-of-way program would have been detrimental to
the ability of Penn Central (or Conrail) to provide necessary transpor-
tation services in a safe and efficient manner. A group of Chief Engi-
neers from six railroads from outside the region recently evaluated
18
the condition of the Penn Central property. The Chief Engineer's
team found that Penn Central's rail and tie replacement rate over the
past 17 years (deferred maintenance) implies a life which is five times
longer than the normal life for rail and three times the normal expected
life for ties. The Chief Engineers concluded that:
The level of maintenance of Penn Central main and branch
lines varies from good to very poor. Most yards are in poor
condition; some are in a deplorable state. Some of the plant has
deteriorated to the point where it must be completely rebuilt; the
plant which can be repaired is deteriorating at an increasing rate.
As a result, the cost of rehabilitating Penn Central is becoming
greater as time passes.
It should be in the public interest as well as in the interest of
Conrail that rehabilitation of the essential properties begin as
soon as possible, without waiting for Conrail to assume operational
control. Interim financial assistance is required to augment the
work which Penn Central is able to fund from its own resources,
so that the deterioration of properties can be arrested, service
improved, and economies realized.
The proposed bill provides for $250 million in additional funding
under the Rail Act to cover impending cash shortages and to prevent
cutbacks in critical maintenance programs of the Penn Central and
other railroads reorganizing under the Rail Act. The proposed bill
would accomplish these objectives by amending the Rail Act as
follows:
(a) increase the current authorization in section 213 by $100 million
(from $85 million to $185 million) and authorize the imposition of
conditions on the assistance used for program maintenance or improve-
ment which will assure that the value added by those improvements
will go to Conrail or to the Secretary. Of this authorized amount, $25
million is planned for improvements in the Northeast Corridor to
permit the National Railroad Passenger Corporation to sustain
existing levels of service under safe operating conditions;
(b) increase the current authorization in section 215 by $150 million
(from $150 million to $300 million); broaden the purposes for which
section 215 funding can be used; establish conditions to the provision
of such funds identical to those which would apply to grants under
section 213; and provide the U.S. Railway Association, with the
approval of the Secretary of Transportation, the flexibility to provide
in the final system plan which loans can be refinanced and on what
terms, and the extent to which Conrail shall be released from the
requirement to satisfy such obligations;
(c) to provide in section 303 that the Special Court has jurisdiction
to decide, in situations where property maintained or improved with
section 213 or section 215 funds is sold, leased or transferred pursuant
to the final system plan to an entity other than Conrail, what portion
of the proceeds is value attributable to such maintenance or im-
provement.
The proposed bill would also amend section 211 to make clear that
the U.S. Railway Association has the authority to make loans prior
to the effective date of the final system plan, to carry out the goals of
the Act.
Adoption of these proposed amendments should enable the Govern-
ment to deal effectively with the projected financial problems and
essential maintenance of the railroads reorganizing under the Rail
19
Act. through the start-up of Conrail. I therefore urge favorable con-
sideration of these proposed amendments as soon as possible in order
to avoid a cessation of operations by March.
As these amendments are intended to sustain essential transporta-
tion services provided by the railroads which are reorganizing under
the Rail Act, thereby avoiding the severe economic dislocations
inherent in a shutdown, the inflationary impact of these amendments
will be minimal.
The Office of Management and Budget has advised that enactment
of this legislation would be in accord with the President's program.
Sincerely,
CLAUDE S. BRINEGAR.
ASSISTANT ATTORNEY GENERAL,
LEGISLATIVE AFFAIRS,
DEPARTMENT OF JUSTICE,
Washington, D.C., February 4, 1975.
Hon. HARLEY O. STAGGERS,
Chairman, Committee on Interstate and Foreign Commerce, House of
Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: On January 29, 1975, the Senate passed
S. 281, entitled "Regional Rail Reorganization Act Amendments of
1975." Section 8 of S. 281 amends Section 205(d) (2) of the Regional
Rail Reorganization Act of 1973 (45 U.S.C. 715(d) (2)) to permit the
Rail Services Planning Office of the Interstate Commerce Commission
to
(2) Employ and utilize the services of attorneys and such other
personnel as may be requires to properly protect the interests of
those communities and users of rail service which, for whatever
reason, such as their size or location, might not otherwise be
adequately represented in the course of the reorganization process
as provided by this Act.
As presently written Section 205(d)(2) limits the use of RSPO
attorneys to the "hearings and evaluations which the [Rail Services
Planning] Office is required to conduct and perform under other
provisions of this Act ***."
We understand that the Committee will shortly be considering
S. 281 or a similar proposal to amend 205(d)(2) of the RRRA of 1973.
We believe that the purpose of this amendment is to allow attorneys
from the RSPO's Office of Public Counsel (OPC), an autonomous
ombudsman-like unit, to appear before the reorganization courts in
railroad reorganization proceedings and there to take whatever posi-
tions they think desirable in the interest of unnamed communities
and shippers. The Department of Justice presently represents the
United States Government (and the public interest) before the
reorganization courts. We oppose the enactment of this amendment
for the following reasons:
1. The amendment is unnecessary. Most interested communities
and shippers can be and in fact already are well represented before the
various reorganization courts by their own attorneys or by the Attor-
neys General of their respective states.
2. The reorganization courts have little to do with determinations
of public interest under the RRRA reorganization process. Once the
court determines that the railroad reorganizing subject to its jurisdic-
20
tion is not reorganizable on an income basis within a reasonable time
under Section 77 of the Bankruptcy Act, 11 U.S.C. 205, it need no
longer consider aspects of the public interest. See Section (b) of
the RRRA, 45 U.S.C. 717(b); In re Penn Central Transportation Co.,
Special Court, RRRA, September 30, 1974. Public interest considera-
tions under the RRRA are more in the domain of the RSPO itself,
which is required to hold hearings under the Act to consider these
questions; in the deliberations, hearings, planning and reports of the
United States Railway Association, which does the actual restructur-
ing of the bankrupt railroads under the RRRA; in the various duties
of the Department of Transportation under the RRRA; and ulti-
mately in the congressional hearings and approval (or rejection) of
the final system plan for the restructuring of the bankrupt railroads
under the RRRA.
3. Allowing OPC attorneys to appear and argue before the re-
organization courts invites either a diversion of RSPO's limited
resources from the areas of its prime concern, discussed above, or will
require an unnecessary increase in the RSPO budget to add more at-
torney and supporting personnel to the RSPO bureaucracy.
4. OPC personnel now have little or no expertise in reorganization
court proceedings. They would be ill-matched against seasoned
reorganization litigators who represent creditor and other possible
adverse interests. For example, in the litigation concerning the con-
stitutionality of the RRRA in 1974, OPC attorneys advocated that
the Government not rely on the Tucker Act as an ultimate constitu-
tional remedy for any uncompensated taking of private property
which the RRRA might cause. In this position, the Office of Public
Counsel followed closely the RRRA's opponents, the creditor banks
and insurance companies, who also argued that the RRRA must
stand or fall on its own, without regard to any possible defenses based
on the Tucker Act. As the Supreme Court's decision in the Regional
Rail Reorganization Act Cases, 43 U.S.L.W. 4031 (December 16,
1974) shows, our adoption of the position advocated by RSPO.
would have resulted in the RRRA's being declared unconstitutional.
Moreover, there will be little opportunity for RSPO attorneys to
develop the needed expertise to litigate effectively before the re-
organization courts, because the RRRA reorganization process, in
terms of its effects on communities and shippers, will essentially be
completed by February 1976.
5. The public interest is already well represented before the
reorganization courts by the Department of Justice which has had
long experience in litigation before reorganization courts, by the
Attorneys General of affected states, as well as by counsel for various
affected local governments.
6. One of the most frequently heard criticisms of the present
reorganization process is that it is too complex, too lengthy, and
involves too many parties. In short, there are already too many
attorneys appearing before the reorganization courts. To allow OPC
attorneys to appear, in addition to the number of attorneys already
representing public interest and shipper groups, adds further potential
for unnecessary delays in the litigative and appellate process.
21
For the reasons stated above, therefore, we recommend either:
1. That the following sentence be added to the proposed amendment
to Section 205(d) (2) :
As used in this subsection, the term "reorganization process"
shall not include proceedings before district courts supervising the
reorganization of railroads under Section 77 of the Bankruptcy
Act, the special court, the courts of appeal, or the Supreme Court.
2. That language be added to the Committee's report making clear
that the authority conferred by Section 205(d)(2), as amended, does
not include the right to appear or intervene in proceedings before dis-
trict courts supervising the reorganization of railroads under Section 77
of the Bankruptcy Act, the special court, the courts of appeal, or the
Supreme Court.
The Office of Management and Budget has advised that there is no
objection to the submission of this report from the standpoint of the
Administration's program.
Sincerely,
A. MITCHELL McConnell, Jr.,
Acting Assistant Attorney General.
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3 of Rule XIII of the Rules of the House
of Representatives, changes in existing law made by the bill, as
reported, are shown as follows (existing law proposed to be omitted is
enclosed in black brackets, new matter is printed in italic, existing law
in which no change is proposed is shown in roman):
REGIONAL RAIL REORGANIZATION ACT OF 1973
*
*
*
TITLE II-UNITED STATES RAILWAY ASSOCIATION
*
GENERAL POWERS AND DUTIES OF THE ASSOCIATION
*
*
SEC. 202. (a)
*
*
*
*
(b) DUTIES.-In addition to its duties and responsibilities under
other provisions of this Act, the Association shall---
(1) prepare a survey of existing rail services in the region,
including patterns of traffic movement; traffic density over identi-
fied lines; pertinent costs and revenues of lines; and plant, equip-
ment, and facilities (including yards and terminals);
(2) prepare an economic and operational study and analysis of
present and future rail and express service needs in the region;
the nature and volume of the traffic in the region now being
moved by rail express or likely to be moved by rail and express
in the future; the extent to which available alternative modes
22
of transportation could move such traffic as is now carried by
railroads in reorganization; the relative economic, social, and
environmental costs that would be involved in the use of such
available alternative modes, including energy resource costs;
and the competitive or other effects on profitable railroads;
(3) prepare a study of rail passenger services in the region, in
terms of scope and quality;
(4) consider the views of the Office and of all government
officials and persons who submit views, reports, or testimony
under section 205(d)(1) of this title or in the course of proceed-
ings conducted by the Office;
(5) consider methods of achieving economies in the cost of rail
system operations in the region including consolidation, pooling,
and joint use or operation of lines, facilities, and operating equip-
ment; relocation; rehabilitation and modernization of equip-
ment, track, and other facilities; and abandonment of lines con-
sistent with meeting needs and service requirements; together
with the anticipated economic, social, and environmental costs
and benefits of each such method;
(6) consider the effect on railroad employees of any restructur-
ing of rail services in the region;
(7) make available to the Secretary, the Director of the Office
and appropriate committees of the Congress all studies, data, and
other information acquired or developed by the Association
and (8) study the feasibility of coordinating rail and express service
in the region.
*
*
*
*
*
*
RAIL SERVICES PLANNING OFFICE
SEC. 205. (a)
*
*
*
*
*
(d) DUTIEs.-In addition to its duties and responsibilities under
other provisions of this Act, the Office shall-
(1) study and evaluate the Secretary's report on rail services in
the region required under section 204(a) of this Act and submit
its report thereon to the Association within 120 days after the
date of enactment of this Act. The Office shall also solicit, study,
and evaluate the views with respect to present and future rail
service needs of the region from Governors of States within the
region; mayors and chief executives of political subdivisions
within such States; shippers; the Secretary of Defense; manufac-
turers, wholesalers, and retailers within the region; consumers of
goods and products shipped by rail; and all other interested per-
sons. The Office shall conduct public hearings to solicit comments
on such report and to receive such views;
(2) employ and utilize the services of attorneys and such other
personnel as may be required in order to properly [to] protect the
interests of those communities and users of rail service which, for
whatever reason, such as their size or location, might not other-
wise be adequately represented in the course of the [hearings and
evaluations which the Office is required to conduct and perform
under other provisions of] reorganization process as provided by
this Act;
23
(3) within 180 days after the date of enactment of this Act,
determine and publish standards for determining the "revenue
attributable to the rail properties", the "avoidable costs of pro-
viding service", and "a reasonable return on the value", as those
phrases are used in section 304 of this Act, after a proceeding in
accordance with the provisions of section 553 of title 5, United
States Code; and
(4) assist States and local and regional transportation agencies
in making determinations whether to provide rail service continu-
ation subsidies to maintain in operation particular rail properties
by establishing criteria for determining whether particular rail
properties are suitable for rail service continuation subsidies. Such
criteria should include the following considerations: Rail prop-
erties are suitable if the cost of the required subsidy for such
properties per year to the taxpayers is less than the cost of ter-
mination of rail service over such properties measured by in-
creased fuel consumption and operational costs for alternative
modes of transportation; the cost to the gross national product in
terms of reduced output of goods and services; the cost of relo-
cating or assisting through unemployment, retraining, and wel-
fare benefits to individuals and firms adversely affected thereby;
and the cost to the environment measured by danage caused by
increased pollution.
FINAL SYSTEM PLAN
SEC. 206. (a) GOALs.-The final system plan shall be formulated in
such a way as to effectuate the following goals:
(1) the creation, through a process of reorganization, of a finan-
cially self-sustaining rail and express service system in the region;
(2) the establishment and maintenance of a rail service system
adequate to meet the rail transportation needs and service require-
ments of the region;
(3) the establishment of improved high-speed rail passenger
service, consonant with the recommendations of the Secretary
in his report of September 1971, entitled "Recommendations for
Northeast Corridor Transportation";
(4) the preservation, to the extent consistent with other goals,
of existing patterns of service by railroads (including short-line
and terminal railroads), and of existing railroad trackage in areas
in which fossil fuel natural resources are located, and the utiliza-
tion of those modes of transportation in the region which require
the smallest amount of scarce energy resources and which can
most efficiently transport energy resources;
(5) the retention and promotion of competition in the provision
of rail and other transportation services in the region;
(6) the attainment and maintenance of any environmental
standards, particularly the applicable national ambient air quality
standards and plans established under the Clean Air Act Amend-
ments of 1970, taking into consideration the environmental impact
of alternative choices of action;
(7) the movement of passengers and freight in rail transporta-
tion in the region in the most efficient manner consistent with safe
operation, including the requirements of commuter and intercity
24
rail passenger service; the extent to which there should be coordi-
nation with the National Railroad Passenger Corporation and
similar entities; and the identification of all short-to-medium dis-
tance corridors in densely populated areas in which the major
upgrading of rail lines for high-speed passenger operation would
return substantial public benefits; and
(8) the minimization of job losses and associated increases in
unemployment and community benefit costs in areas in the region
presently served by rail service.
*
*
*
*
*
ADOPTION OF FINAL SYSTEM PLAN
SEC. 207. (a) PRELIMINARY SYSTEM PLAN.-(1) Within 300 days
after the date of enactment of this Act, the Association shall adopt and
release a preliminary system plan prepared by it on the basis of reports
and other information submitted to it by the Secretary, the Office, and
interested persons in accordance with this Act and on the basis of its
own investigations, consultations, research, evaluation, and analysis
pursuant to this Act. Copies of the preliminary system plan shall be
transmitted by the Association to the Secretary, the Office, the Gov-
ernor and public utility commission of each State in the region, the
Congress, each court having jurisdiction over a railroad in reorganiza-
tion in the region, the special court, and interested persons, and a copy
shall be published in the Federal Register. The Association shall invite
and afford interested persons an opportunity to submit comments on
the preliminary system plan to the Association within 60 days after
the date of its release.
(2) The Office is authorized and directed to hold public hearings on
the preliminary system plan and to make available to the Association
a summary and analysis of the evidence received in the course of such
proceedings, together with its critique and evaluation of the prelim-
inary system plan, not later than 60 days after the date of release of
such plan.
(b) (1) APPROVAL.-Within 120 days after the date of enactment of
this Act each United States district court or other court having juris-
diction over a railroad in reorganization shall decide whether the rail-
road is reorganizable on an income basis within a reasonable time under
section 77 of the Bankruptcy Act (11 U.S.C. 205) and that the public
interest would be better served by continuing the present reorganiza-
tion proceedings than by a reorganization under this Act. Within 60
days after the submission of the report by the Office, under section
205(d) (1) of this title, on the Secretary's report on rail services in the
region, each United States district court or other court having juris-
diction over a railroad in reorganization shall decide whether or not
such railroad shall be reorganized by means of transferring some of its
rail properties to the Corporation pursuant to the provisions of this
Act. Because of the strong public interest in the continuance of rail
transportation in the region pursuant to a system plan devised under
the provisions of this Act, each such court shall order that the reorga-
nization be proceeded with pursuant to this Act unless it (1) has found
that the railroad is reorganizable on an income basis within a reason-
able time under section 77 of the Bankruptcy Act (11 U.S.C. 205) and
that the public interest would be better served by such a reorganiza-
tion than by a reorganization under this Act, or (2) finds that this
25
Act does not provide a process which would be fair and equitable to
the estate of the railroad in reorganization in which case it shall dis-
miss the reorganization proceeding. If a court does not enter an order
or make a finding as required by this subsection, the reorganization
shall be proceeded with pursuant to this Act. An appeal from an order
made under this section may be made only to the special court. Appeal
to the special court shall be taken within 10 days following entry of
an order pursuant to this subsection, and the special court shall com-
plete its review and render its decision within 80 days after such
appeal is taken. There shall be no review of the decision of the special
court.
(2) Whenever it has been finally determined pursuant to the procedures
of paragraph (1) of this subsection, that the reorganization of a railroad
subject to reorganization under section 77 of the Bankruptcy Act (11
U.S.C. 205) shall not be proceeded with pursuant to this Act, the court
having jurisdiction over such railroad may, upon a petition which is
filed within 10 days after the date of enactment of this subsection by the
trustees of such railroad, reconsider such order. Such reorganization
court shall (i) affirm its previous order or (ii) issue an order that the
reorganization of such railroad be proceeded with pursuant to this Act
unless it finds that this Act does not provide a process which would be
fair and equitable. The provisions of paragraph (1) of this subsection are
applicable in such reconsideration, except that (A) such reorganization
court shall make its decision within 30 days after such petition is filed,
and (B) any decision by the special court on appeal from such a decision
shall be rendered within 30 days after such reorganization court decision
is made. There shall be no review of the decision of the special court. The
Association shall take any steps it finds necessary, consistent with time
limitations and other provisions of this Act, to effectuate the consequences
of such a revised order, including the preparation and submission of any
necessary or appropriate supplements to the preliminary system plan.
LOANS
SEC. 211. (a) GENERAL.-The Association is authorized, in accord-
ance with the provisions of this section and such rules and regulations
as it shall prescribe, to make loans to the Corporation, the National
Railroad Passenger Corporation, and other railroads (including a
railroad in reorganization which has been found to be reorganizable
under section 77 of the Bankruptcy Act pursuant to section 207 (b)
of this title) in the region, for purposes of [assisting in the implemen-
tation of the final system plan] achieving the goals of this Act; to a
State or local or regional transportation authority pursuant to section
403 of this Act; and to provide assistance in the form of loans to any
railroad which (A) connects with a railroad in reorganization, and (B)
is in need of financial assistance to avoid reorganization proceedings
under section 77 of the Bankruptcy Act (11 U.S.C. 205). No such loan
shall be made by the Association to a railroad unless such loans shall,
where applicable, be treated as an expense of administration. The
rights referred to in the last sentence of section 77(j) of the Bankruptcy
Act (11 U.S.C. 205(j)) shall in no way be affected by this Act.
(b) APPLICATIONS.-Each application for such a loan shall be made
in writing to the Association in such form and with such content and
other submissions as the Association shall prescribe to protect reason-
26
ably the interests of the United States. The Association shall publish
a notice of the receipt of each such application in the Federal Register
and shall afford interested persons an opportunity to comment thereon.
(c) TERMS AND CONDITIONS.-Each loan shall be extended in such
form, under such terms and conditions, and pursuant to such regula-
tions as the Association deems appropriate. Such loan shall bear inter-
est at a rate not less than the greater of a rate determined by the
Secretary of the Treasury taking into consideration (1) the rate pre-
vailing in the private market for similar loans as determined by the
Secretary of the Treasury, or (2) the current average yield on out-
standing marketable obligations of the Association with remaining
periods of maturity comparable to the average maturities of such
loans, plus such additional charge, if any, toward covering costs of
the Association as the Association may determine to be consistent
with the purposes of this Act.
(d) MODIFICATIONS.-The Association is authorized to approve any
modification of any provision of a loan under this section, including
the rate of interest, time of payment of interest or principal, security,
or any other term or condition, upon agreement of the recipient of the
loan and upon a finding by the Association that such modification is
equitable and necessary or appropriate to achieve the policy declared
in subsection (f) of this section.
(e) PREREQUISITES.-The Association shall make a finding in writ-
ing, before making a loan to any applicant under this section, that-
(1) the loan is necessary to [carry out the final system plan]
achieve the goals of this Act or to prevent insolvency;
(2) it is satisfied that the business affairs of the applicant will
be conducted in a reasonable and prudent manner; and
(3) the applicant has offered such security as the Association
deems necessary to protect reasonably the interests of the United
States.
(f) POLICY.-It is the intent of Congress that loans made under
this section shall be made on terms and conditions which furnish
reasonable assurance that the Corporation or the railroads to which
such loans are granted will be able to repay them within the time
fixed and that the goals of [the final system plan this Act are reason-
ably likely to be achieved.
EMERGENCY ASSISTANCE PENDING IMPLEMENTATION
SEC. 213. (a) EMERGENCY ASSISTANCE.-The Secretary is authorized,
pending the implementation of the final system plan, to pay to the
trustees of railroads in reorganization such sums as are necessary for
the continued provision of essential transportation services by such
railroads. Such payments shall be made by the Secretary upon such
reasonable terms and conditions as the Secretary establishes, except
that recipients must agree to maintain and provide service at a level
no less than that in effect on the date of enactment of this Act. Where
the Secretary and the trustees agree that funds provided pursuant to this
section are to be used (together with funds provided pursuant to section
215 of this Act, if any) to perform program maintenance on designated
rail properties until the date rail properties are conveyed under this
27
Act or to improve such designated properties, such agreement shall contain
the conditions set forth in section 215(b) of this Act.
(b) AUTHORIZATION FOR APPROPRIATIONS.-There are authorized to
be appropriated to the Secretary for carrying out this section such as
are necessary, not to exceed [$85,000,000] $282,000,000, to remain
available until expended. Of amounts authorized to be appropriated
under this subsection, $50,000,000 shall be available solely to pay to the
trustees of railroads in reorganization such sums as may be necessary to
provide such railroads with amounts equal to revenues attributable to
tariff increases proposed by such railroads and suspended by the Inter-
state Commerce Commission during the calendar year 1975, if the Secre-
tary determines that such payments are necessary to carry out this section.
[MAINTENANCE AND IMPROVEMENT OF PLANT
[SEC. 215. Prior to the date upon which rail properties are conveyed
to the Corporation under this Act, the Secretary, with the approval
of the Association, is authorized to enter into agreements with rail-
roads in reorganization in the region (or railroads leased, operated, or
controlled by railroads in reorganization) for the acquisition, mainte-
nance, or improvement of railroad facilities and equipment necessary to
improve property that will be in the final system plan. Agreements
entered into pursuant to this section shall specifically identify the
type and quality of improvements to be made pursuant to such agree-
ments. Notwithstanding section 210(b) of this title. the Association
shall issue obligations under section 210(a) of this title in an amount
sufficient to finance such agreements and shall require the Corporation
to assume any such obligations. However, the Association may not
issue obligations under this section in an aggregate amount in excess of
$150,000,000. The Secretary may not enter into any agreements under
this section until he issues regulations setting forth procedures and
guidelines for the administration of this section. The Corporation shall
not be required under title III of this Act to compensate any railroad
in reorganization for that portion of the value of rail properties trans-
ferred to it under this Act which is attributable to the acquisition,
maintenance, or improvement of such properties under this section.]
INTERIM AGREEMENTS
SEC. 215. (a) PURPOSES.-Prior to the date upon which rail properties
are conveyed to the Corporation under this Act, the Secretary, with the
approval of the Association, is authorized to enter into agreements with
the trustees of the railroads in reorganization in the region (or railroads
leased, operated, or controlled by railroads in reorganization)-
(1) to perform the program maintenance on designated rail
properties of such railraods until the date rail properties are con-
veyed under this Act;
(2) to improve rail properties of such railroads; and
28
(3) to acquire rail properties for lease or loan to any such rail-
roads until the date such rail properties are conveyed under this
Act, and subsequently for conveyance pursuant to the final system-
plan, or to acquire interests in such rail properties owned by or
leased to any such railroads or in purchase money obligations
therefor.
(b) CONDITIONS.-Agreements pursuant to subsection (a) of this
section shall contain such reasonable terms and conditions as the Secretary
may prescribe. In addition, agreements under paragraphs (1) and (2)
of subsection (a) of this section shall provide that-
(1) the Corporation shall not be required under title III of this
Act to compensate a railroad in reorganization for any portion of
the value of the properties subject to the agreement and designated
under the final system plan for transfer to the Corporation which is
attributable to the maintenance or improvement performed pursuant
to the agreement. The Association and the special court shall, in
determining value pursuant to section 303 of this Act, take into
account the physical condition as of the effective date of the agreement;
and
(2) in the event that property subject to the agreement is sold,
leased, or transferred to an entity other than the Corporation, the
trustees or railroad shall pay or assign to the Secretary that portion
of the proceeds of such sale, lease, or transfer which reflects value
attributable to the maintenance and improvement provided pursuant
to the agreement.
(c) OBLIGATIONS.-Notwithstanding section 210(b) of this title, the
Association shall issue obligations under section 210(a) of this title in an
amount sufficient to finance such agreements and shall require the Cor-
poration to assume any such obligations. The aggregate amount of obliga-
tions issued under this section and outstanding at any one time shall not
exceed $300,000,000. The Association, with the approval of the Secretary,
shall designate in the final system plan that portion of such obligations
issued or to be issued which shall be refinanced and the terms thereof,
and that portion from which the Corporation shall be released of its
obligations.
(d) CONVEYANCE.-The Secretary may convey to the Corporation, with
or without receipt of consideration, any property or interests acquired by,
transferred to, or otherwise held by the Secretary pursuant to this section.
or section 213 of this Act.
TITLE II-CONSOLIDATED RAIL CORPORATION
VALUATION AND CONVEYANCE OF RAIL PROPERTIES
SEC. 303. (a)
*
(c) FINDINGS AND DISTRIBUTION.-(1) After the rail properties:
have been conveyed to the Corporation and profitable railroads oper-
ating in the region under subsection (b) of this section, the special
court, giving due consideration to the findings contained in the final
system plan, shall decide-
29
(A) whether the transfers or conveyances—
(i) of rail properties of each railroad in reorganization,
or of each railroad leased, operated, or controlled by a rail-
road in reorganization, to the Corporation in exchange for
the securities and the other benefits accruing to such rail-
road as a result of such exchange, as provided in the final
system plan and this Act, and
(ii) of rail properties of each railroad in reorganization,
or of each railroad leased, operated, or controlled by a rail-
road in reorganization, to a profitable railroad operating in
the region, in accordance with the final system plan.
are in the public interest and are fair and equitable to the estate
of each railroad in reorganization in accordance with the standard
of fairness and equity applicable to the approval of a plan of
reorganization or a step in such a plan under section 77 of the
Bankruptcy Act (11 U.S.C. 205), or fair and equitable to a rail-
road that is not itself in reorganization but which is leased, oper-
ated, or controlled by a railroad in reorganization; [and]
(B) whether the transfers or conveyances are more fair and
equitable than is required as a constitutional minimum and
(C) what portion of the proceeds received by a railroad in reorganiza-
tion from an entity other than the Corporation for the sale, lease, or
transfer of property subject to an agreement under section 213 or
section 215(a) (1) or (2) of this Act reflects value attributable to the
maintenance or improvement provided pursuant to the agreement.
*
*
*
*
*
TITLE VI-MISCELLANEOUS PROVISIONS
*
*
TAX PAYMENTS TO STATES
SEC. 605. (a) Notwithstanding any other provision of law, no railroad
in' reorganization shall withhold from any State, or any political sub-
division thereof, the payment of the portion of any tax owed by such rail-
road to such State or subdivision, which portion has been collected by such
railroad from any tenant thereof.
(b) Any railroad which violates the provisions of subsection (a) of this
-section by withholding any portion of a tax referred to in such subsection
shall be fined not more than $10,000 for each such violation.
MINORITY VIEWS OF THE HONORABLE JAMES M.
COLLINS
The history of the Northeast Regional Rail Reorganization dem-
onstrates the futility of fighting symptoms instead of the basic disease.
When the original act was approved and the tortuous planning process
launched, it was evident that the provision of the act intended to
keep bankrupt railroads in operation until CONRAIL could take
over the desirable parts was inadequate and unrealistic. It side-
stepped the root causes of bankrupt railroads.
To demonstrate how futile this present exercise is, look at the
figures which have been presented to the committee. It shows the
greatest rate of inflation in the history of our government. The bill
presented by the Department of Transportation indicated that $250
million would carry the bankrupt railroads through March of 1976,
at which time CONRAIL should be ready to roll. The Penn-Central
then came forth and said that the figures had been right when they
were made up but things had changed SO that now $371 million would
be necessary. This is about 70 percent inflation in a week.
If Congress did not have the inclination to strike at the heart of
the problem in the Regional Rail Reorganization Act, the present
situation should be enough to demonstrate the necessity. As long as
thousands of miles of marginal and uneconomic track are maintained
and serviced, deficits will grow. As long as the federal government
stands by and allows outmoded and burdening labor practices to be
imposed upon the railroads, no intricate schemes of quasi-govern-
mental corporations will save the railroads. The errors of the present
approach are only too evident to even a casual observer and it behooves
Congress to scrap this useless effort and move out in new directions.
This is now the third time that Congress is acting on emergency
legislation to keep Penn-Central operating. And still it does not get
to the cure.
The Trustees in Bankruptcy proposed to abandon many thousand
miles of uneconomic trackage. The Court agreed. One hundred
ninety-three applications affecting 2445.73 miles of track were filed
with the Interstate Commerce Commission and there they languish.
The Trustees proposed the elimination of about 4,500 jobs. The
Department of Transportation urged and persuaded them to retain
them.
The Trustees proposed deferring the 1975 pay increases and again
were urged and persuaded by the Department of Transportation to
desist.
Duplication of facilities must be eliminated. Old, inefficient work
practices must be changed. This bill requires nothing in the way of
improvements or solutions but simply makes it possible to continue a
disastrous railroad operation.
JAMES M. COLLINS.
(31)
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
DATE: 2-27-75
TO:
Bob Linder
FROM: LRD (Hyde)
Attached is the facsimile on
S. 281. Please have included in the
enrolled bill file which was for-
warded earlier today. Thanks.
OMB FORM 38
REV Aue 73
S. 281
Ainety-fourth Congress of the United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Tuesday, the fourteenth day of January,
one thousand nine hundred and seventy-five
An Art
To amend the Regional Rail Reorganization Act of 1973 to increase the financial
assistance available under section 213 and section 215, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That this Act may
be cited as the "Regional Rail Reorganization Act Amendments of
1975".
SEC. 2. (a) Section 202 (b) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 712 is amended-
(1) in paragraph (2) by inserting "and express" immediately
after "rail" each time it appears;
(2) by striking out the period at the end of paragraph (7) and
inserting in lieu thereof and"; and
(3) by adding at the end thereof the following new paragraph:
" (8) study the feasibility of coordinating rail and express
service in the region.".
(b) Section 206(a) (1) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 716(a) (1)) is amended by inserting "and express"
immediately after "rail".
SEC. 3. Section 205(d) (2) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 715 (2)) is amended to read as follows:
(2) employ and utilize the services of attorneys and such
other personnel as may be required in order to properly protect
the of those communities and users of rail service which,
for such IS their size or might not
otherwise be adequately represented in the course of the reorgani-
zation process as provided by this Act;".
SEC. 4. (a) Section 207 (b) of the Regional Rail Reorganization
Act of 1973 (45 U.S.C. is amended by inserting "(1)" immedi-
ately before the first sentence thereof, and by adding at the end thereof
the following new paragraph:
'(2) Whenever it has been finally determined pursuant to the pro-
cedures of paragraph (1) of this subsection, that the reorganization
of a railroad subject to reorganization under section 77 of the Bank-
ruptcy Act (11 U.S.C. 205) shall not be proceeded with pursuant to this
Act, the court having jurisdiction over such railroad may, upon a peti-
tion which is filed within 10 days after the date of enactment of this
subsection by the trustees of such railroad, reconsider such order. Such
reorganization court shall (i) affirm its previous order or (ii) issue
an order that the reorganization of such railroad be proceeded with
pursuant to this Act unless it finds that this Act does not provide a
process which would be fair and equitable. The provisions of para-
graph (1) of this subsection are applicable in such reconsideration,
except that (A) such reorganization court shall make its decision
within 30 days after such petition is filed, and (B) any decision by the
special court on appeal from such a decision shall be rendered within
30 days after such reorganization court decision is made. There shall
be no review of the decision of the special court. The Association shall
take any steps it finds necessary, consistent with time limitations and
other provisions of this Act, to effectuate the consequences of such a
revised order, including the preparation and submission of any neces-
sary or appropriate supplements to the preliminary system plan.".
(b) Section 207(a) (2) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 717(a)) is amended by adding at the end thereof
the following new sentence: "The Office is authorized to hold public
hearings on any supplement to the preliminary system plan and to
make available to the Association a summary and analysis of the
S. 281-2
evidence received in the course of such proceedings, together with its
critique and evaluation of such supplement, not later than 30 days
after the release of such supplement.".
SEC. 5. (a) Section 211 (a) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 721 (a)) is amended by striking out "for purposes
of assisting in the implementation of the final system plan;" and
inserting in lieu thereof "for purposes of achieving the goals of this
Act;".
(b) Section 211 (e) (1) of the Regional Rail Reorganization Act of
1973 (45 U.S.C. 721 (e) (1)) is amended by striking out "carry out the
final system plan" and inserting in lieu thereof "achieve the goals of
this Act".
(c) Section 211 (f) of the Regional Rail Reorganization Act of
1973 (45 U.S.C. 721(f)) is amended by striking out "goals of the
final system plan" and inserting in lieu thereof "goals of this Act".
SEC. 6. (a) Section 213(a) of the Regional Rail Reorganization Act
of 1973 (45 U.S.C. 723 (a) is amended by adding the following at the
end thereof "Where the Secretary and the trustees agree that funds
provided pursuant to this section are to be used (together with funds
provided pursuant to section 215 of this Act, if any) to perform pro-
gram maintenance on designated rail properties until the date rail
properties are conveyed under this Act or to improve such designated
properties, such agreement shall contain the conditions set forth in
section 215 (b) of this Act.".
(b) Section 213(b) of the Regional Rail Reorganization Act of
1973 (45 U.S.C. 723 (b)) is amended—
(1) by striking out "$85,000,000" and inserting in lieu thereof
"$282,000,000"; and
(2) by adding at the end thereof the following new sentence
"Of amounts authorized to be appropriated under this subsection,
$50,000,000 shall be available solely to pay to the trustees of rail-
nization
may be necessary to provide
such railroads with amounts equal to revenues attributable to tariff
increases proposed by such railroads and suspended by the Inter-
state Commerce Commission during the calendar year 1975, if the
Secretary determines that such payments are necessary to carry
out this section.".
SEC. 7. Section 215 of the Regional Rail Reorganization Act of 1973
(45 U.S.C. 725) is amended to read as follows:
"INTERIM AGREEMENTS
"Sec. 215. (a) PURPOSES.-Prior to the date upon which rail prop-
erties are conveyed to the Corporation under this Act, the Secretary,
with the approval of the Association, is authorized to enter into agree-
ments with the trustees of the railroads in reorganization in the region
(or railroads leased, operated, or controlled by railroads in
reorganization)-
S. 281-3
"(1) to perform the program maintenance on designated rail
properties of such railroads until the date rail properties are con-
veyed under this Act;
" (2) to improve rail properties of such railroads; and
(3) to acquire rail properties for lease or loan to any such
railroads until the date such rail properties are conveyed under
this Act, and subsequently for conveyance pursuant to the final
system plan, or to acquire interests in such rail properties owned
by or leased to any such railroads or in purchase money obliga-
tions therefor.
"(b) CONDITIONS.-Agreements pursuant to subsection (a) of this
section shall contain such reasonable terms and conditions as the Secre-
tary may prescribe. In addition, agreements under paragraphs (1)
and (2) of subsection (a) of this section shall provide that-
"(1) to the extent that physical condition is used as a basis
for determining, under section 206(f) or 303 (c) of this Act, the
value of properties subject to such an agreement and designated
for transfer to the Corporation under the final system plan, the
physical condition of the properties on the effective date of the
agreement shall be used; and
"(2) in the event that property subject to the agreement is
sold, leased, or transferred to an entity other than the Corporation,
the trustees or railroad shall pay or assign to the Secretary that
portion of the proceeds of such sale, lease, or transfer which reflects
value attributable to the maintenance and improvement provided
pursuant to the agreement.
(c) OBLIGATIONS.-Notwithstanding section 210(b) of this title,
the Association shall issue obligations under section 210(a) of this
title in an amount sufficient to finance such agreements and shall
require the Corporation to assume any such obligations. The aggregate
amount of obligations issued under this section and outstanding at
any one time shall not exceed $300,000,000. The
approval of the Secretary, shall designate in the final system plan that
portion of such obligations issued or to be issued which shall be refi-
nanced and the terms thereof, and that portion from which the Cor-
poration shall be released of its obligations.
"(d) CONVEYANCE.-The Secretary may convey to the Corporation,
with or without receipt of consideration, any property or interests
acquired by, transferred to, or otherwise held by the Secretary pur-
suant to this section or section 213 of this Act.".
SEC. 8. Section 303(c) (1) of the Regional Rail Reorganization
Act of 1973 (45 U.S.C. 745(c) (1)) is amended by striking out the last
word of paragraph (A), by striking out the period at the end of para-
graph (B) and inserting "; and" in lieu thereof, and by inserting
after paragraph (B) the following new paragraph:
"(C) what portion of the proceeds received by a railroad in
reorganization from an entity other than the Corporation for
the sale, lease, or transfer of property subject to an agreement
under section 213 or section 215 (a) (1) or (2) of this Act reflects
value attributable to the maintenance or improvement provided
pursuant to the agreement.".
SEC. 9. Title VI of the Regional Rail Reorganization Act of 1973
is amended by adding at the end thereof the following new section:
S. 281-4
"TAX PAYMENTS TO STATES
"SEO. 605. (a) Notwithstanding any other provision of law, no
railroad in reorganization shall withhold from any State, or any
political subdivision thereof, the payment of the portion of any tax
owed by such railroad to such State or subdivision, which portion has
been collected by such railroad from any tenant thereof.
"(b) Any railroad which violates the provisions of subsection (a)
of this section by withholding any portion of a tax referred to in
such subsection shall be fined not more than $10,000 for each such
violation.".
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.