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Digitized from Box 28 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
THE WHITE HOUSE
WASHINGTON
March 10, 1975
MEMORANDUM FOR:
WILLIAM I. COLEMAN, JR.
WILLIAM E. SIMON
ALAN GREENSPAN
JAMES T. LYNN
FROM:
L. WILLIAM SEIDMAN fws
SUBJECT:
Task Group on Northeast Rail
Restructuring
On February 26, 1975 the U. S. Railway Association (USRA) published
its Preliminary System Plan for restructuring the bankrupt railroads
in the Midwest and Northeast. This document is intended to provide
a basis for public discussion of the Association's proposal, prior to
submission of a Final System Plan to Congress by July 26, 1975.
It is now an appropriate time to evaluate the Preliminary System Plan
and develop an Administration position on the major issues surrounding
the bankrupt railroads. Toward this end, the Economic Policy Board
Executive Committee has approved the establishment of an interagency
Task Group composed of DOT, Treasury, CEA, OMB and EPB.
Secretary Coleman will be Chairman of this group.
This group will begin to function immediately, in order to reach an
Administration position by April 26. That deadline coincides with the
date on which ICC must report the results of its public hearings on the
Preliminary System Plan. Subsequently, the Administration position
will be circulated in the Executive Branch for final comments, and
officially presented to USRA on May 12. This will allow the Executive
Committee of USRA's Board a month and a half to consider our
position, before submitting its Final System Plan to the full USRA
Board on June 26.
A broad range of questions should be addressed by the group, including,
but not limited to, the following:
FORD is LIBRARY GERALD
-2-
What overall criteria should the Administration use for evaluating
rail freight and passenger system proposals, in terms of capacity,
condition, service, private VS. public control, degree of inter-
modal and intramodal competition?
On the basis of these criteria, what is the most appropriate system
structure, and how do we get there? Some examples include:
-
Large ConRail, with certain lines sold to solvent railroads
(USRA's proposal in the Preliminary System Plan).
-
A "bare-bones" ConRail, considerably smaller than USRA's
proposal, and conceivably more viable.
-
"Controlled Transfer" of bankrupt railroad assets to solvent
railroads (this alternative merits far more attention than
USRA gave it).
How should deferred maintenance of plant and equipment be
financed? How can the level of Federal cost and control be
minimized, while maximizing the financial viability of the new
system?
What incentives would help to assure that the restructured system
works efficiently and economically? What must be done to create
such incentives?
To what extent would railroad financial problems respond to passage
of rail regulatory reform, and overall improvement in the Nation's
economy?
How will U.S. policy toward non-rail modes influence the future
rail system? For example, what would be the impact of currently
proposed motor carrier regulatory reform on the railroads?
I look forward to meeting with you to deal with these important and
timely issues.
FORD & LIBRARY GERALD
Of
DEPARTMENTATION
THE DEPUTY SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
UNITED STATES Of AMERICA
March 24, 1975
MEMORANDUM FOR HONORABLE WALTER D. SCOTT
ASSOCIATE DIRECTOR, ECONOMICS & GOVERNMENT
OFFICE OF MANAGEMENT AND BUDGET
Subject: Administration's Rail Program
In accordance with our discussions this morning, herewith the
following:
(1) Proposed inserts for the draft Presidential Message.
(2) An analysis of rail industry problems and the principles
of our program.
(3) Position papers on the two immediate issues:
(a) subsidizing the interest rates on guaranteed loans;
and
(b) the proposed rail rehabilitation and employment
program.
With respect to the third issue of this morning, the
rolling stock management information system, if OMB
insists on deleting that provision from the RRA on the
ground that it is a new money program, we will not press
the issue for Presidential decision. We would suggest
instead that we delete the specific authorization of
$15 million, but retain the language authorizing the
program, which we would then fund under the regular
DOT authorization.
Let me know if you have any suggestions or need anything more.
Attachments
John San John W. Barnum
cc: Honorable L. William Seidman
Honorable James M. Cannon
Honorable Michael Raoul-Duval
DRAFT: 3/24/75
Proposed Inserts for Draft Presidential Message
"The rail industry in the United States is in a deeply troubled
state. Large parts of the rail plant are in a state of physical
deterioration. Some rails are in bankruptcy and others are on the
brink of financial collapse."
The facts are startling. Over one half of the rail track is
unfit for normal operations. At any given time between 15 to 20% of
a typical railroad's main line tracks is subject to slow orders
limiting the maximum speed to 5 to 10 miles per hour. Deterioration
of the rail plant is spreading at an accelerated rate and this is
calling into question the ability of the rail industry to provide
essential services.
Track deterioration delays the safe shipment of both people and
goods. During the first ten months of 1974 there were nearly 7,000
train derailments, a 15% increase over the same period in 1973. The
slow transit times and unreliability of service is causing the erosion
of the rail industry's share of intercity traffic.
A crucial problem is the grossly inefficient use of the freight
car fleet. A typical freight car moves loaded only 23 days a year.
Rail cars represent over 50% of the rail industry's net capital
investment. No other industry has such an inefficient utilization of
its capital investment.
Rails are a vital national asset essential to the commerce and
defense of the country. Today railroads are being called on to play
- 2 -
a key role in our energy conservation program. Railroads are a very
energy-efficient means of moving freight. Moreover, if we are to
achieve the goals of PROJECT INDEPENDENCE, there must be a greater
use of coal. More than three quarters of all coal shipped from the
U.S. mines moves by rail. PROJECT INDEPENDENCE calls for the doubling
of coal production by 1985. As this goal is met, the railroads must
double their coal-carrying capacity. The present financial condition
of the rail industry will not permit that needed capital expansion.
DRAFT: 3/24/75
Rail Industry Problems and the Principles of Our Program
The rail industry in the United States is in a deeply troubled
financial and physical condition. Rate of return on investment for
the industry as a whole in a "good" year (such as 1974) is less than
4%. Excluding the bankrupts, rate of return rises to only 5%. The
industry will show a loss for the first quarter of 1975.
Because of its low earnings, the rail industry is unable to
generate sufficient funds for an adequate program of plant maintenance
and rehabilitation. Funds from outside sources are virtually unavailable.
As a consequence of its perilous financial condition, the railroad
industry has not been able to put sufficient funds into its plant and
the rail plant is in a badly deteriorated condition. Over 50% of the
rail plant is operating under so-called slow orders. During the first
ten months of 1974 there were a total of 6,961 derailments, up 15%
above the same period in the previous year.
The plant deterioration which characterizes the Northeast is
spreading to the rest of the country at an accelerating rate. Because
of inflation, a dollar's worth of improvement today will cost much more
in the future. Moreover, failure to do necessary repairs now will
necessitate total rebuilding of lines in the future. Despite their
deteriorating condition and financial troubles, railroads remain the
backbone of the nation's freight transportation system, handling about
38% of the ton-miles. In addition, the rail industry is an absolutely
essential part of the solution to our environmental and engery problems.
Rails themselves are an energy-efficient mode of transportation.
- 2 -
Moreover, rails handle over 75% of all coal movements in this country.
If we are to lessen our dependence on imported oil, it is essential
to have an adequate and efficient rail plant. Because of its deterio-
rating condition, we are reaching a point where the rail industry's
ability to provide adequate service is increasingly being called into
question. In addition, due to the disrepair of the rail system, much
of the long-haul traffic which should be moving by rail is now moving
by truck. A major rebuilding program of the rail system would move
much of this long-haul traffic from less energy-efficient trucks to
more energy-efficient rails.
Congress is becoming increasingly disturbed about the rail industry's
problem and there is a growing feeling in Congress that the only answer
lies in nationalization or creation of a Rail Trust Fund. Legislation
to nationalize the railroad rights-of-way has been introduced by
Senators Hartke and Weicker. Brock Adams, a leading spokesman on rail
matters in the House, has publicly stated that serious consideration
should be given to such a proposal. Privately, many congressmen are
saying that the only solution to the rail industry problems lies in
nationalization. They see themselves increasingly vulnerable to attack
for not solving the problem and for having applied band-aids in the form
of emergency financial assistance to deal with it. Faced with the
prospect of continuing financial crises in the railroad industry and
the need to pour more Federal money "down the rathole," and in the
absence of a constructive alternative, Congress could seize nationalization
as an easy out.
- 3 --
The Department of Transportation has a program which we believe
will meet the railroad industry's problems with minimum Federal involve-
ment and will assure a viable private sector rail system in the United
States capable of meeting the commerce, energy and defense needs of
the country. The overall program we are proposing involves:
1. Removal of a number of outmoded and inequitable regulations
on railroads. Changes in the regulatory system are an essential
condition to preventing future Penn Centrals and restoring the vitality
of the railroad industry. They are also essential to assuring the
viability of the railroad or railroads which emerge from the Northeast
rail restructuring process.
2. A consolidation and restructuring of the national rail system
utilizing financial incentives and a new mechanism to bypass the
regulatory impediments to rail acquisitions and joint use of facilities.
3. Financial assistance to rehabilitate the essential elements
of the national rail system including the Northeast.
4. Bringing the Northeast rail restructuring planning process to
a successful solution consistent with the national program. This will
result in a paring down and rehabilitation of the bankrupt railroads
in the Northeast.
5. Recognition of the need for rail passenger service in certain
corridors and the public (and congressional) demand for such service in
other markets.
This program is built on a number of unifying principles. First,
running through the program is the notion that railroads are a vital
- 4 -
national asset which are being poorly utilized. The first principle
then is the essentiality of recreating a healthy, progressive rail
system.
A second unifying element of the program is the recognition that
rail plant deterioration is a major problem which the industry is unable
to solve fully alone. The cost of rehabilitating the six bankrupt
railroads in the Northeast could be as much as $3 billion. The cost
of rehabilitating a rationalized rail plant for the nation as a whole
to a minimum level of adequate service is estimated at $7-9 billion.
The rail industry is simply incapable of generating either from internal
or external sources all of the funds required to upgrade the plant to
even minimal acceptable standards. The Regional Rail Reorganization
Act, the financial assistance package of the Rail Revitalization Act,
and the proposed Public Works Rail Employment Program are designed to
assist the industry in rebuilding the plant to acceptable standards.
We do not propose that the Federal Government should fund all of the
railroad maintenance and rehabilitation expenditures. The financial
assistance provided through the Revitalization Act and the Public
Works proposal, coupled with the regulatory reform, will provide the
foundation for the industry to become self-financing. Thus while the
Federal financial assistance is only a portion of the overall expenditures
required, it is a critical prerequisite for the industry to become self-
financing.
The ICC is a major impediment to this disinvestment and plant
rationalization. The interest subsidy and the "ICC bypass" of the
- 5 -
Rail Revitalization Act provide incentives for the industry to rational-
ize the rail plant. The Act promotes this objective by encouraging
railroads to come forward with restructuring proposala, thus meeting
the Administration's goal of maximum reliance on private sector
initiative.
Finally, another unifying principle running through the DOT program
is the need for regulatory reform. The Act is designed to remove a
number of regulatory restraints on carrier management. The present
regulatory system has contributed enormously to the present railroad
malaise. Regulatory reform and the restructuring provided for in the
Act are essential to avoid the spread of that malaise and to assure
that the railroads which emerge from the Northeast restructuring process
and the Rail Revitalization Act restructuring process will be able to
operate as viable private sector concerns.
DRAFT: 3/24/75
Rail Revitalization Act Financial Assistance Provisions
Subsidizing the Interest Rates on Guaranteed Loans
OBJECTIVE: The proposal serves a twofold objective: (1) providing the
railroads access to the private capital market for funds to rehabilitate
and improve the essential portions of the national rail system, and (2)
incorporating an incentive to the industry to consolidate and restructure
duplicate trackage, yards, terminals, and other facilities to produce
over time a more efficient and rational national rail system.
ALTERNATIVE APPROACHES
Alternative #1: Provides $2 billion in loan guarantees for obligations
incurred to modernize and rationalize rail facilities. Before making
a guarantee, the Secretary would have to make certain findings which
would ensure that the loans were properly secured and were used to
create a more efficient national rail system. The Secretary would
also have to ensure that the interest rate was reasonable, taking into
consideration loans of comparable risk.
Alternative #2: Federally guaranteed loans with provision that the
Secretary could pay whatever part of the interest he deems appropriate,
within an authorization of $200 million per year for three years. He
would be required to make findings similar to those under the loan
guarantee proposal in alternative #1. Further, as a condition for
receiving either a guarantee or payment of interest, the Secretary
could require applicant railroads to enter into joint agreements for
- 2 -
tracks, terminals, and other facilities and into agreements for purchase
or sale of other assets and for mergers. Such agreements would not be
subject to ICC approval, but the Secretary would be required to hold a
hearing before approving such an agreement. In addition, the Secretary
could not approve an agreement unless it achieved the transportation
objective in the least anticompetitive way.
DOT RECOMMENDED APPROACH
Alternative #2 should be chosen for the following reasons:
1. Loan guarantees without incentive interest subsidies will not
be used by the rail industry. The industry simple cannot absorb any
more debt; it presently has $4.4 billion in outstanding debt with
current annual interest charges of approximately $184 million. Very
shortly this debt will have to rolled over, and there will be an
increase in the interest rate. As a result, the annual interest will
rise to $440 million with no added debt. This last interest figure is
arproximately equal to one year's earnings for the industry.
2. Without the financial incentive provided by the interest subsidy,
little consolidation and restructuring of the duplicative physical plant
can be achieved. Similarly, without a bypass of the ICC, there is little
prospect for such rationalization occurring. The financial package
produces a means whereby the Secretary can, with financial incentives,
shape the future restructuring of the industry to produce a rational and
efficient system which will remain financially viable in the long term.
- 3 -
3. The immediate financial difficulties of the industry (probably
a large deficit for calendar year 1975) dictate the need for interest
subsidy. Without such subsidy, railroads will not use the financial
program and we lose the opportunity to encourage and participate in
the needed restructuring. Without restructuring and additional invest-
ment, the rail system will continue to deteriorate at an accelerating
rate, accidents will increase, and service efficiency will decline.
Interest subsidy is the minimum required to prevent further financial
decline of the industry which could lead to eventual nationalization
of the entire system.
4. In the absence of an interest subsidy, the loan guarantee
provision will be described as useless by railroad management and labor
alike.
DRAFT: 3/24/75
Rail Rehabilitation and Employment Program
OBJECTIVES: Program has a twofold purpose, (1) to stimulate employment
of maintenance-of-way workers on the rail system and (2) to begin
immediately to rehabilitate the nation's rail system which is in a
state of accelerating deterioration.
Alternative #1: Submit immediately the rail rehabilitation and employ-
ment program without relating it to other employment proposals.
Alternative #2: Hold submission of a rail rehabilitation and employment
program until we can determine (1) how it relates to (or could be used
to defeat or decrease) other proposed employment programs and (2) the
impact of the Federal budget deficit.
Alternative #3: Do not submit a rail rehabilitation and employment
proposal.
DOT RECOMMENDED APPROACH
Submit program proposal immediately to Congress as Administration's
legislative initiative for the following reasons:
1. The program initiated by the Administration is a responsible
alternative to the various public works type employment programs which
may be initiated by the Congress to meet the unemployment problem; in
fact, the Department's proposal ties closely to similar bills intro-
duced by Republican Congressmen recently and can serve as a rallying
- 2 -
point for the Administration and the Republican members of Congress in
presenting an imaginative and effective approach to the unemployment
problem.
2. The program will add 20,000 direct jobs and 35,000 indirect
jobs to the work force during 1975, and 40,000 direct jobs and 70,000
indirect jobs during 1976.
3. Even without the national unemployment problem, there is a
desperate need for an immediate program to rehabilitate the main line
tracks and essential yards of the nation's rail system. The rail
system is in a state of accelerating deterioration which is crippling
its ability to provide essential rail services. Because of the
industry's inadequate earnings, it has been unable to make needed
improvements and maintenance in the rail plant. Approximately $1.1
billion of annual catch-up maintenance is required simply to arrest
further deterioration. An additional $1 billion per year annually
is required to bring the system back to efficient operating condition.
4. To fail to take action at this time simply ignores the
desperate need for rail rehabilitation and the present unemployment
problems, leaving the initiative to forces outside the Administration.
Because af Preliminary System Plan issued 7e026
FACTS
Rail service in Dowagrac llich line available
under was resumed IV by marking subsidgeing the
the Titte Xut of
Regimal Rail Reorganization Act. of
1993 The Act 1592 year program
and is 70% Fed 30% State.
BACKGROUND
line divided between Buchanam/Dowag giac was
(1) Portion betw / Niles & Dowagiac - included in contail
(2) height service betw Buchanan & niles- dependent an AMTRAK
(3) Shippers in Dowagaic will receive
routes for sorting freight
freight service by resonting
Operationally Dermice its litter { overall
(4) Continual 20 passenger revince up
BERALD R. FORD
to AMTRAK
SPECIAL NOTE
available System for subsidy in Mich. than any other state
Prelim Plan mailes more rail mileage in
SuProposals to change the program.
Response of the States to subsidy program is uneuer
MEMORANDUM
April 3, 1975
To: James Cannon
From: Allan Schimmel
Subject: Dowagiac Rail Service
Under the Preliminary System Plan USRA issued on February
26th, rail service in Dowagiac would have been ended unless subsidized
under Title IV of the Regional Rail Reorganization Act of 1973. As
the Duval memo indicates, this is a 70/30 Federal/State split. The
Act provides for a two year subsidy program.
At the request of shippers and Michigan DOT the line between
Buchanan and Dowagiac was subsegmented. On March 14, USRA announced
that the portion of the line between Niles and Dowagiac was economically
viable and would be included in ConRail. Continuation of freight service
between Buchanan and Niles is dependent on Amtrak taking over the line
and bearing the primary rehabilitation and maintenance cost.
These factors must be taken into account:
First: This so-called Chicago-Detroit Penn Central line
has not been a freight main line for several years. It has had only
local freight service. Because of the location of the efficient Elkhart,
Indiana classification yards, efficient operational requirements are such
to make resumption of mainline freight service uneconomical.
Second: Shippers in Dowagaic will receive freight service
as the result of the March 14 decision. Freight moving from Dowagiac will
move to Niles, then south to Elkhart for sorting going East or West.
Operationally, this will provide better service. Today, all freight
moving West from Dowagiac is already going to Elkhart to be sorted. Freight
going East from Dowagiac will move faster going back to Niles, then South
to Elkhart. Why? Because, if it went to Kalamazoo, it would then go
South to Elkhart to be sorted, taking another day.
As a result, our operations people believe that Dowagiac will
have adequate rail service. They contend that the absence of service
between Dowagiac and Kalamazoo will not diminish the quality of freight
service being received today. In addition, service on the Kalamazoo-
Dowagiac line could also be continued under the subsidy provisions of the
Act. The continuation of passenger service is up to Amtrak.
FORD is LIBRARY GERALD
In 1973, the Dowagiac-Kalamazoo line lost $207,699.
Let me add one final thought, Regrettably, but true, the
Association's Preliminary System Plan makes more rail mileage "available
for subsidy" in Michigan than in any other State. Continued service on
the nearly 1,250 miles of track so designated in Michigan is dependent
on the State's willingness to participate in the subsidy program. Of
course, the State would set its own priorities and might not choose to
subsidize all of those miles. If it did, however, the total subsidy
cost would be $7,593,895. The Federal share would be $5,315,726 - the
State share, $2,278,169.
There are proposals to change the subsidy program. The New
England Caucus has suggested a 90% Federal/10% State split as well as
an extension to 5 or 8 years of the program. A group of large shippers
has proposed that the Federal government pick up the entire subsidy cost
for the first two years and that a sliding scale of Federal support be
provided thereafter. The total cost of the subsidy program for the
first year is about $40 million. Peanuts, really. It is quite true that
the response of the States to the subsidy program is uneven, The States
are not anxious to start funding a new program, especially since so many
in the Region are "broke." One State, Ohio, has a constitutional problem.
Therefore, the obvious rationale for 100% Federal subsidy for two years,
according to its proponents, is to give the States additional time to
step up to their responsibilities, particularly in light of the relatively
"small" dollars involved.
Hope this is helpful.
P.S. A more complete description of the subsidy program is enclosed.
GERALD
MEMORANDUM
April 3, 1975
To: James Cannon
From: Allan Schimmel
AS
Subject: Dowagiac Rail Service
Under the Preliminary System Plan USRA issued on February
26th, rail service in Dowagiac would have been ended unless subsidized
under Title IV of the Regional Rail Reorganization Act of 1973. As
the Duval memo indicates, this is a 70/30 Federal/State split. The
Act provides for a two year subsidy program.
At the request of shippers and Michigan DOT the line between
Buchanan and Dowagiac was subsegmented. On March 14, USRA announced
that the portion of the line between Niles and Dowagiac was economically
viable and would be included in ConRail. Continuation of freight service
between Buchanan and Niles is dependent on Amtrak taking over the line
and bearing the primary rehabilitation and maintenance cost.
These factors must be taken into account:
First: This so-called Chicago-Detroit Penn Central line
has not been a freight main line for several years. It has had only
local freight service. Because of the location of the efficient Elkhart,
Indiana classification yards, efficient operational requirements are such
to make resumption of mainline freight service uneconomical.
Second: Shippers in Dowagaic will receive freight service
as the result of the March 14 decision. Freight moving from Dowagiac will
move to Niles, then south to Elkhart for sorting going East or West.
Operationally, this will provide better service. Today, all freight
moving West from Dowagiac is already going to Elkhart to be sorted. Freight
going East from Dowagiac will move faster going back to Niles, then South
to Elkhart. Why? Because, if it went to Kalamazoo, it would then go
South to Elkhart to be sorted, taking another day.
As a result, our operations people believe that Dowagiac will
have adequate rail service. They contend that the absence of service
between Dowagiac and Kalamazoo will not diminish the quality of freight
service being received today. In addition, service on the Kalamazoo-
Dowagiac line could also be continued under the subsidy provisions of the
Act. The continuation of passenger service is up to Amtrak.
In 1973, the Dowagiac-Kalamazoo line lost $207,699.
Let me add one final thought, Regrettably, but true, the
Association's Preliminary System Plan makes more rail mileage "available
for subsidy" in Michigan than in any other State. Continued service on
the nearly 1,250 miles of track so designated in Michigan is dependent
on the State's willingness to participate in the subsidy program. Of
course, the State would set its own priorities and might not choose to
subsidize all of those miles. If it did, however, the total subsidy
cost would be $7,593,895. The Federal share would be $5,315,726 - the
State share, $2,278,169.
There are proposals to change the subsidy program. The New
England Caucus has suggested a 90% Federal/10% State split as well as
an extension to 5 or 8 years of the program. A group of large shippers
has proposed that the Federal government pick up the entire subsidy cost
for the first two years and that a sliding scale of Federal support be
provided thereafter. The total cost of the subsidy program for the
first year is about $40 million. Peanuts, really. It is quite true that
the response of the States to the subsidy program is uneven. The States
are not anxious to start funding a new program, especially since so many
in the Region are "broke." One State, Ohio, has a constitutional problem.
Therefore, the obvious rationale for 100% Federal subsidy for two years,
according to its proponents, is to give the States additional time to
step up to their responsibilities, particularly in light of the relatively
"small" dollars involved.
Hope this is helpful.
P.S. A more complete description of the subsidy program is enclosed.
THE WHITE HOUSE
WASHINGTON
March 20, 1975
MEMORANDUM FOR
JIM CANNON
FROM:
MIKE DUVAL
A
SUBJECT:
RAIL SERVICE IN DOWAGIAC, MICHIGAN
This is in response to the inquiry by Herbert Phillipson, Jr.
The section of track between Dowagiac and Buchanan (20.9
miles) is part of the Chicago to Detroit line and is inter-
sected near its middle, at Niles, Michigan, by the South
Bend Secondary track between South Bend, Indiana and Benton
Harbor, Michigan. (See attached map.)
Rail service in this area is covered by the United States
Railway Association Preliminary System Plan, which was
issued on February 26. These railroads are in bankruptcy
(Penn Central plus six others) and under the applicable
statutes, certain low-density, uneconomical lines should
be dropped. In its Plan, USRA excluded the entire Dowagiac
to Buchanan segment. Subsequently, however, they added
the Dowagiac to Niles segment after rerunning the traffic
numbers through their computer. As a result, the only seg-
ment that would not be included in the new railroad service
(called CONRAIL) would be the segment between Niles and
Michigan City via Buchanan.
This is under continued review and should the line appear
profitable, it will be recommended for inclusion in CONRAIL.
If Amtrak retains the route for passenger service and assumes
responsibility for track maintenance, that will also result
in its inclusion. If the line does not appear profitable
and Amtrak does not pay for the maintenance, then under
Title IV of the Regional Rail Reorganization Act, the line
would be made = available for subsidy " by the State
of Michigan. If the State elects to provide such subsidy,
it can get Federal assistance up to 70 percent for two years.
Thereafter, the State or the users would have to pay for the
subsidy.
FORD & GERALD LIBRARY
2
No
the line is dropped, then through freight and passenger
fut
service can be routed south at Niles to South Bend (7.1 miles)
at
the present Penn Central main line between Chicago and
New York.
The Rail Services Planning Office of the Interstate Commerce
Commission has scheduled public hearings on the USRA Prelim-
inary System Plan in Lansing, Michigan, from March 17 to 21.
The hearings will be held in the City Council Chambers at
City Hall.
Ultimately, of course, Congress must approve the System's
Plan as a result of the process referred to above. Based
on the merits of the case, I think there is a fairly good
chance that the segment will be included, and thus I recom-
mend we let the existing procedures run their course. I
will keep you advised as decisions are made.
GERALD FORD LIBRART
Present PENN CENIRAL nourse
- -
-
/
AND
/
Chicago
Michigan CITY
Buchanan
*BENTON Harbor Dowagiac KALAMAZOS
JACKSON
DETraiT
To Buffalo
- - the am ase we - NILES
South
Elkhart
BENd
(P.C. MAIN LINE Chgo. To N.Y.)
-TOLEdo
To NEW York
INcludEd iN CON- RAIL
I
GERALD
Under going Further ANALYSIS
A
LISTARY FORD
#4
The Rail Service Continuation Subsidy Program
Title IV, Regional Rail Reorganization Act
The Interstate and Foreign Commerce Committee Report on the
Regional Rail Reorganization Act of 1973 states:
"The Committee recognized the necessity for slimming down
the system - allowing the Northeast system to throw off the excess
track in an effort to become profitable. It recognized the need for safe-
guards for small areas, to be able to continue essential service which
is not economical to the carrier. This was recognized as a social cost
to be borne by the government. " (House Report 93-620, PP 28-29.)
Under Title IV the means through which the "social cost borne by
the government," to continue "essential service" is provided. Calling
for joint Federal/State cost sharing, a mechanism is provided whereby
service can. at the option of the State, be continued on light density
lines not included in the restructured system.
Rail Service continuation subsidies can be used to cover the "costs
of operating adequate and efficient rail service, including, where
necessary improvement and maintenance of track and related facilities"
(Section 402(j)). The Federal government share of the subsidy for any
light density line is 70%, with State and/or local government shippers
putting up the remaining 30% of the cost.
The Act (Section 401(a)) states that rail service continuation subsidies
should be used where "the cost to the taxpayer of rail continuation
subsidies would be less than the cost of abandonment of rail service in
terms of lost jobs, energy shortage, and degradation of services."
Of the nearly 9,800 estimated miles of active lines under study
it appears that 4,000 miles will be recommended for inclusion in the
restructured system. This means that about 5,800 miles are available for
-2-
participation in the rail service continuation susbsidy program.
The Act authorizes $90 million for each of two years to meet the
Federal share of the 70% subsidy cost. If matched completely by the State,
nearly $130 million would be available for the subsidy program.
It appears now, however, that the total cost of continuing service
on all of the light density lines not included in ConRail will not exceed
$70 million. It could be lower. This means that the Federal share would
not exceed $49 million, with the States' share for the entire region
standing at $21 million.
Under the Act, the Rail Services Planning Office (RSPO) has the
responsibility as outlined in Section 205 (d) (4) to:
1:
assist State and local and regional transportation authorities
in making determinations whether to provide rail service continuation sub-
sidies 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 properties are suitable if the cost
of the required subsidy per year to the taxpayers is less than the cost
of termination of rail service over such properties measured by increased
fuel consumption and operational cost for alternative modes of transpor-
tation; the cost to the gross national product in terms of reduced output
of goods and services; the cost of relocating or assisting through
unemployment, retraining, and welfare benefits to individuals and firms
adversely affected thereby, and the cost to the environment measured by
damage caused by increased pollution. "
The rail service continuation subsidy program is to be administered
by the Department of Transportation. In order to become eligible a State
must undertake to meet the requirements Congress set forth in Section
402 (c) of the Act. They are:
"
(1) The State has established a State plan for rail trans-
portation and local rail services which is administered or coordinated
by a designated State agency, and such plan provides for the equitable.
distribution of such subsidies among State, local, and regional trans-
portation authorities;
GERALD FORD
-3-
(2) the State agency has the authority and administrative
jurisdiction to develop, promote, supervise, and support safe, adequate,
and efficient rail services; employs or will employ, directly or indirectly,
sufficient trained or qualified personnel; and maintains or will maintain
adequate programs of investigation, research, promotion, and development
with provision for public participation;
(3) the State provides satisfactory assurance that such
fiscal control and fund accounting procedures will be adopted as may be
neccesary to assure proper disbursement of, and accounting for, Federal
funds paid under this Title to the State; and
(4) the State complies with the regulations of the Secretary
issued under this Section.
Under this Act, the Association does not have a role in determining
which lines should be subsidized. Indeed, the needed planning and decision
making process is clearly in the hands of the State. Nevertheless, the
Association has taken certain steps which may provide assistance to the
State and local governments.
A handbook has been prepared for use by State and local agencies which
describes detailed procedures which can be used to estimate the effects
of the removal of a branch line on the community so as to help it reach
a conclusion as to whether or not a line should be subsidized. The manual
is being distributed throughout the region.
Although Congress initially limited the subsidy program to two years,
legislation may be introduced this year to extend that time period. In
addition, the response from the States to the subsidy program to this point
has been uneven, to say the least. Through the RSPO hearings and other comments
and evaluations of the Preliminary System Plan, Congress may want to
consider changes in the subsidy program to ensure that needed, but
uneconomic service can be provided to fulfill the purpose of Title IV of
the Act.
GPO 886-161
THE WHITE HOUSE
WASHINGTON
April 12, 1975
MEETING WITH AMERICAN RAILROADS
ASSOCIATION BOARD OF DIRECTORS
Monday, April 14, 1975
2:00 p.m. (30 minutes)
Cabinet Room
From: Jim Cannon June
I.
PURPOSE
The meeting was requested by the Railroad Association
and Secretary Coleman so that the railroad presidents
can brief you on the critical condition of American
railroads. They will present specific recommended
programs to correct the problems they face.
II.
BACKGROUND, PARTICIPANTS AND PRESS PLAN
A. Background
On February 18, you met with two of the railioad
presidents present at this meeting (Ben Biaggini,
Southern Pacific, and Graham Claytor, Southern
Railroad) at a meeting here in the Cabinet Room
with six transportation industry leaders on the
subject of your energy program.
Critical Need for the Railroads
Most freight is transported by the railroads.
The following is a breakdown for all freight
in ton miles transported:
Railroads
38%
Motor carrier
23%
Inland waterways
16%
Pipelines
22%
Air
1%
Railroads carry the following amounts of selected
products produced in this country:
Lumber and wood
78%
Pulp and paper
71%
Automobiles
70%
Food
66%
Primary metals
60%
2
Railroads transport 70 percent of the coal
produced, utilizing 81 percent of the Nation's
mainline tracks. If coal production doubles,
the railroads will have to triple the ton miles
of coal they carry because of increases in the
need for western coal. This will involve over
90 percent of the railroad mainline network.
Critical Problems
Over one-half of the trackage in the country
is unfit for high-speed operations. For safety
reasons, trains are operating under Federal
"slow orders" on nearly 50 percent of their
tracks and at speeds under 10 mph for 20 per-
cent of the tracks.
Accidents and derailments have nearly doubled
since 1967.
Because of inefficient equipment and operating
methods, a typical freight car moves loaded only
23 days a year.
The railroads are in very bad financial condition.
Eight Northeast and Midwest railroads are bank-
rupt (including Penn Central), the so-called
Granger roads in the Plains States are in pre-
carious financial condition; average, industry-
wide rates of return are 3 percent or less; and,
they just had the largest quarterly deficit in
rail history. This dismal financial condition
is the result of:
1) Outdated government regulation
2) Archaic work rules
3) Government subsidies to competing
modes
These have resulted in the critical problem of
redundant facilities and excess competition.
Congressional Reaction
Senators Hartke and Weicker have introduced legis-
lation to nationalize the railroad rights-of-way.
Humphrey and Brock Adams have indicated interest
in this approach.
Senator Randolph plans to introduce a bill to
provide $1 billion to upgrade the rail rights-of-
way and there are similar bills (e.g., Buckley --
$2 billion) which have already been introduced.
FORD is LIBRARY GERALD
3
Administration Plans and Proposals
The Regional Rail Reorganization Act is being
implemented by DOT, ICC and the United States
Railway Association (USRA). This is designed
to salvage the Penn Central and the other bank-
rupt railroads.
You will soon send to the Congress the Rail
Revitalization and Energy Transportation Act
of 1975. This proposal is in your FY 1976
budget and only a few details need to be
resolved. It is nearly identical to legisla-
tion proposed last year which nearly passed.
It contains:
- $2 billion in loan guarantees for
streamlining and plant improvements.
- significant regulatory reform.
Secretary Coleman has proposed a $1.2 billion
railroad rehabilitation program. This is under
active review by Domestic Council and OMB. A
decision paper should be ready for you in about
a week.
See Tab A for additional background provided by
Secretary Coleman.
B. Participants
Twenty railroad presidents, comprising the Board
of Directors of the American Railroads Association.
Secretary Coleman will be present. See Tab B for
list of participants. Secretary Coleman, Mr. Lynn & Cannon.
C. Press Plan
Meeting to be announced; press photo.
III. AGENDA AND TALKING POINTS
After thanking the railroad presidents for coming,
you may wish to turn the meeting over to Secretary
Coleman.
Secretary Coleman will also welcome the railroad
presidents and will then ask Ben Biaggini to pre-
sent their recommendations.
Biaggini will cover the problems and potential
remedies for the railroads. This will include
FORD is LIBRARY
4
the costs imposed on the railroads by government
regulation and policies. He will seek financial
assistance, tax and regulatory reform.
We recommend that you advise them that you will
soon be sending to the Congress the Rail Revitaliza-
tion and Energy Transportation Act, containing the
$2 billion in loan guarantees and regulatory reform.
We recommend that you make no commitment at this time
on the $1.2 billion railroad rehabilitation program
under consideration within the Administration.
OF
DEPARTMENT
THE SECRETARY OF TRANSPORTATION
UNITED
WASHINGTON, D.C. 20590
AMERICA
STATES
Of
April 11, 1975
The President
The White House
Washington, D. C. 20500
Dear Mr. President:
Attached in this package is material intended to help
you prepare for our meeting with the 20 railroad
presidents who comprise the Association of American
Railroads and their president, Stephen Ailes. Included
in this package are:
1. The Outline for Discussion prepared by the staff
of the Association of American Railroads. Mr.
Ben Biaggini, President, Southern Pacific Railroad,
will talk from the points outlined here.
2. Questions intended to stimulate discussion.
However, I doubt seriously that you will have
to use them.
3. A backgrounder which I call "The Crisis of the
Nation's Railroads" which briefly brings us up to the
present time in our current initiatives.
Respectfully,
Bul
Attachments
OUTLINE FOR DISCUSSION OF THE PRESIDENT
WITH THE RAILROAD PRESIDENTS
MONDAY, APRIL 14, 1975
This discussion paper was developed by the Staff of the American
Association of Railroads.
I. The railroad freight system has an important role to play in the
long-term future. The basic technology remains relevant and is
improving rapidly; in an unbiased economic environment, it can survive
and prosper. Expansion of rail capacity to meet expanding national
needs is much cheaper than is the case with trucks and water carriers.
Finally, energy, environmental, safety and land use considerations
strongly argue for a national policy of increased reliance on rail in
the years ahead.
II. The rail system will be with us -- the issue is will it continue
im private operation or will it have to be nationalized to be preserved.
The costs of nationalization are so large, the administrative burdens on
government are SO severe, and the probability that operating efficiency
would seriously decline is so great that almost everyone agrees that the
system should remain as a private enterprise.
III. Railroads face one major overriding problem -- inadequate earnings.
The earnings are depressed by:
A. The main burdens placed on the railroad system by the
government include:
(1) Cost of rate regulation ($500 million per year)
(2) Losing branch line operations ($130 million a year)
(3) Remaining passenger deficit ($107 million a year)
(4) Property taxes paid on rights-of-way ($203 million a year)
(5) Grade crossing costs ($173 million a year)
(Estimated rail revenue losses -- $1.1 billion
per year)
- 2 -
B. Effects of subsidy to rail competitors
(1) Inadequate user charges on large trucks ($2 billion a year)
(2) No user charges on water carriers ($500-$750 million
a year)
(Estimated rail revenue losses -- $2.5-$2.75 billion
per year)
IV. Inadequate earnings over a long period have meant deferral of
railroad expenditures for track maintenance, new equipment and plant
modernization. These deferrals, in turn, have meant a deterioration of
service, a decline in the ability to compete, and a further decline in
earnings -- a vicious circle.
V. Remedy ---
a. Immediate
(1) Usable financial assistance to break the vicious circle
and improve plant, improve service and improve the
ability to compete.
(2) Regulatory reform - particularly in ICC rate powers.
(3) Termination of state taxation of rights-of-way with
Federal payments to states to replace revenues lost
this way.
(4) Effective abandonment machinery, except where subsidy
is available to keep branch lines in operation.
(5) Immediate initiation of independent analyses to determine
extent of subsidy to rail competition, plus measures to
lessen subsidy in interim --- at least to halt its
increase.
(6) More favorable Federal tax policies on investment tax
credits, accelerated amortization and depreciation of
existing rail grading and tunnel bores.
b. Longer Range
(1) Correction of the competitive imbalance -- by imposition
of adequate user charges or by offsetting subsidy or both.
Questions Concerning Railroads' Materials
for Meeting With President Ford, April 14, 1975
1. The Administration proposed a regulatory reform bill
in the last Congress, and the House passed a comprehensive
measure. The Senate failed to act on the bill, in part,
because of a lack of interest by the railroad industry.
Will the railroad industry actively support the Administration
in an effort for regulatory reform?
2. A request is made for "usable financial assistance" to
improve plant and service. What type of assistance is
usable, i.e., grants, loans, loan guarantees, deferred interest?
3. Can you detail the revisions in tax policies requested
and the revenue cost to the Government?
4. To correct "competative imbalance", what are the scope
and extent of user charges that should be imposed?
5. Will the railroad industry cooperate in a program to
lessen unnecessary capacity in the industry through joint
use of facilities and mergers?
6. Present subsidies to competeting modes are for public
facilities. For direct subsidies to the railroad industry,
is it necessary that the government own and maintain the
rai lroad right-of-way?
7. If Federal tax policies are made more favorable, how
can we insure that the resulting monies are put into rail
property investments?
8. Should user charges be designed to promote intermodal
transportation services such as piggy-back services?
9. Should user charges be tied to intercity freight service
such as long haul trucking and waterways services.
- 3 -
VI. Once, with Federal assistance, present difficulties are overcome,
once the regulatory climate is made conducive to successful operation,
once the competitive situation is brought in balance, the railroad
system, privately owned and operated, already the world's most efficient,
will play an increasingly important role in the national transportation
system.
OF
DEPARTMENT
C
THE SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
ONLITED
A-ARRICA
STATES
of
MEMORANDUM FOR THE PRESIDENT
SUBJECT:
The Crisis of the Nation's Railroads
Mr. President, as your principal advisor on transportation matters,
I feel compelled to convey to you my sense of the desperate plight
of the Nation's railroads. The state of the rail industry today
not only endangers any prospect of economic growth in this country
but also imperils our important national objective of energy
independence. There is a growing mood in Congress that the only
answer to the crisis of the railroads is some form of nationalization.
I believe that a private sector solution is possible if we move
quickly. There is an urgent need for action. Therefore, I respect-
fully urge you to undertake a dramatic, coordinated program to
revitalize the Nation's private enterprise raiiroad system.
The crisis of the American railroad industry presents this Administration
not only with a grave problem but also with a great opportunity. If
you can put into effect, Mr. President, a program to save the rail-
roads, it will have an historic significance equal to that of any other
endeavor upon the domestic scene. From a political standpoint, I
believe it provides an unparallelled opportunity for the Administration
to seize the initiative from Congress.
The Importance of the Railroad Industry
For more than a century the railroads have been the backbone of this
Nation's transportation system. Even after years of decline, railroads
still carry 38 percent of all freight (in ton miles), easily exceeding the
23 percent transported by motor carrier and the 16 percent moved via
inland waterway. Railroads carry 70 percent of the automobiles
produced in this country, 66 percent of the food, 78 percent of the
lumber and wood, 60 percent of the chemicals, 60 percent of the
2.
primary metal products, and 71 percent of the pulp and paper. If
the Nation is to realize its economic growth potential during the
remainder of the twentieth century, the railroads must be in a
condition to move quickly and safely significantly increased freight
volumes.
Moreover, a healthy railroad industry is crucial to the energy needs
of this country. The railroads must play the predominant role in
supplying the Nation with coal during the remainder of this century.
The railroad industry transports 70 percent of the coal produced in
this country, a task involving approximately 81 percent of its
mainline network. Your Project Independence, to make the Nation
self-sufficient in energy, envisions a doubling of domestic coal
production by 1985. To meet this goal, railroads will be required to
double their coal-carrying capacity. Actual ton miles of coal
carried by rail, however, must triple due to changes in origin from
eastern coal to low-sulphur western coal. This would necessitate coal
shipments over 90 percent of the railroad mainline network. Greatly
improved railroad service is, therefore, essential to the development
and use of coal for energy. In addition, rail transportation is the
most energy efficient of all the modes, both freight and passenger.
With regard to freight transportation, our research indicates that
railways are significantly more energy efficient than trucks, their
ubiquitous competitor, or airlines, and slightly more efficient than
even barge movement. As for passenger service, our research
indicates that railroads, when properly utilized, are substantially
more energy efficient than either autos or airlines in moving
passengers and are approached in efficiency only by intercity bus.
In summation, a healthy, progressive, strengthened railroad system
is absolutely essential to our national objective of energy independence.
The Problem Facing the Railroad Industry
Given the paramount importance of the railways in both the past and
future of this country, it has been alarming for me, during my first
month on the job, to discover the dilapidated state of the railroad
industry. The facts are startling. Over one half of the present rail
track in the country is unfit for high-speed operations. It is not
uncommon for train operations on mainline tracks to be limited to
speeds of 10 to 20 miles per hour. Accidents and derailments have
nearly doubled since 1967. Because of outdated equipment and methods
3.
and the resultant inefficiency, a typical freight car moves loaded only
23 days a year. It is becoming increasingly apparent that the rail
industry, as presently constituted, will be manifestly unable either
to support the traffic our economy generates or to meet the challenge
of increased coal carriage which energy independence demands.
For many years now the income generated by the American railroads
has been insufficient to meet the requirements of plant maintenance and
rehabilitation, and with rates of return of 3 percent or less, funds from
outside sources are virtually unavailable. The deferred maintenance
in the industry is now estimated to range as high as $7. 5 billion.
Although the problems of railroads are most severe in the Northeast
and Midwest (where eight carriers are bankrupt), numerous other
railroads, especially the so-called Granger roads that operate in
the Plains states, are in precarious financial condition. The massive
problems of the railroad industry are most recently aggravated by the
largest quarterly deficit in rail history. Today the United States is
confronted with the grim reality that a major breakdown of our rail
freight system is a distinct possibility.
It is important that the underlying causes of the railroad problem be
clearly understood. A great deal of the discussion on this subject is
focused on the poor condition of mainline track and on the bankruptcies.
These are symptoms but not the underlying causes of railroad difficulty.
The principal factors underlying railroad difficulty are: (1) Redundant
facilities and excess competition; (2) Outmoded regulation; (3) Archaic
work rules; (4) Lack of capital to finance rehabilitation; and (5)
Preferential treatment of other modes.
Perhaps the principal factor underlying railroad problems is the
redundancy of plant and the excess competition which exists within
the industry. This is especially true in the Northeast and Midwest
and, as a result, these are the areas where railroad problems are the
worst. There are simply more facilities of all types -- yards, mainline
tracks, and branch lines -- than are required to provide economical
and efficient service. In many instances, two or more railroads
compete for traffic sufficient only for the survival of one carrier.
Secondly, slow and cumbersome regulatory procedures impede
responses to competition and changes in market conditions and at
times result in traffic being handled at non-compensatory rates. These
procedures also have created a serious impediment to needed
4.
restructuring. Regulation that was necessary when it was enacted
decades ago is simply unresponsive to today's needs. This
inflexibility stemming from Interstate Commerce Commission
procedures and rules is a major deterrent to railroad efficiency
and viability. For instance, after 12 years, the attempt to restructure
the Rock Island Railroad through merger with other carriers is still
incomplete.
Third, the existing work rules in the industry are a major obstacle
to achievement of economic potential in the railroad system. Archaic
arrangements regarding the size of the crews that man trains and
providing for crew payment on an illogical basis weigh heavily upon
the industry and severely limit productivity.
Fourth, lack of capital and the resultant deferred maintenance has
caused widespread deterioration of mainline track and other parts of
the railroads' physical plant. Clearly there is a need to rehabilitate
the essential portions of the industry's physical plant -- but that
rehabilitation will be effective in revitalizing the railroads only if
the burdens of redundant facilities, regulatory constraints, and
costly work rules are also alleviated.
Finally, there has been, over the years, preferential treatment of the
other transportation modes by the Federal Government. Only the
railroads (with the exception of the pipeline companies) own their own
rights-of-way and have to carry the fixed charges of ownership and
maintenance of this extensive plant.
The Congressional Reaction
There is a great deal of pressure building in Congress for a solution
to the railroad problem, and there is growing feeling on the Hill that
the only answer lies in some form of nationalization. Faced with the
prospect of continuing crises and the necessity of providing more and
more Federal money, there is an understandable desire to ensure that
the American public receives something in return for its heavy investment.
In the absence of a constructive alternative, Congress may indeed turn to
nationalization. Senators Hartke and Weicker have introduced legislation
to nationalize the railroad rights-of-way, as has Senator Humphrey, and
Brock Adams, a leading spokesman on rail matters in the House, has
publicly stated that serious consideration should be given to such a
proposal. Privately, many other Congressmen and Senators are
5.
saying that the only solution to rail industry problems lies in
nationalization. In any event, Congress has already seized upon the
obvious problem of deteriorating track and roadbed as an interim
means of improving the railroad situation as well as an opportunity
to take the political initiative. Senator Randolph intends to introduce
a bill to provide for a $1 billion program for upgrading rail rights-of-
way. Congressman Heinz and Senator Buckley have each introduced
separate bills to spend $2.5 billion and $2. 0 billion, respectively, to
upgrade deteriorating trackage through employment programs.
It is highly unfortunate that Congress has been allowed to take the
initiative on the railroads. It is even more unfortunate that some
solutions receiving serious consideration in Congress are excessively
expensive, inappropriate responses to the real problem, and bad for
the country. The Congressional proposal of nationalization of the
industry, or, at least, of the rights-of-way, would mean not only an
injection of unnecessary Federal control into another area of our
national life but also unnecessary rehabilitation and maintenance
expenditures on excess railroad plant. Total physical rehabilitation
of the existing rail system is not only prohibitively expensive but also
undesirable. What is needed is a major rationalization of the rail
facilities of the country and an elimination of redundant capacity through
mergers and joint use of facilities. Only the components of a
rationalized rail plant should be rehabilitated. Moreover, rehabilitation
of track will be of little benefit to the railroads or to the Nation unless
the other difficulties of the railroads can be overcome as well. A track
rehabilitation program should only be commenced as a part of a broader
program to overcome 'other industry problems such as regulatory
restraints and work rules.
A Program to Rebuild the Railroad Industry
The Department of Transportation has a comprehensive program which
I believe will assure the United States of a viable private enterprise
rail system capable of meeting the commerce and energy needs of this
country. Moreover, it provides the Administration with the means of
seizing the political initiative. The program involves: (1) A
consolidation and streamlining of the national rail system utilizing
financial incentives and relief from impediments to rail mergers and
joint use of facilities; (2) Removal of a number of outmoded and
inequitable regulations on railroads; (3) As an important first step
to nationwide rail consolidation, the forging of a successful conclusion
GERALD
LIBRARY
6.
to the current Northeastern rail restructuring process in a form
consistent with the national program of consolidation; (4) Measures
to reduce preferential treatment of competing modes and; (5)
Recognition of the indispensability of rail passenger ser vice in
certain corridors and the public (and Congressional) demand for
such service in other areas.
Implementation of the Program
The cost of rehabilitating even the streamlined rail plant that I have
proposed will be high. On the other hand, I am keenly aware,
Mr. President, of your dedication to fiscal responsibility. Therefore,
the Department of Transportation has already developed two concrete
legislative proposals which will not only take great strides in
furthering the program I have outlined but also be consonant with
your opposition to any new spending programs.
First, we have proposed a bill called the Rail Revitalization and
Energy Transportation Act of 1975 to provide $2 billion in loan
guarantees to railroads to finance the rationalization and streamlining
facilities. The $2 billion in the bill is already a part of your budget
proposals, and the proposal is awaiting White House approval. As a
condition of receiving assistance, the Secretary of Transportation will
be able to require railroads to enter into agreements for the joint use
of tracks, terminals, and other facilities and to enter into agreements
for mergers to further rationalize the rail system. The proposed bill
also provides significant regulatory reform by amending the Interstate
Commerce Act to permit increased pricing flexibility, to expedite
rate-making procedures, to outlaw anti-competitive rate bureau
practices, and to improve the procedures for dealing with intrastate
rates.
Second, I have proposed a $1.2 billion Emergency Railroad
Rehabilitation Program to attack forthwith the accelerating deteriora-
tion of the railroad physical plant. The proposal carries with it
significant immediate benefits for employment in the country. The
money for this bill could, as one alternative, come from rescinding
$1.2 billion of the $9. 1 billion for highways currently being impounded.
As a result, it would not increase Federal funding authorizations but
rather reallocate funds from lower priority to higher priority transpor-
tation programs. I believe that public reaction, except for the die-hard
FORDO & LIBRARY
7.
supporters of expanded highway programs, would be positive.
This proposal also is awaiting White House approval. The primary
emphasis of the proposal is to rehabilitate and maintain mainline
routes and major terminals that will be included in any restructured
and streamlined railroad system. This legislation will significantly
assist the Nation's energy goals by giving priority to those projects
which will aid in the movement of coal.
The financial assistance provided through the proposed Rail
revitalization a nd Energy Transportation Act and the Emergency
Railroad Rehabilitation Program, coupled with the regulatory
reform contained in the former, will provide the foundation for a
viable private enterprise railroad industry. Moreover, these two
legislative proposals will announce the Administration's determination
to deal with urgent national problems even while simultaneously
maintaining a commitment to fiscal responsibility. At the least,
the Emergency Railroad Rehabilitation option of using highway
money would put pressure on Congress to consider trade-offs rather
than add-ons to the budget as the means for financing the railroad
programs it is considering.
In conclusion, Mr. President, I believe that the two legislative
proposals I have outlined are important initial steps in constructing
a comprehensive program to save the American railroads. Of course,
it is also essential that we deal appropriately with the Northeast
rail restructuring problem. By the 26th of this month, the Economic
Policy Board Task Group on Northeast Rail Restructuring, of which
I am Chairman, will present you with its specific recommendations.
William T. Coleman, Jr.
FORD i LIBRARY
hen Ailes
President & Chief Exec. Officer, Assn. American RRs.
: B. Aydelott
Chmn. of Board & President, The Denver & Rio Grande
Western RR, P. O. Box 5482, Denver, Colo. 80217
nk E. Barnett
Chmn. Board of Directors & Chief Exec. Officer, Union
Pacific RR Co., 345 Park Ave., New York, N. Y. 10022
rles E. Bertrand
President & Chief Exec. Officer, Reading Company,
Reading Terminal, Philadelphia, Pa. 19107
amin F. Biaggini
President, Southern Pacific Transportation Co., One
Market Street, San Francisco, Calif. 94105
S. Boyd
President & Chief Exec. Officer, Illinois Central Gulf RR,
233 N. Michigan Ave., Chicago, Ill. 60601
Graham Claytor, Jr.
President, Southern Railway System, P. O. Box 1808,
Washington, D. C. 20013
P. Fishwick
President & Chief Exec. Officer, Norfolk & Western Rwy.
Co., 8 North Jefferson Street, Roanoke, Va. 24042
ard C. Grayson
President & Chief Exec. Officer, St. Louis-San Francisco
Rwy., Frisco Bldg., 906 Olive St., St. Louis, Mo. 63101
W. Ingram
President & Chief Exec. Officer, Chicago, Rock Island &
Pacific RR Co., La Salle St. Station, Chicago, nl. 60605
is Langdon, Jr.
President & Chief Exec. Officer, Penn Central Transp. Co
6 Penn Center Plaza, Philadelphia, Pa. 19104
II. Lloyd
President, Missouri Pacific Railroad Company, 210 North
13th Street, St. Louis, Mo. 63103
er W. McGee
President, Green Bay & Western Railroad Company,
P. O. Box 2507, Green Bay, Wisconsin 54306
ory W. Maxwell
President & Chief Exec. Officer, Erie Lackawanna Rwy.,
Midland Building, Cleveland, Ohio 44115
S W. Menk
Chmn. of Board & Chief Exec. Officer, Burlington Norther
Inc., 176 East Fifth St., St. Paul, Minnesota 55101
ard H. Murray
President, Soo Line Railroad Company, Soo Line Building
Minneapolis, Minnesota 55440
y S. Provo
President, Chicago & North Western Transportation Co.,
400 W. Madison Street, Chicago, Illinois 60606
am J. Quinn
Chmn. & Chief Exec. Officer, Chicago, Milwaukee, St. Paul
& Pacific RR, 516 W. Jackson Blvd., Chicago, Ill. 60606
S. Reed
Chmn, Pres. & Chief Exec. Officer, Atchison, Topeka &
Santa Fe Rwy., 80 E. Jackson Blvd., Chicago, Ill. 60604
Thomas Rice
Chmn. & Chief Exec. Officer, SCL-L&N Railroads, 500
ipalding Toon
GEORLD FORD LIBRARY
Water Street, Jacksonville, Florida 32202
President, Bessemer & Lake Erie Railroad Company,
P. O. Box 536, Pittsburgh, Pennsylvania 15230
T. Watkins
Chmn. & Chief Exec. Officer, Chessie System, Terminal
Tower, P. O, Box 6419, Cleveland. Ohio 44101
OF
TRA
DEPARTMENTION
THE SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
UNITED
AMERICA
STATES
OF
April 17, 1975
MEMORANDUM TO: Mr. James M. Cannon, Executive Director, Domestic Council
SUBJECT:
Rail Legislative Initiative
In response to your request, this memorandum delineates the current status
and outstanding issues regarding the Administration's rail legislative
initiative.
Areas of agreement within the Administration
1. President should transmit major rail proposal in very near future to
capture the initiative on this visible, pressing issue and because it is
essential to both the national energy program and the health of the economy
that the railroads be revitalized.
2. Legislative initiative should include both regulatory reform and
financial assistance.
3. The regulatory reform proposal will include expanded rail rate
flexibility, reduction in present anti-trust immunity of rail rate bureaus,
and the elimination of discriminatory State taxation.
4. The financial assistance program will have a minimum of $2B in
Federal loan guarantees and will be used to stimulate rationalization of the
current U. S. railroad system.
5. A direct Federal grant program to prevent further significant
deterioration in the condition of key. rail lines has merit.
6. Current time-consuming ICC regulatory procedures regarding rail
merger and consolidations are a major obstacle to needed restructuring
and a pressing need exists to obtain expedited action on rail restructuring
proposals.
Questions yet to be resolved within the Administration
1. Relationship between Department of Justice and the Secretary of
Transportation in the approval of rail mergers
-- Agreement exists on the need for some by-pass of ICC for
restructuring proposals involving Federal financial assistance.
FORD is LIBRARY 938870
2
-- DOT recommends that authority to approve such transactions be
lodged in DOT and that DOT be required to consult with Justice
prior to merger approval.
-- Justice Department (DOJ) recommends that DOJ be given joint approval
power with DOT.
2. Extent to which the $2B loan guarantee financial assistance program
will provide additional incentives to secure meaningful railroad support
and participation in the program.
-- Agreement exists that financial assistance package must be
sufficiently attractive to gain railroad participation and the
resultant system rationalization.
-- To achieve this full participation, DOT recommends providing a
full range of options, including subsidizing part of the loan
interest rate and deferring debt service payments.
-- OMB apparently believes Federal bank financing is sufficient
incentive. DOT believes more flexibility is necessary and
desirable.
3. Timing and financing of emergency rail rehabilitation grant program.
-- DOT has proposed $1.2B, 15-month program to help stabilize
deteriorating rail roadbed, as well as to generate employment in
productive tasks. Effective rail system is needed for energy
transportation, particularly coal.
-- To help offset budget impact of above program, DOT has proposed to
rescind concurrently approximately $1.2B in existing highway program
funds.
Timing:
-- OMB believes the transmittal of any such proposal should be deferred
until the Administration transmits a policy recommendation regarding
the PSP and the entire NE rail program. Reasons for OMB approach
include their view that the proposal should be put in the context
of the NE question and a full rail policy in order to maximize the
effectiveness of the funds. OMB also points to the delay that may
well occur anyway in Congressional enactment of the rail
rehabilitation proposal.
-- DOT believes a proposal is needed now to prevent adverse
deterioration in rail roadbed. Given that the Administration
proposal regarding the NE rail problem may well call for a
BERALD FORD LIBRARY
3
substantially reduced NE rail network -- a politically explosive issue --
we believe it would be advantageous for the President to have a
positive nationwide program including rail rehabilitation grants on the
Hill before submitting our proposals on the Northeast and Midwest.
I believe my 4/11/75 memorandum to the President outlines the essential
ingredients of a multifaceted, comprehensive approach to the national
railroad problem.
Financing:
-- DOT believes this program is consistent with the President's
budgetary policy, given the Project Independence requirement that
year.
the railroads have have a substantially increasing amount of coal each
-- Furthermore, DOT believes the highway rescission approach could
reduce the budget impact and show Presidential leadership in
shifting budget resources from low priority to high priority
activities.
--- OMB believes rescission is not politically feasible and may
jeopardize the Administration's highway proposal.
In view of OMB's final point, we would recommend approval of the rescission
approach only after an assessment by the White House Congressional Affairs
Office of whether this approach would seriously jeopardize the new highway
bill.
I believe the issues have been thoroughly discussed between the Department
and the Executive Office of the President, and we now need expeditious
decisions to permit an Administration rail initiative to go forward in the
very near future.
Bill
William T. Coleman, Jr.
GERALD ? FORD
FOR IMMEDIATE RELEASE
JUNE 7, 1975
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
716
PRESS CONFERENCE
OF
WILLIAM MILLIKEN
GOVERNOR, STATE OF MICHIGAN
AND
WILLIAM T. COLEMAN
SECRETARY, DEPARTMENT OF TRANSPORTATION
THE BRIEFING ROOM
11:47 P.M. EDT
MR. HUSHEN: As you know, the President met this
morning with Governors from the Northeast and Midwest. The
meeting lasted about an hour and a half.
The purpose of the meeting was to discuss problems
of the railroads, and the meeting was requested by Governor
Milliken of Michigan.
We have Secretary of Transportation Coleman and
Governor Milliken here to brief you today, to give you a
report on the meeting and answer your questions.
Gentlemen.
GOVERNOR MILLIKEN: We had, I felt, a very good
meeting, as Mr. Hushen has said. It lasted about an hour
and a half, which was a half an hour longer than we had
anticipated.
There was no general agreement in the session
among the Governors and with the Administration on how to
deal with all of the problems, except we all agreed we had
a serious problem in the question of transportation, the
implementation of the Association plan, the question of
the adoption of the plan or not by the Congress in July.
I indicated that I felt very strongly about the
abandoned line issue. It means a great deal to Michigan and
to many other States, and there was general discussion about
the importance of the rehabilitation of roadbeds in the
railway system throughout the country. It has a major
impact, I think, on the future of the country, particularly
in the light of the economic problems we have had, in the
light of the energy crisis, which we have been going through
and we will probably continue to face, so that there needs
to be a comprehensive, overall Federal approach of some kind
to deal with the problems which are faced in a very real
sense by the States.
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I was pleased with the President's willingness
to be openminded in his approach -- the indication that
he will be taking a position which has not yet fully
been developed so far as the Congressional approval
of the plan in July.
I was pleased with the obvious deep involvement
and openmindedness of the Secretary and I felt the
meeting was a very good and a very productive one, and
I am hoping that we are going to be able to maintain,
as I am sure we will, very close contact with the
Secretary and with the President on this problem which
obviously will not go away.
Mr. Secretary.
SECRETARY COLEMAN: At the request of Governor
Milliken, the President met this morning with the Governors
of all of the States in the Northeast and the Midwest.
The only ones not there were those that from a telegram
or other reasons said they could not be there. We had
a free, frank and open discussion. Everyone agrees
that the railroad problem is a serious problem. Everyone
agrees that one of the causes is the deteriorating
effect of the track and that has to be restored.
There was an exchange of ideas as to how best
to bring that about and we in the Administration are going
to continue to work at the problem, and we look forward
to the cooperation of the Governors to see that we can
reach a solution which is satisfactory and will solve
the problem which is serious in this country.
Q
Can you both deal with the question of
where you are farthest apart, what the hangup is?
GOVERNOR MILLIKEN: I don't know at this point
that we can really say that we are far apart. We recognize
that it is going to take a great deal of money to
rehabilitate the trackage in this country and that it
is going to take a great deal of money to keep the
branch lines going if, in fact, some of them should be
kept going.
I fully acknowledge that we will have to
abandon some lines, but I think the plan calls for much
more of a wholesale abandonment than I believe is
necessary or desirable. We have not agreed on how the
money will be forthcoming but there was a good deal of
discussion about that possibility.
I don't think it would be accurate to say that
we had a total disagreement on this subject because we
start with the basic premise that a vital rail system
in this country is essential for the future economic
development of the United States, and certainly of the
individual States.
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Q
Governor, did other Governors present
specific proposals for solving the rail problem in
addition to your own?
GOVERNOR MILLIKEN: The New England Governors
specifically recommended the take-over of the rail beds
and the maintenance and rehabilitation of those beds as
part of an overall plan. There certainly was not support
for a Government take-over of the entire system, but
a recognition that this might be, and probably would be,
one good way to go.
So I would say that that constituted one of
the major recommendations made by the Governors, and
the other one would be on the question of rail abandon-
ment, and my specific recommendation for a two-year
moratorium with a branch line abandonment and a Federal-
State match for up to 10 years. That problem gives us
great concern in Michigan and I think that is reflected
in many of the other States.
Q Mr. Secretary, what was the reaction of
the President to these two proposals?
SECRETARY COLEMAN: The President listened and
he gave serious consideration to the proposals. We have
some problems with the proposals. One, we doubt seriously
whether the public interest is best served by Government
ownership of the roadbeds and other facilities.
Secondly, we always have the problem that you
have to have in any system -- where the only way you
raise money is by taxes from the people -- the extent
to which there can be available Federal outlays for the
program. We do feel that the USRA recommendation is
that there are certain lines that are low density lines
and what should happen there is that the States should
have two years to make up their minds whether the line
is sufficiently important that the State will undertake
to subsidize that line.
In the interim, as you know, the proposal is
that the Federal Government will put up 70 percent of
the money; the State will put up 30 percent of the money.
We can understand why the Governors would indicate that
perhaps two years is not enough. On the other hand,
we do think it is a period of time over which you can
make a significant start and determination.
We did listen to the comments of the Governors
and obviously we will take them into consideration,
because they were seriously presented and we were dealing
with an issue that everybody agrees on the end result;
namely, that the railroad service is very important in
the country.
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On the other hand, I think as far as the
Administration is concerned we would like to resolve
the problem within the private sector context rather than
to have the Federal Government going into the business
of owning the roadbed. We think that presents serious
problems.
Just to give you two, for example, we think then
it would mean every issue of a wage increase becomes
a Federal issue which would have to be resolved in the
White House. We don't think that is in the public interest.
Secondly, we would say every freight increase
or every charge would then become a public interest which
would have to be resolved in the White House. We don't
think that is a proper way. We firmly still believe
when you are dealing with freight that you ought to be
able to operate a service which can pay its own way and
what you need are intelligent programs which will permit
the rehabilitation of the line, perhaps with Federal
guarantee, but that basically it should be resolved
in the private sector.
I think some of the Governors felt -- some of
them agreed with our position -- others said we think
the situation is going to the point that perhaps the
Federal Government may have to step in more, and in
Government today so many problems are matters of degree
that we have to engage in consideration to see what is
the best way to resolve it; but the President did pay
attention. He was quite concerned and he indicated
and he instructed me to continue talking with the
Governors and attempt to come up with a program which will
best serve the interests of the American people.
Q
Do you have a deadline for that program?
Does the President know when you are going to have to
give an answer on this?
SECRETARY COLEMAN: Well, there are varying
deadlines. With respect to the Northeast, we are operating
under statute enacted by the Congress which says by
July 26 USRA will have to submit a plan.
As you know, the Administration has on board
two of the 11 directors. We expect by June 26 we would
have to indicate in executive session as to what our
position finally will be.
In addition, as you know, the President has sent
up the Rail Revitalization Act. We do think that if the
Congress would begin to act and pass on that Act it will
help the railroad situation greatly because we call for
more flexibility in rate regulation.
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We do provide for $2 billion in loan guarantee,
and we also provide for elimination of discriminatory
tax by the local authority on the railroads. We think
those things will make a great difference in the ability
of the railroad to perform satisfactorily.
Q
Secretary Coleman, your statement that the
President instructed you to come up with something that
will have something of interest to the Governors in
terms of a plan indicates that the USRA plan is at least
not sufficient to carry the day; that it is going to
take something else besides that.
SECRETARY COLEMAN: If you got that from my
reply, I did not mean to convey that. What I said was
that the USRA submitted what was a preliminary plan.
The statute called for public comment and reaction by
all the persons involved. The Governors, some of them,
showed certain things that they thought were objectionable
in the plan. The USRA will then come up with the final
plan, and the Administration, likewise, is attempting
to come up with a final plan. The day by which it should
be done is June 26.
More important, we realize that the railroad
problem is a serious problem. We realize the Governors
of the States are quite concerned and we are attempting
to develop programs which the Governors will support and
will solve the problem. We are not saying whether the
USRA plan will be tremendously changed or not.
Q
Mr. Secretary, I want to make sure I
understand you concerning the question of the take-over
of the roadbeds. The President's position has been he
is against that?
SECRETARY COLEMAN: Yes.
Q
And now you use the words "seriously
consider" and things like that. Has his position changed
any?
SECRETARY COLEMAN: Put it this way: I know my
position has not changed and I don't think the President's
position has changed.
Q
Can you tell us a little bit about what
the public service jobs would involve there? Did you
discuss that in connection with the new bill that is
pending on jobs and how they would help with the roadbeds?
SECRETARY COLEMAN: My understanding -- and you
may have me at a disadvantage -- is that I know of no
public bill which has been sponsored by the Administration
which deals specifically with making jobs available for
fixing up the roadbeds.
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- 6 -
Q
No, I am talking about the general public
service jobs bill, and won't that relate to this?
SECRETARY COLEMAN: That was vetoed and it was
also my understanding that even before it was passed that
the Senate or the House knocked out the provision which
was in the bill at one time for public service jobs
directed to the railroad.
Q
Now, there is a new bill coming up and
what I am asking is, is there going to be some effort
to put this back into the bill?
SECRETARY COLEMAN: You better go and ask the
Congressmen.
Q
Was that discussed at all? Did you mention
these public service jobs?
SECRETARY COLEMAN: Today, one Governor did
mention public service. It is the Administration's
position and the position of the Department of Transportation
that the railroad problem is a separate and distinct
problem and it ought to be resolved in the context of
dealing with the railroads, and that is what we hope we
can do.
Q
Governor Milliken, one of the Governors
emerging from the meeting said that all but one Governor
opposed the USRA plan for abandonment. Is that a correct
statement?
GOVERNOR MILLIKEN: I think probably that would
be correct. On the question of public service jobs, that
was not a discussion today, although I had raised the
point very briefly in my remarks. I would hope that it
would be possible in the future to have some public
service job involvement in the rehabilitation of tracks
within the States and perhaps a bill coming down would
embody that concept. I would support that.
Q
USRA has issued a preliminary report
already, Governor. What is the stance of your group
regarding that report? Do you think the Administration
is heading in the right direction, or not?
GOVERNOR MILLIKEN: The Administration, I think,
now is in the process of evaluating that report. So far
as the Association recommendation, I can say personally
that it would have a very serious negative impact in
the State of Michigan and I think that is reflected in
a number of other States.
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The proposal is that some 22 percent of the
track abandonment would occur in the State of Michigan
among all the 17 States. That would have serious
economic repercussions and it is on that particular
point that I, this morning, commented. I think we need --
and there is some disagreement on approach here -- I
think we need a two-year moratorium and I think we need
the Federal match which would be up to 10 years. That
would enable us to do better and sounder planning, and
frankly, support further the case we think can be made
in our State.
There is no question that some lines will have
to be abandoned. I acknowledge that for Michigan and
any other State. But I think the criteria has been
wrong in that we have been pretty much guided by the
element of profitability. And I think we have ignored
some of the economic repercussions which would be very
negative and overall would have the kind of effect which
I think could be disastrous to the economy.
Q
Would you comment on the burden of the
Railway Revitalization Act which, itself, involves some
consolidation and abandonment of rail lines? That is,
the Administration's position.
GOVERNOR MILLIKEN: I would repeat again, I
think there will have to be some abandonment, and in the
end the plan will clearly go in that direction, but I
disagree -- and it is a matter of degree -- I disagree
with the Association plan insofar as its impact in our
State.
Q
Governor, how did the President respond to
your proposal on the abandoned lines, the moratorium
and the 10-year match?
GOVERNOR MILLIKEN: I can't say that he precisely
responded. He certainly was open in his approach. The
fact that he added another half-hour to the hour that we
all were scheduled to be here was an indication of his
interest, and I think his concern, and his desire in
the end to make the right decision.
Q
Governor, you had a statement in there.
Did you spread out copies of that here? Could we have
copies?
GOVERNOR MILLIKEN: It is available.
Q
Could you tell us who was the one Governor
who favored the USRA plan?
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- 8 -
SECRETARY COLEMAN: I would say the effect of
that -- there were 10 Governors present and there was
one Lieutenant Governor. I think it is not quite the
disagreement that you perhaps may think. USRA's
responsibility, given by Congress, was to develop a
plan which would make a national railroad system viable.
In the development of that plan they established certain
criteria and said that when you have a rail line which
is not a national line -- namely, going from State to
State -- but is a branch line, and that the revenue from
that line is much under the expenses, that that presents
a separate problem.
Now all USRA said was, that that type of
operation should not be in a national railroad system.
That does not mean it should not be someplace else.
The Congress then said that with respect to
those lines which USRA determines are not in the national
system and are not profitable, but are losing money,
that we think that the way to handle that problem is
to say that those lines will not be part of a national
system but will be part of a local system, and to give
the locality time to make up its mind as to whether it
will support it as a local system.
We think that the appropriate way to handle
that problem is to say that for those two years the
Federal Government will put up 70 percent of the money
to operate the losing line and the localities will put
up 30 percent.
Now as I understand the Governors, what has now
come forward is really basically a criticism of what
Congress did, not what USRA did, because USRA was acting
within the context of the statute. Everyone agrees that
those branch lines should not be part of the national
system.
So what the Governors have said is, "In our
judgment, we don't think two years is time enough to
make that decision. Secondly, we think that within the
two years instead of having a 70-30 percent match, it
should be a different match." Now this just reflects
the fact that the States don't have the money, but I
think it is also true that the Federal Government is
pushed for money so therefore there has to be discussion
along this line.
But I do think that you escalate the difference
in the problem too big if you think it is other than in
terms of the issue of how long should someone, whether
it be the Federal Government or the local government, support
these losing branch lines until such point when the shippers
and the localities make up a decision as to whether they
will take them over completely.
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- 9 -
Q
Governor Milliken, would you address
yourself to the part of the Railway Revitalization Act
that provides $2 billion in loan guarantees to upgrade
the railways as opposed to the federal ownership of
rail beds or a much bigger subsidy, and does the Governors'
Conference have any view on that?
GOVERNOR MILLIKEN: We did not discuss that
in any great detail this morning. On the question of
federal ownership of the railroad system, I think there
is almost unanimous agreement that that should not come about.
The President's proposal -- the $2 billion proposal --
was discussed very briefly by him, but we were really
centering our attention in our discussion this morning on
the Association plan and on the proposal which will be
before Congress on July 26th.
Q
Mr. Secretary, I am a little confused about
the July 26 and June 26. Could you straighten that out?
SECRETARY COLEMAN: The July 26th -- there is a
statute which says that by July 26th USRA must submit the
final plan to the Congress. It then lays over in the Congress
for 60 legislative days, and at the end of that time
Congress must vote the approval of the plan, or reject it.
Now the June date comes about because to get the plan
submitted to the Congress by the 26th of July, the Executive
Committee of USRA will have a meeting -- and on that
Executive Committee there is at least one or two members
of the Administration -- and assuming that a vote is called
for as to whether the final plan as revised, after the
hearings on the preliminary plan, will be submitted to
the Congress, at that time the Administration people will
take a position.
MR. BARNUM: The statute specifically requires
30 days before the July 26 date the Executive Committee of
USRA shall submit to the Board of Directors of USRA and to
the ICC its proposal, namely the Executive Committee's
proposal for the final system plan.
Q
So the President has to make up his mind
by the 26th of this month as to which direction he wants
the Administration people to go?
MR. BARNUM: That is correct, and there is one
member of the Administration, the Secretary of Transportation,
who is a member of the Executive Committee of the United
States Railway Association.
Q
Mr. Secretary, did I understand you correctly?
A moment ago you said you have not changed your position
and as far as you know the President has not changed his.
Is that on the abandonment issue?
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- 10 -
SECRETARY COLEMAN: I thought the issue I was
asked about was as to whether it is in the public interest
to have public ownership of the railroads, and on that
I think all the Governors are in agreement; that there
ought not to be public ownership of the entire railroad
system. There are some people that talk in terms of
public ownership of the roadbed, and it is my position
that that is not in the public interest, and I think
that is also the position of the President. I say that
only because I think the President speaks for himself.
Q How about your position on the abandonment
issue? Do you have one? As far as whether this idea of
the two-year moratorium is good or whether it is bad?
SECRETARY COLEMAN: I have heard the argument, and
I always listen to the argument. I think that I would
rather reserve judgment although my initial reaction is
I think it is probably better to start off with the two-year
period and see whether the job can't be done in two years.
I guess I still suffer from the fact that I came out
of the background of a practicing lawyer where, if you knew
you had to go to Court in the next year, you got something
done. When the Judge says, "Oh, Gee, you have two years,"
then you really got nothing done.
I think you really have to come to the basic
issue as to how you handle losing lines which are not part
of a national system. I don't think it is in the public
interest to handle that permanently by having a massive
federal subsidy. On the other hand, I think it does require
a lot of concern in the localities -- it is in keeping
with the Administration's position in other areas -- that
when you are dealing with something that affects the
localities it is the locality that has to make the determination,
and they have to make the judgment consistent with their
ability to raise the money.
Now that does not mean that in a program -- as we
have some time other places -- at times we do give some
federal help. But basically when you are dealing with
something which is not national in scope but is limited to
a community, affects their economic welfare, I think basically
the government should leave that to the locality. That does
not mean there may not be instances where it is in the
national interest to support it, and that is what I think
the debate is about.
Q
Will you tell us why neither New York nor
Ohio were represented at the meeting?
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- 11 -
SECRETARY COLEMAN: I think you better check with
them. As far as the Governor of New York, he sent a
telegram. As you know New York City, the State of New
York, has some serious budget problems, and that is the
reason why I think Governor Carey was not there. There
was another Governor that was not there, I know, because
he had a death in the immediate family. There was a third
Governor -- the Governor from Massachusetts was not there
because he has an active session of the legislature, but
he did send the Lieutenant Governor.
Q
Can you tell us what the Governor's telegram
said?
SECRETARY COLEMAN: Which one?
Q
Carey.
SECRETARY COLEMAN: I have not seen the telegram,
but I was informed he was not there and he did send a telegram.
GOVERNOR MILLIKEN: I did not know he did, but
I am sure it was a friendly one.
SECRETARY COLEMAN: It was a friendly one. He
indicated he had problems in New York, and with all due
respect, he could not get down here today. He would have liked
very much to have been nere.
THE PRESS: Thank you.
END
(AT 12:10 P.M. EDT)
CANNON MEMO FILE
THE WHITE HOUSE
WASHINGTON
June 17, 1975
ADMINISTRATIVELY CONFIDENTIAL
MEMORANDUM FOR
PHIL BUCHEN
THROUGH:
JIM CANNON
FROM:
MIKE DUVAL
FEDERAL Jun RAILROAD ADMINISTRATION,
SUBJECT:
SOLE SOURCE CONTRACT MATTER
I received a call today (6:00 p.m.) from a lobbyist I know in
town, concerning some sole source contracts let by the Federal
Railroad Administration. He advised me that FRA has given
four sole source contracts to a Virginia firm called ENSCO
Company, totalling $7 million.
The company was supposed to develop "track geometry instrumen-
tation" to gather data for a computer when a train rides over
the tracks. It is designed to indicate when, where and what
repairs are needed. According to my caller, the company has
failed on all four contracts.
I was also advised that the Administrator of FRA, Ace Hall,
has decided today to award a fifth contract to ENSCO Company,
again on a sole source basis.
According to the lobbyist, Senator Howard Baker has been strongly
pushing ENSCO with FRA because of his close relationship with
the company President. A competitor is expected to file com-
plaint concerning the fifth contract with GAO tomorrow.
I was asked by the lobbyist if I would alert Ace Hall to the
above information so that an embarrassing situation could be
avoided. I told him that I would not pass on any information
concerning a specific contract to the agency involved, but
rather would pass it to the Counsel's Office here at the White
House for whatever action they deemed appropriate.
COMMENT: I know Ace Hall well personally and have the highest
regard for his integrity and competence.
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"ocrText": "The original documents are located in Box 28, folder \"Railroads (1)\" of the James M.\nCannon Files at the Gerald R. Ford Presidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 28 of the James M. Cannon Files at the Gerald R. Ford Presidential Library\nTHE WHITE HOUSE\nWASHINGTON\nMarch 10, 1975\nMEMORANDUM FOR:\nWILLIAM I. COLEMAN, JR.\nWILLIAM E. SIMON\nALAN GREENSPAN\nJAMES T. LYNN\nFROM:\nL. WILLIAM SEIDMAN fws\nSUBJECT:\nTask Group on Northeast Rail\nRestructuring\nOn February 26, 1975 the U. S. Railway Association (USRA) published\nits Preliminary System Plan for restructuring the bankrupt railroads\nin the Midwest and Northeast. This document is intended to provide\na basis for public discussion of the Association's proposal, prior to\nsubmission of a Final System Plan to Congress by July 26, 1975.\nIt is now an appropriate time to evaluate the Preliminary System Plan\nand develop an Administration position on the major issues surrounding\nthe bankrupt railroads. Toward this end, the Economic Policy Board\nExecutive Committee has approved the establishment of an interagency\nTask Group composed of DOT, Treasury, CEA, OMB and EPB.\nSecretary Coleman will be Chairman of this group.\nThis group will begin to function immediately, in order to reach an\nAdministration position by April 26. That deadline coincides with the\ndate on which ICC must report the results of its public hearings on the\nPreliminary System Plan. Subsequently, the Administration position\nwill be circulated in the Executive Branch for final comments, and\nofficially presented to USRA on May 12. This will allow the Executive\nCommittee of USRA's Board a month and a half to consider our\nposition, before submitting its Final System Plan to the full USRA\nBoard on June 26.\nA broad range of questions should be addressed by the group, including,\nbut not limited to, the following:\nFORD is LIBRARY GERALD\n-2-\nWhat overall criteria should the Administration use for evaluating\nrail freight and passenger system proposals, in terms of capacity,\ncondition, service, private VS. public control, degree of inter-\nmodal and intramodal competition?\nOn the basis of these criteria, what is the most appropriate system\nstructure, and how do we get there? Some examples include:\n-\nLarge ConRail, with certain lines sold to solvent railroads\n(USRA's proposal in the Preliminary System Plan).\n-\nA \"bare-bones\" ConRail, considerably smaller than USRA's\nproposal, and conceivably more viable.\n-\n\"Controlled Transfer\" of bankrupt railroad assets to solvent\nrailroads (this alternative merits far more attention than\nUSRA gave it).\nHow should deferred maintenance of plant and equipment be\nfinanced? How can the level of Federal cost and control be\nminimized, while maximizing the financial viability of the new\nsystem?\nWhat incentives would help to assure that the restructured system\nworks efficiently and economically? What must be done to create\nsuch incentives?\nTo what extent would railroad financial problems respond to passage\nof rail regulatory reform, and overall improvement in the Nation's\neconomy?\nHow will U.S. policy toward non-rail modes influence the future\nrail system? For example, what would be the impact of currently\nproposed motor carrier regulatory reform on the railroads?\nI look forward to meeting with you to deal with these important and\ntimely issues.\nFORD & LIBRARY GERALD\nOf\nDEPARTMENTATION\nTHE DEPUTY SECRETARY OF TRANSPORTATION\nWASHINGTON, D.C. 20590\nUNITED STATES Of AMERICA\nMarch 24, 1975\nMEMORANDUM FOR HONORABLE WALTER D. SCOTT\nASSOCIATE DIRECTOR, ECONOMICS & GOVERNMENT\nOFFICE OF MANAGEMENT AND BUDGET\nSubject: Administration's Rail Program\nIn accordance with our discussions this morning, herewith the\nfollowing:\n(1) Proposed inserts for the draft Presidential Message.\n(2) An analysis of rail industry problems and the principles\nof our program.\n(3) Position papers on the two immediate issues:\n(a) subsidizing the interest rates on guaranteed loans;\nand\n(b) the proposed rail rehabilitation and employment\nprogram.\nWith respect to the third issue of this morning, the\nrolling stock management information system, if OMB\ninsists on deleting that provision from the RRA on the\nground that it is a new money program, we will not press\nthe issue for Presidential decision. We would suggest\ninstead that we delete the specific authorization of\n$15 million, but retain the language authorizing the\nprogram, which we would then fund under the regular\nDOT authorization.\nLet me know if you have any suggestions or need anything more.\nAttachments\nJohn San John W. Barnum\ncc: Honorable L. William Seidman\nHonorable James M. Cannon\nHonorable Michael Raoul-Duval\nDRAFT: 3/24/75\nProposed Inserts for Draft Presidential Message\n\"The rail industry in the United States is in a deeply troubled\nstate. Large parts of the rail plant are in a state of physical\ndeterioration. Some rails are in bankruptcy and others are on the\nbrink of financial collapse.\"\nThe facts are startling. Over one half of the rail track is\nunfit for normal operations. At any given time between 15 to 20% of\na typical railroad's main line tracks is subject to slow orders\nlimiting the maximum speed to 5 to 10 miles per hour. Deterioration\nof the rail plant is spreading at an accelerated rate and this is\ncalling into question the ability of the rail industry to provide\nessential services.\nTrack deterioration delays the safe shipment of both people and\ngoods. During the first ten months of 1974 there were nearly 7,000\ntrain derailments, a 15% increase over the same period in 1973. The\nslow transit times and unreliability of service is causing the erosion\nof the rail industry's share of intercity traffic.\nA crucial problem is the grossly inefficient use of the freight\ncar fleet. A typical freight car moves loaded only 23 days a year.\nRail cars represent over 50% of the rail industry's net capital\ninvestment. No other industry has such an inefficient utilization of\nits capital investment.\nRails are a vital national asset essential to the commerce and\ndefense of the country. Today railroads are being called on to play\n- 2 -\na key role in our energy conservation program. Railroads are a very\nenergy-efficient means of moving freight. Moreover, if we are to\nachieve the goals of PROJECT INDEPENDENCE, there must be a greater\nuse of coal. More than three quarters of all coal shipped from the\nU.S. mines moves by rail. PROJECT INDEPENDENCE calls for the doubling\nof coal production by 1985. As this goal is met, the railroads must\ndouble their coal-carrying capacity. The present financial condition\nof the rail industry will not permit that needed capital expansion.\nDRAFT: 3/24/75\nRail Industry Problems and the Principles of Our Program\nThe rail industry in the United States is in a deeply troubled\nfinancial and physical condition. Rate of return on investment for\nthe industry as a whole in a \"good\" year (such as 1974) is less than\n4%. Excluding the bankrupts, rate of return rises to only 5%. The\nindustry will show a loss for the first quarter of 1975.\nBecause of its low earnings, the rail industry is unable to\ngenerate sufficient funds for an adequate program of plant maintenance\nand rehabilitation. Funds from outside sources are virtually unavailable.\nAs a consequence of its perilous financial condition, the railroad\nindustry has not been able to put sufficient funds into its plant and\nthe rail plant is in a badly deteriorated condition. Over 50% of the\nrail plant is operating under so-called slow orders. During the first\nten months of 1974 there were a total of 6,961 derailments, up 15%\nabove the same period in the previous year.\nThe plant deterioration which characterizes the Northeast is\nspreading to the rest of the country at an accelerating rate. Because\nof inflation, a dollar's worth of improvement today will cost much more\nin the future. Moreover, failure to do necessary repairs now will\nnecessitate total rebuilding of lines in the future. Despite their\ndeteriorating condition and financial troubles, railroads remain the\nbackbone of the nation's freight transportation system, handling about\n38% of the ton-miles. In addition, the rail industry is an absolutely\nessential part of the solution to our environmental and engery problems.\nRails themselves are an energy-efficient mode of transportation.\n- 2 -\nMoreover, rails handle over 75% of all coal movements in this country.\nIf we are to lessen our dependence on imported oil, it is essential\nto have an adequate and efficient rail plant. Because of its deterio-\nrating condition, we are reaching a point where the rail industry's\nability to provide adequate service is increasingly being called into\nquestion. In addition, due to the disrepair of the rail system, much\nof the long-haul traffic which should be moving by rail is now moving\nby truck. A major rebuilding program of the rail system would move\nmuch of this long-haul traffic from less energy-efficient trucks to\nmore energy-efficient rails.\nCongress is becoming increasingly disturbed about the rail industry's\nproblem and there is a growing feeling in Congress that the only answer\nlies in nationalization or creation of a Rail Trust Fund. Legislation\nto nationalize the railroad rights-of-way has been introduced by\nSenators Hartke and Weicker. Brock Adams, a leading spokesman on rail\nmatters in the House, has publicly stated that serious consideration\nshould be given to such a proposal. Privately, many congressmen are\nsaying that the only solution to the rail industry problems lies in\nnationalization. They see themselves increasingly vulnerable to attack\nfor not solving the problem and for having applied band-aids in the form\nof emergency financial assistance to deal with it. Faced with the\nprospect of continuing financial crises in the railroad industry and\nthe need to pour more Federal money \"down the rathole,\" and in the\nabsence of a constructive alternative, Congress could seize nationalization\nas an easy out.\n- 3 --\nThe Department of Transportation has a program which we believe\nwill meet the railroad industry's problems with minimum Federal involve-\nment and will assure a viable private sector rail system in the United\nStates capable of meeting the commerce, energy and defense needs of\nthe country. The overall program we are proposing involves:\n1. Removal of a number of outmoded and inequitable regulations\non railroads. Changes in the regulatory system are an essential\ncondition to preventing future Penn Centrals and restoring the vitality\nof the railroad industry. They are also essential to assuring the\nviability of the railroad or railroads which emerge from the Northeast\nrail restructuring process.\n2. A consolidation and restructuring of the national rail system\nutilizing financial incentives and a new mechanism to bypass the\nregulatory impediments to rail acquisitions and joint use of facilities.\n3. Financial assistance to rehabilitate the essential elements\nof the national rail system including the Northeast.\n4. Bringing the Northeast rail restructuring planning process to\na successful solution consistent with the national program. This will\nresult in a paring down and rehabilitation of the bankrupt railroads\nin the Northeast.\n5. Recognition of the need for rail passenger service in certain\ncorridors and the public (and congressional) demand for such service in\nother markets.\nThis program is built on a number of unifying principles. First,\nrunning through the program is the notion that railroads are a vital\n- 4 -\nnational asset which are being poorly utilized. The first principle\nthen is the essentiality of recreating a healthy, progressive rail\nsystem.\nA second unifying element of the program is the recognition that\nrail plant deterioration is a major problem which the industry is unable\nto solve fully alone. The cost of rehabilitating the six bankrupt\nrailroads in the Northeast could be as much as $3 billion. The cost\nof rehabilitating a rationalized rail plant for the nation as a whole\nto a minimum level of adequate service is estimated at $7-9 billion.\nThe rail industry is simply incapable of generating either from internal\nor external sources all of the funds required to upgrade the plant to\neven minimal acceptable standards. The Regional Rail Reorganization\nAct, the financial assistance package of the Rail Revitalization Act,\nand the proposed Public Works Rail Employment Program are designed to\nassist the industry in rebuilding the plant to acceptable standards.\nWe do not propose that the Federal Government should fund all of the\nrailroad maintenance and rehabilitation expenditures. The financial\nassistance provided through the Revitalization Act and the Public\nWorks proposal, coupled with the regulatory reform, will provide the\nfoundation for the industry to become self-financing. Thus while the\nFederal financial assistance is only a portion of the overall expenditures\nrequired, it is a critical prerequisite for the industry to become self-\nfinancing.\nThe ICC is a major impediment to this disinvestment and plant\nrationalization. The interest subsidy and the \"ICC bypass\" of the\n- 5 -\nRail Revitalization Act provide incentives for the industry to rational-\nize the rail plant. The Act promotes this objective by encouraging\nrailroads to come forward with restructuring proposala, thus meeting\nthe Administration's goal of maximum reliance on private sector\ninitiative.\nFinally, another unifying principle running through the DOT program\nis the need for regulatory reform. The Act is designed to remove a\nnumber of regulatory restraints on carrier management. The present\nregulatory system has contributed enormously to the present railroad\nmalaise. Regulatory reform and the restructuring provided for in the\nAct are essential to avoid the spread of that malaise and to assure\nthat the railroads which emerge from the Northeast restructuring process\nand the Rail Revitalization Act restructuring process will be able to\noperate as viable private sector concerns.\nDRAFT: 3/24/75\nRail Revitalization Act Financial Assistance Provisions\nSubsidizing the Interest Rates on Guaranteed Loans\nOBJECTIVE: The proposal serves a twofold objective: (1) providing the\nrailroads access to the private capital market for funds to rehabilitate\nand improve the essential portions of the national rail system, and (2)\nincorporating an incentive to the industry to consolidate and restructure\nduplicate trackage, yards, terminals, and other facilities to produce\nover time a more efficient and rational national rail system.\nALTERNATIVE APPROACHES\nAlternative #1: Provides $2 billion in loan guarantees for obligations\nincurred to modernize and rationalize rail facilities. Before making\na guarantee, the Secretary would have to make certain findings which\nwould ensure that the loans were properly secured and were used to\ncreate a more efficient national rail system. The Secretary would\nalso have to ensure that the interest rate was reasonable, taking into\nconsideration loans of comparable risk.\nAlternative #2: Federally guaranteed loans with provision that the\nSecretary could pay whatever part of the interest he deems appropriate,\nwithin an authorization of $200 million per year for three years. He\nwould be required to make findings similar to those under the loan\nguarantee proposal in alternative #1. Further, as a condition for\nreceiving either a guarantee or payment of interest, the Secretary\ncould require applicant railroads to enter into joint agreements for\n- 2 -\ntracks, terminals, and other facilities and into agreements for purchase\nor sale of other assets and for mergers. Such agreements would not be\nsubject to ICC approval, but the Secretary would be required to hold a\nhearing before approving such an agreement. In addition, the Secretary\ncould not approve an agreement unless it achieved the transportation\nobjective in the least anticompetitive way.\nDOT RECOMMENDED APPROACH\nAlternative #2 should be chosen for the following reasons:\n1. Loan guarantees without incentive interest subsidies will not\nbe used by the rail industry. The industry simple cannot absorb any\nmore debt; it presently has $4.4 billion in outstanding debt with\ncurrent annual interest charges of approximately $184 million. Very\nshortly this debt will have to rolled over, and there will be an\nincrease in the interest rate. As a result, the annual interest will\nrise to $440 million with no added debt. This last interest figure is\narproximately equal to one year's earnings for the industry.\n2. Without the financial incentive provided by the interest subsidy,\nlittle consolidation and restructuring of the duplicative physical plant\ncan be achieved. Similarly, without a bypass of the ICC, there is little\nprospect for such rationalization occurring. The financial package\nproduces a means whereby the Secretary can, with financial incentives,\nshape the future restructuring of the industry to produce a rational and\nefficient system which will remain financially viable in the long term.\n- 3 -\n3. The immediate financial difficulties of the industry (probably\na large deficit for calendar year 1975) dictate the need for interest\nsubsidy. Without such subsidy, railroads will not use the financial\nprogram and we lose the opportunity to encourage and participate in\nthe needed restructuring. Without restructuring and additional invest-\nment, the rail system will continue to deteriorate at an accelerating\nrate, accidents will increase, and service efficiency will decline.\nInterest subsidy is the minimum required to prevent further financial\ndecline of the industry which could lead to eventual nationalization\nof the entire system.\n4. In the absence of an interest subsidy, the loan guarantee\nprovision will be described as useless by railroad management and labor\nalike.\nDRAFT: 3/24/75\nRail Rehabilitation and Employment Program\nOBJECTIVES: Program has a twofold purpose, (1) to stimulate employment\nof maintenance-of-way workers on the rail system and (2) to begin\nimmediately to rehabilitate the nation's rail system which is in a\nstate of accelerating deterioration.\nAlternative #1: Submit immediately the rail rehabilitation and employ-\nment program without relating it to other employment proposals.\nAlternative #2: Hold submission of a rail rehabilitation and employment\nprogram until we can determine (1) how it relates to (or could be used\nto defeat or decrease) other proposed employment programs and (2) the\nimpact of the Federal budget deficit.\nAlternative #3: Do not submit a rail rehabilitation and employment\nproposal.\nDOT RECOMMENDED APPROACH\nSubmit program proposal immediately to Congress as Administration's\nlegislative initiative for the following reasons:\n1. The program initiated by the Administration is a responsible\nalternative to the various public works type employment programs which\nmay be initiated by the Congress to meet the unemployment problem; in\nfact, the Department's proposal ties closely to similar bills intro-\nduced by Republican Congressmen recently and can serve as a rallying\n- 2 -\npoint for the Administration and the Republican members of Congress in\npresenting an imaginative and effective approach to the unemployment\nproblem.\n2. The program will add 20,000 direct jobs and 35,000 indirect\njobs to the work force during 1975, and 40,000 direct jobs and 70,000\nindirect jobs during 1976.\n3. Even without the national unemployment problem, there is a\ndesperate need for an immediate program to rehabilitate the main line\ntracks and essential yards of the nation's rail system. The rail\nsystem is in a state of accelerating deterioration which is crippling\nits ability to provide essential rail services. Because of the\nindustry's inadequate earnings, it has been unable to make needed\nimprovements and maintenance in the rail plant. Approximately $1.1\nbillion of annual catch-up maintenance is required simply to arrest\nfurther deterioration. An additional $1 billion per year annually\nis required to bring the system back to efficient operating condition.\n4. To fail to take action at this time simply ignores the\ndesperate need for rail rehabilitation and the present unemployment\nproblems, leaving the initiative to forces outside the Administration.\nBecause af Preliminary System Plan issued 7e026\nFACTS\nRail service in Dowagrac llich line available\nunder was resumed IV by marking subsidgeing the\nthe Titte Xut of\nRegimal Rail Reorganization Act. of\n1993 The Act 1592 year program\nand is 70% Fed 30% State.\nBACKGROUND\nline divided between Buchanam/Dowag giac was\n(1) Portion betw / Niles & Dowagiac - included in contail\n(2) height service betw Buchanan & niles- dependent an AMTRAK\n(3) Shippers in Dowagaic will receive\nroutes for sorting freight\nfreight service by resonting\nOperationally Dermice its litter { overall\n(4) Continual 20 passenger revince up\nBERALD R. FORD\nto AMTRAK\nSPECIAL NOTE\navailable System for subsidy in Mich. than any other state\nPrelim Plan mailes more rail mileage in\nSuProposals to change the program.\nResponse of the States to subsidy program is uneuer\nMEMORANDUM\nApril 3, 1975\nTo: James Cannon\nFrom: Allan Schimmel\nSubject: Dowagiac Rail Service\nUnder the Preliminary System Plan USRA issued on February\n26th, rail service in Dowagiac would have been ended unless subsidized\nunder Title IV of the Regional Rail Reorganization Act of 1973. As\nthe Duval memo indicates, this is a 70/30 Federal/State split. The\nAct provides for a two year subsidy program.\nAt the request of shippers and Michigan DOT the line between\nBuchanan and Dowagiac was subsegmented. On March 14, USRA announced\nthat the portion of the line between Niles and Dowagiac was economically\nviable and would be included in ConRail. Continuation of freight service\nbetween Buchanan and Niles is dependent on Amtrak taking over the line\nand bearing the primary rehabilitation and maintenance cost.\nThese factors must be taken into account:\nFirst: This so-called Chicago-Detroit Penn Central line\nhas not been a freight main line for several years. It has had only\nlocal freight service. Because of the location of the efficient Elkhart,\nIndiana classification yards, efficient operational requirements are such\nto make resumption of mainline freight service uneconomical.\nSecond: Shippers in Dowagaic will receive freight service\nas the result of the March 14 decision. Freight moving from Dowagiac will\nmove to Niles, then south to Elkhart for sorting going East or West.\nOperationally, this will provide better service. Today, all freight\nmoving West from Dowagiac is already going to Elkhart to be sorted. Freight\ngoing East from Dowagiac will move faster going back to Niles, then South\nto Elkhart. Why? Because, if it went to Kalamazoo, it would then go\nSouth to Elkhart to be sorted, taking another day.\nAs a result, our operations people believe that Dowagiac will\nhave adequate rail service. They contend that the absence of service\nbetween Dowagiac and Kalamazoo will not diminish the quality of freight\nservice being received today. In addition, service on the Kalamazoo-\nDowagiac line could also be continued under the subsidy provisions of the\nAct. The continuation of passenger service is up to Amtrak.\nFORD is LIBRARY GERALD\nIn 1973, the Dowagiac-Kalamazoo line lost $207,699.\nLet me add one final thought, Regrettably, but true, the\nAssociation's Preliminary System Plan makes more rail mileage \"available\nfor subsidy\" in Michigan than in any other State. Continued service on\nthe nearly 1,250 miles of track so designated in Michigan is dependent\non the State's willingness to participate in the subsidy program. Of\ncourse, the State would set its own priorities and might not choose to\nsubsidize all of those miles. If it did, however, the total subsidy\ncost would be $7,593,895. The Federal share would be $5,315,726 - the\nState share, $2,278,169.\nThere are proposals to change the subsidy program. The New\nEngland Caucus has suggested a 90% Federal/10% State split as well as\nan extension to 5 or 8 years of the program. A group of large shippers\nhas proposed that the Federal government pick up the entire subsidy cost\nfor the first two years and that a sliding scale of Federal support be\nprovided thereafter. The total cost of the subsidy program for the\nfirst year is about $40 million. Peanuts, really. It is quite true that\nthe response of the States to the subsidy program is uneven, The States\nare not anxious to start funding a new program, especially since so many\nin the Region are \"broke.\" One State, Ohio, has a constitutional problem.\nTherefore, the obvious rationale for 100% Federal subsidy for two years,\naccording to its proponents, is to give the States additional time to\nstep up to their responsibilities, particularly in light of the relatively\n\"small\" dollars involved.\nHope this is helpful.\nP.S. A more complete description of the subsidy program is enclosed.\nGERALD\nMEMORANDUM\nApril 3, 1975\nTo: James Cannon\nFrom: Allan Schimmel\nAS\nSubject: Dowagiac Rail Service\nUnder the Preliminary System Plan USRA issued on February\n26th, rail service in Dowagiac would have been ended unless subsidized\nunder Title IV of the Regional Rail Reorganization Act of 1973. As\nthe Duval memo indicates, this is a 70/30 Federal/State split. The\nAct provides for a two year subsidy program.\nAt the request of shippers and Michigan DOT the line between\nBuchanan and Dowagiac was subsegmented. On March 14, USRA announced\nthat the portion of the line between Niles and Dowagiac was economically\nviable and would be included in ConRail. Continuation of freight service\nbetween Buchanan and Niles is dependent on Amtrak taking over the line\nand bearing the primary rehabilitation and maintenance cost.\nThese factors must be taken into account:\nFirst: This so-called Chicago-Detroit Penn Central line\nhas not been a freight main line for several years. It has had only\nlocal freight service. Because of the location of the efficient Elkhart,\nIndiana classification yards, efficient operational requirements are such\nto make resumption of mainline freight service uneconomical.\nSecond: Shippers in Dowagaic will receive freight service\nas the result of the March 14 decision. Freight moving from Dowagiac will\nmove to Niles, then south to Elkhart for sorting going East or West.\nOperationally, this will provide better service. Today, all freight\nmoving West from Dowagiac is already going to Elkhart to be sorted. Freight\ngoing East from Dowagiac will move faster going back to Niles, then South\nto Elkhart. Why? Because, if it went to Kalamazoo, it would then go\nSouth to Elkhart to be sorted, taking another day.\nAs a result, our operations people believe that Dowagiac will\nhave adequate rail service. They contend that the absence of service\nbetween Dowagiac and Kalamazoo will not diminish the quality of freight\nservice being received today. In addition, service on the Kalamazoo-\nDowagiac line could also be continued under the subsidy provisions of the\nAct. The continuation of passenger service is up to Amtrak.\nIn 1973, the Dowagiac-Kalamazoo line lost $207,699.\nLet me add one final thought, Regrettably, but true, the\nAssociation's Preliminary System Plan makes more rail mileage \"available\nfor subsidy\" in Michigan than in any other State. Continued service on\nthe nearly 1,250 miles of track so designated in Michigan is dependent\non the State's willingness to participate in the subsidy program. Of\ncourse, the State would set its own priorities and might not choose to\nsubsidize all of those miles. If it did, however, the total subsidy\ncost would be $7,593,895. The Federal share would be $5,315,726 - the\nState share, $2,278,169.\nThere are proposals to change the subsidy program. The New\nEngland Caucus has suggested a 90% Federal/10% State split as well as\nan extension to 5 or 8 years of the program. A group of large shippers\nhas proposed that the Federal government pick up the entire subsidy cost\nfor the first two years and that a sliding scale of Federal support be\nprovided thereafter. The total cost of the subsidy program for the\nfirst year is about $40 million. Peanuts, really. It is quite true that\nthe response of the States to the subsidy program is uneven. The States\nare not anxious to start funding a new program, especially since so many\nin the Region are \"broke.\" One State, Ohio, has a constitutional problem.\nTherefore, the obvious rationale for 100% Federal subsidy for two years,\naccording to its proponents, is to give the States additional time to\nstep up to their responsibilities, particularly in light of the relatively\n\"small\" dollars involved.\nHope this is helpful.\nP.S. A more complete description of the subsidy program is enclosed.\nTHE WHITE HOUSE\nWASHINGTON\nMarch 20, 1975\nMEMORANDUM FOR\nJIM CANNON\nFROM:\nMIKE DUVAL\nA\nSUBJECT:\nRAIL SERVICE IN DOWAGIAC, MICHIGAN\nThis is in response to the inquiry by Herbert Phillipson, Jr.\nThe section of track between Dowagiac and Buchanan (20.9\nmiles) is part of the Chicago to Detroit line and is inter-\nsected near its middle, at Niles, Michigan, by the South\nBend Secondary track between South Bend, Indiana and Benton\nHarbor, Michigan. (See attached map.)\nRail service in this area is covered by the United States\nRailway Association Preliminary System Plan, which was\nissued on February 26. These railroads are in bankruptcy\n(Penn Central plus six others) and under the applicable\nstatutes, certain low-density, uneconomical lines should\nbe dropped. In its Plan, USRA excluded the entire Dowagiac\nto Buchanan segment. Subsequently, however, they added\nthe Dowagiac to Niles segment after rerunning the traffic\nnumbers through their computer. As a result, the only seg-\nment that would not be included in the new railroad service\n(called CONRAIL) would be the segment between Niles and\nMichigan City via Buchanan.\nThis is under continued review and should the line appear\nprofitable, it will be recommended for inclusion in CONRAIL.\nIf Amtrak retains the route for passenger service and assumes\nresponsibility for track maintenance, that will also result\nin its inclusion. If the line does not appear profitable\nand Amtrak does not pay for the maintenance, then under\nTitle IV of the Regional Rail Reorganization Act, the line\nwould be made = available for subsidy \" by the State\nof Michigan. If the State elects to provide such subsidy,\nit can get Federal assistance up to 70 percent for two years.\nThereafter, the State or the users would have to pay for the\nsubsidy.\nFORD & GERALD LIBRARY\n2\nNo\nthe line is dropped, then through freight and passenger\nfut\nservice can be routed south at Niles to South Bend (7.1 miles)\nat\nthe present Penn Central main line between Chicago and\nNew York.\nThe Rail Services Planning Office of the Interstate Commerce\nCommission has scheduled public hearings on the USRA Prelim-\ninary System Plan in Lansing, Michigan, from March 17 to 21.\nThe hearings will be held in the City Council Chambers at\nCity Hall.\nUltimately, of course, Congress must approve the System's\nPlan as a result of the process referred to above. Based\non the merits of the case, I think there is a fairly good\nchance that the segment will be included, and thus I recom-\nmend we let the existing procedures run their course. I\nwill keep you advised as decisions are made.\nGERALD FORD LIBRART\nPresent PENN CENIRAL nourse\n- -\n-\n/\nAND\n/\nChicago\nMichigan CITY\nBuchanan\n*BENTON Harbor Dowagiac KALAMAZOS\nJACKSON\nDETraiT\nTo Buffalo\n- - the am ase we - NILES\nSouth\nElkhart\nBENd\n(P.C. MAIN LINE Chgo. To N.Y.)\n-TOLEdo\nTo NEW York\nINcludEd iN CON- RAIL\nI\nGERALD\nUnder going Further ANALYSIS\nA\nLISTARY FORD\n#4\nThe Rail Service Continuation Subsidy Program\nTitle IV, Regional Rail Reorganization Act\nThe Interstate and Foreign Commerce Committee Report on the\nRegional Rail Reorganization Act of 1973 states:\n\"The Committee recognized the necessity for slimming down\nthe system - allowing the Northeast system to throw off the excess\ntrack in an effort to become profitable. It recognized the need for safe-\nguards for small areas, to be able to continue essential service which\nis not economical to the carrier. This was recognized as a social cost\nto be borne by the government. \" (House Report 93-620, PP 28-29.)\nUnder Title IV the means through which the \"social cost borne by\nthe government,\" to continue \"essential service\" is provided. Calling\nfor joint Federal/State cost sharing, a mechanism is provided whereby\nservice can. at the option of the State, be continued on light density\nlines not included in the restructured system.\nRail Service continuation subsidies can be used to cover the \"costs\nof operating adequate and efficient rail service, including, where\nnecessary improvement and maintenance of track and related facilities\"\n(Section 402(j)). The Federal government share of the subsidy for any\nlight density line is 70%, with State and/or local government shippers\nputting up the remaining 30% of the cost.\nThe Act (Section 401(a)) states that rail service continuation subsidies\nshould be used where \"the cost to the taxpayer of rail continuation\nsubsidies would be less than the cost of abandonment of rail service in\nterms of lost jobs, energy shortage, and degradation of services.\"\nOf the nearly 9,800 estimated miles of active lines under study\nit appears that 4,000 miles will be recommended for inclusion in the\nrestructured system. This means that about 5,800 miles are available for\n-2-\nparticipation in the rail service continuation susbsidy program.\nThe Act authorizes $90 million for each of two years to meet the\nFederal share of the 70% subsidy cost. If matched completely by the State,\nnearly $130 million would be available for the subsidy program.\nIt appears now, however, that the total cost of continuing service\non all of the light density lines not included in ConRail will not exceed\n$70 million. It could be lower. This means that the Federal share would\nnot exceed $49 million, with the States' share for the entire region\nstanding at $21 million.\nUnder the Act, the Rail Services Planning Office (RSPO) has the\nresponsibility as outlined in Section 205 (d) (4) to:\n1:\nassist State and local and regional transportation authorities\nin making determinations whether to provide rail service continuation sub-\nsidies to maintain in operation particular rail properties by establishing\ncriteria for determining whether particular rail properties are suitable\nfor rail service continuation subsidies. Such criteria should include\nthe following considerations: Rail properties are suitable if the cost\nof the required subsidy per year to the taxpayers is less than the cost\nof termination of rail service over such properties measured by increased\nfuel consumption and operational cost for alternative modes of transpor-\ntation; the cost to the gross national product in terms of reduced output\nof goods and services; the cost of relocating or assisting through\nunemployment, retraining, and welfare benefits to individuals and firms\nadversely affected thereby, and the cost to the environment measured by\ndamage caused by increased pollution. \"\nThe rail service continuation subsidy program is to be administered\nby the Department of Transportation. In order to become eligible a State\nmust undertake to meet the requirements Congress set forth in Section\n402 (c) of the Act. They are:\n\"\n(1) The State has established a State plan for rail trans-\nportation and local rail services which is administered or coordinated\nby a designated State agency, and such plan provides for the equitable.\ndistribution of such subsidies among State, local, and regional trans-\nportation authorities;\nGERALD FORD\n-3-\n(2) the State agency has the authority and administrative\njurisdiction to develop, promote, supervise, and support safe, adequate,\nand efficient rail services; employs or will employ, directly or indirectly,\nsufficient trained or qualified personnel; and maintains or will maintain\nadequate programs of investigation, research, promotion, and development\nwith provision for public participation;\n(3) the State provides satisfactory assurance that such\nfiscal control and fund accounting procedures will be adopted as may be\nneccesary to assure proper disbursement of, and accounting for, Federal\nfunds paid under this Title to the State; and\n(4) the State complies with the regulations of the Secretary\nissued under this Section.\nUnder this Act, the Association does not have a role in determining\nwhich lines should be subsidized. Indeed, the needed planning and decision\nmaking process is clearly in the hands of the State. Nevertheless, the\nAssociation has taken certain steps which may provide assistance to the\nState and local governments.\nA handbook has been prepared for use by State and local agencies which\ndescribes detailed procedures which can be used to estimate the effects\nof the removal of a branch line on the community so as to help it reach\na conclusion as to whether or not a line should be subsidized. The manual\nis being distributed throughout the region.\nAlthough Congress initially limited the subsidy program to two years,\nlegislation may be introduced this year to extend that time period. In\naddition, the response from the States to the subsidy program to this point\nhas been uneven, to say the least. Through the RSPO hearings and other comments\nand evaluations of the Preliminary System Plan, Congress may want to\nconsider changes in the subsidy program to ensure that needed, but\nuneconomic service can be provided to fulfill the purpose of Title IV of\nthe Act.\nGPO 886-161\nTHE WHITE HOUSE\nWASHINGTON\nApril 12, 1975\nMEETING WITH AMERICAN RAILROADS\nASSOCIATION BOARD OF DIRECTORS\nMonday, April 14, 1975\n2:00 p.m. (30 minutes)\nCabinet Room\nFrom: Jim Cannon June\nI.\nPURPOSE\nThe meeting was requested by the Railroad Association\nand Secretary Coleman so that the railroad presidents\ncan brief you on the critical condition of American\nrailroads. They will present specific recommended\nprograms to correct the problems they face.\nII.\nBACKGROUND, PARTICIPANTS AND PRESS PLAN\nA. Background\nOn February 18, you met with two of the railioad\npresidents present at this meeting (Ben Biaggini,\nSouthern Pacific, and Graham Claytor, Southern\nRailroad) at a meeting here in the Cabinet Room\nwith six transportation industry leaders on the\nsubject of your energy program.\nCritical Need for the Railroads\nMost freight is transported by the railroads.\nThe following is a breakdown for all freight\nin ton miles transported:\nRailroads\n38%\nMotor carrier\n23%\nInland waterways\n16%\nPipelines\n22%\nAir\n1%\nRailroads carry the following amounts of selected\nproducts produced in this country:\nLumber and wood\n78%\nPulp and paper\n71%\nAutomobiles\n70%\nFood\n66%\nPrimary metals\n60%\n2\nRailroads transport 70 percent of the coal\nproduced, utilizing 81 percent of the Nation's\nmainline tracks. If coal production doubles,\nthe railroads will have to triple the ton miles\nof coal they carry because of increases in the\nneed for western coal. This will involve over\n90 percent of the railroad mainline network.\nCritical Problems\nOver one-half of the trackage in the country\nis unfit for high-speed operations. For safety\nreasons, trains are operating under Federal\n\"slow orders\" on nearly 50 percent of their\ntracks and at speeds under 10 mph for 20 per-\ncent of the tracks.\nAccidents and derailments have nearly doubled\nsince 1967.\nBecause of inefficient equipment and operating\nmethods, a typical freight car moves loaded only\n23 days a year.\nThe railroads are in very bad financial condition.\nEight Northeast and Midwest railroads are bank-\nrupt (including Penn Central), the so-called\nGranger roads in the Plains States are in pre-\ncarious financial condition; average, industry-\nwide rates of return are 3 percent or less; and,\nthey just had the largest quarterly deficit in\nrail history. This dismal financial condition\nis the result of:\n1) Outdated government regulation\n2) Archaic work rules\n3) Government subsidies to competing\nmodes\nThese have resulted in the critical problem of\nredundant facilities and excess competition.\nCongressional Reaction\nSenators Hartke and Weicker have introduced legis-\nlation to nationalize the railroad rights-of-way.\nHumphrey and Brock Adams have indicated interest\nin this approach.\nSenator Randolph plans to introduce a bill to\nprovide $1 billion to upgrade the rail rights-of-\nway and there are similar bills (e.g., Buckley --\n$2 billion) which have already been introduced.\nFORD is LIBRARY GERALD\n3\nAdministration Plans and Proposals\nThe Regional Rail Reorganization Act is being\nimplemented by DOT, ICC and the United States\nRailway Association (USRA). This is designed\nto salvage the Penn Central and the other bank-\nrupt railroads.\nYou will soon send to the Congress the Rail\nRevitalization and Energy Transportation Act\nof 1975. This proposal is in your FY 1976\nbudget and only a few details need to be\nresolved. It is nearly identical to legisla-\ntion proposed last year which nearly passed.\nIt contains:\n- $2 billion in loan guarantees for\nstreamlining and plant improvements.\n- significant regulatory reform.\nSecretary Coleman has proposed a $1.2 billion\nrailroad rehabilitation program. This is under\nactive review by Domestic Council and OMB. A\ndecision paper should be ready for you in about\na week.\nSee Tab A for additional background provided by\nSecretary Coleman.\nB. Participants\nTwenty railroad presidents, comprising the Board\nof Directors of the American Railroads Association.\nSecretary Coleman will be present. See Tab B for\nlist of participants. Secretary Coleman, Mr. Lynn & Cannon.\nC. Press Plan\nMeeting to be announced; press photo.\nIII. AGENDA AND TALKING POINTS\nAfter thanking the railroad presidents for coming,\nyou may wish to turn the meeting over to Secretary\nColeman.\nSecretary Coleman will also welcome the railroad\npresidents and will then ask Ben Biaggini to pre-\nsent their recommendations.\nBiaggini will cover the problems and potential\nremedies for the railroads. This will include\nFORD is LIBRARY\n4\nthe costs imposed on the railroads by government\nregulation and policies. He will seek financial\nassistance, tax and regulatory reform.\nWe recommend that you advise them that you will\nsoon be sending to the Congress the Rail Revitaliza-\ntion and Energy Transportation Act, containing the\n$2 billion in loan guarantees and regulatory reform.\nWe recommend that you make no commitment at this time\non the $1.2 billion railroad rehabilitation program\nunder consideration within the Administration.\nOF\nDEPARTMENT\nTHE SECRETARY OF TRANSPORTATION\nUNITED\nWASHINGTON, D.C. 20590\nAMERICA\nSTATES\nOf\nApril 11, 1975\nThe President\nThe White House\nWashington, D. C. 20500\nDear Mr. President:\nAttached in this package is material intended to help\nyou prepare for our meeting with the 20 railroad\npresidents who comprise the Association of American\nRailroads and their president, Stephen Ailes. Included\nin this package are:\n1. The Outline for Discussion prepared by the staff\nof the Association of American Railroads. Mr.\nBen Biaggini, President, Southern Pacific Railroad,\nwill talk from the points outlined here.\n2. Questions intended to stimulate discussion.\nHowever, I doubt seriously that you will have\nto use them.\n3. A backgrounder which I call \"The Crisis of the\nNation's Railroads\" which briefly brings us up to the\npresent time in our current initiatives.\nRespectfully,\nBul\nAttachments\nOUTLINE FOR DISCUSSION OF THE PRESIDENT\nWITH THE RAILROAD PRESIDENTS\nMONDAY, APRIL 14, 1975\nThis discussion paper was developed by the Staff of the American\nAssociation of Railroads.\nI. The railroad freight system has an important role to play in the\nlong-term future. The basic technology remains relevant and is\nimproving rapidly; in an unbiased economic environment, it can survive\nand prosper. Expansion of rail capacity to meet expanding national\nneeds is much cheaper than is the case with trucks and water carriers.\nFinally, energy, environmental, safety and land use considerations\nstrongly argue for a national policy of increased reliance on rail in\nthe years ahead.\nII. The rail system will be with us -- the issue is will it continue\nim private operation or will it have to be nationalized to be preserved.\nThe costs of nationalization are so large, the administrative burdens on\ngovernment are SO severe, and the probability that operating efficiency\nwould seriously decline is so great that almost everyone agrees that the\nsystem should remain as a private enterprise.\nIII. Railroads face one major overriding problem -- inadequate earnings.\nThe earnings are depressed by:\nA. The main burdens placed on the railroad system by the\ngovernment include:\n(1) Cost of rate regulation ($500 million per year)\n(2) Losing branch line operations ($130 million a year)\n(3) Remaining passenger deficit ($107 million a year)\n(4) Property taxes paid on rights-of-way ($203 million a year)\n(5) Grade crossing costs ($173 million a year)\n(Estimated rail revenue losses -- $1.1 billion\nper year)\n- 2 -\nB. Effects of subsidy to rail competitors\n(1) Inadequate user charges on large trucks ($2 billion a year)\n(2) No user charges on water carriers ($500-$750 million\na year)\n(Estimated rail revenue losses -- $2.5-$2.75 billion\nper year)\nIV. Inadequate earnings over a long period have meant deferral of\nrailroad expenditures for track maintenance, new equipment and plant\nmodernization. These deferrals, in turn, have meant a deterioration of\nservice, a decline in the ability to compete, and a further decline in\nearnings -- a vicious circle.\nV. Remedy ---\na. Immediate\n(1) Usable financial assistance to break the vicious circle\nand improve plant, improve service and improve the\nability to compete.\n(2) Regulatory reform - particularly in ICC rate powers.\n(3) Termination of state taxation of rights-of-way with\nFederal payments to states to replace revenues lost\nthis way.\n(4) Effective abandonment machinery, except where subsidy\nis available to keep branch lines in operation.\n(5) Immediate initiation of independent analyses to determine\nextent of subsidy to rail competition, plus measures to\nlessen subsidy in interim --- at least to halt its\nincrease.\n(6) More favorable Federal tax policies on investment tax\ncredits, accelerated amortization and depreciation of\nexisting rail grading and tunnel bores.\nb. Longer Range\n(1) Correction of the competitive imbalance -- by imposition\nof adequate user charges or by offsetting subsidy or both.\nQuestions Concerning Railroads' Materials\nfor Meeting With President Ford, April 14, 1975\n1. The Administration proposed a regulatory reform bill\nin the last Congress, and the House passed a comprehensive\nmeasure. The Senate failed to act on the bill, in part,\nbecause of a lack of interest by the railroad industry.\nWill the railroad industry actively support the Administration\nin an effort for regulatory reform?\n2. A request is made for \"usable financial assistance\" to\nimprove plant and service. What type of assistance is\nusable, i.e., grants, loans, loan guarantees, deferred interest?\n3. Can you detail the revisions in tax policies requested\nand the revenue cost to the Government?\n4. To correct \"competative imbalance\", what are the scope\nand extent of user charges that should be imposed?\n5. Will the railroad industry cooperate in a program to\nlessen unnecessary capacity in the industry through joint\nuse of facilities and mergers?\n6. Present subsidies to competeting modes are for public\nfacilities. For direct subsidies to the railroad industry,\nis it necessary that the government own and maintain the\nrai lroad right-of-way?\n7. If Federal tax policies are made more favorable, how\ncan we insure that the resulting monies are put into rail\nproperty investments?\n8. Should user charges be designed to promote intermodal\ntransportation services such as piggy-back services?\n9. Should user charges be tied to intercity freight service\nsuch as long haul trucking and waterways services.\n- 3 -\nVI. Once, with Federal assistance, present difficulties are overcome,\nonce the regulatory climate is made conducive to successful operation,\nonce the competitive situation is brought in balance, the railroad\nsystem, privately owned and operated, already the world's most efficient,\nwill play an increasingly important role in the national transportation\nsystem.\nOF\nDEPARTMENT\nC\nTHE SECRETARY OF TRANSPORTATION\nWASHINGTON, D.C. 20590\nONLITED\nA-ARRICA\nSTATES\nof\nMEMORANDUM FOR THE PRESIDENT\nSUBJECT:\nThe Crisis of the Nation's Railroads\nMr. President, as your principal advisor on transportation matters,\nI feel compelled to convey to you my sense of the desperate plight\nof the Nation's railroads. The state of the rail industry today\nnot only endangers any prospect of economic growth in this country\nbut also imperils our important national objective of energy\nindependence. There is a growing mood in Congress that the only\nanswer to the crisis of the railroads is some form of nationalization.\nI believe that a private sector solution is possible if we move\nquickly. There is an urgent need for action. Therefore, I respect-\nfully urge you to undertake a dramatic, coordinated program to\nrevitalize the Nation's private enterprise raiiroad system.\nThe crisis of the American railroad industry presents this Administration\nnot only with a grave problem but also with a great opportunity. If\nyou can put into effect, Mr. President, a program to save the rail-\nroads, it will have an historic significance equal to that of any other\nendeavor upon the domestic scene. From a political standpoint, I\nbelieve it provides an unparallelled opportunity for the Administration\nto seize the initiative from Congress.\nThe Importance of the Railroad Industry\nFor more than a century the railroads have been the backbone of this\nNation's transportation system. Even after years of decline, railroads\nstill carry 38 percent of all freight (in ton miles), easily exceeding the\n23 percent transported by motor carrier and the 16 percent moved via\ninland waterway. Railroads carry 70 percent of the automobiles\nproduced in this country, 66 percent of the food, 78 percent of the\nlumber and wood, 60 percent of the chemicals, 60 percent of the\n2.\nprimary metal products, and 71 percent of the pulp and paper. If\nthe Nation is to realize its economic growth potential during the\nremainder of the twentieth century, the railroads must be in a\ncondition to move quickly and safely significantly increased freight\nvolumes.\nMoreover, a healthy railroad industry is crucial to the energy needs\nof this country. The railroads must play the predominant role in\nsupplying the Nation with coal during the remainder of this century.\nThe railroad industry transports 70 percent of the coal produced in\nthis country, a task involving approximately 81 percent of its\nmainline network. Your Project Independence, to make the Nation\nself-sufficient in energy, envisions a doubling of domestic coal\nproduction by 1985. To meet this goal, railroads will be required to\ndouble their coal-carrying capacity. Actual ton miles of coal\ncarried by rail, however, must triple due to changes in origin from\neastern coal to low-sulphur western coal. This would necessitate coal\nshipments over 90 percent of the railroad mainline network. Greatly\nimproved railroad service is, therefore, essential to the development\nand use of coal for energy. In addition, rail transportation is the\nmost energy efficient of all the modes, both freight and passenger.\nWith regard to freight transportation, our research indicates that\nrailways are significantly more energy efficient than trucks, their\nubiquitous competitor, or airlines, and slightly more efficient than\neven barge movement. As for passenger service, our research\nindicates that railroads, when properly utilized, are substantially\nmore energy efficient than either autos or airlines in moving\npassengers and are approached in efficiency only by intercity bus.\nIn summation, a healthy, progressive, strengthened railroad system\nis absolutely essential to our national objective of energy independence.\nThe Problem Facing the Railroad Industry\nGiven the paramount importance of the railways in both the past and\nfuture of this country, it has been alarming for me, during my first\nmonth on the job, to discover the dilapidated state of the railroad\nindustry. The facts are startling. Over one half of the present rail\ntrack in the country is unfit for high-speed operations. It is not\nuncommon for train operations on mainline tracks to be limited to\nspeeds of 10 to 20 miles per hour. Accidents and derailments have\nnearly doubled since 1967. Because of outdated equipment and methods\n3.\nand the resultant inefficiency, a typical freight car moves loaded only\n23 days a year. It is becoming increasingly apparent that the rail\nindustry, as presently constituted, will be manifestly unable either\nto support the traffic our economy generates or to meet the challenge\nof increased coal carriage which energy independence demands.\nFor many years now the income generated by the American railroads\nhas been insufficient to meet the requirements of plant maintenance and\nrehabilitation, and with rates of return of 3 percent or less, funds from\noutside sources are virtually unavailable. The deferred maintenance\nin the industry is now estimated to range as high as $7. 5 billion.\nAlthough the problems of railroads are most severe in the Northeast\nand Midwest (where eight carriers are bankrupt), numerous other\nrailroads, especially the so-called Granger roads that operate in\nthe Plains states, are in precarious financial condition. The massive\nproblems of the railroad industry are most recently aggravated by the\nlargest quarterly deficit in rail history. Today the United States is\nconfronted with the grim reality that a major breakdown of our rail\nfreight system is a distinct possibility.\nIt is important that the underlying causes of the railroad problem be\nclearly understood. A great deal of the discussion on this subject is\nfocused on the poor condition of mainline track and on the bankruptcies.\nThese are symptoms but not the underlying causes of railroad difficulty.\nThe principal factors underlying railroad difficulty are: (1) Redundant\nfacilities and excess competition; (2) Outmoded regulation; (3) Archaic\nwork rules; (4) Lack of capital to finance rehabilitation; and (5)\nPreferential treatment of other modes.\nPerhaps the principal factor underlying railroad problems is the\nredundancy of plant and the excess competition which exists within\nthe industry. This is especially true in the Northeast and Midwest\nand, as a result, these are the areas where railroad problems are the\nworst. There are simply more facilities of all types -- yards, mainline\ntracks, and branch lines -- than are required to provide economical\nand efficient service. In many instances, two or more railroads\ncompete for traffic sufficient only for the survival of one carrier.\nSecondly, slow and cumbersome regulatory procedures impede\nresponses to competition and changes in market conditions and at\ntimes result in traffic being handled at non-compensatory rates. These\nprocedures also have created a serious impediment to needed\n4.\nrestructuring. Regulation that was necessary when it was enacted\ndecades ago is simply unresponsive to today's needs. This\ninflexibility stemming from Interstate Commerce Commission\nprocedures and rules is a major deterrent to railroad efficiency\nand viability. For instance, after 12 years, the attempt to restructure\nthe Rock Island Railroad through merger with other carriers is still\nincomplete.\nThird, the existing work rules in the industry are a major obstacle\nto achievement of economic potential in the railroad system. Archaic\narrangements regarding the size of the crews that man trains and\nproviding for crew payment on an illogical basis weigh heavily upon\nthe industry and severely limit productivity.\nFourth, lack of capital and the resultant deferred maintenance has\ncaused widespread deterioration of mainline track and other parts of\nthe railroads' physical plant. Clearly there is a need to rehabilitate\nthe essential portions of the industry's physical plant -- but that\nrehabilitation will be effective in revitalizing the railroads only if\nthe burdens of redundant facilities, regulatory constraints, and\ncostly work rules are also alleviated.\nFinally, there has been, over the years, preferential treatment of the\nother transportation modes by the Federal Government. Only the\nrailroads (with the exception of the pipeline companies) own their own\nrights-of-way and have to carry the fixed charges of ownership and\nmaintenance of this extensive plant.\nThe Congressional Reaction\nThere is a great deal of pressure building in Congress for a solution\nto the railroad problem, and there is growing feeling on the Hill that\nthe only answer lies in some form of nationalization. Faced with the\nprospect of continuing crises and the necessity of providing more and\nmore Federal money, there is an understandable desire to ensure that\nthe American public receives something in return for its heavy investment.\nIn the absence of a constructive alternative, Congress may indeed turn to\nnationalization. Senators Hartke and Weicker have introduced legislation\nto nationalize the railroad rights-of-way, as has Senator Humphrey, and\nBrock Adams, a leading spokesman on rail matters in the House, has\npublicly stated that serious consideration should be given to such a\nproposal. Privately, many other Congressmen and Senators are\n5.\nsaying that the only solution to rail industry problems lies in\nnationalization. In any event, Congress has already seized upon the\nobvious problem of deteriorating track and roadbed as an interim\nmeans of improving the railroad situation as well as an opportunity\nto take the political initiative. Senator Randolph intends to introduce\na bill to provide for a $1 billion program for upgrading rail rights-of-\nway. Congressman Heinz and Senator Buckley have each introduced\nseparate bills to spend $2.5 billion and $2. 0 billion, respectively, to\nupgrade deteriorating trackage through employment programs.\nIt is highly unfortunate that Congress has been allowed to take the\ninitiative on the railroads. It is even more unfortunate that some\nsolutions receiving serious consideration in Congress are excessively\nexpensive, inappropriate responses to the real problem, and bad for\nthe country. The Congressional proposal of nationalization of the\nindustry, or, at least, of the rights-of-way, would mean not only an\ninjection of unnecessary Federal control into another area of our\nnational life but also unnecessary rehabilitation and maintenance\nexpenditures on excess railroad plant. Total physical rehabilitation\nof the existing rail system is not only prohibitively expensive but also\nundesirable. What is needed is a major rationalization of the rail\nfacilities of the country and an elimination of redundant capacity through\nmergers and joint use of facilities. Only the components of a\nrationalized rail plant should be rehabilitated. Moreover, rehabilitation\nof track will be of little benefit to the railroads or to the Nation unless\nthe other difficulties of the railroads can be overcome as well. A track\nrehabilitation program should only be commenced as a part of a broader\nprogram to overcome 'other industry problems such as regulatory\nrestraints and work rules.\nA Program to Rebuild the Railroad Industry\nThe Department of Transportation has a comprehensive program which\nI believe will assure the United States of a viable private enterprise\nrail system capable of meeting the commerce and energy needs of this\ncountry. Moreover, it provides the Administration with the means of\nseizing the political initiative. The program involves: (1) A\nconsolidation and streamlining of the national rail system utilizing\nfinancial incentives and relief from impediments to rail mergers and\njoint use of facilities; (2) Removal of a number of outmoded and\ninequitable regulations on railroads; (3) As an important first step\nto nationwide rail consolidation, the forging of a successful conclusion\nGERALD\nLIBRARY\n6.\nto the current Northeastern rail restructuring process in a form\nconsistent with the national program of consolidation; (4) Measures\nto reduce preferential treatment of competing modes and; (5)\nRecognition of the indispensability of rail passenger ser vice in\ncertain corridors and the public (and Congressional) demand for\nsuch service in other areas.\nImplementation of the Program\nThe cost of rehabilitating even the streamlined rail plant that I have\nproposed will be high. On the other hand, I am keenly aware,\nMr. President, of your dedication to fiscal responsibility. Therefore,\nthe Department of Transportation has already developed two concrete\nlegislative proposals which will not only take great strides in\nfurthering the program I have outlined but also be consonant with\nyour opposition to any new spending programs.\nFirst, we have proposed a bill called the Rail Revitalization and\nEnergy Transportation Act of 1975 to provide $2 billion in loan\nguarantees to railroads to finance the rationalization and streamlining\nfacilities. The $2 billion in the bill is already a part of your budget\nproposals, and the proposal is awaiting White House approval. As a\ncondition of receiving assistance, the Secretary of Transportation will\nbe able to require railroads to enter into agreements for the joint use\nof tracks, terminals, and other facilities and to enter into agreements\nfor mergers to further rationalize the rail system. The proposed bill\nalso provides significant regulatory reform by amending the Interstate\nCommerce Act to permit increased pricing flexibility, to expedite\nrate-making procedures, to outlaw anti-competitive rate bureau\npractices, and to improve the procedures for dealing with intrastate\nrates.\nSecond, I have proposed a $1.2 billion Emergency Railroad\nRehabilitation Program to attack forthwith the accelerating deteriora-\ntion of the railroad physical plant. The proposal carries with it\nsignificant immediate benefits for employment in the country. The\nmoney for this bill could, as one alternative, come from rescinding\n$1.2 billion of the $9. 1 billion for highways currently being impounded.\nAs a result, it would not increase Federal funding authorizations but\nrather reallocate funds from lower priority to higher priority transpor-\ntation programs. I believe that public reaction, except for the die-hard\nFORDO & LIBRARY\n7.\nsupporters of expanded highway programs, would be positive.\nThis proposal also is awaiting White House approval. The primary\nemphasis of the proposal is to rehabilitate and maintain mainline\nroutes and major terminals that will be included in any restructured\nand streamlined railroad system. This legislation will significantly\nassist the Nation's energy goals by giving priority to those projects\nwhich will aid in the movement of coal.\nThe financial assistance provided through the proposed Rail\nrevitalization a nd Energy Transportation Act and the Emergency\nRailroad Rehabilitation Program, coupled with the regulatory\nreform contained in the former, will provide the foundation for a\nviable private enterprise railroad industry. Moreover, these two\nlegislative proposals will announce the Administration's determination\nto deal with urgent national problems even while simultaneously\nmaintaining a commitment to fiscal responsibility. At the least,\nthe Emergency Railroad Rehabilitation option of using highway\nmoney would put pressure on Congress to consider trade-offs rather\nthan add-ons to the budget as the means for financing the railroad\nprograms it is considering.\nIn conclusion, Mr. President, I believe that the two legislative\nproposals I have outlined are important initial steps in constructing\na comprehensive program to save the American railroads. Of course,\nit is also essential that we deal appropriately with the Northeast\nrail restructuring problem. By the 26th of this month, the Economic\nPolicy Board Task Group on Northeast Rail Restructuring, of which\nI am Chairman, will present you with its specific recommendations.\nWilliam T. Coleman, Jr.\nFORD i LIBRARY\nhen Ailes\nPresident & Chief Exec. Officer, Assn. American RRs.\n: B. Aydelott\nChmn. of Board & President, The Denver & Rio Grande\nWestern RR, P. O. Box 5482, Denver, Colo. 80217\nnk E. Barnett\nChmn. Board of Directors & Chief Exec. Officer, Union\nPacific RR Co., 345 Park Ave., New York, N. Y. 10022\nrles E. Bertrand\nPresident & Chief Exec. Officer, Reading Company,\nReading Terminal, Philadelphia, Pa. 19107\namin F. Biaggini\nPresident, Southern Pacific Transportation Co., One\nMarket Street, San Francisco, Calif. 94105\nS. Boyd\nPresident & Chief Exec. Officer, Illinois Central Gulf RR,\n233 N. Michigan Ave., Chicago, Ill. 60601\nGraham Claytor, Jr.\nPresident, Southern Railway System, P. O. Box 1808,\nWashington, D. C. 20013\nP. Fishwick\nPresident & Chief Exec. Officer, Norfolk & Western Rwy.\nCo., 8 North Jefferson Street, Roanoke, Va. 24042\nard C. Grayson\nPresident & Chief Exec. Officer, St. Louis-San Francisco\nRwy., Frisco Bldg., 906 Olive St., St. Louis, Mo. 63101\nW. Ingram\nPresident & Chief Exec. Officer, Chicago, Rock Island &\nPacific RR Co., La Salle St. Station, Chicago, nl. 60605\nis Langdon, Jr.\nPresident & Chief Exec. Officer, Penn Central Transp. Co\n6 Penn Center Plaza, Philadelphia, Pa. 19104\nII. Lloyd\nPresident, Missouri Pacific Railroad Company, 210 North\n13th Street, St. Louis, Mo. 63103\ner W. McGee\nPresident, Green Bay & Western Railroad Company,\nP. O. Box 2507, Green Bay, Wisconsin 54306\nory W. Maxwell\nPresident & Chief Exec. Officer, Erie Lackawanna Rwy.,\nMidland Building, Cleveland, Ohio 44115\nS W. Menk\nChmn. of Board & Chief Exec. Officer, Burlington Norther\nInc., 176 East Fifth St., St. Paul, Minnesota 55101\nard H. Murray\nPresident, Soo Line Railroad Company, Soo Line Building\nMinneapolis, Minnesota 55440\ny S. Provo\nPresident, Chicago & North Western Transportation Co.,\n400 W. Madison Street, Chicago, Illinois 60606\nam J. Quinn\nChmn. & Chief Exec. Officer, Chicago, Milwaukee, St. Paul\n& Pacific RR, 516 W. Jackson Blvd., Chicago, Ill. 60606\nS. Reed\nChmn, Pres. & Chief Exec. Officer, Atchison, Topeka &\nSanta Fe Rwy., 80 E. Jackson Blvd., Chicago, Ill. 60604\nThomas Rice\nChmn. & Chief Exec. Officer, SCL-L&N Railroads, 500\nipalding Toon\nGEORLD FORD LIBRARY\nWater Street, Jacksonville, Florida 32202\nPresident, Bessemer & Lake Erie Railroad Company,\nP. O. Box 536, Pittsburgh, Pennsylvania 15230\nT. Watkins\nChmn. & Chief Exec. Officer, Chessie System, Terminal\nTower, P. O, Box 6419, Cleveland. Ohio 44101\nOF\nTRA\nDEPARTMENTION\nTHE SECRETARY OF TRANSPORTATION\nWASHINGTON, D.C. 20590\nUNITED\nAMERICA\nSTATES\nOF\nApril 17, 1975\nMEMORANDUM TO: Mr. James M. Cannon, Executive Director, Domestic Council\nSUBJECT:\nRail Legislative Initiative\nIn response to your request, this memorandum delineates the current status\nand outstanding issues regarding the Administration's rail legislative\ninitiative.\nAreas of agreement within the Administration\n1. President should transmit major rail proposal in very near future to\ncapture the initiative on this visible, pressing issue and because it is\nessential to both the national energy program and the health of the economy\nthat the railroads be revitalized.\n2. Legislative initiative should include both regulatory reform and\nfinancial assistance.\n3. The regulatory reform proposal will include expanded rail rate\nflexibility, reduction in present anti-trust immunity of rail rate bureaus,\nand the elimination of discriminatory State taxation.\n4. The financial assistance program will have a minimum of $2B in\nFederal loan guarantees and will be used to stimulate rationalization of the\ncurrent U. S. railroad system.\n5. A direct Federal grant program to prevent further significant\ndeterioration in the condition of key. rail lines has merit.\n6. Current time-consuming ICC regulatory procedures regarding rail\nmerger and consolidations are a major obstacle to needed restructuring\nand a pressing need exists to obtain expedited action on rail restructuring\nproposals.\nQuestions yet to be resolved within the Administration\n1. Relationship between Department of Justice and the Secretary of\nTransportation in the approval of rail mergers\n-- Agreement exists on the need for some by-pass of ICC for\nrestructuring proposals involving Federal financial assistance.\nFORD is LIBRARY 938870\n2\n-- DOT recommends that authority to approve such transactions be\nlodged in DOT and that DOT be required to consult with Justice\nprior to merger approval.\n-- Justice Department (DOJ) recommends that DOJ be given joint approval\npower with DOT.\n2. Extent to which the $2B loan guarantee financial assistance program\nwill provide additional incentives to secure meaningful railroad support\nand participation in the program.\n-- Agreement exists that financial assistance package must be\nsufficiently attractive to gain railroad participation and the\nresultant system rationalization.\n-- To achieve this full participation, DOT recommends providing a\nfull range of options, including subsidizing part of the loan\ninterest rate and deferring debt service payments.\n-- OMB apparently believes Federal bank financing is sufficient\nincentive. DOT believes more flexibility is necessary and\ndesirable.\n3. Timing and financing of emergency rail rehabilitation grant program.\n-- DOT has proposed $1.2B, 15-month program to help stabilize\ndeteriorating rail roadbed, as well as to generate employment in\nproductive tasks. Effective rail system is needed for energy\ntransportation, particularly coal.\n-- To help offset budget impact of above program, DOT has proposed to\nrescind concurrently approximately $1.2B in existing highway program\nfunds.\nTiming:\n-- OMB believes the transmittal of any such proposal should be deferred\nuntil the Administration transmits a policy recommendation regarding\nthe PSP and the entire NE rail program. Reasons for OMB approach\ninclude their view that the proposal should be put in the context\nof the NE question and a full rail policy in order to maximize the\neffectiveness of the funds. OMB also points to the delay that may\nwell occur anyway in Congressional enactment of the rail\nrehabilitation proposal.\n-- DOT believes a proposal is needed now to prevent adverse\ndeterioration in rail roadbed. Given that the Administration\nproposal regarding the NE rail problem may well call for a\nBERALD FORD LIBRARY\n3\nsubstantially reduced NE rail network -- a politically explosive issue --\nwe believe it would be advantageous for the President to have a\npositive nationwide program including rail rehabilitation grants on the\nHill before submitting our proposals on the Northeast and Midwest.\nI believe my 4/11/75 memorandum to the President outlines the essential\ningredients of a multifaceted, comprehensive approach to the national\nrailroad problem.\nFinancing:\n-- DOT believes this program is consistent with the President's\nbudgetary policy, given the Project Independence requirement that\nyear.\nthe railroads have have a substantially increasing amount of coal each\n-- Furthermore, DOT believes the highway rescission approach could\nreduce the budget impact and show Presidential leadership in\nshifting budget resources from low priority to high priority\nactivities.\n--- OMB believes rescission is not politically feasible and may\njeopardize the Administration's highway proposal.\nIn view of OMB's final point, we would recommend approval of the rescission\napproach only after an assessment by the White House Congressional Affairs\nOffice of whether this approach would seriously jeopardize the new highway\nbill.\nI believe the issues have been thoroughly discussed between the Department\nand the Executive Office of the President, and we now need expeditious\ndecisions to permit an Administration rail initiative to go forward in the\nvery near future.\nBill\nWilliam T. Coleman, Jr.\nGERALD ? FORD\nFOR IMMEDIATE RELEASE\nJUNE 7, 1975\nOFFICE OF THE WHITE HOUSE PRESS SECRETARY\nTHE WHITE HOUSE\n716\nPRESS CONFERENCE\nOF\nWILLIAM MILLIKEN\nGOVERNOR, STATE OF MICHIGAN\nAND\nWILLIAM T. COLEMAN\nSECRETARY, DEPARTMENT OF TRANSPORTATION\nTHE BRIEFING ROOM\n11:47 P.M. EDT\nMR. HUSHEN: As you know, the President met this\nmorning with Governors from the Northeast and Midwest. The\nmeeting lasted about an hour and a half.\nThe purpose of the meeting was to discuss problems\nof the railroads, and the meeting was requested by Governor\nMilliken of Michigan.\nWe have Secretary of Transportation Coleman and\nGovernor Milliken here to brief you today, to give you a\nreport on the meeting and answer your questions.\nGentlemen.\nGOVERNOR MILLIKEN: We had, I felt, a very good\nmeeting, as Mr. Hushen has said. It lasted about an hour\nand a half, which was a half an hour longer than we had\nanticipated.\nThere was no general agreement in the session\namong the Governors and with the Administration on how to\ndeal with all of the problems, except we all agreed we had\na serious problem in the question of transportation, the\nimplementation of the Association plan, the question of\nthe adoption of the plan or not by the Congress in July.\nI indicated that I felt very strongly about the\nabandoned line issue. It means a great deal to Michigan and\nto many other States, and there was general discussion about\nthe importance of the rehabilitation of roadbeds in the\nrailway system throughout the country. It has a major\nimpact, I think, on the future of the country, particularly\nin the light of the economic problems we have had, in the\nlight of the energy crisis, which we have been going through\nand we will probably continue to face, so that there needs\nto be a comprehensive, overall Federal approach of some kind\nto deal with the problems which are faced in a very real\nsense by the States.\nMORE\n- 2 -\nI was pleased with the President's willingness\nto be openminded in his approach -- the indication that\nhe will be taking a position which has not yet fully\nbeen developed so far as the Congressional approval\nof the plan in July.\nI was pleased with the obvious deep involvement\nand openmindedness of the Secretary and I felt the\nmeeting was a very good and a very productive one, and\nI am hoping that we are going to be able to maintain,\nas I am sure we will, very close contact with the\nSecretary and with the President on this problem which\nobviously will not go away.\nMr. Secretary.\nSECRETARY COLEMAN: At the request of Governor\nMilliken, the President met this morning with the Governors\nof all of the States in the Northeast and the Midwest.\nThe only ones not there were those that from a telegram\nor other reasons said they could not be there. We had\na free, frank and open discussion. Everyone agrees\nthat the railroad problem is a serious problem. Everyone\nagrees that one of the causes is the deteriorating\neffect of the track and that has to be restored.\nThere was an exchange of ideas as to how best\nto bring that about and we in the Administration are going\nto continue to work at the problem, and we look forward\nto the cooperation of the Governors to see that we can\nreach a solution which is satisfactory and will solve\nthe problem which is serious in this country.\nQ\nCan you both deal with the question of\nwhere you are farthest apart, what the hangup is?\nGOVERNOR MILLIKEN: I don't know at this point\nthat we can really say that we are far apart. We recognize\nthat it is going to take a great deal of money to\nrehabilitate the trackage in this country and that it\nis going to take a great deal of money to keep the\nbranch lines going if, in fact, some of them should be\nkept going.\nI fully acknowledge that we will have to\nabandon some lines, but I think the plan calls for much\nmore of a wholesale abandonment than I believe is\nnecessary or desirable. We have not agreed on how the\nmoney will be forthcoming but there was a good deal of\ndiscussion about that possibility.\nI don't think it would be accurate to say that\nwe had a total disagreement on this subject because we\nstart with the basic premise that a vital rail system\nin this country is essential for the future economic\ndevelopment of the United States, and certainly of the\nindividual States.\nMORE\n- 3 -\nQ\nGovernor, did other Governors present\nspecific proposals for solving the rail problem in\naddition to your own?\nGOVERNOR MILLIKEN: The New England Governors\nspecifically recommended the take-over of the rail beds\nand the maintenance and rehabilitation of those beds as\npart of an overall plan. There certainly was not support\nfor a Government take-over of the entire system, but\na recognition that this might be, and probably would be,\none good way to go.\nSo I would say that that constituted one of\nthe major recommendations made by the Governors, and\nthe other one would be on the question of rail abandon-\nment, and my specific recommendation for a two-year\nmoratorium with a branch line abandonment and a Federal-\nState match for up to 10 years. That problem gives us\ngreat concern in Michigan and I think that is reflected\nin many of the other States.\nQ Mr. Secretary, what was the reaction of\nthe President to these two proposals?\nSECRETARY COLEMAN: The President listened and\nhe gave serious consideration to the proposals. We have\nsome problems with the proposals. One, we doubt seriously\nwhether the public interest is best served by Government\nownership of the roadbeds and other facilities.\nSecondly, we always have the problem that you\nhave to have in any system -- where the only way you\nraise money is by taxes from the people -- the extent\nto which there can be available Federal outlays for the\nprogram. We do feel that the USRA recommendation is\nthat there are certain lines that are low density lines\nand what should happen there is that the States should\nhave two years to make up their minds whether the line\nis sufficiently important that the State will undertake\nto subsidize that line.\nIn the interim, as you know, the proposal is\nthat the Federal Government will put up 70 percent of\nthe money; the State will put up 30 percent of the money.\nWe can understand why the Governors would indicate that\nperhaps two years is not enough. On the other hand,\nwe do think it is a period of time over which you can\nmake a significant start and determination.\nWe did listen to the comments of the Governors\nand obviously we will take them into consideration,\nbecause they were seriously presented and we were dealing\nwith an issue that everybody agrees on the end result;\nnamely, that the railroad service is very important in\nthe country.\nMORE\n- 4 -\nOn the other hand, I think as far as the\nAdministration is concerned we would like to resolve\nthe problem within the private sector context rather than\nto have the Federal Government going into the business\nof owning the roadbed. We think that presents serious\nproblems.\nJust to give you two, for example, we think then\nit would mean every issue of a wage increase becomes\na Federal issue which would have to be resolved in the\nWhite House. We don't think that is in the public interest.\nSecondly, we would say every freight increase\nor every charge would then become a public interest which\nwould have to be resolved in the White House. We don't\nthink that is a proper way. We firmly still believe\nwhen you are dealing with freight that you ought to be\nable to operate a service which can pay its own way and\nwhat you need are intelligent programs which will permit\nthe rehabilitation of the line, perhaps with Federal\nguarantee, but that basically it should be resolved\nin the private sector.\nI think some of the Governors felt -- some of\nthem agreed with our position -- others said we think\nthe situation is going to the point that perhaps the\nFederal Government may have to step in more, and in\nGovernment today so many problems are matters of degree\nthat we have to engage in consideration to see what is\nthe best way to resolve it; but the President did pay\nattention. He was quite concerned and he indicated\nand he instructed me to continue talking with the\nGovernors and attempt to come up with a program which will\nbest serve the interests of the American people.\nQ\nDo you have a deadline for that program?\nDoes the President know when you are going to have to\ngive an answer on this?\nSECRETARY COLEMAN: Well, there are varying\ndeadlines. With respect to the Northeast, we are operating\nunder statute enacted by the Congress which says by\nJuly 26 USRA will have to submit a plan.\nAs you know, the Administration has on board\ntwo of the 11 directors. We expect by June 26 we would\nhave to indicate in executive session as to what our\nposition finally will be.\nIn addition, as you know, the President has sent\nup the Rail Revitalization Act. We do think that if the\nCongress would begin to act and pass on that Act it will\nhelp the railroad situation greatly because we call for\nmore flexibility in rate regulation.\nMORE\n- 5 -\nWe do provide for $2 billion in loan guarantee,\nand we also provide for elimination of discriminatory\ntax by the local authority on the railroads. We think\nthose things will make a great difference in the ability\nof the railroad to perform satisfactorily.\nQ\nSecretary Coleman, your statement that the\nPresident instructed you to come up with something that\nwill have something of interest to the Governors in\nterms of a plan indicates that the USRA plan is at least\nnot sufficient to carry the day; that it is going to\ntake something else besides that.\nSECRETARY COLEMAN: If you got that from my\nreply, I did not mean to convey that. What I said was\nthat the USRA submitted what was a preliminary plan.\nThe statute called for public comment and reaction by\nall the persons involved. The Governors, some of them,\nshowed certain things that they thought were objectionable\nin the plan. The USRA will then come up with the final\nplan, and the Administration, likewise, is attempting\nto come up with a final plan. The day by which it should\nbe done is June 26.\nMore important, we realize that the railroad\nproblem is a serious problem. We realize the Governors\nof the States are quite concerned and we are attempting\nto develop programs which the Governors will support and\nwill solve the problem. We are not saying whether the\nUSRA plan will be tremendously changed or not.\nQ\nMr. Secretary, I want to make sure I\nunderstand you concerning the question of the take-over\nof the roadbeds. The President's position has been he\nis against that?\nSECRETARY COLEMAN: Yes.\nQ\nAnd now you use the words \"seriously\nconsider\" and things like that. Has his position changed\nany?\nSECRETARY COLEMAN: Put it this way: I know my\nposition has not changed and I don't think the President's\nposition has changed.\nQ\nCan you tell us a little bit about what\nthe public service jobs would involve there? Did you\ndiscuss that in connection with the new bill that is\npending on jobs and how they would help with the roadbeds?\nSECRETARY COLEMAN: My understanding -- and you\nmay have me at a disadvantage -- is that I know of no\npublic bill which has been sponsored by the Administration\nwhich deals specifically with making jobs available for\nfixing up the roadbeds.\nMORE\n- 6 -\nQ\nNo, I am talking about the general public\nservice jobs bill, and won't that relate to this?\nSECRETARY COLEMAN: That was vetoed and it was\nalso my understanding that even before it was passed that\nthe Senate or the House knocked out the provision which\nwas in the bill at one time for public service jobs\ndirected to the railroad.\nQ\nNow, there is a new bill coming up and\nwhat I am asking is, is there going to be some effort\nto put this back into the bill?\nSECRETARY COLEMAN: You better go and ask the\nCongressmen.\nQ\nWas that discussed at all? Did you mention\nthese public service jobs?\nSECRETARY COLEMAN: Today, one Governor did\nmention public service. It is the Administration's\nposition and the position of the Department of Transportation\nthat the railroad problem is a separate and distinct\nproblem and it ought to be resolved in the context of\ndealing with the railroads, and that is what we hope we\ncan do.\nQ\nGovernor Milliken, one of the Governors\nemerging from the meeting said that all but one Governor\nopposed the USRA plan for abandonment. Is that a correct\nstatement?\nGOVERNOR MILLIKEN: I think probably that would\nbe correct. On the question of public service jobs, that\nwas not a discussion today, although I had raised the\npoint very briefly in my remarks. I would hope that it\nwould be possible in the future to have some public\nservice job involvement in the rehabilitation of tracks\nwithin the States and perhaps a bill coming down would\nembody that concept. I would support that.\nQ\nUSRA has issued a preliminary report\nalready, Governor. What is the stance of your group\nregarding that report? Do you think the Administration\nis heading in the right direction, or not?\nGOVERNOR MILLIKEN: The Administration, I think,\nnow is in the process of evaluating that report. So far\nas the Association recommendation, I can say personally\nthat it would have a very serious negative impact in\nthe State of Michigan and I think that is reflected in\na number of other States.\nMORE\n- 7 -\nThe proposal is that some 22 percent of the\ntrack abandonment would occur in the State of Michigan\namong all the 17 States. That would have serious\neconomic repercussions and it is on that particular\npoint that I, this morning, commented. I think we need --\nand there is some disagreement on approach here -- I\nthink we need a two-year moratorium and I think we need\nthe Federal match which would be up to 10 years. That\nwould enable us to do better and sounder planning, and\nfrankly, support further the case we think can be made\nin our State.\nThere is no question that some lines will have\nto be abandoned. I acknowledge that for Michigan and\nany other State. But I think the criteria has been\nwrong in that we have been pretty much guided by the\nelement of profitability. And I think we have ignored\nsome of the economic repercussions which would be very\nnegative and overall would have the kind of effect which\nI think could be disastrous to the economy.\nQ\nWould you comment on the burden of the\nRailway Revitalization Act which, itself, involves some\nconsolidation and abandonment of rail lines? That is,\nthe Administration's position.\nGOVERNOR MILLIKEN: I would repeat again, I\nthink there will have to be some abandonment, and in the\nend the plan will clearly go in that direction, but I\ndisagree -- and it is a matter of degree -- I disagree\nwith the Association plan insofar as its impact in our\nState.\nQ\nGovernor, how did the President respond to\nyour proposal on the abandoned lines, the moratorium\nand the 10-year match?\nGOVERNOR MILLIKEN: I can't say that he precisely\nresponded. He certainly was open in his approach. The\nfact that he added another half-hour to the hour that we\nall were scheduled to be here was an indication of his\ninterest, and I think his concern, and his desire in\nthe end to make the right decision.\nQ\nGovernor, you had a statement in there.\nDid you spread out copies of that here? Could we have\ncopies?\nGOVERNOR MILLIKEN: It is available.\nQ\nCould you tell us who was the one Governor\nwho favored the USRA plan?\nMORE\n- 8 -\nSECRETARY COLEMAN: I would say the effect of\nthat -- there were 10 Governors present and there was\none Lieutenant Governor. I think it is not quite the\ndisagreement that you perhaps may think. USRA's\nresponsibility, given by Congress, was to develop a\nplan which would make a national railroad system viable.\nIn the development of that plan they established certain\ncriteria and said that when you have a rail line which\nis not a national line -- namely, going from State to\nState -- but is a branch line, and that the revenue from\nthat line is much under the expenses, that that presents\na separate problem.\nNow all USRA said was, that that type of\noperation should not be in a national railroad system.\nThat does not mean it should not be someplace else.\nThe Congress then said that with respect to\nthose lines which USRA determines are not in the national\nsystem and are not profitable, but are losing money,\nthat we think that the way to handle that problem is\nto say that those lines will not be part of a national\nsystem but will be part of a local system, and to give\nthe locality time to make up its mind as to whether it\nwill support it as a local system.\nWe think that the appropriate way to handle\nthat problem is to say that for those two years the\nFederal Government will put up 70 percent of the money\nto operate the losing line and the localities will put\nup 30 percent.\nNow as I understand the Governors, what has now\ncome forward is really basically a criticism of what\nCongress did, not what USRA did, because USRA was acting\nwithin the context of the statute. Everyone agrees that\nthose branch lines should not be part of the national\nsystem.\nSo what the Governors have said is, \"In our\njudgment, we don't think two years is time enough to\nmake that decision. Secondly, we think that within the\ntwo years instead of having a 70-30 percent match, it\nshould be a different match.\" Now this just reflects\nthe fact that the States don't have the money, but I\nthink it is also true that the Federal Government is\npushed for money so therefore there has to be discussion\nalong this line.\nBut I do think that you escalate the difference\nin the problem too big if you think it is other than in\nterms of the issue of how long should someone, whether\nit be the Federal Government or the local government, support\nthese losing branch lines until such point when the shippers\nand the localities make up a decision as to whether they\nwill take them over completely.\nMORE\n- 9 -\nQ\nGovernor Milliken, would you address\nyourself to the part of the Railway Revitalization Act\nthat provides $2 billion in loan guarantees to upgrade\nthe railways as opposed to the federal ownership of\nrail beds or a much bigger subsidy, and does the Governors'\nConference have any view on that?\nGOVERNOR MILLIKEN: We did not discuss that\nin any great detail this morning. On the question of\nfederal ownership of the railroad system, I think there\nis almost unanimous agreement that that should not come about.\nThe President's proposal -- the $2 billion proposal --\nwas discussed very briefly by him, but we were really\ncentering our attention in our discussion this morning on\nthe Association plan and on the proposal which will be\nbefore Congress on July 26th.\nQ\nMr. Secretary, I am a little confused about\nthe July 26 and June 26. Could you straighten that out?\nSECRETARY COLEMAN: The July 26th -- there is a\nstatute which says that by July 26th USRA must submit the\nfinal plan to the Congress. It then lays over in the Congress\nfor 60 legislative days, and at the end of that time\nCongress must vote the approval of the plan, or reject it.\nNow the June date comes about because to get the plan\nsubmitted to the Congress by the 26th of July, the Executive\nCommittee of USRA will have a meeting -- and on that\nExecutive Committee there is at least one or two members\nof the Administration -- and assuming that a vote is called\nfor as to whether the final plan as revised, after the\nhearings on the preliminary plan, will be submitted to\nthe Congress, at that time the Administration people will\ntake a position.\nMR. BARNUM: The statute specifically requires\n30 days before the July 26 date the Executive Committee of\nUSRA shall submit to the Board of Directors of USRA and to\nthe ICC its proposal, namely the Executive Committee's\nproposal for the final system plan.\nQ\nSo the President has to make up his mind\nby the 26th of this month as to which direction he wants\nthe Administration people to go?\nMR. BARNUM: That is correct, and there is one\nmember of the Administration, the Secretary of Transportation,\nwho is a member of the Executive Committee of the United\nStates Railway Association.\nQ\nMr. Secretary, did I understand you correctly?\nA moment ago you said you have not changed your position\nand as far as you know the President has not changed his.\nIs that on the abandonment issue?\nMORE\n- 10 -\nSECRETARY COLEMAN: I thought the issue I was\nasked about was as to whether it is in the public interest\nto have public ownership of the railroads, and on that\nI think all the Governors are in agreement; that there\nought not to be public ownership of the entire railroad\nsystem. There are some people that talk in terms of\npublic ownership of the roadbed, and it is my position\nthat that is not in the public interest, and I think\nthat is also the position of the President. I say that\nonly because I think the President speaks for himself.\nQ How about your position on the abandonment\nissue? Do you have one? As far as whether this idea of\nthe two-year moratorium is good or whether it is bad?\nSECRETARY COLEMAN: I have heard the argument, and\nI always listen to the argument. I think that I would\nrather reserve judgment although my initial reaction is\nI think it is probably better to start off with the two-year\nperiod and see whether the job can't be done in two years.\nI guess I still suffer from the fact that I came out\nof the background of a practicing lawyer where, if you knew\nyou had to go to Court in the next year, you got something\ndone. When the Judge says, \"Oh, Gee, you have two years,\"\nthen you really got nothing done.\nI think you really have to come to the basic\nissue as to how you handle losing lines which are not part\nof a national system. I don't think it is in the public\ninterest to handle that permanently by having a massive\nfederal subsidy. On the other hand, I think it does require\na lot of concern in the localities -- it is in keeping\nwith the Administration's position in other areas -- that\nwhen you are dealing with something that affects the\nlocalities it is the locality that has to make the determination,\nand they have to make the judgment consistent with their\nability to raise the money.\nNow that does not mean that in a program -- as we\nhave some time other places -- at times we do give some\nfederal help. But basically when you are dealing with\nsomething which is not national in scope but is limited to\na community, affects their economic welfare, I think basically\nthe government should leave that to the locality. That does\nnot mean there may not be instances where it is in the\nnational interest to support it, and that is what I think\nthe debate is about.\nQ\nWill you tell us why neither New York nor\nOhio were represented at the meeting?\nMORE\n- 11 -\nSECRETARY COLEMAN: I think you better check with\nthem. As far as the Governor of New York, he sent a\ntelegram. As you know New York City, the State of New\nYork, has some serious budget problems, and that is the\nreason why I think Governor Carey was not there. There\nwas another Governor that was not there, I know, because\nhe had a death in the immediate family. There was a third\nGovernor -- the Governor from Massachusetts was not there\nbecause he has an active session of the legislature, but\nhe did send the Lieutenant Governor.\nQ\nCan you tell us what the Governor's telegram\nsaid?\nSECRETARY COLEMAN: Which one?\nQ\nCarey.\nSECRETARY COLEMAN: I have not seen the telegram,\nbut I was informed he was not there and he did send a telegram.\nGOVERNOR MILLIKEN: I did not know he did, but\nI am sure it was a friendly one.\nSECRETARY COLEMAN: It was a friendly one. He\nindicated he had problems in New York, and with all due\nrespect, he could not get down here today. He would have liked\nvery much to have been nere.\nTHE PRESS: Thank you.\nEND\n(AT 12:10 P.M. EDT)\nCANNON MEMO FILE\nTHE WHITE HOUSE\nWASHINGTON\nJune 17, 1975\nADMINISTRATIVELY CONFIDENTIAL\nMEMORANDUM FOR\nPHIL BUCHEN\nTHROUGH:\nJIM CANNON\nFROM:\nMIKE DUVAL\nFEDERAL Jun RAILROAD ADMINISTRATION,\nSUBJECT:\nSOLE SOURCE CONTRACT MATTER\nI received a call today (6:00 p.m.) from a lobbyist I know in\ntown, concerning some sole source contracts let by the Federal\nRailroad Administration. He advised me that FRA has given\nfour sole source contracts to a Virginia firm called ENSCO\nCompany, totalling $7 million.\nThe company was supposed to develop \"track geometry instrumen-\ntation\" to gather data for a computer when a train rides over\nthe tracks. It is designed to indicate when, where and what\nrepairs are needed. According to my caller, the company has\nfailed on all four contracts.\nI was also advised that the Administrator of FRA, Ace Hall,\nhas decided today to award a fifth contract to ENSCO Company,\nagain on a sole source basis.\nAccording to the lobbyist, Senator Howard Baker has been strongly\npushing ENSCO with FRA because of his close relationship with\nthe company President. A competitor is expected to file com-\nplaint concerning the fifth contract with GAO tomorrow.\nI was asked by the lobbyist if I would alert Ace Hall to the\nabove information so that an embarrassing situation could be\navoided. I told him that I would not pass on any information\nconcerning a specific contract to the agency involved, but\nrather would pass it to the Counsel's Office here at the White\nHouse for whatever action they deemed appropriate.\nCOMMENT: I know Ace Hall well personally and have the highest\nregard for his integrity and competence."
}