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The original documents are located in Box 28, folder "Railroads - Revitalization Act (1)" of
the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
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copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 28 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
[March 1975]
INFORMATION
THE WHITE HOUSE
WASHINGTON
MEMORANDUM FOR THE VICE PRESIDENT
FROM :
SUBJECT :
RAILROAD JIM CANNON Jain MEETING
Attached is a decision memorandum, prepared by the Office
of Management and Budget, on the proposals by Secretary
Coleman for a major railroad initiative. The memorandum
was completed on Thursday, March 27, for use at a meeting
with the President last Friday on economic matters. How-
ever, because of the absence of Secretary Coleman, the
President did not take up the substantive issues involved,
and instead, asked the Domestic Council to follow up on
them with Secretary Coleman, Secretary Simon, Jim Lynn,
Frank Zarb, and Bill Seidman.
The OMB memo, which was written in coordination with
Secretary Coleman, takes up three major issues:
1. Should the Federal Government pay for
payments incurred by railroads berrowing
the S% billion nt guaranteed loans; which
will be provided under legislation soon to
be submitted by the Administration?
2. Should the Administration propose
legislation to bypass the ICC in certain
cases involving joint use of track, mergers,
etc., and require DOT approval. instead?
3. Should the Administration propose a major
program to reduce unemployment and help the
rail industry, consisting of $3 billion over
two years?
We have already agreed on two elements of railroad
legislation:
a) reform of the economic regulation of
railroads, and
b) $2 billion in loan guarantees to revitalize
the capital assets of all the Nation's
railroads.
Attachment
FORD LIBRARY & GERALD
MEMORANDUM FOR:
The President
From:
James T. Lynn
Subject:
Revitalization and Job Stimulation Proposals for
the Nation's Rail Freight System
Background
The problems of the U.S. rail freight system are serious, and growing
worse as a result of the recent economic slump. Current estimates
indicate that the industry will show that the first quarter 1975
loss will be the largest in its history. Roughly 50% of rail track
is restricted to below-normal speeds due to poor maintenance. On
15-20% of mainline track speeds are restricted to 10 miles per
hour.
Revertheless, the rail system remains an essential national asset.
It carries 38% of all freight (in ton-miles) and over 75% of all
coal shipments.
For this reason, several proposals are now being considered by the
Administration which would help the freight railroads through
financial assistance, reorganization, and regulatory reform.
In addition to the rail passenger service programs (AMTRAK and
Northeast Corridor), the freight related programs include:
- Restructuring of Northeast bankrupt railroads (primarily Penn
Central)
U.S. Railway Association has completed preliminary plans;
final submission to Congress by July 26.
Federal cost estimated at more than $4 billion over 10 years,
of which $2.6 billion is already authorized.
Administration position being developed by late April.
GERALD FORD CIBRARY
3
- This plan, the Rail Employment proposal, and the Rail Revitalization
Act, will each have a major track rehabilitation component.
- They should therefore be designed to complement each other, and
avoid duplication, especially on a geographic basis.
RAIL REVITALIZATION ACT OF 1975
On March 22 you agreed to send to Congress the Administration's rail
regulatory reform bill, including a $2 billion loan guarantee financial
assistance package. Subscquently, DOT has concluded that two additional
provisions should be included in the bill. We request your decision on
whether to include these provisions, as described below.
Issue #1: Interest Subsidies
The Act would authorize the Secretary of Transportation to pay (i.e.,
subsidize) some or all of the interest payments incurred by railroads
in borrowing $2 billion of guaranteed loans under the Act. Provides
up to $650 million through 1978. The Secretary may require applicants
to use tracks and other facilities jointly or to acquire or sell assets
to achieve greater system efficiency as one of the conditions for pro-
viding financial assistance. (See issue #2),
Should the provision of $650 million for interest payments be included
in the Rail Revitalization Act of 1975?
Pros
- DOT believes that these funds, and associated conditions, will
enable the Federal government to bring about a more rational
geographic structure for the rail freight system. This would,
in turn, improve the financial viability of the railroads.
- Without the $650 million interest provision, DOT anticipates
that very few railroads would have sufficient incentive to
participate in the loan program. This would tend to undermine
the value of the loan program as a sweetener to the regulatory
reform package.
- DOT believes the subsidy is necessary to deal with the railroads'
serious cash flow problem.
Cons
- This would set is potentially costly precedent for other Federal
GERALD FORD LIBRARY
4
loan programs, and particularly for the new rail program.
- It is not clear that this is the best way to create the desired
incentive for participation. An alternative might be to relax
the criteria for use of the $2 billion in loan guarantees. For
instance, a portion of the funds could be made available to help
pay interest. during the first few years.
- By staying within the $2 billion funding level in this way, there
would be no violation of your "no new spending program" policy,
whereas a $650 million add-on would require an exemption from
this policy.
- The guarantee itself would provide a significant savings in the
interest cost, which should in itself be an incentive for
participation.
Decision
Option A: Provide interest subsidy grants
(supported by DOT)
Option B: Allow loan guarantees to pay interest during first few
years
(supported by ONS)
Issue #2: Mergers
Permits "by-pass" of ICC authority for joint use of track, purchase/sale
of assets, and mergers. Opportunity for informal public hearings provided,
before DOT approval. "Least anticompetitive" options must be approved.
Such joint use and mergers may be required, to qualify for financial
assistance in the bill.
Pros
- Would avoid onerous and drawn out merger procedures currently
imposed by ICC, and thereby permit streamlining of the rail system.
- DOT sees this as an integral feature of the financial package in
the bill.
FORD & LIBRARY 938870
5
Cons
- This provision would inject DOT into a very contro-
versial role, without a clear understanding of how
it would exercise its authority, in terms of procedures
or criteria for analyzing merger applications.
- Although DOT indicates labor support for this provision,
shippers. and local communities would oppose it because
of the downgrading of service on certain lines which
would result. This could jeopardize passage of the bill.
- An interagency working group is presently developing a
more thorough proposal to reform rail merger laws and
standards. Pending their recommendations, this proposal
appears to be premature.
Decision
Option C: Permit "by-pass" of ICC merger authority
(supported by Coleman)
Option D: Further study to develop more complete merger
laws and standards
(supported by Lynn)
RAIL REHABILITATION AND EMPLOYMENT PROGRAM
Issue #3: Whether to support such a proposal immediately,
not at all, or subject it to further comparison
with employment proposals in other areas.
DOT proposes a two-year program to assist the rail industry in
expanding its maintenance program. Total $3 billion two-year
authorization ($1 billion in grants, $2 billion in loans).
Direct employment impact over life of program optimistically
estimated at 60,000 man-years; indirect employment estimated
at 105,000 man-years. Federal government would provide grants
for labor cost, and income debentures for material and
equipment cost. (see Attachments II and III for details).
Pros
- Aimed at two major problems: unemployment and rail
deterioration. DOT believes the proposal would have
DERALD R. FORD CIGRAPT
6
a significant impact on each area. Improved roadbed is
considered critical to a viable rail system.
- Funding package designed to insure maximum railroad
participation. Without labor grants, DOT believes that
railroads could not afford to take advantage of the
program.
- Strong support for this program by rail management,
labor, and. Congress.
Cons
- Not in accord with your policy of "no new spending
programs".
- If considered, should be compared with other job creating
programs to determine relative employment impact.
- Need more analysis of relationship to other pending rail
assistance programs, to insure coordinated approach. Need
to further assess overall impact on Federal involvement
with railroads.
- Direct payroll subsidy for private firms is an unprecedented
practice in the U.S.; to violate this boundary between the
private and public sectors could open up a host of similar
proposals from other financially troubled industries.
Decision
Option E: Support DOT concept. Direct Secretary to prepare
legislation for Executive Branch clearance.
(supported by DOT)
Option F: Consider later in relation to other actions to
stimulate the economy, and in the framework of
overall approach to railroad industry.
(supported by OMB)
Option G: Basically disagree with this proposal, and so inform
the Secretary. Do not pursue further.
Attachments
cc: DO Records, Director, Director's Chron, Deputy Director,
Mr. Scott, Mr. Bray, Return to Mr. Johanson
EGD AJohanson:vt 3/27/75
FORD is LIBRARY
Attachment I
Breakout of Federal Funds for
Pending Rail Freight Proposals
($ millions)
Under
Authorized
Consideration
Total
I. Northeast Rail
Planning and interim
cash assistance
340
340
Interim maintenance
and improvement of
plant
300
I
300
Labor protection and
branch line subsidies
430
I
430
Financial assistance to
new rail system, AMTRAK,
and other connecting
railroads
1,500
2,000
3,500
2,570
2,000
4,570
II. Rail Revitalization Act*
Loan guarantees
-
2,000
2,000
Interest subsidies
-
650
650
I
2,650
2,650
III. Rail Employment*
Grants
-
1,000
1,000
Loan Guarantees
-
2,000
2,000
-
3,000
3,000
Totals
2,570
7,650
10,220
* Expected to substitute for some of Northeast rail funding require-
ment.
FORD & LIBRARY 938870
THE SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
March 21, 1975
MEMORANDUM FOR HONORABLE JAMES T. LYNN
Director of Management and Budget
SUBJECT: Stimulating Employment Through a Federally Supported
Rail Rehabilitation Program
During the current economic downturn, railroad industry revenues have
declined sharply as car loadings (level of freight traffic) dropped 15 per-
cent below last year's level. This, in turn, has forced the industry to
reduce substantially its maintenance efforts. The result is that the
industry is experiencing both a high rate of unemployment and a more
rapid deterioration of its physical plant.
The total amount of deferred maintenance in the industry is not known
exactly but conservative estimates put the figure in the range of $5.5
10 $7. 5 billion. Even at the 1974 level of maintenance, effort, which
involved the employment of 92, 000 workers, the backlog of deferred
maintenance 1125 increasing annually. It is estimated that 10, 000
maintenance-nf-way workers have already been laid off this year and
that an additional 20, 000 workers may be furloughed by June 1975.
Rail's rapidly croding physical plant may soon result in a situation where
it would become a positive drag on the whole economy. The only alter-
natives then would be massive amounts of direct Federal assistance or
Federal ownership.
We believe that the present situation constitutes a unique opportunity to
undertake a Federally-assisted but industry managed effort to provide
more jobs while raising the industry's currently planned level of maintenance.
Such an effort would not only produce additional jobs in the railroad industry,
it would also have 2 substantial indirect job creating effect in the supporting
industries (c. :., steel, lumber, equipment, etc.). Such a program will
meet urgent national needs in i: vital industry while stimulating employment,
and this would be far more productive than the public sector job programs.
This is 2 view that seems to be shared by many in the Congress, as evi-
denced by the several bills introduced by Sensiory Buckley, Congressman
Heinz, and others to authorize such a program. We strongly urge that the
Administration develop a better program of its own as a response to
Congressional initiative.
&
FORD
GERALD
Advania
(ached to this memorandum are the specifications for such a program.
1)
summary, this Department recommends the following:
1.
1 two-year program to assist the industry in expanding its
planned maintenance program;
2.
For railroads in reorganization under the Regional Rail Re-
organization Act, Federal financial assistance would be in the
form of a grant for the costs of labor, material, and equipment
with a proviso that the benefits must accrue to ConRail. These
funds then would simply substitute for funds which the Federal
Government would be providing later to ConRail anyway;
3. For all other railroads grants would be available for the labor
portion of the costs associated with the Federal assisted
incremental maintenance program with loans available for the
related materials and equipment;
4. The loan provisions would be in the form of income related
debentures and would provide a flexible repayment scheme
for both interest and principal, based on the carnings perform-
ance of the individual railroads during the repayment period;
5. The program anticipates a total authorization of $3 billion for
both the grant and the loan elements, with a $1 billion effort
in the first year and with $2 billion in the second year;
6. In order to ensure that the program is truly additive, i.e.,
over and above that which the railroads would do with their
own resources, a maintenance of effort provision would be
required for participation.
7. To emphasize that the program is geared basically to the
current unemployment situation and is not 2 permanent
assumption by the Federal Government of a role in normal
program maintenance, a "trigger" is employed which would
keep the program in effect only during periods when the
national unemployment rate exceeds 6% (or some other
appropriate figure);
8. Two-thirds of the funds would be apportioned among the rail-
roads on a formula basis and one-third would be left to the
discretion oi the Secretary; and
9. The program envisions project approval by the Secretary.
GERALD FORD LIBRAR,
-3..
in addition, the proposal includes $95 million to accelerate (forts to
maintain and improve current passenger service on the Northeast
Corridor. This effort is envisioned as a continuation of the program
recently authorized as part of the Penn Central emergency legislation.
The additional $95 million will not in any way preempt decisions related
to the long term improvements required in the Northeast Corridor.
In total, this program should create 20, 000 additional jobs in the rail-
road industry and 35, 000 jobs in related industries during the first
year. The second year job effect would be roughly double that of the
first year.
I recognize that this program will have an effect on the budget but the
total impact over the long run will be significantly smaller than the
total dollar amount because of loan repayment and the substitution of
ConRail assistance. Morcover, it is my judgment that the social
dividends resulting from whatever net cost is involved will be worth
the cost. It will help avert further layoffs and, indeed, should increase
the employment within the industry. It will foster much needed rehabi)-
itation and improvement in the physical facilities of the industry and
ensure that the nation's rail transportation system will not deteriorate
further during this economic downturn.
A viable rail transportation system is fuel efficient and is needed to
ensure that the transport of bulk commodities and other resources can
be efficiently executed. The program should improve the safety record
of the industry. The program, itself, is temporary, but it also sets the
stage for and dovetails well with the financial assistance program included
in the Administration's proposed Ra Iroad Transportation Improvement
Act. Finally, we sense a great deal of interest for such a program in
the Congress and, in the absence of a Administration proposal, we
will undoubtedly be forced into a reactive posture.
My staff and I are prepared to discuss this proposal with you in greater
detail as soon as possible.
Williams T.Waman &
William T. Coleman, Jr.
Attachment
GERALD Address FORD
ATTACHMENT
THE SECRETARY OF TRANSPORTATION
III
WASHINGTON, D.C. 20590
CRIEN sirils " AMERICA
March 24, 1975
MEMORANDUM FOR HONORABLE JAMES T. LYNN
; DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
Subject: Stimulating Employment Through a Federally Supported
Rail Rehabilitation Program: Rationale for Grants
to Solvent Railroads
In a memorandum of March 21 outlining the above program, we
recommended that the funding of the entire program for bankrupt
railroads and the labor portion of the program for solvent
railroads be effected through Federal grants. The bankrupt
railroads account for approximately 16% of the track miles that
would be eligible for rehabilitation. The labor element of the
program would be approximately one-third of the total program.
Thus, in a $3 billion program, the bankrupts might be expected
to receive approximately S500 million in grants and the solvent
carriers approximately $800 million in grants.
In the attached memorandum we give the reasons why, in our
judgment, it is desirable to fund the labor portion of the
program for solvent railroads with Federal grants, rather than
loans.
William T. Coleman, Jr.
Attachment
CC: Honorable L. William Seidman
Honorable James M. Cannon
FORDO is OFRATO LIGHARY
The Critical Role of Grants in a Federally Supported
Rail Manatenance and Relabilitation Program
The Department of Transportation has proposed for consideration
2 temporary program to stimulate employment in the railroad industry,
specifically in the vital areas of track and plant maintenance and
rehabilitation. This program would cover the entire industry, i.e.,
both solvent and bankrup! companies, and would employ a combination
of Federal grant and loan financial assistance. The program's under-
lying rationale and specifics have been covered in another paper.
This paper addresses the critical role of grants for the labor cost
component in ensuring the program's acceptance and success.
Summary
Powerful arguments can be made that any Federal financial assistance
designed to siimulate employment could be directed to no better purpose
than the maintenance and rehabilitation of the nation's railroads. To
realize the full potential of this opportunity, especially in light of the
current state of railroad finances, a grant component (for the direct
labor costs involved) in the Federal financial assistance program would
be essential.
-- Federal grant assistance for at least the labor component
of such a program appears critical to obtaining the partici-
pation of "solvent", albeit current money losing, railroads
which constitute the bulk of the nation's rail system.
A Federal program of financial assistance to the railroads
must treat both "solvent" and "financially distressed" (includ-
ing bankrupt) railroads equitably, lest ii unfairly disadvantage
the former.
The truly vital nature of the work to be supported by this
program -- affecting directly the economic efficiency of the
nation's rail system as well as the safety of its operation --
must be given appropriate weight in any consideration of this
proposal's morit.
Any "grant" assistance given in this.program would be truly
"additive" in terms of its ultimate economic impact, providing
a significant multiplier effect.
FORD is LIBRARY DERALD
2
Discussion
Central to an understanding of this real nature of the rail maintenance
and rehabilitation problem is a recognition that: (i) it is pervasive,
affecting all parts of the rail industry -- both solvent and bankrupt
companies -- albeit in somewhat different ways and degrees; and
(2) the costs of a rundown, inefficient national rail plant will be paid
for by society one way or the other. It will be paid:
either in terms of increasing accidents and derailments, more
"slow orders" and train delays and the higher freight rates and
impaired service inherent in the foregoing,
or in terms of a positive effort to arrest the deterioration of the
rail plant, to rebuild and rehabilitate that plant (especially the
vital mainline links), and to put presently furloughed maintenance-
of-way employees (now receiving Federal unemployment pay) and
other idle workers back into truly productive employment in an
industry vital to the nation's economic health.
The reality for rail industry finances of the recent sharp drop in
revenues stemming from the depressed economy and the poor prospects
for an early revenue recovery means that virtually no railroad, solvent
or bankrupt, will carn a profit this year and few, if any, will do so in
1976. Across the industry, rail managements have almost uniformly
cut back sharply on maintenance activities in an effort to husband cash.
In this situation, the management imperatives to curb deferable
expenditures are as real and sharp for the normally "healthy", sol-
vent railroad as they are for the financially shaky or bankrupt company.
Given the foregoing, several powerful arguments can be advanced for
including a strong grant component in any Federal employment support
program oriented to the national rail maintenance and rehabilitation
problem.
1. Encourage Maximum Participation
As noted above, any railroad facing the prospect of depressed revenues
FORD
and an uncertain traffic outlook will be very reluciant to take on addi-
tional indebindness for the materials, supplies and equipment needed
for maintenance and rehabilitation unless there is a strong financial
incentive for them 10 do SO. Federal grant financing for the labor
component of the maintenance and rehabilitation projects approved
under this program will ensure that all major railroads will participate.
A pure Isan program would almost certainly be shunned by most, if
not all of the solvent roads under present circumstances,
3
2. Provide a Measure of Equity As Between the Solvent and Bankrupt
Railroads
Within the overall national railroad system, carriers -- solvent carriers,
financially periled carriers, and bankrapt carriers -- compete with one
another not simply for traffic but for profit, and; in a very real sense,
for economic advantage and even survival. While acknowledging
government's responsibility for ensuring the provision of vital trans-
port services, including substantial direct financial assistance, govern-
ment's programs and policies should not work to penalize the well-
managed, relatively efficient, "succossful" carrier vis-a-vis his
bankrupt competitors. The effects of the present recession, which
gives rise to both the unemployment and rail maintenance problems,
fall equally heavily on all parts of the industry. In a program such
as the one being considered here, Federal financial assistance should
be provided evenhandedly across the entire industry.
3. The Vital Nature of the Work To Be Supported
The physical condition of the rail network bears directly on the system's
overall economic effectiveness and on the safety of those who work in
railroading and those who ride on trains. It is the principal determinant
of the real value of a vital national transportation asset and one of the
most important factors in the overall efficiency and productivity of the
national economy. To put it bluntly, rail maintenance employment is
about as far from "leaf raking" as you can get in terms of true social
and economic value to the country.
4. The Incremental Nature of the Federally Assisted Program
The Federally assisted program will be a true net addition to what
would otherwise be invested in maintaining and improving the nation's
rail system. Safeguards are built into the program to ensure this.
Thus, Federal grant assistance for the employment component of the
program will not only reduce unemployment payments and add to the
employed rolls in the railroad industry, it will also leverage very
significant additional employment and economic activity among
suppliers and vendors of materials and equipment.
5. The Threat of Disruntive Litication the Program Is Confined
FORD
to the Banitriets 05 Discriminates Address ing Dolvents in a Way to
LIBRARY
Affect the Competitive Balance
If a Federally assisted program were in benefit soldly the bankrapts
or were to discriminate against the solvents, the latter would almost
1
certainly bring suit on the grounds that they were being unfairly
disadvantaged vis-a-vis their competitors. While i! is believed that
such suits would not ultimately prevail, in light of the clear public
interest objectives involved, the hurt to the solvents would be real.
Being real, they would likely elicit much sympathy from the Congress,
and, perhaps, from the courts.
TPI-30
March 23, 1975
FORD i LIBRARY 9ERALD
[march 1975]
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LIBRARY GERALD = FORD
[March 1975]
DRAFT PRESIDENTIAL STATEMENT ON THE
REVITALIZATION OF THE RAILROADS
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 railroads are in bankruptcy and others are on
the brink of financial collapse.
The country has neglected the rail problem too long and the
desperate condition of the industry is testimony of this neglect.
We must begin at once a major and massive initiative to restore
the vitality of this essential industry. I have established for
this Administration a goal that calls for the complete revitalization
of the Nation's railroad system so it can serve the needs of modern
America. We are moving forward with a program to assure a healthy,
progressive rail system. I have directed the Secretary of
Transportation, William T. Coleman, Jr., to lead this effort and to
make it one of his prime concerns.
As an essential part of this program I am today sending to the
Congress the Railroad Revitalization Act (RRA). This legislation
is the result of several years of study and consultation with
industry and Congressional authorities.
There has been extensive work in the 93rd Congress on rail
regulatory legislation and I am confident that the 94th Congress can
and will act decisively. A good base has been developed for prompt
action.
-more-
- 2 -
The Railroad Revitalization Act has two primary functions --
to improve the regulatory climate under which railroads operate
and to provide critically needed financial assistance for railroads
throughout the country. A major problem faced by the railroad
industry is an overabundance of Federal regulation. Much Federal
regulation, originally imposed to prevent monoply abuses and regulate
development in the western States, has long since outlived its
original purposes. Indeed, Federal regulation has grown so cumbersome
that it retards technical innovation, economic growth and improved
consumer services. The legislation I am proposing is designed to
improve significantly the regulatory climate under which all railroads
operate by lifting unnecessary and excessive regulatory constraints.
The proposed bill addresses rail regulatory problems by amending
the Interstate Commerce Act to:
1. Permit increased pricing flexibility.
2. Expedite rate-making procedures.
3. Outlaw anticompetitive rate bureau practices.
4. Improve the procedures for dealing with intrastate rail
rates.
In addition, RRA makes available to the rail industry financial
assistance which it must have to accomplish necessary modernization
of outdated plant and equipment. This assistance is provided in two
forms. First, the bill will make available $2 billion of long-term
loan guarantees (20 years or less) so that the Nation's railroads
-more-
- 3 -
can obtain badly needed modern equipment and facilities, and repair
deteriorating roadways at reasonable financing costs. If necessary,
the Secretary of Transportation would be authorized to pay varying
amounts of interest on these loans. Up to $200 million a year for
three years would be made available to the Secretary for this purpose.
This financing will be available when funds cannot be obtained
in private capital markets. It is one of the purposes of the program
that the financial condition of the rail industry be restored to the
point where the private sector will once again make capital available.
The bill also authorizes the Secretary to conduct research into
the design of a national rolling stock scheduling and control system
which would be capable of expediting the movement and improving the
utilization of freight cars and locomotives. Funding of $15 million
to conduct this study and initiate implementation of the system is
authorized.
In view of the rail system's role in our Nation's economy, I am
urging the Congress to give this measure immediate consideration.
The importance of regulatory reform to the efficiency of our
transportation system cannot be over-emphasized. While special
interests may resist these necessary changes, I am confident that the
benefits to the American people are, so great and so clear that the
Congress will act quickly.
-more-
- 4 -
While we are working with the Congress on this legislative
package we have a parallel responsibility to deal with the Northeast
rail problem which has already reached cricis proportions.
I consider the restructuring and rehabilitation of our northeast
rail system to be of the highest national priority. As required by
the Regional Rail Reorganization Act, the United States Railway
Association has developed and published a Preliminary System Plan
for the restructuring of the railroad system in that region. Under
the chairmanship of Secretary Coleman, I have established a task force
of the Economic Policy Board to review and assess this plan so that I
can move quickly to make informed and comprehensive decisions on a
Federal program for the northeast railroads. The task before us is
large. The need for success is enormous. We will not shrink from
recommending to the Congress substantial Federal investment and bold
restructuring measures to put the region's railroads on a sound and
enduring base.
As we grapple with the complexities of our rail freight problems,
we must deal with the interlocking concerns of a presently inadequate
rail passenger system. In this regard, the Department of Transportation
is nearing completion of detailed plans for significant upgrading of the
passenger service along the heavily traveled Washington-Boston line.
This project will include substantial right-of-way improvement so
that true high-speed passenger service can be put into operation in this
very densely populated and heavily traveled corridor.
-more-
- 5 -
As another part of our commitment to revitalizing passenger
service on the Nation's railroads, we have already submitted major
legislation to reform Amtrak. Much as been accomplished since Amtrak
began operations almost four years ago. On-board services have been
improved. New routes and equipment have been added, and during last
year's energy crisis, we found that many Americans used Amtrak trains
as an alternative to using their automobiles. However, much still
needs to be done to shape a viable system of inter-city rail passenger
service.
Amtrak must have firm, long-term funding commitments from the
Congress and the Executive Branch so that it can develop long-range
operating and capital plans. To this end, the Administration has
proposed a four-year authorization of $2 billion to meet Amtrak's
operating and capital requirements. If this long-term funding
commitment to rail passenger service is to be effective in developing
and promoting inter-city passenger service, Amtrak must have the
necessary flexibility and management discretion to implement efficient
service. At the present time, the responsibility for the promotion of
passenger service is fragmented among a host of Federal agencies.
Reducing regulatory and political control over Amtrak's management
system is essential. The Administration proposal is designed to
achieve this result. In addition, the bill will provide a more efficient
mechanism for States to initiate inter-city rail passenger service. I
believe this proposal will provide a sound basis for increasing the
effectiveness and efficiency of Amtrak operations.
-more-
- 6 -
The current economic downturn is having a very serious adverse
effect on employment in the railroad industry. Earnings have declined
by more than 15% and the industry has been forced to lay off large
numbers of employees. At the same time, railroads have substantially
reduced the maintenance of their physical plant. This, of course,
contributes to a further deterioration in rail facilities. In order
to arrest this physical deterioration and to provide job opportunities,
I intend to propose special legislation which will create a Federal
assistance program to provide jobs in the rail industry. I recognize
that this proposal will have an effect on the budget but it is my
judgment that the social dividends resulting from it are well worth
the cost. This program will avert further layoffs and, indeed,
increase employment within the rail industry. It will foster much
needed rehabilitation and improvement in the physical facilities of
the industry and effectively combat the further deterioration of the
Nation's rail transportation system.
While the Railroad Revitalization Act is a significant part of
our rail revitalization program, it is also a very important first
phase of my overall program to seek fundamental reform of the regulatory
practices which govern the economics of the entire transportation
industry. Such regulation, established long ago, in many instances
no longer serves to meet America's transportation or economic needs.
Consumers, too, often bear the costs of inefficient regulation in the
form of inadequate service and excessive cost. Therefore, I will soon
-more-
- 7 -
be submitting proposed legislative reforms for motor carrier, domestic
water carrier, and airline regulation. Taken together, these proposals,
could save consumers billions of dollars annually while improving
efficiency and conserve scarce energy resources.
America must have a modern, revitalized and efficient transportation
system to meet the needs and demands of our Nation's commerce.
Secretary Coleman and I stand ready to work closely with the Congress
to secure passage of legislation to achieve this objective.
####
or
DEPARTMENT
0
THE SECRETARY OF TRANSPORTATION
ONLITED
WASHINGTON, D.C. 20590
AMERICA
STATES
of
March 21, 1975
MEMORANDUM FOR HONORABLE JAMES T. LYNN
Director of Management and Budget
SUBJECT: Stimulating Employment Through a Federally Supported
Rail Rehabilitation Program
During the current economic downturn, railroad industry revenues have
declined sharply as car loadings (level of freight traffic) dropped 15 per-
cent below last year's level. This, in turn, has forced the industry to
reduce substantially its maintenance efforts. The result is that the
industry is experiencing both a high rate of unemployment and a more
rapid deterioration of its physical plant.
The total amount of deferred maintenance in the industry is not known
exactly but conservative estimates put the figure in the range of $5.5
to $7. 5 billion. Even at the 1974 level of maintenance, effort, which
involved the employment of 92, 000 workers, the backlog of deferred
maintenance was increasing annually. It is estimated that 10, 000
maintenance-of-way workers have already been laid off this year and
that an additional 20, 000 workers may be furloughed by June 1975.
Rail's rapidly eroding physical plant may soon result in a situation where
it would become a positive drag on the whole economy. The only alter-
natives then would be massive amounts of direct Federal assistance or
Federal ownership.
We believe that the present situation constitutes a unique opportunity to
undertake a Federally-assisted but industry managed effort to provide
more jobs while raising the industry's currently planned level of maintenance.
Such an effort would not only produce additional jobs in the railroad industry,
it would also have a substantial indirect job creating effect in the supporting
industries (e.g., steel, lumber, equipment, etc.). Such a program will
meet urgent national needs in a vital industry while stimulating employment,
and this would be far more productive than the public sector job programs.
This is a view that seems to be shared by many in the Congress, as evi-
denced by the several bills introduced by Senator Buckley, Congressman
Heinz, and others to authorize such a program. We strongly urge that the
Administration develop a better program of its own as a response to
Congressional initiative.
-2-
Attached to this memorandum are the specifications for such a program.
In summary, this Department recommends the following:
1.
A two-year program to assist the industry in expanding its
planned maintenance program;
2. For railroads in reorganization under the Regional Rail Re-
organization Act, Federal financial assistance would be in the
form of a grant for the costs of labor, material, and equipment
with a proviso that the benefits must accrue to ConRail. These
funds then would simply substitute for funds which the Federal
Government would be providing later to ConRail anyway;
3. For all other railroads grants would be available for the labor
portion of the costs associated with the Federal assisted
incremental maintenance program with loans available for the
related materials and equipment;
4. The loan provisions would be in the form of income related
debentures and would provide a flexible repayment scheme
for both interest and principal, based on the earnings perform-
ance of the individual railroads during the repayment period;
5.
The program anticipates a total authorization of $3 billion for
both the grant and the loan elements, with a $1 billion effort
in the first year and with $2 billion in the second year;
6. In order to ensure that the program is truly additive, i. e. ,
over and above that which the railroads would do with their
own resources, a maintenance of effort provision would be
required for participation.
7. To emphasize that the program is geared basically to the
current unemployment situation and is not a permanent
assumption by- the Federal Government of a role in normal
program maintenance, a "trigger" is employed which would
keep the program in effect only during periods when the
national unemployment rate exceeds 6% (or some other
appropriate figure);
8. Two-thirds of the funds would be apportioned among the rail-
roads on a formula basis and one-third would be left to the
discretion of the Secretary; and
9.
The program envisions project approval by the Secretary.
-3-
In addition, the proposal includes $95 million to accelerate efforts to
maintain and improve current passenger service on the Northeast
Corridor. This effort is envisioned as a continuation of the program
recently authorized as part of the Penn Central emergency legislation.
The additional $95 million will not in any way preempt decisions related
to the long term improvements required in the Northeast Corridor.
In total, this program should create 20, 000 additional jobs in the rail-
road industry and 35,000 jobs in related industries during the first
year. The second year job effect would be roughly double that of the
first year.
I recognize that this program will have an effect on the budget but the
total impact over the long run will be significantly smaller than the
total dollar amount because of loan repayment and the substitution of
ConRail assistance. Moreover, it is my judgment that the social
dividends resulting from whatever net cost is involved will be worth
the cost. It will help avert further layoffs and, indeed, should increase
the employment within the industry. It will foster much needed rehabil-
itation and improvement in the physical facilities of the industry and
ensure that the nation's rail transportation system will not deteriorate
further during this economic downturn.
A viable rail transportation system is fuel efficient and is needed to
ensure that the transport of bulk commodities and other resources can
be efficiently executed. The program should improve the safety record
of the industry. The program, itself, is temporary, but it also sets the
stage for and dovetails well with the financial assistance program included
in the Administration's proposed Railroad Transportation Improvement
Act. Finally, we sense a great deal of interest for such a program in
the Congress and, in the absence of an Administration proposal, we
will undoubtedly be forced into a reactive posture.
My staff and I are prepared to discuss this proposal with you in greater
detail as soon as possible.
SIGNED BY
WILLIAM T. COLEMAN,
William T. Coleman, Jr.
Attachment
Prep by: TPI-30:RFWalsh:gms:3-21-75
cc: S-1, 2, 10
TGC, TCI, FRA
TPI-1, 2, 3, 5, 30
DEPARTMENT of
THE DEPUTY SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
UNITED ST 4/15 OF ASSIRICA
March 24, 1975
7'le
MEMORANDUM FOR HONORABLE WALTER D. SCOTT
ASSOCIATE DIRECTOR ECONOMICS & GOVERNMEN
OFFICE OF MANAGEMENT AND BUDGET
June
Subject: Administration's 8 Rat 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.
John John W. Barnum
Lr
L. Finne
Attachments
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. Morewver, 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 mett, 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
approximately 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.
[April 1975]
RAILROAD PROPOSAL
As a part of our consideration of the proposal to revitalize
the Nation's railroads prepared by the Department of Trans-
portation, the President should focus on the near-term and
long-range implications of additional Federal involvement
with the railroads. The following questions are intended
to apply to all freight railroad operations (including the
bankrupt railroads of the Northeast Corridor but excluding
passenger rail service).
1. What is the nature of the railroad problem?
A. Short-term
Define dependency of Nation's commerce on the
railroads.
State with particularity their current financial
problems, with emphasis on their ability to raise
capital.
Other aspects of short-term
B. Long-term
Detail the competitive impact of other modes which
are Federally subsidized.
Detail impact of Federally economic regulations
Detail impact of archaic work rules
2. What is the proper Federal role?
Define Federal role in supporting competing modes
Can the Federal government allow the railroads to be
liquidated?
What are the risks of nationalization or partial nation-
alization (e.g., Federal ownership of rights-of-way)?
What are the proper State and local government roles?
Can we rationalize Federal aid to private corporations?
What will the impact be of additional government involve-
ment on the Federal budget?
2
3.
What will be the condition of the railroads if Congress
enacts the following additional railroad legislation:
A. Regulatory reform
B. $2 million loan guarantee
C. User charges on other modes to equalize impact of
taxes on competition
- motor carriers
- barges
4.
Assuming Congress enacts the above listed additional legis-
lation, is there still a need for additional Federal help?
If yes, what are the options? (See options paper being
prepared by DOT.)
To:
Officer-in-charge
Appointments Center
Room 060, OEOB
Please admit the following appointments on Tuesday, April 1
, 1975
for
meeting in Roosevelt Room Jim Canofon Domestic Council
(Name of person to be visited)
11:45 AM
(Agency)
The Vice President
Secretary Coleman
John Barnum
Asaph Hall
Robert Binder
Richard Walsh
Charles Swinburn
Eric Bershirs
Barrs Lewis
Rodney Eyster
John Snow
William Hamilton
Michael Browne
Lawrence McCaffrey Jr.
Lt. Commander W.T. Leland
James Cannon
Dick Dunham
Mike Duval
Bill Seidman
Frank Zarb
Secretary Lynn
Edward Schmults (Treasury)
Jack Marsh
MEETING LOCATION
Requested by Jeanne McLean
Building White Hosue West Wing
Room No.
Telephone
Room No.
Date of request
Additions and/or changes made by telephone should be limited to three (3) names or less.
DO NOT DUPLICATE THIS FORM.
APPOINTMENTS CENTER: SIG/OEOB - 395-6046 or WHITE HOUSE - 456-6742
FORD i LIBRAR
THE WHITE HOUSE
WASHINGTON
April 7, 1975
MEMORANDUM FOR
JIM CANNON
VIA:
DICK DUNHAM
JIM CAVANAUGH ART
FROM:
MIKE DUVAL
Whe
SUBJECT:
RAILROAD INITIATIVE
In following up with DOT staff on the meeting you chaired
in the Roosevelt Room with Secretary Coleman, et al., I
found out that you and the Vice President met with Coleman
and his staff late last week.
According to DOT's staff, the Vice President and you indicated
a strong desire to see if we could reprogram highway funds
into rail rehabilitation projects. Because this approach is
substantially different from the ideas discussed in the Roose-
velt Room, I thought I'd better come back to you for additional
guidance prior to moving forward with the memorandum to the
President.
I hope to go over a draft memorandum tomorrow or Wednesday
with DOT staff and would appreciate some guidance from you
as soon as possible.
THE WHITE HOUSE
INFORMATION
WASHINGTON
April 9, 1975
MEMORANDUM FOR
JIM CANNON
DICK DUNHAM
WALLY SCOTT
FROM:
MIKE DUVAL
Make
SUBJECT:
COLEMAN'S RAILROAD PROPOSAL
I had a meeting in my office yesterday evening with the DOT
staff to go over their draft decision memorandum to the
President on the railroad issue. See the attached outline
which lays out the alternatives they are considering.
I pointed out that, even under their Option 1, the railroad
funding ($1.2 billion) would constitute a net increase in
expenditures in FY '76. Although these would come out of
rescinded highway funds, it is an amount that the President
did not include in his highway budget but instead, requested
either rescission or deferral by Congress. In short, the
DOT proposal (realistically) assumes that Congress will not
buy the President's $5.2 billion highway level for FY '76.
Coleman's people are assuming that the Congress will defer
and rescind a lesser amount than the President has requested,
and that difference is the amount they hope to make up in
railroad expenditures.
I felt it was important that the Department put before the
President an honest option which would contain a new railroad
grant program but not result in increased DOT expenditures
over the President's FY '76 Budget. I also felt it was
important that the Department consider a direct highway-
railroad trade-off option.
Accordingly, the DOT staff is re-doing their paper with four
options. They will include:
1. A $1.2 billion railroad grant proposal which would
come out of the $5.2 billion highway funds proposed
in the President's FY '76 Budget. This will result
in no budgetary impact for FY '76 but one heck of
a controversial proposal.
2
2. DOT's Option 1.
3. DOT's Option 2.
4. Flexible use of the current highway program funds.
(This is an idea that I have not had an opportunity
to think through fully, but I will describe further
on in this memo.)
Once the four options are put together, DOT will call a meeting
of the following principals to discuss the ultimate decision
paper for the President: Jim Cannon, Jim Lynn, Secretary
Coleman, and appropriate staff.
A decision memorandum should be ready for the President early
next week. I have asked Warren Rustand to see if there would
be an hour on the President's schedule during the middle or
end of next week to discuss the DOT decision paper once we
get it.
Obviously, if the President goes to Congress with a proposal
to spend $1.2 billion (or any like amount) on railroads and
rescind an equal amount from highways, this will be met with
a stir of controversy and, in my judgment, a strong likelihood
of failure. It might be better to simply attempt to modify
the eligible uses of highway funds along the lines of the
1973 Federal-aid Highway Act, which permitted the use of
some of the urban systems money for mass transit projects.
I would envision a proposal which will permit the States to
use their highway apportioned funds for capital railroad proj-
ects. Interstate, urban or rural funds would be eligible. If
the State is working on a main line (trunk trackage) it would
be eligible for 90/10 funds and, for other lines, 70/30 money
would be available. I would recommend consideration of a
couple of incentives. First, to encourage the States to opt
for railroad projects, perhaps we could state that, for every
dollar apportioned to a State used for railroad projects, the
State would actually get $1.20, thereby increasing its State-
wide apportionment. Second, there could be some arrangement
whereby the Secretary of Transportation could allow 100% grants
if the project selected is energy critical. This might encour-
age the rehabilitation of spurs into the coal mining areas, etc.
This proposal could be consistent with our highway legislative
proposal because it would not matter whether the railroad proj-
ect was liquidated out of Trust Fund revenues or general revenues.
This whole matter is on a very fast track (sorry!) and I think
we should get together and discuss this today or tomorrow at
the latest.
Options for a Railroad Unemployment Program
I. The Department's Original Proposal
A. Amount
-
$3 billion
B. Length of Time - 27 months
C. Energy Emphasis -
Concentrates on mainline routes - 81% of which
handle coal
D. Rescission
- None
1.2
II. Option 1
1.2
A. Amount
- $1.2 billion
1.2
B. Length of Time -
15 months
C. Energy Emphasis -
Concentrates on mainline routes plus gives
priority to projects on mainline routes used
for coal haul
D. Rescission
-
$1.2 billion of highway funds
III. Option 2
A. Amount
- $1.2 billion
B. Length of Time -
15 months
C. Energy Emphasis - Same as Option 1
D. Rescission
- None
Options 1 and 2 above have been developed to meet the primary concerns
expressed at the March 31 meeting. These were:
4/8/75
2
1. That the program would have a substantial budget impact and,
therefore, violate the President's policy of no new initiatives;
2. That much of the employment effect of the proposal would come
at a time when the additional job creation effect would not be
needed because the economy would be on the road to recovery,
and
3. That the proposal should result in actions to meet the nation's
urgent need for moving ever increasing amounts of coal.
Option 1 has these advantages:
(a) It offsets the new authorizations. with an equal amount of existing
authorizations and thus over the long term does not add to Federal
spending. (There is, however, a short term increase in outlays.)
(b) It permits the Administration to initiate an urgent national pro-
gram by moving funds from a lower priority to a higher priority
transportation program.
(c) It is tied to three Administration objectives:
(1) assist the railroads;
(2) reduce unemployment, and
(3) meet our energy requirements.
The disadvantage of this option is that it will be difficult to sell a
highway authorization rescission on the Hill.
Option 2 has all the advantages of Option 1 plus removes its principal
Congressional obstacle. On the other hand Option 2 violates the President's
dictum of no new spending programs.
FORD i GERALD LIBRARY
95%
of
the
THE WHITE HOUSE
service
1,
WASHINGTON
April 12, 1975
pn
the
country.
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 railroad
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
668
Primary metals
608
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.
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.
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
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.
DIRECTMENT OF TRANSPORTATION
THE SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
UNITED STATES OF AMERICA
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,
But
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.
- 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.
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?
2
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.
OF
DEPARTMENT
THE SECRETARY OF TRANSPORTATION
WASHINGTON, D.C. 20590
UNITED
AMERICA
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 railroad 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 wi th 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
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 service 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
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.