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The original documents are located in Box 46, folder "1975/06/07 - Northeast and Midwest
Governors (2)" 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States of America his copyrights in all of his unpublished writings in National Archives collections.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
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 46 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
INDEX
Northeast/Midwest Rail Reorganization
Tab 1
-- Testimony by Secretary Coleman, May
1975
Tab 2
-- Key rail legislation dates (USRA Process)
Tab
3
-- Summary of Preliminary System Plan
Tab 4
- -
Controlled Transfer Concept
Tab 5
- - FRA Regulations for Subsidy Program
Tab 6 -- ConFac
Tab 7
-- Summary of Evaluation of the PSP made by the Interstate
Commerce Commission's Rail Services Planning Office
Rail Revitalization Act
Tab 8
--
Secretary's Statement and Fact Sheet on Rail
Revitalization Act
Tab 9
--
Need for the Rail Revitalization Act
Tab 10 -- Section-by-Section Analysis of Rail Revitalization Act
Tab 11 -- Proposed Bill
Rail Trust Fund
Tab 12 -- Analysis of Proposal
1
STATEMENT OF WILLIAM T. COLEMAN, JR., SECRETARY
OF TRANSPORTATION, BEFORE THE HOUSE COMMITTEE ON
INTERSTATE AND FOREIGN COMMERCE REGARDING THE
PRELIMINARY SYSTEM PLAN FOR RESTRUCTURING RAILROADS
IN THE NORTHEAST AND MIDWEST, TUESDAY, MAY 6, 1975.
Mr. Chairman and Members of the Committee:
It is a pleasure to appear before you today to discuss
the Preliminary System Plan prepared by the United States Railway
Association under the Regional Rail Reorganization Act of 1973.
These hearings are timely and constitute a very useful step in
laying the groundwork for considering the Final System Plan
which Congress will receive on July 26. That document will,
of course, provide the blueprint for the restructuring of the
seven bankrupt railroads in the Northeast and Midwest into a
regional rail system and will be a first step in the process of
revitalizing our national system.
At the outset, I would like to observe that the Preliminary
System Plan is an exceptional achievement that was realized only
by dint of the exceptional commitment of the USRA Board and staff.
Few of us appreciated one year ago the magnitude of the task presented
to USRA. That this task was completed on time and with distinction
is particularly due to the dedicated attention given to the task by all
of the Board members. There were sixteen Board meetings in the
2
eight-month period prior to issuance of the plan, a number of
which were for two days, and the members, representing the
diversity of interests required by the Act, acquitted themselves
in a manner which was consistent with the broader public
responsibility placed upon them. While the Board provided overall
policy direction, the management and staff of USRA worked
tirelessly during that period to produce this most important document.
I believe that USRA has the most capable railroad planning staff
assembled in the last four decades and feel that all of the people
at USRA deserve public recognition and gratitude for this product
and their continuing effort.
The Preliminary System Plan constitutes a comprehensive
attempt to solve the problems of the region's rail system. It
is, therefore, a significant policy-making document which, when
finalized, will have impacts which are far wider than the reorganization
of the region's bankrupt railroads. Because of this importance,
the President, through his Economic Policy Board, established a
task force chaired by me and composed of representatives of the
Departments of Justice and Treasury, the Office of Management
and Budget, and the Council of Economic Advisors to review the
major findings and conclusions of the Plan. That task force's analysis
3
will be completed in the next couple of weeks, and thus my
observations at this stage can only be tentative inasmuch as they
do not reflect the final product of that group.
One of the most important of the purposes of the Act and
goals of the Plan was the establishment of a rail service system
adequate to meet the needs of the region. A basic step in the
restructuring process was to determine which lines of the seven
bankrupt railroads would be continued in operation in the reorganized
system. The result of USRA's analysis in this regard would be
a system which ensures continuation of service for more than 95
percent of the total traffic handled by the bankrupt carriers.
I fully support the manner in which the Association carried
out the analysis on which this system is based. In particular,
I agree with the operating principle used by USRA that profitable
traffic should not be required to support or cross-subsidize traffic
on light-density or unprofitable lines. This principle was espoused
in Secretary Brinegar's February 1974 zone report on the region's
rail system, as well as in other reports, and we feel it is one of
the critical factors in establishing a viable rail system. Indeed,
the Act itself recognizes the principle by providing a program of
subsidies to reduce the impact on state and local communities of
the transition to the restructured system. We also agree with the
4
conclusion reached by USRA that the reduction of service called
for in the Plan does not, taken as a whole, produce a significant
adverse impact on the utilization of fuel resources or on the
environment. The Rail Services Planning Office also agreed with
that conclusion.
With respect to passenger service, the Plan recommends
establishment of a network of "corridor" services based on
restructuring existing services and adding four new routes.
Substantial additional analysis will have to be done to assess the
costs and benefits of such a system before we can confidently
accept or reject this proposal. However, I do wish to express
my support for the principle used by USRA that freight operations
should not subsidize passenger service. Application of this
principle of course, requires a system for allocating costs between
freight and passenger operations where there is joint use of
facilities. We are continuing to examine what is the most appropriate
system for such allocation.
The Plan's recommendation to separate most freight and
passenger service on the Northeast Corridor is one in which the
Department fully concurs. We further agree that freight carriers
5
presently operating in the Corridor and their successors should
not be saddled with the responsibility for ownership and maintenance
of the Corridor's passenger system but should, of course, pay their
fair porition of the cost of shared facilities. We are presently
studying the appropriate level of service in the Corridor, the
best means of financing its acquisition and improvement, and the
most appropriate ownership and management structure. The Final
System Plan should reflect the results of that study.
The Regional Rail Reorganization Act reflects a recognition
that, if rail services are to be improved in the region, there
must be substantial improvement in the system's economic performance.
This improvement can be achieved only by carefully analyzing the
cost of services delivered by the system as compared to the
revenues it produces, and restructuring it so that it is consistent
with the present and projected service needs of the region. USRA
concentrated its effort in this regard on properties of the bankrupt
carriers. The Three-System East proposal, which calls for
establishing ConRail and transferring certain properties of the
bankrupt carriers to the Norfolk & Western and/or the Chessie System,
was selected by USRA as the best structure, among those it analyzed,
to balance the objectives of achieving an economically viable system
and preserving a reasonable degree of competition among carriers
within the region.
6
The Plan also calls for a variety of projects under which
railroads share facilities through joint use arrangements and are
thereby able to downgrade or eliminate redundant facilities. It
should be noted that, while the proposed list of projects indicates
that the profitable railroads recognize the need for such arrangements
and are taking action to effectuate them, additional projects might
have been accomplished if more time were available. At the outset
of the planning process, the solvent railroads were slow in expressing
genuine interest in working out these arrangements, and it was
only towards the conclusion of the planning effort that they gave
closer attention to and expressed interest in carrying out these
projects.
Nevertheless, the system designed for ConRail would likely
be more efficient than that presently serving the region. Moreover,
the Three-System East structure will assure competition in its
major markets, and such competition among balanced carriers should
be a force for achieving greater economies in the future.
One other major goal of the Act was the creation of a
financially self-sustaining rail service system. The Act provides
up to $1.5 billion in Federal financial assistance to be used to carry
out its purposes, of which up to $1 billion is to be available to
ConRail. Thus, one of the critical questions is, or was, whether
7
ConRail can be financially self-sustaining within this limitation.
The Preliminary System Plan sets forth financial pro formas which
indicate that ConRail will improve the 1973 consolidated loss of
the bankrupt carriers of $221 million to a net loss in 1976 of $94
million, and, by 1985, ConRail is projected to have a net income
of $215 million. However, this can be achieved only with Federal
assistance of $2.9 billion in the first 10 years, almost three times
the amount presently available to it under the Act. All of the figures
I have given you are in inflated dollars.
These financial projections are preliminary and are based
on what is known as the ConRail I system which, in essence, is
the consolidated and restructured bankrupt system. This structure
was found by USRA to be the most profitable of those analyzed.
We have not yet determined what effect the Three-System East
proposal will have on those financial projections. It should also
be noted that the Preliminary System Plan's financial projections
do not reflect the impact of the recent economic downturn which
resulted in the worst quarter for the railroad industry in more than
40 years.
One reason for the large amount of Federal funds required
is the cost of rehabilitating the properties ConRail will acquire.
USRA estimates that cost at $2.3 billion, uninflated. As you may know,
8.
a group of engineers from the southern and western carriers
who reviewed the properties of the bankrupt carriers reported
to Secretary Brinegar and USRA that $4. 6 billion would be
necessary over eight years to rehabilitate the system. While
the gap between these two estimates reflects both definitional
and judgmental differences, it does suggest that USRA's estimate
is probably at the low end of the range.
In considering the level of the Federal assistance necessary
to make ConRail financially viable, it should be noted that such
assistance alone will not ensure ConRail's long-term viability.
That will be realized only if there is also substantial change in
the regulatory and operating constraints which now severely inhibit
self-sustaining operations. In other words, without adoption and
implementation of legislation along the lines of the Department's
proposed Rail Revitalization Act scheduled to be submitted this week,
the reorganization process carried out under this Act, even with
the $2. 9 billion of Federal assistance, can be considered only an
incomplete remedy.
In considering this projected need for Federal assistance,
some have suggested that the nation might be better off if the
Government were to purchase the track facilities and lease them back
to the railroads. The Preliminary System Plan describes various
9
means whereby the operating railroad, ConRail, can be separated
from the entity--dubbed ConFac--owning the properties and
responsible for maintaining them. The perceived advantages
of this approach are that it would reduce the Federal involvement
in the operating company and, if ConFac is wholly or partly
government owned, that it would provide greater security and
control of the property receiving Federal assistance.
In my opinion, a structure such as ConFac is totally
inappropriate as a solution to the problems presented in reorganizing
the bankrupt railroads. In the first place, ConFac, in and of
itself, is not a solution to any of those problems but rather is
simply a conduit for Federal assistance to ConRail to relieve or
reduce its debt structure and to meet future cash crises. Second,
such an entity would tend to encourage continuation of existing
uneconomic operations by making a permanent subsidy mechanism
available. Third, I believe ConFac would greatly alter the competitive
balance between ConRail and the other carriers and would thereby
create irresistable pressure over the long-run for expansion of
ConFac to ownership of the lives of competing carriers, and for
increased Federal assistance. Finally, such a structure is totally
unnecessary as a means of protecting the Federal investment or as a
means of reducing or eliminating inappropriate Government involvement
10
in the operation of ConRail. Both of these problems can be
handled either through the financing arrangements or by amending
the Act to change the Government's relationship to ConRail.
We are, of course, dealing in very short time frames
at this point since the Executive Committee of the USRA Board
is to submit the Final System Plan to the Board on June 26
and the Board is to submit the Plan to Congress on July 26.
The task force I am heading is completing its examination
of the many important issues raised in the Preliminary System
Plan. At the same time, USRA is continuing to review and
revise its plan in the light of the report of the Rail Services
Planning Office and to refine its financial projections to account
for
the impact of the economic downturn;
the revised Three-System East structure which
includes properties of the Erie-Lackawanna; and
revisions in the various operating assumptions
which underlie the financial projections.
We will be analyzing the results of USRA's work as they become
available to us.
I will be glad to answer any questions you might have.
2
Remaining Timetable of the Act
Until Conveyance of Properties to ConRail
June 26, 1975
USRA Executive Committee submits
Final System Plan to the Board of
Directors and to the ICC (§ 207(c)).
July 26, 1975
Approval of Final System Plan by
USRA Board (§ 207(c)).
August 25, 1975
ICC submits evaluation of Final
System Plan to Congress (§ 207(d)).
November 10, 1975
Final System Plan deemed approved
by Congress (60 calendar days of
continuous session after transmittal
to Congress on July 26, based on
recent Congressional calendar) (§ 208(a)).
90 Days After
Delivery of Final System Plan to
Congressional Approval
Special Court and to each Reorganization
(February 8, 1976)
Court (§ 209(c)).
100 Days After
Delivery by ConRail and solvent rail-
Congressional Approval
roads of compensation to Special Court
(February 18, 1976)
(§ 303(a)).
110 Days After
Conveyance of properties by estates to
Congressional Approval
ConRail and other solvent railroads
(February 28, 1976)
(§ 303(b)).
USRA Preliminary System Plan Summary
iconomic Decline of Industry
Much of the rail plant in the Northeast was constructed to meet local needs
rather than to serve regional and national transportation functions.
Coordination of rail lines was minimal, and as a result, the present net-
work is not the most efficient system that could have been designed.
Through the period of their development and continuing through the end of
World War II, railroads were the vital transportation link in the economic
growth of this country. Since that time, however, a far different rail
industry has evolved. Although railroads continue to be largest carrier
of intercity freight in terms of ton-miles, they no longer dominate inter-
city transportation. Efficient competing systems of transportation have
eroded the rail traffic base.
Revenue passenger miles declined 80 percent in the period 1947 through 1973
despite the accelerated growth in national passenger travel. High valued
commodities have been diverted from rail to truck. In 1947, the railroads
carried nearly two-thirds of intercity freight, but by 1973 that share had
dropped to 39 percent.
Sluggish traffic and revenue growth have depressed the railroads' financial
performance. Railroad earnings today are merely 3/4 of their 1947 level,
after adjustment for inflation. For some time, the cash generated by the
ailroad industry has not been sufficient to meet the capital requirements.
his, coupled with the low return on investment, has not been sufficient to
enable the railroads to finance capital expenditures through the issuance of
common stock.
Much of the discussion surrounding the plight of America's railroads fails to
grasp the complexity of the issue. There is no single cause and no simple
solution. Underlying all aspects of this problem is the significant differ-
ence in degree of public support enjoyed by the various transportation
systems. The current economic condition of the railroads is attributed to
many complex and interrelated factors, among the more important of which are:
1. The technological advancement of rival forms of transportation
since 1920, which resulted in continual change in the competi-
tive position of the rail industry.
2. Massive public support for truck, barge and airline technolo-
gies through provision of public funds for ground facilities
and rights-of-way.
3. Basic changes in underlying market conditions, due to
industrial shifts and changing traffic flows as heavy industry
and agriculture evolved to a service oriented, high-technology
economy.
AMOUNT GERALD R. TORD
2
4. The inability of the rail industry to adjust quickly to
changing market conditions, due to the fixed nature of
its facilities and the regulatory climate which
constrains managerial flexibility.
5. The deferred maintenance and physical deterioration which
has resulted from insufficient internal funds generated
through normal business activities.
Goals and Issues
The numerous statutory objectives of the Regional Rail Reorganization Act
are in many respects inconsistent with one another and range from the
establishment of a privately self-sustaining rail system to the preser-
vation of existing patterns of service. USRA interpreted the essence of
the various statutory objectives as the establishment (1) of an adequate
rail system and (2) a financially viable rail system. Three issues were
identified by USRA to focus public debate during the development of the
Final System Plan.
Federal Involvement
The amount of Federal financing required by ConRail will be substantially
larger than contemplated in the Act. If estimated Federal funding needs
for ConRail are provided, Federal debt will account for more than 50 percent
c outstanding debt for at least 20 years. Hence, under the provisions of
2 Act, a majority of the ConRail Board of Directors will be federally
appointed. In 1973 prices USRA estimates that total Federal financing
requirements by 1985 will be $3 billion. In contrast, the Act contemplated
a Federal involvement of roughly $1 billion to assist in the initial
capitalization of ConRail.
Notwithstanding the magnitude of the recommended Federal financial involve-
ment, USRA believes that the necessary Federal funding support can take
place in a manner which does not result in de facto nationalization.
However, USRA does not elaborate on the assertion. A separate corporation
which would own the rights-of-way is offered as one means for providing
massive Federal assistance while limiting Federal involvement in the opera-
ting entity.
Need for Balanced Public Policy
USRA asserts an absolute necessity of providing a more even balance in
public support policies and regulation of the various modes of transportation.
However, several points are made which imply a need for greater financial
support for the rail mode. First, shifting traffic from truck to rail would
(marginally) diminish the Nation's total energy bill for freight. Second,
there is a large backlog of deferred maintenance in the rail industry.
Third, the effect of inflation on the competitive position of rail as
compared with competing modes is uneven. Fourth, there is a natural hesitancy
provide government assistance to railroads because doing so seems to be
BERRED FORD
3
in conflict with the underlying philosophies of our free enterprise system.
Fifth, transportation must be regulated in a balanced manner that adds to
the strength of each mode.
The cross subsidy of uneconomical but essential public services has been
a longstanding practice in the regulation of common carriers. As a
consequence, a pattern has developed whereby the carriers, short of total
cessation, diminish the level (quality) of service on uneconomical business
in an attempt to minimize the overall deficit resulting from the cross
subsidization. This is not totally satisfactory to either the shipper or
the carrier. This was the pattern for passenger service prior to the
establishment of Amtrak. It is currently the pattern of service deteriora-
tion associated with uneconomical light density rail freight lines.
In the past, the burden of cross subsidy has fallen primarily on two
groups -- the owners of railroads (through reduced profit margins) and
certain freight shippers (through rates higher than otherwise would be
required). Since public policy relied on a flow of funds from these sources
that no longer is sustainable (partly because of other public policies),
the underlying concept is no longer valid. Recently, Government has begun
to assume a portion of the burden through direct and indirect subsidy pro-
grams.
The issue to be addressed now is how deficits are to be funded in the future.
USRA believes that abandonment of all deficit services is not an alterna-
tive, at least in the near term. The historical role of common carriage,
as well as programs such as Amtrak, commuter service subsidies and funding
inder Title IV of the Regional Rail Reorganization Act of 1973, all suggest
continuation of certain deficit rail services in the public interest.
The Regional Rail System
USRA recommends a "Three Carrier System" involving ConRail (consisting
basically of Penn Central), the Chessie and the Norfolk and Western (N&W).
Segments of the smaller bankrupts would be transferred to each of those
three carriers.
The recommended structure maintains competitive service at major points
(i.e., Newark, New York, Philadelphia, Allentown) on the eastern seaboard
which are presently served predominantly by bankrupt carriers. Further-
more it purports to achieve significant rationalization of plant (especially
in the New York State, New Jersey, and eastern Pennsylvania areas). Imple-
mentation of the recommended industry structure is contingent upon the
participation of Chessie and the Norfolk and Western.
In arriving at the recommended structure, USRA evaluated four alternative
industry structures for reorganizing the bankrupt railroads. They are:
1. ConRail I - a merger of all bankrupts.
FORD & LIBRARY
4
2. ConRail East and West - ConRail East as large eastern terminal
district railroad with the Western lines of Penn Central as a
ConRail West.
3. ConRail North and South - essentially a breakup of the Penn
Central along the lines of the former Pennsylvania and New York
Central railroads, and
4. ConRail/Neutral Terminal Companies - merger of the bankrupt lines
while concurrently providing solvent carrier access to the major
eastern markets.
USRA concluded that none of the four structures originally considered
demonstrate sufficient hope for financial viability to be offered as
the preliminary system plan. Of the four alternatives, ConRail I offered
the greatest chance for financial viability. However, merger of all
the bankrupts into a single entity was considered inconsistent with
other objectives of the Act relating to inter-railroad competition --
from the perspective of both shippers and solvent carriers.
ConRail I/Neutral Terminal Companies, the fourth alternative structure,
seemed to have more elements of a solution than any other alternative
structure.
Alternatives
Implementation of the Three Carrier System solution depends on the
successful conclusion of complex negotiations with N&W and Chessie.
Non-participation by one of the two solvents would require modification of
ne recommended structure but would not necessarily prevent implementa-
tion of the overall objectives of the recommended structure. However, if
both Chessie and N&W do not participate in the restructuring process on the
eastern seaboard, the whole concept of competitive railroading in the
region will be affected seriously.
If neither solvent participates, USRA recommends the establishment of
"MARC-EL" consisting of the smaller bankrupts in the Hid-Atlantic region
and the Erie Lackawanna (EL) extending west to Chicago, Cincinnati and
St. Louis (the Cincinnati and St. Louis routes will require trackage rights
over ConRail). The MARC-EL alternative would result in a less efficient
regional rail system. However, it would preserve inter-railroad competition.
Other Structures
Several other structures briefly evaluated by USRA should be noted.
1. Reduced ConRail System -- This would involve reducing the ConRail
System to roughly 11,000 miles rather than the recommended
15,000 miles. It would reduce overall capital requirements within
the ten year planning cycle from $3.4 billion to $2.6 billion.
However, it would not result in financial self-sufficiency and would
entail significant disruptions in existing patterns of service. It
would also result in greater labor dislocation.
GERALD R FORD
5
2. Controlled Liquidation -- This could represent an attractive
long-term solution to the region's rail viability problem. How-
ever, USRA concluded that because of difficulties involved in
implementation, the strategy was unfeasible.
3. Consolidated Facilities Corporation (CONFAC) -- Three variations
were identified: (a) a privately owned ConFac, (b) a government
owned ConFac, and (c) a mixed ownership ConFac. USRA stated that
a number of public policy, legal, tax and accounting questions
remain to be resolved before any recommendation regarding this
concept can be offered.
USRA, in its recommendations for improving the operations of the
restructured rail system, estimated annual cost savings of $79 million
by 1985 compared to 1973 levels. This figure takes into account the
anticipated ConRail increase in volume from 1976 to 1985.
USRA also believes another $30 million annually could be saved in the
amount of money the bankrupt carriers spend to use or hold the cars
of other lines. (The calculations are on the same basis as those that
were used for operations)
Light Density Lines
The light density line issue presented USRA with a significant challenge.
The 1974 DOT report dealt with solvent as well as bankrupt carriers, but
the Association's planning is concentrated on the light density lines of
the "railroads in reorganization." The DOT report found 15,575 miles
(approximately 25%) of the 61,000 miles of track studied as "potentially
excess". USRA found 9,600 miles of track of the bankrupt railroads as
appropriate for studies. Of that amount about 3,400 miles have been
recommended for inclusion in ConRail which would carry approximately
75% of total existing traffic. The remaining 6,200 miles of track
(also about 25% of total miles of track of the bankrupt railroads) are
available for abandonment or subsidy under Title IV of the Act. The
required subsidy level should be estimated using a formula developed by
RSPO. USRA evaluated such light density lines in light of its Congres-
sional mandate to provide "adequate service" through an "economically
viable" rail system. The inclusion of all light density linesin the
ConRail System would require a "cross subsidization" of the service
provided on those lines that do not generate revenues adequate to cover
costs.
It is the Association's judgment that the light density lines are a
significant part of the total industry problem in the Region. The over-
capacity of the system, the overlapping service areas of the bankrupt
carriers, the extremely poor physical condition of the light density
lines, the amount of money and material needed to upgrade the track, the
operating deficits on the light density lines - all made clear the
impossibility of building a restructured system with service continuing
on all branch lines. USRA included lines that could become financially FORD
GERALD
6
self-sustaining with small revenue increases and relatively short term
traffic growth and indicated that the other lines were available for the
rail continuation subsidies authorized by Title IV of the Act.
Impact on Communities and Shippers
The Region represents a significant portion of the Nation's economic
activity, containing approximately 38 percent of the employment,
55 percent of the personal income and 48 percent of the population of
the Nation. There could be a significant adverse local, industrywide
or regional impact from reductions in the size of the rail system.
However, four factors serve to diminish the potential widespread impacts.
First, the planning process is directed toward the revitalization of the
system as well as its restructuring, and many users will benefit greatly
from improvements in rail service. Second, the restructured system will
represent a sizeable portion of the Region's rail system. Virtually all
areas of the Region will continue to have access to rail service.
Third, the ubiquity of highways and the ready availability of private,
contract and common motor carriage serve further to diminish the poten-
tial impacts of reductions in the size of the rail system in any given
area. Fourth, the adverse economic effects of abandonments tend to be
minimal except for quite specific local communities and shippers that
are involved directly.
The methodology used by the Association almost automatically includes
those lines in ConRail whose volume of rail traffic is significant.
Any adverse effects of the discontinuance of service along certain rail
lines will flow into the area's economy through the impact on the
specific shippers that use them. The actual magnitude of the impacts
will depend on the effect of increased production costs on the firm's
market and profit and on the effectiveness of management in its attempts
to minimize potential adverse effects. These factors depend, in turn,
on the relative importance of transportation costs to total costs, the
availability and substitutability of other modes and the firm's ability
to pass cost increases forward through price increases. All these
factors vary from area to area and shipper to shipper.
Analysis of the potential area impacts from a reduction in the size of
the rail system indicate that the potential overall impact from the
termination of rail service on all of the potentially excess lines of
the DOT report represents a very small proportion of the counties'
existing economic bases. In only 15 of the 451 counties did the esti-
mated decrease in industrial employment exceed 1 percent and the
potential reduction in county income is less than 1 percent in 80 percent
of the counties. Finally the results indicate that the potential increase
in transportation costs as a percent of income is less than 1 percent in
99 percent of the counties studied. In only 32 of the 510 counties
studied do any of the projected impacts exceed 2 percent.
&
FORD
GERALD
NURSIT
7
In short, even the most pessimistic estimates of the adverse impacts on
the Region and areas within the Region indicate that the effect of the
suggested reduction in the size of the rail system would be negligible.
In contrast, the expected benefits to the users of the remaining
restructured system will far outweigh anticipated adverse impacts.
Financial Analysis
The financial statements presented in the PSP lead to the following main
conclusions:
1. ConRail will ultimately be a better operating railroad than any
of the bankrupts and is expected to break even and begin earning
a profit in its third year of operation. During its first year
of operations in 1976, ConRail is projected to show a $91 million
net loss, which would make it $130 million more prefitable than
the bankrupts, whose consolidated net loss totaled $221 million
in 1973. This decrease in net loss is not a result of operating
improvements, but is due primarily to the special accounting
treatment of given ConRail and to decreased interest expense (as
a result of restructuring the bankrupt railroads' indebtedness).
These two factors together account for a $156 million improvement
in net income in 1976.
By year ten ConRail earns a profit of $382 million, as compared
to a net loss of $91 million in its first year.
The $472 million improvement in net income from 1975 to 1985
results from the two-fold effects of revenue increases and opera-
ting cost controls. Most of the revenue increase comes from
higher freight volume and favorable changes in freight mix,
and reflects anticipated traffic growth and aggressive marketing.
The effects on consolidation, rationalization, and rehabilitation
greatly impact operating expense. Total operating expense in
1985 is $79 million less than in 1976, even though ConRail will be
handling more traffic.
Although improvement is shown for all operating expense categories,
the most significant efficiencies and cost savings are reflected
in transportation expense which is reduced from 46 percent of
revenue in 1976 to 39 percent of revenue in 1985. The reduction
results from rehabilitation of the railroad network and from the
implementation of improved car handling procedures and systems.
2. The levels of operational efficiency which will be achieved by
ConRail are expected to be better than railroad industry averages.
In*1985 ConRail is expected to have an operating ratio (operating
expenses divided by operating revenues) of 71.7, which compares
very favorably with the current operating ratios of all of the
solvent railroads in the industry.
LIDERAL GERALD R. FORD
3. Such operating efficiencies can, however, only be achieved at
the expense of massive investment in fixed plant. The cost
of rehabilitating ConRail's facilities during the 1976 to 1985
time period is estimated to be $1.9 billion in 1973 dollars
and $3.9 billion in inflated dollars.
4. In order to support a negative cash flow from operations in the
early years, and then to fund the necessary massive investments
in fixed plant, ConRail will have to accumulate significant
amounts of debt. By 1985, ConRail's financial structure, when
inflation is taken into account, will contain some $500 million
in equipment obligations and some $3 billion in "other" debt.
5. Despite the high level of operational efficiency achieved by
ConRail in 1935, its debt load will be so great and its interest
charges so high that when the effects of inflation are considered,
both net income and fixed charge charge coverage will be low. It
is unlikely that the private sector would find ConRail an attrac-
tive debt investment and the $3 billion in "other" debt would
probably need to be Federally funded or Federally supported. In
1985, ConRail's fixed charge coverage is projected to be 1.61,
which is far below any cutoff point normally accepted by private
sector investors.
6. The level of Federal funding is far beyond the amount which were
contemplated by the Regional Rail Reorganization Act, which now
provides only $1 billion. Moreover, Federal involvement in that
amount of financing would mean that the period in which more than
50 percent of ConRail's debt would be "Federal" would be more than
twenty years, during which time the majority of ConRail's board
would be appointed by the Government.
Passenger Service in Region
USRA includes a general discussion and analysis of the present condition
and expected market for rail passenger service in the Region, and concludes
that only in the Northeast Corridor is there sufficient justification to
support the expenditures required to upgrade the raillroad for high speed
passenger service.
By 1982, coexistence of freight and passenger service on the NEC will
result in either exorbitantly high investment cost to install additional
freight trackage or include capacity constraints that will result in the
inability to handle the expected patronage and provide adequate service
to shippers. As a result, the USRA is recommending ttihe removal of most
of the through freight traffic from the Penn Central NEC right-of-way
and upgrading parallel routes to handle this freight traffic. It is
estimated there is an approximate 4:1 capital cost adivantage in favor of
the USRA recommendation. Because of the decision to: move the freight off
the Penn Central right-of-way, the NEC rail properties are not included
in the PSP.
FORD
GERALD
9
The PSP does not provide recommendations regarding ownership and
operational responsibilities of the NEC but summarizes three alterna-
tives:
1. A Federal Corporation/Regional Authority, Amtrak, and a Fixed
Plant Entity. The latter being a variant of ConFac.
2. Finally, the PSP states the Department is preparing a detailed
plan for specific improvement to the NEC which will be avail-
able at the time of the Final System Plan.
3. USRA summarizes current Amtrak service deficiencies as: equip-
ment failures; on time performance and reservation grievances.
It suggests that a strategy be developed (as in the Amtrak Five-
year Plan) to concentrate funding to major improvements of a
small number of Corridors. Three major criteria (previously used
by DOT in developing the original Amtrak route structure) were
used:
end point cities with Standard Metropolitan Statistical
Area (SMSA) population of one million persons or more.
distance of 300 miles or less between points.
rail right-of-way with potential for upgrading to average
speeds competitive with highway.
In addition to major improvement of the Northeast Corridor, the Association
recommends the development of 16 passenger corridors:
Number of Daily
Transit Time
round trips
Chicago to Milwaukee
1'15"
10
New York to Buffalo
7'20"
(4)
Chicago to St. Louis
4'30"
4
Chicago to Detroit
5'00"
4
*
Detroit to Cincinnati
5'30"
2
Pittsburgh to Indianapolis
7'30"
2
Chicago to Cincinnati
6'15"
3
Cleveland to Pittsburgh
3'00"
3
Cleveland to Cincinnati
5'30"
3
Cleveland to Buffalo
3'15"
2
Philadelphia to Pittsburgh
7'00"
2
Washington to Pittsburgh
6'00"
2
Washington to Norfolk
4'00"
2
Detroit to Buffalo
5'00"
1
*
Cleveland to Chicago
5'45"
3
Indianapolis to St. Louis
4'00"
2
(4)
3 round-trips Buffalo to Syracuse; 4 round-trips Syracuse to
i
FORD
Albany; 7 round-trips Albany to New York.
*
GERALD
No service presently.
10
This results in a 20 percent increase in daily train miles offered
(from 75,000 to 90,000) while increasing the current annual opera-
ting deficit less than 7 percent. In addition the result will bei an
integrated network of corridor trains offering service to major
population centers in the region.
In general, it is assumed that full implementation of the recommended
concept after completion of the detailed planning and market analysis
required would take from three to seven years. In most cases the
proposed speeds cannot be obtained without significant right-of-way
improvement. In addition, time is required to meet equipment needs
either through new production or major refurbishment.
&
FORD
GERALD
CONTROLLED TRANSFER
Some believe that a more desirable restructuring than that
proposed by USRA could be effectuated by transferring the properties
of the bankrupts to existing solvent railroads. Such an approach is
called "controlled transfer. "
The ultimate objective of controlled transfer is to effect an
industry structure in the Midwest and Northeast region which will
improve the level of service, economic efficiency and viability
of the region's rail industry and avoid nationalization. Other objec-
tives related to the implementation of the desired industry structure
include: minimizing Federal financial assistance; avoiding unneces-
sary industry instability; and minimizing the time required to
complete the process.
A principal advantage of contrólled transfer is that it permits
a realignment of the industry's competitive structure and, thereby,
effects a fundamental improvement in the economic efficiency of the
-2-
region's rail system. The potential benefits of this derive from the
following factors. First, intra-regional transfers of a parallel type
will permit a significant reduction of the region's excess rail
capacity. Excess capacity has been identified in numerous studies
as a fundamental cause of the region's rail viability problem. Second,
transfers of an end-to-end type, primarily inter-regional, could lead
to the establishment of a national rail system in which a greater
proportion of the origin to destination movements are under the
control of a single management more capable of providing competitive
service with alternative modes. A further advantage of end-to-end
mergers is a lessening of the inter-regional rate division problem,
one which could be corrected either through end-to-end trans-
continental mergers or regulatory reform.
A second principal advantage of controlled transfer is that it
relies upon private enterprise to manage the region's rail system
(albeit initially aided by Federal financial assistance). The advantage
of this derives from the observation that incentives for and pressures
upon private enterprise are more likely to result in efficient opera-
tions than would result from a publicly controlled ConRail. Controlled
transfer of all the bankrupt properties to solvent railroads would
avoid the inherent problem of a publicly controlled ConRail. A
related management advantage of controlled transfer is that it
-3-
disaggregates the region's railroad problem (as embodied in the
bankrupt estates) into smaller and, thereby, more manageable portions
and spreads the "management" problem among two or more proven,
successful management teams.
Another potential advantage of controlled transfer is that it
will be able to employ the financial resources of the acquiring rail-
roads. To the extent that the acquiring carriers contribute financially
to the acquisition and rehabilitation of the bankrupt properties, the
Federal financial exposure will be reduced.
Under a successful controlled transfer process, solvent rail-
roads in the Northeast and/or in other parts of the country would
purchase and operate properties of the Penn Central and other bankrupt
lines in the Northeast. Negotiations would be conducted with the
solvent railroads in order to arrive at an agreement for acquisition
of the properties either from ConRail or directly from the estates of
the bankrupt railroads. There are numerous control elements about
which the transfer process can be structured. These include the size
and vehicle of Federal financial assistance, the manner in which the
properties are packaged, the timing of the property transfer, and
eligibility standards for solvent participation.
The process will be designed so that, if it does not result in
the establishment of a more efficient and viable railroad operation than
-4-
would be achieved by a permanent operating ConRail, ConRail would
be created or continued as proposed in the PSP. Thus, in any event,
the level and extent of service designated in the PSP would be provided.
It is not clear yet how the solvent railroads will respond to this
opportunity, but some solvent railroads already find the proposition
worthy of exploration. While the USRA Board has selected the
Three Carriers East system structure, it has not decided whether
to recommend a controlled transfer process.
3
TUESDAY, JANUARY 28, 1975
WASHINGTON, D.C.
OF
Volume 40 Number 19
MATIONAL THE ARCHIVES LITTERS SCRIPTA MARET STITES THE UNITED
PART II
*
1934
DEPARTMENT OF
TRANSPORTATION
Federal Railroad
Administration
и
federal
CONTINUATION OF
LOCAL RAIL SERVICE
Procedures and Requirements Regarding
Applications and Disbursement
4232
RULES AND REGULATIONS
RULES AND REGULATIONS
4233
Title 49-Transportation
jobs, energy shortages, and degradation
zations, and governmental entities filed
comments in response to this publication
Clarification was also sought as to
of the environment.
has modified this submission date in the
The States also inquired as to the
CHAPTER II-FEDERAL RAILROAD AD-
To facilitate this transition, the Con-
and each comment was given due con
whether costs incurred by a State in
regulations to afford the States addi-
meaning of the proviso in subsection
MINISTRATION, DEPARTMENT OF
sideration by FRA. As a result of the
developing its State Rail Plan for rail
gress provided for basic entitlement
tional time to develop the State Rail
403(a) of the Act and its reference to
TRANSPORTATION
funds and discretionary funds, under
comments received, and the passage of
transportation and local rail services
Plan. Paragraph (d) of 255.9 of the
section 402 of the Act, and whether an
[FRA Economic Docket No. 3, Notice No. 2)
section 402 of the Act, as a source of
Pub. L. 93-488 (October 26, 1974) which
would have to be borne exclusively by
regulations provides that Phase I of the
entire State would be barred from ob-
PART 255-ASSISTANCE TO STATES AND
assistance for the continuation of local
amended the Act, several substan-
the State, or whether these costs were
State Rail Plan shall be submitted to
taining rail service continuation sub-
rail services in the region. Basic entitle-
tive changes are being made in the
eligible for consideration as part of its
the Administrator by May 15, 1975. Phase
LOCAL AND REGIONAL TRANSPORTA-
sidies, if it obtained a loan for a par-
ment funds are to be applied first to
regulations.
share of a rail service continuation sub-
II of the State Rail Plan shall be sub-
TION AUTHORITIES IN THE REGION
ticular rail service in the State. In Pub.
those eligible rail services to be discon-
The following issues were the subject
sidy. FRA has concluded that a State
FOR CONTINUATION OF LOCAL RAIL
mitted to the Administrator for approval
L. 93-488, the Congress amended this
SERVICES UNDER SECTION 402 OF
tinued as a result of the implementation
of the comments: (1) Eligibility of rail
may use a reasonable proportion of its
within 30 days after the date of approval
proviso to clarify that a particular rail
TITLE IV OF THE REGIONAL RAIL RE-
of the Final System Plan and which the
services for Title IV assistance under the
Federal funds to assist in the develop-
of the Final System Plan by the Con-
service for which an applicant receives
ORGANIZATION ACT OF 1973
State determines should be continued.
Act; (2) funding for State rail planning;
ment of the State Rail Plan, provided
gress. Approval of the State Rail Plan
a loan under section 403 of the Act is no
In addition to meeting any deficien-
(3) definitive criteria which FRA will ap-
that the Final System Plan is approved
shall be evidenced by written notification
longer eligible to receive a rail service
Procedures and Requirements Regarding
cies in the basic entitlement funds as
ply in accepting or rejecting the State
by the Congress and the State Rail Plan
to the State. Inasmuch as the States will
Applications and Disbursement
continuation subsidy under section 402
provided in subsection 402(b)(1 of the
Rail Plan; (4) extension of the time
is approved by the Administrator. This
have knowledge of the Final System Plan
of the Act.
Proposed procedures and requirements
Act, discretionary funds will be available
period for the States to submit the State
assistance in the aggregate shall be lim-
during the period the Congress is con-
Several comments expressed dissatis-
regarding the filing of applications for
for the following purposes:
Rail Plan; (5) availability of data to the
ited to five (5) percent of the total Fed-
sidering it, sufficient time is provided for
faction with the manner in which the
and disbursement of rail service contin-
1. To assist an eligible applicant to
States which will be needed in the for-
eral funds otherwise provided to the
completion of Phase II of the State Rail
State agency has been or will be des-
uation subsidies under section 402 of the
pay allowable planning costs expended
mulation of the State Rail Plan; (6)
State under section 402 of the Act. The
Plan. States encountering unusual dif-
ignated to administer or coordinate the
Regional Rail Reorganization Act of
in developing its State Rail Plan, pro-
definitive criteria which will be used in
Federal share of an applicant's allowable
ficulties in meeting this requirement may
State Rail Plan for rail transportation
1973 ("Act") (45 U.S.C. 701 et. seq.)
vided that the Final System Plan is ap-
awarding discretionary funds; (7) use of
planning costs may not exceed 70 percent
apply to the Administrator for a waiver
and local rail services. Citizen input to
were published in the FEDERAL REGISTER
proved by the Congress and the State
basic entitlement funds for acquisition
of these costs. An applicant may expend
under § 255.17 of the regulations. How-
the designation or planning processes, or
on April 5, 1974 (39 FR 12528). Section
Rail Plan is approved by the Adminis-
and modernization; (8) eligibility for
additional funds for planning other than
ever, FRA believes that the actions of
vigorous Federal controls, were sought
402 of the Act establishes a transitional
trator and provided further that this
rail service continuation subsidies after
its matching share.
the United States Railway Association
to ensure that the designated State
program, whereby the Secretary of
assistance in the aggregate shall be
receiving an acquisition or moderniza-
Some States requested that FRA de-
("Association") in providing the States
agency reflects the public interest The
Transportation ("Secretary") or his dele-
limited to five percent of the total Fed-
tion loan or both; (9) standards for
velop definitive criteria to be used in
with the data necessary for the prepara-
Act, however, does not make any pro-
gate, in accordance with the regulations
eral funds otherwise provided to the
determining a designated State agency;
accepting or rejecting the State Rail
tion of their State Rail Plans, and in
vision for FRA intervention into the des-
issued by the Department of Transpor-
State under section 402 of the Act. The
(10) eligibility of a local or regional
Plan. The only criterion which FRA will
otherwise aiding a State or a local or
ignation process. Thus, FRA will accept
tation shall provide financial assistance
Federal share of an applicant's allow-
transportation authority to receive basic
employ in accepting or rejecting a State
regional transportation authority in its
the designation of a particular State
to a State or a local or regional trans-
able planning costs may not exceed 70
entitlement funds directly; (11) require-
Rail Plan will be whether it complies
planning efforts, as well as the assist-
agency if it determines that it meets
portation authority in the northeast and
percent of these costs. An applicant may
ment that a local or regional transporta-
with the requirements of the statute and
ance of the Rail Services Planning Office,
the requirements under section 402(c) of
midwest region of the United States for
expend additional funds for planning
tion authority contribute at least a 30
regulations, as required under subsection
will make the need for waiver the excep-
the Act. In addition, paragraph (a) of
the continuation of local rail services.
other than its matching share
percent matching share of the total pro-
402(c) of the Act.
tion rather than the rule.
§ 255.9 of the regulations does require a
Section 402 of the Act provides that
2. To assist the States in providing rail
gram; (12) eligibility of the States of
To assist the States in responding
Many States urged that the regula-
State to provide an opportunity for
a State in the region is eligible to receive
service continuation subsidies to those
Wisconsin, Kentucky, and Missouri for
quickly to the Final System Plan, to fa-
tions provide that all commercial and
public and private agencies, and other
assistance if:
rail services to be discontinued as a
basic entitlement funds; and (13) regu-
cilitate a rapid review of a State Rail
financial data relevant to the restructur-
interested persons, to participate in the
1. The State has established a State
result of the implementation of the Final
lations for filing applications for assist
Plan by FRA, and to assess the States'
ing process be made available to a State,
development of the State Rail Plan.
Rail Plan for rail transportation and
System Plan in instances where basic
ance under section 403 of the Act. Each
total funding requirements, provision has
or a local or regional transportation au-
It was also contended that a reading
local rail services which is administered
entitlement funds are used to the maxi-
of these issues is discussed below.
been made in paragraph (b) of § 255.9
thority, to assist them in formulating the
of sections 402 and 403 of the Act made
or coordinated by a designated State
mum extent available but are insufficient
There was objection to the requirement
of the regulations for a two phase State
State Rail Plan. They further urged that
local or regional transportation author-
agency and such plan provides for the
to provide for the continuation of these
in the proposed regulations that only
planning process. Phase I and Phase II
definite procedures be established to
ities eligible to receive basic entitlement
equitable distribution of such subsidies
services;
those local rail services proposed to be
of the planning process will constitute
guarantee that the States receive data
funds directly. FRA disagrees with this
among State, local, and regional trans-
3. To assist an eligible applicant in a
discontinued or abandoned under section
the State Rail Plan.
on a timely basis. The Association is
view because subsection 402(b) (1) of
portation authorities;
State contiguous to a State in the region
304 of the Act as a result of the adoption
Phase I of the State Rail Plan will be
currently receiving, compiling, and
the Act provides that each State is en-
2. The State agency has authority and
having a portion of its territory located
of the Final System Plan could be con-
required to explain in detail how the
making available to the States data with
titled to receive these funds and does not
administrative jurisdiction to develop,
in the region, which is not eligible for
tinued, acquired or modernized with sec-
State intends to conduct its assistance
respect to those services of the railroads
make any reference to local or regional
promote, supervise, and support safe,
basic entitlement funds under subsection
tion 402 assistance. The Congress has
program. This shall include identifica-
in reorganization which may be threat-
authorities. The only sections making
adequate, and efficient rail services; em-
402(b) (1) of the Act in providing rail
amended the Act in Pub. L. 93-488 to
tion of the data to be acquired on the
ened with discontinuance as a result of
local or regional authorities eligible to
ploys or will employ, directly or indi-
service continuation subsidies;
clarify the eligibility requirement under
rail system in the State, the methodology
the implementation of the Final System
receive direct assistance are sections
rectly, sufficient trained and qualified
4. To assist an eligible applicant in the
section 402 and $ 255.3 of the regulations
to be used in determining which essen-
Plan. The Association has indicated its
402(b) (2) and 403 of the Act. However,
personnel; and maintains or will main-
acquisition and modernization of rail
has been revised accordingly. The statu-
tial rail services should be continued, the
willingness to work with the States in
local or regional transportation author-
tain adequate programs of investigation,
properties as provided in sections 402
tory amendment is as follows:
criteria to be employed in ranking these
analyzing the services of the other rail-
ities may only be direct recipients of dis-
research, promotion, and development
(b) (2) and 403 of the Act; and
Rail freight services eligible for rail
services according to their service prior-
roads in the region which are candidates
cretionary funds under section 402 of
with provision for public participation;
5. To assist an eligible applicant in
service continuation subsidies pursuant to
ity, and an explanation of the goals to
for assistance. Therefore, FRA does not
the Act if their projects are consistent
3. The State provides satisfactory as-
providing rail service continuation sub-
subsection (b) of section [402] are-
be used in the development of the State
believe it is necessary to promulgate
with the State Rail Plan and they are
surance that such fiscal control and
sidies to the remaining rail services in
(A) those rail services of railroads in re-
Rail Plan. The States will be required
regulations regarding data availability.
eligible under paragraph (b) of § 255.5
fund accounting procedures will be
the region whch are eligible under sec-
organization in the region which the final
to apply the Phase I methodology, cri-
An issue raised by the comments but
of the regulations.
adopted as may be necessary to assure
tion 255.3 of the regulations, other than
system plan does not designate to be
teria, and goals to Phase II of the State
not addressed in the proposed rules is
Similarly, it was argued that the
proper disbursement of, and accounting
those discontinued in response to the
continued:
Rail Plan in response to and consistent
whether definitive criteria would be de-
matching share requirement under sec-
for, Federal funds paid under Title IV
Final System Plan, and which have been
(B) those rail services in the region which
with the Final System Plan.
veloped and employed with respect to the
of the Act to the State; and
identified in the State Rail Plan as can-
In Phase II, the States shall identify:
availability of discretionary funds. Dis-
tion 402 of the Act refers only to a State
have been at any time during the 5 year
4. The State complies with the regu-
didates for subsidy, in instances where
period prior to the date of enactment of this
1. The specific data utilized;
cretionary funds under subsection 402
and not to a local or regional transporta-
basic entitlement funds under subsection
Act, or which are subsequent to the date of
(b) (2) of the Act will be available on the
tion authority. Comments cited subsec-
lations of the Secretary issued under
402(b) (1) of the Act are insufficient to
enactment of this Act, owned, leased, or
2. The specific services which should
tion 402(a) of the Act, which refers only
this section.
ensure continuation of these services.
operated by a State agency or a local or
be continued as determined by the ap-
basis of the criteria discussed in para-
to Federal and State matching shares.
regional transportation authority or with
plication of the Phase I methodology,
graph (b) of 8 255.7 of the regulations.
This section, however, makes clear that
The section 402 assistance program
In reviewing requests for discretionary
respect to which a State, a political subdivi-
criteria, and goals;
under the Act is meant to facilitate the
It was further submitted that a read-
with respect to basic entitlement funds
funds, the Federal Railroad Administra-
sion thereof, or a local or regional transporta-
3. The order of funding priority of
transition from the existing rail system
ing of sections 402 and 403 of the Act in-
the Federal share shall be 70 percent and
tion ("FRA") will give consideration to
tion authority has invested at any time dur-
those services; and
dicates that a State may utilize basic
the State share shall be 30 percent. With
in the region to a more efficient system.
this general set of priorities.
ing the 5 year period prior to the date of
4. The amount and form of the assist-
During this period of transition, interim
enactment of this Act, or invests subsequent
ance required.
entitlement funds for acquisition and
respect to discretionary funds, the State
assistance will enable States and locali-
As previously noted, proposed proce-
to the date of enactment of this Act, substan-
share shall be a minimum of 30 percent.
dures and requirements regarding the
Another comment was that the re-
modernization. The FRA does not agree
ties to continue local rail services which
tial sums for improvement or maintenance
Thus, the Federal share may not be more
filing of applications for and disburse-
of rail service; and
quirement that a State submit its State
with this view. Only subsection 402(b)
than 70 percent, but may be less with
are not designated for preservation in
ment of rail service continuation subsi-
(C) those rail services in the region with
Rail Plan to the Administrator within 45
the Final System Plan, but should be
(2) of the Act specifically authorizes the
respect to the discretionary portion of
continued at least on an interim basis
dies under section 402 of the Act were
respect to which the Commission issues a
days of the date of the submission of
Secretary to provide discretionary funds
the program. This ratio is also main-
due to the excessive cost of abandon-
published in the FEDERAL REGISTER on
certificate of abandonment effective on or
the Final System Plan to the Congress
"for the purposes enumerated in section
tained with respect to section 403 as-
April 5, 1974. Numerous persons, organi-
after the date of enactment of this Act.
ment of these services in terms of lost
does not allow sufficient time for com-
403" which includes acquisition and
sistance. Accordingly, FRA has concluded
plete and comprehensive planning. FRA
that it was the intent of Congress that
modernization.
the Federal share may not exceed 70
FEDERAL REGISTER, VOL. 40, NO. 19-TUESDAY, JANUARY 28, 1975
FEDERAL REGISTER, VOL. 40, NO. 19-TUESDAY, JANUARY 28, 1975
4234
RULES AND REGULATIONS
RULES AND REGULATIONS
4235
percent of either the basic entitlement or
Rail Plan to administer or coordinate
(b) Those rail services in the region
region is eligible to receive discretionary
otherwise provided to the State under
no longer eligible for a rail service con-
the discretionary programs and that all
that plan as provided in subsection 402
participants in these programs must pro-
which have been at any time during the
funds if:
section 402 of the Act. The Federal share
tinuation subsidy under section 402 of
(c) (1) of the Act and paragraph (a) of
5 year period prior to the date of enact-
(1) Its application is consistent with
of an applicant's allowable planning
the Act.
vide their matching shares. However, a
$ 255.5
State or a local or regional authority
ment of this Act, or which are subse-
an approved State Rail Plan;
costs may not exceed 70 percent of these
(h) "Discretionary funds" means fi-
§ 255.9 Requirements for State Rail
may obtain its matching share from
quent to the date of enactment of this
(2) It provides assurances that it has
costs. An applicant may expend addi-
nancial assistance, in addition to the
Plan for Rail Transportation and
shippers or other available sources.
Act, owned, leased, or operated by a State
adequate authority and administrative
tional funds for planning other than its
Local Rail Services.
basic entitlement funds, as provided by
It was further contended that the
agency or a local or regional transporta-
jurisdiction and fiscal controls consist-
matching share.
subsections 402(b) (2) and 402(i) of the
State of Wisconsin should be eligible for
tion authority or with respect to which
ent with those required by paragraphs
(ii) To assist the States in providing
(a) State planning process. Consistent
Act.
a State, a political subdivision thereof, or
(a) (2) and (3) of this section; and
rail service continuation subsidies to
with the purposes of the Act, the State
basic entitlement funds, in accordance
(i) "Final System Plan" means the
with the definition of the term "region"
a local or regional transportation au-
(3) It complies with the regulations
those rail services to be discontinued as
Rail Plan required under $ 255.5(a) shall
plan of reorganization for the restruc-
thority has invested at any time during
of the Administrator prescribed in this
a result of the implementation of the
be based upon a comprehensive and co-
under subsection 102(13) of the Act.
ture, rehabilitation, and modernization
the 5 year period prior to the date of en-
part and with terms and conditions in-
Final System Plan in instances where
ordinated planning process for the provi-
However, FRA has concluded that only
of railroads in reorganization prepared
actment of this Act, or invests subse-
cluded in the grant of assistance.
basic entitlement funds are used to the
sion of rail transportation services in the
those States enumerated in subsection
under section 206 and approved under
quent to the date of enactment of this
maximum extent available but are in-
State, which are essential to meet the
102(13) of the Act as existing entirely
section 208 of the Act.
Act, substantial sums for improvement
§ 255.7 Rail Service Continuation As-
sufficient to provide for the continuation
economic, environmental and energy
within the region, including the District
(j) "Office" means the Rail Services
sistance.
or maintenance of rail service; and
of these services;
needs of the citizens of that State, and
of Columbia, were intended-to be eligible
Planning Office established in the Com-
(c) Those rail services in the region
(a) Basic Entitlement Funds. (1)
(iii) To assist an eligible applicant in
to provide for the development of a co-
to receive basic entitlement funds. Wis-
mission under subsection 205(a) of the
with respect to which the Commission
Basic entitlement funds are to be allo-
a State contiguous to a State in the
ordinated and balanced transportation
consin, together with the States of Mis-
Act.
issues a certificate of abandonment ef-
cated to each State in the region in the
region, having a portion of its territory
system within the State or the affected
souri and Kentucky, remain eligible to
(k) "Rail properties" means assets or
fective on or after the date of enactment
ratio which the total mileage in each
located in the region, which is not eli-
portion thereof. This plan shall be de-
apply for discretionary funds, provided
rights owned, leased, or otherwise con-
of this Act.
State measured in point to point length
gible for basic entitlement funds under
veloped with opportunity for participa-
they comply with the requirements of
trolled by a railroad which are used or
(exclusive of yard tracks and sidings)
useful in rail transportation service; ex-
§ 255.5 Eligibility.
subsection 402(b) (1) of the Act, in pro-
tion by public and private agencies hav-
subsection 402(c) of the Act and with
bears to the total rail mileage in all the
viding rail service continuation subsidies;
ing authority and responsibility for rail
the regulations.
cept that the term, when used in con-
(a) State in the Region. A State in the
States in the region. The Administrator
There was also a request that the final
(iv) To assist an eligible applicant in
activity in the State and adjacent States
junction with the phrase "railroad
region is eligible to receive basic entitle-
has determined that the total track mile-
regulations include a provision imple-
leased, operated, or controlled by a rail-
the acquisition and modernization of rail
where appropriate. Provision shall be
ment funds and discretionary funds if:
age of all States in the region is 61,184
menting section 403 of the Act. Regula-
road in reorganization," may not include
miles; that the total track mileage in
properties as provided in sections 402(b)
made for affording interested persons,
(1) The State has established a State
(2) and 403 of the Act; and
such as users of rail transportation, labor
tions for section 403 of the Act will be
assets or rights owned, leased, or other-
Rail Plan for rail transportation and
each State in the region and their ratio
organizations, local governments, en-
published separately.
wise controlled by a Class I railroad
local rail services which meets the re-
to the total track mileage in the region
(v) To assist an eligible applicant in
vironmental groups and the public gen-
In consideration of the foregoing,
which is not wholly owned, operated, or
quirements of $ 255.9 and which is ad-
is as follows:
providing rail service continuation sub-
erally, timely opportunity to express
Title 49 of the Code of Federal Regula-
leased by a railroad in reorganization
ministered or coordinated by a desig-
sidies to the remaining rail services in
their views in the development of the
tions is amended by adding a new Part
but is controlled by a railroad in reor-
nated State agency, and such plan pro-
the region which are eligible under
Percent
Percent of
State Rail Plan. As part of the planning
255, to read as follows:
ganization.
vides for the equitable distribution of
State
State
total
basic en-
§ 255.3, other than those discontinued in
process, the designated State agency
(1) "Railroad in reorganization"
such subsidies among State, local and
mileage
miles in
titlement
response to the Final System Plan, and
REGULATIONS GOVERNING APPLICATIONS AND
region
shall establish procedures whereby local
means a railroad which is subject to a
regional transportation authorities;
which have been identified in the State
DISBURSEMENTS
and regional transportation authorities
bankruptcy proceeding and which has
(2) The State agency has authority
Rail Plan as candidates for subsidy, in
Sec.
Maine
not been determined by a court to be re-
1,666
2.7
3
may review and comment on appropriate
255.1
Definitions.
and administrative jurisdiction to de-
instances where basic entitlement funds
Now Hampshire
817
1.3
3
elements of the State Rail Plan.
organizable or not subject to reorganiza-
velop, promote, supervise, and support
ermont
766
1.3
3
under subsection 402(b) (1) of the Act
255.3
Applicability.
(b) Contents of the State Rail Plan.
tion under section 207(b) of the Act. A
Massachusetts
1,430
2.3
3
255.5
safe, adequate and efficient local rail
are insufficient to ensure continuation of
Eligibility.
Connecticut
664
1.1
3
The State Rail Plan for rail transpor-
255.7
Rail Service Continuation Assistance.
bankruptcy proceeding includes a pro-
services; employs or will employ, di-
District of Columbia.
30
0
3
these services.
tation and local rail services shall be
255.9
Requirements for State Rail Plan for
ceeding under section 77 of the Bank-
rectly or indirectly, sufficient trained and
Rhode Island
146
2
3
New York
5,595
9.1
9.1
In reviewing requests for discretionary
submitted to the Administrator in two
Rail Transportation and Local Rail
ruptcy Act (11 U.S.C. 205) and an equity
qualified personnel; and maintains or
New Jersey
1,742
2.8
3
funds, the Administrator will give con-
phases.
Services.
receivership or equivalent proceeding.
will maintain adequate programs of
Pennsylvania
8,273
13.5
10
255.11
Applications.
Delaware
291
.5
3
sideration to this general set of priorities.
(1) As Phase I of the State Rail Plan,
255.13
(m) "Rail service continuation sub-
Disbursement of Rail Service Contin-
investigation, research, promotion, and
Maryland
1,110
1.8
3
(2) The Federal share of the total cost
a State shall submit a design of the State
sidies" means subsidies calculated in ac-
development with provision for public
Virginia
3,895
6.4
6.4
uation Assistance
cordance with the provisions of subsec-
participation;
West Virginia
3,569
5.8
5.8
of accomplishing those purposes for
planning process which is consistent with
255.15 Record, Audit, and Explanation.
Ohio
7,804
12.8
10
which discretionary funds are provided
the purposes of the Act and shall include:
255.17 Waivers and Modifications.
tion 205(d) (3) of the Act to cover the
(3) The State provides satisfactory
Indiana
6,405
10.5
10
costs of operating adequate and efficient
assurance that such fiscal control and
Michigan
6,159
10.1
10
shall not exceed 70 percent of that cost.
(i) An identification of the data to be
AUTHORITY: Regional Rail Reorganization
Illinois
10,822
17.7
10
The applicant shall provide the remain-
acquired on the rail network and rail
Act of 1973, as amended, 45 U.S.C. 701 et. seq.,
rail service in the region, including
fund accounting procedures will be
der of the cost. The applicant's share
services in the State (see paragraph (b)
The Department of Transportation Act, 49
where necessary, improvement and main-
adopted as may be necessary to assure
(2) The Federal share of the total
may not be augmented by any Federal
(2) (iv) of 255.9), the sources of this
U.S.C. 1651 et. seq.
tenance of tracks and related facilities.
proper disbursement of, and accounting
(n) "Region" means the States of
cost of providing rail service continua-
funds, directly or indirectly, unless the
data, and the methodology to be em-
REGULATIONS GOVERNING APPLICATIONS
for, Federal funds paid under this pro-
tion subsidies under subsection 402(b) (1)
funds are provided through a Federal
ployed in data collection. In considering
Connecticut, Delaware, Illinois, Indiana,
gram to the State; and
$ 255.1 Definitions.
Maine, Maryland, Massachusetts, Michi-
of the Act shall be 70 percent of that
program which specifically authorizes the
the scope of data collection activities
(4) The State complies with the re-
cost. The balance of such cost shall be
augmentation of a non-Federal share of
and subsequent analysis, it is anticipated
As used in this part-
gan, New Hampshire, New Jersey, New
quirements of the Administrator pre-
(a) "Act" means the Regional Rail
York, Ohio, Pennsylvania, Rhode Island,
scribed in this part and with the terms
provided by the State and the State
a federally subsidized program with
that time constraints and limitations of
and conditions included in the grant of
share may not be augmented by any
these funds.
the state-of-the-art will require that the
Reorganization Act of 1973, as amended.
Vermont, Virginia, West Virginia; the
Federal funds, directly or indirectly, un-
(c) Term of Rail Service Continuation
State provide a broad overview of all rail
(b) "Administrator" means the Fed-
District of Columbia; and those portions
assistance.
less the funds are provided through a
Subsidies. Rail Service continuation sub-
services in the State while concentrating
eral Railroad Administrator or the Dep-
of contiguous States in which are located
(b) Contiguous States. A State con-
tiguous to a State in the region having
Federal program which specifically au-
sidies between a State or a local or re-
most of its efforts on the services for
uty Administrator or his or her delegate.
rail properties owned or operated by
(c) "Applicant" means the designated
railroads doing business primarily in
a portion of its territory located in the
thorizes the augmentation of a non-
gional transportation authority and the
which it expects to require assistance in
those jurisdictions (as determined by the
region as determined by order of the
Federal share of a federally subsidized
Corporation or other responsible person
the immediate future.
State agency of a State in the region or
program with such funds.
(including a Government entity) may
(ii) Methodology to be used in the
a local or regional transportation au-
Commission by order, set out in Ap-
Commission, is eligible to receive discre-
pendix B).
(b) Discretionary Funds. (1) In addi-
not exceed a term of two years.
planning process, including that to be
thority in the region meeting the re-
tionary funds, provided that the ap-
(o) "State" means any State or the
proved State Rail Plan may be limited to
tion to meeting deficiencies in the basic
(d) Return of excess funds. Basic en-
used in selecting essential lines to be
quirements of 255.5.
District of Columbia.
entitlement funds as provided in sub-
titlement funds which are not expended
considered for assistance, and indicating
(d) "Association" means the United
that portion of the State which is within
(p) "State in the region" means the
section 402(b) (1) of the Act, discretion-
or committed by a State for rail service
consideration of the advisory criteria
States Railway Association.
the region, and the designated State
States enumerated in subsection 102(13)
ary funds will be available for the fol-
continuation subsidies as provided in sub-
published by the Office under subsection
(e) "Basic entitlement funds" means
agency may be either a State agency if it
205(d) (4) of the Act.
each State's share of the appropriated
of the Act.
lowing purposes:
section 402(b) (1) of the Act during the
meets the conditions of paragraph (a) of
(i) To assist an eligible applicant to
ensuing fiscal year shall be returned to
(iii) Criteria for setting priorities for
sums allocated to the States as provided
$ 255.3 Applicability.
in subsections 402(b) (1) and 402(i) of
this section, or a local or regional trans-
pay allowable planning costs expended
the Administrator who may use these
rail service to be considered for assist-
the Act for each fiscal year for the con-
The provisions of this part are ap-
portation authority within the region if it
in developing its State Rail Plan, pro-
funds as provided in subsection 402
ance. In determining which rail services
tinuation of local rail services.
plicable to rail freight services as fol-
meets the conditions of paragraph (c)
vided that the Final System Plan is ap-
(b) (2) of the Act.
will receive assistance, a State should
lows:
(f) "Commission" means the Inter-
proved by the Congress and the State
(e) Ineligibility for subsidy after re-
(a) Those rail services of railroads in
of this section.
give first consideration to eligible rail
Rail Plan is approved by the Adminis-
ceipt of a section 403 loan. Any rail serv-
state Commerce Commission.
reorganization in the region which the
(c) Local or Regional Transportation
rator and provided further that this as-
ice for which a State or a local or re-
freight services to be discontinued as a
(g) "Designated State agency" means
final system plan does not designate to
Authority in the Region. A local or re-
sistance in the aggregate shall be limited
gional transportation authority receives
result of implementation of the Final
the State agency designated in the State
be continued;
gional transportation authority in the
to five percent of the total Federal funds
a loan under section 403 of the Act is
System Plan.
FEDERAL REGISTER, VOL. 40, NO. 19-TUESDAY, JANUARY 28, 1975
FEDERAL REGISTER, VOL. 40, NO. 19-TUESDAY, JANUARY 28, 1975
RULES AND REGULATIONS
4237
4236
RULES AND REGULATIONS
the Act and the regulations under this
discretionary funds, the Administrator
tion of the cost of the project supplied
(iv) An explanation of the goals or
nomic, social, and environmental costs
State agencies and to ensure that local
part;
shall determine whether sufficient ap-
by other sources, and such other records
philosophical framework to be used in
and benefits involved in the use of alter-
and regional proposals are consistent
(11) An opinion of the counsel for ap-
propriated funds are available for a
as will facilitate an effective audit.
guiding the development of the State
nate modes, including costs resulting
with the State Rail Plan, applications for
plicant showing that he or she is fa-
particular service in view of the general
(b) The Administrator and the Comp-
Rail Plan. Part of this explanation should
from lost jobs, energy shortages, and the
assistance shall be submitted by or under
miliar with the corporate or other orga-
set of priorities set forth in paragraph
troller General of the United States, or
be specifically devoted to the expecta-
degradation of the environment; the
the coordination of the designated State
nizational powers of the applicant, that
(b) (1) of $ 255.7.
any of their duly authorized representa-
tions of the State for the future of rail
competitive or other effects on or by
agency. All applications for assistance,
the applicant is authorized to make the
tives shall, until the expiration of 3 years
services which receive a subsidy subse-
profitable railroads; methods of achiev-
whether by the designated State agency
application, and that the applicant has
$ 255.13 Disbursement of Rail Service
after completion of the project or under-
Continuation Assistance.
quent to the expiration of the rail service
ing economies in the cost of rail system
or a local or regional transportation au-
the requisite authority to carry out ac-
taking referred to in paragraph (a) of
continuation subsidy under the Act, in-
operations including consolidation, pool-
thority, shall be consistent with the ap-
tions proposed in the application and to
(a) Rail Service Continuation Subsi-
this section, have access for the purpose
cluding such considerations as likelihood
ing, and joint use or operation of lines,
proved State Rail Plan.
assume the responsibilities and obliga-
dies. After receipt, review and approval
of audit and examination to any books,
of profitability, continued State or local
facilities, and operating equipment;
(b) Contents. Each application for as-
tions created thereby;
of an application meeting the require-
documents, papers, and records of such
subsidy, assistance under section 403 of
analysis of the potentials for rehabilita-
sistance shall include:
(12) Certification that the applicant
ments of $ 255.11, the Administrator will
receipts which in the opinion of the
the Act, substitution of alternate modes,
tion and modernization of equipment,
(1) Full and correct name and princi-
is in compliance with Title VI of the Civil
enter into a grant agreement with an
Administrator or the Comptroller Gen-
and other long-term alternatives.
track, and other facilities; and an analy-
pal business address of applicant;
Rights Act of 1964, 78 Stat. 252, 42 U.S.C.
applicant for the Federal share of the
eral may be related or pertinent to the
(v) Description of the methods by
sis of the effects of abandonment with
(2) Name, title and address of the per-
2000d et seq. ("Civil Rights Act") and all
estimated amount of subsidy necessary to
grants, contracts, or other arrangements
which the State will involve local and
respect to the transportation needs of the
son to whom correspondence regarding
requirements imposed by Title 49, Code
continue the service described in the ap-
referred to in such paragraph.
regional transportation authorities in its
State;
the application should be addressed;
of Federal Regulations, Department of
plication. The Federal share of this
rail planning process, including its meth-
(v) Include a statement of the long-
(3) Detailed description of the services
amount shall be payable pro rata at the
§ 255.17 Waivers and Modifications.
Transportation, Subtitle A, Office of the
ods of providing for the equitable dis-
term strategy that the State will apply
for which assistance is sought, together
Secretary, Part 21, Nondiscrimination in
end of each quarter of any fiscal year
The Administrator may, with respect
tribution of subsidies among State, local,
to those rail services to receive assist-
with a map of those rail services, and
Federally-Assisted Programs of the De-
during the term of the grant agreement;
to individual requests, upon good cause
and regional transportation authorities.
ance, including such considerations as:
certification as to their inclusion in the
partment of Transportation ("Civil
provided that:
shown, waive or modify any requirement
(vi) A management plan for the de-
continuing subsidy; acquisition and mod-
State Rail Plan;
Rights Regulations"), and other perti-
(1) After nine months from the date of
of this part not required by law, or make
velopment of the State Rail Plan which
ernization; termination; and the provi-
(4) Evidence of review and coordina-
nent directives, and that, in accordance
the execution of the grant agreement,
any additional requirements he deems
shall include an identification of respon-
sion of substitute services; and
tion within the State in accordance with
with the Civil Rights Act, the Civil Rights
the estimate may be revised to reflect the
necessary.
sible individuals and a flow chart of ac-
(vi) Include a statement for those
the applicable sections of the approved
Regulations, and other pertinent direc-
actual revenues, costs, and rate of return
This notice is issued under the au-
tivities with milestones.
services to be acquired which describes
State Rail Plan as provided in para-
tives, no person in the United States
over that period; and
thority of 49 U.S.C. 1651 et. seq.
(2) Phase II of the State Rail Plan
the conditions and requirements of these
graphs (a) and (b) of 255.9;
shall, on the grounds of race, color, or
(2) The final payment under the grant
Issued in Washington, D.C. on Jan-
shall:
services, such as the rolling stock and
(5) Estimate of the total amount of
national origin, be excluded from par-
agreement shall only be made on the
(i) Contain general information with
assistance required to continue each
basis of an audit which has determined
uary 22, 1975.
the track improvements needed to pro-
ticipation in, be denied the benefits of,
ASAPH H. HALL,
respect to the physical plant, traffic, and
vide minimum service.
service and the Federal share of such as-
or be otherwise subjected to discrimina-
the actual revenues, costs, and rate of
Deputy Administrator.
service characteristics of the existing
(c) Adoption of State Rail Plan. An
sistance, designated as basic entitlement
tion under any program or activity for
return over the entire term of the agree-
rail system within the State;
original and nine (9) copies of each
funds or discretionary funds. Where ap-
ment;
APPENDIX A-CERTIFICATE
which the applicant receives assistance
(ii) Describe the planning process
Phase of the State Rail Plan, and any
plicable, this amount shall be calculated
from the Federal Railroad Administra-
Provided, however, That the amount of
The following is the form of the certificate
utilized in the development of the State
amendments thereto, shall be submitted
utilizing the standards for determining
tion, and the applicant will promptly take
Federal assistance may not be increased
to be made by each person signing an
Rail Plan, specifying the particulars as
with a certification by the Governor, or
"revenue attributable to the rail proper-
any measures necessary to effectuate this
unless the Administrator determines that
application.
certifies that he is the
to data sources, assumptions, and spe-
by his or her delegate, that the sub-
ties", "avoidable costs of providing serv-
agreement; and
the applicant has fulfilled its responsi-
(13) Such other information as the
(Name of Person)
cial problems or conditions which may
mission constitutes the State Rail Plan
ice", and "reasonable return on the
bilities for ensuring the proper and ef-
Chief Executive Officer of
be essential to the understanding of the
or portion thereof established by the
value", as established by the Office unde
Administrator may require.
ficient administration of its subsidy
(Name of Agency)
setting in which the State Rail Plan was
State as provided in section 402(c) (1) of
subsection 205(d) (3) of the Act. (These
(c) Execution and Filing of Applica-
program, the required State or local
that he is authorized to sign and file with
developed;
the Act.
standards are set out in §§ 1125.4, 1125.5,
tion. (1) Each original application shall
matching funds are available, and the
the Federal Railroad Administrator this ap-
(iii) Classify the rail system within
(d) Submission and Review of State
and 1125.7 of 49 CFR Part 1125.)
bear the date of execution and be signed
necessary Federal funds are available.
plication: that he has carefully examined
the State into the following categories:
Rail Plan. Phase I shall be submitted by
(6) Evidence of applicant's ability and
by the Chief Executive Officer of the ap-
(b) Rail Service Acquisition and Mod-
all of the statements contained in the ap-
(A) Rail services in the Final System
May 15, 1975, to the Administrator for
intent to furnish its share of the total
plicant. Each person required to execute
ernization Assistance. After receipt, re-
plication relating to
that
Plan;
the application will execute a certificate
(Name of Agency)
review. Phase II shall be submitted to
assistance;
view and approval of an application for
in the form of Appendix A to this Part.
he has knowledge of the matters set forth
(B) Rail services of railroads which are
the Administrator for review within 30
(7) Description of the arrangements
acquisition or modernization assistance
therein and that all statements made and
not railroads in reorganization which are
days after the date of approval of the
which the applicant has made for opera-
(2) Each original application and cer-
under 402(b) (2) of the Act which meets
matters set forth therein are true and cor-
continuing in operation;
Final System Plan by Congress. To ap-
tion of the rail services to be subsidized
tificate, and nine copies thereof, shall be
the requirements of $ 255.11, the Ad-
rect to the best of his knowledge, informa-
(C) Rail services of railroads in reor-
prove the State Rail Plan the Adminis-
including copies of the proposed operat-
filed with the Federal Railroad Adminis-
ministrator will enter into a grant agree-
tion and belief.
ganization which are not included in the
trator must notify the State in writing.
ing agreements, leases or other compen-
trator, Department of Transportation,
ment for the appropriate Federal share
Final System Plan;
If the Administrator determines that the
sation agreements under which the serv-
400 7th Street SW., Washington, D.C.
of the allowable costs of acquisition or
(Date)
(Signature)
(D) Rail services of railroads in re-
State Rail Plan is not in accordance with
ice is to be provided;
20590. Each copy shall show the dates
modernization as determined by the Ad-
Subscribed and sworn to before me the
organization for which a State does not
this part, he will notify the State setting
(8) Assurance by the applicant that
and signatures that appear in the orig-
ministrator. The terms of payment of
day of
19
wish to receive assistance; and
forth his reasons for such determination,
the Federal funds provided under the
inal and shall be complete in itself.
the Federal share shall be set forth in
APPENDIX B
(E) Rail services for which a State
and afford the State an opportunity for
Act will be used solely for the purpose
(d) Review and Approval of Applica-
the grant agreement.
wishes to receive assistance (subsidy, ac-
a hearing and to amend its State Rail
for which the assistance is sought;
tions. Applications for rail service con-
By order dated January 23, and supple-
quisition, or modernization) ranked in
tinuation assistance are to be submitted
$ 255.15 Record, Audit, and Examina-
mental order dated May 23, 1974, [Ex Parte
Plan to bring it into compliance with the
(9) Evidence that the applicant has
to the Administrator for review and ap-
tion.
No. 293, and Northeastern Railroad Investiga-
descending order of service priority as
Act and this part. Where hearings in ac-
established such fiscal control and fund
tion (Definition of the Midwest and North-
determined by the specific application of
cordance with subsection 402(h) of the
accounting procedures as may be neces-
proval. In order for an application to be
(a) Each recipient of financial assist-
east Region) the Commission has included,
the methodology, criteria, and goals de-
Act are necessary, they shall be con-
sary to assure proper disbursement of,
approved, the Administrator must notify
ance under this section, whether in the
in addition to the jurisdictions specifically
scribed in Phase I of the State Rail Plan
ducted on an expedited basis to afford the
and accounting for, Federal funds paid
the applicant in writing. If the Admin-
form of grants, subgrants, contracts,
named, the following: (1) Points in Ken-
and the relevant social, economic, en-
State maximum opportunity to submit
to the applicant under Title IV of the
istrator disapproves all or part of an
subcontracts, or other arrangements,
tucky in the Louisville Kentucky, Standard
vironmental, and energy considerations,
an acceptable State Rail Plan on a timely
Act;
application, he will advise that applicant
shall keep such records as the Adminis-
Metropolitan Statistical Area as used in the
including an estimate of the amount of
basis.
(10) Evidence that the applicant has
in writing of his reasons for such dis-
trator shall prescribe, including records
latest national census; (2) Points in Missouri
the Federal share of the assistance re-
(e) Review of amendments and mod-
the statutory authority and administra-
approval. These reasons may include in-
which fully disclose the amount and dis-
in the St. Louis, Missouri, Standard
Metropolitan Statistical Area as used in
quired for these services, designated as
ifications with respect to the State Rail
sufficiency of the application, inconsist-
position by such recipient of the pro-
tive jurisdiction to develop, promote,
basic entitlement funds or discretionary
Plan. State Rail Plans are to be reviewed
ency with the approved State Rail Plan,
ceeds of such assistance, the total cost
the latest national census; and (3)
funds;
supervise and support safe, adequate, and
and amended to reflect any changes
or insufficiency in the amount of appro-
of the project or undertaking in connec-
Kewaunee and Manitowoc, and the Port of
(iv) Contain detailed and specific
efficient rail services; that it employs or
priated funds available to the Admin-
tion with which such assistance was
Milwaukee, Wisconsin.
which would affect the determinations
knowledge of the services for which as-
and classifications made under para-
will employ, directly or indirectly, suffi-
istrator. With respect to applications for
given or used, the amount of that por-
[FR Doc.75-2434 Filed 1-27-75;8:45 am]
sistance is requested, including: traffic
graph (b) (2) (iii) of 255.9. All such
cient trained and qualified personnel;
density of the line; pertinent costs and
amendments shall be subject to the same
that it maintains or will maintain ade-
revenues; a survey of the condition of
review and approval procedures as the
quate programs of investigation, re-
the plant, equipment, and facilities; an
original State Rail Plan.
economic and operational analysis of
search, promotion and development with
present and future rail freight service
§ 255.11 Applications.
provision for public participation; ano
needs; the potential for moving rail traf-
(a) Coordination and clearance. To
that it has the statutory and other au
fic by alternate modes; the relative eco-
ensure coordination with appropriate
thority to perform its obligations under
FEDERAL REGISTER, VOL. 40, NO. 19-TUESDAY, JANUARY 28, 1975
FEDERAL REGISTER, VOL. 40, NO. 19-TUESDAY, JANUARY 28, 1975
CONFAC
There are at least four possible structures for a privately owned
ConFac which would own the roadbed, finance its rehabilitation, and
lease it back to ConRail. None of those structures present any net
financial benefits in comparison to a single ConRail structure. The
only thing achieved by any of these structures is shortening the time
period of government representation on the board of ConRail.
There are two general types of ConFac structures involving
government ownership: a wholly owned government corporation and a
mixed ownership corporation. Each assumes. that ConFac will acquire
the roadbed from ConRail and finance its rehabilitation; ConRail would
operate over those rehabilitated tracks and pay a user charge which
does not include state and local taxes or service of the rehabilitation
debt. Due to the favorable user fee charged to ConRail for operating
over those properties, each structure would offer important cash flow
benefits to ConRail. The mixed ownership corporation would also
result in improvement of the value of ConFac's stock, but it is not
clear that the wholly owned ConFac wouldhave that effect.
Both of the ConFac structures involving government ownership
fail to reduce the total dollar amount of Federal financial assistance
necessary. Indeed, the structures provide strong incentives for opening
2
up the Federal treasury to payment of the cost of acquisition and
rehabilitation of rail lines nationally. Moreover, they would eliminate
incentives for the operating carrier to operate efficiently since such
deficit operations could be financed by reduction of the user charge that
each carrier pays. Most importantly, ConFac would result in un-
limited Federal involvement in the ownership and maintenance of
railroad right-of-way and would thereby also result in substantial
Federal involvement in rail operations.
From a management standpoint ConFac presents significant
difficulties in the separation of the operating function from that of
the maintenance of right-of-way. It would also have a significant
impact on labor management relationships since a major part of the
work force would be government employees. Finally, ConFac would
greatly inhibit future adjustment of the region's and the Nation's rail
system to meet changing conditions of the regional or national economy.
The United States Railway Association, in its preliminary system
plan, raised the issue of whether a ConFac structure would have a
beneficial impact on meeting the goals of the Act. At its meeting on
May 22, the USRA Board of Directors agreed unanimously that ConFac
is not desirable and would not be recommended in the final system plan.
However, the final system plan would include a discussion of its
advantages and disadvantages, together with the other options and
proposals for government financing of the railroads.
7
DOT
May 2, 1975
SUMMARY OF THE RSPO EVALUATION OF THE PSP
I. Executive Summary
1. The RSPO analysis purports to show that $1.4 billion in federal grants
and a matching amount from internal and private sources would be suf-
ficient to assure ConRail viability. Unfortunately, the analysis relies
upon U.S.R.A. pro forma projections, which are recognized throughout the
RSPO evaluation as being overly optimistic. Monies not provided by the
RRR Act would be proved by "The National Transportation Rehabilitation
and Modernization Act of 1975" which has been drafted by RSPO. This bill
calls for $6.25 billion for rail rehabilitation to be financed by a fuel
tax. When matching funds from railroads and state/local governments are
added to the federal share, about $12 billion are expected to be invested
in railroads during the five years of the ICC's proposed program.
2. The RSPO favors the MARC-EL industry structure over the Three Systems
East which it would accept. It would not accept a Two Systems East
that would result, if either Chessie or N&W did not play. In reviewing
the PSP, RSPO accepted without independent analysis the rejection by
USRA of 108 coordination projects proposed by 25 railroads. Many of
these would be candidates for control transfer.
3. RSPO would have ConRail continue operating all branch lines for two
years while accurate data were being collected.
4. The Office is optimistic that labor will negotiate to modernize work
rules and is of the view that Congress clearly expected them to be
"reasonably cooperative".
5. RSPO suggests replacing government membership on ConRail's Board with
ICC oversight of its management.
-2-
II. Summary of RSPO Evaluation of the PSP
The RSPO has produced a 543 page evaluation of the PSP. The bulk of the
report is a reproduction of Volume II of the PSP annotated with public
response and RSPO comment. The main body is a set of four chapters each
of which is a critique of USRA's analyses of principal issues: (1) indus-
try structure, (2) financial viability, (3) light-density line, and
(4) other analyses (marketing and containerization, personnel, passenger
service, and energy and environmental impacts). This is sandwiched
between a brief summary of public response (Chapter 1) on each of these
issues (except marketing and containerization) and a statement of RSPO's
plan for not only financing and managing ConRail but for funding the
rehabilitation and modernization of the national rail system. The
principal recommendations made to USRA are presented at the beginning
of the report. These are reproduced here as Attachment A and highlighted
in the executive summary.
The lack of "specificity" in the PSP is the one criticism that appears
repeatedly throughout the Evaluation. The Office states that the Final
System Plan (FSP) should be a "prospectus." However, the RSPO neglected
to summarize in one convenient place and in an organized fashion its
list of items suffering from lack of specificity. The Office could
provide a public service by drafting its own outline of the FSP, including
a "clear and unambiguous" statement as to the level of specificity it sees
necessary for each detail in the FSP.
The Office had a "field day" pointing out the inconsistencies and general
problems that resulted from a lack of editing of the PSP as an entity and
from the lack of time available to the USRA staff to coordinate the
chapters--especially the Financial Analysis.
Chapter 1 - Public Response to the Plan (pp 9-18)
The RSPO offers a 10 page summary of public comment on the PSP from 1900
witnesses and 500 documents. Comments are organized for each of seven
principal issues (which are treated by RSPO in subsequent chapters).
Passing reference is made to the role of RSPO's 29 outreach attorneys
but no explanation or evaluation of this role is offered. Curiously,
RSPO plans no subsequent publication or analysis of public comment
beyond these 10 pages which is a major shift in the policy which resulted
in a 3 volume-517 page critique of the February 1974 Report by DOT.
-3-
Chapter 2 - Regional System Analysis
A. The Three Carrier System (pp 19-32)
The RSPO concludes that the recommended industry structure "Three
System East" (ConRail, Chessie, and N&W) is acceptable but not the best
solution in their view. The Office favors establishment of the Mid-
Atlantic/Erie Lackawana System (MARC-EL). The Two System solution which
would develop if either Chessie or N&W refused to play is unacceptable
to RSPO.
The basic problem that RSPO has with the Three System East structure
is that it sees the resulting level of competition as token rather than
substantive in nature. In fact, Chessie and N&W would lose traffic
originating in the markets of the LV, CNJ, and Reading. RSPO wants
protective conditions developed for these solvent carriers.
The RSPO conducted its own operating analysis of the region and
offers detailed technical comments on USRA's mainline identification,
capacity analysis for mainlines and yards, and equipment utilization
estimates.
1. RSPO disputes five lines now operated as main lines that are
excluded from the PSP.
2. Choices of four mainline routes by USRA are also challenged.
3. Two short mainline segments in the Northeast Corridor are
claimed by RSPO to have insufficient capacity for anticipated
traffic levels.
4. USRA's yard planning is judged inconsistent and overly opti-
mistic. Forecasts for four yards in particular are inconsistent
with the Office's own observations in the field.
5. USRA's forecast of a 31 percent improvement in car utilization
is dismissed on the grounds that other railroads have not been
able to achieve such improvements.
RSPO basically agrees with the USRA approach to designing a rehabil-
itation program but is troubled by a lack of an accurate and consistent
estimate of unit costs. The evaluation offers seven widely different
estimates that appear in the PSP.
-4-
Each coordination project listed in the PSP is analyzed in detail
in Appendix A of the Evaluation. It is worth noting, however, that
the RSPO accepted without any independent analysis USRA's judgment on
what projects would be rejected on the grounds that they "cannot now
be found not to materially impair the profitability, either singly or
cumulatively, of any railroad in the Region or ConRail." These 108
projects proposed by 25 railroads are listed in Appendix D-3, part I
of the PSP. In fact, the RSPO made a rather strange and seemingly
inconsistent judgment as to its responsibilities when it excluded
these projects from its analysis.
B. Alternative Regional Structures (pp 32-36)
In evaluating industry structures the RSPO considered "the ability
of each to achieve effective competition without sacrificing the goal
of financial self-sufficiency." However, only two options are treated,
Two Carrier System and MARC-EL, and no other options are even referenced
including the many variations analyzed by USRA. The analysis is gener-
ally a qualitative one, although a map is presented and reference is
made to the numbers of branch lines, stations, and carloads involved
in the MARC-EL proposal.
The RSPO is concerned about the impact on the solvents if LV, CNJ.
and Reading ceased to exist, yet they see the Super-N&W or the Super-
Chessie (but less so) that would develop in the Two System solution as
counter to the goals of the Act.
The preferred solution of the Office is a MARC-EL system consisting
of the LV, CNJ, Reading, Lehigh & Hudson River Railroads, and a reduced
Erie Lackawana. EL lines in Indiana, Illinois, and most of Ohio would
be taken over by ConRail under this structure. The bases of this choice
are that MARC-EL:
1. will save rail service on 28 lines to 89 stations, for almost 20
thousand carloads;
2. will provide competitive local service to more areas;
3. will maintain established carrier-shipper sales and service
relationships ("the intangible asset");
4. will maintain the classical advantage of smaller railroads over
larger ones in maintaining "personal interaction with shippers";
5. will preserve the historical feeder function to the solvents and
maintain the classic principle of dependency among railroads;
-5-
6. will avoid the necessity of bargaining with the solvents who
are "hesitant" and "demanding concessions."
RSPO counters USRA's arguments against MARC-EL by noting:
1. shippers demand continuation of current levels of completion;
2. anyway, MARC-EL would not generate unnecessary competition any
more than the other alternatives;
3. rehabilitation would not differ much from USRA's system.
Chapter 3 - Financial Analysis (pp 37-47)
The RSPO has not presented alternative financial projections to those
contained in the PSP, nor has it definitely stated that the projections
in the PSP are inaccurate and should not be considered realistic. Rather,
the RSPO has chosen to strongly imply, in discussing each of the individual
items in the financial statements separately (i.e. revenues, rehabilitation
costs, and working capital needs), that the projections in the PSP are
"overly optimistic."
The RSPO evaluation is very critical of the lack of full disclosure with
regard to the content of the financial projections in the PSP. It is
pointed out that the projections are not for the recommended industry
structure, that it is very hard to ascertain the amounts of the rehabil-
itation costs included in the projections, that it is impossible to deter-
mine the size and the nature of the labor force in ConRail, etc. As a
result the lack of adequate disclosure, the RSPO strongly recommends that
the Final System Plan be considered in the same sense as a prospectus
filed with the SEC and that all relevant information be fully disclosed.
A full listing of the financial elements which the RSPO recommends should
be disclosed in the Final System Plan is contained in the "Financial Con-
siderations" portion of the principle recommendations.
In summarizing the public comments regarding the financial aspects of the
Preliminary System Plan made during public hearings, the RSPO document
notes that the overwhelming majority of parties who chose to comment
considered the PSP projections to be overly optimistic. Also noted is
that many parties were critical of USRA's use of "modified betterment"
accounting rather than traditional ICC "betterment" accounting. As noted
above, the RSPO implicitly agrees with the view that the projections are
overly optimistic. The RSPO does not agree, however, with the criticism
of USRA's departure from normal ICC accounting and is in fact, very criti-
cal of the ICC's traditional methods and espouses going even beyond
"modified betterment" accounting to the use of "depreciation" accounting.
-6-
In concert with its "$12 billion financing plan" for saving the nation's
railroad system, the RSPO evaluation contains some projections for ConRail's
capital structure if the Federal Government were to provide grants for 50
percent of the rehabilitation costs. The RSPO analysis purports to show
that with $1.4 billion in Federal grants ConRail could be made viable and
could finance its additional needs in the private sector. The main limita-
tion to the RSPO analysis, however, is that it relies upon USRA's pro forma
projections, which are recognized elsewhere in the RSPO evaluation as being
overly optimistic.
Chapter 4 - Light Density Line Analysis (pp 49-57)
(See also Appendix B: Light Density Line Review, pp 135-538, and Appendix
C: Subsidy Analysis, pp 539-543.)
The RSPO is highly critical of USRA's light density rail line analysis
because of inadequacies in the data base and in the method for the allo-
cation of costs to each line. The RSPO recommends that branch line
abandonment be delayed for two years and that the lines in dispute con-
tinue to receive service via ConRail. During these two years ConRail
would gather revenue and cost data for each line that would be the basis
for deciding abandonment.
ConRail would be subsidized by the Federal Government for these two years
of operation for 100 percent of the losses incurred, estimated by RSPO to
be $35.4 million (excluding rehabilitation costs). This estimate made use
of USRA cost and revenue data but rested on two significant changes made
to the Association's analysis:
1. elimination of indirect and overhead cost items, and
2. reduction of normalized maintenance costs to $1,000 per track mile
(approximately one-fourth of the USRA estimate).
When the USRA costing methodology is used, the cost of this hypothetical
two-year service continuation subsidy rises to $63.3 million (exclusive
of subsidy costs for the rejected subsegments of some 25 branch lines
slated for partial inclusion in the final system). This cost level, while
almost double the RSPO estimate, is still well within the bounds of the
$180 million authorized by the 1973 Act.
-7-
Chapter 5 - Other Analyses
A. Marketing Rail Freight Service (pp 59-61)
RSPO notes that the economic forecasts have not been based on analyses
of changes in each of the underlying industries that generate rail traffic.
The forecasts of ConRail coal traffic are criticized for considering
national growth in coal production and not limiting analysis to growth of
mines potentially served by ConRail. Further, RSPO notes that no consid-
eration is given to developments with water carriers or to technological
changes that would affect the demand for rail services.
Curiously, the RSPO chides USRA for not doing rate structure analyses
which the Office admits has deficiencies.
The Office notes that it "finds it difficult to understand why Penn
Central is not a profitable railroad" and infers that it certainly expects
ConRail "to be a successful and profitable railroad."
B. Intermodal Services (pp 61-65)
RSPO has done an in-depth analysis of USRA's proposal for expansion
of TOFC/COFC services which provides a useful perspective on claims of
future growth for intermodal traffic. The report notes that these fore-
casts are critical to ConRail's financial viability. However, RSPO is
concerned with the fact that the USRA work has inconsistencies; Penn
Central has been selling some truck lines; and the PSP has not allocated
funds for expansion of trucking operations.
C. Personnel Planning and Policies (pp 66-69)
RSPO is greatly concerned that the manpower planning process will not
be handled properly. It is concerned about the depersonalization of the
process, the lack of input from employees (both labor and management), and
the failure to consider "quality" of employees (seniority not withstanding).
The Office notes that the PSP infers that very little use will be made
of the $250 million labor protection fund provided in Title V of the RRR
Act. Their calculations indicate a reduction of 5200 employees by 1985
including retirees who represent 30 percent of the work force, which "would
not be expected to have a very harsh impact on the
fund."
The
Office
is optimistic that labor will negotiate to modernize work rules and is of
the view that Congress clearly expected the unions to be "reasonably
cooperative."
-8-
D. Passenger Service (pp 69-71)
The RSPO is concerned with the proposal that Amtrak operate the NEC.
It criticizes USRA's methodology in identifying "other routes" and regrets
that USRA was given the task.
E. Environmental and Energy Assessment (pp 71-76)
RSPO has problems with USRA's methodology for analyzing environmental
impact and presents two examples of an approach it prefers. The Office
points out that USRA neglected to analyze the impacts of mainline consoli-
dations and other significant operational changes.
Chapter 6 - Funding and Management (pp 77-85)
This chapter presents the RSPO's plan for saving the railroads and, in
fact, all the "basic transportation facilities" in the United States.
The plan is for a five-year Federal grant-in-aid program based on 50-50
matching funds for railroads which would be financed with a fuel tax.
Although not included in this report, the draft legislation prepared by
RSPO requests $6.25 billion for rail rehabilitation, most of which would
be matched by private railroads for a net investment of about $12 billion.
(Research for vehicle improvement is the program for the other surface
modes.) The impact of this plan on Conrail is discussed above (Chapter 3).
RSPO has the view that rehabilitation will solve the railroad problem. It
recognizes that if this belief should prove to be in error, "nationalization
might then be the only answer
11
RSPO also sees the government role on the ConRail Board of Directors as
potentially damaging to the financial viability of ConRail. It presents
a lengthy statement of arguments against federal membership and argues
that taxpayer protection could be provided by ICC overview of ConRail
operations and management. The full text of RSPO's analysis of the manage-
ment problem is presented as Attachment B.
The chapter includes a review of the financial outlook for the rail industry
and a summary of alternative funding proposals (nationalization, national-
ization of the right-of-way, rail trust fund, subsidy equalization, regu-
latory reform, guarantees, and grants). In general, these are objective
discussions (except the Office "doubts" that regulatory reform is "any
solution to the near-term problem") and the Office begs off commenting
on specific proposals such as S.1143 to nationalize the right-of-way and
the Shapp Rail Trust Fund.
Attachment A
PRINCIPAL RECOMMENDATIONS
from the "Evaluation of the U.S. Railway Association's Preliminary System Plan"
Having reviewed the Preliminary System Plan and the public testimony which has
been submitted, the Office makes the following principal recommendations to the
Association:
THE FINAL SYSTEM PLAN
The Final System Plan should describe the physical characteristics of the new
rail system clearly and unambiguously. It should include maps depicting in detail
the railroad lines and other transportation properties which are to be included in
the ConRail system or systems, or which are to be acquired by other carriers. It
should contain a legally sufficient description of all properties to be acquired by
ConRail.
The Final System Plan should be a prospectus providing full and fair disclosure
of all facts which might materially affect ConRail's potentil success, including the
cost and timing of programs for rehabilitating properties tobe acquired; ConRail's
ability to attract traffic and transport it at a profit; its capital requirements and the
availability of the needed capital from public and private sources; and the antici-
pated return on that capital.
THE STATUTORY GOALS
The Association should give full consideration to the social goals enumerated
in section 206 (a) of the Act which it appears to have subordinated to the single
goal of system profitability.
The Association should not assume, as it appears to have done hitherto, that
all unprofitable rail services are local in nature so that their continuation is the
3
responsibility of State and local governments or rail service users. Rather, it should
recognize that some such services may be needed to further the national interest
as expressed in the Act's social goals, and that the responsibility for their continua-
tion falls upon the Association and upon ConRail.
THE REGIONAL SYSTEM
The Association should give further consideration to the creation of the "Mid-
Atlantic/EL" System, built around the lines of the Lehigh Valley, the Reading,
the Central Railroad of New Jersey, the Lehigh and Hudson River, and the eastern
portion of the Erie Lackawanna, as a means of meeting the essential transportation
requirements of the Region and of providing necessary competition for ConRail.
The Office agrees with the Association that the Three Carrier System which
it proposes would satisfy the goals of the Act and reasonably meet the needs
of the Region, but we do not believe it to be the best solution.
Failure of either the Norfolk & Western or the Chessie System to participate
in the Three Carrier System would lead to the establishment of a Two Carrier
System which would not provide an acceptable restructuring alternative.
Establishment of the Mid-Atlantic/EL System to serve approximately the
eastern half of the Region would retain existing competition in the Northeast
without artifically creating new competition, and would preserve independent
access to important East Coast markets for the principal solvent railroads in
the Region.
The Association should give further consideration to the capacity of certain
lines proposed for use as through freight routes to handle the projected ConRail
traffic, and, in particular, lines upon which it is proposed to reroute through freight
traffic now handled over the Northeast passenger corridor.
The Association should clearly spell out ConRail's responsibilities to the other
carriers in the region for the maintenance of through routes and joint rates, and
consideration should be given to the development and application of any necessary
protective conditions.
The Association should reassess its estimates of yard capacities, which appear
to the Office to be unduly optimistic.
The Association should initiate studies looking toward coordination and con-
solidation in terminal areas. Despite the complexity of a terminal rationalization
project, and despite the fact that detailed analysis and final implementation would
be ConRail's responsibility, the importance of terminal area improvements to the
viability of the regional system demands that this task be undertaken without delay.
The Association should clarify its position with respect to the many proposed
coordination projects listed in the Preliminary System Plan. The Final System Plan
should provide for the joint use of rail facilities by more than one carrier wherever
this would bc feasible and cost-effective.
4
FINANCIAL CONSIDERATIONS
The Association should assure that the Final System Plan embodies full and
fair disclosure of all the pertinent financial and operational facts and risks with such
detail, accuracy, and clarity as to facilitate analysis and elicit confidence in the
integrity of the pro forma financial statements.
The Final System Plan should disclose-
The identity of the management of ConRail with sufficient detail as to the
background, qualifications, and potentially conflicting interests, if any, of the
directors and principal officers as will permit informed assessment by interested
parties of their abilities to achieve the results projected in the pro formas.
The values of the rail properties to be acquired by ConRail or other carriers
pursuant to the Final System Plan.
The capital structure of ConRail; the values of the securities to be issued by it;
the "other benefits," as required by section 206(f) of the Act; and the values
of the considerations to be exchanged by other railroads in the Region for prop-
erties or rights to be conveyed to them.
The manner in which employee stock ownership plans may be utilized for
meeting ConRail's capital requirements, as required by section 206(e) (3) of
the Act.
The proposed treatment of leased lines and the effects of such treatment on
ConRail's pro forma balance sheets, income statements, and funds require-
ments.
The extent, if any, to which the pro forma projections apply to a system struc-
ture other than the one actually proposed in the Final System Plan, and the
degree of similarity of such other structure to the actual proposal.
All the significant assumptions, calculations, data and estimates affecting the
pro forma income statements, balance sheets, and funds requirements state-
ments in such detail as will permit the application of customary analytical and
verification techniques.
The degree, if any, to which the reimbursement provided for in section 509 of
the Act will fail to cover ConRail's employee protection costs.
Pending or anticipated litigation, if any, which might materially affect the
financial self-sufficiency of ConRail or the value of its securities.
The amount, if any, of liability for unfunded pension benefits.
Separately, the amounts of equipment rentals expected to be paid and to be
received, by type of equipment, for each pro forma year.
LOCAL SERVICE
The Association should scrutinize with great care the results of any attempt,
based upon purely statistical methods, to identify particular rail facilities as redun-
dant, and should test any such statistical conclusions in the light of empirical
evidence of local conditions.
5
The Association should consider lines as segments of a total system and evalu-
ate their capabilities for contributing to overall system efficiency, rather than
requiring that each line or mile of track meet a test of independent profitability.
The Association should review the underlying data relied upon by it in making
light-density line decisions in light of the evidence submitted to the Office and sum-
marized in Appendix B to this report.
The Association should review its light-density line methodology with a view
toward assuring that-
The lines and line segments to be reviewed as light-density lines are selected on
a rational basis.
Due consideration is given to the potential for industrial growth of the area
served by each line subjected to the light-density analysis.
Out-of-service lines that would meet important service needs if restored to
operation or that have the potential for becoming profitable arc not overlooked.
All revenue sources for each line are properly identified.
Costs be calculated on the assumption that operations will be conducted effi-
ciently and not on the basis of operations utilizing obsolescent facilities.
Return on investment not be included as a cost; or if it is to be included, that
it be based on actual property values, less the cost of dismantling and disposi-
tion.
The cost figures used in the light-density line analysis represent, wherever
possible, actual costs incurred rather than estimates made by those not person-
ally aware of local conditions or based on system-wide averages.
The Association should review its decisions resulting in the exclusion of light-
density lines from the ConRail System from a broad perspective to assure that they
would not result in the complete withdrawal of ConRail from a particular market
area which, while it might not support all present rail services provided by the
bankrupt carriers, would support at least some of those services.
The Association should consider the overall impact of the elimination of light-
density lines on ConRail and the railroad industry as opposed to the impact on the
particular railroad currently serving the line.
TRANSPORTATION DATA
The Association should assure that a comprehensive information system be
installed in ConRail which would provide complete and accurate data upon which
to base management decisions at all levels of operations.
MARKETING
The Association should continue its efforts to develop an enlightened market-
ing strategy, including a regional industrial development strategy, for ConRail's
consideration. In doing so, it should reassess its freight revenue forecasts in the light
of realistic appraisals of the outlook for the business activity of the Region and of
industry served by ConRail.
6
INTERMODAL SERVICES
The Final System Plan should contain pro forma estimates as to the effects
on ConRail's net income of the greatly expanded TOFC/COFC services proposed
in the Preliminary System Plan.
The Association should consider the extent to which cooperation with motor
carriers could achieve coordinated coordination efficiencies and service advantages,
thus maximizing ConRail's earnings potential.
PERSONNEL PLANNING AND POLICY
The Association should recognize that the Final System Plan's, policies and
programs affecting personnel will be of major importance, and they should be re-
viewed by experienced, understanding personnel experts before their release. The
Association should not commit ConRail's management to rigid negotiating positions
in advance of collective bargaining.
ConRail management should initiate meaningful discussions as soon as possible
with contract and non-contract employees or their representatives.
The Final System Plan should make full and fair disclosure as to its personnel
plans and policies, their effects on ConRail's finances, and their effects on the
employees.
PASSENGER SERVICES
The Association should include in the Final System Plan a clear designation
of the entity to own the Northeast Corridor; the price, conditions and timing of
the transfer of ownership; and the entity to be responsible for Corridor operations
and on what terms. It should give careful consideration to the potential disadvant-
ages of designating Amtrak or some other entity without demonstrated railroad
operating capabilities as the operator of the Corridor Services.
The Association should consider the advisability of doing in-depth studies of
at least some of the passenger routes outside the Northeast Corridor which it has
proposed for upgrading.
The Association should detail in the Final System Plan those lines over which
are performed commuter services operated under contract to regional transporta-
tion authorities, the duration of those contracts, any unique considerations, and the
recommended status of these lines in the proposed operating plan.
LEGISLATIVE RECOMMENDATIONS
The Final System Plan should contain the Association's legislative recommen-
dations addressed to-
Such changes as the Association thinks desirable in the provisions of section
301 (d) of the Act affecting the composition of ConRail's board of directors.
The means to be adopted for financing ConRail.
Such changes as the Association considers necessary to limit or eliminate Con-
7
Rail's exposure to a deficiency judgment under section 302 (c) (2) (C) of
the Act.
The action urged upon Congress, at page 134 of the Plan, to provide a means
of encouraging the prompt resolution of interterritorial divisions disputes.
The Congress should move promptly to amend the Act to mandate another
approach to the light-density line problem. The Office recommends that all lines
not recommended for inclusion in the restructured rail system be kept in service for
two years by ConRail, which would be reimbursed for any losses from the subsidy
funds available under the Act. During the two-year period, accurate data would be
assembled and further local-service line analysis performed. At the close of that
period, the individual line retention decisions would be made, with ConRail acquir-
ing the properties to be retained as provided in the Act. The two-year Federal 70
percent matching grans subsidy program would go into effect then for lines not
acquired by ConRail.
The Congress should consider establishment of a broad-based Federal grant-
in-aid program to provide funding to rehabilitate the Nation's railroad properties.
The Office suggests a program by which matching fund grants would be made
directly to rail carriers or to State transportation authorities for this purpose. It
suggests, also, that this program be financed by the assessment of a tax on the fuel
used by certain surface transportation vehicles and vessels.
8
Source: "Evaluation of the U.S. Railway Association's
Preliminary System Plan" - April 27, 1975
Management
The Associations' expressed belief that management
with the ability to distinguish essential goals and
achieve them, and to motivate employees, will be the
key ingredient of the Final System Plan's credibility
has been endorsed elsewhere in this report and in the
public comments received during the hearings.
The Plan's delicately worded reference to the desire
to "potentially reduce government managerial involve-
ment" suggests. although it avoids so stating. that the
Association may be concerned with the proviso in
section 301 (d) of the Act. This requires that. SO long
as 50 percent or more of ConRail's debt is guaranteed
by the United States, the majority of the Corporation's
board of directors shall be government nominees. and
three of the members shall be the Secretary of Trans-
portation and the Chairman and President of the
Association. Based on the Plan's over-optimistic pro
formas, such a situation would obtain for years. pri-
marily because of the massive rehabilitation costs. Were
it not for these rehabilitation costs, the threat of gov-
ernment managerial involvement would be a lesser con-
cern and, as discussed above. there are other ways than
ConFac to fund the rehabilitation.
If the section 301 (d) proviso is a concern, as it well
might be. the Office thinks it preferable that this be
openly disclosed. discussed and resolved without re-
sort to subterfuge or obfuscation. Below are some con-
siderations with respect to which the Association might
wish to entertain responses from the public and its
elected representatives. In listing these considerations,
the Office does not necessarily express a view with re-
spect to any of them at this time.
(1) ConRail has incorporators. but no management.
It seems imperative that a qualified and respected top
management be obtained promptly. The tasks confront-
ing management would be imposing. but the challenge
and opportunity inspiring if the Final System Plan is
competently constructed. Expressed in blunt terms, a
politically-dominated board might not attract manage-
ment capable of assuming responsibility for achieving
FORD
business goals.
(2) Unless the Act is clarified, the Amtrak precedent
GERALD
seems likely not only to create an obstacle to ConRail
private market financing, but also possibly to augment
83
the scope of any Tucker Act award. Amtrak, under the
(6) The selection process for Secretaries of Trans-
1970 Rail Passenger Act. was to be a "for-profit" corpo-
portation or the officers of the Association does not nec-
ration. It has not been. and apparently has no intention
essarily insure that they will have experience or exper-
becoming one. Railroad companies which turned
tise in finance or the operation of a large. complex, and
assenger operations over to it and were required to
highly competitive transportation enterprise.
subscribe to its capital stock have, at the demand of
(7) Lastly. the specification of the named government
their auditors, written the stock down a zero value
officers paves the way for built-in conflicts of interest.
immediately upon receipt. Burlington Northern, for
The Secretary of Transportation is responsible for reg-
example, has written off Amtrak stock for which it paid
ulating ConRail's safety of operations and that of its
$33.4 million. and Penn Central has reserved $52.4 mil-
competitors. He awards funds for highway construction
lion in anticipation of a similar loss. If ConRail has a
and other transportation purposes that would benefit
politically-dominated Board. this precedent is likely to
ConRail's competitors. The officers of the Association
cause the recipients of its stock or other securities to
are ConRail's bankers. True, bankers serve on the
accord them similar value, or be required by their audi-
boards of private corporations. but the government usu-
tors or regulators to do so.
ally has frowned on the practice. Section 10 of the
There is a difference between the two situations. Rail-
Clayton Act is specifically intended to prohibit it. Cer-
roads subscribing to Amtrak shares did so voluntarily,
tainly the government's investment should be protected,
to escape their passenger losses. The holders of Con-
but control of the Board is not necessary for this pur-
Rail stock will receive it involuntarily through a re-
pose. Two or three directors of outstanding business
organization "cram-down" process. The creditors of
capabilities could assure that the government's interest
the bankrupts may be expected to make the most of this
is represented, and the Corporation would, in any event,
point in the Court of Claims. If by the time of trial
be required to report regularly to the Interstate Com-
ConRail has a record of substantial earnings. the value
merce Commission and other government bodies.
of the comparison of course would be diminished.
If the Association does not believe the Congressional
(3) The Supreme Court. at page 46 of its decision
intent that ConRail be a profitable corporation to be a
upholding the constitutionality of the Act. dealt with
serious one, the foregoing considerations are immaterial
be creditors' argued that ConRail, by reason of its
to the Final System Plan. If, however, the Association
vernment-controlled Board, will be a federal instru-
does believe that ConRail should be managed with
mentality. "The responsibilities of the federal directors
profit-making intent, and if it considers any of these
are not different from those of other directors-to oper-
considerations to impose material obstacles, it should
ate Conrail at a profit for the benefit of the sharehold-
bare its concern to the public and to Congress, with rec-
ers." If the shareholders cannot control ConRail's
ommendations for action.
Board, they will have no opportunity to direct its fi-
Precedent can be cited for changes in section 301 (d)
nancial or business policies and no effective voice in its
of the Act. Although commercial lenders have at times
management. The Court appears to be inviting Con-
controlled the managements of their borrowers, this is
Rail's shareholders. should they come to feel that the
usually a course adopted with reluctance, the results of
Corporation is operated for political, rather than profit-
which have not always been fortunate.
maximizing purposes. to file derivative stockholders'
The Pacific Railroad Act of 1864 (13 Stat. 356) made
suits against the government-nominated directors.
Whether the government could properly reimburse di-
available substantial government loans and grants to
rectors for losses incurred through such suits is unclear.
the Central Pacific (now Southern Pacific) : the Union
But investors probably will not assign high investment
Pacific; and Leavenworth, Pawnee & Western (now
quality to securities of a corporation the management
part of the Union Pacific.) The government's junior
of which must be sued to make it perform in a business-
lien bonds were 50 percent of the authorized debt of
like manner. unless these securities are guaranteed.
these companies, but it nominated only 5 of Union Pacif-
(4) ConRail's stock, being essentially non-voting,
ic's 20 directors, and none for the other companies. The
may not be eligible for listing on any major exchange,
Northern Pacific. also granted major government assist-
and thus may have limited marketability.
ance in 1864 and subsequently. had no government nom-
(5) The government's representatives on the Board
inces on its board.
may, in fact, entertain only profit-making thoughts, but
The Reconstruction Finance Corporation and the
unless the Corporation is outstandingly profitable, who
Public Works Administration did not insist on control-
1 believe it The judgment of any corporation direc-
ling the boards of directors of the railroads to which
is fallible, and sometimes the best business decisions
they made loans; although it did at times impose limi-
must take account of political and social considerations.
tations on the compensation of the debtor railroads' of-
But so long as the Board is controlled by political nom-
ficers and attorneys, primarily as an inducement to
inces, investors will believe it to be politically motivated.
prompt repayment of the debt. It also sometimes as-
FORD
84
sisted railroads (the Baltimore & Ohio for example)
considered in relation to the funding, rehabilitation and
in obtaining high-caliber management for reasonable
management problems of railroads outside the Region.
salaries. It is generally thought that the RFC operated
It believes that private ownership and management of
businesslike way and amply protected the govern-
the Nation's railroads can be preserved, if that is the
it's interests.
public's wish, but not without some public assistance. It
To sum up, the Office believes that the problems of
urges that all the funding approaches discussed above
providing funding and management for ConRail are in-
be considered objectively by the Association in formu-
ter-related and that any solutions to them should be
lating the Final System Plan.
GERALD FORD LIBRARY
85
8
MENT
OF
IMMUNICATION
DEPARTMENT OF
NEWS
UNITED STATES OF AMERICA
TRANSPORTATION
OFFICE OF THE SECRETARY
WASHINGTON, D.C. 20590
STATEMENT BY U.S. SECRETARY OF TRANSPORTATION WILLIAM T. COLEMAN, JR.,
ON THE RAILROAD REVITALIZATION ACT AT THE WHITE HOUSE NEWS CONFERENCE,
WASHINGTON, D.C., MONDAY, MAY 19, 1975
President Ford is sending the Railroad Revitalization Act to Congress
today. This legislation is designed to meet immediate and desperate needs
of the Nation's railroads.
Directly or indirectly, every American is served by low cost, fuel
efficient rail transportation. The railroads are a pivot point for
our entire economy. And -- the railroads are in deep trouble. A number
are bankrupt. Others are on the brink of financial collapse. The terrible
deterioration of track and rail cars prevents efficient operation. The
Railroad Revitalization Act will begin a long overdue effort to restore
and revitalize this essential industry by eliminating excessive regulatory
restrictions and by providing critically needed financial assistance.
A major cause of the deterioration of the railroad industry is an
overly restrictive Federal regulatory system.
The regulatory process has retarded technical innovation, impeded
economic growth and hampered the improvement of services.
The Railroad Revitalization Act will remove unnecessary and excessive
regulatory restraints. The main thrust of the reforms is to place greater
reliance on competitive forces, while preserving protection for shippers,
carriers and labor.
The ratemaking provisions of the Act will cause a reduction of
rates that are too high and unfair to shippers, and will cause an increase
of rates that are too low and not compensatory to carriers.
- more -
- 2 -
Railroads will be able to adjust their rates within a "no suspend zone,"
without fear of suspensions. The ICC would also be prohibited from holding
up a rate of a carrier for the purpose of protecting a carrier of a different
mode of transportation.
Among the other regulatory reforms proposed are an acceleration of the
ICC's review process in cases of new services requiring a capital investment
of $1 million or more dollars, restrictions on the anticompetitive activities
of rate bureaus, an improvement in intrastate ratemaking procedures, and the
prohibition of discriminatory taxation of railroad properties.
Regulatory reform is one part of the long term restoration process.
To meet the immediate need for essential improvements in roadbed, track,
terminals and other operating facilities, the Act provides $2 billion in
loan guarantee authority.
Loans guaranteed under the provisions of the Act may be financed
through the Federal Financing Bank, thus enabling railroads to borrow at
rates more advantageous than private financial markets. Additionally, the
Secretary of Transportation would be authorized to defer principal and
interest payments, thus making feasible major rail undertakings that hold
little prospect of short-term payoff, but which would improve earnings
over the long-term.
Duplicative and redundant facilities are another major cause of the
poor financial health of railroads. If we are to prevent the westward
spread of the chaos now existing in the Northeast, a restructuring and
streamlining of the National rail system must be set in motion. The
ponderous and laborious deliberations of the ICC are not adequate to meet
this need.
As a condition of receiving loan guarantees under the Act, we propose
that a railroad may be required to enter into an agreement to restructure its
facilities. Such restructuring could be in the form of merger, consolidation,
sale or acquisition of assets or joint operation.
The procedures proposed by the Act would enable a coordinated DOT-ICC
decision on such agreements within nine months, in stark contrast to the
ICC's 12-year deliberation in the case of the Rock Island.
####
FACT SHEET
THE RAILROAD REVITALIZATION ACT
The President is transmitting to Congress today the Railroad
Revitalization Act which will eliminate excessive and antiquated
regulatory restrictions, increase competition in the railroad
industry, improve customer services, strengthen the ability of
the railroads to adjust to changing economic conditions, and pro-
vide financial assistance in the form of loan guarantees to help
the railroads make needed improvements in their facilities.
This is the first piece of the President's overall program to achieve
fundamental reform of transportation regulation. Similar reform
measures for truck and airline regulation will follow shortly. Taken
together, these proposals, representing the most comprehensive
approach to reform in the long history of economic regulation of the
transportation industry, will substantially benefit consumers annually
and conserve scarce energy resources.
BACKGROUND
This legislation builds on the Transportation Improvement Act which
was introduced in the 93rd Congress. Congress also considered the
Surface Transportation Act. A modified version of that bill, incor-
porating many features of the TIA, was passed by the House, but
final action was not taken by the Senate. This legislation proposes
a number of fundamental changes designed to significantly reduce
government intervention in the day-to-day business of the railroads
and their customers.
PRINCIPAL OBJECTIVES OF THE LEGISLATION
1. To provide for more efficient, more competitive, and thus less
costly rail transportation. This Act will substantially increase
reliance on normal competitive market forces to set shipping
rates. It is specifically designed to cause a reduction in rates
which are too high and are inequitable to shippers and consumers.
For the first time, railroads will be able within reasonable limits
to adjust rates without ICC interference. In addition, the regula-
tory decision making process will be simplified, thereby elimina-
ting the high costs involved in lengthy litigation.
2
2.
To increase intermodal competition and encourage a better
utilization of resources by assuring that goods are transported
by the most efficient means of transportation. The present
regulatory process enables the ICC to hold railroad rates at
unreasonably high levels in order to protect other modes of
transportation from the effects of competition. As a result,
traffic which can most economically be moved by rail is often
diverted by the rate structure to other forms of transportation.
This results in higher shipping costs and consumer prices.
By providing for greater pricing flexibility, shippers will be
able to take greater advantage of low cost, energy efficient
rail transportation. Substantial fuel savings will also result
from these reforms.
3.
To eliminate certain antitrust immunities which permit carriers
to set and hold rates at unreasonably high levels. At present
rate bureaus or carrier associations sanctioned by the ICC are
permitted to act collectively to establish rates and charges for
transportation services. Their actions are now immune from
Federal antitrust laws to which nearly every other business in
the country is subject. The proposed legislation seeks to pro-
hibit rate bureaus from engaging in certain specified rate making
activities which serve to stifle competition and discourage new
service innovation. For example, it will prohibit rate bureaus
from discussing and agreeing on rates involving only one railroad.
The legislation will make anticompetitive rate bureau activities
subject to normal antitrust prosecution, while preserving their
legitimate service functions.
4. To assure that regulation provides adequate protection to consumer
interests. The Administration does not seek to eliminate all regu-
lation. For example, the protection of shippers and carriers from
predatory pricing practices is a proper function of government.
This legislation carefully preserves regulation which acts to serve
the public interest. The user of rail transportation services is
assured an appropriate right of redress for what he considers to
be an unfair or illegal rate and the legitimate interests of com-
peting carriers are protected as well.
5. To provide needed financial assistance to the railroad industry.
An efficient, financially sound rail system is a great national
asset. The legislation would provide up to $2 billion in Federal
loan guarantee authority to finance improvements in rights of way,
terminals, rail plant facilities, and rolling stock. Naturally,
3
these loans will be subject to specific conditions in order to
assure that the capital improvements being financed will con-
tribute to the overall efficiency of railroad operations.
6.
To encourage speedy and rational restructuring of the railroads
which will improve their economic health. At present, our rail-
roads are in serious need of restructuring. Basically, the
problem is one of excess capacity in some areas, including, for
example, excessive duplication of parallel mainlines, and inade-
quate capacity in other areas. This contributes significantly to
the uneconomic and inefficient operation of the railroads. In the
past, efforts to restructure the system through merger or various
cooperative agreements between railroads have been thwarted by
cumbersome regulatory procedures.
This legislation establishes a new procedure which will enable
the Secretary of Transportation, as a condition for granting
financial assistance, to require applicants to undertake funda-
mental restructuring actions. This provision will permit the
Secretary and the ICC to expedite many merger proceedings and
facilitate some of the restructuring necessary to preserve a
viable private sector rail industry.
SECTION-BY-SECTION ANALYSIS
1.
Railroad Ratemaking and Abandonment. This section more
clearly defines the principles of ICC ratemaking powers in terms
of particular actions that may or may not be taken. For example,
the ICC may not find rates too low if they cover a carrier's costs;
the ICC is prohibited from protecting one carrier against competi-
tion from a carrier of another mode; the ICC is instructed to con-
sider the effect of rates on transportation efficiency in exercising
its decision making authority, etc.
The RRA also establishes new procedures to ensure adequate
prior notice of proposed rail abandonment actions.
2.
Anticompetitive Practices of Rate Bureaus. This portion of the
bill provides for the removal of antitrust immunities from certain
anticompetitive rate bureau practices. Such action will prohibit
collusion on rates for single-line freight movements; limit parti-
cipation in rate actions to those carriers actually involved, and
prohibit joint actions to protect or request suspension of rates.
4.
In addition, the bill requires rate bureaus to maintain voting
records on each of their members which are open to public
inspection, and requires bureaus to act within 120 days on any
rule, rate, or charge appearing on its docket.
3.
Intrastate Railroad Rate Proceedings. The Act gives the Inter-
state Commerce Commission authority to determine an intrastate
rate which is the counterpart of an already approved interstate rate
in the event that the appropriate State agency has failed to take
final action on a rate change within 120 days from the time it was
filed by a carrier.
4.
Suspension of Railroad Rates. One of the basic purposes of the
RRA is to provide increased pricing flexibility for the railroads.
Section 5 of the Act establishes a phased approach to providing
the necessary flexibility and specifically limits ICC suspension
powers. It permits railroads to adjust rates up or down without
fear of ICC suspension so long as the change is within certain
percentage limits: 7 percent in the first year; an additional 12
percent in the second year; and another 15 percent in the third
year. Such an approach will result in the creation of a control-
free "zone of reasonableness" of approximately 40 percent during
a three-year phase-in period. Following the third year, the ICC
may not suspend a rate decrease for being too low, SO long as a
carrier's costs are covered. Similarly, rate increases of 15
percent or less will not be subject to ICC suspension. In cases
where the ICC retains the power to suspend rates, they will be
required to make findings such as a court does when it issues a
temporary restraining order -- that the action will result in
immediate and irreparable damages.
In addition, the bill sets a 7-10 month time period for completion
of hearing procedures in rate cases. In cases involving large
capital expenditure ($1, 000, 000 or more), the ICC will be required
to act within 180 days after the filing of the notice of a proposed
tariff. To encourage investment and provide a period of stability,
such rates may not be suspended or set aside for a period of five
years.
5. Railroad Revenue Levels. The Act provides that the ICC shall
prescribe uniform criteria for determining the financial condition
of a railroad, including such things as estimating the rate of return
on capital and adequacy of cash flow.
5
6.
Discriminatory Taxation. Section 7 of the RRA adds a new
provision to the Interstate Commerce Act prohibiting the levy-
ing of discriminatory State or local property taxes on common
carriers, thus eliminating excess taxes on railroads of approxi-
mately $55 million annually.
7.
Uniform Cost and Revenue Accounting. This section requires
the ICC and the Department of Transportation to study and
recommend uniform cost accounting and revenue accounting
methods for rail carriers. Present accounting systems are
outmoded and inadequate to resolve the complex cost accounting
problems of modern transportation firms.
8.
Financial Assistance. The Act authorizes the Secretary of
Transportation to issue loan guarantees of up to $2 billion for
the purpose of financing improvements in rights of way, terminals,
rolling stock, and other operational facilities. These loan guar-
antees will be based on (a) the contribution the proposed improve-
ment will make to the betterment of our nation's rail system,
(b) the ability of the recipient to repay the loan, and (c) the reci-
pient's ongoing program to upgrade his physical plant. As a
condition for granting the assistance, the Secretary may require
the applicants to undertake specific restructuring actions. This
section establishes a new procedure by which the Secretary, the
Attorney General, and the ICC can expedite approval of restruc-
turing activities and assure a proper balance between competitive
interests and transportation needs.
RAILROAD REVITALIZATION ACT
ANALYSIS OF THE NEED FOR THE BILL
In 1974, the Administration proposed the Transportation Improve-
ment Act of 1974 ("TIA"), which was designed to deal with a
number of problems affecting the rail industry. Extensive hearings
were held on the TIA and on alternative rail improvement
legislation, the Surface Transportation Act ("STA"). The House
passed a modified version of the STA which incorporated many
of the concepts of the TIA, but the bill did not reach the floor
of the Senate. The Railroad Revitalization Act ("RRA") builds
upon the experience of the TIA and STA. Like the TIA and STA,
the basic thrust of the RRA is three-fold:
1. Improve the regulations under which railroads
operate and promote economic efficiency and
competition;
2. Provide necessary financial assistance to
rationalize and modernize rail facilities; and
3. Encourage restructuring of the nation's rail
system to improve its long term viability.
There follows an outline of the major rail industry problems
which the bill addresses, along with an analysis of the effect
of the bill in redressing these problems.
Improvements in Ratemaking
The current system of rate regulation severely limits an
individual railroad's freedom to establish rates and innovative new
services. As a consequence, it has created serious rigidity
and distortions in railroad service and rate structures. This
rigidity has hindered the introduction of new services and
prevented railroads from responding effectively to the needs of
the changing transportation market. It has also interfered with
the establishment of cost-related rates and has prevented railroads
from offering shippers the lower rates which would attract them
2
from relatively less efficient modes. Greater flexibility in
ratemaking is essential to allow railroads to attract traffic by
offering shippers the opportunity to share in the financial
advantages offered by lower rail costs of long-haul main line
operations.
Efficient allocation of transportation resources requires that
low-cost carriers have wide latitude to set rates to reflect their
efficiencies as long as those rates do not fall below variable
costs. Available evidence indicates that some railroad rates
are far above the fully allocated costs of providing service while
others do not even cover their variable costs. This results in
some shippers subsidizing other shippers and in misallocation
of traffic among competitor modes. Railroads should be able
to attract additional traffic by reducing rates on overpriced rail
service and removing the subsidy from that traffic which is not
paying its way. The time, expense, delay and uncertainty
associated with obtaining rate bureau approval and then Interstate
Commerce Commission approval to adjust rates have stifled the
adjustment process. This has resulted in many railroad rates
being held at levels far above the economic cost of providing
the service. As a result, it appears that traffic which could be
moved most economically by a well-maintained rail system is
moving by other modes. This results in higher shipping costs
and higher prices to the ultimate consumers.
The basic thrust of the bill is to place greater reliance on
competitive forces in ratemaking while preserving the protection
for shippers and carriers of appropriate regulatory supervision.
Giving greater scope to individual carrier initiative in rate setting
will result in improved service, a more economical distribution
of traffic among the modes, and a lower and more equitable
overall freight bill.
To provide for greater rate flexibility and to expedite the hearing
process, the bill would set a definite time limit for completing
rate-increase hearings at the ICC, establish a no-suspend zone
in which carriers could introduce nondiscriminatory rate changes
without fear of Commission suspension, and provide that rates
which are compensatory could not be attacked as being too low.
3
Specifically, the bill would require the Commission to complete
its rate hearings and render a final judgment within seven
months of the time the rate was scheduled to go into effect.
This time limit could be extended an a ditional three months if
the Commission made a written report to Congress explaining
the need for the delay. At present, there is no time limit for
Commission hearings, and this provision should greatly expedite
Commission proceedings.
The bill would also create a no-suspend zone in which increases
or decreases could not be suspended pending investigation for
being too high or too low, although they still could be suspended
for violating sections 2, 3, or 4 of the Interstate Commerce Act,
which are the basic sections prohibiting discrimination and prejudice
to either an individual shipper or community.
The no-suspend zone would be phased in over a three-year period
(up to 7 percent rate increases or decreases in the first year;
12 percent in the second year; 15 percent in the third year; and
thereafter 15 percent for increases, with no limit for decreases).
This no-suspend zone is a refinement of the approach proposed
in the TIA which did not include a provision for phasing. It is
similar to, but of longer duration than, the provision in the
House-passed STA. The no-suspend zone will allow carriers to
respond rapidly to market conditions and will improve the rate
decision making process. Today, rate cases are often decided
in a world of hypotheticals and "maybe's". Where rate proposals
are suspended by the ICC, the hearing on the lawfulness of the
rate is without the benefit of real world experience regarding the
effect of the rate. The no-suspend provision will change this
process, and allow rates within the zone to go into effect prior
to hearing, thus providing concrete facts for the decision maker.
We note that the Commission in its latest rate case, Ex Parte 313,
has agreed not to suspend any of the proposed increase at least
until protests can be received and considered. The bill will also
provide that the ICC must make findings similar to those required
in temporary restraining orders before allowing a suspension.
The present regulatory process has also resulted in the rates of
one mode being held high by the ICC to protect another mode,
causing a waste of resources, adversely affecting the financial
condition of the more efficient mode, and increasing the total cost
GERALD R. FORD
4
to shippers and ultimately to consumers. Section 15 (a) of the
Interstate Commerce Act was amended by the Congress in 1958
in order to allow carriers greater ratemaking freedom to meet
the competition of carriers of other modes. While the amend-
ment was a step in the right direction, the full benefits of
greater intermodal competition have not been realized because
the amendment has been interpreted by the ICC to allow them
to hold the rates of one mode above the rates of another mode
to protect that mode. The bill meets this problem by prohibiting
the ICC from holding the rates of a carrier of one mode up to a
particular level for the purpose of protecting the traffic of a
carrier of another mode. The bill also provides that a railroad
rate which equals or exceeds variable cost cannot be found to be
unjust or unreasonable on the basis that it is too low. This
provision will lead to greater flexibility in transportation rate-
making. The net result will be a more efficient transportation
system.
Time, expense, delay and uncertainty associated with the regulatory
process have also discourages experimentation and impeded the
introduction of service innovations. The bill addresses the problem
by providing that, where a tariff proposed by a railroad would
require a total capital investment of $1 million or more by the
carrier or a shipper or receiver, or other interested party, the
ICC must determine, within 180 days from the date the carrier
files a notice of intention to publish the tariff, whether the proposed
tariff would be lawful. This procedure, similar to the one approved
by the House in the STA, would also protect those rates from
being attacked for a reasonable period of time, thus giving a
carrier the certainty necessary to undertake major investments.
Contrary to economic sense, some rates are below costs. It
is estimated that about 10 percent of all rail revenue is derived
from traffic that does not cover the variable cost of the service.
The bill confronts this problem in two ways. First, it would
prohibit the Commission upon complaint from approving rate
decreases which lower the rate to a noncompensatory level.
Second, with respect to existing noncompensatory rates, the bill
would prohibit the Commission from disapproving any increase
which brings a noncompensatory rate to a compensatory level.
These provisions will provide a significant source of additional
5
revenue to the railroads and ease the burden on those shippers
who have been making up the difference. The amounts which
must be made up on other traffic is in the hundreds of millions
of dollars annually. Correcting this practice will reduce the
misallocation and waste of resources both within transportation
and in the economy at large.
Restriction of Anticompetitive Practices of Rate Bureaus
To assure that the rate flexibility proposed above is used
properly, the RRA proposes significant changes to the provisions
in the Interstate Commerce Act pertaining to rate bureaus. Under
the present Section (a) of the Interstate Commerce Act, the carriers
subject to the Commission's jurisdiction are permitted to act
collectively and collusively in establishing rates and charges for
transportation services. Such concerted action, when taken
pursuant to an agreement approved by the Interstate Commerce
Commission is immune from the antitrust laws which apply to the
mainstream of American business. Rate bureaus or carrier
associations have been established pursuant to carrier agreements
approved by the ICC. These rate bureaus are the vehicles through
which carriers make decisions regarding the rates which the
member lines shall charge.
Although rate bureaus provide a number of valuable services
to their members and to the shipping public, they also dampen
competitive forces in the ratemaking process and discourage
pricing flexibility and service innovation. As a consequence,
they have interfered with the establishment of rates based on
the costs of the most efficient carrier and have provided a
mechanism through which carriers seek to and do set and hold
rates above a competitive level.
The associations provide a number of administrative services to
carrier members, such as arranging for the interchange and
facilitation of traffic moving over the lines of two or more
carriers, the publication of rates, and the collection of statistics
on traffic movements, rates charged, and related costs. The
bill would not affect these administrative types of rate bureau
activities. Rather, it is addressed only to those activities of
the rate bureaus which interfere with efficient allocation of
resources.
6
Some time ago, the Interstate Commerce Commission instituted
a general investigation into the activities of rate bureaus in
Ex Parte 297, Rate Bureau Investigation. While this proceeding
will consider a number of important regulatory issues in
connection with the activities of rate bureaus, it is not progressing
rapidly. And, of course, the outcome of the proceeding is
uncertain at this time. The bill addresses those aspects of
rate bureau operations that clearly are in need of change. Therefore,
while the Department commends the ICC for instituting this investigation,
the proposed legislative action is needed and offers the best prospect
for reducing the anticompetitive influence rate bureaus have on
ratemaking.
The Department's proposal is designed to improve the ability of
carriers to initiate rate changes and respond to competitive forces
while enabling the rate bureaus to continue providing constructive
administrative services for their members and the shipping public.
The bill prohibits railroad rate bureaus from voting on single
line movements and limits consideration of joint line rates to
those railroads which hold themselves out to participate in the
joint movement. The bill also prohibits rail rate bureaus from
taking any action to suspend or protest rates. Thus, on single
line rates individual railroads will have complete freedom to
propose rates based on the cost of the most direct routing, while
on joint rates the influence of carriers not participating in the
joint movement will be reduced.
The bill also requires all rate bureaus to dispose of proposed
rate changes within 120 days from the time they are filed. It
requires all rate bureaus to maintain and make available for
public inspection the records of the votes of members. These
provisions are designed to bring about speedier rate bureau
treatment of proposed rate changes and to encourage greater
initiative by individual carriers in making rate changes.
While some antitrust immunity is retained for joint rates, the
proposed legislative change with respect to single line rate
agreements would exert a competitive influence upon joint rates
because carrier territories overlap and single line rates are
often competitive with joint line rates.
In connection with the rate bureau provisions of the bill, several
matters should be made clear. Firstly, rather than indicating
all of the many rate bureau activities which might be permitted
under a Commission-approved agreement, the thrust of these
changes is to indicate those specific rate bureau activities that
7
cannot be approved by the Commission and which will no longer
be immunized from the operation of the antitrust laws. The
Commission retains its present authority to review and approve
all rate bureau agreements and to impose such additional limitations
and conditions on the activities of rate bureaus as it believes
are reasonable and necessary.
Secondly, a single line carrier will often be in competition with
two or more carriers offering a joint rate and through route.
As long as no concerted action is involved, nothing in this
proposal would prohibit a single line carrier from individually
establishing a rate competitive with a joint rate established
through the rate bureau mechanism.
Thirdly, the bill is not intended to preclude discussions or
agreements relating to across-the-board percentage changes
in freight rates during the first three years after enactment;
after that time, they would not be allowed except with respect
to general rate increases based on increases in fuel and labor
costs.
Finally, the feature of this proposal that prohibits the Commission
from approving rate bureau agreements that allow the rate
bureau to protest or otherwise seek the suspension of an
individual carrier's rate does not preclude one or more carriers
from exercising their right of petition under other provisions
of the Interstate Commerce Act and it is not meant to repeal the
decision of the Supreme Court in Eastern Railroad Presidents
Conference V. Noerr Motor Freight, Inc., 365 U.S. 127 (1961).
To the extent the antitrust laws are applicable in this area,
however, this feature of the bill will permit their operation.
Railroad Abandonment Procedures
Unlike the TIA, the RRA does not propose to change the substantive
standard for abandonment. The RRA changes relate primarily
to procedure for initiating abandonments. The provisions of
the bill dealing with abandonment provide a mechanism for providing
adequate prior notice to interested parties of abandonments
being considered by the railroads. This assures a more consistent
and reasoned evaluation of proposed abandonments by all concerned
parties, and allows local communities adequate time to plan
and evaluate all alternatives. The section also provides a
mechanism through which States and localities can assure continued
rail service on lines that are losing money where they are willing
to make up the losses.
8
Intrastate Ratemaking
A significant loss of revenue to the railroad industry has resulted
from the failure of State regulatory agencies to act more promptly
to adjust intrastate rates in accordance with ICC-approved changes
in the level of interstate rates. The bill is designed to correct
this problem by transferring to the ICC, exclusive jurisdiction
over intrastate rates which are the counterparts to already approved
interstate rates whenever State regulatory agencies have not
adjusted appropriate intrastate rates promptly.
Intrastate traffic accounts for about 12 percent of the total traffic
carried by the railroad industry. The revenue loss to the railroad
industry because of State failure to adjust intrastate rates to the
level of interstate rates approved in a series of ICC General
Increase Proceedings (Ex Parte Nos. 256, 259, 262, 265, 267,
291, 305, and 310) was well over $100 million on a cumulative basis.
By depriving railroads of badly needed revenues, these time lags
further weaken the financial condition of the railroad industry.
In light of the serious financial difficulties facing the railroad
industry today, it is imperative that intrastate ratesbbe adjusted
promptly in accordance with changes in the level of interstate rates.
In addition, the general public is adversely affected by this regulatory
lag because without these needed revenues, the railroads' ability
to provide and improve service to both intrastate and interstate
shippers is impaired.
Discriminatory State and Local Taxation of Interstate Carriers
Discriminatory taxation of interstate carriers by State and local
governments is widespread. As a result of State discriminatory
taxation of railroad property., the railroad industry pays approximately
$55 million annually in additional taxes. Such discriminatory
taxation places an unjust burden upon these carriers and contributes
to their financial problems by taxing them at a higher rate than
similar property of other businesses in the same taxing jurisdiction.
The bill would prohibit discrimination in assessing the property
of interstate carriers and in establishing tax rates for such property.
9
The purpose of the provision is simply to remove an inequitable
burden from interstate carriers. Of course, any saving to the
railroad and other interstate carriers from elimination of
discriminatory taxation will remove a source of revenue from
State and local governments. Removing this source of revenue
abruptly could have a serious impact upon State and local budgetary
planning and result in a substantial hardship. Therefore, the
bill provides a three-year moratorium before compliance with
its substantive provisions will be required. This period should
provide State and local governments ample time to make appropriate
plans with respect to the potential revenue losses and temper
any adverse financial effects the provision might otherwise have.
Uniform Cost Accounting
The present railroad cost accounting and revenue accounting
system employed by the ICC is outmoded and inadequate. The
Commission's cost system relies on broad averages rather than
specific experience of individual carriers. Moreover, the
accounting system from which the cost data are dericed is based
upon outmoded classifications and specifications that no longer
relate to the carrier's actual financial transactions. In addition,
the accounting procedures utilized are not adequate to resolve
the complex cost accounting problems which characterize modern
transportation firms.
For more than a decade the ICC has had pending several proceedings
dealing with the issue of developing an improved uniform cost
accounting system. Docket 34013, Rules to Govern the Assembling
and Presenting of Cost Evidence, and Docket 34013 (Sub-No. 1),
Cost Standards in Intermodal Rate Proceedings. The proceeding in
Docket 34013 was instituted by an order of the Commission dated
April 16, 1962, and the Commission's decision was issued in 1970
(337 ICC 298). In February 1971, the Commission issued a new
order reopening the case. In the sub-proceeding, which was
initiated in early 1969, the Administrative Law Judge issued an
initial decision on May 7, 1973.
The development of improved cost and revenue accounting procedures
is absolutely essential to improved regulation of transportation.
The bill would give priority and direction to the ICC's efforts and
would require the ICC jointly with the Secretary of Transportation
to study and recommend uniform cost accounting and revenue
accounting methods for rail carriers, and to issue regulations
prescribing new uniform cost and revenue accounting methods within
10.
two years from the date of enactment of the bill.
Financial Assistance through Loan Guarantees
An efficient, financially sound rail system is a great national
asset. The railroad system in the United States is experiencing
severe financial difficulties. Modernization of both the regulatory
system and physical plant is essential to the long term viability
of the nation's railroads.
The ratemaking and related regulatory improvements proposed
in the Department's bill are a vital first step. There remains
the task of rationalizing and upgrading the facilities and equipment
necessary to provide efficient rail transportation service.
Substantial parts of the rail plant in the United States are in a
deteriorating state and the general deterioration of plant and service
which is now prevalent in the East and Midwest could spread
to other portions of the country.
O
Because of the industry's low rate of return, railroads are generally
unable to generate adequate internal capital to make needed capital
improvements. The investment community has been reluctant to
provide further external capital because of the limited security
that is afforded due to the heavy level of existing liens on rail
properties. Marginal railroads can obtain financing for rolling
stock but only at high interest rates. The bill would provide up
to $2 billion in Federal loan guarantee authority to finance improve-
ments in rail plant facilities, track, terminals, and rolling stock.
Loans guaranteed by the Secretary could be financed through the
Federal Financing Bank at interest rates below the rates available
in the private market. Also, the provision is written in broad
terms to allow financing with deferral of interest and principal
payments. The conditions precedent to the guarantee would assure
that the capital improvement would make a significant contribution
11
to the overall efficiency of rail operations. Thus, the loan
guarantee provisions of the bill are designed to encourage needed
long-term restructuring of the existing rail system.
The bill authorizes the Secretary to guarantee railroad loans
for plant improvements based on the following criteria:
1.
The contribution which the improvement will
make to the establishment of a rational, efficient,
and economical national railroad transportation
system;
2. The ability of the railroad requesting the loan
guarantee to repay the loan;
3. The railroads' ongoing programs to upgrade
plant facilities.
In connection with loan guarantees for rolling stock, the Secretary
is required to consider the present and future need for rolling
stock and the protection of the United States afforded by the
marketable nature of such stock in the event of default. It
further requires him to consider the effect of realizable improve-
ments in freight car utilization.
For any loan guarantee, the bill requires the Secretary to consider
among other things the expected return on investment of the
proposed improvement, and the potential for intermodal connections
and substitutions. These criteria are designed to help achieve
through the loan guarantee program the needed modernization of
the existing rail system.
The bill would also authorize the Secretary to condition the granting
of loan guarantees on an agreement among applicants or other
railroads to restructure their facilities. Such restructuring could
include merger, consolidation, sale or acquisition of assets, or
joint use of facilities. Such agreements would be voluntary and the
Secretary could not require a railroad to enter into such an agree-
ment except as a condition for loan guarantee. The essential
purpose of this provision is to improve the efficiency of the nation's
railroads by eliminating duplicative and excessive facilities.
12
The Interstate Commerce Commission, in its interpretation of
section 5 of the Interstate Commerce Act, has hindered this
needed restructuring by failing to reach a decision upon proposed
agreements within a reasonable time and by dissipating the
benefits of proposed agreements by imposing third-party conditions
to such agreements. This bill will remedy these two defects by
providing a new hearing procedure and new definition of "public
interest" where restructuring accompanies financial assistance.
Essentially, the bill calls for a two-part procedure. Agreements
will first be considered by the Secretary in a public procedure
similar to that used in rulemaking. Notice of the agreement will
be given to the public, and comments may be made in writing
or in an informal oral hearing. The Secretary may then initially
approve the agreement which contains the restructuring terms
if it is in the public interest and certify the agreement to the
ICC. The ICC will then have 6 months to decide whether the
agreement is in the public interest. The "public interest" is
defined in the bill to mean that (1) the efficiency gains of the
transaction substantially outweigh any adverse effects on competition,
and (2) there are no substantially less anticompetitive alternatives
to the transaction. Unless the ICC specifically finds, by "clear
and convincing evidence, 11 that the proposed agreement is not in
the public interest, it must approve the agreement. The Act, in
addition to its concern for the preservation of competition, makes
specific provision for the rights of labor and shippers. If the
ICC should fail to act within the specified time, it must certify
the proceeding back to the Secretary, and the Secretary with
the concurrence of the Attorney General, must, on the basis of
the ICC proceedings and his own information and data, approve,
modify, or reject the proposed agreement in accordance with
the public interest standard. Both the final decisions of the
Secretary and the ICC can be appealed to the United States Court
of Appeals for the District of Columbia.
Rolling Stock Scheduling and Control System
One of the basic problems in the railroad industry is the low rate
of freight car utilization. An average freight car moves loaded a
total of only 25 days and moves empty only 18 days out of a calendar
year. Thus, for approximately 322 days in a calendar year, or 88
percent of the time, the average freight car stands idle in railroad
yards or at customers' siding. Improving freight car utilization
would result in substantial benefits to the railroad industry and the
shipping public by reducing the railroad industry's need for capital
13
expenditures and reducing operating costs. Freight car ownership
represents about 25 percent of the railroad industry's net investment.
A 20 percent increase in car fleet productivity, for example, would
reduce the annual needs of new cars by approximately 10, 000 to
15,000 cars. This would enable the railroad to save as much as
$300 million in new car purchases annually.
Achieving a more efficient utilization of the car fleet requires a more
effective system of car fleet management. Although individual railroads
have made some progress in developing better control over their car
movements, this Nation still lacks an effective national freight car
control system. Such a system has been made possible by recent
advances in communications, computer data processing, and applied
mathematical analysis. In order to take advantage of these develop-
ments and expedite and assure the development of an effective rolling
stock scheduling and control system, the bill authorizes the Secretary
to conduct research into the design of a national rolling stock scheduling
and control system which would be capable of locating and expediting the
movement of rolling stock on a national basis.
Section-by-Section Analysis of a Bill
To amend the Interstate Commerce Act, as amended, to
modernize and reform the regulation of railroads, to allow
more flexibility in establishing rates, to provide adequate
prior notice of the abandonment of rail lines, and to assist in
the financing of rail transportation and to develop a rolling
stock scheduling and control system, and for other purposes.
Sec. 1. Cites the proposed Act as the "Railroad
Revitalization Act".
Railroad Ratemaking and Abandonment
Sec. 2(a)(1). Amends section 1(5) of the Act by (i)
incorporating the definition of "rates" and, with some modification,
certain ratemaking considerations now appearing in Section 15a(1)
of the Act; (ii) adding to the existing requirement that rates be
just and reasonable a provision that a compensatory rate may
not be held to be unjust or unreasonable because it is too low;
(iii) incorporating provisions from subsections 15a(2) and (3)
requiring the Commission to consider the effects of rates on the
movement of traffic and the need for adequate and efficient
railway transportation service, and prohibiting the Commission
from holding up to a particular level the rate of a carrier or
freight forwarder subject to the Act to protect the traffic of
a carrier of another mode; (iv) providing that a carrier's rate is
compensatory when it equals or exceeds the particular carrier's
variable cost of providing the specific transportation to which the
2
rate applies; and (v) prohibiting rate decreases below variable
cost, and prohibiting the Commission from disallowing a carrier's
rate increases where the increase does not increase that rate
beyond the carrier's variable cost.
(5). Strikes the existing paragraph (22) of section 1
of the Act (paragraph 22 is restated in paragraph 26) and adds
paragraphs (22) through (26) establishing new rail abandonment
procedures to ensure adequate prior notice of rail abandonments,
as follows:
(22) (a). Within 90 days after enactment of the bill, the
Secretary of Transportation (hereafter "the Secretary"), in
consultation with the Commission, must develop and publish
standards for the classification of low density railroad lines
according to their level of usage and probable economic viability.
(22) (b). Within 90 days of the publication, each railroad
must submit to the Secretary and the Commission a schedule
of low density lines, as determined by applying the classification
standards.
(22) (c). A carrier may initiate an abandonment proceeding
by filing a notice with the Commission at least 90 days prior to
the proposed date of abandonment. Unless a line has been listed
for at least 6 months on the schedule required by subparagraph (b),
it may not be abandoned if it is opposed by a user or State or
local government served by the line.
3.
(22) (d). If the Commission permits abandonment of a line,
it must calculate the difference between the "revenue attributable
to the line" and the "cost of operating the line".
(23). If a State or local agency or shipper notifies the
Commission of its intention to provide an operating subsidy
and the Commission determines that the State or local government
has or will acquire within six months the legal capacity to
provide the subsidy or that the shipper is willing and able to
provide the subsidy, it may order an additional postponement
for not more than six months to implement a subsidization plan.
If the Commission determines that the revenues for the line,
including the subsidy, are at least equal to the cost of operating
the line, the Commission must order continued operation of the
line.
(24). The Secretary and the Commission are required
to develop within 90 days following the date of enactment of the
bill interim standards for determing the "cost of operating the
line" and "revenue attributable to the line". Such standards must
recognize that "cost" means all costs, including capital recovery
and a reasonable return on investment, which would change if
the line were abandoned, and "revenue" means all revenue which
4
would be lost if the line were abandoned. The interim standards
must be adopted by the Commission and within one year the
Secretary, in consultation with the Commission, must develop
final standards for determining these terms and those standards
must be adopted by the Commission.
(25). Provides that if the Commission permits abandon-
ment, it shall impose labor protection at least equal to the 4 year
protection provided in section 5 (2) (f) of the Interstate Commerce
Act.
Rate Bureau Procedures
Sec. 3 (a). Amends section 5a of the Act by:
(1). Amending paragraph (3) to require that all
rate bureaus maintain records of the votes of their members
on each matter voted on, and that the records of all rate bureaus
be available to public inspection through the Commission.
(2). Renumbering the existing paragraphs (7)
through (10) as (8) through (11) and adding a new paragraph (7) (A)
prohibiting agreements among railroad carriers that (i) permit
discussions, agreements or voting on a single-line movement;
(ii) permit carriers that do not hold themselves out to participate
in a joint movement to participate in the consideration of
rates related to the movement;
5
or (iii) permit joint consideration or action protesting or seeking
to suspend rates. As used in paragraph (7), a "movement" is
the transport of a commodity between any two points for which
a tariff has been filed. Paragraph 7(B) precludes discussions,
agreements, and votes relating to across-the-board percentage
changes in freight rates three years after the enactment of
this Act except for general rate increases based solely on
increases in fuel or labor costs.
(3). Making a conforming amendment to
paragraph (9).
(4). Requiring every rate bureau to take final
action within 120 days on any rule, rate, or charge docketed
with it.
(b) Invalidates all agreements to the extent they permit
actions prohibited by the new paragraph (7).
Intrastate Railroad Rate Proceedings
Sec. 4. Amends section 13 of the Act by adding a new
paragraph (5) vesting the Commission with exclusive authority to
determine and prescribe an intrastate rate which is a counter-
part to an approved intrastate rate if a carrier has filed with
the appropriate State agency a change in an intrastate rate,
and the State agency has not finally acted on the rate change
within 120 days from the filing of the rate.
6.
Suspension of Railroad Rates
Sec. 5. Amends section 15(7) of the Act to provide that:
(1) The Commission may initiate hearings with
respect to new rates upon complaint or upon its own initiative
and after hearing issue an appropriate order. Hearings must
be completed within 7 months of the date the rate was scheduled
to become effective, unless the Commission reports to the
Congress the reason it is not possible to comply with this
requirement. If a report is made the Commission must still
complete the hearing within 10 months of the date the rate was
scheduled to go into effect. If the hearing is not completed,
the rate goes into effect. That rate may be later contested,
but the burden of proof shifts to the complainant. This section,
therefore, preserves the existing burden of proof presently
provided in the Interstate Commerce Act.
(2) This section institutes a 4-year phasing to
allow for more rate flexibility and limits the Commission's
suspension power. A rate may still be suspended for 7 months
(or for 10 months if the report to Congress is made) but a rate
may not be suspended on the ground that it exceeds a just and
reasonable level or that it is below a just and reasonable level
if the rate increase or decrease is within certain percentage limits.
7% for the first year; 12% for the second year; and 15% for the
7
third year. After the end of the third year, rate decreases may
not be suspended for being unreasonably low and rate increases
may not be suspended if not more than 15%. The percentage
limits are yearly aggregates. This limitation upon the Commission's
suspension power does not apply to general rate increases or
to challenges to the increase or decrease under sections 2, 3,
and 4 of the Act, but in order to suspend under these sections
or any other section the Commission must make findings similar
to those a court would have to make to issue a temporary restraining
order. It should also be noted that the limitations upon the
Commission's suspension power does not affect the Commission's
power to make a final determination.
(3) If the hearing involves a proposed rate increase
and the rate is not suspended pending hearing, the Commission
must require the carrier to keep an account of all amounts it
receives because of the increase, from the date the rate became
effective until an order is issued, until seven months elapse
(or ten months if the hearing is extended) whichever is sooner.
Interest must be paid by the carrier at a rate determined by
the Commission, but in no event may the interest rate be lower
than the rate on three month government securities.
8
(4) This section provides a special procedure
for the initial consideration and subsequent consideration of
tariffs requiring large capital expenditures. A carrier is
authorized to file a notice of intention to file a tariff when the
implementation of the tariff would require a total capital investment
of $1,000,000 or more by the carrier, or a shipper or receiver,
or other interested party, individually or collectively. The filing
must be accompanied by a sworn affidavit as to the investment
required. An interested person may request a hearing, and the
Commission must hold a hearing, but it can be an informal hearing.
Unless the Commission determines within 180 days from the date
of filing that the proposed tariff would be unlawful, the carrier may
file the tariff anytime thereafter and it may not be suspended or
set aside as being unlawful under parts 1, 2, 3, or 4 of the Act,
but it may be set aside if found to be noncompensatory.
(5) After two and half years after the initiation of
the no-suspend zone, the Secretary of Transportation, in consultation
with the Commission is to make a report to Congress, indicating
the effects of the rate flexibility introduced by this Act upon the
efficiency of the national transportation system.
9
Railroad Revenue Levels
Sec. 6. Amends section 15a of the Act by repealing
all of its provisions and re-enacting certain of them in the
new section 15a and others in section 1(5) of the Act (section
2 of the bill). Also provides that the Commission, in
determining adequacy of revenue, shall prescribe uniform
criteria for estimating the rate of return on capital, cost
impact of changes in the general level of prices, and adequacy
of cash flow.
Prohibiting Discriminatory Taxation
Sec. 7. Adds a new section 26 to the Act prohibiting
the levying of discriminatory State or local property taxes on
common carriers subject to regulation by the Commission.
Uniform Cost and Revenue Accounting
Sec. 8. Requires the Commission, jointly with the
Secretary, to study and recommend uniform cost accounting
and revenue accounting methods for rail carriers. The
Commission would be required to issue regulations prescribing
the uniform cost and revenue accounting methods within two
years from the date of enactment of the bill.
10.
Railroad Loan Guarantees
Sec. 9. Authorizes the Secretary to guarantee any lender
against the loss of principal and interest on securities, obligations,
or loans issued for the purpose of financing the acquisition,
construction, maintenance, or development of:
(i)
track and roadbed subject to projected traffic
usage of at least 5 million gross ton-miles
per mile of road per year;
(ii)
electrical, communication, and power
transmission systems;
(iii)
signals;
(iv)
terminal facility modernization and
consolidation;
(v)
new and rebuilt rolling stock; and
(vi)
computer based data and information
system.
Prior to making a guarantee the Secretary must make several
findings which are designed to assure adequate protection to the
U.S. in the event of default, and to assure that the improvements
will contribute to a more rational, efficient, and economical rail
transportation system. In addition, the Secretary must make a
11.
finding that adequate labor protection, of at least 4 years, has
been provided. Different findings must be made with respect
to guarantees for rolling stock. Loan guaranteed by the
Secretary pursuant to Act may be financed through the Federal
Financing Bank. The guaranteed amounts outstanding at any
one time may not exceed $2, 000, 000, 000.
Railroad Restructuring
Sec. 10. This section would authorize the Secretary to
condition the granting of loan guarantees on an agreement among
the applicants or other railroads to restructure their facilities.
Such restructuring could include merger, consolidation, sale
or acquisition of assets, and joint use of facilities. Such
agreements would be voluntary, and the Secretary could not
require a railroad to enter into such an agreement except as
a condition for loan guarantee.
These agreements would be approved in a new two part
procedure with a new "public interest test". The ICC in its
interpretation of Section 5 of the IC Act has hindered needed
restructuring of the railroads by failing to reach a decision within
a reasonable time and by dissipating the benefits of proposed agreements
by imposing unnecessary third party conditions to such agreements.
This section will remedy these two defects by requiring a new
procedure for consideration of proposed agreements and new definition
12
of "public interest. 11 Agreements will first be considered by
the Secretary in a public procedure similar to that used in rule
making. Notice of the agreement will be given to the public, and
comments may be made in writing or in an informal oral hearing.
The Secretary will then initially approve the agreement which
contains the restructuring terms if it is in the public interest and
certify the agreement to the ICC. The ICC will then have 6 months
to decide whether the agreement is in the public interest. The
"public interest" is defined in the bill to mean that (1) the efficiency
gains of the transaction substantially outweigh any adverse effects
on competition, and (2) there is no clear and substantially less
anti-competitive transaction available. Unless the ICC specifically
finds, by "clear and convincing evidence, 11 that the proposed
agreement is not in the public interest, it must approve the agree-
ment. The Act, in addition to its concern for the preservation
of competition, makes specific provision for the rights of labor
and shippers. If the ICC should fail to act within the specified
time, it must certify the proceeding back to the Secretary, and the
Secretary, with the concurrence of the Attorney General, must,
on the basis of the ICC proceedings and his own information and
data, approve, modify, or reject the proposed agreement in
accordance with the public interest standard. Both the final
decisions of the Secretary and the ICC can be appealed to the
United States Court of Appeals for the District of Columbia.
13
Rolling Stock Scheduling and Control System
Sec. 11. Authorizes the Secretary to promote the development
of the design of a national rolling stock scheduling and control
system, and requires the Secretary to develop recommendations
for implementing a system. The Secretary is also required to
study, and develop recommendations for participation by individual
railroads in a national system.
National Transportation Policy
Sec. 12. Amends the National Transportation Policy which
precedes the various parts of the Interstate Commerce Act to
recognize the importance of competition.
Section-by-Section Analysis of a Bill
To amend the Interstate Commerce Act, as amended, to
modernize and reform the regulation of railroads, to allow
more flexibility in establishing rates, to provide adequate
prior notice of the abandonment of rail lines, and to assist in
the financing of rail transportation and to develop a rolling
stock scheduling and control system, and for other purposes.
Sec. 1. Cites the proposed Act as the "Railroad
Revitalization Act".
Railroad Ratemaking and Abandonment
Sec. 2(a)(1). Amends section 1(5) of the Act by (i)
incorporating the definition of "rates" and, with some modification,
certain ratemaking considerations now appearing in Section 15a(1)
of the Act; (ii) adding to the existing requirement that rates be
just and reasonable a provision that a compensatory rate may
not be held to be unjust or unreasonable because it is too low;
(iii) incorporating provisions from subsections 15a (2) and (3)
requiring the Commission to consider the effects of rates on the
movement of traffic and the need for adequate and efficient
railway transportation service, and prohibiting the Commission
from holding up to a particular level the rate of a carrier or
freight forwarder subject to the Act to protect the traffic of
a carrier of another mode; (iv) providing that a carrier's rate is
compensatory when it equals or exceeds the particular carrier's
variable cost of providing the specific transportation to which the
2
rate applies; and (v) prohibiting rate decreases below variable
cost, and prohibiting the Commission from disallowing a carrier's
rate increases where the increase does not increase that rate
beyond the carrier's variable cost.
(5). Strikes the existing paragraph (22) of section 1
of the Act (paragraph 22 is restated in paragraph 26) and adds
paragraphs (22) through (26) establishing new rail abandonment
procedures to ensure adequate prior notice of rail abandonments,
as follows:
(22) (a). Within 90 days after enactment of the bill, the
Secretary of Transportation (hereafter "the Secretary"), in
consultation with the Commission, must develop and publish
standards for the classification of low density railroad lines
according to their level of usage and probable economic viability.
(22) (b). Within 90 days of the publication, each railroad
must submit to the Secretary and the Commission a schedule
of low density lines, as determined by applying the classification
standards.
(22) (c). A carrier may initiate an abandonment proceeding
by filing a notice with the Commission at least 90 days prior to
the proposed date of abandonment. Unless a line has been listed
for at least 6 months on the schedule required by subparagraph (b),
it may not be abandoned if it is opposed by a user or State or
local government served by the line.
3.
(22) (d). If the Commission permits abandonment of a line,
it must calculate the difference between the "revenue attributable
to the line" and the "cost of operating the line".
(23). If a State or local agency or shipper notifies the
Commission of its intention to provide an operating subsidy
and the Commission determines that the State or local government
has or will acquire within six months the legal capacity to
provide the subsidy or that the shipper is willing and able to
provide the subsidy, it may order an additional postponement
for not more than six months to implement a subsidization plan.
If the Commission determines that the revenues for the line,
including the subsidy, are at least equal to the cost of operating
the line, the Commission must order continued operation of the
line.
(24). The Secretary and the Commission are required
to develop within 90 days following the date of enactment of the
bill interim standards for determing the "cost of operating the
line" and "revenue attributable to the line". Such standards must
recognize that "cost" means all costs, including capital recovery
and a reasonable return on investment, which would change if
the line were abandoned, and "revenue" means all revenue which
4
would be lost if the line were abandoned. The interim standards
must be adopted by the Commission and within one year the
Secretary, in consultation with the Commission, must develop
final standards for determining these terms and those standards
must be adopted by the Commission.
(25). Provides that if the Commission permits abandon-
ment, it shall impose labor protection at least equal to the 4 year
protection provided in section 5 (2) (f) of the Interstate Commerce
Act.
Rate Bureau Procedures
Sec. 3 (a). Amends section 5a of the Act by:
(1). Amending paragraph (3) to require that all
rate bureaus maintain records of the votes of their members
on each matter voted on, and that the records of all rate bureaus
be available to public inspection through the Commission.
(2). Renumbering the existing paragraphs (7)
through (10) as (8) through (11) and adding a new paragraph (7) (A)
prohibiting agreements among railroad carriers that (i) permit
discussions, agreements or voting on a single-line movement;
(ii) permit carriers that do not hold themselves out to participate
in a joint movement to participate in the consideration of
rates related to the movement;
5
or (iii) permit joint consideration or action protesting or seeking
to suspend rates. As used in paragraph (7), a "movement" is
the transport of a commodity between any two points for which
a tariff has been filed. Paragraph 7(B) precludes discussions,
agreements, and votes relating to across-the-board percentage
changes in freight rates three years after the enactment of
this Act except for general rate increases based solely on
increases in fuel or labor costs.
(3). Making a conforming amendment to
paragraph (9).
(4). Requiring every rate bureau to take final
action within 120 days on any rule, rate, or charge docketed
with it.
(b) Invalidates all agreements to the extent they permit
actions prohibited by the new paragraph (7).
Intrastate Railroad Rate Proceedings
Sec. 4. Amends section 13 of the Act by adding a new
paragraph (5) vesting the Commission with exclusive authority to
determine and prescribe an intrastate rate which is a counter-
part to an approved intrastate rate if a carrier has filed with
the appropriate State agency a change in an intrastate rate,
and the State agency has not finally acted on the rate change
within 120 days from the filing of the rate.
6.
Suspension of Railroad Rates
Sec. 5. Amends section 15(7) of the Act to provide that:
(1) The Commission may initiate hearings with
respect to new rates upon complaint or upon its own initiative
and after hearing issue an appropriate order. Hearings must
be completed within 7 months of the date the rate was scheduled
to become effective, unless the Commission reports to the
Congress the reason it is not possible to comply with this
requirement. If a report is made the Commission must still
complete the hearing within 10 months of the date the rate was
scheduled to go into effect. If the hearing is not completed,
the rate goes into effect. That rate may be later contested,
but the burden of proof shifts to the complainant. This section,
therefore, preserves the existing burden of proof presently
provided in the Interstate Commerce Act.
(2) This section institutes a 4-year phasing to
allow for more rate flexibility and limits the Commission's
suspension power. A rate may still be suspended for 7 months
(or for 10 months if the report to Congress is made) but a rate
may not be suspended on the ground that it exceeds a just and
reasonable level or that it is below a just and reasonable level
if the rate increase or decrease is within certain percentage limits.
7% for the first year; 12% for the second year; and 15% for the
7
third year. After the end of the third year, rate decreases may
not be suspended for being unreasonably low and rate increases
may not be suspended if not more than 15%. The percentage
limits are yearly aggregates. This limitation upon the Commission's
suspension power does not apply to general rate increases or
to challenges to the increase or decrease under sections 2, 3,
and 4 of the Act, but in order to suspend under these sections
or any other section the Commission must make findings similar
to those a court would have to make to issue a temporary restraining
order. It should also be noted that the limitations upon the
Commission's suspension power does not affect the Commission's
power to make a final determination.
(3) If the hearing involves a proposed rate increase
and the rate is not suspended pending hearing, the Commission
must require the carrier to keep an account of all amounts it
receives because of the increase, from the date the rate became
effective until an order is issued, until seven months elapse
(or ten months if the hearing is extended) whichever is sooner.
Interest must be paid by the carrier at a rate determined by
the Commission, but in no event may the interest rate be lower
than the rate on three month government securities.
8
(4) This section provides a special procedure
for the initial consideration and subsequent consideration of
tariffs requiring large capital expenditures. A carrier is
authorized to file a notice of intention to file a tariff when the
implementation of the tariff would require a total capital investment
of $1,000,000 or more by the carrier, or a shipper or receiver,
or other interested party, individually or collectively. The filing
must be accompanied by a sworn affidavit as to the investment
required. An interested person may request a hearing, and the
Commission must hold a hearing, but it can be an informal hearing.
Unless the Commission determines within 180 days from the date
of filing that the proposed tariff would be unlawful, the carrier may
file the tariff anytime thereafter and it may not be suspended or
set aside as being unlawful under parts 1, 2, 3, or 4 of the Act,
but it may be set aside if found to be noncompensatory.
(5) After two and half years after the initiation of
the no-suspend zone, the Secretary of Transportation, in consultation
with the Commission is to make a report to Congress, indicating
the effects of the rate flexibility introduced by this Act upon the
efficiency of the national transportation system.
9
Railroad Revenue Levels
Sec. 6. Amends section 15a of the Act by repealing
all of its provisions and re-enacting certain of them in the
new section 15a and others in section 1(5) of the Act (section
2 of the bill). Also provides that the Commission, in
determining adequacy of revenue, shall prescribe uniform
criteria for estimating the rate of return on capital, cost
impact of changes in the general level of prices, and adequacy
of cash flow.
Prohibiting Discriminatory Taxation
Sec. 7. Adds a new section 26 to the Act prohibiting
the levying of discriminatory State or local property taxes on
common carriers subject to regulation by the Commission.
Uniform Cost and Revenue Accounting
Sec. 8. Requires the Commission, jointly with the
Secretary, to study and recommend uniform cost accounting
and revenue accounting methods for rail carriers. The
Commission would be required to issue regulations prescribing
the uniform cost and revenue accounting methods within two
years from the date of enactment of the bill.
10.
Railroad Loan Guarantees
Sec. 9. Authorizes the Secretary to guarantee any lender
against the loss of principal and interest on securities, obligations,
or loans issued for the purpose of financing the acquisition,
construction, maintenance, or development of:
(i)
track and roadbed subject to projected traffic
usage of at least 5 million gross ton-miles
per mile of road per year;
(ii)
electrical, communication, and power
transmission systems;
(iii)
signals;
(iv)
terminal facility modernization and
consolidation;
(v)
new and rebuilt rolling stock; and
(vi)
computer based data and information
system.
Prior to making a guarantee the Secretary must make several
findings which are designed to assure adequate protection to the
U.S. in the event of default, and to assure that the improvements
will contribute to a more rational, efficient, and economical rail
transportation system. In addition, the Secretary must make a
11.
finding that adequate labor protection, of at least 4 years, has
been provided. Different findings must be made with respect
to guarantees for rolling stock. Loan guaranteed by the
Secretary pursuant to Act may be financed through the Federal
Financing Bank. The guaranteed amounts outstanding at any
one time may not exceed $2, 000, 000, 000.
Railroad Restructuring
Sec. 10. This section would authorize the Secretary to
condition the granting of loan guarantees on an agreement among
the applicants or other railroads to restructure their facilities.
Such restructuring could include merger, consolidation, sale
or acquisition of assets, and joint use of facilities. Such
agreements would be voluntary, and the Secretary could not
require a railroad to enter into such an agreement except as
a condition for loan guarantee.
These agreements would be approved in a new two part
procedure with a new "public interest test". The ICC in its
interpretation of Section 5 of the IC Act has hindered needed
restructuring of the railroads by failing to reach a decision within
a reasonable time and by dissipating the benefits of proposed agreements
by imposing unnecessary third party conditions to such agreements.
This section will remedy these two defects by requiring a new
procedure for consideration of proposed agreements and new definition
12
of "public interest. " Agreements will first be considered by
the Secretary in a public procedure similar to that used in rule
making. Notice of the agreement will be given to the public, and
comments may be made in writing or in an informal oral hearing.
The Secretary will then initially approve the agreement which
contains the restructuring terms if it is in the public interest and
certify the agreement to the ICC. The ICC will then have 6 months
to decide whether the agreement is in the public interest. The
"public interest" is defined in the bill to mean that (1) the efficiency
gains of the transaction substantially outweigh any adverse effects
on competition, and (2) there is no clear and substantially less
anti-competitive transaction available. Unless the ICC specifically
finds, by "clear and convincing evidence, " that the proposed
agreement is not in the public interest, it must approve the agree-
ment. The Act, in addition to its concern for the preservation
of competition, makes specific provision for the rights of labor
and shippers. If the ICC should fail to act within the specified
time, it must certify the proceeding back to the Secretary, and the
Secretary, with the concurrence of the Attorney General, must,
on the basis of the ICC proceedings and his own information and
data, approve, modify, or reject the proposed agreement in
accordance with the public interest standard. Both the final
decisions of the Secretary and the ICC can be appealed to the
United States Court of Appeals for the District of Columbia.
13
Rolling Stock Scheduling and Control System
Sec. 11. Authorizes the Secretary to promote the development
of the design of a national rolling stock scheduling and control
system, and requires the Secretary to develop recommendations
for implementing a system. The Secretary is also required to
study, and develop recommendations for participation by individual
railroads in a national system.
National Transportation Policy
Sec. 12. Amends the National Transportation Policy which
precedes the various parts of the Interstate Commerce Act to
recognize the importance of competition.
11
A BILL
To amend the Interstate Commerce Act, as amended, to
modernize and reform the regulation of railroads, to allow
more flexibility in establishing rates, to provide adequate
prior notice of the abandonment of rail lines, and to assist in
the financing of rail transportation, to develop a rolling stock
scheduling and control system, and for other purposes.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled, That
this Act may be cited as the "Railroad Revitalization Act"a.
Railroad Ratemaking and Abandonment
Sec. 2. (a) Section 1 of the Interstate Commerce Act
(49 U.S. C. 1) is amended by: (1) deleting the present paragraph
(5) and substituting in its place the following:
"(5) (a) As used in this section, the term 'rate' means
rate, fare, charge, and any classification, regulation,
or practice relating thereto.
"(b) Each rate for a service rendered or to be rendered
in the transportation of passengers or property, or in connection
therewith, shall be just and reasonable, and every unjust and
unreasonable rate is prohibited and declared to be unlawful. A
rate that is compensatory may not be found to be unjust or
unreasonable on the basis that it is too low.
2
"(c) In exercising its power to prescribe just and
reasonable rates, the Commission shall give due consideration
to the effect of rates on the movement of traffic by the carrier
for which the rates are prescribed, and to the need in the public
interest of adequate and efficient railway transportation service
at the lowest cost consistent with the furnishing of the service.
The Commission may not hold the rate of a carrier of one mode
up to a particular level to protect the traffic of a carrier of another
mode, if the rate proposed by the carrier is compensatory. Where,
after hearing, the Commission finds any rate to be non-compensatory
and unlawful, it may order that rate to be increased but by only
SO much as will make the unlawful rate compensatory.
"(d) A carrier's rate is deemed to be compensatory when
it equals or exceeds the carrier's variable cost of providing the
specific transportation to which the rate applies. In determining
whether a rate on traffic moving over lines receiving an operating
subsidy pursuant to paragraph (23) of this section is compensatory,
the Commission shall take into account the compensation received
from the subsidy.
"(e) In any proceeding instituted upon complaint to
determine the lawfulness of a rate, the Commission may not approve a
carrier's proposed rate decrease which is below the carrier's variable
3
cost of providing the specific transportation to which the rate applies.
and the Commission may not disallow a carrier's proposed rate
increase where the increase does not raise the rate above the
carrier's variable cost of providing the specific transportation.
(2) striking paragraph (22) thereof and adding the following
new paragraphs:
"(22) (a) In order to provide advance notice to users and
State and local governments of those lines of railroad which a
carrier may seek to abandon because of their low traffic density,
the Secretary, in consultation with the Commission, shall develop
and publish, within ninety days after enactment of this paragraph,
standards for the classification of railroad lines according to
their level of usage and probable economic viability. The Secretary,
in consultation with the Commission, may revise the standards
thereafter as necessary to improve the accuracy of classification.
In determining 'level of usage' and 'probable economic viability'
for purposes of classification, the Secretary shall take into account
such economic, operational, service, and other factors, as
appropriate, and may make allowance for variations in these factors
among the various regions of the country and among individual
railroads or groups of railroads.
4
"(b) Within ninety days after publication of the standards
for the classification of railroad lines, each railroad shall analyze
its rail system in accordance with the standards and prepare
and file with the Secretary and the Commission a full and complete
schedule of its low density lines. The schedule shall be prepared,
filed and kept current in accordance with procedures prescribed
by the Secretary, in consultation with the Commission.
"(c) A carrier may initiate an abandonment proceeding
by filing a notice with the Commission at least ninety days prior
to the proposed date of abandonment of a line of railroad, or
the operation thereof, and certifying that the notice has been
"(1) served by certified mail upon the Governor
of each State in which all or any portion of the line
of railroad or the operation thereof is proposed to
be abandoned;
"(2) served by certified mail on all carriers,
shippers and receivers who have used the line in the
preceding eighteen months;
"(3) posted in every station on the line of
railroad; and
"(4) published for three consecutive weeks in
a newspaper of general circulation in each county in
or through which said line of railroad operates.
5
For all abandonment applications filed after one year from the
date of enactment of this subparagraph (c), unless at the time
the notice of abandonment is filed a line of railroad sought to
be abandoned has been listed for at least six months on the
schedule prescribed in subparagraph (b) of this paragraph, a
carrier may not abandon all or any portion of the line, or
operation thereof, if the abandonment is opposed either by a
person who has used the service provided thereon or which
has operated over such line during the twelve months preceding
the date of filing of the abandonment application, or by a State,
county, or municipality served by the line.
"(d) Where an application for abandonment of a line of
railroad has been considered by the Commission and the
Commission determines that public convenience and necessity
permits abandonment of the line, upon application by an interested
party it shall determine the extent to which the revenue attributable
to the line or operations in question of the applicant or applicants
covers the cost of operating the line of the applicant or applicants
and the amount of subsidy needed to require continued operation
under subparagraph (23) of this paragraph.
6
"(23) If the Commission determines that the public
convenience and necessity permit the abandonment of a line of
railroad, or operation thereof, the Governor of any State or
the authorized representative of any local governing authority in
which all or a portion of the line is located, or the shippers or
receivers of traffic over the line may, prior to the effective date
of the Commission's order, notify the Commission and the railroad
of their intention, individually or collectively, to provide an
operating subsidy to the railroad to assure a continuation of service.
If the Commission determines that the State or local government
has, or is likely to acquire within a six-month period, the legal
capacity to provide an operating subsidy, or in the case of
shippers or receivers, that they are willing and able to provide
the subsidy, it may order an additional postponement of the
abandonment for not more than six months to implement a
subsidization plan. If the Commission determines that the revenues
attributable to the line including the subsidy are equal to or exceed
the cost of operating the line, it shall order continued operation
of the line thereafter on the condition that the subsidy is provided.
"(24) (a) Within ninety days following the date of enactment
of this title the Secretary shall, after consultation with the
Commission, develop interim standards for determining the 'cost
7
of operating the line' and the 'revenue attributable to the line'
as those terms are used in this section. The Commission shall
promptly adopt and promulgate these interim standards. Within
one year following the date of enactment of this title, the
Secretary shall, after consultation with the Commission, develop
final standards for determining these terms. The final standards
shall be adopted and promulgated by the Commission within thirty
days of their receipt and shall be revised from time to time as
the Secretary and the Commission may agree.
"(b) The standards shall be develped in accordance with
the following definitions and guidelines"
"(A) the 'cost of operating the line' means all of
the applicant's costs (including capital recovery and a
reasonable return on investment) which may change or be
avoided as a result of a decision to abandon the line, over
a period of time long enough to allow all the cost effects
of the abandonment to be realized;
"(B) the 'revenue attributable to the line' means
all revenues which would be lost for the applicant if the
line were abandoned;
"(C) the standards shall not place an unreasonable
accounting burden on the railroads; and
8
"(D) the standards shall permit the separation of
cost and revenue between the railroad operating the line
to be abandoned and other railroads participating in the
traffic originating or terminating on the line.
"(25) If the Commission determines that the public
convenience and necessity permit the abandonment of a line of
railroad, or operations thereof and if the issuance of the certificate
may affect interests of railroad employees, the Commission shall
impose a fair and equitable arrangement for the protection of
such employees containing benefits no less than those established
pursuant to Section 5(2) (f) of this Act.
"(26) The authority of the Commission conferred by
subparagraphs (18) through (22) of this section shall not apply to
the construction, acquisition, or abandonment of spur, industrial,
team, switching, or side tracks, located or to be located wholly
within one State, or of street, suburban, or interurban electric
railways, which are not operated as a part or parts of a general
railroad system of transportation.
"(27) (a) Any construction, operation, or abandonment
contrary to the provisions of subparagraphs (18), (19), (20), or (22)
of this section may be enjoined by any United States district court
of competent jurisdiction at the suit of the United States, the
9
State or States affected, or any party in interest; and any carrier
which, or any director, officer, receiver, operating trustee,
lessee, agent, or person, acting for or employed by such carrier,
who, knowingly authorizes, consents to, or permits any violation
of the provisions of subparagraphs (18), (19), (20), or (22) of this
section shall be subject to a civil penalty of not more than $5,000
for each violation.
"(b) Applications for abandonment filed with the
Commission before the date of enactment of this Act, shall be
governed by the provisions of section 1 of the Interstate Commerce
Act (49 U.S.C. 1) in effect on the date of the application, except
that the issuance of a certificate authorizing abandonment may
be stayed pursuant to the provisions of section (23) as enacted
in subsection (2) of this section.
Rate Bureau Procedures
Sec. 3. (a) Section 5a of the Interstate Commerce Act
(49 U.S.C. 5b) is amended by (1) amending paragraph (3) to
read as follows:
"(3) Each conference, bureau, committee, or other
organization of railroad carriers established or continued pursuant
to an agreement approved by the Commission under the provisions
10.
of this section shall maintain records of the votes of its members
on each matter voted on. It shall maintain such other accounts,
files, memoranda, or other records, and submit such reports,
as the Commission may require. The records of each organization
shall be subject to inspection by the Commission and shall be
made available to the public through the Commission. ";
(2) renumbering paragraphs (7) through (10) as (8) through
(11) and adding a new paragraph to read as follows:
"(7) (A) The Commission may not approve under
this section any agreement among railroad carriers that (i) permits
participation in discussions, agreements or voting on rates, fares,
classifications, allowances or charges relating to single-line
movements, (ii) permits any carrier not holding itself out to
participate in a particular joint line or interline movement to
participate in discussions, agreements, or voting on rates, fares,
classifications, divisions, allowances, or charges relating to
that movement; or (iii) provides for or establishes procedures for
joint consideration or other action protesting or otherwise seeking
the suspension of any rate, fare, or charge.
"(B) After three years from the date of the enactment
of this paragraph, the Commission may not approve under this
11
section any agreement among railroad carriers that permits
participation in discussions, agreements, or voting on rates
which are of general applicability to all or substantially all
classes of traffic. This paragraph, however, shall not apply
to rate changes of general applicability which are based solely
on regional or national increases in fuel or labor costs.
(3) striking "(4), (5), or (6)' in paragraph (9) and
inserting in lieu thereof "(4), (5), (6), or (7) striking "(9)"
in paragraph (10) and inserting "(10)" in lieu thereof; and
(4) adding a new paragraph (12) to read as follows:
"(12)(a) A railroad conference, bureau, committee
or other organization established or continued pursuant to any
agreement approved under this section, shall take final action
upon a rule, rate, or charge docketed with it within one hundred
and twenty days from the date of docketing."
(b) Any agreement in effect on the date of enactment
of this paragraph which permits an action prohibited by
section 5a (7) (A) of this Act, and any agreement in effect three
years after the date of the enactment of this paragraph which
permits an action prohibited by section 5a(7)(B) of this Act is null
and void to the extent it permits the prohibited action, and any
prohibited action taken under that agreement is subject to the
antitrust laws. 11
12
Intrastate Railroad Rate Proceedings
Sec. 4. Section 13 of the Interstate Commerce Act
(49 U.S.C. 13) is amended by (a) striking the proviso in paragraph
4 and the colon preceding the proviso, (b) inserting a period in
place of the colon, and by (c) adding a new paragraph (5) to read
as follows:
"(5) The Commission shall have exclusive authority,
upon application to it, to determine and prescribe intrastate rates
if (i) a carrier has filed with an appropriate administrative or
regulatory body of a State a change in an intrastate rate, fare,
or charge, or a change in a classification, regulation, or practice
that has the effect of changing the rate, fare, or charge, for
the purpose of adjusting the rate, fare, or charge to the rate
charged on similar traffic moving in interstate or foreign commerce;
and (ii) the State administrative or regulatory body has not acted
finally within one hundred and twenty days from the date of the filing
of the change in the intrastate rates hereunder. Notice of the
application to the Commission shall be served on the appropriate
State administrative or regulatory body. The Commission shall
determine and prescribe the rate thereafter to be charged according
to the standards set forth in paragraph (4) of this section. The
provisions of this paragraph shall apply notwithstanding the laws
or constitution of any State, or the pendency of any proceeding before
13
any State court or other State authority. 11
Suspension of Railroad Rates
Sec. 5. (a) Section 15 (7) of the Interstate Commerce Act
(49 U.S.C. 15(7)) is amended to read as follows:
"(7)(a) Whenever a schedule is filed with the Commission
stating a new individual or joint rate, fare, or charge, or a
new individual or joint classification, regulation, or practice
affecting a rate, fare, or charge, the Commission may order a
hearing concerning the lawfulness of the rate, fare, charge,
classification, regulation, or practice. The hearing may be
ordered upon complaint and, if so ordered, without answer or
other formal pleading by the interested carrier or carriers,
but with reasonable notice. The hearings must be completed
and a final decision rendered by the Commission not later than
7 months after the rate was scheduled to become effective, unless
prior to the expiration of such period, the Commission reports
in writing to the Congress that it is unable to render a decision
within that period, with a full explanation of the reason for the
delay. If such a report is made to the Congress, the final decision
shall be made not later than 10 months after the rate was scheduled
to become effective. If the Commission's final decision is not made
within the applicable time period, the rate, fare, charge, classification,
regulation, or practice shall go into effect immediately or if it is
14
already in effect, remain in effect. Therefore such a rate,
fare, charge, classification, regulation, or practice may be set
aside thereafter by the Commission if upon complaint of an
interested party the Commission finds the rate, fare, charge,
classification, regulation, or practice to be unlawful. In a
proceeding pursuant to the preceding sentence, the burden of
proof shall be upon the complainant.
¹¹(7) (b) Pending a hearing instituted upon complaint,
the schedule may be suspended for seven months beyond the
time when it would otherwise go into effect, or for ten months
if the Commission reports to Congress pursuant to paragraph
(7) (a), except under the following conditions: (i) in the case of
a rate increase, a rate may not be suspended on the ground
that it exceeds a just and reasonable level if the rate is within
a limit specified in paragraph (7) (c) except that such a rate
change may be suspended under sections 2, 3, and 4 of the Act
pending the determination of its lawfulness; (ii) in the case of a
rate decrease, a rate may not be suspended on the ground that
it is below a just adn reasonable level if the rate is within a
limit specified in paragraph (7) (c) except that such a rate change may
be suspended under sections 2, 3, and 4 of the Act pending the
15
determination of its lawfulness. In addition, the Commission
may not suspend a rate under any section of this part unless a
complaint is filed, and the complainant establishes and the
Commission finds that, without suspension the proposed rate change
will cause immediate and irreparable injury to the complainant,
that the complainant is likely to prevail on the merits, and
that suspension is in the public interest. Nothing contained in
this paragraph shall be deemed to establish a presumption that
any rate increase or decrease in excess of the limits set forth
in paragraph (7) (c) is unlawful or should be suspended.
"(7)(c) The limiations upon the Commission's power to
suspend rate changes set forth in paragraph (7) (b) (i) and (ii)
apply only to rate changes which are not of general applicability
to all or substantially all classes of traffic and only when:
''(i) the rate increase or decrease is filed within one
year of the date of enactment of this subparagraph; the carrier
notifies the Commission that it wishes to have the rate considered
pursuant to this subparagraph; the increase or decrease is not more
than 7% of the rate in effect on the date of enactment; and, the
aggregate of all increases or decreases in the rate sought pursuant
16
to this subparagraph do not exceed 7% of the rate in effect on
the date of enactment; or
"(ii) the rate increase or decrease is filed within
the period commencing one year after the date of enactment of
this subparagraph and ending two years after the date of enactment;
the carrier notifies the Commission that it wishes to have the
rate considered pursuant to this subparagraph; the increase or
decrease is not more than 12% of the rate in effect on the last
day of the first year following the date of enactment; and, the
aggregate of all increases or decreases in the rate sought pursuant
to this subparagraph do not exceed 12% of the rate in effect on
the last day of the first year following the date of enactment; or
"(iii) the rate increase or decrease is filed within
the period commencing two years after the date of enactment of
this subparagraph and ending three years after the date of enactment;
the carrier notifies the Commission that it wishes to have the
rate considered pursuant to this subparagraph; the increase or
decrease is not more than 15% of the rate in effect on the last day
of the second year following the date of enactment; and, the aggregate
of all increases or decreases in the rate under this subparagraph
do not exceed 15% of the rate in effect on the last day of the second
year following the date of enactment; or
17
"(iv) the rate increase is filed after three years
have elapsed from the date of enactment of this subparagraph;
the carrier notifies the Commission that it wishes to have the
rate considered pursuant to this subparagraph; and the increase
is not more than 15% of the rate in effect on the date of annual
anniversary of the enactment of this subparagraph which immediately
precedes the filing and the aggregate of all increases sought
pursuant to this subparagraph since the date of that anniversary
do not exceed 15%; or
"(v) the rate decrease is filed after three years
have elapsed from the date of enactment of this subparagraph
regardless of the percentage of change.
"(7)(d) If a hearing of a proposed increased rate, fare or
charge is initiated and the schedule is not suspended pending
hearing, the Commission shall require the carrier to keep an
account of all amounts received because of the increase from
the date the rate became effective until an order issues, until
seven months elapse, or if the hearings are extended pursuant
to paragraph (7) (a), until ten months elapse, whichever is sooner.
The account shall specify by whom and in whose behalf the amounts
are paid. In its final order, the Commission shall require the
carrier to refund, with interest at a rate determined by the
Commission, but in no event less than the average market yield
18
on the day of the filing of outstanding marketable securities of
the United States with remaining periods of maturity of three
months, to the persons in whose behalf the amounts were paid,
that portion of the increased rate or change found to be not
justified. With respect to any proposed decreased rate or
charge which is suspended, if the decrease or any part of it
is ultimately found to be lawful, the carrier may refund any
part of the portion of the decreased rate found justified provided
it makes such a refund available on an equal basis to all
shippers who participated in that rate according to the relative
amounts of traffic moving at that rate.
"(7)(e) Except as otherwise specifically provided, at
any hearing under this subsection, the burden of proof is on
the carrier to show that the proposed changed rate, fare,
charge, classification, rule, regulation, or practice is compensatory,
just and reasonable, and the Commission shall give to the hearing
and decision of the question preference over all other questions
pending before it and decide the same as speedily as possible.
"(f) Notwithstanding any other provisions of law, a
carrier under this part may file with the Commission a notice of
19
intention to file a schedule stating a new rate, fare, charge,
classification, regulation or practice whenever the implementation
of the proposed schedule would require a total capital investment
of one million dollars ($1, 000, 000) or more, individually or
collectively by the carrier, or a shipper or receiver or agent
thereof, or an interested third party. The filing shall be accompanied
by a sworn affidavit setting forth in detail the anticipated capital
investment upon which it is based. Any interested person may
request the Commission to investigate the schedule proposed to
be filed and the Commission shall hold a hearing, but the hearing
may be informal, and without answer or other formal pleading
but with sufficient notice. Unless prior to the one hundred and
eightieth day following the filing of the notice the Commission has
determined, after hearing, that the proposed schedule, or any part
thereof, would be unlawful, the carrier may file the schedule
anytime thereafter to become effective after thirty days' notice.
The schedule may not, for a period of five years after its effective
date, be suspended or set aside as being unlawful under sections 1,
2, 3, or 4 of this Act, except that it may be suspended or set
aside after that date if the rate prescribed therein is found to be
not compensatory.
(b) The Secretary of Transportation shall, in consultation
with the Commission study the effect of the foregoing amendments
20
to section 15 (7) on the development of an efficient railroad system.
The study shall include an analysis of the effects of the provisions
upon shippers and upon carriers of all modes and include proposals
for further regulatory and legislative changes if necessary. The
Commission shall gather all data relating to the study as requested
by the Secretary, and make such data available to the Secretary.
The Secretary shall transmit results of such study to Congress
within 30 months after the enactment of these amendments.
Railroad Revenue Levels
Sec. 6. Section 15a of the Interstate Commerce Act
(49 U.S.C. 15a) is amended to read as follows:
"Sec. 15a. In carrying out its responsibilities under this
part, the Commission shall give due consideration to the need
for revenues sufficient to enable the carriers, under honest,
economical, and efficient management, to provide adequate and
efficient railway transportation service. In determining the adequacy
of revenues, the Commission shall prescribe uniform methods
and criteria for estimating the rate of return based on costs of
capital and risk, the cost impact of changes in the general level
of prices and wages, and the adequacy of cash flow. 11
Prohibiting Discriminatory Taxation
Section 7. Sections 26 and 27 of the Interstate Commerce
Act (49 U.S.C. 27) are redesignated as sections 27 and 28
and a new section 26 is added to read as follows:
21
"Sec. 26. (1) As used in this section--
"(a) The term assessment jurisdiction' means a
geographical area, such as a State or a county, city or township
within a State, which is a unit for purposes of determining
assessed value of property for ad valorem taxation.
"(b) The term 'transportation property' means
transportation property, as defined in the regulations of the
Interstate Commerce Commission, that is owned or used by
ts
any common or contract carrier subject to economic regulation
under parts I, II, III, or IV of this Act or by The National Railroad
Passenger Corporation.
"(c) The term 'commercial and industrial property'
means property devoted to a commercial or industrial use,
but does not include transportation property or land used primarily
for agricultural purposes or primarily for the purpose of growing
timber.
"(d) The term 'all other property' means all
property, real or personal, other than transportation property
or land used primarily for agricultural purposes or primarily
for the purpose of growing timber.
22
"(2) Notwithstanding the provisions of section 202(b) of this
Act, the following actions by any State, or subdivision or agency
thereof, whether taken pursuant to a constitutional provision,
statute, administrative order or practice, or otherwise, constitute
an unreasonable and unjust discrimination against, and an undue
burden upon interstate commerce and are prohibited:
"(a) the assessment, for purposes of a property
tax levied by any taxing district, of transportation property
at a value which, as a ratio of the true market value of
the property, is higher than the ratio of assessed value
to true market value of all other industrial and commercial
property which is in the assessment jurisdiction in which
is included the taxing district, and which is subject to a
property tax levy;
"(b) the collection of any ad valorem property tax
on transportation property at a tax rate higher than the
tax rate generally applicable to all other commercial and
industrial property in the taxing district;
"(c) the collection of any tax on the portion of
an assessment which is prohibited; and
"(d) the imposition of any other tax which results
in discriminatory treatment of a carrier subject to the
Interstate Commerce Act.
23
"(3) If the ratio of assessed value to true market value
of all other commercial and industrial property in the assessment
jurisdiction cannot be established through the random-sampling
method known as a 'sales assessment ratio study', conducted
in accordance with statistical principles applicable to that study,
then the following actions are also prohibited:
"(a) the assessment of transportation property
at a value which, as a ratio of the true market value
of the property, is higher than the ratio of assessed
value to true market value of all other property which
is in the assessment jurisdiction in which is included
the taxing district, and which is subject to a property
tax levy; or
"(b) the collection of an ad valorem property
tax on transportation property at a tax rate higher than the
tax rate generally applicable to all other property in
the taxing district.
"(4) Notwithstanding the provisions of section 1341, title 28,
United States Code, or of the constitution or laws of any State, the
district courts of the United States shall have jurisdiction to issue
such writs of injunction or other property process, mandatory or
24
otherwise, as may be necessary to restrain any State, or sub-
division or agency thereof, or any persons from violating the
prohibitions of this section, except that relief may not be granted
hereunder unless the assessed value as a percentage of true value
of the transportation property exceeds by at least 5 per centum the
assessed value as a percentage of true value of other commercial
and industrial property or all other property, as the case may be,
in the assessment jurisdiction. The jurisdiction of the district
courts shall not be exclusive of that which any Federal or State
court may otherwise have.
"(5) This section shall not become effective until three
years after the date of its enactment.
Uniform Cost and Revenue Accounting
Sec. 8. The Commission shall, jointly with the Secretary
of Transportation, study and recommend uniform cost accounting
and uniform revenue accounting methods for rail carriers. Within
two years from the effective date of this section, the Commission
shall issue regulations prescribing the recommended uniform cost
accounting and uniform revenue accounting methods. In their study
and recommendations, the Commission and the Secretary shall give
due consideration to all items and factors (including the cost of
capital) presently used in the ascertainment of costs for ratemaking
purposes which they deem relevant to the determination of variable
25
cost; and they shall consult with and solicit the views of other
agencies and departments of the Federal Government, and the
representatives of the carriers, their employees, shippers,
and the public.
Railroad Loan Guarantees
Sec. 9(a) For the purposes of sections 9 and 10,
"Secretary" means the Secretary of Transportation except where
otherwise specifically provided. The Secretary is authorized,
on such terms and conditions as he may prescribe, and with the
approval of the Secretary of the Treasury, to guarantee any
lender timely payment of principal and interest on securities,
obligations or loans, including refinancings thereof, issued for the
purpose of financing acquisitions or improvements specified
in subsection (d) of this section. The maturity date of any
security, obligation, or loan, including all extensions and renewals
thereof, shall not be later than 30 years from its date of issuance,
nor be later than the end of the useful life of any asset to be
financed by the security, obligation, or loan. The Secretary may
prescribe and collect a reasonable annual guarantee fee and such
additional fees as may be required in his judgment to cover
expenses under the program authorized by this section.
26
(b) All guarantees entered into by the Secretary under
this section shall constitute general obligations of the United
States of America backed by the full faith and credit of the
Government of the United States of America.
(c) Any guarantee made by the Secretary under this
section shall not be terminated, cancelled or otherwise revoked;
shall be conclusive evidence that such guarantee complies fully
with the provisions of this section and of the approval and legality
of the principal amount, interest rate, and all other terms of
the securities, obligations, or loans and of the guarantee; and
shall be valid and incontestable in the hands of a holder of a
guaranteed security, obligation, or loan, except for fraud or
material misrepresentation on the part of such holder.
(d) The loan guarantees authorized by subsection (a)
of this section may be made for the purpose of financing the acquisition,
construction, maintenance, or development of the following facilities
and equipment used in the rendering of rail transportation services:
(i) track, roadbed and related structures subject
to projected traffic usage of at least 5 million
gross ton-miles per mile of road per year;
(ii) electrical, communication, and power
transmission systems;
27
(iii) signals;
(ii) the prospective earning power of the borrower
together with the character and value of the security
pledged, furnish reasonable assurance that the borrower
will be able to repay the loan within the time fixed
and afford reasonable protection to the United States
in the event of a default;
(iii) the activity to be financed under the guarantee
will enhance the efficiency of rail operations;
28
(iv) the prospective borrower has demonstrated to
the satisfaction of the Secretary that credit is not
otherwise available on reasonable terms;
(v) the interest rate on the obligation to be
guaranteed is a reasonable rate, taking into consideration
the range of interest rates prevailing in the private
market for similar obligations, and the risks assumed
by the Federal government; and
(vi) there has been provided for the protection of
the interests of railroad employees which may be
affected thereby, a fair and equitable arrangement
containing benefits no less than those required by and
established pursuant to Section 5 (2) (f) of the Interstate
Commerce Act.
(2) The Secretary may not make a guarantee for the
purpose of improving track or terminal facilities unless he also
finds that the proposed improvements will contribute to the
establishment of a rational, efficient, and economical national rail
transportation system.
(3) The Secretary may not make a guarantee (a) for
the purpose of the acquisition or rebuilding of rolling stock and TOFC
unless he finds that --
29
(i) the acquisition or rebuilding is justified
by the present and future need for rolling
stock; and
(ii) the probable value of the rolling stock or TOFC
will provide reasonable protection to the
United States in the event of a default;
(b) for the purpose of the acquisition of an information
or data system unless he finds that the proposed acquisition of the
information or data system is consistent with the purposes of
section 11 of this Act.
(4) In making a guarantee for any of the purposes specified
in subsection (d), the Secretary shall also take into account,
the return on investment of the improvement for which a guarantee
is sought, the potential for intermodal connections and substitutions
and for improved utilization of freight cars, the relationship of
the proposed improvement to other improvement plans of the
borrower, the contribution of the improvement to improved rail
transportation service both for passengers and for shippers, and
the contribution of the improvement to the efficiency of the
borrower.
30
(f) The Secretary may prescribe, as he deems necessary
and appropriate, rules and regulations for the administration
of this section.
(g) In order to reduce the cost of borrowing under this
section and to assure that the borrowings are financed in a
manner least disruptive of private financial markets and
institutions, the Secretary may enter into agreements with the
Federal Financing Bank under which the Federal Financing Bank
may purchase obligations issued by the borrower and guaranteed
by the Secretary.
(h) There is hereby created within the Treasury a
separate fund (hereafter in this section called "the fund') which
shall be available to the Secretary without fiscal year limitation
as a revolving fund for the purpose of this section. The total
of any guarantees made from the fund in any fiscal year shall
not exceed limitations specified in appropriations Acts. A
business-type budget for the fund shall be prepared, transmitted
to the Congress, considered, and enacted in the manner prescribed
by law (sections 102, 103, and 104 of the Government Corporation
Control Act (31 U.S.C. 847-849) for wholly-owned Government
corporations.
31
(i) (1) There are authorized to be appropriated to the
fund from time to time such amounts as may be necessary to
provide capital for the fund. All amounts received by the
Secretary as payments, fees, and any other moneys, property,
or assets derived by him from his operations in connection with
this section shall be deposited in the fund.
(2) All guarantees, expenses, and payments pursuant to
operations of the Secretary under this section shall be paid from
the fund. From time to time, and at least at the close of each
fiscal year, the Secretary shall pay from the fund into Treasury
as miscellaneous receipts interest on the cumulative amount of
appropriations available as capital to the fund, less the average
undisbursed cash balance in the fund during the year. The
rate of such interest shall be determined by the Secretary of
the Treasury. However, such rate shall not be less than a
rate determined by taking into consideration the average market
yield during the month preceding each fiscal year on outstanding
marketable obligations of the United States with remaining periods
to maturity comparable to the average maturity of loans guaranteed
from the fund. Interest payments may be deferred with the approval
of the Secretary of the Treasury, but any interest payments so
deferred shall themselves bear interest. If at any time the Secretary
32
determines that moneys in the fund exceed the present and any
reasonably prospective future requirements of the funds, such
excess may be transferred to the general fund of the Treasury.
(j) If at any time the moneys available in the fund are
insufficient to enable the Secretary to discharge his responsibilities
under guarantees under this section, he shall issue to the Secretary
of the Treasury notes or other obligations in such forms and
denominations, bearing such maturities, and subject to such terms
and conditions, as may be prescribed by the Secretary of the
Treasury. Redemption of such notes or obligations shall be made
by the Secretary from appropriations or other moneys available
under subsection (i) of this section. Such notes or other obligations
shall bear interest at a rate determined by the Secretary of the
Treasury, taking into consideration the average market yield on
outstanding marketable obligations of the United States of comparable
maturities during the month preceding the issuance of the notes
or other obligations. The Secretary of the Treasury shall purchase
any notes or other obligations issued under this subsection and
for such purposes the Secretary of the Treasury is authorized to
use as a public debt transaction the proceeds from the sale of
any securities hereafter issued under the Second Liberty Bond Act
and the purposes for which securities may be issued under that
Act are extended to include any purchase of such notes or obligations.
33
The Secretary of the Treasury may at any time sell any of the
notes or other obligations acquired by him under this subsection.
All redemptions, purchases, and sales by the Secretary of the
Treasury of such notes or other obligations shall be treated as
public debt transactions of the United States.
(k) The aggregate unpaid principal amount of securities,
obligations, or loans outstanding at any one time, which are
guaranteed by the Secretary under this section, may not exceed
$2, 000, 000, 000.
(1) The Secretary may not pursuant to this section
guarantee any security, obligation, or loan, if the income from
such security, obligation, or loan is excluded from gross income
for the purposes of chapter I of the Internal Revenue Code of
1954.
Railroad Restructuring
Sec. 10.
(a) FINDINGS. - - The Congress finds and declares that --
(1) Efficient railroads are essential to the commerce
and defense of the country.
(2) Preservation of a viable private sector rail
industry is in the national interest.
34
(3) Existing rail facilities in the United States,
including main line track and branch line track, are
excessive in relation to long run demand for rail services.
(4) This excess capacity impairs the efficiency and
economic health of the rail industry.
(5) The time, expense and delay associated with
proceedings under the Interstate Commerce Act for
consideration of proposals for consolidation and joint
use of facilities has been an obstacle to removing excess
and duplicative rail plant capacity.
(6) A vital need exists to reduce this country's
rail plant to the level necessary to meet the public's
long term demand for rail services.
(7) A clear need exists to expedite the consideration
of proposals which have the effect of eliminating excess
or duplicative facilities.
(8) Preservation of an effective level of competition
in transportation is essential to shippers and is in the
national interest.
35
(b) PURPOSES. --It - - is therefore declared to be the purpose
of Congress in this Act to provide for - -
(1) An efficient, economical, viable private sector
rail system.
(2) Greater efficiency of the rail system through
rationalization of facilities which are excessive in relation
to long run demand for rail services.
(3) Prompt and fair consideration of voluntary
agreements to achieve those objectives.
(4) The maintenance of an effective level of
competition in transportation.
(5) Federal financial assistance to the railroad
industry where necessary capital cannot be obtained
from private sources on reasonable terms.
(c) As a condition for receiving financial assistance pursuant
to this Act, the Secretary may require an applicant to enter
into an agreement with another applicant or with another
railroad with respect to merger, consolidation, control,
joint use of tracks, terminals, or other facilities, or the
acquisition or sale of assets. This section does not confer
authority upon the Secretary to require non-applicants to
enter into an agreement with an applicant.
36
(d) Within 90 days of the date of enactment of this Act, the
Secretary shall publish regulations in accordance with
5 U.S.C. 553 prescribing the procedures for applying
for Federal assistance under this Act and the information
and data which must be submitted by each applicant.
(e) If the Secretary determines to condition the granting
of financial assistance pursuant to section (c), the
Secretary shall provide reasonable notice in the Federal
Register of the application and the proposed agreement.
The Secretary shall also provide written notice to the
Attorney General of the United States and to each Governor
of a state in which any railroad whose property is involved
in the proposed agreement operates. The Secretary shall
provide an opportunity to any interested person to submit
written comments and shall provide an opportunity for an
informal oral hearing regarding the proposed agreement.
Within 15 days of the Secretary's final date for receiving
the comments of interested persons, the Attorney General
shall review the proposed agreement and the comments
filed and shall advise the Secretary in writing of his views
on its competitive effects.
37
(f) The Secretary shall review the written and oral comments.
He shall then give notice in the Federal Register of any
changes in the proposed agreement which he has made after
review of the comments and shall provide an opportunity to
the public to comment on the changes.
(g) The Secretary and the Commission shall administer the
provisions of this Act in light of its declaration and purposes
and the Secretary may modify any proposed transaction to
make it conform to said declaration of purpose. The
Secretary and the Commission shall consider whether a
proposed transaction is in the public interest. An agreement
is in the public interest if (i) the efficiency gains substantially
outweigh any adverse effects on competition; and (ii) there
is no clear and substantially less anti-competitive alternative
available to the proposed transaction for achieving the efficiency
gains and other public benefits. In determining whether a
proposed agreement is in the public interest, the Secretary
and the Commission shall, among other things, consider the
long-run or short-run nature of any adverse effects or
efficiency gains and shall weigh such effects or gains accordingly.
Where the Secretary approves a transaction hereunder which
would eliminate substantial competition for shippers, then the
38
Secretary shall take necessary steps to minimize the loss
of competition to affected shippers; to accomplish this, the
Secretary may, among other things, require that access be
granted on reasonable terms to one or more other carriers
over the tracks and terminals subject to the transaction,
either by the grant of trackage and terminal rights, or by
the establishment of joint rates and through routes, or both.
The purpose of this subsection is to improve the efficiency of the
national transportation system while assuring adequate levels
of competition. This section is intended to protect the vitality
of competition, not individual competitors as such. The
Secretary may, from time to time, for good cause shown,
impose such supplemental conditions as are necessary to protect
competitive conditions for shippers but shall not impose any
conditions to protect competitors as such.
(h) After completing the procedures called for in the preceding
paragraphs, and within 90 days of the filing of the completed
application, the Secretary shall make a determination whether
the proposed agreement is in the public interest and consistent
with this Act. If the Secretary makes an affirmative determination,
he shall so certify his findings, the basis therefor, and the
proposed agreement in writing to the Interstate Commerce
Commission. The Secretary shall provide labor protection at
least equal to the protection afforded by section 5 (2) (f) of the
Interstate Commerce Act.
39
(i) If the Secretary SO certifies in accordance with subsection
(h), the Interstate Commerce Commission shall consider
the Secretary's findings and the agreement pursuant to
section 5(2) of the Interstate Commerce Act, except as
hereafter provided. The Commission must complete any
hearings it deems necessary within 120 days of the receipt
of the certification and must render a final decision within
180 days of the receipt of the certification, unless the
Secretary provides in the certification for longer time periods.
Any hearings deemed necessary shall be held directly
before a panel of the Commissioners of the Interstate
Commerce Commission. Notwithstanding the provisions
of section 5(2), and the panel shall, without rendering an
initial decision, certify the record to the full Commission for
decision. The Commission shall not disapprove or modify
an agreement in any way unless the Commission finds there is
clear and convincing evidence the agreement is not in the
public interest as defined in subsection (g). The protestants
to such an agreement shall have the burden to prove that
such a certified agreement is not in the public interest. The
Commission's decision shall be subject to review as provided
in 28 U.S. C. 2321, as amended, except, that petitions for
40
review may be filed only in the United States Court of
Appeals for the District of Columbia. Such proceedings
shall be given priority over other pending matters and
expedited to the maximum extent permitted by the Court's
docket.
(j)
If the Commission shall fail to render a decision under
this Act within the required time period, the Commission
shall certify to the Secretary the proceedings before the
Commission within 3 days of the end of its period for
decision. The Secretary shall review the record and
all other material and information he deems relevant;
and, with the concurrence of the Attorney General on
issues relating to competition, he may disapprove, modify,
or approve the proposed agreement in accordance with
the public interest as defined herein. Agreements
approved by the Secretary pursuant to this Subsection (j)
shall be deemed final, and of the same force and effect
as if approved by the Commission pursuant to section 5
of the Interstate Commerce Act. The Secretary may
from time to time, for good cause, make supplemental
orders as he may deem necessary or appropriate. Final
decisions of the Secretary pursuant to this subsection
41
shall be subject to review under the procedures of
28 U.S.C. 2321 as amended, provided, that petitions
for review may be filed only in the United States Court
of Appeals for the District of Columbia. Such proceedings
shall be given priority over other pending matters and
expedited to the maximum extent permitted by the Court's
docket.
(k) Agreements approved pursuant to this section shall not
be subject to the operation of the antitrust laws.
National Rolling Stock Management Information System
Sec. 11. (a) The Secretary is authorized to conduct research
and development in order to promote a national rolling stock
management information system which, utilizing advanced
computer and communication techniques, would be capable of
expediting the movement of rolling stock on a national basis.
In conjunction with this task, the Secretary shall study, in
cooperation with the Interstate Commerce Commission and the
railroads the information, functions, and procedures necessary
to provide efficient and expeditious rail freight service on a
national basis. Within 2 years from the date of enactment of
this section, the Secretary shall report to the Congress his
recommendations respecting the organization, development, funding,
and implementation of any such system. In arriving at his
recommendations, the Secretary shall consider:
42
(1) the need for timely and accurate information which
leads to improvements in the movement and utilization
of rolling stock on a nationwide basis, and the efficient
interchange of traffic between carriers at the gateway
terminals;
(2) the requirements and technological standards
necessary to assure that the advantages to be obtained
from a system accrue to the nation's railroads;
(3) the requirements and technological standards
necessary to assure the improved movement and
utilization of cars;
(4) the uniform data and other technological requirements
that must be contained in the rolling stock management
information systems of an individual railroad to permit
efficient linkage of its system with a national system; and
(5) the economic, safety, and service benefits to be
derived from implementing improved car management
procedures.
(b) The Secretary shall conduct a study respecting (1) the
costs to individual railroads of installing compatible rolling stock
management information systems, and (2) the economic, safety,
and service benefits to be derived from compatible systems. Not
later than 2 years from the date of enactment of this section, the
43
Secretary shall announce his recommendations for the installation
of the system by individual railroads. The Secretary is authorized
to provide technical assistance to railroads in the implementation
-
of rolling stock management information systems designed in a
manner consistent with his recommendations.
(c) The Interstate Commerce Commission, the
Association of American Railroads, and all railroads are required
to furnish to the Secretary such information as he may require
in order to carry out the provisions of this section.
National Transportation Policy
Sec. 12. The National Transportation Policy (49 U.S.C.,
preceding sections 1, 301, 901 and 1001) is amended by:
(a) adding the word "innovative," 11 in the second clause
of the first sentence after the word "promote";
(b) adding a new clause after the second clause of the first
sentence as follows:
"to promote competition between and among the
various modes of transportation by water, highway,
and rail;" and
44
(c) adding a new sentence after the first sentence as
follows:
"The Commission in making any decision
under this Act shall recognize the value of
competition in developing, coordinating and
preserving an efficient and economically-sound
national transpor tation system and shall assure
that where a particular action would substantially
lessen competition, there is no less anticompetitive
alternative which realizes the efficiency or transportation
needs as effectively. 11
12
TPI
6/5/75
NOTE ON GOVERNOR SHAPP's RAIL TRUST FUND PROPOSAL
Governor Shapp has proposed that a Federally sponsored trust fund be
established to make funds available to all railroads to pay for rehabil-
itating ROW, modernizing yards and terminals, new communications systems,
signals, and electrification of main lines. According to his plan, the
trust fund would issue long term bonds totaling $12.9 billion over six
years. Of that, around $2 billion would be available for a revolving
loan fund to pay for new rolling stock. Borrowings would be repaid by
means of a surcharge on rail freight revenue (it is suggested that half
of the funds generated by ex parte 305 be used). Ninety percent of the
grants from the fund would be distributed based on the proportion of
revenue from each carrier. The remaining ten percent would be discre-
tionary for distribution to the most needy carriers.
Conceptually, the idea of a rail trust fund and the apparent linkage
which is constructed between user charge revenues and government expendi-
tures has, at "first blush," some attractiveness. The fund would generate
money, and that money would be disbursed for the rehabilitation of rail
plant. In that very simple sense, a trust fund approach would accomplish
its objective (just as the highway trust fund got a lot of highways built).
There are, however, a number of disadvantages to the use of a trust fund
approach to solve the railroad rehabilitation problem, both generally and
specifically as Governor Shapp has proposed:
(1) It is now obvious that there is going to have to be Federal financial
assistance for railroad rehabilitation, and the Administration has just
proposed legislation that will incorporate $2 billion in loan guarantees
for railroad investment, in addition to a wide range of very important
regulatory reforms. However, it is not clear at this time to what
extent the railroad problem, outside the Northeast, requires any Federal
financial involvement beyond that contemplated in the Administration's
program. To impose upon the private sector the amounts of Federal
involvement that are implied by Governor Shapp's trust fund approach
is simply not justified by the information now available.
(2) There is no doubt that rehabilitation of the railroad plant will be of
little lasting value if it is not accompanied by major reforms in
Federal regulation and by rationalization and restructuring of the
current system. Governor Shapp's plan, by focusing on funding physical
plant requirements, deals with the symptoms and ignores the real problems.
-2-
(3) Trust funds have an inherent tendency to outlive their usefulness.
They can keep government expenditures flowing into areas of activity
long after those expenditures have ceased to be merited.
(4) As noted above, the ultimate need for Federal financial involvement
in the railroad industry is, at best, uncertain. An arbitrary formula,
such as a certain percentage of railroad revenues, is almost certain to
give the wrong answer.
(5) While Governor Shapp's rail fund purports to be modeled on the highway
trust fund, it differs significantly in that highway monies are spent
by public bodies on public facilities and all contributors have free
access.
(6) Since the rail fund would be used to rehabilitate all rail lines, it
would serve to exacerbate the excess capacity problem, and in fact
would cause lightly used lines to be supported by funds generated by
those in greater use.
(7) It is difficult to see how the 5 percent surcharge can come out of last
year's ex parte 305 funds (in light of the recent court ruling that the
C&O does not have to use ex parte 305 funds for rehabilitation purposes).
The 5 percent would thus have to be a net add-on to whatever the going
freight rates are, and the Governor's program loses some of its "magic"
as the potential for traffic diversion from rail becomes very real. It
is, after all, that potential which partially contributes to low rates
and insufficient rehabilitation money today.
(8) Governor Shapp has not, it seems, considered the inflationary impact
of mandating this large a spending program. Particularly in light of
the fact that there is not generally accepted evidence that the rehabil-
itation problem is anywhere near $12.9 billion.