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The original documents are located in Box 39, folder "2/5/76 S2718 Railroad Revitalization
and Regulatory Reform Act of 1976 (1)" of the White House Records Office: Legislation
Case Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
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copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
Digitized from Box 39 of the White House Records Office Legislation Case Files at the Gerald R. Ford Presidential Library
APPROVED FEB 5-
THE WHITE HOUSE
ACTION
WASHINGTON
Last Day: February 9
February 5, 1976
GERALD
ok
R
FORD
MEMORANDUM FOR
THE PRESIDENT
East
FROM:
JIM CANNON W
LIBRARY
Jo archives
SUBJECT:
Enrolled Bill S. 2718 - Railroad
Revitalization and Regulatory
2/5/76
Reform Act of 1976
Attached for your consideration is S. 2718, sponsored
by Senator Hartke, which authorizes $6.4 billion in
appropriations and loan guarantees in order to:
-- implement the final system plan for the bankrupt
railroads in the Northeast and Midwest,
-- improve rail passenger service in the Northeast
Corridor,
-- improve the Nation's rail system through
financial assistance, and
-- provide for rail regulatory reform.
A detailed discussion of the provisions of the enrolled
bill is provided in OMB's enrolled bill report at Tab A.
OMB, Jack Marsh, Max Friedersdorf, Counsel's Office
(Lazarus), Bill Seidman and I recommend approval of
the enrolled bill and the proposed signing statement
which has been cleared by Bob Hartmann.
RECOMMENDATION
That you sign S. 2718 at Tab C. ( IN SIGNING CEREMONY)
That you approve the signing statement at Tab B.
Approve WR7
Disapprove
OF The
THE
PRESIDENT
and
EXECUTIVE OFFICE OF THE PRESIDENT
OF
ORIGING
OFFICE OF MANAGEMENT AND BUDGET
SENTIVE
STATE
WASHINGTON, D.C. 20503
FEB 4 1976
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 2718 - Railroad Revitalization and
Regulatory Reform Act of 1976
Sponsor - Sen. Hartke (D) Indiana
Last Day for Action
February 13, 1976 - Friday
Purpose
Authorizes $6.4 billion in appropriations and loan guarantees
in order to: implement the final system plan for the bankrupt
railroads in the Northeast and Midwest, improve rail passenger
service in the Northeast Corridor, improve the nation's rail
system through financial assistance, and provide for rail
regulatory reform.
Agency Recommendations
Office of Management and Budget
Approval
Department of Transportation
Approval
Interstate Commerce Commission
Approval
Department of Justice
Approval
United States Railway Association
Approval
National Railroad Passenger
Corporation (AMTRAK)
Approval
Council of Economic Advisers
Approval
Council on Wage and Price Stability
Approval
Department of the Interior
Approval (Sections
809-810 only)
Department of the Treasury
No objection
Office of Telecommunications Policy
No objection
Department of Labor
No objection
2
Discussion
This bill is a revised product of the Senate-House conference
on the subject, resulting from negotiations between the De-
partment of Transportation and congressional representatives.
It would implement the final system plan proposed by the U.S.
Railway Association (USRA) to reorganize the bankrupt railroads
in the Northeast and Midwest, provide financing for improved
rail passenger service in the Northeast Corridor and for rail
improvements nationwide, and revise the rail regulatory powers
of the Interstate Commerce Commission (ICC), although not to
the extent proposed by the Administration.
The bill's major provisions are summarized below.
Financing
S. 2718 would authorize $6.4 billion ($5.1 billion in appro-
priations and $1.3 billion in loan guarantees) for financing
the Northeast and Midwest railroad reorganization, providing
assistance to railroads throughout the country for rail
rehabilitation and branch line subsidies, and for upgrading
rail passenger service in the Northeast Corridor. The Admin-
istration had proposed a total of $5.6 billion ($3.6 billion
in appropriations and $2.0 billion in loan guarantees) for
these programs. While these figures represent a difference
not only in levels but also of mix, they represent a consider-
able compromise from the initial conference committee version
of $7.6 billion. Attached is a table which shows the financ-
ing authorizations by major category and compares them to the
initial Administration proposal and the original conference
committee version.
Control over Financing and Conditions
This is the area of greatest compromise by the Congress. The
initial conference version would have given total control of
most of the funds authorized by the bill to USRA. The enrolled
bill would place most of the control of ConRail funding in the
Finance Committee of the USRA Board of Directors, composed of
the Secretary of Transportation, the Secretary of the Treasury,
and the USRA Board Chairman. All other funds would be under
the control of the Secretary of Transportation. The Finance
Committee and its composition were Administration recommendations.
The bill provides that funds would be made available as
requested by ConRail unless the Finance Committee found that
ConRail (1) had not met its agreements with USRA; (2) had
3
failed substantially to meet the financial goals set for it
in the final system plan (as set by USRA) ; or (3) would need
substantially more funds to become financially self-sufficient
than the $2.1 billion authorized in this bill. If any of
these three findings are made, the Finance Committee could
either set a limit on future USRA purchases of ConRail secu-
rities or terminate such purchases. Although this would give
the Executive a strong measure of control, it is tempered by
the fact that all such findings would be subject to a consti-
tutionally objectionable one-House congressional veto within
30 legislative days.
USRA would have control over the initial terms and conditions
of its purchase of ConRail securities and of the terms and
conditions of those securities themselves; the Administration
had proposed that this responsibility be shared jointly with
the Finance Committee. However, the bill does provide that
joint USRA - Finance Committee approval would be needed in
the future to change those terms or conditions. Additionally,
the Finance Committee alone would have authority to waive any
of those terms or conditions, including complete forgiveness
of repayment of the loans.
Bankrupt Railroad Reorganization Financing
S. 2718 would provide for Federal financing of the reorganiza-
tion of the bankrupt Northeast and Midwest railroads by author-
izing USRA to purchase up to $2.1 billion in ConRail securities
(consisting of $1 billion in debentures and $1.1 billion in
series A preferred stock). This coincides with what the
Administration had recommended, with the exception that it had
proposed that $250 million of the preferred stock funds be set
aside as a contingency fund under the control of the Finance
Committee rather than USRA's Board.
Under S. 2718, dividends on the Federal investment in ConRail
preferred stock would be automatically forgiven until ConRail
retained earnings in excess of $500 million and at that time
would apply only to those earnings in excess of $500 million,
thus resulting in a substantial subsidy. The Administration
had proposed that interest and dividends accumulate on the
Federal investment but not be payable in cash until ConRail
had retained earnings of $500 million. In this way, the
government would receive interest for the full period of its
investment, but not actually be paid until ConRail was strong
enough financially to bear the burden. However, the enrolled
4
bill is an improvement over the original conference version
which would have applied the forgiveness of interest and
dividends to both the debentures and preferred stock instead
of only to preferred stock, an alternative which the Admin-
istration had earlier agreed to in the House-passed version
of the bill.
Northeast Corridor Passenger Service
S. 2718 would authorize $1.75 billion for grants by DOT to
the National Railroad Passenger Corporation (AMTRAK) to
upgrade rail passenger service in the Northeast Corridor
between Washington, D.C., New York and Boston, and $85
million for AMTRAK to acquire the Corridor rail properties
by lease or purchase. The upgrading would be a 5-year program
designed to provide travel time of 3 hours, 40 minutes between
Boston and New York and 2 hours, 40 minutes between New York
and Washington. Two years after enactment of the bill, DOT
would be required to submit a report to Congress on the future
feasibility of establishing a 3-hour Boston-New York service
and 2 1/2-hour New York-Washington service. Part of the
$1.75 billion would be used for a joint Federal-State program
of refurbishing stations and other nonoperational facilities.
The Administration had proposed a $1.1 billion grant program
designed to ensure travel times of 4 hours between Boston and
New York and 3 hours between New York and Washington. The
enrolled version is, however, a major improvement over the
initial conference committee version, which would have autho-
rized a $2.4 billion program, with control in USRA rather than
DOT, and with goals of 3-hour service between Boston and New
York and 2 1/2 hours between New York and Washington.
Regulatory Reform
The enrolled bill would provide a measure of regulatory reform
in ICC's authority over railroads, the first lessening of ICC
controls since 1887. The bill leaves the ICC more discretion
in certain areas than the Administration's bill would have
provided. Accordingly, the success of the reform measures
relies to some degree on the way in which the ICC chooses to
administer them.
S. 2718 would facilitate railroad price flexibility by limiting
ICC's authority to suspend rates, by permitting use of incen-
tive rates for new services and seasonal demand pricing, and
by authorizing a 2-year experiment with rate flexibility.
The experiment provides that rates which were increased or
decreased by no more than 7% over the rate in effect on
January 1 of a year could not be suspended by the ICC except
5
under limited conditions. While these changes are an improve-
ment over current conditions, they do not provide permanent
rate flexibility authority as did the Administration's proposal.
S. 2718 would also lessen the authority of railroad rate
bureaus to engage in price fixing activities, although the
ICC retains authority to grant antitrust immunity and may
exercise considerable discretion in the use of this power.
The Administration had proposed placing stricter limitations
on rate bureau activities and would have restricted their
antitrust immunity.
The bill would provide for improved ICC procedures in other
matters, such as setting time limits for ICC decisions. In
addition, it would require ICC to study its rules and make
changes based on the study within one year of enactment of
this bill. The bill would also, however, authorize a one-
House veto of such proposed rule changes.
You have proposed similar reforms in the aviation and motor
carrier industries. This enrolled bill may generate renewed
interest in these proposals.
Other Desirable Provisions
The bill would also make a number of other changes in current
law which are desirable, including:
(1) Prohibiting State taxes which discriminate against
railroads,
(2) Providing for ICC action on intrastate rail rates
if the State fails to act within 120 days,
(3) Improving procedures for abandonment of rail lines,
and
(4) Providing incentives for innovative capital invest-
ments by easing rate adjustments.
Other Undesirable Provisions
Branch Line Subsidies. S. 2718 would authorize appropriations
of $360 million for a nationwide program, in addition to an
existing authorization of $180 million for the Northeast/
Midwest railroads, to provide a five-year Federal subsidy
program for light density rail freight lines which would be
6
eligible for service discontinuance. The Regional Rail
Reorganization Act of 1973 (P.L. 93-236) envisioned that
States and localities in the Northeast region would make
decisions as to whether such rail lines were important to
them and if so would agree to subsidize the net loss which
the rail line was experiencing in order to maintain its
service. S. 2718 largely abandons this principle, both in
the region and nationwide, authorizing 100% Federal financing
in the first year, 90% the second year and, in the nationwide
program, 80% the third year, and 70% in the fourth and fifth
years.
Fossil Fuel Rail Bank. S. 2718 would authorize $6 million
for DOT to acquire, by purchase or lease, rail track and
properties which are not included in the USRA's final system
plan for the Northeast and which would provide access to
areas of fossil fuel natural resources or agricultural pro-
duction. The Administration opposed this proposal because
of the precedent it would set for Federal ownership of
rail lines.
ICC Budget and Legislation. S. 2718 would require the sub-
mission to Congress of all ICC budget or legislative recom-
mendations at the same time they are submitted to the President
or OMB. The Administration has opposed such provisions because
of the limits they place on the Executive's ability to present
coordinated budget and legislative programs to the Congress.
It should be noted, however, that the ICC has never submitted
its proposed legislation for review through the legislative
clearance process.
******
The enrolled bill is the product of extended negotiations
between the Administration and the Congress. While its pro-
visions depart from the Administration's initial recommenda-
tions in some instances and while it still contains, as noted
above, some undesirable features, it is an acceptable resolu-
tion of a complex and important set of issues.
7
Finally, it should be noted that the Commerce Committees
were advised that the amount and rate of appropriations
to implement the bill would be handled separately and that
agreement to the authorized levels in S. 2718 did not imply
a commitment for full funding. It is likely, however, that
some supplemental appropriations (for which modest contin-
gency allowances were made) might be proposed in the coming
weeks or months.
A proposed signing statement, which was worked on by DOT,
OMB and White House staff, has been submitted separately
for your consideration.
James James T. Lynn L.Rg
Director
Enclosures
Attachment
COMPARISON OF AUTHORIZATIONS
(Dollars in Millions)
1/
Original
Original
Administration
Conference
Enrolled
Proposal
Bill
S. 2718
I. ConRail
Purchase of securities
$1,850
$2,100
$2,100
Contingency Fund
250
--
--
Electrification (loan
2/
guarantees)
--
--
--
Pre-conveyance claims
(loan guarantees)
--
400
275
II. Rail Passenger
Northeast Corridor
Project
1,080
2,400
1,750
Passenger improvements
nationwide
--
200
--
Acquisition of Northeast
Corridor by AMTRAK
--
85
85
Acquisition of other
corridors by AMTRAK
--
20
20
Other related expenses
--
151
11
III. Nationwide Rail Freight
Loan guarantees
2,000
800
1,000
Loans/grants/redeemable
preference shares
--
600
600
IV. Continuation Subsidies
Branchline
--
400
360
Right-of-way for
recreation
--
75
20
Fossil Fuel Rail Bank
--
6
6
Commuter
--
125
125
V. Other
Controlled Transfer
Assistance
400
--
--
Miscellaneous
--
29
20
TOTAL AUTHORIZATIONS
$5,580
$7,591
$6,372
1/ Passed by both Houses - Dec. 19, 1975
2/ Included under other accounts
STATEMENT BY THE PRESIDENT
I am pleased today to sign the Railroad Revitalization
and Regulatory Reform Act of 1976. For more than a century,
the railroads have been the backbone of our American transpor-
tation system. However, our rail system has recently been
through troubled times. Now, this historic legislation will
help restore the health and vitality of our Nation's private
railroad system in a number of ways: First, this legislation
encourages revitalization of our deteriorating rail freight
system both in the Northeast and Nationwide. Second, it will
provide substantial improvements in rail passenger service in
the densely populated Northeastern United States. And finally,
it will remove many unnecessary regulatory restrictions which
for too long have hindered the ability of our railroads to
operate efficiently and competitively. The actions set in
motion by this legislation will make a significant contribution
to our objectives of economic growth through private job creation,
energy independence and a strong private transportation system.
The task of revitalizing the Nation's rail freight system
will not be easy. ConRail, the new corporation established
to operate the properties of the bankrupt railroads in the
Northeast and Midwest, certainly does not have a smooth road
ahead. Nevertheless, I believe that this legislation provides
the tools to make the reorganization of the bankrupt railroads
a success. We expect that within 5 years ConRail will overcome
the unprofitable legacy of the bankrupt lines. If ConRail is
to succeed, however, the continued cooperation of all of you
who have made this legislation possible is absolutely essential.
The bill also provides needed financial assistance to
help the railroads improve their physical plant and encourages
desirable restructuring of rail services both in the Northeast
2
and Nationwide. The bill explicitly provides $1.6 billion
to rehabilitate and improve worn out plant facilities and
directs the Secretary of Transportation to provide the
necessary leadership in making our Nation's rail system
more efficient. It may be that the reorganization of the
bankrupt railroads in the Northeast and Midwest can be
finally successful only as part of a further restructuring
of the rail industry through private sector initiative.
This Act also permits us to begin a program of overdue
improvements in rail passenger service in the densely
populated Northeast Corridor. Passenger service between
Washington, New York and Boston will be made both reliable
and comfortable, with trains traveling at speeds which are
as high as technologically feasible and financially realistic.
Within 5 years, we should have trains traveling at speeds
of up to 120 miles per hour. In addition, through a joint
effort by the Federal Government and the States and local
communities involved, we will refurbish the stations along
the way to make train travel more attractive and convenient.
All of the work done as part of this program will provide a
base for further improvements and developments. I have asked
Secretary Coleman to make the implementation of improvements
to the Northeast Corridor a high priority.
In addition to providing short-term financial assistance,
Congress in approving this legislation has taken a fundamental
step to restore the long-term economic health of this vital
American industry. The regulatory reform provisions in this
bill are long overdue and I commend the Congress for this
farsighted and necessary action.
This kind of fundamental change in Government policy takes
time. Every President since Harry S Truman has called in vain
for increased competition and reform of our regulated industries.
3
For example, the Landis Report commissioned by President-
elect Kennedy in 1960 recommended major policy revisions
in transportation regulation. But for more than a quarter
of a century, the Nation has had no results. In contrast,
the Railroad Revitalization and Regulatory Reform Act is
the first significant reform of transportation regulation
by any Administration -- or Congress.
An equally important task facing us now is to extend
the principles of reform embodied in this legislation to
the aviation and motor carrier industries. In these indus-
tries, we must strive to create a regulatory climate which
relies on competitive forces, rather than on inflexible and
bureaucratic directives of Federal agencies, to determine
which firm will provide the desired transportation services
and at what price. The time has come to place greater
reliance on market competition.
I would also emphasize that the ultimate success of this
legislation depends on more than the actions that have been
taken by the Congress or this Administration. We have merely
provided the tools which can be used to rebuild our railroads.
I am confident that the Interstate Commerce Commission, ConRail
and United States Railway Association will use these tools
wisely for the purposes intended by the Congress and the
Executive. A major responsibility for achieving a viable
private sector railway system and, as stated in the legislation,
"to provide energy efficient, ecologically compatible trans-
portation services with greater efficiency, effectiveness and
economy" rests with them.
We are embarking today on an historic endeavor to improve
transportation in this country. I want to thank the members
of Congress, Secretary Coleman, the fine people at the Depart-
ment of Transportation and the representatives of industry and
labor for their help. I ask them to continue their efforts to
strengthen our private transportation system and to make it
the finest in the world.
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.:
Date: February 4
Time: 700pm
FOR ACTION: Robert Hartmann
CC (for information): Jim Cavanaugh
Jack Marsh
Max Friedersdorf
Ken Lazarus
Judy Hope
Paul Leach
Bill Seidman
FROM THE STAFF SECRETARY
DUE: Date: February 5
Time: 1030am
SUBJECT:
S. 2718 - Railroad Revitalization and Regulatory
Reform Act of 1976
GERALD
with proposed signing statement
NETOR
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X For Your Comments
Draft Remarks
REMARKS:
The extremely short deadline is because of the scheduled
signing ceremony tomorrow.
Please return to Judy Johnston, Ground Floor West Wing
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
DEPARTMENT OF TRANSPORTATION
THE SECRETARY OF TRANSPORTATION
*
WASHINGTON, D.C. 20590
UNITED STATES OF AMERICA
February 5, 1976
Honorable James T. Lynn
Director, Office of Management
and Budget
Washington, D. C. 20503
Dear Mr. Lynn:
I have just discussed the Department's letter concerning S. 2718
with my General Counsel, and we are agreed that the last two
sentences on page 24 thereof should be changed to read as follows:
The chance that the creditors will succeed in their
extravagent claims for a "reproduction cost less
depreciation" measure are slight. There is, however,
some chance in light of the confused and conflicting
state of the law here that the courts will settle on some
theory that compromises, probably closer to our
theory, between the theory we are asserting and that
the creditors are asserting. We seriously doubt, however,
there will be massive liability. In any event, whatever
danger does exist is not the creation of this bill, but
has existed since the passage of the RRRA: the risk
is one that is a necessary concommitant of a desire
to create a ConRail.
Sincerely,
Buy
William T. Coleman, Jr.
2/5
Judy-
Please nate
XT
OF
DEPARTMENT
THE SECRETARY OF TRANSPORTATION
*
WASHINGTON, D.C. 20590
UNITED STATES OF AMERICA
FEB
4 1976
Honorable James T. Lynn
Director
Office of Management and Budget
New Executive Office Building
Washington, D. C. 20503
Dear Mr. Lynn:
This is in response to your request for the views of the
Department on S. .2718, an enrolled bill:
To improve the quality of rail services in the
United States through regulatory reform,
coordination of rail services and facilities,
and rehabilitation and improvement financing,
and for other purposes.
GENERAL
The basic purposes of S.2718 are (1) to establish a financing
mechanism and other procedures applicable to the transfer
and rehabilitation of rail properties under the Final System
Plan adopted under the Regional Rail Reorganization Act of
1973, as amended (RRRA); (2) to establish a program for
upgrading rail passenger service in the Northeast Corridor;
(3) to modernize various provisions of the Interstate Commerce
Act as they apply to the economic regulation of railroads;
(4) to establish a program of financial aid for the railroads; and
(5) to provide for the continuation through subsidy of rail service
that would otherwise be discontinued in the Northeast and
Midwest Region and in other parts of the country.
The various provisions of the bill designed to carry out these
basic purposes are discussed below. In each case, there is
a discussion of the chief differences between those provisions
2
and the provisions of the following four Administration or
Administration-backed bills on these subjects submitted to the
Congress during 1975: (1) the proposed Second Regional Rail
Reorganization Act Amendments of 1975 (jointly prepared by
USRA and the Department and submitted to the Congress by
USRA in September 1975); (2) the proposed Departmental bill
submitted to the Congress in November 1975 providing for the
improvement of intercity rail passenger service in the Northeast
Corridor; (3) the proposed Railroad Revitalization Act submitted
to the Congress by the President in May 1975; and (4) the
proposed Local Rail Service Amendments of 1975 submitted to
the Congress by the Department in October 1975.
IMPLEMENTATION OF THE FINAL SYSTEM PLAN
Title VI of the enrolled bill amends the RRRA (1) by establishing
revised funding levels and procedures pertaining to the Federal
investment in ConRail; (2) by authorizing conveyances of rail
properties in a manner supplementary to the final system plan;
and (3) by revising provisions pertaining to the compensation for
rail property transferred under the RRRA.
Funding Levels
The enrolled bill authorizes the appropriation of $2. 1 billion to
USRA to enable USRA to purchase $1 billion of ConRail debentures
and, after the acquisition of those debentures, up to $1. 1 billion
of the series A preferred stock of ConRail. It also authorizes
the Secretary to guarantee in conjunction with the loan guarantee
authority in title V of the bill up to $200 million of ConRail obliga-
tions for the purpose of electrifying high-density mainline routes.
Consonant with that funding, the obligational authority available to
USRA under section 210(b) of the RRRA is reduced from $1.5
billion to $275 million. The funding authority in section 210(b) would
be used to provide startup money to ConRail and otherwise enable
ConRail to purchase inventories prior to the availability of funds
from the sale of their securities in order to permit orderly and
efficient implementation of the final system plan (section 211(g));
to provide loans to ConRail, Amtrak, or profitable railroads
3
to permit those loan recipients to meet obligations of bankrupt
railroads which should be paid to avoid disruptions in ordinary
business relationships (not more than $230 million of the $275
million could be used for this purpose) (section 211(h)); and to
cover other loans or loan commitments, existing or potential,
made or applied for under section 211 of the RRRA prior to
January 1, 1976. Any loans to ConRail for the purchase of
inventories would be made on the condition they be refinanced by
the issuance of debentures to USRA.
The Administration also proposed that USRA's authority to acquire
ConRail securities be limited to $2. 1 billion ($1 billion of
debentures and $1. 1 billion of series A preferred stock). However,
the Administration proposed that the $1. 1 billion authorization
for the purchase of series A preferred stock be separated into
an $850 million fund under the control of the USRA Board and
a separate $250 million contingency fund controlled by a Govern-
ment Investment Committee which would be established as a
Committee of the USRA Board. No proposal was made by the
Administration for Federal financial aid for the electrification
of ConRail lines. The Department originally proposed a more
severe reduction in the obligational authority available to USRA
under section 210(b) of the RRRA, but later indicated that the
funding level of $275 million would be appropriate to cover the
various purposes stated above.
In summary, the overall funding in title VI of the enrolled bill
is reasonably close to the level proposed by the Administration.
The total dollar level applicable to the purchase of ConRail
securities is right on the mark. The $200 million authorization
for the electrification of ConRail lines is not appropriate at this
time. However, the $200 million in loan guarantees is in the
control of the Secretary and counts against the $1 billion ceiling
placed upon loan guarantees made available under section 511 of
the bill. As indicated above, the new dollar limit placed on the
obligational authority available to USRA under section 210(b) of
the RRRA is satisfactory. It also should be noted that the enrolled
bill does not contain a specific authorization of funds to help
finance supplemental transactions. The joint USRA-DOT legislation
authorized $400 million for this purpose. It appears, however, that
financial assistance available under title V of the enrolled bill
4
can be used by the Secretary to facilitate supplemental transactions.
Funding Controls and Conditions
Among the most important provisions of the enrolled bill are
those outlining the circumstances and conditions under which
funding may be provided to ConRail. These provisions were
also among the most controversial parts of the bill and remained
a substantial roadblock to obtaining an acceptable bill until the
adoption by the Conference Committee of its second recommended
bill. Under the enrolled bill USRA would be empowered to
purchase up to $1 billion in ConRail debentures and, after the
acquisition of such debentures, up to $1. 1 billion of ConRail
series A preferred stock. Purchases would be made as required
and requested by ConRail unless the Finance Committee of the
USRA Board of Directors (composed of the USRA Board Chairman
and the Secretaries of Transportation and the Treasury) found
that ConRail (1) had breached its covenants to USRA; (2) had
failed substantially (as determined by performance within margins
prescribed by the USRA Board) to meet financial results projected
for ConRail in the Final System Plan; or (3) would need funds
substantially in excess of $2.1 billion in order to become financially
self-sustaining. Upon making any such finding, the Finance
Committee could direct USRA to refrain from purchasing any
further securities of the Corporation or to refrain from purchasing
additional securities in amounts in excess of, or upon terms and
conditions contrary to, those specified by the Finance Committee.
The bill also provides, however, for Congressional review of anysuch
affirmative finding by the Finance Committee. Within ten days
after an affirmative finding by the Finance Committee, the USRA
Board would be required to forward to the Congress a copy of
the finding and recommendations thereon of the Board, The
finding would stand if 30 legislative days elapsed and neither the
House nor Senate disapproved the finding. (USRA would continue
necessary funding pending Congressional action.)
The enrolled bill empowers USRA to establish the terms and
conditions governing USRA's purchase of ConRail securities as
well as the terms and conditions of the debentures and series A
preferred stock themselves. The bill specifically provides, however,
that dividends payable on series A preferred stock shall not be
cumulative and shall be paid in cash when and to the extent that
there is "cash available for restricted cash payments" as that
5
term is defined in the Final System Plan. After USRA calls
for redemption of the certificates of value, no shares would be
issued in lieu of interest on ConRail's debentures and to the
extent such interest is not payable in cash because of the
absence of sufficient cash, ConRail is to deliver to debenture
holders contingent interest notes in a face value amount equal
to the unpaid interest. The USRA Board and the Finance
Committee would act jointly in modifying any terms or conditions
governing USRA's purchase of ConRail securities. The Finance
Committee alone would be empowered to waive compliance with
the terms and conditions of the securities, including those
applicable to redemption of principal or issuance price or the
payment of interest or dividends.
The above-mentioned provisions of the enrolled bill contain many
features proposed in the USRA-DOT bill. However, they do not
go as far as the Administration proposal with respect to enabling
the Executive Branch to protect the Federal investment in the
Corporation. The composition of the Finance Committee (the
USRA Board Chairman and the Secretaries of Transportation and
of the Treasury) is the same as proposed by the Administration
and the three crucial findings that may be made by the Committee
are nearly the same as those in the USRA-DOT bill. In addition,
the enrolled bill adopted the Administration's proposal that the
Committee alone be empowered to waive compliance with terms
and conditions of ConRail securities held by USRA. In contrast,
the enrolled bill permits USRA to act independently of the Committee
in prescribing the terms and conditions governing purchases of
ConRail securities by USRA and determining the margins with
respect to ConRail's attainment of the overall operating and
financial results projected in the Final System Plan. (As a
practical matter, the margins have already been established by
USRA with our concurrence.) In addition, it injects the Congress
directly and immediately into the decision-making respecting any
cutoff of USRA's purchase of ConRail securities or any change to
the terms and conditions of such purchase. The section providing
that dividends on ConRail series A preferred stock shall not be
cumulative also reduces somewhat both the protection and the
financial return provided the Government by the USRA-DOT bill.
6
On balance, we believe that the protective provisions contained
in the enrolled bill are satisfactory. Earlier versions of the
bill threatened to provide USRA sole authority to control the
flow of Federal funds to ConRail and to forgive any part or all
of ConRail's payments of interest, dividends or principal. Such
an arrangement clearly would have been contrary to the interests
of the taxpayer and fortunately it was avoided.
SUPPLEMENTAL TRANSACTIONS
Title VI of the enrolled bill establishes a procedure for effecting
transfers of rail properties in the Midwest and Northeast Regions
supplementary to those prescribed by the final system plan. Such
transactions could be proposed by the Secretary or USRA at any
time within six years after the date on which rail properties
are initially conveyed under the RRRA. The Secretary would
submit such proposals to USRA. Such proposals, and those
proposed by USRA itself, would be evaluated by USRA after
affording an opportunity for public comment, and USRA would
make findings as to whether the transactions are (1) in the public
interest and consistent with the purposes of the RRRA and the
goals of the final system plan, and (2) fair and equitable. At
this point, however, all further administrative and judicial
proceedings regarding the proposal would be terminated if any
proposed transferor (other than ConRail) or transferee of rail
properties failed to indicate to USRA that the proposal was
acceptable to it. If acceptable, the proposals would be sent to
the ICC for review and approval. However, the ICC's disapproval
of a proposal would not automatically block a proposal. Instead,
the ICC's determination would be forwarded to the Special Court
for consideration. Following the aforementioned proceedings
conducted by USRA and the ICC, USRA would petition the Special
Court for review of any proposal USRA found to be in the public
interest. In a case where USRA found a DOT proposal not to
be in the public interest, the Secretary could file such a petition.
If the Special Court found a proposal to be in the public interest
and fair and equitable, it would direct ConRail to consummate
the transactions. If the findings of the Special Court are negative,
provision is made for the modification of proposals and their
resubmission to the Court for review.
7
As mentioned above, there is no provision in title VI of the
bill specifically designed to provide financial assistance for
the purpose of facilitating the implementation of a supplemental
transaction. However, it appears that the Secretary could make
such assistance available under the financial aid provisions in
title V of the bill.
The bill to implement the final system plan jointly prepared by
USRA and DOT contained procedures for processing supplemental
transactions similar to those in the enrolled bill. In addition,
it authorized the appropriation to the Secretary of $400 million,
among other things, to facilitate the implementation of supplemental
transactions. Unlike the enrolled bill, the USRA-DOT bill
permitted the ICC to propose supplemental transactions, but did
not provide for any ICC review of these transactions.
The important features sought by the Department are contained
in the enrolled bill. First, ConRail is not permitted to veto
proposals for the transfer of its properties to other railroads.
This is important to keeping open the option for additional
restructuring which will promote the establishment of a financially
self-sustaining rail service system in the Midwest and Northeast
Region adequate to meet the needs of the Region. Secondly,
the ICC cannot veto any such proposals. We would have preferred
that the ICC review function be more severely limited, however.
Notwithstanding a negative ICC stand on a Departmental proposal,
the Secretary can still petition the Special Court for a favorable
ruling with respect to one of his proposals but the Court will
also have before it for consideration the negative ICC determination.
Finally, USRA cannot block a proposal advanced by the Secretary.
Again, the bill permits the Secretary to petition the Special Court
for a favorable ruling on one of his proposals despite a negative
USRA determination.
NORTHEAST CORRIDOR IMPROVEMENTS
Title VII of the enrolled bill mandates the execution of a program
for upgrading intercity rail passenger service in the Northeast
Corridor. On the date of the conveyance of rail properties under
section 303 of the RRRA, ConRail would be required to transfer
8
by purchase or lease to the National Railroad Passenger Corporation
(Amtrak) the rail properties designated in the final system plan for
improved Corridor operations and, within 180 days after the date
of enactment of the bill, agreements would have to be executed
providing for the assumption by Amtrak of all operational responsibility
for intercity services along the Corridor and of the responsibility
for control and maintenance of the transferred properties. The
bill requires the establishment within five years after the date of
enactment of the bill of regularly scheduled, dependable service
between Boston and New York operating on a three-hour and 40-minute
schedule, including stops, and between New York and Washington
on a two-hour and 40-minute schedule, including stops. Amtrak
would make improvements at its option and in accordance with
route criteria approved by the Congress to service on routes to
Harrisburg and to Albany from the Corridor main line, and from
New Haven to Boston via Springfield.
The bill authorizes appropriations to the Secretary of $1. 6 billion to
effectuate the goals for improvement of Corridor service. (Funds
would not be available for improvement of the off-mainline routes
mentioned above until after the five-year goals for the mainline
have been achieved.) In addition, the bill authorizes $150 million
for the improvement of nonoperational portions of stations, related
facilities, and fencing. Fifty percent of the cost of those improve-
ments would be borne by the States or by local or regional trans-
portation authorities. Approximately $96 million is authorized to cover
Amtrak's startup costs, the cost of acquiring the Corridor properties,
and the cost of developing and utilizing mobile radio frequencies for
rail passenger radio telephone service. Another $20 million is
authorized for the acquisition and improvement of passenger lines
outside of the Corridor.
The Secretary is required to coordinate all transportation programs
related to the Corridor so that they are integrated and consistent with
implementation of the Corridor project. The Secretary may deny
funding if he finds any significant noncompliance with the implementation
of the goals for the Corridor. The bill provides, however, that
Amtrak will acquire the properties by purchase or lease and it
authorizes Amtrak to enter into appropriate agreements with other
railroads and commuter agencies for the provision of freight and
commuter service over the rights-of-way. A five-member Operations
Review Panel would be established to resolve differences of opinion
9
concerning operations between Amtrak and such other railroads and
commuter agencies. The Panel would be comprised of one member
selected by Amtrak, one selected by commuter authorities, one
selected by ConRail, and two selected by the Chairman of the National
Mediation Board.
Within two years after the enactment of the bill, the Secretary is
required to report to Congress on the results of the passenger
service established in the Corridor under the bill and on the
feasibility of establishing regularly scheduled intercity rail passenger
service between Boston and New York on a three-hour schedule
and between New York and Washington on a two and one-half hour
schedule.
The Department's bill for upgrading service along the Northeast
Corridor proposed a $1. 2 billion program in which the Federal
share was 90 percent ($1. 08 billion) and the share of the States
along the Corridor was 10 percent ($120 million). An additional
$200 million in local station improvements not essential to train
operations would have been assumed by the appropriate State and
local governments. The goal of that program was to provide
reliable trip times (with stops) of four hours between Boston and
New York and three hours between New York and Washington.
Title VII of the bill represents a compromise between the
Department's proposal and a proposal in the bill first reported
by the Conference Committee, which established a $2. 4 billion,
four-year Corridor improvement program calling for a three-hour
schedule between Boston and New York and a two and one-half
hour schedule between New York and Washington. The crucial
change to the Corridor provisions in the first bill reported by the
Conferees is the establishment of initial service levels similar to
those proposed by the Administration. It appears at this point
that achievement of the higher service levels originally sought by
the Conferees (and included in the bill as a prospective second step
in Corridor improvements) would have cost nearly $4. 5 billion.
We believe the authorizations in the enrolled bill are higher than
necessary but nevertheless they represent a substantial reduction
from the earlier levels.
The enrolled bill contains other improvements over the previous
bill reported by the Conferees in that it authorizes the appropriation
10
of funds to the Secretary, rather than to USRA, and places in
an optional category the improvement of lines which join the
main Corridor route. Moreover, the Secretary is charged with
the responsibility for implementing the improvement project
in order to achieve the goals of title VII. However, a number
of negative features remain in title VII. For example, there
is no flexibility with respect to who should acquire the Corridor
properties or the timing of that acquisition. Amtrak will acquire
the properties by purchase or lease on the date that properties
are transferred to ConRail under the RRRA. In addition, Amtrak
will have the authority to operate under contract freight and commuter
service on the Corridor. Also, we would have preferred a delay
in providing the authorizations to Amtrak for functions other than
upgrading the Corridor. It would have been preferable if authorizations
for Amtrak operations could be considered in the context of the
normal budget process for Amtrak. Also, the separate $20 million
authorization for the acquisition and improvement of rail properties
outside of the Corridor cannot be justified in the light of (1) competing
needs for the improvement of rail services, and (2) the existence
of the extensive rail service continuation subsidy program contained
in title VIII.
To complete the funding picture with respect to intercity rail
passenger service, it should be noted that under title V, the
Secretary can provide up to $150 million in loan guarantees for
the rehabilitation of Northeast Corridor properties. In addition,
$200 million may be made available under title V to improve
intercity rail passenger services outside of the Northeast Corridor.
The relationship of this funding to the title V program for financial
aid is discussed further below.
REGULATORY REFORM
Pricing Flexibility
Section 202 of the enrolled bill provides significant pricing flexibility,
both with respect to increases and decreases. It also prohibits
umbrella ratemaking. Specifically, with respect to minimum ratemaking
the bill provides that no rate can be found to be too low if it
contributes to the going concern value of the proponent carrier. A
rate which equals or exceeds variable costs is presumed, unless
rebutted by "clear and convincing evidence", to contribute to the
going concern value. At the suggestion of the Administration, the
11
bill directs the Commission in determining variable costs to look
only to the variable costs of the carrier in question. Average and
industry costs cannot be used unless the carrier so requests
and the specific data is not available. Also at the suggestion
of the Administration, certain language was inserted in the
conference report to clarify the meaning of "going concern value".
This language indicates that in determining such value the
Commission is to inquire whether the rate change improves the
going concern value of the carrier as compared to what it would
have been had the rate not been changed. In other words the
carrier need not prove that the rate change resulted in a net
increase in the going concern value. Such a showing would not
be possible where the carrier is decreasing his rate to counter
a rate decrease of a competitor. The conference language is
helpful in clarifying this ambiguous area.
With respect to maximum rates, the bill provides that the
Commission may not find a rate unlawful on the ground that it
exceeds a just and reasonable maximum unless it has found that
a carrier has market dominance over the service rendered under
such rate. Market dominance is defined in the bill simply as the
absence of effective competition from other carriers or modes
of transportation. The earlier presumptions of market dominance
contained in the House and Senate bill, which were confusing,
were deleted in the final bill. The bill also provides that carriers
may raise their below-cost rates to a level equal to their
"incremental costs". This term is not defined in the bill, but
the legislative history indicates it refers to the carrier's specific
out-of-pocket costs. This term was used inplace of "variable
cost" because in the earlier drafts of the bill the term variable
cost was not restricted to a particular carrier's cost and industry
averages could have been used. With the Administration's suggested
language added to the definition of variable cost in the final bill as
referred to above, incremental and variable costs are substantially
the same.
The bill makes many procedural changes which also greatly add to
pricing flexibility. The Commission must make a final determination
of rate cases within seven months of the date the rate was scheduled
to go into effect, unless the Commission makes a report to Congress.
In that event, the time period is extended to 10 months.
12
At the end of the applicable time period the rate must go into
effect regardless of whether the Commission has reached a
decision. Pending completion of an investigation in a rate case,
the Commission may suspend a rate for a period of seven months,
or 10 months if a report is given to Congress. However, the
suspension powers of the Commission have been drastically curtailed
in several ways. First, all suspensions may be made only upon
a verified complaint that "(i) without the suspension the proposed
rate change will cause substantial injury to the complainant or the
party represented by such complainant; and (ii) it is likely that
such complainant will prevail on the merits. " The burden of
proof is upon the complainant to establish the matters set forth
in clauses (i) and (ii). Such a burden is a very significant change
from the present standard of the Commission, which in effect requires
the complainant only to show that there are reasonable grounds
for believing the rate to be unlawful. In addition, present practice
in law does not require a showing of "substantial injury".
Second, the bill does provide for a limited two-year no suspend
zone. In the two years following the adoption of the bill carriers
may raise or lower their rates 7 percent each year without
suspension within certain limits. The two-year no suspend zone
sets a good precedent, but it is somewhat redundant in light of the
very significant limitations that were made upon the Commission's
general suspension power.
The bill also provides for an escrow provision for rate increases
which are investigated but not suspended.
Finally, the Secretary and the Commission are each to study the
effects of the ratemaking amendments and to separately report
to Congress within 20 months of the enactment of the bill.
In the area of umbrella ratemaking, section 205 of the bill coupled
with the earlier referenced amendments to section 202 remove the
power of the Commission to engage in umbrella ratemaking. Section
205 then goes on to describe a new standard for adequacy of revenue
for the railroads, and then reconfirms that the Commission is not
to engage in umbrella ratemaking by specifically stating that the
rates of a railroad may not be held up to protect the traffic of
13
another carrier unless the Commission finds that the railroad
rate reduces the going concern value of the railroad, i.e., the
rate is not compensatory.
The enrolled bill also adopted almost word for word the
Administration's "Big John" proposal, which provided expedited
and special procedures for large capital investments and the
Administration's intrastate rate provisions. Provisions relating
to per diem and demurrage, which are really hortatory in nature,
were also adopted.
The Administration's bill provided much of the language and
ideas for the rate flexibility sections of the enrolled bill. The
Administration proposed that rates above variable cost could not
be found by the Commission to be unreasonable on the basis
that they were too low and that carriers could increase rates
that were below cost to the variable cost level. Furthermore,
the Administration bill prohibited umbrella ratemaking.
The Administration proposed a permanent no suspend zone which
would be phased in over a period of three years allowing 7 percent,
12 percent, and 15 percent changes, respectively, in those years.
Starting with the fourth year and thereafter carriers would be allowed
to increase their rates 15 percent without fear of suspension. There
would have been no suspension for rate decreases. The
Administration's bill would also have required that in all suspension
cases there would have to be a finding of substantial injury and
a likelihood of success. Finally, time limits would have been
placed on Commission decisions concerning the ultimate legality
of rates.
The enrolled bill differs in form from the Administration's
proposal, but the effect of the two bills is much the same. In
both bills carriers may reduce their rates to levelswhich
essentially cover their own costs. The enrolled bill uses a
"going concern value" approach, but "going concern value" is closely
tied to variable costs by the specific presumption in the enrolled
bill. Both bills definitely prohibit umbrella ratemaking. In
addition both put very stringent limitations upon the Commission's
power to suspend rates. The enrolled bill has a very limited
no suspend zone, but this is mostly a symbolic defect in light of
the very broad restrictions on the general suspension power of the
Commission.
14
The bill's use of the market dominance test was not proposed
by the Administration but it is consistent with our general rate
flexibility philosophy. Both bills place time limits on ICC
ratemaking decisions. The only question in the rate flexibility
sections of the enrolled bill is the language in subsection (f) of
section 202 which preserves the Commission's ability to defend
against so-called "predatory" rates and to engage in certain
activities with respect to ports. That subsection (f) provides
a general proviso to the ratemaking section that states that
nothing in section 202 is to be construed (1) to modify the
application of sections 2, 3, or 4 of the Interstate Commerce
Act in rate cases; (2) to make lawful any competitive practice
which is unfair, destructive, predatory or otherwise undermines
competition; (3) to affect existing law or authority of the
Commission with respect to rate relationships between ports; or
(4) to affect the authority and responsibility of the Commission
"to guarantee the equalization of rates within the same port".
This language would be troublesome were it not for the strong
language in the Senate and House reports which indicates that
predatory conduct is to be equated with below-cost ratemaking
except in exceptional cases. The reports also indicate that
the language relating to the "rate relations between ports"
preserves existing authority of the ICC but does not grant new
authority. It is only with respect to rates within the same port
that the Commission may have obtained new authority. A
somewhat similar problem was raised by language in the last
part of section 202(e) which required the Commission to consider
if any rate change had a "significantly adverse effect" on the
competitive posture of shippers. This language raised the question
of whether new authority had been given to the Commission to
adjust rates artificially, but the enrolled bill clarified this by
inserting the language "(in violation of section 2 or 3 of this
part)"' directly after the language quoted above. This insertion
makes clear that new authority is not being given to the
Commission, but rather the Commission is being reminded of
an existing duty.
In summary the enrolled bill accomplishes most of the reform
sought by the Administration in the area of pricing flexibility.
15
Tariff Modification
Section 203 of the enrolled bill made certain minimal changes to
section 15(3) of the Interstate Commerce Act. In addition the
original Conference bill proposed an ambiguous change to section
15a, which raised questions whether increased standing was being
granted to certain shippers. It also raised questions of whether
the substantive power of the ICC was being enlarged. In the
enrolled bill language was inserted to ensure that new standing
was not being included. In addition the final Conference Report
specifically states that the amendment to section 15a "is intended
to deal with a procedural problem. it does not expand existing
ICC jurisdiction, but rather assures that the ICC will consider,
at the time a rate is proposed, allegations regarding the effects
of the proposed rate change".
The Administration did not propose any changes similar to those
made by section 203. The previous version of section 203 was
ambiguous but in light of the changes made in the final bill and
the language in the final Conference Report, the problem should
be minimal.
Rate Bureaus
The enrolled bill contains a great deal of language concerning
rate bureaus. However, only minimal changes have been effected.
The bill prohibits agreements and voting for single line rates and
also with respect to non-participants in joint line rates. However,
the bill also provides that these prohibitions do not apply to
general rate increases and "broad tariff changes". The bill does
prohibit rate bureaus from protesting independent action of their
own mode.
The Administration proposed changes of much greater significance.
Our bill would have prohibited discussions, agreements and voting
with respect to single line rates and for all joint line rates. After
three years, similar prohibitions would have been applied to all
general rate increases, except those relating solely to labor and
fuel increases. Rate bureau protests of any action, regardless
of mode, would have been prohibited.
Clearly, in the regulatory reform area, the least progress was
TORO
16
made with respect to rate bureaus. The provisions of section 208
are not a step backwards, but they advance the needed reform
very little. There will be cost constraints placed upon single and
joint line rates, but general rate increases and group rates will
not be affected.
REFORM OF THE ICC
Title III of the enrolled bill makes many significant and beneficial
changes in the procedures and practices to be followed by the
Commission in the processing of cases. The specific provisions
included in the bill relating to procedure were not submitted by
the Administration, but they do serve the Administration's goal
of expediting Commission proceedings and make them more
intelligible to the public.
In addition Title III substantially incorporates the Administration's
proposal with respect to prohibiting discriminatory State taxes
on railroads. We note that the Senate proviso which would have
grandfathered certain States from the effect of this prohibition
was not included in the enrolled bill. Title III also contains for
the most part the Administration's proposal for a new uniform
cost and revenue accounting system. Unfortunately the bill gives
this responsibility solely to the Commission and does not include
the Department, but we believe the direction of section 307 to the
Commission is quite clear.
Section 310 of the bill was not introduced by the Administration,
but this section would facilitate the use of unit train service, a
cost in energy efficient type of service, and we would support
section 310.
On the negative side, section 304 would establish an office of
Rail Public Counsel, with a director appointed by the President,
by and with the advice and consent of the Senate. We recommended
against the establishment of such an office, for we consider it
an unnecessary layer of bureaucracy. The same comment applies
to the establishing on a permanent basis of the Rail Services
Planning Office, as provided in section 309. Although we view section
304 and 309 as objectionable, we believe that the problems they
cause are outweighed by the other beneficial parts of Titles II and
III.
?
FORD
17
MERGERS
The Administration proposed very significant changes with respect
to the present merger standards and procedures used by the
Commission. In particular, the Administration proposed a new
procedure involving the participation of the Secretary of Transportation
and the Attorney General. In addition very stringent time limits
were placed upon ICC decisions relating to mergers. Our proposal
provided that if the Commission failed to meet these time limits,
the decision would be returned to the Secretary and the Attorney
General for ultimate resolution. Of equal importance, our proposal
would have changed the ambiguous test which the Commission now
uses to decide merger cases.
Title IV of the enrolled bill falls far short of the objectives of
the Administration. It does not involve the Secretary to the extent
proposed by the Administration, nor does it reform the procedure
as we had proposed. Most importantly the standard for mergers
is left untouched. The most basic change accomplished by Title IV
is the time limit imposed on merger proceedings. This is a
beneficial change, but its value is somewhat diminished by the
uncertainty as to what will happen if the Commission does not
comply with the deadline. It would seem under the "ordinary"
procedures of section 402 that the Commission could simply avoid
the deadline by giving notice to Congress. Under section 403
the Congressional notice provision is omitted but there is no
mechanism to force the Commission to make the required decision.
Most likely, resort would have to be made to the courts, itself
a potentially lengthy process. The conferees expressly rejected
imposing any effective time limit.
We note in section 401 that the Secretary is given a so-called
catalyst role in proposing mergers and we support this provision.
In summary we regret that Title IV does not reflect the provisions
sought by the Administration, but we believe that the time limits
placed upon the Commission together with the increased recognition
given to the Secretary by section 401 will be beneficial. Therefore
we support Title IV.
18
RAIL CONTINUATION SUBSIDIES
Title VIII of the enrolled bill modifies the program for rail
service continuation subsidies applicable to the Northeast and
Midwest Region which was established by the RRRA and establishes
a similar program for the Nation as a whole. Under the amend-
ments to the program for the Midwest and Northeast, (1) the
Federal share of rail continuation assistance is enlarged to 100
percent for the first year and 90 percent for the second year;
(2) all funds would be available for the acquisition and modernization
of rail properties, and no restriction would be imposed upon the
provision of continuation subsidies for properties SO acquired or
modernized; (3) funds would be distributed to each State under an
entitlement formula based upon the amount of rail mileage in the
State eligible for continuation assistance; (4) $180 million would
continue to be authorized but without fiscal year limitation; (5) up
to five percent of the funds received by a State could be used for
planning activities; (6) provision is made for funding the construction
or improvement of transportation facilities other than rail where
rail service will no longer be available; and (7) funds are available
for acquiring certain rail properties for intercity passenger and
commuter service.
Under an amendment to section 4 of the Department of Transportation
Act, the Secretary could make available to all of the States financial
assistance to cover the cost of rail continuation payments, the
cost of purchasing and improving rail properties, and the cost of
reducing the costs of lost rail service in a manner less expensive
than continuing rail service. During the period between the date of
enactment of the bill and the second anniversary of the conveyance
of rail properties under the final system plan, only those States
outside the Midwest and Northeast Region would be eligible for funds
under this program. After that period, all States could participate
in the program. The Federal share of costs would be 100 percent
from July 1, 1976 to June 30, 1977. Thereafter, the Federal share
would be reduced to 90 percent for the next twelve months; 80
percent for the following twelve months; and 70 percent for the next
24 months (through June 30, 1981). For the last two years, the
Secretary could adjust the amount of the Federal share so as not to
exceed the maximum funding authorization. $360 million is authorized
without fiscal year limitation for the nationwide program. Funds
would be provided under an entitlement formula similar to the one
described above for the Midwest and Northeast Region.
CERALD
?
FORO
19
Title VIII of the enrolled bill also establishes three other programs
of Federal financial assistance. Under the first program, the
Secretary is required to reimburse ConRail, Amtrak, and other
railroads for losses attributable to commuter operations continued
under revised section 304(e) of the RRRA. The Federal share
of the costs are 100 percent for the first year, 90 percent for
the second year, and 50 percent for any 180-day period of operations
thereafter. Federal assistance could not be made available for
more than two years unless assurances were made by the recipients
that the services would be continued after the subsidy is terminated.
$125 million in obligational authority is provided. The obligations
would be liquidated as follows: not to exceed $40 million during
the transition period; not to exceed $95 million by September 30, 1977;
and not to exceed $125 million by September 30, 1978.
Under the second program a total of $20 million is authorized for
the fiscal years 1976, 1977, and 1978 for (1) the preparation by
the Secretary of a report on the future use of abandoned rail
rights-of-way for rail or other purposes; and (2) the funding by
the Secretary of the Interior of State, local, and Federal programs
for the conversion of abandoned rights-of-way to recreational and
conservational purposes. Eighty percent of the funds appropriated
would be made available to the Secretary of the Interior.
Under the third program, $6 million is authorized for the establishment
by the Secretary of a fossil fuel rail bank for the purpose of
preserving existing service in areas in which fossil fuel natural
resources or agricultural production is located.
The Department believes that the Nationwide program for rail
service continuation subsidies is inappropriate. The subsidy program
for the Midwest and Northeast established by the RRRA will serve
a special need arising out of the extensive rationalization of the
rail plant provided for by the final system plan. There is no
similar need, however, for a program for the rest of the Nation.
In fact, the availability of the large amount of funds for the nationwide
program and the high percentage of the Federal contribution will
only discourage the switch to more efficient means of moving freight
to and from branch line communities. With respect to the program
for the Midwest and Northeast, we are pleased that the bill contains
20
a number of provisions proposed by the Department providing
increased flexibility with respect to the use of funds, but we
disagree with the provisions increasing the Federal share and
requiring the allocation of funds solely under an entitlement
formula.
The bill submitted to the Congress by the Department on
October 2, 1976 confined the subsidy program to the Midwest
and Northeast region and did not provide any increase in the
authorization. It also proposed the retention of the existing
cost-sharing and distribution mechanisms. We continue to
believe that a program of that form and scope would be the best
way to ensure that State and local decision-making vis-a-vis
the retention of service will make economic sense. The large
Federal shares of the costs and the wide range of uses prescribed
by the enrolled bill will tend to promote the operation of this
program on a permanent basis.
With respect to the program for the subsidization of commuter
service, we agree that Federal assistance should be provided
on an interim basis to enable States and regional transportation
authorities to determine their response to the increased cost
of commuter rail service.
However, we believe that the Federal funding should not be a
new authorization, but should be provided out of the existing
$11. 8 billion contract authority available under the Urban Mass
Transportation Act of 1964. In addition, since the States have
had the balance of the present fiscal year in which to make
provisions for future subsidies, we believe the Federal share
should be the 50 percent applicable to other transit operating
subsidies under the UMT Act.
The Department also opposes the expenditures contained in the
bill for the conversion of abandoned rail rights-of-way and for
a fossil fuel rail bank. While relatively small, these authorizations
cannot be justified in the context of the pressing need for financial
assistance for other railroad programs.
21
FINANCIAL ASSISTANCE FOR ALL RAILROADS
Title V of the enrolled bill authorizes a total of $1. 6 billion in
Federal financial assistance for the rehabilitation and acquisition
of rail facilities and equipment.
This Federal assistance is provided through two separate funds,
the Rail Fund and the Obligation Guarantee Fund. The Rail Fund
is administered by the Secretary and provides up to $600 million
in Federal funds to the railroads for the rehabilitation, improve-
ment and acquisition of fixed facilities. This Federal assistance
is provided through the purchase by the Secretary of redeemable
preference shares from the railroads with general Treasury revenues
received by the Secretary from his sale of fund anticipation notes
to the Secretary of the Treasury. The redeemable preference
shares are in effect low interest loans to the railroads which return
a minimum of 150 percent of their par value to the Fund over the last
20 years of their 30-year term, an annual interest rate of less
than two percent. (The Secretary may use a shorter term,
which would increase the effective rate of interest.)
The Obligation Guarantee Fund is also administered by the
Secretary and provides up to $1 billion in authority for the guarantee
of the principal of railroad obligations for the acquisition or
rehabilitation of rail facilities or equipment. The provisions of
the bill with respect to the guarantee of railroad obligations are
similar to the loan guarantee program which the Administration first
proposed last May in its Railroad Revitalization Act, with the
important exception that the Administration bill authorized up to
$2 billion in loan guarantee authority.
Two sections of Title V provide for additional specific uses for
the Federal funds authorized. Section 511 (e) provides that up to
$150 million of the $1 billion in loan guarantee authority may be
used by the Secretary to guarantee obligations for the rehabilitation
of Northeast Corridor rail properties which are purchased or
leased by Amtrak. Section 517 provides that up to $200 million
of the total $1. 6 billion of Title V authorizations can be used by
the Secretary to improve intercity rail passenger services outside
of the Northeast Corridor. In addition, as pointed out above, if the
22
Secretary guarantees any ConRail obligations for the purpose of
electrifying high-density mainline routes (see section 606 of the
bill), the amount of the obligations so guaranteed will count
against the $1 billion ceiling placed upon loan guarantees made
available under section 511.
Title V also mandates two rail studies to be carried out by the
Secretary: (1) a 360-day classification of the rail lines of each
of the Nation's Class I railroads into at least three categories
of main and branch lines based upon the level of usage and
the probable economic viability of each line; and (2) a 540-day
determination of, and recommendation of Federal financial assist-
ance for, the deferred maintenance and delayed capital expenditures
of each Class I railroad from the present through the year 1985.
Departmental objections to the provisions of Title V have
centered on two areas. First, we have objected to the awkward
financing mechanism of the redeemable preference shares, a
mechanism which serves to obscure the fact that general tax
revenues are being provided to the railroads on extremely soft
interest terms. Second, we have opposed both of the studies
mandated by Title V on the grounds that they are intended to
force Congressional action on further Federal financial assistance
for the railroad industry, and on the provision of a portion of
such additional assistance through the sale to the public of Fund
bonds of questionable marketability.
TOTAL AUTHORIZATIONS
From the standpoint of total authorizations, the enrolled bill
compares reasonably well with the Administration's position. As
the enclosed chart indicates, the various Administration proposals
would have authorized a total of $5,829 million. The enrolled bill,
on the other hand, authorizes a total of $6,372 million, $543 million
more than the Administration's total. To place this in the proper
context, one should take into account that the bill originally adopted
by the Conference Committee on December 19, 1975, authorized
$7,587 million and the bill originally passed by the Senate
authorized over $10 billion. The funding in the enrolled bill for
the Northeast Corridor and for rail service continuation subsidies
are the principal causes for the excess authorizations.
23
CONTINGENT LIABILITY
It should be pointed out that the enrolled bill subjects the Treasury
to a contingent liability that could be significant. Along with
ConRail securities, the railraods transferring properties to ConRail
will receive certificates of value. These certificates of value
are full faith and credit obligations of the United States containing
a guarantee by the Secretary of Transportation that the certificates
will be paid in cash according to their terms.
The certificates are a promise that on December 31, 1987 (or any
earlier date determined by USRA and the Finance Committee) the
holder of the certificate will be paid in cash an amount equal to
what the Special Court decides is the net liquidation value of the
assets transferred by the railroads to ConRail less certain amounts
calculated under a formula set out in the enrolled bill. The
formula subtracts from net liquidation value the value of the
"other benefits" provided by the RRRA to the bankrupts (e.g.,
aid under section 213), the value of the ConRail securities distributed
to the bankrupt railroads, and any sums paid to the bankrupts
as the result of sales or leases by ConRail of transferred properties
(e.g., sale of the Northeast Corridor properties to Amtrak). The
formula also adds back in to the net liquidation value any amounts
the Special Court finds to be due to the railroads because of
so-called "unconstitutional erosion" in their properties - the de facto
taking that results from the legal constraints under the RRRA and
all other laws which require the railroad to continue operations at
a loss - and the formula further adds interest at 8 percent compounded
annually from the date of conveyance of the properties.
The Administration's original proposal had put a ceiling on the
contingent liability represented by the certificates. USRA estimated
in the Final System Plan that the net liquidation value of the
properties ConRail will acquire is $422 million (plus $85 million
for the Northeast Corridor). This figure was used as a ceiling on
the certificates in the administration's bill, but the Administration
suggested at a later date as a compromise that the ceiling be
partially lifted by permitting the Special Court to determine the
figure for net liquidation value. The compromise forestalled a much
worse suggestion - that the certificates have a ceiling equal to
what the Special Court determined to be the constitutional minimum
value to which the railroads were entitled for their properties.
Such a ceiling would have been interpreted by some as a repudiation
24
of USRA's valuation theory and opened a Government liability of
potentially many billions of dollars.
At the present time it is impossible to estimate what the Special
Court will decide is the correct figure for net liquidation value.
Estimates run as high as $1 billion to $2 billion. The figure
is pushed up further by the addition of erosion damages. Recently
filed complaints by creditors of the bankrupts indicate that claims
for erosion could be as high as $10 billion or more. On the
other hand, Judge Friendly's opinion in the Special Court was
extremely skeptical about the validity of any erosion claim. While
the maximum exposure on erosion is large, realistic analysis
suggests the final figure will be far short of the claims of the
bankrupts and possibly zero. If the securities of ConRail, the
"other benefits" of the Act, and the sums paid the bankrupts as
a result of sales or leases are sufficiently high, the entire amount
of net liquidation value and erosion damages could be offset, and
the Government could be left with no net liability. On the other
hand, the maximum exposure of the United States is several billion
dollars.
At the same time, the United States faces another contingent
liability of unknown amount. In the earlier litigation on the RRRA,
the Special Court and the Supreme Court found the Act constitutional
because they held that, to the extent that the bankrupts received
from ConRail less than the constitutional minimum due them for
the value of their transferred assets, the bankrupts had a cause
of action for damages against the United States under the Tucker
Act. USRA has determined that the constitutional minimum is net
liquidation value, and the combination of the ConRail securities
and the certificates of value guarantee the bankrupts at least that.
If the Special Court and the Supreme Court, however, decide
that net liquidation value is not the proper valuation theory, the
bankrupts will be able to proceed against the United States in
the Court of Claims for the difference between the constitutional
minimum and net liquidation value. The potential liability here is
great - up to perhaps as much as $7 or $8 billion. The chance
is not very great, however, that the bankrupts will succeed in their
argument that net liquidation value is not the proper constitutional
theory. While the potential for massive liability, therefore, is
present, the Department's legal opinion is that it is not a matter
of any grave concern.
25
Still another contingent liability of unknown amount stems from
provisions of section 303 of the RRRA (as revised by section 612
of the bill) which require the United States to pay any judgment
entered against any profitable railroad, State, or responsible
person arising from the transfer to such entities of rail properties
of railroads in reorganization. The largest portion of these
particular properties would be acquired by the Chessie. Again,
if the Special Court and the Supreme Court decide that net
liquidation value is not the proper valuation theory, the bankrupts
will be able to proceed against the United States for the difference
between the constitutional minimum and net liquidation value.
These various contingent, and potentially large, liabilities should
be viewed in light of the alternatives. Nationalization of the
railroads would be an astronomically expensive project. An
income-based reorganization was selected as the means for
rejuvenating the bankrupt lines because it was thought to be cheaper
than nationalization. If, as a result of litigation, the bill for the
reorganization becomes too high, a different course can be selected
at that time. The Government, therefore, still retains significant
control over the most significant contingent liabilities.
SUMMARY
As a whole, the Department believes the enrolled bill is acceptable.
It is a wide-ranging piece of legislation which has produced a
great deal of interest among many people inside and outside of the
railroad industry. There has been considerable conflict over
various provisions of the bill and it was inevitable that any bill
passed by the Congress would contain provisions deemed unsatisfactory
by the Department as well as other parties.
The bill also followed a very unusual path on its way to the
President for signature. On the final day of the first session of
the 94th Congress, the original bill reported by the Committee of
Conference was passed by the House and Senate. Upon an indication
that the President would veto the bill, however, the Senate prevented
the bill from becoming enrolled and sent to the President. Sub-
sequently, the Department negotiated changes to the bill at great
length with Committee staff personnel and, following the opening
of the second session of the 94th Congress, the Senate and House
26
voted to vacate the Conference bill. Thereafter, the matter
was recommitted to the Conference and the Committee reported
a revised bill on January 22, 1976.
The Department was most concerned about the following provisions
of the first Conference bill:
(1) The total authorizations were excessive.
(2) The goals for improvement of intercity rail
passenger service along the Northeast Corridor
were too ambitious, the funding for Corridor
improvements was too high, and the control
over Corridor improvements was to be lodged
in USRA and Amtrak.
(3) There was insufficient protection of the Federal
Government's interests in the provisions
establishing procedures and guidelines for the
investment of Federal money in ConRail.
(4) Procedures for the processing of supplemental
transactions threatened to hamstring any attempt
the Executive Branch might make in the future
to bring about important changes to the rail
system in the Midwest and Northeast.
(5) The mechanism for providing financial aid to
railroads other than ConRail was unnecessarily
complex and costly.
(6) The program for rail continuation subsidies was
too expensive and failed to come to grips with
a basic tenet of the RRRA, namely, that barring
the willingness of State and local governments
to provide significant financial support for their
continued operation, there must be a reduction
in uneconomic lines.
(7) The regulatory reform was inadequate and in
some respects confusing.
27
Substantial gains were made in most of these areas upon the
adoption of the second Conference bill:
(1) As indicated above, the funding levels were
reduced substantially and now are reasonably
close to the overall level proposed by the
Administration.
(2) The immediate goals for the improvement
of intercity rail passenger service along the
Northeast Corridor were cut back, the
funding was reduced, and the Secretary,
rather than USRA, was designated to receive
the funds authorized for Corridor improve-
ments.
(3) The bill establishes a Finance Committee of
the USRA Board to carry out crucial oversight
functions respecting the acquisition of ConRail
securities by USRA. In addition, interest
on debentures was made cumulative.
(4) Amendments were adopted making it clear
that ConRail could not block proposals for
supplemental transactions in cases where it
is the transferor of properties and that the
ICC could not block any proposals for supplemental
transactions.
(5) The regulatory reform provisions were
strengthened and most of the potential confusion
eliminated.
Little improvement was achieved respecting the mechanisms for
providing financial aid to railroads other than ConRail or for
subsidizing the continuation of freight and commuter service.
However, a $40 million reduction was made in the authorization
for rail continuation subsidies.
All in all, we believe that the changes that were achieved were
most significant. The bill provides a reasonable means for
financing the restructuring of the decayed rail system in the
Midwest and Northeast, it provides substantial and flexible means
28
for assisting rail rehabilitation in other areas of the country,
it will permit a significant upgrading of intercity rail passenger
service in the busy Northeast Corridor, and it provides for
meaningful economic regulatory reform of the railroad industry.
RECOMMENDATION
The Department recommends that the President sign the enrolled
bill.
Sincerely,
William T.Corimon I
William T. Coleman, Jr.
Attachment
2/2/76
COMPARISON OF NEW AUTHORIZATIONS FOR FEDERAL ASSISTANCE TO THE RAILROADS
(Dollars in Millions)
S. 2718 AS PASSED
S. 2718 AS PASSED
S. 2718 AS PASSED
BY THE SENATE
BY BOTH HOUSES
BY BOTH HOUSES
THE ADMINISTRATION
DECEMBER 4, 1975
DECEMBER 19, 1975
JANUARY 28, 1976
I. ConRail
Debentures
$1,000
$1,000
$1,000
$1,000
Preferred Stock
850
2,200
1,100
1,100
Finance Committee Discretionary
250
--
--
--
Loan Guarantees
---
--
200
--*
ConRail Total
$2,100
$3,200
$2,300
$2,100
II. USRA Section 210 Authority
235
500
400
275
III. Supplemental Transactions
400
:
--
--
IV. Railroad Rehabilitation
Loan Guarantees
2,000
1,000
800
1,000
Redeemable Preference Shares
--
1,200
600
600
Rehabilitation Total
2,000
2,200
1,400
1,600
*Up to $200 million for electrification of ConRail mainlines is contained within
the loan guarantee program in Title V of S. 2718.
-2-
(Dollars in Millions)
S. 2718 AS PASSED
S. 2718 AS PASSED
S. 2718 AS PASSED
BY THE SENATE
BY BOTH HOUSES
BY BOTH HOUSES
THE ADMINISTRATION
DECEMBER 4, 1975
DECEMBER 19, 1975
JANUARY 28, 1976
V. Intercity Rail Passenger Services
Northeast Corridor Project
$1,080
$3,000
$2,400
$1,600*
NEC Stations and Fencing
--
--
--
150
NEC Startup, Acquisition, & Telephones
--
236
236
96
Acquisition of Other Lines
:
20
20
20
Passenger Services Outside NEC
--
--
200
--**
Passenger Total
$1,080
$3,256
$2,856
$1,866
VI. Rail Service Continuation Subsidies
Branchline
--
677
400
360
Commuter
--
125
125
125
Continuation Total
--
802
525
485
VII. Other
Conversion of Rail Rights-of-Way
--
75
75
20
Fossil Fuel Rail Bank
--
--
6
6
USRA
14
17
17
14
Office of Rail Public Counsel
--
3
3
3
*In addition to this amount, up to $150 million in obligations for
NEC rehabilitation may be guaranteed under the loan guarantee
program in Title V of S. 2718.
**Up to $200 million for intercity rail passenger services outside
the NEC is contained within the authorizations in Title V of S. 2718.
-3-
(Dollars in Millions)
S. 2718 AS PASSED
S. 2718 AS PASSED
S. 2718 AS PASSED
BY THE SENATE
BY BOTH HOUSES
BY BOTH HOUSES
THE ADMINISTRATION
DECEMBER 4, 1975
DECEMBER 19, 1975
JANUARY 28, 1976
VII. Other (Continued)
Rail Services Planning Office
:
$ 2
$ 2
$ 2
Railroad Minority Resource Center
--
1
--
--
National Transportation Program
:
5
--
--
Administration of Rail Fund
:
4
2
--
Revision of ICC Accounting System
--
1
1
1
Other Total
--
$ 108
$ 106
$ 46
Total New Authorizations
$5,829
$10,066
$7,587
$6,372
OFFICE OF TELECOMMUNICATIONS POLICY
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON, D.C. 20504
February 2, 1976
DEPUTY DIRECTOR
Honorable James T. Lynn
Director, Office of Management and Budget
Attention: Assistant Director for
Legislative Reference
Executive Office of the President
Washington, D.C. 20503
Subject: Enrolled Bill, S. 2718 "Railroad Revitalization
and Regulatory Reform Act of 1976"
Dear Mr. Lynn:
This is in response to the request of the Office of Management
and Budget of January 27, 1976, for the views of the Office
of Telecommunications Policy on the subject enrolled bill.
The Office of Telecommunications Policy has no objection
to the subject bill, and specifically, has no objection to
Sections 703(4) and 704 (a) (C), as reported by the conference
committee in H. Rept. 94-781, appearing in the Congressional
Record, Friday, January 23, 1976, on pp. H 217-282.
Sincerely,
Squar
John Eger
Acting Director
THE OF THE TREASURY
THE GENERAL COUNSEL OF THE TREASURY
WASHINGTON, D.C. 20220
1789
FEB 3 1976
Director, Office of Management and Budget
Executive Office of the President
Washington, D. C. 20503
Attention: Assistant Director for Legislative
Reference
Sir:
Reference is made to your request for the views of
this Department on the enrolled enactment of S. 2718, the
"Railroad Revitalization and Regulatory Reform Act of
1974. "
The Department would have no objection to a recommendation
that the enrolled enactment be approved by the President.
Sincerely yours,
General Counsel
Richard R. Albrecht
OF
United States Department of the Interior
OFFICE OF THE SECRETARY
March
1849
WASHINGTON, D.C. 20240
3,
FEB 2 - 1976
Dear Mr. Lynn:
This responds to your request for our views on the enrolled bill
S. 2718, "To improve the quality of rail services in the United States
through regulatory reform, coordination of rail services and facilities,
and rehabilitation and improvement financing and for other purposes."
We recommend that the President approve the enrolled bill, as far
as Sections 809 and 810 are concerned.
This Department is directly concerned with only two sections of
S. 2718: Sections 809 and 810. Section 706 of an earlier draft
of S. 2718 would have halted the construction of the National
Visitor's Center at Union Station in Washington, D. C., but that
specific provision was deleted in later action on the bill and no
similar provision appears in the enrolled bill.
Section 809 of the bill provides that the Secretary of Transportation
shall, within 360 days of the date of enactment, and in consultation
with the Secretary of the Interior and others, prepare and submit
a report on the conversion of railroad rights-of-way. Section 809
provides that this report to the Congress and the President shall
evaluate, and make suggestions concerning potential alternate uses
of, and public policy with respect to the conversion of railroad
rights-of-way on which service has been discontinued.
Section 810 of S. 2718 would establish a Fossil Fuel Rail Bank as
recommended under part III, section C of the Final System Plan of
the United States Railway Association. The Secretary of Transpor-
tation would be authorized to acquire those rail properties deemed
eligible to be included in the Rail Bank. He would be empowered
to hold and dispose of these properties in a manner that would not
adversely affect rail access or egress. Funds, not to exceed
$6,000,000, are authorized to be appropriated for the purposes of
carrying out the provisions of this section.
CONSERVE
AMERICA'S
ENERGY
Save Energy and You Serve America!
This Department reported to the Office of Management and Budget on
a similar Department of Transportation proposal on September 23,
1975. At that time this Department objected to the proposed bill
as then drafted because the Department of the Interior was the
operating agency. We suggested that the Department of Transportation
was the proper operating agency in view of its leadership role in
general transporation matters. This change has been made in the
enrolled bill with this Department serving in an advisory capacity
to the Department of Transportation. We do not object to the
provisions of Section 810 in the present form
Sincerely yours,
Assistant Secretary of the Interior
Honorable James T. Lynn
Director
Office of Management and Budget
Washington, D. C.
2
EXECUTIVE OFFICE OF THE PRESIDENT
COUNCIL ON WAGE AND PRICE STABILITY
726 JACKSON PLACE, N.W.
WASHINGTON, D.C. 20506
February 3, 1976
James M. Frey
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D.C. 20503
Dear Mr. Frey:
This is in response to your request for the
Council's views on S. 2718 (the "Railroad Revitaliza-
tion and Regulatory Reform Act of 1976") an enrolled
bill recently delivered to the President.
Although we have strong reservations about
provisions of the bill establishing ConRail (the transi-
tion process, the resulting entity, and the extent of
Federal funding), we believe that the regulatory reform
provisions are very important and that this package
would appear to represent the best compromise the Admini-
stration is likely to secure. Therefore, we recommend
that the President sign the bill.
Sincerely,
Mimmi
Michael H. Moskow
Director
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
ALAN GREENSPAN, CHA'RMAN
PAUL W. MACAVOY
BURTON G. MALKIEL
February 2, 1976
Dear Mr. Frey:
The Council of Economic Advisers recommends that the
President sign S. 2718, a bill known as "The Railroad
Revitalization and Regulatory Reform Act of 1976. " The
bill provides significant regulatory reform which we
believe follows the President's leadership in this area.
The funding of Conrail for improvements in Northeast
corridor passenger service is costly, but still considerably
less than originally proposed by Congress and now roughly
in line with our national transportation goals.
The regulatory reform measures should make the rail-
roads more efficient, profitable, and competitive with other
modes of transportation. Section one of the ICC act is
amended to make rates legal if they produce sufficient revenue
to cover variable costs. Rates may be declared too high
only if market power is shown and suspension of rates is
made very difficult under section one. The ICC may still
suspend rates under section two, three, and four, however.
The Presidential statement at the time the bill is signed
might explicitly discourage the use of this suspension
power since it is contrary to overall administration policy
and the main thrust of the Bill.
Another significant reform is the placing of strict
limits on the activities of rate bureaus. The Bill provides
that rate bureau members may choose not to follow any bureau
policy without penality, and that agreements on rates for
single line movements are illegal. However, the rate bureaus
retain some power since agreements on general rate increases
are allowed. The act also places time limits on ICC handling
of rate cases and other matters.
There may be significant long-term problems with the
funding provisions in the Bill. Conrail is unlikely to
stay within its financial projections and likely will
experience substantial losses which are not now made explicit.
REVOLUTION
AMERICAN
BICENTENNIAL
1776-1976
@
-2-
Fortunately, two measures in the Bill provide means to
deal with this situation. First, the Bill permits controlled
transfer of Conrail facilities to private railroads and for
some funding of such transfers. Either the Secretary of
Transportation or USRA can develop plans for transfer and
ultimately take them to the special court for a decision.
The signing message should encourage efforts to effect
controlled transfer. The Bill also creates a finance
committee which can cut off funds to Conrail in the event
that it is not viable although Congress can veto decisions
reached by the committee.
It is important to note in the message that funding
for work on the Northeast corridor has been reduced and
that further study has been ordered before expenditures on
high speed rail service are made. These were the results
of strong Administration initiatives.
Sincerely,
Any
Paul W. MacAvoy
Member
Mr. James Frey
Assistant Director
for Legislative Reference
Office of Management and Budget
Washington, D. C.
National Railroad Passenger Corporation, 955 L'Enfant Plaza North, S.W., Washington, D.C. 20024 Telephone (202) 484-7100
February 2, 1976
Amtrak
Honorable James T. Lynn
Director
Office of Management and Budget
Executive Office Building
Washington, D. C. 20503
Dear Mr. Lynn:
The National Railroad Passenger Corporation recommends
that S. 2718, as amended, the Railroad Revitalization and
Regulatory Reform Act of 1976, be signed into law.
Sincerely,
Bruce Pribe Peke
Bruce Pike
Vice President
Government Affairs
BP/rfg
GERALD ? FORD
WTM CRESIDENT SERVICE M OF UNITED
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
DATE: 2-17-76
TO:
Bob Linder
FROM:
Jim Frey
Attached is the Labor views
letter on S. 2718, the Rail
bill. Please have it included
in the enrolled bill file.
Thanks.
OMB FOR
REV AUG
U.S. DEPARTMENT OF LABOR
OFFICE OF THE SECRETARY
WASHINGTON
FEB 5 1976
Honorable James T. Lynn
Director
Office of Management and Budget
Washington, D. C. 20503
Dear Mr. Lynn:
This is in response to your request for our views
on the revised Conference Report on S. 2718, "Railroad
Revitalization and Regulatory Reform Act of 1976 (H. Rept.
94-781)
The bill includes provisions which: reform certain
procedures of the Interstate Commerce Commission; authorize
finanical assistance to railroads for facilities, maintenance,
rehabilitation, improvements and acquisitions; and provide
a method of financing such programs by "the Rail Fund" for
which $6,000,000,000 would be available for fiscal year 1977
from an authorization to the Secretary of the Treasury and
open-ended authorizations for fiscal years 1978, 1979, and
1980.
The bill also provides protection for employees who may be
affected by actions taken thereunder and explicitly extends
protection for the first time to workers affected by railroad
abandonments. The level of protection afforded workers in
abandonment cases, as well as in merger and consolidation
situations, is equivalent to that granted workers pursuant to
section 5 (2) (f) of the Interstate Commerce Act and section 405
of the Rail Passenger Service Act. In its "expedited" merger
provisions, the bill requires the Secretary of Labor to provide
the ICC with his views on the adequacy of the protection afforded
employees.
We note with disappointment that the bill does not contain a
labor standards provision providing for the application of
the Davis-Bacon and other associated acts for the protection
-2-
of laborers and mechanics on federally assisted construction
contracts that could be authorized under the bill.
Although we regret this omission, we pose no objection to
Presidential approval of the bill.
Sincerely,
Roursel I Aders
Secretary of Labor
ACTING
United States Railway Association
2100 Second Street, S.W.
Washington, D.C. 20595
(202) 426-1991
Arthur D. Lewis
Chairman of the Board
January 30, 1976
Mr. James M. Frey
Assistant Director
Legislative Reference
Office of Management and Budget
17th & Pennsylvania Avenue, N.W.
Washington, D. C. 20503
Dear Mr. Frey:
This is in response to the request of the Office of Management
and Budget for advice of the United States Railway Association with
respect to the President's approval of S.2718, the Railroad Revitali-
zation and Regulatory Reform Act of 1976.
The United States Railway Association regards this legislation
as fully meeting the requirements of the Final System Plan and
recommends its approval by the President.
It is the hope of the Association that the conveyances of rail
properties can be certified to the Special Court on or about March 12,
1976 and that the conveyances to ConRail can be effected on March 31,
1976. Because of the urgency of this schedule we would urge that the
President give his approval to S.2718 at the earliest feasible date.
Sincerely,
U them Lears
Arthur D. Lewis
ASSISTANT ATTORNEY GENERAL
LEGISLATIVE AFFAIRS
Department of Justice
Mashington, D.C. 20530
February 2, 1976
Honorable James T. Lynn
Director, Office of Management
and Budget
Washington, D.C. 20503
Dear Mr. Lynn:
Pursuant to your request for the immediate views of the Department
of Justice on the Railroad Revitalization and Regulatory Reform Act
of 1976, S. 2718, we are endorsing its approval by the President.
From the time S. 2718 was first reported out of Conference in
late December, attorneys in the Antitrust Division of the Department
of Justice have been working with the Department of Transportation in
its effort to affect a revision of certain portions of S. 2718. Our
coordinated effort related particularly to certain regulatory reform
aspects of S. 2718 contained in Title II of the bill.
S. 2718, as first reported out of Conference, had several substan-
tial defects from a regulatory reform perspective, Through a process of
negotiation and compromise, the Department of Transportation has
succeeded in obtaining a revision of some of the provisions of Title II
of the Act. Although S. 2718, as secondly reported out by the Conference
and passed by both Houses on January 28, 1976, is not as substantial a
step toward regulatory reform as the President has sought, on balance
S. 2718 as passed does further achievement of the President's goal of
regulatory reform. Specifically, the bill, in part, creates a no-suspend
zone for limited rate changes; designates a strict standard which must
be met before temporary suspension of a rate is allowed; requires that
the reasonableness (i.e. lawfulness) of a railroad's rate be measured by
the variable costs of that individual railroad, not of the industry; and
removes the antitrust immunity for agreements on single line rates.
These aspects certainly create a potential for rate-making flexibility
by the railroads and consequent increased competition.
Accordingly, the Department of Justice recommends approval of this
bill.
Sincerely,
Michael M. Uhlmann
Assistant Attorney General
REVOLUTION
BICENTENNIAL
1776-1976
Interstate Commerce Commission
Washington, D.C. 20423
OFFICE OF THE CHAIRMAN
February 2, 1976
Mr. Bernard H. Martin
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D.C. 20503
Dear Mr. Martin:
In reply to your request of January 28 for the Commission's
recommendation on enrolled bill S. 2718, the "Railroad Revitalization and
Regulatory Reform Act of 1976," the Commission recommends that the
President sign this bill.
S. 2718 provides funding for revitalization of railroad freight
and passenger service in the Northeast and throughout the country. It also
contains substantial regulatory reform including greater ratemaking flexibility
for the railroads, new methods for accomplishing railroad mergers in an
expedited manner, provisions designed to speed up Commission procedures,
and a new policy for railroad abandonment of light-density lines.
Although we have heretofore expressed substantial disagreement
with many of the regulatory reforms contained in the Act and still question
the need for some of these provisions, it is our view that this legislation is
necessary to prevent chaos in the Northeast railroad system. Without the
funding provisions and the implementing amendments contained in this Act,
we do not believe that the essential services formerly furnished by the
bankrupt railroads can be maintained in the Northeast. Moreover, the
rehabilitation funding contained in the Act is essential to the revitalization
of rail service throughout the rest of the Nation.
Mr. Bernard H. Martin
Assistant Director for Legislative Reference
In sum, although we do not support all provisions of the bill,
we recognize that much of the bill is necessary and thus, we recommend
that it be signed. Moreover, we should emphasize that although we would
have preferred a different form of legislation in some respects, we are
prepared to implement fully the provisions of the legislation to the extent
of our responsibility.
Sincerely yours,
George M. Stafford
Chairman
- 2 -
OF
DEPARTMENT
DEPARTATION
THE SECRETARY OF TRANSPORTATION
UNITED
WASHINGTON, D.C. 20590
AMERICA
STATES
OF
January 29, 1976
MEMORANDUM FOR THE PRESIDENT
SUBJECT:
Omnibus Rail Legislation
INTRODUCTION
Yesterday, January 28, the Congress approved a new conference
report on S. 2718, The Railroad Revitalization and Regulatory
Reform Act of 1976, authorizing a total Federal expenditure of
$6.37 billion. The bill is probably the most far-reaching railroad
legislation of this century and contains a number of provisions
with political implications for the election year.
REVITALIZATION OF THE RAIL FREIGHT SYSTEM
S. 2718 provides for a complete revitalization, over the next
5 years, of the Nation's private enterprise freight railroad
system. The bill authorizes up to $4. 1 billion in Federal
assistance for freight service, of which a minimum of $2. 1
billion will go to ConRail to reorganize and rebuild the bankrupt
railroads in the Northeast and Midwest. This financial assistance,
used in combination with expedited merger procedures to
facilitate a restructuring of the Nation's railroads, will, I believe,
permit a private sector solution to our national railroad crisis
and prevent nationalization of the rail system.
NORTHEAST CORRIDOR IMPROVEMENT PROJECT
The legislation also mandates a swift and substantial upgrading of
rail passenger service along the Northeast Corridor between
Washington, D.C., and Boston. Within 5 years after the date of
enactment, the Secretary of Transportation will be required to
establish reliable 120 mph passenger service in the Corridor,
refurbish the passenger stations, and install protective fencing
2.
along the rights-of-way. The eight States (and the District of
Columbia) served by the Northeast Corridor project contain
approximately 24 percent of the population of the United States
and represent 127 electoral votes.
REGULATORY REFORM
The revitalization of the railroads will occur not only as a
consequence of Federal financial assistance but also as a
consequence of the landmark regulatory reform legislation
contained in this bill. S. 2718 will inaugurate a new era of
regulatory policy toward the rail industry which will enable
railroads to compete more effectively with other modes of
transportation and provide better and more efficient service
to consumers. It is fair to say that the provisions contained
in this bill are the most significant transportation regulatory
reforms since the establishment of the Interstate Commerce
Commission in 1887. Every Administration since President
Eisenhower's has called for such reforms without success
until now. (Attached is a list of the proposals made over the
last quarter century calling for reform of transportation
regulation.) The Railroad Revitalization and Regulatory
Reform Act is thus the first significant success that any
Administration has had in seeking transportation regulatory
reform.
CREATION OF JOBS
The Federal expenditure provided for in S. 2718 will create,
based on DOT estimates, between 30,000 and 40,000 new jobs
over the next 5 years. If the release of funds for rehabilitation
projects is accelerated to the maximum extent possible through
a concerted effort by DOT and the rail industry, between 9,000
and 15,000 new jobs could be created this year. These figures
assume that all the new employees will be paid at the prevailing
union rate of approximately $6.50 per hour. However, the
section of the bill providing for improvement of the Northeast
Corridor contains a provision which might permit a lower
rate to be paid in order that more unemployed people could be
hired for the same amount of Federal money. If, for example,
the new workers for the Northeast Corridor project were to be
paid $4.00 per hour, rather than $6.50, the new jobs created
3.
by that project alone would increase from 8,000 - 9,000 to
11,000 - 12,000. Of course, such a policy might meet with
opposition from the labor unions who are, to date, very
pleased with the labor protection provisions in the bill.
But
William T. Coleman, Jr.
Attachment
LIST OF LEGISLATIVE PROPOSALS OR GOVERNMENT REPORTS
CALLING FOR REFORM OF TRANSPORTATION REGULATION
The Report to the President from the Secretary of Commerce
(Sawyer Report), 1949
Cabinet Committee on Transport Policy and Organization
(Weeks Report), 1955
Report of the Secretary of Commerce (Mueller Report on Transport
Policy), 1960
Report of the Senate Committee on Commerce (Doyle Report), 1961
Report on Regulatory Agencies to the President-Elect (Landis
Report), 1961
The Kennedy Administration Proposal, 1962
The Ash Report
The Hilton Study on Transport Policy prepared for President Johnson,
1965
The Transportation Regulatory Modernization Act of 1971 - Nixon
Administration Proposal
The Transportation Improvement Act of 1974 - Nixon Administration
Proposal
The Railroad Revitalization Act of 1975 - Ford Administration
Proposal
1/28/76
COMPARISON OF NEW AUTHORIZATIONS FOR FEDERAL ASSISTANCE TO THE RAILROADS
(Dollars in Millions)
S. 2718 AS PASSED
S. 2718 AS PASSED
S. 2718 AS PASSED
BY THE SENATE
BY BOTH HOUSES
BY BOTH HOUSES
THE ADMINISTRATION
DECEMBER 4, 1975
DECEMBER 19, 1975
JANUARY 28, 1976
ConRail
Debentures
$1,000
$1,000
$1,000
$1,000
Preferred Stock
850
2,200
1,100
1,100
Finance Committee Discretionary
250
---
:
--
Loan Guarantees
--
--
200
--*
ConRail Total
$2,100
$3,200
$2,300
$2,100
II. USRA Section 210 Authority
235
500
400
275
III. Supplemental Transactions
400
--
--
:
IV. Railroad Rehabilitation
Loan Guarantees
2,000
1,000
800
1,000
Redeemable Preference Shares
--
1,200
600
600
Rehabilitation Total
2,000
2,200
1,400
1,600
*Up to $200 million for electrification of ConRail mainlines is contained within
SERVICE
the loan guarantee program in Title V of S. 2718.
agos
-2-
(Dollars in Millions)
S. 2718 AS PASSED
S. 2718 AS PASSED
S. 2718 AS PASSED
BY THE SENATE
BY BOTH HOUSES
BY BOTH HOUSES
THE ADMINISTRATION
DECEMBER 4, 1975
DECEMBER 19, 1975
JANUA RY 28, 1976
V. Intercity Rail Passenger Services
Northeast Corridor Project
$1,080
$3,000
$2,400
$1,600*
NEC Stations and Fencing
--
--
--
150
NEC Startup, Acquisition, & Telephones
--
236
236
96
Acquisition of Other Lines
--
20
20
20
Passenger Services Outside NEC
--
--
200
--**
Passenger Total
$1,080
$3,256
$2,856
$1,866
VI. Rail Service Continuation Subsidies
Branchline
677
400
360
Commuter
125
125
125
Continuation Total
802
525
485
VII. Other
Conversion of Rail Rights-of-Way
--
75
75
20
Fossil Fuel Rail Bank
--
--
6
6
USRA
17
17
14
Office of Rail Public Counsel
3
3
3
*In addition to this amount, up to $150 million in obligations for
NEC rehabilitation may be guaranteed under the loan guarantee
program in Title V of S. 2718.
**Up to $200 million for intercity rail passenger services outside
QUOS
the NEC is contained within the authorizations in Title V of S. 2718.
-3-
(Dollars in Millions)
S. 2718 AS PASSED
S. 2718 AS PASSED
S. 2718 AS PASSED
BY THE SENATE
BY BOTH HOUSES
BY BOTH HOUSES
THE ADMINISTRATION
DECEMBER 4, 1975
DECEMBER 19, 1975
JANUARY 28, 1976
VII. Other (Continued)
Rail Services Planning Office
--
$ 2
$ 2
$ 2
Railroad Minority Resource Center
--
1
--
--
National Transportation Program
--
5
--
--
Administration of Rail Fund
--
4
2
--
Revision of ICC Accounting System
--
1
1
1
Other Total
--
$ 108
$ 106
$ 46
Total New Authorizations
$5,815
$10,066
$7,587
$6,372
,
.