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7339266
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Fact Sheet on Railroad Revitalization Act
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7339266
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Fact Sheet on Railroad Revitalization Act
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White House Press Releases (Ford Administration)
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1975-05-19
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1975
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Digitized from Box 11 of the White House Press Releases at the Gerald R. Ford Presidential Library
EMBARGOED UNTIL 3:00 P.M., EDT,
May 19, 1975
MONDAY, MAY 19, 1975
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
THE RAILROAD REVITALIZATION ACT
The President is transmitting to Congress today the
Railroad Revitalization Act (RRA) which will eliminate
excessive and antiquated regulatory restrictions, increase
competition in the railroad industry, improve customer
services, strengthen the ability of the railroads to adjust
to changing economic conditions, and provide financial assistance
in the form of loan guarantees to help the railroads make needed
improvements in their facilities.
This is the first piece of the President's overall program
to achieve fundamental reform of transportation regulation.
Similar reform measures for truck and airline regulation will
follow shortly. Taken together, these proposals, representing
the most comprehensive approach to reform in the long history
of economic regulation of the transportation industry, will
substantially benefit consumers annually and conserve scarce
energy resources.
BACKGROUND
This legislation builds on the Transportation Improvement
Act (TIA) which was introduced in the 93rd Congress. A
Surface Transportation Act, incorporating many features of the
TIA, was passed by the House, but final action was not taken
by the Senate. This legislation proposes a number of funda-
mental changes designed to significantly reduce government
intervention in the day-to-day business of the railroads and
their customers.
PRINCIPAL OBJECTIVES OF THE LEGISLATION
1.
To provide for more efficient, more competitive, and
thus less costly rail transportation. This Act will
substantially increase reliance on normal competitive
market forces to set shipping rates. It is specifically
designed to cause a reduction in rates which are too high
and are inequitable to shippers and consumers. For the
first time, railroads will be able within reasonable limits
to adjust rates without ICC interference. In addition,
the regulatory decision making process will be simplified,
thereby eliminating the high costs involved in lengthy
litigation.
2.
To increase competition between various kinds of trans-
portation and encourage a better utilization of resources
by assuring that goods are transported by the most efficient
means of transportation. The present regulatory process
enables the ICC to hold railroad rates at unreasonably
high levels in order to protect other modes of trans-
portation from the effects of competition. As a result,
traffic which can most economically be moved by rail is
more
2
often diverted by the rate structure to other forms of
transportation. This results in higher shipping costs
and consumer prices. By providing for greater pricing
flexibility, shippers will be able to take greater
advantage of low cost, energy efficient rail transportation.
Substantial fuel savings will also result from these
reforms.
3.
To eliminate certain antitrust immunities which permit
carriers to set and hold rates at unreasonably high levels.
At present rate bureaus or carrier association sanctioned
by the ICC are permitted to act collectively to establish
rates and charges for transportation services. Their
actions are now immune from Federal antitrust laws to which
nearly every other business in the country is subject.
The proposed legislation seeks to prohibit rate bureaus
from engaging in certain specified rate making activities
which serve to stifle competition and discourage new service
innovation. For example, it will prohibit rate bureaus
from discussing and agreeing on rates involving only one
railroad and it will limit the use of general rate increases
to increases in labor and fuel costs only. The legislation
will make anticompetitive rate bureau activities subject
to normal antitrust prosecution, while preserving their
legitimate service functions.
4.
To assure that regulation provides adequate protection
to consumer interests. The Administration does not seek
to eliminate all regulation. For example, the protection
of shippers and carriers from predatory pricing practices
is a proper function of government. This legislation
carefully preserves regulation which acts to serve the
public interest. The user of rail transportation services
is assured an appropriate right of redress for what he
considers to be an unfair or illegal rate and the legiti-
mate interests of competing carriers are protected as well.
5.
To provide needed financial assistance to the railroad
industry. An efficient, financially sound rail system
is a great national asset. The legislation would provide
up to $2 billion in Federal loan guarantee authority to
finance improvements in rights of way, terminals, rail
plant facilities, and rolling stock. Naturally, these
loans will be subject to specific conditions in order to
assure that the capital improvements being financed will
contribute to the overall efficiency of railroad operations.
6.
To encourage speedy and rational restructuring of the
railroads which will improve their economic health. At
present, our railroads are in serious need of restructuring.
Basically, the problem is one of excess capacity in some
areas, including, for example, excessive duplication of
parallel mainlines, and inadequate capacity in other areas.
This contributes significantly to the uneconomic and
inefficient operation of the railroads. In the past,
efforts to restructure the system through merger or various
cooperative agreements between railroads have been thwarted
by cumbersome regulatory procedures.
This legislation establishes a new procedure which will
enable the Secretary of Transportation, as a condition
for granting financial assistance, to require applicants
to undertake fundamental restructuring actions. This
provision will permit the Secretary and the ICC to expedite
many merger proceedings and facilitate some of the restruc-
turing necessary to preserve a viable private sector rail
industry.
more
3
SECTION-BY-SECTION ANALYSIS
1.
Railroad Ratemaking and Abandonment. This section more
clearly defines the principles of ICC ratemaking powers
in terms of particular actions that may or may not be
taken. For example, the ICC may not find rates too
low if they cover a carrier's costs, the ICC is prohibited
from protecting one carrier against competition from a
carrier of another mode; the ICC is instructed to consider
the effect of rates on transportation efficiency in
exercising its decision making authority, etc.
The RRA also establishes new procedures to ensure adequate
prior notice of proposed rail abandonment actions.
2.
Anticompetitive Practices of Rate Bureaus. This portion of
the bill provides for the removal of antitrust immunities
from certain anticompetitive rate bureau practices. Such
action will prohibit collusion on rates for single-line
freight movements; limit participation in rate actions
to those carriers actually involved, and prohibit joint
actions to protest or request suspension of rates.
In addition, the bill requires rate bureaus to maintain
voting records on each of their members which are open
to public inspection, and requires bureaus to act within
120 days on any rule, rate, or charge appearing on its
docket.
3.
Intrastate Railroad Rate Proceedings. The Act gives the
Interstate Commerce Commission authority to determine an
intrastate rate which is the counterpart of an already
approved interstate rate in the event that the appropriate
State agency has failed to take final action on a rate
change within 120 days from the time it was filed by a
carrier.
4.
Suspension of Railroad Rates. One of the basic purposes
of the RRA is to provide increased pricing flexibility
for the railroads. Section 5 of the Act establishes a
phased approach to providing the necessary flexibility and
specifically limits ICC suspension powers. It permits
railroads to adjust rates up or down without fear of ICC
suspension so long as the change is within certain
percentage limits: 7 percent in the first year; an
additional 12 percent in the second year; and another 15
percent in the third year. Such an approach will result
in the creation of a control-free "zone of reasonableness
of approximately 40 percent during a three-year phase-in
period. Following the third year, the ICC may not suspend
a rate decrease for being too low, so long as a carrier's
costs are covered. Similarly, rate increases of 15 percent
or less will not be subject to ICC suspension. In cases
where the ICC retains the power to suspend rates, they will
be required to make findings such as a court does when it
issues a temporary restraining order that the action
will result in immediate and irreparable damages.
In addition, the bill sets a 7-10 month time period for
completion of hearing procedures in rate cases. In cases
involving large capital expenditures ($1,000,000 or more),
the ICC will be required to act within 180 days after the
filing of the notice of proposed tariff. To encourage
investment and provide a period of stability, such rates
may not be suspended or set aside for a period of 5 years.
more
4
5.
Railroad Revenue Levels. The Act provides that the ICC
shall prescribe uniform criteria for determining the
financial condition of a railroad, including such things
as estimating the rate of return on capital and adequacy
of cash flow.
6.
Discriminatory Taxation. Section 7 of the RRA adds a new
provision to the Interstate Commerce Act prohibiting the
levying of discriminatory State or local property taxes
on common carriers, thus eliminating excess taxes on
railroads of approximately $55 million annually.
7.
Uniform Cost and Revenue Accounting. This section requires
the ICC and the Department of Transportation to study and
recommend uniform cost accounting and revenue accounting
methods for rail carriers. Present accounting systems are
outmoded and inadequate to resolve the complex cost
accounting problems of modern transportation firms.
8.
Financial Assistance. The Act authorizes the Secretary of
Transportation to issue loan guarantees of up to $2 billion
for the purpose of financing improvements in rights of
way, terminals, rolling stock, and other operational
facilities. These loan guarantees will be based on (a) the
contribution the proposed improvement will make to the
betterment of our nation's rail system, (b) the ability
of the recipient to repay the loan, and (c) the recipient's
ongoing program to upgrade his physical plant. Loans
guaranteed by the Secretary may be financed through the
Federal Financing Bank. As a condition for granting the
assistance, the Secretary may require the applicants
to undertake specific restructuring actions. This section
establishes a new procedure by which the Secretary, the
Attorney General, and the ICC can expedite approval of
restructuring activities and assure a proper balance
between competitive interests and transportation needs.
# # # #