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was and is substantially supported by land grant assets which provided great sums of cash to fund railroad development in the West in the last century. The Northern Pacific Railroad, which in 1970 became part of the BN by merger in 1970 with the Great Northern and the CB&Q Railroads, was this Nation's largest land grant railroad.
I want to, then, really digress just a little bit if I may, Mr. Chairman, and point out, as I heard also mentioned here this morning, and of course, one of our direct interests is the public service aspect of the railroad industry, which we have always felt has been paramount, and not the least of our concern, of course, is the impact, and the adverse impact, on the employees. When you questioned this morning about what the benefits of mergers were to the officials of the company or others that you have talked to here this morning, we know invariably it is not to our best interest, because invariably, we lose. As was pointed out, the BN has less employees now than when the BN and Frisco jointly were separate. So we feel the impact of that, and those employees, of course, are citizens of some of Montana, too, as you probably know. So those social problems that impact on employees are vital-vital to the national economy and national defense.
I just want to point out and recall briefly what happened in the Penn Central situation. All of these situations are distinct. But if you may recall, the Penn Central merged February 1, 1968. On October 1, 1969, a holding company was formed. Now, there were three structures to the Penn Central. They had the Penn Central Co., which was a holding company; the Penn Central Transportation Co., which was the railroad; then, a third tier, the Pennsylvania Co. called PenCo. Now, PenCo owned all of the nonrail assets. Eight hundred and seventy-two days later, as history will show, only the railroad went backrupt. So we think that sometimes, there is a direct connection between forming holding companies, and in the event that something happens to the railroad, that they could no longer make a profit out of it, it is much easier to get rid of the railroad part. I recall the Chicago & Northwestern sold their railroad part, that is the industry as a holding company sold that to the employees.
Both the Interstate Commerce Commission and congressional leaders in the Penn Central case maintained that PenČo, which owned the nonrail assets, were responsible for drawing away cash from the railroad. So now, we have Penn Central and six others, turned over to the U.S. Government, which as formed is now ConRail, and as you know, at considerable cost to the Federal Government and the taxpayers, running into the billions of dollars. I think the very essence of the essential nature of the railroad industry means that the Federal Government should have a very keen interest in what is happening, because they may wind up paying the bill in order to maintain those railroads in the future.
I see that the light has come on and my time is about up. Thank you very much. I will be glad to answer any questions that you might have with respect to my statement.
Senator BAUCUS. Thank you very much, Mr. Kilroy. You are obviously one of the experts in this area, particularly on Penn Central, and I appreciate your reference to that.
Mr. Foley, why don't you proceed? I notice you have a 125-page or so statement here. If you can get that in in 6 minutes, you are a better man than I.
Mr. FOLEY. I assure you, Mr. Chairman, that I will not read that verbatim.
Senator BAUCUS. I wish we had the time.
Mr. FOLEY. Mr. Chairman, I deeply appreciate the opportunity you have given to me to register my protest to the railroad holding company developments.
I speak for a group of unions representing employees, approximately 45,000 in number, employed by the Burlington Northern Railroad. While I appreciate my statement is quite lengthy, we have a very serious problem about which we in labor feel very deeply. It is a little bit like the original question posed to George Stephenson, the original designer of the locomotive. He was asked what would happen if the cow ran into the locomotive. The laconic Scottsman said, "It would be very bad on the cow." And so, we look at the transactions of the Burlington Northern and the holding company as very bad on railway labor.
For instance, Mr. Martin this morning told the committee and the chairman that vision, courage and fierce dedication seldom occur in combination in one person. You are aware that they have announced the sale of the BÑAFI, which cost the railroad $3 million, nets an income of $25 million now, and they sold it for $177 million. One legitimate business periodical called it "corporate stupidity at its worst."
Mr. Bressler this morning suggested that there is no deterioration in the Burlington Northern's commitment to railroads. Last year, they reduced the miles of new and second hand trackage installed from 1,675 miles to 1,449 miles. They reduced the number of new, installed ties from 4.2 million ties to 2.9 million ties. They reduced the installed new cubic yards of crushed rock from 3.8 million yards to 3.3 million yards.
Mr. Bressler said this morning that to implement management, the railroad has transferred accounts receivable and payable relating to these businesses to the four resource companies, and starting in January of this year, the railroad has been declaring monthly dividends in amounts equal to the net proceeds from its natural resource properties.
What does that mean? We hear about profit centers for the Burlington Northern, Mr. Chairman. They are talking about how difficult it is for Plum Creek to compete with somebody else. I would like to compete on those terms. Do you know what they did? They got all of their assets free. Somebody else who wanted to compete with Plum Creek would have to go out and buy the assets before they processed it and sold it to the public. All of these assets are being transferred either by title, cost-free from the railroad, or they are being transferred in terms of their income from the rail road to the separate profit centers. Those are not profit cente They are all a gift. That is all it is. All it is is a clear rip-off of t railroad assets that have been devoted and dedicated for over 10 years to the maintenance of the railroad industry.
Now, if there be any doubt about it, you can read the statements of the presidents of the Great Northern and the Northe
at the time that they induced the formation of the original Burlington Northern lines-the CB&O, the Great Northern, and the Northern Pacific.
Mr. McFarland of the NP was faced with a very serious problem because there is a group of people in the Northern Pacific who at that time wanted to separate the natural resources from the railroads. The railroads opposed that. The Commission, allowing the merger, stated that consideration was given to issuance of two classes of stock and spin-off of the natural resources, but it was concluded that all Northern properties would have to be included in the agreement.
In the Frisco merger, there was no doubt about these problems. The Commission by that time had told Congress that they had the authority to exercise jurisdiction over a holding company owning two or more carriers. The legal fiction in this system of a single, integrated railroad is pure nonsense, because if that were true, the statute would have provided one system irrespective of the separate corporate numbers. The statute provides two more carriers. They own about 20 or 25 separately certificated railroad carriers, and they control others. In the Frisco merger, there was no question but the non-transportation operations permitted the BN to commit internally-generated funds for the railroad.
The Burlington Northern is like the Milwaukee. The Milwaukee is in tough shape, and they sold out 93,000 acres of timberland for $134 million, a second sale of $45 million, and a third sale of $100 million last year. They are all getting rich in the holding companies, and the railroads are going cash broke. We have had defective governmental regulations that have resulted in very severe problems. We have had the DC-10, we have had Penn Central, Milwaukee Road, we have had the Rock Island, and we have had other things that have unnecessarily occurred, and we just hope, on behalf of the 45,000 employees represented by my union, that it does not happen to the Burlington Northern.
I do appreciate your courage in having a meeting here, in public, where the public can come and voice its concern about the vary serious problems.
Thank you very kindly, Mr. Chairman.
Senator BAUCUS. Thank you, Mr. Foley.
Do you, Mr. Kilroy, or you, Pat, have any points you want to make in rebuttal to any points that were made this morning, or a couple of additional points you want to make that were not made this morning in this testimony?
Mr. KILROY. Yes, just, I think, one or two, Mr. Chairman. The question came up frequently about what should the ICC do, or what would be recommended that they do with respect to monitoring and reviewing holding companies, and I think that we would suggest there, not only monitoring and review, but some authority to do something about it. It is easy enough to go in and say, yes, there is something wrong, but we have no authority to do anything about it, such as said with respect to formation of holding companies in the first place. They said, yes, maybe we would have a right to take a look at it, but we would have no right to stop it. So that when the committee considers legislation, perhaps they would con
sider that the legislation must be more than just monitoring and review.
In this morning's testimony was mentioned one of the old-I think we used to call them "robber barons"-but regardless of what that history is, you know, Vanderbilt said, "The public be damned." Well, let us not let the public be damned again, when we review the situation of our Nation's railroads.
Senator BAUCUS. Pat, are there any other points you want to add?
Mr. FOLEY. One other, Mr. Chairman, very briefly. In the Chessie Merger Order of 1980, the Commission pointed out, in reviewing the problems of the noncarrier holding companies, that the Commission should be aware of whether there would be a substantial influence on national transportation.
Now, here, we have a railroad that has as its two primary cargoes, coal, and grain. If there be a drought out in the West, and the grain shipments go down, and if the price of oil goes down, the Western railroads are going to lose their two prime cargoes. Now, I do not attribute any particular importance at this stage, but we do not know yet, to the fact that, as I pointed out in my detailed statement, the Nation of Kuwait owns about $10 million of stock in the Burlington Northern. I do not think Kuwait is dedicated to the preservation of the railroad system in this country.
It just seems to me that there is such an overpowering importance to one railroad, primarily devoted to two cargoes, operating in 27 States, that if those two go down, there is nothing that is going to save that railroad except the Burlington Northern holding company, and it will not.
Senator BAUCUS. I want to thank you both very much, and particularly you for your detailed statement, Pat; I will make sure that is in the record, as well as yours, Mr. Kilroy.
Thank you very much.
[Prepared statements follow:]
STATEMENT OF RICHARD I. KILROY, EXECUTIVE SECRETARY
TREASURER, RAILWAY LABOR EXECUTIVES' ASSOCIATION
My name is Richard I. Kilroy. I am Executive SecretaryTreasurer of the Railway Labor Executives' Association, the International President of the Brotherhood of Railway and Airline Clerks and a Vice President of the AFL-CIO. I present this statement on behalf of the Railway Labor Executives' Association. The RLEA is an unincorporated association with offices in Washington, DC.
The membership of the Association consists of the chief executive officers of twenty standard national and international railway labor organizations.
American Railway & Airway Supervisors Association,
Division of BRAC
American Train Dispatchers Association
Brotherhood of Locomotive Engineers
Brotherhood of Maintenance of Way Employes
Brotherhood of Railroad Signalmen
Brotherhood Railway Carmen of the United States
Brotherhood of Railway and Airline Clerks
Hotel & Restaurant Employees and Bartenders
International Association of Machinists
and Aerospace Workers
International Brotherhood of Boilermakers
International Brotherhood of Electrical Workers
International Longshoremen's Association
National Marine Engineers' Beneficial Association
Sheet Metal Workers'
Seafarers International Union of North America
Transport Workers Union of America
United Transportation Union
The railroad industry in recent years has begun to effect mergers through the device of the holding company. For example, there was the creation of the Penn Central Transportation Company of painful memory; thereafter CSX was created which controlled both the Chessie System, itself a holding company, and the Family Lines; then came the Norfolk Southern, a holding company control