No. 37809

3. The proceedings in No. 37809, No. 37809 (Sub-No. 1) and No. 37815S are consolidated.

4. In No. 37815S defendant is ordered to answer, within 15 days, interrogatories and request for production of documents and other materials sent to it by complainants.

5. The parties are directed to submit, within 20 days, their proposed plans for the submission of evidence and argument. Joint suggestions are encouraged.

By the Commission, Chairman Taylor, Vice Chairman Gilliam, Commissioners Sterrett, Andre, Simmons, and Gradison.




Mr. Chairman:

I have a deep interest in the continued development of the nation's transportation systems. As a member of the Public Works Committee for many years and as a member of the Transportation Appropriations Subcommittee, I have had the opportunity to participate in many of the issues which have directly affected the development of the nation's transportation system.

These hearings today are dealing with railroads, which along with our highways, waterways, ports and air terminals play a critical role in the continued health of our economy. I am here today, Mr. Chairman, because I am concerned that the nation's common carrier system appears to be entering a new era under recently enacted deregulation legislation which could have great promise for our economy or could be highly destructive. Railway mergers are of particular interest to me because they create enormous potential for monopolistic and destructive inefficiency. This is a danger which commands our vigilence,

The new freedoms for railroads under the provisions of the Staggers Rail Act could be harmful to the total common carrier infrastructure in my region. Today, under this act, it is possible for a rail carrier to charge a favorable rate to thrurail delivery to the ocean ports on the Gulf or to the East Coast while charging a higher rate to barge ports on the Mississippi and its tributaries. It is clear that this kind of unbridled


rate setting could be used in a destructive way to eliminate water carriers. In my own state and region I have had an interest in developing our transportation systems so as to foster the development of this region's abundant natural resources. this regard, I have been concerned over the years with this struggle between waterways and railroads. In my state the Tennessee-Tombigbee Waterway project has been the target of

an intensive effort by railroads.

The first suit against the

Waterway was brought by the Louisville and Nashville Railroad
in 1976, and the battle has gone on for year after year in
the courts and here in the Congress. One must be concerned

about the millions of dollars which have been spent by railroads
in opposition to this Waterway, which, in fact, will create even
more growth and more business for my region's railroads.
One can
only conclude that it is a destructive waste to continue this
kind of opposition.

Mr. Chairman, it is my hope that your work in this important field will be continued. There is a great need to continue development of the nation's transportation system, The capital costs to develop and maintain this system are mind-boggling. The President has proposed increased user taxes for our carriers as one possibility to meet these capital needs. I am not convinced that it is wise to continue to increase taxes on the transportation industry--the beneficiaries are too broad for specialized taxes. However, it may be that we need to establish a common carrier trust fund which would assess all modes of transport. This could include revenues from the fuel taxes, airport fees and customs fees already being assessed. In addition, special taxes on the income from minerals and oil from federal land grants to the railroads could be added to the trust fund.

There are other possibilities, of course, but my main point is this: Our nation's carriers must be encouraged to work for the nation's whole economic development, By their nature common carriers have the potential for monopolistic inefficiency. It is in the public interest that the Congress exercise the oversight and vigilence required to insure the transportation needs of the nation.

Senator BAUCUs. Thank you, Senator Melcher. Congressman Williams.


Mr. WILLIAMS. Thank you very much, Senator. I am pleased to be here with you and with my colleague, Senator John Melcher, and Bill Fogarty of Governor Ted Schwinden's staff.

Before I begin my statement, I want to make note of the fact that my colleague, Congressman Byron Dorgan of North Dakota, had intended to be a witness before you today. However, he was called out of town on a personal matter. Congressman Dorgan asked if I would submit his remarks and ask your permission to have them included in the hearing record.

Senator BAUCUs. He has been a very observant participant in this process. I very much look forward to his statement. Without objection, it will be included.

Mr. WILLIAMS. I want to thank you, Senator, for inviting me to appear before the committee to discuss railroad holding companies, the obligations for railroads arising from their public land grants, and, of particular concern to folks in Montana, the Burlington Northern Railroad.

This hearing is especially timely given the current state of affairs in the railroad industry in Montana and across the country. I want to commend you, Max, for putting together an impressive list of witnesses, which shows the traditional Montana dedication to hearing all sides of an issue in a complete and responsible manner. A moment ago I said the Burlington Northern Railroad. I say that with special emphasis on railroad because, despite the company's recent metamorphosis into a holding company, Montanans look at Burlington Northern as the railroad. For most Montanans, BN does not mean coal mining, oil and gas exploration, timber production or trucking. It means the railroad. And Montanans want it to stay that way.

We Montanans are somewhat possessive when it comes to railroads, even though we do not own them or have any real authority over their operations. When the Milwaukee Road began picking up its tracks in Montana and handing the Burlington Northern a virtual monopoly, we fought that demise of railroad competition. When Burlington Northern announced the formation of a holding company and the proposed abandonment of hundreds of miles of track in our State, we lamented what was happening to the railroad, our last railroad.

The railroad means one thing to all of us: Jobs. When the railroad thrives, we thrive. When the railroad takes a nosedive, we all follow, from the railroad workers to the shippers to the shopkeepers on Main Street. To many Montanans, the railroad's future is their future, and they want it to be bright. Folks want more rails, not fewer. They want better expanded service, not cutbacks and abandonments. They want-no, they need-more responsible freight rates, not more increases. All of this means very simply that Montanans are always concerned about anything that affects the railroad. And this holding company concerns them enormously.


We Montanans are concerned that BN will go the route of the Union Pacific, the Milwaukee Road and others that formed holding companies. Will subsidiary companies be financially isolated one from another, and will valuable resources be transferred from the railroad to other subsidiaries for little or no compensation? Will the subsidiaries control or manage resources the railroad continues to hold?

BN retains a significant amount of land and mineral rights as a result of the enormous grants of public lands to railroads by the Federal Government in the late 1800's. These lands, given for the construction, operation and maintenance of railroads systens to connect the East and the West, continue to have vast potential public value as instruments of support for marginal operations the railroad would not ordinarily undertake or continue.

It is generally believed that these assets have not been used for a number of years for the direct support of rail operations. If they are transferred out of the railroad to other subsidiaries, or are managed and controlled by other subsidiaries they will never be available to the railroad.

In the instance of railroads which have already successfully completed such transfers, and perhaps in the case of BN, if it follows the previously worn path, the public subsidy given to the railroads to carry out the peculiarly public functions of our arteries of commerce has been effectively redirected to various energy, natural resources and other companies. Those independent companies, tied to the railroad by a paper holding company, have no authority to receive any general public subsidy, need no such subsidy, and are not compelled to perform any public service in return for such subsidy.


The railroad industry insists that the obligations of the railroads to provide public services as a result of the land grants expired years ago. They make sweeping but overstated claims about giving the Government reduced freight rates during World War II. Quite simply, there are many who believe, as I do, that the public responsibilities of the railroads must be of the same duration as the land grants. So long as a railroad continues to hold and profit from the land grant resources, there must be consideration of the public need. And, certainly, we ought not allow railroads to escape that public obligation through the simple legal process of transferring their land grant wealth to other independent nonrailroad subsidiaries, or by allowing outside management or control of the land grant assets.

In my State of Montana and in many other States, Burlington Northern has proposed abandoning hundreds of miles of branch lines that it no longer considers viable. Some have not seen any traffic for years, and it is clear that there is no reason, public or private, to continue service. Others, however, have had traffic but at volumes the railroad considers insufficient to support future operations. In many cases, future operations would be dependent upon upgrading of the rail line through replacement of ties, ballast, rails, and in some instances, major structures such as bridges.

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