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To Burlington Northern's credit, the company is trying to work out these cases on an individual basis with the shippers and the State government. One recent good example is a 19-mile line in Montana from Fairfield to Choteau. Here, BN has agreed to rebuild the line and keep it open for unit-train service with the assistance of a federally funded loan administered by the State. Between the combination of expected traffic revenue and the interestfree loan, BN believes this line should be viable for many years to come. The company is to be commended for its willingness to negotiate to keep that service in place.
There are other cases, however, that are not working out as well. For example, a 17-mile line at Valier, Mont., is proposed for abandonment because BN does not want to invest the $2 million or more that it might take to make the track safe for unit trains. The line is a busy one and important for local grain growers, who shipped about 3 million bushels of grain on that line last year. BN does not believe that level of traffic, coupled with the refurbishment and reconstruction costs, is going to make the line successful. The company may be right; it may not be a profitable line. However, given the almost nonexistent transportation alternatives for these grain growers, the line is necessary. It is in cases such as these that the land grant assets should come into play. Burlington Northern ought to call upon some of its remaining land grant properties as a source of revenue with which to upgrade the Valier line. Continuation of service on the Valier line may or may not be profitable, but it will be a public service; and public service was the intent of the land grants.
I am hopeful Burlington Northern will acknowledge that obligation as it considers how to proceed on the Valier branch line abandonment and on the abandonment of other Valiers all across America.
Mr. Chairman, I am hopeful you will be able to take the information presented by myself and the other witnesses today and develop a good record of the current problems with holding companies, their land grants and their continuing public service obligations. Speaking as a Member of the House, I stand ready to join you in responsible legislative remedies that may arise from these hearings and in hearings that I hope to hold in the House Interior Committee on legislation I introduced last year on railroad land grants.
Mr. Chairman, I would like to close with a quote made by a weary traveler to the West Coast who, more than 100 years ago, was disgusted with the attitudes of the railroads whose routes he had just traveled. At the end of his journey, he closed his diary with these words:
Someday in this country, it will be decided that the railroads are to be run for the public, and for their benefit and accommodation. Corporations and monopolies, cliques and combinations may, for a time, oppress and hinder the people; but there always comes a day when the public assert, and asserting, maintain their rights.
Mr. Chairman, our work to fulfill that prophecy is not yet complete.
I appreciate your efforts. Thank you very much.
Senator BAUCUS. Thank you very much, Pat.
In your statement you referred to a bill you introduced which would require holding companies to utilize some of their land grant
properties to contribute to the railroad. Could you amplify on that bill and explain to me what that bill is about and what the status is?
Mr. WILLIAMS. Yes. The bill is H.R. 4463. I introduced it last September 10. Very simply, it requires that at least one-third of the profits from a holding company's land grant assets be provided by the company to its railroad subsidiaries for the operation and maintenance of rail lines.
Senator, in the late 1800's the Federal and State governments granted about 10 percent of the entire land mass of the United States to various railroad companies. It encouraged and compelled them to construct rail lines throughout the undeveloped West and to link the Nation East and West. Today, a century later, the transcontinental railroads are in decline. Consolidations, mergers and takeovers have threatened service. Service is down and prices are up.
In 1920 we passed the Mineral Leasing Act. That prohibits railroads from leasing Federal coal. I maintain that, if that law is repealed, we have, in effect, given the railroads another land grant. Not only that, but we have opened the gates to full-scale, unfettered, and uncompetitive coal mining by railroad holding companies.
My bill simply says, if we are going to do that, if we are going to modify the Mineral Leasing Act and, in effect, give the railroads another land grant, then the public should benefit some from it. I think the way they benefit is to require the railroads to return at least a third of the profits; that is, require the holding companies to return at least a third of the profits to the railroads. Then we would earmark some of that money for maintenance and upgrading of branchlines.
Senator BAUCUS. What would your view be if railroads did not transfer land grant assets but, rather, a railroad subsidiary still retained title to land grant assets?
Mr. WILLIAMS. It would depend on the railroad. Ostensibly, holding titles to the property, you also get the revenues and the profits, which you then make available for rail line maintenance and operation. If the title and the ownership of land grant assets stays with the railroad subsidiary and yet the profits go elsewhere, then I think my case is made. Frankly, I think that is the situation now. Unfortunately, that was the situation before holding companies were born.
Senator BAUCUs. Thank you very much. I appreciate your taking the time.
Mr. WILLIAMS. Thank you, Senator.
[The statement of Representative Dorgan, submitted by Representative Williams, follows:]
[From the Congressional Record, Apr. 1, 1982]
STATEMENT OF U.S. CONGRESSMAN BYRON L. DORGAN
"A holding company is something where you hand an accomplice the goods while the policeman searches you."-Will Rogers
Mr. Chairman and Members of the Committee, we are here today to talk about railroad mergers and holding companies.
This issue is of very great concern to my state, to yours, and to the entire nation.
As you well know, the nation's longest railroad system, and number one grain hauler, the Burlington Northern, which is an economic cornerstone of our region, is rearranging itself into such a holding company. Instead of managing its affairs under one corporate roof, the BN is splintering off its various assets and enterprises-timber, coal, oil, gas, real estate, farm land, railroading, and others—so that these reside under separate roofs, linked only to a "holding company" to which they all, on paper, will belong.
Although this step is essentially just a rearrangement of the legal paper which defines the BN's existence, it is cause for alarm to all those who depend upon the Burlington Northern railroad to carry their grain and other products to distant markets.
According to the BN, the reason for setting up this complicated holding company structure is to give it more flexibility in developing its real estate, timber and coal holdings, and other assets, present and future. Under its current arrangements, it cannot develop its non-railroad ventures as much as it would like, because the Interstate Commerce Commission must approve any stock issues or other financial steps which might affect the railroad.
The ICC's timid interpretation of the law, however, has led to the view that it does not have this authority over holding companies. This interpretation has turned the holding company into an escape hatch for railroad executives in search of greener pastures.
This is why the BN has turned to the holding company form. It will isolate the railroad in a separate subsidiary, and this subsidiary alone will fall under the ICC's review. The BN will then be able to issue stock, and engage in other financing ventures, to its heart's content. It will be able to develop coal, buy an oil company, or do virtually anything else without the ICC or anyone else asking bothersome-to it-questions of the impact of these financing moves upon the railroad and upon those the railroad serves.
HISTORY TEACHES CAUTION
History counsels us to have great caution regarding holding companies that preside over sprawling empires that encompass many lines of business.
In the nineteen thirties, the collapse of the mammoth utility holding companies showed how fragile such structures can be in the face of hard financial times.
More recently, and more to the point, there was the collapse of the Penn Central, another railroad which got a gleam in its eye for the seemingly greener pastures of land and real estate development.
We should not push the comparison between the BN and the Penn Central too far. Certainly, there are differences in the mergers which formed these two companies and in the strength of the enterprises which resulted.
But there is no way that the formation of a holding company can bode well for the BN railroad. At the very best, the railroad will not grow substantially weaker. But even that is doubtful.
We must recall that the great mergers which comprised what is now the Burlington Northern, were justified-both by the BN and the ICC-largely on the grounds that the BN's coal, oil, and other holdings would greatly strengthen the merged railroad. The ICC, in its 1977 "Railroad Conglomerates and Other Corporate Structures" report, asserted that "the financial strength of BN is due in large measure to the existence and development of its nonrailway assets."
A WEAKER RAILROAD
To now strip these asssets from the railroad, and leave it standing bare, can only weaken the railroad. It can do nothing else.
This is not just a question of assets and finances, moreover. It is also a question of management time and attention. A management that wants to spend more time developing its coal and timber wants to spend less time maintaining and running a railroad. It's that simple.
This is apparent in the BN's reason for forming the holding company in the first place. If the BN does not want the ICC judging its financial moves on the basis of their impact on the railroad, then doesn't this suggest that the company might have in mind some actions which the ICC might question? Might it not be thinking of moves that, in the ICC's eyes, could weaken the railroad? Otherwise, why would the BN be jumping through all the legal hoops necessary to get out from under the ICC's jurisdiction?
These concerns are not hypothetical. The BN is heading in this direction already.
OILMEN IN SADDLE
Consider the recent changes in the BN's top management. The company has moved two individuals into top corporate slots who are not railroad men, but oil men. The BN's new Chairman Richard Bressler, is a former Atlantic Richfield Executive Vice President who, according to Business Week (March 8, 1982), “has made no secret of his intention to build up the company's nontransportation business." The new President of the BN railroad, Walter A. Drexel, is a former ARCO tax accountant. Mr. Drexel's role, again according to Business Week, is to "give Bressler the cash flow he needs to grow the holding company's resource ventures."
This is happening now. Last year, the BN announced its intention to abandon hundreds of miles of branch lines in North Dakota and in other states. It made clear that it was going back on its long-standing commitment to the farmers of this region, so that it could redeploy these assets in more lucrative ventures.
We have stopped most of those abandonments, for the time being. But the BN can attempt them again, at any time. Its current course virtually guarantees that it will do so.
BN'S "CASH COW"
More important is the recent shift in the corporation's internal financing. With the railroad starting to produce a healthy profit, the BN's management is turning it into what Business Week called a "cash cow”—a source of cash to finance the BN's non-rail ventures.
The BN's goal, according to the magazine, is to reduce the railroad to at most only one half of the BN's total business. Business Week deduces-with good reason that to reach this goal, the BN might do what U.S. Steel recently did-buy up an oil company.
What will happen to the Burlington Northern railroad when its role in the BN's corporate structure is so diminished? What will happen when the BN's new go-go management is spending more time on minerals and real estate then on railroading, and when it starts looking at the capital demands of the railroad and at the relatively conservative returns on this capital? Might it not conclude that railroading is a drag?
Might it not conclude that it should start getting out of railroading, or at least greatly reduce its commitment in that area?
The BN's attention to other ventures will lead it down this path of thought, if it hasn't already. And once there, who will stop the BN from phasing down its commitment to the railroad or shucking it off entirely?
Is this of any concern to us?
The BN argues that it is a private business, and that as such, it is entitled to run its affairs any way it wants. If it wants to shift away from railroading and into greener and more exciting pastures, then that's its own business, so the argument goes.
But the Burlington Northern is not just another private business. It is a public utility, serving a vital transportation need for the producers of the states which it serves. The health and soundness of this utility is the public's business.
That is just the beginning. The BN is vested with a much larger public trust-one of the most generous ever bestowed upon a private corporation in the history of this country and probably of the world.
Over one hundred years ago, the people of this Nation granted to what is now the Burlington Northern Railroad over 40 million acres of choice public lands in the great western domains of the United States. We bestowed this largesse upon the Burlington Northern for one purpose and one purpose only-to enable this corporation to build and operate a railroad for the benefit of all the people of this Nation. The land grants were a form of endowment, vested in trust to the Burlington Northern to ensure that farmers and business people would have a healthy and reliable form of transportation, and that commerce in our part of the country could grow and thrive.
The public land grants have made the Burlington Northern wealthy to a degree that is almost beyond comprehension. It holds 14.7 billion tons of economically mineable coal, more than any other company in the United States. It has 7.5 million acres of oil and gas rights, over a million acres of grazing land, and enough timber
holdings to make it the 12th largest private owner of forest land in the United States.
We did not lavish this beneficence upon the Burlington Northern so that it could become rich. We lavished it so that our Nation could have the kind of railroad system it needs to prosper. It is our responsibility in Congress to make certain that this purpose is served. Nobody else can.
OFF THE HOOK?
The BN and other land grant railroads dispute this.
They want to reduce the great and enduring public trust vested in them to a sort of cash-and-carry bargain. One provision of the original land grants required the BN and the others to provide reduced-rate rail service to the government. The railroads now contend, in advertisements appearing in magazines and newspapers throughout the country, that by providing such service they have paid for their land grants ten times over.
Therefore, we are led to believe, they have no further obigations to the public in connection with these grants.
The BN itself asserted, in papers filed in a recent lawsuit in Seattle, that it now "holds these lands in fee like any other private party." In other words, it says it can now do whatever it pleases with those land grants. End of matter.
But that is not the end of the matter. It is only the beginning of our inquiry. Their claim is dubious. More important, it is utterly irrelevant.
FULL OF HOLES
The BN must be hoping that the people who read the indignant ads do not go back and read the Congressional studies and hearings from which they derive their claims. These are nothing short of shocking. Far from proving the railroads' case, they shoot it full of holes.
Let me mention just a few of the points that the railroads omit in arguing that they have paid for their land grants ten times over.
First, they totally omit the value of the timber, coal, oil, gas, and other resources on and under their land grants. Instead, they assume that these lands are just scrub prairie, nothing more. The Rockefeller family might just as will omit its stock and bond holdings from the value of its estate.
Perhaps we should offer to buy back the land grants for the value the railroads use in claiming they have repaid their land grants ten times over. I suspect that the railroads would quickly come forth with a somewhat higher appraisal.
Second, there is evidence that the allegedly "cut rates" the government received were not really cut rates at all. House testimony in 1944 by Mr. C. E. Childe, a member of the Board of Investigation and Research which investigated the "discount" rates provided by land grant railroads, suggested that instead, the railroads jacked up their "regular" rates and played other games with their rate structures, so that they could offer the government "discounts" and still turn a profit.
In any case, the alleged discounts couldn't have been too unprofitable. Why would the non-land grant railroads have been so eager for this government traffic, if it was really as unprofitable as they say?
Third, the land grant railroads didn't even provide all the service that they attribute to themselves in calculating that they paid for their land grants ten times over. Instead, they lump into their side of the ledger the allegedly reduced rates provided voluntarily by their non-land grant counterparts. In fact, according to Mr. Robert E. Webb, Chairman of the Board of Investigation and Review, these primarily-Eastern railroads contributed more cut rate service, than the land grant railroads did.
In short, it appears that the land grant railroads are taking credit for service provided by others.
Fourth, an investigation in 1948 found that the railroads had overcharged the federal government by 10-12% of their billings during the Second World War. This amounted to approximately $650 million for the three years '43, '44, and '45. I have found no evidence that the railroads ever paid back these overcharges in any meaningful way, or that they included it in their calculation that they have paid for the land grants ten times over.