71

nothing. See the Wall Street Journal, January 28, 1982. Richard W. Haigh, the dean of Universities Darden Graduate School of Business Administration had the gall to accept this "down side risk" because it had some "upside potential." He said that he liked to play the odds. The hazard, of course, was that the school could become liable for the millions of dollars of claims. If, on the other hand, the railway emerged from bankruptcy, the school could make a profit. The N&W would get rid of an emormous liability of up to $500 million. our academic institutions of today.

Such is

The Burlingtom Northern in its 1980 report indicated current payable state and federal taxes of $42,137,000, with an additional deferred tax liability of $42,632,000. That $84 million tax liability was severely affected by last year's tax changes which provided for sales of tax credits. In the railway periodical, Labor, December 16, 1981, it was reported that the B.N. would not be paying much of anything in taxes after selling its excess tax breaks to several companies, including E.F. Hutton Group, Inc. The B.N. received $36 million for the tax breaks which it sold over on top of what it used to reduce its own tax liability.

It is difficult to understand how the national transportation system, or the railroad employees, benefit.

May 31, 1981 reported that the nation

The Chicago Tribune on of Kuwait in its account managed

by Citibank owned 140,908 shares of stock in the B. N. at a then market

value, December, 1980, of $9,528,903.

It also owned 500 shares in the

The Minneapolis Tribune,

UP Corp. at a market value of $37,000,000. May 31, 1981, reported that the chairman of the B.N., Louis W. Mink, received income of $439,643, the new president, Richard Bressler, received income of $508,833.00 and the chairman of the Executive Committee, N. Lorentzsen, received $522,361. In addition, Mr. Bressler

received an unsecured, non-interest bearing loan of $450,000 and a $1,014,687 gain on 25,000 shares of B. N. stock which he purchased for $2,500. In addition to those benefits, the carrier paid cash based on the value of stock options without requiring the executive to exercise its stock option. Mr. Mink received $725,625 in 1980.

It is very difficult to understand how this rapacious appetite can be sated. The railroad receives no benefit from a diversion of its assets to other profit centers. The tragic history of governmental regulatory efforts has resulted in a debacle like the DC 10 in Chicago, the Three Mile Island in Pennsylvania, the Penn Central, the Rock Island, the Milwaukee Road. We hope it does not hit the Burlington Northern.

There is no sin or crime in bigness. We have no agreement with the statute which forbad a railway across the Romagna on the ground that "railways produce commerce, and commerce produces sin." That was in 1851.

Planned obsolescence destroyed the railroad passenger service. In 1959, 50 percent of the passenger coaches were 30 years of age or older. Only 7 percent fewer than 5 years. In 1968, shortly before Amtrak took over, the average age of passenger coaches was 18 years on the Great Northern; 15 years on the UP; and 34 years on the Illinois Central.. Yet, a new coach involves only one-sixth of the cost of maintenance compared to the older coaches.

In 1967, of 76 Class I rail carriers, in 15, the stock was owned
In 25 of the carriers, the stock was

by fewer than 10 individuals.

owned by fewer than 50 persons.

Thirty-seven of the major carriers

were owned by fewer than 1,000 shareholders. It is not known that the ICC has ever made any attempt to find out who owns which railroads and what the interlocking directorate relationships might be.

3Freedom and Organization, 1814-1914, Chapter XXVIII, p. 401

The destruction of the railway system would not be an increased

efficiency.

In the letter to the Environment Magazine from Steve Roberts of Monrovia, California, we learned that three-quarters of a horsepower may generate a rail ton mile on a level track at 25 miles per hour. This is a very high fuel efficiency. Furthermore, the railroad

right of ways are already in and would involve an astronominal cost for replacement. Yet, railroad maintenance is down. As to land use,

In 24 hours, a four lane freeway can carry 216,000
tons of freight in 18,000 trucks each carrying 12
tons. In 24 hours a double track rail line with
centralized traffic control can carry 774,000 tons
of freight in 18,000 freight cars each carrying
43 tons.

One track of railroad can carry 48,000 persons an
hour. One lane of freeway can move only about 12,000
persons per hour. A four lane freeway with a 300 foot
right of way uses 3,636 acres of land per 100 route
miles. A double track railroad with a 75 foot right of
way uses only 911 acres per 100 miles.

Chicago's O'Hare International Airport has a 6,500
acre site handling the 25,000,000 passengers that
arrive and depart in a year. The three New York airports
have 7,800 acres to handle 30,000,000 yearly passengers.
New York's Penn Station handles 62.2 million year passengers
on just 82 acres of land, much of it underground. Grand
Central Station handles 42.8 million passengers on 42 acres
of land. Penn Station and Grand Central in New York
occupy 124 acres of land and accommodate 105 million yearly
passengers. Also, much of the underground rail terminal's air
space is covered with productive high rise office buildings.

A double track railroad 722 miles long with a 75 foot right
of way could be built using the same amount of land (6,500
acres) as Chicago's O'Hare International Airport. An 864
mile, long double track railroad with a 75 foot right of way
Icould be built with the 7,800 acres of the three New York
airports.

From the standpoint of the national investment in development

of the economy of this country in the settlement of the West and from the standpoint of the economic use of land, both metropolitan and rural, and from the standpoint of need for transportation, and the irreplaceable investment that has already been made, the Congress should enact additional legislation to mandate that the Interstate Commerce Commission actually will provide for the national transportation system. The Icc has done an incompetent job, and it seems to be rather obvious. Whether that is a product of incompetence in the Commission, lack of proper methodology in its personnel, or a pre-disposition to an approval of mergers irrespective of their results, we should turn back on them the phrase in the Frisco merger and require a "deceleration of deterioriation.

Senator BAUCUS. Next, we will hear from Dan Smith, for the Citizens' Committee to Save the Land Grant Railroads, and Pete Pallipamu, chairman of the Railway Intercraft Association, also of Seattle.

Mr. Smith, why don't you proceed first?

STATEMENT OF A PANEL INCLUDING DANIEL H. SMITH, ATTORNEY, ON BEHALF OF CITIZENS' COMMITTEE TO SAVE THE LAND GRANT RAILROADS; AND PETER PALLIPAMU, CHAIRMAN, RAILWAY INTERCRAFT ASSOCIATION

Mr. SMITH. Thank you very much, Mr. Chairman. I understand that the statements that we have submitted will be included in the record, but I would like to make a few brief comments on other matters that have come up.

As I indicated in my statement, I am here because I have been representing the Citizens' Committee to Save the Land Grant Railroads, in litigation that we have undertaken in Seattle, on behalf of the Citizens' Committee and a number of labor organizations, which is now pending before the Ninth Circuit Court of Appeals.

I would like to say that we really appreciate the hearings that you are having here today. There is a great deal of concern in the Northwest about our rail transportation system, and in these days of great international crises and budget problems here in Washington, we have not heard much about any actions to do anything about the crumbling of the transportation infrastructure of this country that has taken place in the last 10 years, and the real jeopardy that we feel recent actions of Burlington Northern management put the future of the Northwest railroads in.

It is encouraging and exciting to have these hearings now, and we hope that they are just the first step in real action to follow up on the problems that are being exposed.

RAILROAD "INDEPENDENCE" FROM NATURAL RESOURCE SPINOFFS

We reject as totally unconvincing Mr. Bressler's remarkable new claim that the BN was reorgainzed into a holding company in order to solve some problems in recruiting executives, or to modernize certain ineffective management structures.

The original, more candid, admission in the BN proxy statement revealed that the true motivation for the holding ICC regulation. What is the restriction Mr. Bressler finds so intolerable? The ICC rule is simply that corporate financing plans must be consistent with the railroad's transportation obligations to the public.

All of us who rely on the future of the railroad are naturally distrubed by this effort by BN to be freed from any responsibility to the public. What mechanism will prevent the holding company from undermining the railroad by siphoning off its vast natural resources?

Mr. Bressler's answer to the questions that are being raised is very simple. He says what is good for Burlington Northern is good for everybody. I think the Congress, in its creation of the regulation of the railroad industry, realized that this is not true; that when we have a Government created monopoly and a vastly Government-subsidized monopoly, that it is not enough, like other private corporations, to let the corporation rise or fall based on the wisdom of its management or the profitability to the stockholders. In a nonmonopoly situation, presumably, if the management makes poor decisions, if the capital flows elsewhere, and this creates a need, then new capital will flow in, and a new company will enter this market. However if the railroads go, it is clear, and I think everyone would agree, it would be financially unfeasible to replace them at this point. So the public interest requires not just a holding company saying "let the railroad stand or fall on its own," but requires that Congress do what is necessary to make sure that the railroad stands.

ICC JURISDICTION

Our first recommendation is that the ICC should reconsider and abandon their single-system doctrine. It is irrational for ICC jurisdiction to depend on the technical question of whether Burlington Northern holding company or Burlington Northern Railroad controls a few terminals or switchyards that are peripheral to the main issues of the national interest of the transportation system. The single-system doctrine makes sense only as it relates to onehalf of the ICC's mission to protect against anticompetitive measures. That is only one-half of its mission-as it relates to competition. But the public interest in transportation services is a totally different concern, and sometimes a competing concern, with continued competition. I think that the single-carrier doctrine ignores all of the dangers recognized by the ICC itself in its 1977 study, from a noncarrier control and noncarrier decisionmaking as to the disposition of a carrier's assets, and a holding company presents those dangers in classic form.