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investments are made by the holding companies to upgrade and maintain the track beds, rolling stock, etc.
5. In spite of ICC regulation, or lack thereof, of railroad conglomerates, there emerged an attitude on the part of rail management that it owes the public nothing in the way of service. Rail management is quick to forget that an enormous amount of land was granted to the railroads to provide and continue to provide viable, stable and reliable service to the public.
The land grants are not grants to the railroads. Many railroads believe they have fulfilled their obligations once they built the track and carried munitions for the government during time of war at a lower cost. Congress intended to insure, by the 40-million acres of land granted to Northern Pacific Railroad Company (a forerunner of BN railroad) that the railroad would always be able to operate with a healthy economic base, free from threat of bankruptcy, interruption of service and layoffs. The railroads' obligation to the public and their country is not over. Congress intended that this obligation be continuous.
It is my recommendation that there should be legislation that would enable a private party to bring suit in Federal Court if that party believes the railroads violated the above obligation. To my knowledge, there is no such provision in the original land grant charter and if so, this Congress has an obligation to rectify it. It has been my privilege to testify at this hearing. I appreciate the privilege. Thank you very much.
Senator BAUCUS. As I understand, you feel that it is your legal opinion that had the BN announced its intention to form a holding company prior to the Frisco merger, that ICC would have had jurisdiction; is that correct, Mr. Smith?
Mr. SMITH. That is correct. It was only the prior completion of the merger that made the two systems into one system, and prior to completion of that transaction there were unquestionably two separate systems. The net effect of it was for the holding company to acquire control of two separate carriers, which previously had no connection at all, until the merger was transacted.
Senator BAUCUS. Thank you both very much. We appreciate your testimony.
At this point, I would like to include in the record a statement by Senator John Stennis, who was unable, unfortunately, to attend the hearing today. I will include his statement immediately following the statement by Senator Melcher of Montana.
Next, we will have a panel of four, which will include John Leuthold, otherwise back home known as "Bud," who is president of the Montana Graingrowers; Paul Sacia, legislative assistant, National Farmers' Union; John LeSeur, attorney, with Slover & Loftus, for the Western Coal Traffic League, and John Creedy, president of the Waterway Transport Association.
I welcome all four of you gentlemen to our hearing, and Bud, why don't you lead off?
STATEMENT OF A PANEL INCLUDING JOHN H. “BUD" LEUTHOLD, JR., PRESIDENT, MONTANA GRAINGROWERS ASSOCIATION; PAUL SACIA, LEGISLATIVE ASSISTANT, NATIONAL FARMERS' UNION; JOHN LESEUR, ATTORNEY, SLOVER & LOFTUS, ON BEHALF OF WESTERN COAL TRAFFIC LEAGUE; AND JOHN A. CREEDY, PRESIDENT, WATERWAY TRANSPORT ASSOCIATION
Mr. LEUTHOLD. Mr. Chairman and staff, I have submitted testimony on behalf of the Montana Wheat Research and Marketing Committee and the Montana Graingrowers' Association. This committee and association represent approximately 10,000 grain farmers in the State of Montana. These associations specialize in the field of marketing, research, and legislative matters.
Senator, I understand you may be catching the same plane that I am today, and I have presented written testimony, which you can read faster than I can read it to you, so I will quickly summarize what we have to say.
Senator BAUCUs. I do not mean to break your train of thought here, but if any of you, when you are testifying, want to comment on any other preceding testimony, I strongly urge you to do so, because it helps to get a different point of view sometimes.
Mr. LEUTHOLD. I think it is a foregone conclusion that this country and the State of Montana cannot exist without an integrated, nationwide, common carrier system of railroads, and we certainly would not argue for a moment that these railroads should be allowed to make a decent and a fair profit. It also appears to us that the railroads can and do make profits, even when they are subject to governmental regulations.
However, under the merger provisions of the Staggers Rail Act, it appears to us that this country may end up with six or seven giant railroad monopolies in the next few years, handling only bulk commodities, with no competition among themselves or within their system.
It also appears that this process may cause the formation of holding companies. The holding company concept hurts the railroad and its customers, because properties that were either acquired by railroad profits or as a gift or grant are spun off. Naturally, once these properties and assets are spun off into holding companies, they are not going back to the railroad, particularly in times of economic depression. In the case of Montana, the railroad will be coming back to the grain farmers with rate increases, and we are certainly used to those in the State of Montana.
Somewhere down the line, Congress may be faced with the problem of rebuilding the Nation's entire railroad system if railroads are allowed to remove the assets and profits that should be used for the support and maintenance of rail systems.
Another area of concern to Montana shippers is in the area of competitive rail service. You know, a railroad is not like any other company or enterprise, because they have a franchise, which you and I could not practically acquire. Air carriers can be started quite easily, because they do not require rights-of-way or huge capital outlays. If you are a grain farmer in Montana right now, and you do not want to ship your grain on the BN, your only choice is to go by truck. We have learned if you want to have good service and fair rates, you have got to have competition.
In Montana, we are a captive shipper of the Burlington Northern Railroad. It is the only one in town. This is demonstrated very visibly in their rate structure and the fact that they will ship grain out of Nebraska, several hundred miles farther down the road, right through the State of Montana, for the same rates that we pay in the State. And of course, once you get the large regional rail systems, they will maximize their rate, levels within their own systems. Rail rates have had a direct effect upon the price that I get for my wheat. Eighty to ninety percent of the grain in Montana goes west, and you either ship it on the BN, or you go on a truck. If railroads decide they want a larger market share, they drop their rates and put their trucks off the road. Trucks help take up the gap, but you can imagine the chaos if they had to ship 170 million. bushels of wheat out of the State every year.
Once the railroads own their territory, they are also able to easily abandon branch lines, through rate manipulation and lack of maintenance. Huge railroad systems that are being put together by mergers may be more efficient, but if we are to benefit from it, then perhaps everyone on the large system should be treated equally. Those shippers who presently have access to two or more transportation systems are benefitting from the competition; those who are captive shippers are suffering instead of benefitting from the mergers.
It is not our desire today to harass the railroad or relegislate the Staggers Rail Act, but let me point out that Montana may be a good example to the rest of the Nation if the present trend continues. We are captive shippers of a rail system formed by mergers.
The railroad that serves us has tremendous assets and profits. They have now formed a holding company, splitting these assets. We as Montana shippers pay some of the highest, if not the highest freight rates in the country to get our product to market, and frankly, we have very few alternatives to combat the problem.
Thank you very much for this opportunity.
[The following was received for the record:]
JOHN H. LEUTHOLD. JR.
ON BEHALF OF THE
MONTANA WHEAT RESEARCH AND MARKETING COMMITTEE
GREAT FALLS, MONTANA
MR. CHAIRMAN, MEMBERS OF THE COMMITTEE AND GUESTS. MY NAME IS
JOHN H. (BUD) LEUTHOLD AND I AM APPEARING ON BEHALF OF THE MONTANA WHEAT
RESEARCH AND MARKETING COMMITTEE, LOCATED IN GREAT FALLS, MT. I APPRE
TION IN MONTANA.
CIATE THE OPPORTUNITY TO BE HERE TO TESTIFY ON THESE ISSUES.
THE MONTANA WHEAT RESEARCH & MARKETING COMMITTEE REPRESENTS THE
VARIED INTERESTS OF BARLEY AND WHEAT PRODUCERS IN MONTANA. THE COMMITTEE
IS CONCERNED WITH BOTH MARKETING AND RESEARCH INVOLVED IN GRAIN PRODUC
THERE ARE A COUPLE OF POINTS I WOULD LIKE TO MAKE TODAY. I WOULD LIKE TO SET THE TONE ON THE BASIS THAT WE HAVE HAD OVER 100 YEARS OF
TRANSPORTATION NETWORK DEVELOPMENT IN THIS COUNTRY, AND YET SOME OF OUR
CONCERNS TODAY ARE SIMILAR TO CONCERNS THAT WERE EXPRESSED BY OUR FORE
FATHERS OVER 100 YEARS AGO. THERE IS NO WAY THAT ANY GREAT NATION CAN
EXIST WITHOUT AN INTEGRATED. NATIONWIDE. COMMON-CARRIER SYSTEM OF RAIL
ROADS. THE MERGER PROVISIONS OF THE STAGGERS RAIL ACT OF 1980 ALLOWED