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National Council of Farmer Cooperatives

1800 MASSACHUSETTS AVENUE, N.W. ● WASHINGTON, D.C. 20036 ● TELEPHONE (202) 659-1525

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The National Council of Farmer Cooperatives, like many other members of the agricultural community, is very concerned about rural America's dwindling access to dependable railroad service at affordable rates. We discussed our concerns with your committee and its staff at considerable length during development of the Staggers Rail Act of 1980, and we greatly appreciate your understanding of our problems and your efforts to minimize the adverse impact of that law on agricultural shippers.

One issue not considered during passage of the Staggers Act was the rail industry's handling of its vast natural resource holdings. Much of these holdings are on land granted to the railroads as an inducement to build lines and provide service to more remote areas of the country. Now the carriers have created conglomerate structures to separate the land holdings from the rail operation. As the land holdings generate considerable income, this permits the railroads to justify high rate levels under the profit-motivated provisions of the Staggers Act.

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We believe it is time for your committee to hold hearings on railroad organization and the handling of the land grant resources. We urge particular attention to the issues of the obligation of the land grant railroads to use their land grant income to sustain and strengthen rail operations and the extent to which the carriers have breached their contracts with the government by transferring land grant assets out of the railroad without adequate compensation.

Sincerely,
Donald H.

Donald A. Frederick

Assistant General Counsel

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Honorable Bob Packwood, Chairman

Senate Committee on Commerce, Science and Transportation

5202 Dirksen Senate Office Building

Washington, D. C. 20510

Dear Chairman Packwood:

The National Grange, like other key members of the agricultural community, is very concerned about rural America's dwindling access to dependable railroad service at affordable rates. This is not a new issue for the Grange. In fact, the bitter struggle of the 1860's between farmers and the railroads spurred the founding of the Grange and the creation of the Grange laws. Grange efforts led to the establishment of the Interstate Commerce Commission to oversee the activities of the nation's railroads. Now, implementation of the Staggers Rail Act has refocused rural America's interest in railroad transportation.

One issue not considered during passage of the railroad deregulation legislation last year is the rail industry's management of its vast natural resource holdings. Many of these holdings are on land granted to the railroads as an inducement to build lines and provide service to remote areas of the country. Now, the carriers have used conglomerate structures to separate the land containing the resources from the rail operations. As the land holdings generate considerable income, this permits the railroads to justify high rate levels under the profit-motivated provisions of the Staggers Act. In many instances, removing the profits generated from the land grants from the rail operations has permitted the railroads to close branch lines in agricultura areas by claiming "inadequacy of income."

The delegates to the National Grange's 115th Annual Meeting held in Spokane, Washington, in November of 1981, adopted the following policy statement on railroad transportation:

Railroad transportation is essential to the nation, having the power of economic life or death in many rural communities. Agriculture is faced with abandonment of many branch lines by certain railroads who are crying "unprofitable operations," yet these lines appear unprofitable only because they have been separated from the original land grants given to the railroads as an inducement for construction and operation. The land grants are, for the most part, still valuable and profitable, and we believe the railroads should retain their original obligation to continue the operation of these branch lines.

We believe it is time for your committee to conduct hearings on railroad organization and the handling of the land grant resources. We urge particular attention to the central issue of the land grant railroads' obligation to use their land grant income to sustain and strengthen rail operations. The extent to which the carriers

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have breached their contracts with the government and the people by transferring land grant assets out of the railed without adequate compensation should also be examined. Adequate compensation in many areas would be the continuation of rail. service to remote areas at reasonable rates. A growing trend towa donment of railroad lines could have serious economic repercussions, and must be conscien tiously addressed.

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The National Grange appreciates the opportunity to comment on this issue important to agriculture and rural America, and we respectfully request the inclusion of our remarks in the hearing record of November 10, 1981.

CC:

Senator Howard Cannon

Sincerely yours,

Edward Andersen, Master

The National Grange

bcc: Don Frederick, National Council of Farmer Co-ops Ron Schrader

Paul Mills, Office of Transportation, USDA

Rep. Pat Williams

A RESOLUTION ADOPTED BY THE

FIVE-STATE LEGISLATIVE CONFERENCE

RAPID CITY, SOUTH DAKOTA, SEPTEMBER 27-29, 1981

AS AMENDED

RESOLUTION

WHEREAS, certain United States railroads received a total of 128,000,000 acres of federal land to encourage and assist in railroad construction; and

WHEREAS, the total land grants enjoyed by the railroad displace 9.3 percent of the total land area of the United States, exclusive of Alaska and Hawaii; and

WHEREAS, the railroads receiving these land grants built about 18,000 miles of roadway, approximately eight percent of the total railroad mileage of the country; and

WHEREAS, four major western railroads, the Burlington Northern (through the Northern Pacific), the Union Pacific, the Southern Pacific, and the Sante Fe received 88 percent of the 128,000,000 acres; and

WHEREAS, the land grant railroads have retained ownership of some land and much of the mineral rights obtained through said land grants; and

WHEREAS, said land and mineral rights are extremely valuable and they contain farmland, coal, oil, gas, timber, and other resources; and

WHEREAS, the land grant railroads derive significant income from such land and mineral rights; and

WHEREAS, the land grant railroads have also formed holding companies to separate the land, mineral, and natural resource assets from their railroad operations; and

WHEREAS, the railroads (particularly Burlington Northern) have announced intentions to abandon a significant portion of branch line networks in the next few years; and

WHEREAS, rail transportation is vitally necessary to rural states to gather and ship bulk agricultural and other commodities; and

WHEREAS, the abandonment of branch lines will result in a shift in fiscal responsibilities from the private sector to the public sector to maintain a road and highway system;

NOW, THEREFORE, BE IT RESOLVED that the Five-State Legislative Conference and the respective state legislative branches of government in the five member states develop a cooperative effort to influence the retention of a sound railroad network by the land grant railroads and an efficient and economical operation of this system and the benefit of the citizens of those states; and

BE IT FURTHER RESOLVED that the Five-State Legislative Conference request that the United States Congress institute an investigation to accomplish the following:

-- Determine the value of the remaining land grant assets
currently held by the railroads.

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Determine the current income from land grant assets.

Determine the extent to which railroads require support of income from land grant assets to maintain and improve services, now and in the future.

-- Determine extent to which the Interstate Commerce Commission
should permit necessary rail services to be abandoned in
the light of government-provided land grant assets.

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- Establish a policy on diversion of land grant assets
from "railroad" purposess.

Establish a policy that government-provided land grant assets
and income from such assets should be included in the
Interstate Commerce Commission determination of adequacy
of revenues and earnings of the land grant railroads.

-- Examine the extent to which land grant assets and income
should be used to replace government subsidy of necessary
connecting services to land grant railroads; and

BE IT FURTHER RESOLVED that a copy of this resolution be sent to each member of the Congressional Delegation of the member states of the Five-State Legislative Conference and to the heads of the appropriate federal agencies.

Senator BAUCUS. Next, John LeSeur.

Mr. LESEUR. Mr. Chairman, thank you for extending an invitation to the Western Coal Traffic League to appear and participate in today's hearing. I am an attorney with the law firm of Slover & Loftus, and our firm acts as counsel to the League.

I believe I can summarize my prepared testimony in approximately 3 minutes.

By way of background, the Coal League is comprised of utilities and industries that purchase and receive coals mined west of the Mississippi River. League members received over 20 million tons of coal last year and paid over $350 million in rail freight charges. All members of the Coal League receive their coal by rail, and much of this tonnage is transported over the lines of the Burlington Northern Railroad Co.

My testimony today will focus on the holding company issue. The league's principal and overriding concern with regard to the holding company is that the BN will use the newly formed holding company to strip the railroad subsidiary of valuable assets, including the railroad's substantial profits from its coal-hauling operations and the railroad's valuable land grant property.

We base our concern on two separate, but highly interrelated factors. First, it has been reported in the business press that the holding company is attempting to build up a billion dollar war chest for the purposes of accomplishing a major Marathon Oil-type corporate takeover. Second, both the BN's proxy statement accompanying the holding company formation and other published reports say that a principal source of funding for the holding company's activities will be the railroad. For example, a recent article in Business Week

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