in the 0. & C. case. Of course, a court could determine either that any obligation on the part of the railroad grantees had already been discharged, or that none exis:ed, or that there is no breach until the company seeks to abandon one of the lines specified in the grants. Congress also could set out its interpretation of the grants and events and pursue any of several other alternatives: 1) find that conditions of the land grants had been violated and revest title to some or all of the lands in the United States; 2) declare that the land grants were intended to subsidize the continued operation of the railroad and that any action on the part of the Burlington Northern that results in the segregation of the income of the land grant assets or their liquidated value from the operating expenses of the lines (or from the operating of the company's railroad functions in general) is unlawful, and provide time limits within which the company must make necessary adjustments; or 3) provide in some other way for a link between the income from the land assets or their liquidated value and the company's railroad functions, possibly by providing that certain percentages of such income or value must be shown by Burlington Northern as income and used in calculating their rates and demonstrating need for abandonment of various branches. Obviously, this list is not exhaustive and even these possible alternatives must be researched further. The ultimate casting of the remedy depends on congressional toncensus as to the nature of the problem and the proper interpretation of the granting language. When the background issues have been resolved, and the legislative goal determined, legal and economic experts may better conceive and refine viable solutions. Pamela Baldwin Legislative Attorney Mr. CREEDY. We support the positions of the various farm groups-I think there are six or eight of them-the Western Coal Traffic League; the North Dakota State Legislature took a position, on this investigation. We think it is crucial. We listened this morning to Mr. Baxter saying he was against that merger, and yet, it has gone through. We listened to the ICC saying well, they could look into the oversight bit, but they did not know whether they had any powers to do anything about it. We listened to the GAO saying that they have some problems. A Congressional investigation is the way in which you get at this thing, in my view. I met Dick Grayson out in the hall, and he said that he wanted to point out to me that while applications are being made for preference share financing, which he is supporting, it was not to the BN but to the terminal company partially owned by the BN, so I am going to make that distinction. Other than that, sir, we appreciate this opportunity to appear before you, and hope that this will lead to some resolution of these problems. Senator BAUCUs. Thank you very much, John. [The following was received for the record:] Testimony of John A. Creedy, President My name is John A. Creedy and I am president of Water Transport Association of New York, a non-profit trade association of the leading ICC certificated and "for hire" water Carriers operating on the inland rivers, the Great Lakes and in the coastwise and inter coastal trades. We appreciate this opportunity to comment on new developments in national rail merger policy. The natural interest of the water carriers, of course, is the extent to which the reduction of the number of rail carriers and the growth of the economic power of those remaining will adversely affect rail-water competition and coordination. We are currently intervening in the huge UP-MP-WP merger to advocate that the ICC place a condition on the merger prohibiting abuse of the economic power of the merged entity to undermine rail-water competition and coordination. In addition, WTA has placed before the ICC in this merger case the issue of determining the continuing responsibility of railroads to apply current income from land grant mineral and other assets to current rail operations both as to abandonments and the level of freight rates, particularly freight rates on millions of tons of coal and grain connecting with the rivers and the Great Lakes. We have also contributed comments to ICC proceedings under the Staggers Act to establish rail merger policy. In Ex Parte 282, Sub. 6, for example, decided Feb. 2, 1981, we raised the question of the transfer out of the railroad by land grant railroads of publicly provided assets. The ICC's comment on WTA's filing is worth quoting: སྐ "WTA suggests that we add a section dealing with 'the problems stemming from the transfer by railroads to holding companies or noncarrier affiliates of assets without compensation or for an inadequate consideration.' Although we are aware of the potential for these problems, we do not believe that it is necessary or wise for us to examine each merger proposal to determine whether there have been holding company abuses. Where evidence of such abuses is offered, we will consider it in the disposition of that case. WTA's suggestion, that we consider imposing a condition requiring holding companies to return assets or proper consideration to their carriers, is one best considered in light of the particular facts of specific cases. Thus ICC recognizes the problem, but says that the return of assets is one that is best considered in the light of particular facts of specific cases. The ICC itself in an extensive report to Congress in 1977 on Rail Conglomerates raised the question of whether the transfer of the land grant assets out of the railroads to conglomerates and affiliates did not constitute a subversion of the intent of Congress in granting the lands in the first place. The ICC's conclusion is well worth noting: - "We are particularly concerned that lands which were granted by the Federal Government to railroads to enable them to fund the construction and operation of their rail lines or the proceeds from the transfer of those lands or of interests in those lands have been and will be transferred from the railroads to their parent.holding companies at less than fair value. Were the railroads receiving these properties, or their railroad successors in interest, to be deprived of the fruits of these land grants at a time, whether now or in the future, when they are needed to support rail services essential to the public interest, the intention of the Congress in making these grants would be subverted, and today's citizens would lose the benefit of the contract made by their forebears with the land-grant railroads." The ICC promised to keep the Congress informed, but has done nothing in the way of follow-up in the intervening five years. In the UP merger case, WTA has provided the ICC with an opportunity to exercise its powers to protect the public interest in the proper use of land grant assets in rail operations and, at the same time, implement the 1977 report. These billions on billions worth of Federal subsidies given, as the ICC found, for the "construction and operation of railroads" may have already been wrongly diverted from land grant railroads. In one case, that of the BN, a holding company has recently been set up having as one of its purposes the diversion of land grant assets from the railroad. In the case of approval of the UP merger, the ICC has a unique opportunity to use its powers to preserve the overall public interest and to implement Congressional intent. WTA first became interested in the land grant question as a result of the water carriers' search for a sound national trans = portation policy covering Federal aids to the various transport modes. While the extent of Federal aids to airways, highways and waterways are reasonably easily available, there had never been a reliable public accounting of aids to railroads. WTA commissioned économic consultants to develop in-depth studies of the rail pension subsidies, the Federal capital grant program for the railroad industry, and the varied tax subsidies which the railroads alone have received, particularly from the Economic Recovery Tax Act of 1981. A major study was devoted to the rail land grants. I am attaching a copy of the WTA-sponsored land grant study for the record as Exhibit I. In all the controversy that has developed over land grants since this study was published, the railroads have never successfully rebutted its facts. They have erupted with a heavily financed national advertising campaign re-asserting what they have always said, but the facts in the study stand. Substantial questions remain unanswered as to the cornerstone of the railroad position that the land grants were repaid by rate concessions on government traffic. Once put under the microscope of professional study, the railroad position turns out to be no more than a piece of sophistry. The much quoted Congressional study in 1944 which led to the ending of land grant rates after World War II proposed that the |