= ending of the rate concessions should be a "two-way street" for the government with the railroads returning the remaining lands. The return of the remaining lands did not happen, of course. The railroad reliance on a comparison of the value of the lands in 1870 with the value of the rate concessions provided mainly in World War II is a comparison of apples and oranges. As the study shows, if proper adjustments are made bridging the time gap, the value of the lands at the time the rate concessions were made had to be four to five times the value of the rate concessions. arithmetic for the celebrated payback is a fiction. The rail The rate concessions were provided in World War II mainly by non-land grant eastern railroads. The railroads themselves argued in 1946 that ending the land grant rate reductions would result in lower rates on commercial traffic, thus establishing that rate reductions on government traffic had, in fact, been passed on to the commercial shippers all along, so for this reason alone, the celebrated "payback" is an illusion. The largest beneficiary of land grant wealth of all, the Union Pacific, was, in fact, exempted by statute from any requirement to offer reduced rates on government traffic in return for the land grants. Section 6 of the 1862 Land Grant Act, applying to the Union Pacific, expressly provided that transportation for the government be "at fair and reasonable rates of compensation, not to exceed the amounts paid by private parties for the same kind of service." One of the most interesting revelations of the WTA-sponsored study of land grants is the extent to which Congress has sought and failed to obtain elementary information on the current value of the remaining grant lands and the current income from the lands and reserved mineral rights. There is a long history of attempts by Congress through the Interior Department, the Department of Transportation, and the ICC to obtain current information on the value of the government-provided lands and a concerted effort by the land - grant railroads to frustrate the natural Congressional desire for such information. Probably the most detailed information that has ever been obtained on the value of current assets of a land grant railroad resulted from the cross-examination by WTA's attorney of the chief executive and financial officers of the UP during the current merger hearings. I attach, as Exhibit II, a summary of the extensive holdings of all the land grant railroads, including those of UP, in coal, oil and gas, timber lands, trona, uranium, and agricultural lands. "Billions on billions" in assets is far from an over statement. Some flavor of the enormous value of these assets comes from testimony in the hearings by Ben Biaggini, president of the Southern Pacific, who has some land grant holdings of his own, but is alarmed as a competitor by the overwhelming economic power represented by the UP's land grant assets. The UP, he says, "has been enriched beyond belief by the land grants." WTA was severely handicapped in its attempt to develop a full picture as to UP by the arbitrary limitations placed on crossexamination by the ICC's Administrative Law Judge Paul S. Cross, limitations which have been formally protested to the full Commission and may form the basis for future legal action. I would like to make it clear that WTA is not, at this time, challenging the right of the railroads to continue holding the government-provided lands and the mineral rights derived therefrom even though many of the land grant railroads appear to have broken their basic covenant with the government by transferring the land grant resources out of the railroads to conglomerates and affiliates without proper, or, indeed any compensation to the railroads and may thus have forfeited their right to continue to hold the lands. We are not stressing the frauds that have occurred in the disposal of these lands, though a couple of farmers in Arizona recently won a jury award of $21 million dollars on the basis of a fraud allegation against a land grant railroad. This law suit may well open up questions on a propriety of the behavior of all the land grant railroads. We note in passing that an earlier Congressional attempt to obtain facts on the land grants was met by a Southern Pacific response that, in any such enquiry, the Southern Pacific would have to take the Fifth Amendment. That sounds interesting, but no one has yet asked what the SP means by such a comment. We are interested in helping to create a sound and consistent national policy on government subsidies. We are interested in moderating rail rates between the vast western resources and connecting barge services on the Mississippi by the Columbia- Snake System and the Great Lakes. In its 1977 report, the ICC found that there is a major public policy issue on whether the intent of Congress in making these grants has been subverted and today's citizens may lose the benefit of the contract made by their forebears with the land grant railroads. The logic of counting land grant income provided expressly for railroad purposes as a subsidy to be passed on to the public in some form is irresistible. The government provides hydroelectric dams on the Columbia River and electricity rates resulting from these were among lowest in the country because of the subsidy. Rates for city commuters are lower than they would otherwise be because they benefit from mass transit aid and rates of rural electric co-ops are lower than they would otherwise be because of benefit from government financing aids. The idea has been taken up in correspondence within the ICC by a number of powerful committee chairmen in Congress, John Dingell of Michigan, Chairman of the Railroad Oversight Committee; and John Seiberling of Ohio, Chairman of the Public Lands Subcommittee. On the Senate side, the present chairman has had a number of useful exchanges with the ICC on the subject. Why should land grant subsidies be treated so differently? It may well be argued that oil and gas should not be required to subsidize transportation and ordinarily that makes sense. But oil and gas and other wealth provided by the government for railroad purposes is a very different matter. What obligation, if any, does a land grant railroad have to use its government-provided riches to sustain essential rail operations? as a Currently, the Federal government, or state governments, or local communities or shippers are being asked and expected to subsidize and are subsidizing essential services which do not meet the profit goals of the land grant railroads, profit goals set result of complete "market dominance" or monopoly in many cases. Where subsidy fails, essential trackage is being abandoned. In the background, of course, is the possibility that a land grant railroad itself may one day fail to meet the profit goals of a holding company formed to exploit the government-provided riches. What claim then would or should the government and the public have on these resources to insure the continued operation of the railroad itself? This is the public policy issue which needs Congressional investigation and action. As you will hear separately, every one of the major national farm organizations is supporting a Congressional investigation of railroad land grants to try to resolve the question of why land grant subsidies should not be treated like any other subsidy. In addition, the Western Coal Traffic League has passed a resolution supporting a Congressional investigation of railroad land grants as have a number of other groups. Of course the railroads have not only successfully re-written history, but have relied on a series of legal technicalities to obscure the basic issue. This basic issue was nowhere more succinctly stated than by Robert Kadrmas, president of the North Dakota Farm Bureau Federation, in testimony before the North Dakota State Tax Commissioner, Kent Conrad, on October 1, 1981. Mr. Kadrmas said: "I live in the Dickinson area and in western North Dakota many members refer to the arrogance of the Burlington Northern on the one hand abandoning rail lines the lifelines of many communities in North Dakota -- while sapping the state of mineral resources from lands given to them with the understanding that those resources be put back into the maintenance of the rails. "A blatant case in point is the branch line between Watford City and Fairview and Fairview to Sidney. Lands given free and clear to Burlington Northern to place and maintain those rail lines has produced one of the richest oil finds in North Dakota. Just south of Arnegard on the Red Wing Creek field, eight Burlington Northern wells have been pumping approximately 6,000,000 barrels for seven to eight years. barrels. Three of the eight have produced over 1,000,000 "While the wells have been thriving, the rails have been deteriorating. Although these rail lines may not be on this year's Burlington Northern abandonment design plan, they are being allowed to deterioriate so that the next round the questionable statistics will bear out Burlington Northern's cost effective abandonment rationale. "North Dakota has become the dog being wagged by the Burlington Northern tail. It's one thing to swallow abandonments based on profit-progress rationale, but somehow the profit gained from free rights to North Dakota minerals could allow most branch lines to remain functional plus subsidizing subterminal development. "We have become victims of a myth perpetuated to make us believe that the rails are doing us a favor. They are reaping profits of the investment of our ancestors while denying a rightful legacy to our children." There is a need to cut through all the technicalities and the railroad smokescreen. It would seem to be a proper job for Congress. Last October, the Congressional Research Service of the Library of Congress published: "A Legal Analysis of the Land Grants of the Northern Pacific Railroad" the land grants which are now part of the Burlington Northern's assets. - The study concluded on page CRS 40 that the Congress could: |