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.

Thank you for the opportunity to appear and express the concerns of many of our members.

COMMISSIONER CONRAD: I would simply make the comment that, perhaps, what you are saying is something that reflects the feeling of many people in North Dakota. I have certainly found that the Burlington Northern predecessor organizations were given nearly one-quarter of the surface area of the State of North Dakota. And because of that, there is a strong feeling that the Burlington Northern owes something to the State of North Dakota and the public which gave them those vast assets. And I have found persuasive reservations about the studies that have been talked about which indicate the railroads have paid for what they have received. I can find nothing that values the minerals. For example, in the study that was done in the 1940's by Congress, which led them to the conclusion that they could end the rate concessions that the railroads were making to the Federal Government. And I frankly do not accept the argument that it is like the Homestead Act which is the argument that railroads will consistenly make, that it is a situation akin to the Homestead or to your buying your own home or your farm. The fact is, these were assets given to the railroad for a purpose.

And as I read the Pacific Railway Act of 1864, I think the purpose was not only to construct a railroad line, but to maintain it. Therefore, I have grave reservations about the suggestion that they have paid for what they have received and can do whatever they will with those assets. I think that sums up in many ways what you have said here today. Do you agree with that, Bob?

MR. KADRMAS: Thank you. I fully agree.

COMMISSIONER CONRAD: Next, we will hear from Agnes Zimmerman, President of the North Dakota Chapter of Women Involved in Farm Economics. Agnes.

MRS. AGNES ZIMMERMAN: I am Agnes Zimmerman, President of the North Dakota WIFE Association and Transportation Chairman for our Local Chapter 1. The testimony that I will read has been prepared by Mary Nielsen, who farms with her husband at Medicine Lake, Montana. Mary is our National WIFE Chairman for Transportation. She couldn't be here today because of their Montana state convention yesterday and today at Lewistown, Montana.

More than one hundred years ago, one of the pioneer travellers who made that romantic journey by rail to the Western Sea, and was affronted by the arrogance displayed by the railroad he travelled on, paused to make a prophecy in his notebook. "Some day in this country," he wrote, "it will be decided that the railroads are to be run for the public, and for their benefit and accommodation. Corporations, monopolies, cliques and combinations may, for a time, oppress and hinder the people, but there always comes a day when the public assert, and in asserting, maintain their rights."

That quote is from a book, "Hear That Lonesome Whistle Blow," by Dee Brown, and it should be required reading for all those in Congress that are or should be concerned about the state of transportation in this country! It is well-documented, and is fascinating and shocking reading!

This hearing is concentrating on the effects of the Burlington Northern forming holding companies, and what it will do to the transportation system in North Dakota and Montana. It is especially of concern where the railroad has a virtual monopoly.

Unfortuantely, the railroads were formed as a business venture, and were encouraged to do so by Congress in the 19th century by the grants of land and other subsidies. Before all the rails were laid, more than 155 million acres one tenth of the country - were given away to the railroad magnates. Indian tribes were decimated, the buffalo were driven from the Great Plains, millions of immigrants were lured away from Europe and a colossal continental nation was built.

The Pacific Railway Act was generous it gave the railroads 12,800 acres for each mile of track laid, including all iron and coal deposits under that land, and it permitted it to sell first mortgage bonds to the public. In fact, 2 million shares at a thousand dollars a share had to be sold before construction could begin! The builders of the Union Pacific received $16,000 per mile for its tracks across the level plains, while the Central Pacific received $48,000 per mile when it was building the tunnels through the Sierras.

The siphoning off of funds into other organizations or companies is nothing new. As early as 1864, railroad entrepeneurs organized the "Credit Mobilier" - a holding company to siphon off profits from construction of the Union Pacific. The Central Pacific had its own "Holding company' the Credit and Finance Corporation. Each mile of track laid turned immediately into money and land.

As early as 1871, a Nebraska newspaper editor recognized his community's growing distrust of the railroads. "People may grumble at the railroad companies," he said, "but they are a necessity of the age. What should be done is, not attempt to destroy them, but to control them by law, and to appreciate their worth."

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That seemed just as difficult at that time as it is now. In those days, the railroads simply extended branch lines and evicted settlers, claiming the homesteads as a part of the land grant! Now many of those branch lines are to be abandoned because the traffic on them is no longer profitable, even though those on the lines would like to have the service continued.

It is only in recent years that the true value of those lands given the railroads has become evident. At the time that they were granted, Congressmen had no way of knowing that these lands would yield a multimillion dollar business for the companies. It was never written, apparently, that the intent was for those lands to support the operation of the railroads, but since there were financial subsidies for each mile built, and shares were sold to help finance the operation, it is logical to assume that the intent was there.

In areas where there are more forms of competitive transportation available, the problems being experienced by North Dakota and Montana do not loom so large, and so there is not the outcry that is being heard from agricultural interests and others in these two States. Since we are relatively sparsely populated states, we have less representation in Congress. However, with hearings such as this being held, and more and more publicity being given to the problem, the rest of the country should soon learn of our concern. All citizens should soon realize that the railroads should be run "for the public," and should be made self-supporting - legally through the use of the profits from the land grants.

Amtrak, ConRail, and the F.R.A. grants to repair the tracks all are Federally-subsidized. If we can alert the general public of the nation to that situation, then maybe Congress will be forced to act, and remedy the situation. It is not the fault of the railroads that they are acting in their own best interests it is the fault of the Congress of the United States and the people.

In 1886, the Supreme Court suggested that there should be a Federal Agency to watch over these giant corporations. Scores of railroad lobbyists went to Washington to prevent Congress from establishing the Interstate Commerce Commission. At that time, there was so much national resentment of the railroads, that the will of the people prevailed, in spite of the fact that, in many areas, the railroads were able to control the elections. Not until well into the 20th century was the Commission able to set maximum rates, and then the railroads tried to abolish the Commission, until they gradually came to realize that it might prove a useful shield. The legal counsel for the Burlington observed, "It satisfies the popular clamor for government supervision of the railroads, and at the same time, that supervision is almost entirely minimal. The part of wisdom is not to destroy the Commission, but to utilize it.'

The passage last year of the Staggers Rail Act essentially made it easier for the railroads to operate as independent businesses, instead of operating in the best interests of the country.

Many agricultural interests are up in arms with the initiation of the unit train concept. They fear the unknown, certainly but there are so many far-reaching effects of this means of transporting grain, etc., that are unpredictable. The effects on the smaller towns is beginning to be obvious. Present operators of elevators hesitate to update their facilities because of the fear of extinction.

With the demise of those elevators, many farmers will lose their freedom to market as they wish. The likelihood of competition between buyers will be lessened, since farmers will haul their grain to the nearest large facility in order to keep their transportation costs as minimal as possible. We are concerned about the increased margins that will have to be taken by the larger facilities in order to pay for the plants. That amount, in conjunction with the increased trucking costs, is likely in many areas - to offset any benefits offered by the railroads.

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The effect on the number of towns is as yet, unknown. The Great Northern railroad map of 1928 shows about 150 towns across the Northern section of Montana. The present maps show about 1/3 that many left. With the long distances involved in these two states, travellers as well as residents are going to be affected. So many unknowns taxes, the effect on the school systems, the roads — and on and on - are really causing

concern to the states.

The long-term effects are just not readily forseeable - when the bulk of our grain is moved by unit trains in this nation, which is obviously the goal of the railroads - will the lower rates remain in effect? Or will they always endeavor to show as large a profit as possible, with no controls?

The only answer is Congressional action to reverse the law passed in 1945 to ensure that the income from those lands given to the builders of the railroads to make sure that they would be financially stable and serve the country, be put back into the operation of this most important transportation system. In order that Congress realizes the gravity of the situation, we must get the information to the general public. In the cities and states where there is intra- and inter-modal competition, the public has, once again, to be aroused! Millions of tax dollars are poured into a system which is offering less and less and costing more - both for passenger and freight service.

In this time of cutting back Federal Government expenditures, a reversal of the 1945 law, and a supervisory agency to ascertain that funds derived from the land grants are used to support the rail operation, is the only way to make the railroads both profitable and service-oriented.

The concept of holding companies is not new - I understand that the Burlington Northern is the last of the large railroads to take this step. But they are a business, and all businesses do what they have to do to make as much money as possible. Unfortunately, the general public of this country are going to suffer financially more, as deregulated services beome higher.

The railroads are going to object strenuously to this proposal - but while they were "repaying" their debts to the Federal Government in the form of reduced rates, they became financial giants possibly because the other traffic that they hauled paid more, taking up the slack. So the people repaid the debts to the Government, not the railroads, according to an article in "Traffic World”.

This tremendous change cannot be achieved overnight. Let Congress pass a law that will accomplish it in stages - starting with 1/3 of the profits realized from their land holdings, and gradually increasing that amount over a period of years until the passenger and freight services, plus the maintenance of the tracks is completely self-supporting.

The time has come for the people to decide that the railroads should be "run for the public - for their benefit and their accommodation."

Mary Nielsen thanks you for inviting her to let me present this testimony.

COMMISSIONER CONRAD: Thank you very much. We appreciate hearing from you in her absence. Next, we will hear from Kelly Shockman, the President of the North Dakota National Farmers Organization. Kelly.

MR. KELLY SHOCKMAN: Commissioner Conrad, ladies and gentlemen, my name is Kelly Shockman. I am reprsenting the National Farmers Organization as State Chairman.

I am a farmer from LaMoure, North Dakota. And there's been an awful lot of talk about liabilities and assets up to this point, Kent. I would like to report here that in my home county, in LaMoure County, there are quite a few farmers that have their liabilities out in the country and their assets in town.

I want to testify primarily about the impact of railroad abandonment on rural North Dakota and farmers in particular. And I'll just read from notes. I don't have a prepared text here. I will try to make it as short as possible, Kent. I think any cost involved in transportation of raw agricultural products ends up in the producer's lap. What I am saying here is that any costs incurred in the production of wheat, grain or any bulk cargo on the farm is always reversed backwards and it ends up in the farmer's lap. The farmer produces millions of tons of bulk products. This primarily is grain; although, also meat and milk - and this is shipped out of state - most of it. I am just doing a little calculating here based on a per acre wheat yield at 30 bushels. Each acre involves eighteen hundred pounds of bulk cargo to be shipped out. I think it goes without saying that farmers need an efficient, easily accessible rail system. Remember here, we're talking about major volumes of bulk cargo shipped out of this State. I think we also have to remember here that as far as agriculture is concerned, we do buy huge volumes of bulk cargo that has to be shipped in; primarily, fertilizer, machinery, fuel. So what I am really saying here in this opening remarks is that railroads are very important to farmers. I guess they are important to all people, but, believe me, we have a vested interest in what happens here as far as Burlington Northern is concerned.

I think there is no question, as energy costs go up, that we, as producers, as farmers in North Dakota, will have to depend more and more on rail transportation. I don't think there is any question about that, looking into the future. Now, if farmers are forced to haul only to the main lines - and I am a farmer and rural resident, too I think we have to consider a couple of important points here. With railroad abandonment, this is what it would be. We would be hauling to the main point on the line. We have to consider the impact of truck traffic on our local roads. Now, we don't have a lot of class 1 roads in my home county. You beat these trucks up and down these class 2 and 3 roads, this is going to mean more money out of our pockets to keep these roads in repair.

COMMISSIONER CONRAD: It would be taxpayer's money, wouldn't it?

MR. SHOCKMAN: Right. From my area to the main line, we would have to add another twelve cents a bushel based on present rates to get this grain into a main line terminal, Another thing to consider is the impact on the rural communities in general with abandonment of rail lines. I wanted to ask while the executives from Burlington Northern were sitting here, I wanted to ask the question: "Does Burlington Northern receive more revenue from hauling grain or hauling coal? Maybe I can get that answered before I leave today. I am speaking of the farmers. The farmer gets the feeling that, possibly, Burlington Northern is more interested

in hauling coal than hauling grain. This is maybe not germane to the issues here today, but this is a common feeling among farmers.

Just a few words on unit train problems. Now, this has been widely publicized as a help or valuable tool to the farmers or the producers - agricultural producers. And the National Farmers Organization has some experience in unit train shipment, but I don't think, at least based on the way it is set up now, this will be of much benefit to the average shipper in the State of North Dakota. And, primarily, the main reason here is time. Now, I don't know how many of you people wake up in the morning and every time that sun roils up, there is a new interest charge. Interest goes on even at night, but it seems like, in the morning, this is when they start a new tally on it.

We did some calculating and I - I will just read this off. A 26-car unit train of hard red spring wheat is approximately 85,000 bushels. And at a cost of four dollars per bushel, this would be a gross dollar total of three hundred forty-three thousand dollars worth of wheat. Here is where the problems come in. It takes the average elevator in the State approximately thirty days of normal volume to accumulate this much grain. We have to average this out. This number of bushels of wheat has been accumulated over an average of fifteen days. This would be inventory that they held for a 15-day period.

Now, the interest on this three hundred forty-three thousand dollars at a 20 percent rate, which is very cheap for a warehouse to borrow money at, this rate amounts to one hundred eighty-eight dollars per day. Over thirty days, this is approximately $2,914, but it boils down to a cost of about seven and a half cents per bushel to hold the grain, waiting to get a unit train - 26-car unit. So I don't think there is a well, I guess, maybe a better way to say it would be that the unit train concept is only probably going to be valuable for the large shipper, mainly the subterminal and the lake terminal and river terminal points. It costs money to carry inventory. And I guess the farmer probably carries as big an inventory as any business in America and doesn't even realize it. It certainly costs money to accumulate inventory to use this unit train concept.

Because of the backward pricing of farm products, any transportation or other costs associated with the production of raw agricultural products ends up right back in the farmer's lap. I will try to illustrate this. Bids for grain come FOB Minneapolis or Chicago minus the freight. Meat is priced FOB New York City minus freight from the farm. It's been said that grain is priced FOB Rotterdam, back to our area. The point I want to make here is that the bill is paid by the producers, so it's very sensitive - rail abandonment - freight rates are very sensitive to our farmers because we have no ability to pass it on. All we can do is belly-ache.

As far as duplicating the cost of building a new complex of these main line terminals to be able to use this unit train concept, I really question the advisability of that, because this, again, comes out of the producer's pockets. We have a system set up here for the transportaition of grain. I think we should probably use it. I think railroad abandonment, as far as - the rumor is probably already a fact. I think, when you look at the condition of the line, the poor hopper car availability to the small shippers, I think, maybe, we're well down the road to abandonment of these local lines. I think, maybe, in closing here, the nature of grain marketing is a problem here. It is a problem both to the farmers and to Burlington Northern. And I - I am speaking mainly of the farmers here. When the market is up, everybody wants to ship grain. When the market is down, nobody wants to ship. So I think, maybe I just wanted to throw this in here, that, possibly, part of the problem here of maintaining profitable branch lines is locked up in this old marketing system. Right now, today, we're in a situation where nobody wants to use the rails, nobody wants to use the cars. Maybe we should make a change there.

Commissioner Conrad, in his opening statement, said that he wanted to find some answers to the questions that we have here about railroad abandonment, consolidation, and mergers. The thing that really scares me down the road possibly is a we haven't heard any talk of it - there is a possibility of the merger between Burlington Northern and the Soo. And I did ask this question at a meeting one time. There is nothing in the books as far as this is concerned, but we are concerned about that. The Farm Bureau mentioned the fact that we are a land-locked market, we don't have access to barge loading points or to ocean-going vessels. We are strictly dependent primarily upon rail transportation. We share Mr. Conrad's concern - Kent Conrad's concern and the people's concern of declining service. I think this is probably very sensitive to the rural towns the abandonment of branch lines. I think what happens here in North Dakota and at the hearings like these, and it happens to railroad transportation in general and to Burlington Northern in particular, is absolutely vital to the long-term interests of the people in North Dakota. I happen to be a farmer deeply involved in transportation, but I think this is going to affect the whole State in the long run. We are not very far from the Milwaukee railroad down here. This really shakes you up. So I think, maybe, for all of us concerned here, this is one of the reasons for the interest in what's being proposed by Burlington Northern, and why Kent Conrad and the various agencies are trying to find some solutions to these problems. Thank you.

COMMISSIONER CONRAD: Thank you very much, Kelly. We appreciate your taking the time. showing the interest to come and testify, once again expressing the concern that I think is felt all across North Dakota. I have certainly found it everywhere I have gone that we have a situation that is critical to the future of our State, the economic health of farmers and small businessmen in small communities that are, after all, a very basic part of the strength of this State. So, again, I thank you for coming and sharing your views on this question.

Next, we will hear from Dina Butcher, who is Staff Assistant to the Commissioner of Agriculture. I would like to indicate that I very much appreciate the stance of the Agriculture Commissioner and his support and assistance on this in this area. It was very lonely when we issued the first report out of our office in June. We were very quickly joined by the Agriculture Commissioner who has taken an aggressive stand and one which is very helpful and which we are very pleased about and want to commend the office of the Commissioner of Agriculture for.

MRS. DINA BUTCHER: You just stole what the Commissioner told me to tell you. Commissioner Kent expresses his appreciation to Commissioner Kent for holding this hearing today. And if I may, a short commercial message. We have heard the ICC mentioned many, many times. And the Commissioner did visit with the Chairman when he was in Washington not too long ago. And he is having his administrative assistant in North Dakota, starting on Monday, for a series of hearings. He will be listening to many of the same concerns that were expressed here dealing with rates and the separation of the land-grant activities. Accompanying him will be Buzz Fitzpatrick, who is the Director of the Office of Transportation in USDA. USDA is looking at the position which they will develop relating to these staggering issues in North Dakota and other parts of the country.

COMMISSIONER CONRAD: Maybe you could share with this audience what that schedule is, becasue I am sure there are people here who would like to attend and people here who would like to transmit that information to others.

MRS. BUTCHER: I bet we would dance well together. You anticipate everything I am going to do. The first part of the agenda on Monday is a state intermodal transportation meeting. (I have got a prompter up there who is just marvelous. I am not just exactly sure.) The first part of the agenda is the state intermodal transportation hearing that has a set agenda and is a committee, as you know, appointed by the Governor to have a broad representation on those problems. That will be at ten o'clock at the Town House. Then, in the evening, on Monday, October 5, at the Holiday Inn in Bismarck, we will be having an open meeting at seven o'clock and will entertain any testimony. Then, on Tuesday, in Watford City, there is a pretty localized activity - there will be a meeting with some people and we are going to have a slight departure from our original agenda. The gentleman from the ICC is prevented from flying, so he and the Commissioner are going to be going by land. The USDA gentleman goes by air and will go to Watford City. The other is going to go to points north, possibly Maddock and Devils Lake, on route to an evening meeting in Grand Forks at 7:30 at the Ramada inn, then on to Fargo on October 7th for a noon meeting at the Doublewood Inn. That is the rundown on the agenda.

On the historical side, the Commissioner's activities in attempting to bring attention to the transportation problems he perceives agriculture faces in North Dakota, on August 6, he met with Mr. Creedy, whom you have heard from this afternoon, and representatives from departments of agriculture similarly beleaguered in Montana and Minnesota. At that time they drew up a plan of action, more or less, that they could each pursue in their individual states. Commissioner Conrad has launched a similar activity. In a position statement that I will now read, which the Commissioner sent out, along with a letter announcing a series of meetings I have shared with you. He, more or less, outlined what he is going to do. In the letter, he says, "You probably feel as I do that on the issue of Burlington Northern's railroading of North Dakota, we have talked at one another enough; what we need now is action. The frustration I have heard at meetings throughout the state is, What can we do to keep BN from dictating terms not only on rails but also on rates and the whole marketing and socioeconomic structure of the state. The Grain Dealers Association has launched a strong campaign to counter BN's cosmetic approach to covering up the effects of separating its land-grant holdings as it abandons hundreds of miles of rails. The Grain Dealers are acting. We would like to suggest a few more ways we can work together to focus the diversity of efforts already in place in a strong, concerted effort."

That was the introduction to what he expands on in his position statement and action statement. "It is the position of the North Dakota Department of Agriculture that maintenance of rail transportation is essential to marketing agricultural products. To maintain cost-effective service to farmers, this department will

1.) initiate efforts to bring Interstate Commerce Commission attention to

a) the rail-related factors which create inequities in rate structures, inhibiting North Dakota farmers from successful competition in the world market, and

b) separation of the land grant holdings of railroads from the maintenance and service component of rail transportation;

2.) support U.S. Congressional action to investigate the legitimacy of the rail practices which enable Burlington Northern to neglect and then abandon rail lines while continuing to collect bountiful revenue from the mineral and surface wealth given them for providing service;

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