[Exhibit No. 2] NOTE: This memorandum was discussed with the Principal Assistant Corporation Counsel, but was never formally submitted to that Office for action. GOVERNMENT OF THE DISTRICT OF COLUMBIA DEPARTMENT OF HIGHWAYS AND TRAFFIC Memorandum to: The Office of Corporation Counsel. AUGUST 24, 1965. Subject: Request for Corporation Counsel to take appropriate legal action to effect collection of amounts billed D.C. Transit System, Inc. for cover and removal of streetcar tracks. Pursuant to Commissioners' Order No. 63-1492, dated June 20, 1963, it is requested that the Corporation Counsel take appropriate legal action to effect collection of $418,229.95, the amount due the District of Columbia as of August 24, 1965. The D.C. Transit System, Inc., is being billed under the authority of the District of Columbia Appropriation Act, 1942, Sec. 22 of the D.C. Transit System, Inc. Franchise Act (Public Law 84-757), and various formal agreements executed between the District of Columbia Government and the D.C. Transit System, Inc. Statement of Facts: The District of Columbia Appropriation Act, 1942 (Public Law 77-148; 55 Stat. 499.533), provides the formula for charging the then existing Capital Transit Company for removal of streetcar tracks and repaving the track area. The D.C. Transit System, Inc. Franchise Act (Public Law 84-757, approved July 24, 1956), Sec. 7, applies these same provisions to the D.C. Transit System, Inc. The District developed a program of covering existing streetcar tracks in the city with asphalt where the existing roadway was in good condition and did not warrant removal and replacement of the pavement at the present time. Numerous formal agreements were executed between the District of Columbia and the D.C. Transit System, Inc. which provided the basis for division of costs between the District and D.C. Transit System, Inc. and provided for the method of payment. On February 3, 1965, the total amount billed D.C. Transit System, Inc. for costs of track cover and removal remaining unpaid was $906,120.25. After repeated telephone contacts with officials of D.C. Transit System, Inc., payments were forwarded during the months of March, April, May and June, 1965 which totaled $1,007,046.96. During the same period, however, additional bills were rendered in the amount of $414,465.76, leaving a total billed and unpaid, as of June 17, 1965, of $313,539.05. Since that date bills in the amount of $108,941.98 were rendered in July, 1965, and $97,722.86 in August, 1965. The last billing is not considered delinquent as of this date. One bill is being held up by D.C. Transit System, Inc. because of a dispute over quantities. A summary of the amount due and considered delinquent at this time is as follows: Total amount billed and unpaid as of August 24, 1965_ Bill in dispute----. August billing_. Total amount delinquent---- $520, 203.89 $4, 251. 08 97,722.86 101, 973. 94 418, 229.95 The last payment received from D.C. Transit System, Inc. was on June 8, 1965, in the amount of $504,992.49. Since that time we have made many efforts to effect further collection. Telephone calls have been made to the head of the Accounting Department, D.C. Transit System, Inc., and to Mr. Peterman, Comptroller. All calls were answered by the statement that we would have to contact Mr. Fox. During the week of July 26, 1965, Mr. R. D. Wallace, Deputy Director of Highways and Traffic, contacted Mr. Morris Fox, Vice President, D.C. Transit System, Inc. by telephone. Mr. Fox assured Mr. Wallace that he would take immediate steps to clear up the bills. On August 10, 1965, Mr. G. M. Boynton, Chief, Office of Business Administration, visited Mr. Fox in his office. Mr. Fox was advised of the seriousness of the situation, particularly since the Highway Fund is in a borrowing situation, and in fact had to draw against its loan authority during the month of July. Mr. Fox stated that he felt the bills were fairly current. He assured Mr. Boynton, however, that he would work out a re-financing deal, and expected to have the necessary funds to pay all bills up to date by the end of that week. On Monday, August 23, 1965, Mr. Boynton contacted Mr. Fox by telephone. Mr. Fox stated that he could do nothing until he contacted Mr. O. Roy Chalk, President, D.C. Transit System, Inc., and that Mr. Chalk was in Europe. Mr. Fox assured Mr. Boynton that he would "bring all the bills up to date as soon as possible". The formal agreements with D.C. Transit System, Inc. provide as follows: "Partial payment by D.C. Transit to the District shall be made monthly as the work progresses. When the monthly bill is presented to D.C. Transit, payment shall be made in the full amount and any necessary adjustments will be made in the final billing from the District." The Department of Highways and Traffic has taken every administrative action possible to effect necessary collection to get the D.C. Transit bills on a current basis, and keep them current. It is felt that the only recourse is to request your office to take necessary legal action to effect collection of these overdue bills. . Copies of the unpaid bills are attached. T. F. AIRIS, Director, Department of Highways and Traffic, D.C. U.S. SENATE COMMITTEE ON THE DISTRICT OF COLUMBIA, Mr. O. Roy CHALK, DEAR MR. CHALK: In the course of your testimony at the April 29 hearing on bills relating to D.C. Transit, you stated that except for the union pension and health and welfare funds, "all other debts are being paid in the normal course of business." Since that time, the Subcommittee has received a memorandum from the District Government indicating that D.C. Transit owed the city $400,000 for track removal as of April 22, 1969, and that the account payable has been in excess of $200,000 since the summer of 1966. A copy of the memorandum is enclosed for your comments. I am particularly interested in knowing how and when you plan to pay off this debt, and whether the company did, in fact, deduct these amounts in full from its track removal fund even though they were not paid. Because the time is growing near for the hearing record to be printed, I would appreciate receiving your comments before Wednesday, May 21. MY DEAR SENATOR EAGLETON: I have your letter of May 16, 1969, concerning my testimony before your Subcommittee on April 29, 1969, relating to D.C. Transit System, Inc. You are quite right in calling attention to the indebtedness owed by the Company on account of streetcar track removal. The Company has been endeavoring to pay all creditors as rapidly as funds are available. The imperative necessity of keeping the Transit System operating and in good condition to serve the public requires payment of operating expenses first. The Company is, however, no less conscious of the other indebtedness. All of us in the Washington Area are all too well aware of the breakdown of law and order in this City in April of 1968. The civil disturbances, riots, the rising rate of crime in the streets, the murder of a D.C. Transit bus driver, refusal of drivers to carry cash for change, and the decline of tourism have all had a most disastrous impact on the Company's business as, in fact, they did on many businesses. The citizens of this community simply did not follow their normal habits. As a result of these conditions, they were afraid to go out at night and come into the business district in the day, all of which caused the Company to lose over $1,700,000 in 1968. If it had realized the return of 5.3 percent predicted when the Washington Metropolitan Area Transit Commission set the rate structure, the entire debt situation of the Company would have been different. Unfortunately, the rates of return authorized for D.C. Transit have not produced the amounts predicted by the regulatory body and actual dollar losses have been sustained since 1965. The returns predicted and the actual rate realized for 1965 through 1968 are as follows: 1 This includes a "paper" profit of $1,360,765, pursuant to Court order. The actual dollar return realized was 0.18 percent. 2 Loss. These returns were before interest. The average rate of return for the years, 1957 through 1968, before interest, has been 3.22 percent, but this, too, must be adjusted downward because of the Court directive "paper" profit. The Company is preparing a petition for increased fares which will be filed very shortly before the Washington Metropolitan Area Transit Commission, and it is hoped that the Commission will act promptly on this request and grant a sufficient fare increase at an early date to permit even greater payments on the Company's indebteness. The Company has followed the accounting practices and requirements directed by the Commission with respect to track removal and has, accordingly, deducted the amount due therefor from the track removal reserve on the books, even though it has not been paid, and at that point it has been added as an accounts payable. Irrespective of accounting procedures, I wish to assure you that every effort will be made to liquidate all debts of the Company as rapidly as possible. Hopefully, the proposed fare increase and the improving business conditions will give us considerable assistance in this direction. Very truly yours, O. ROY CHALK, President. Mr. GEORGE AVERY, U.S. SENATE COMMITTEE ON THE DISTRICT OF COLUMBIA, DEAR MR. AVERY: I recently received a memorandum from the District Government indicating that as of April 22, D.C. Transit owed the City $400,000 for track removal, and that the account payable has been in excess of $200,000 since the summer of 1966. Since this information was not brought to the attention of the Subcommittee at the hearing, I would appreciate your comments now. In particular, I am interested in knowing whether the company deducted these amounts in full from its track removal fund even though they were not paid. If that was the case, would you explain what action was taken by the Commission. Because the time is growing near for the hearing record to be printed, I would appreciate receiving your comments before Wednesday, May 21. Sincerely, Enclosure. THOMAS F. EAGLETON, Chairman, Subcommittee on Fiscal Affairs. WASHINGTON METROPOLITAN AREA TRANSIT COMMISSION, Hon. THOMAS F. EAGLETON, U.S. Senate, DEAR SENATOR EAGLETON: I have your letter of May 16, 1969, asking for our comments on the amounts owed to the Government of the District of Columbia by D.C. Transit Company, Inc., for track removal. I have reviewed the memoranda attached to your letter and, while we have not checked the specific accuracy of the figures cited due to the press of time in meeting your suggested deadline for comments, the facts appear to be accurate on the basis of our general knowledge of the books of the company. In answer to your specific question, the amounts in question have been deducted from the track removal reserve as reflected on the books of the company. The company's accounting for tax purposes, regulatory purposes, and general accounting purposes is done on an accrual basis. This means that a reserve such as track removal reserve is debited when a liability attributable to that reserve is incurred, i.e., when a bill for track removal is received by the company. The debit to the reserve account, under accepted accounting principles, has nothing whatever to do with whether the bill is paid. Thus, the accounting treatment of the amounts presently in arrears was entirely in accord with established accounting principles and sound regulatory practice. I do not wish the foregoing paragraph to be understood as condoning the company's failure to pay this obligation. The company collected the money with which to pay this debt from the riding public and it had a fixed statutory obligation to pay the bills rendered to it by the District Government for track removal. While the Commission was aware of the existence of this obligation due to our continuing audit of the company's books, we have not been consulted by D.C. Transit or by the District Government concerning the matter. The Commission has not made any representations on its own motion with regard to this obligation either to the company or to the District Government. The District Government is a creditor of D.C. Transit, a status occupied by a number of other individuals, corporations, and government entities. It would not, in our judgment, be a proper exercise of the Commission's functions to require the company to give preference to any one creditor over another. In the first place, our power to do so is highly doubtful. Moreover, making such choices for the company would quickly lead to complaints from other creditors and embroil the Commission in the functions of company management to a degree which every utility regulator would recognize as undesirable. I trust this provides you with the information you require. If we can be of any further assistance, please let us know. Sincerely yours, GEORGE A. AVERY, Chairman. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY COMPACT WHEREAS, the Commonwealth of Virginia (Ch. 627, 1958 Acts of Assembly), the State of Maryland (Ch. 613, Acts of General Assembly, 1959), and the Commissioners of the District of Columbia (Resolution of the Board of Commissioners December 22, 1960) have heretofore entered into and executed the Washington Metropolitan Area Transit Regulation Compact on December 22, 1960, as amended March 29, 1963; and WHEREAS, the Congress of the United States has enacted legislation (Public Law 774, 80 Stat. 1324), whereby it has (1) given its consent to the State of Maryland and the Commonwealth of. Virginia to effectuate an amendment to said Compact by adding thereto a Title III (known as the Washington Metropolitan Area Transit Authority Compact), and (2) adopted and enacted the said amendment for the District of Columbia; and WHEREAS, the State of Maryland (Ch. 869, Acts of General Assembly 1965), and the Commonwealth of Virginia (Ch. 2, 1966 Acts of Assembly) and the Commissioners of the District of Columbia (Resolution of the Board of Commissioners adopted on November 15, 1966) have adopted said amendment to the Compact: NOW, THEREFORE, the District of Columbia and the States of Maryland and Virginia, hereinafter referred to as signatories, do hereby amend the Washington Metropolitan Area Transit Regulation Compact by the following addendum thereto, and do thereby covenant and agree as follows: |