as to a particular route. Herein lies another fallacy in the position Movants urge upon us." Mr. Bell's testimony beginning on page 68 and continuing through page 110 does not even relate to cost analysis. Nowhere does he indicate that cost analysis techniques could not be related to a bus company. To the contrary, he gives several examples of traffic check procedures which D.C. Transit has used and which include relating to the "transfer problem” which would be one of the complicating factors in cost analysis. Any reasonable interpretation of Mr. Bell's testimony would lead to the conclusion that passenger counts, one of the principal factors in cost analysis as related to a bus company operation, are quite practical and in fact are done by the bus company. Mr. McElfresh actually admitted that cost analysis had been applied to bus company operations on a line by line basis. (Tr. 1768-1769, 1790-1793)

No rationale for rate structure promulgated

There is no rationale in the record for a rate structure different from that proposed by D.C. Transit.

MR. DOWDEY: He has proposed one rate structure, but it would seem to me it would not be a rash guess to expect that would not be accepted, and that the Commission, even if it granted a fare increase, would grant it in different terms than the precise form of his asking.

MR. SPEAR: The fare structure proposed was the one that the company believed to be the optimum. By "the one" I mean it was the only one that was filed or projected in this proceeding, or as to which all of the detailed work that had to be done in a proceeding like this was in fact done. Now, whether somebody else has another system, I don't know, but we offered no other and have no computations for any other.

MR. DOWDEY: In other words, there is no rationale for any other?

MR. SPEAR: There is no rationale for any other. (Tr. 1843-1844)

But the Commission has never taken testimony or made any attempt whatsoever to develop evidence on the rate structure it has adopted. Thus it is implied that there is no expertise needed to determine the fare structure question, or that the problem has an obvious and simple answer, or that they themselves have the expertise in this area which they admit lacking in the "fair return" area.

Furthermore, the Commission cannot transfer their responsibilities to any other party, and most certainly they cannot shift this responsibility to the public. The Commission has taken testimony, developed evidence and considered reflectively on the "fair return" question, as indeed it has done in other previous years. To the contrary, the Commission has never taken testimony, developed any evidence whatsoever and therefore has never considered the "fair fare" question reflectively or otherwise, either in this yar or in any previous year.

CONCLUSION

The court should, therefore, direct the Commission to give fuller consideration to the bases (a) for fixing its rate of return, and (b) designing its fare structure. The court should also set aside Washington Metropolitan Area Transit Commission Order No. 684, enter an order of restitution, and grant such other and further relief as to the court may seem just and proper.

LANDON GERALD DOWDEY
DAVID S. LEVY

1629 K Street, N.W.
Washington, D. C.

Counsel for Petitioners

Senator EAGLETON. Since both of you gentlemen have apparently spent a good deal of time studying this matter-have you had any professional estimates or appraisals made as to what would be a fair price for the buses and physical properties?

Mr. TERRIS. It depends on what you would buy, some of the physical properties one would not buy, because they are not needed to run the bus company.

Senator EAGLETON. Right. Just the indispensable property, plus the rolling stock.

Mr. DOWDEY. There has been no engineering studies made, but you can tell from their books what is involved.

Their net worth as of right now is about zero. If you deduct the claims, it would be zero less several million dollars.

So on the books, the company is worth less than nothing. The only reason that it would be worth anything, however, would be that there are real estate holdings in that company which have greatly appreciated in value, and they are carried on the books at their original cost, less depreciation, and so it is a real estate question, really, that valuation, but a great deal of that real estate is not needed for transit operation, and perhaps only a relatively small part of it.

So the excess over book value for the part needed for operations would not in my judgment be a great deal of money, several million dollars, perhaps.

Senator EAGLETON. Thank you, gentleman, very much. We appreciate your appearance.

Mr. Edmund Pendleton, Jr., chairman, Republican Central Committee for the District of Columbia.

STATEMENT OF EDMUND PENDLETON, JR., CHAIRMAN, REPUBLICAN CENTRAL COMMITTEE OF THE DISTRICT OF COLUMBIA, ACCOMPANIED BY HENRI RUSH, JR., SPECIAL PERSONNEL COUNSEL

Mr. PENDLETON. At my left is Henri Rush, who has prepared some testimony and some study on this matter with the assistance of some of our young Republicans.

We have submitted a prepared statement. If there are any questions later about the prepared statement, Mr. Chairman, we will be glad to answer them. I think for the purpose of saving time, perhaps I might merely summarize our position.

Senator EAGLETON. Fine.

Mr. PENDLETON. And then see if you have questions. (The prepared statement follows:)

PREPARED STATEMENT OF EDMUND E. PENDLETON, JR., CHAIRMAN, DISTRICT OF

COLUMBIA REPUBLICAN COMMITTEE

For ten of the last eleven months, D.C. Transit has failed to make payments to an employee benefit fund. The company now owes the fund over $1,600,000 and admits it cannot make up the back payments. Nevertheless, the company has regularly paid its owners sizable dividends, and the owners in turn have sold a large portion of its real estate holdings to other companies they control for pitifully low prices. An investigation by the Washington "Post" revealed, for instance, that the old streetcar repair building on M Street, Northwest, was sold

in 1964 for less than $80,000 to "M Street Estates", a subsidiary of the company. M Street Estates then mortgaged this, its only property, a year later for $2,500,000. Using as a guideline a standard mortgage of 80% of fair market value, this property was worth a minimum of $3,125,000. M Street Estates then lent at least half the money it received from this mortgage to other firms owned by Mr. Chalk. For $1,800,000, over $6,000,000 worth of property has been transferred to subsidiaries to D.C. Transit in similar deals. Fiscal practices such as these have led the company on a disastrous financial course.

The present owners of D. C. Transit bought the company and its real estate assets in 1956 for $13,500,000-$500,000 in cash. $13,000,000 in loans. The loans were repaid in less than four years, apparently mostly from operating revenues— in other words, by the fares of the riders. Today D. C. Transit's debts are reputed to total around $30,000,000, and according to the Washington Metropolitan Area Transit Commission, the company's net worth is no more than $5,000,000.

Yet, before a subcommittee of the House District Committee, the company first assured those Members that its current worth is $75 million in gross assets, then last Friday raised that figure to nearly $100 million. Even considering the probable worth of the company's "going concern"-its trained personnel, schedules, etc.-Mr. Chalk's figures appear, at best, absurd. We do not believe that Mr. Chalk should have the right, in effect, of selling his drivers and mechanics, especially since he states that he has written off their training as a business expense.

The somewhat questionable transfer of assets, the unreasonable ratio of debts to assets, and the inability of the company to meet current financial obligations, indicate that it has suffered from inept management.

The acceptance of a franchise as a public utility imposes an obligation to attempt, in good faith, to serve the public well and at a reasonable cost. In view of the evidence available, it is apparent that Mr. Chalk has and intends to continue to use his franchise solely for the benefit of the stockholders of D. C. Transit. His total disregard for the public, which by acceptance of his franchise he undertook to serve, constitutes grounds for revocation of that franchise.

We urge this committee to conduct a complete investigation into the extent of the transfers of capital assets from D. C. Transit to other related companies, primarily to determine whether or not D. C. Transit was adequately compensated for these properties, and in addition to establish the company's actual present financial condition. If this investigation confirms published reports, the franchise would appear to have been grossly abused and should be revoked for misuse on this ground alone.

We further urge the committee to examine carefully the effectiveness of past regulatory efforts for the purpose of proposing much needed improvements. If, for example, the WMATC could rule in 1966 that future transfers of real estate to subsidiaries had to receive prior approval, why was not such a regulation issued years earlier?

D.C. Transit is already subsidized by the people of the District of Columbia. Its franchise remits sales, excise, and personal property taxes. We strenuously oppose Mr. Chalk's request for further subsidy under the company's present management. We reject the proposition that taxpayers should be obligated to provide a "guaranteed annual income" to the stockholders of D.C. Transit. S. 1813, as drafted, is in our view fatally defective for failure to provide adequate safeguards against misuse of the funds provided.

Moreover, there is some question as to the effectiveness of a subsidy designed solely to reduce fares, as is the one proposed. Extensive studies, such as that sponsored by the Rand Corporation and published in the book, The Urban Transportation Problem,1 show that the ability of any fare reduction to attract new riders to public transportation is highly doubtful. In fact, this study found that the only successful means of increasing ridership is through the provision of more frequent and much faster service than is now offered.

In any event, we believe that a subsidy is premature at this point. In our view, it has not been proved that a bus transportation system cannot be operated at a profit, but only that the present management has been unable to do so. This inability, we believe, stems not only from lack of efficiency, but also from present management's unwillingness to commit funds to undertake fresh and imagina

1 Meyer, Kain, and Wohl (Harvard University Press: 1965).

tive programs designed to stimulate increased ridership as a means of obtaining necessary additional revenues. Patently, S. 1813 will remove any existing incentive, either for more efficient operation or to increase ridership.

For all of the above reasons, we oppose the adoption of S. 1813.

We endorse the principle of S. 1814, with two exceptions.

D.C. Transit's Congressional franchise should be revoked, and its rights should be transferred to the Washington Metropolitan Area Transit Authority.

However, we oppose conditioning revocation upon acquisition of all of D.C. Transit's facilities "used for mass transportation" by WMATA as provided by section 3 (a) of S. 1814.

As WMATA does not have the power to run the bus company now, it will be necessary to amend the interstate compact creating it. We recommend that this compact be amended to permit WMATA to operate the bus company on an interim basis, rather than permanently as contemplated by S. 1814. During this interim period WMATA should seek whatever public funds may be available to support demonstration projects designed to determine under what circumstances, if any, the services offered can be made self-supporting.

After such a period of experimentation and study, we believe it should be possible to determine whether mass transportation by motorbus in the WMATA area can be operated at a profit. If so, the Authority should contract with a suitable private operator for the provision of services under a short-term franchise of, for instance, five years. If not, it will then be appropriate to determine whether subsidization of a private operator (as proposed under S. 1813) or permanent public ownership (as proposed under S. 1814) is the more desirable. Thank you for affording me the opportunity to present the views of the D.C. Republican Committee.

Mr. PENDLETON. We endorse the principles of S. 1814, with two exceptions. We feel D.C. Transit's franchise should be revoked, and the rights should be transferred to the WMATA.

Second, as WMATA does not have the power to run the bus company now, it will be necessary to amend the interstate compact creating it.

We recommended that this compact be amended to permit WMATA to operate the bus company on an interim basis rather than permanently as contemplated by S. 1814.

After a period of experimentation and study, perhaps a couple of years, we believe it should be possible to determine whether mass transportation by motorbus in the WMATA area can be operated at a profit.

If so, the authority should contract with a suitable private operator for the provision of services and a short temporary franchise, of, for instance, five years.

It will then be appropriate to determine whether subsidization for a private operator, as proposed under S. 1813, or permanent public ownership as proposed under S. 1814, is the more desirable.

With these two exceptions, we endorse the bill S. 1814.

I appreciate this opportunity to appear before you. This is a matter of prime concern to the citizens of the District of Columbia.

If there are any questions, we would be glad to answer them.

Senator EAGLETON. How do you, or your counsel, view what would happen, as a practical matter, if the franchise were revoked? What kind of bus business would be conducted in the District at that time?

Mr. PENDLETON. I don't think you could have immediate revocation without having the opportunity for WMATA to be prepared. I think if Congress were to revoke it tomorrow, it would be unfortunate. I think WMATA must be given the opportunity to become effective at a future date, and put itself in the position to operate a bus system with equipment acquired from D.C. Transit or other sources.

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