will expect the companies to produce plans for the purchase of new equipment, for the provision of routes which are better suited to requirements and for a variety of other service improvements. The Commission will hold public hearings in order to stimulate community involvement in the planning process. The community should expect imaginative plans and programs, and we will accept nothing less.

I should like to move now to the question of how much the subsidy will cost. Before discussing specifics, I want to make it very clear that the figures I will mention are by no means firm ones. There are many variables in the factors that will determine the actual expenses and actual revenues of a given company, and for that reason the cost will undoubtedly vary from my estimates.

Against that background of qualification, we estimate that for D. C. Transit for the first year the subsidy will cost nearly $6 million if the fare is pegged at 25 cents. By the third year, the annual cost would be $800,000 higher. These estimates include some assumptions that you should have clearly before you: (1) They assume the number of riders will not increase or decrease. We simply do not know what to expect will happen to the level of ridership. Our hope and belief is that it would increase if the fare were lowered to 25 cents, and that service improvements would have the effect of attracting new riders, but we cannot predict what changes will actually occur. (2) Our estimates are based on an assumption that operating costs other than labor costs will increase by 2 percent yearly, and that labor costs will not increase beyond the increases which we know will occur under present labor contracts. The actual experience of D. C. Transit in the past few years is that payroll costs have risen from 2.5 to 5 percent annually. Furthermore, if the service improvement plan to be implemented by a company involves additional costs, as it likely will, those costs must be added to our estimates. (3) Our estimates reflect losses for the entire D.C. Transit System, not just the D. C. portions to be subsidized. This may affect the validity of the estimate, but we cannot say now how much.

Thank you.

I have attached to my statement a table showing the estimates of subsidy cost for D. C. Transit for the next three years under both a 25-cent fare and a 30cent fare. Again, let me caution you that these costs may be substantially understated, perhaps by as much as 50 percent or more, but they are the best projections we can make. This, then, is the substance of subsidy proposal embodied in S. 1813.

CONCLUSION

The adverse impact of rising bus fares in today's urban environment directly affects us all.

For the poor, constantly rising prices for essential transportation services severely exacerbates the already overwhelming problem they face.

For the affluent, diminishing bus ridership and the resulting diminution in public transportation service means increased costs of providing alternative transportation: the cost of second and third family automobiles and the costs of additional public facilities and services necessary to accommodate them.

For the community as a whole, the costs are immeasurable, not only monetarily, but in terms of the quality of life the community can provide.

We face a serious challenge which, if not met, will surely further deteriorate the vitality of our city. It is clearly a time to act.

Thank you.

D.C. TRANSIT SYSTEM, INC., ESTIMATED SUBSIDY REQUIREMENTS BASED ON 5.2 PERCENT RATE OF RETURN

Mr. AVERY. Yes, I will, Mr. Chairman. I might start with the one point covered in this statement which was not covered in my testimony, or my prepared statement, before the House.

That has to do with the alternative approaches that are before this committee: The subsidy approach, and the public ownership approach. Senator EAGLETON. Do you want to read that portion? Mr. AVERY. I can paraphrase it.

We, as you mentioned in your opening statement, prepared the subsidy portion-the subsidy proposal. Most of my prepared testimony is directed toward that. However, I want to make it very clear that our explanation and emphasis in our testimony on the subsidy proposal is intended in no way to express opposition to the public ownership approach.

What we are concerned with, Mr. Chairman, is a serious economic and transportation problem which exists in this community. The problem that we think requires the attention of Congress and the attention of the city government.

I serve as chairman of the regulatory agency which is committed to regulation of private enterprise engaged in transportation in this community. I felt it incumbent upon me, in that capacity, to suggest a solution to this problem in the context of private enterprise.

We, on the commission, all regard the question of public ownership as the alternative approach as really a political question which is beyond our province. It is a matter that lies in the province of the city government, which represents the political responsibility of the community, and the Congress which has these powers as far as Washington is concerned.

We feel that we should leave that political question, as to whether you are going to build a public ownership route rather than a subsidy route, in the hands of those who have that responsibility.

We have made a proposal which we think will work. It has chosen to go this route. It is a solution which we think would be in the public interest. But if the alternative route of public ownership is what the Congress and the city government feels appropriate, then we regard that as a decision being made by the appropriate people to that effect. Now, turning from that narrow question to the broad problem before us, I think you summed it up, Mr. Chairman, better than I could in your opening statement. The problem we have in this community is upward in the cost of operating the mass transit system. It does not exist just here. It exists in every community in the country which has a bus transportation system. The cost of operating those systems has been going up substantially in recent years.

Naturally, as costs go up the revenues available to pay those costs must go up. Under existing law there is essentially only one source for those revenues and that is the fare box. So, as the costs go up, and more revenues are necessary, the fares that follow them go up. We have given the company three fare increases during 1968. We gave them one during 1967. Šince 1960, the cash fare has increased by 20 percent, from 25 to 30 cents. The token fare has increased by 50 percent, from 20 to 30 cents.

Now, we think that this history of fare increases, and the prospect of further fare increases, is absolutely contrary to any principle of sound public policy and sound transportation management.

We ought to be trying to get people onto the buses. The mass transportation system is the most efficient form of moving people around the community. It solves all the problems that we have to deal with in the community as a result of the automobile culture. If we can get people out of those automobiles, and onto buses, we are making a real contribution to solving that whole range of serious problems.

Instead of doing that, we have been driving people out of the buses. Every time we raise the fares a certain percentage of the ridership is lost. The touchstone, that we use, is about one-quarter of 1 percent of the ridership is lost for each 1-percent increase in fares.

In addition, as you mentioned in your opening statement, we are imposing an ever-increasing burden, for the necessities of life, on the urban poor. Particularly, when we are reaching the levels we have today. The 30-cent fare, facing the prospect of fares above 30 cents, 35 cents, 40 some day, and who knows, even more than that. It seems to us that it is just imposing an undue burden on those less than able to afford it.

So that some approach other than simply raising the fares, to meet these increases in cost, is necessary. Having considered that problem, it seemed to us, that an appropriate solution is to spread the cost burden beyond those who ride the bus.

Specifically, to spread it to the community at large by having the community contribute some portion of the cost of operating the system through public funds. Now, having made that decision, we drafted for your consideration a bill which would provide a public subsidy for the D.C. Transit System.

We feel that one touchstone, that you should apply in considering the merit of this proposal, is whether that is a justifiable expenditure of tax funds. For the reasons, I outlined in my statement, I believe it is. I think that the community clearly benefits from that, and from the existence of that system, and the taxpayer benefits from the existence of that system, whether he uses it or not.

If he does not use it, and drives his automobile, he benefits from the fact that there are 400,000 people a day riding on that system who otherwise would be fighting with him for space on the highway.

Also, the cost of accommodating all those extra automobiles would have to be borne by the taxpayer of the bus system. So, we think there are benefits accruing to the taxpayer whether he uses the system or not.

In a sense you can't have a city without a mass transit system. It couldn't exist without it. The economic, cultural life of the city would be seriously impaired if not destroyed if you didn't have a mass transit system.

Now, in ordinary circumstances, for something like a mass transit system, it should be paid for by the users. That is the normal way of organizing our society and our economy. But we think we are using that normal approach here for results which are contrary to sound public policy. That we should consider an alternative approach of not having the user pay the entire cost of the system.

Now that, in essence, is the philosophical background for the approach we have suggested in our bill. I can take a few minutes to analyze the specific provisions. I can do it in 1 or 2 minutes.

Essentially, we would propose that the Commission would set a fare, just as it does now. It would hold hearings, it would examine all the accounts of the company, and would set a fare just as it does now. However, under the operation of the bill, this fare would only be a theoretical fare. The actual fare would be an amount fixed in the bill. The bill proposes a 25-cent fare. I might say parenthetically, Mr. Chairman, the amount of the fare fixes the amount of the subsidy. If we roll the fare back to 25 cents, that has the effect of increasing the subsidy by several million dollars.

That means additional tax moneys have to be forthcoming. In view of Mr. Fletcher's statement that the city could not support a roll back of the fare to 25 cents, that decision, as to the amount of tax money which should be committed to this problem, again the primary weight should be given to the city government in that regard.

So, even though we propose, in our bill, a roll back to 25 cents, since the city government has said that it doesn't think that it can afford that, that it would impose a burden on it in the expenditure of its tax resources, that that assertion should be given great weight by the committee and by the Congress.

In the light of that, you should, perhaps, consider the second alternative which is covered in my prepared statement. The figures we submitted, which is to base the subsidy if we are going to go that route, on a 30-cent fare.

In other words, the city has the responsibility to decide how much tax money to spend on that. Since they have said they don't think they can afford to spend that much, that ought to be given more weight than our suggestion to roll it back to 25 cents.

Senator EAGLETON. What are the figures on the subsidy at 25 cents and the subsidy at 30 cents?

Mr. AVERY. That would be contained in the attachment to my prepared statement. I can give you the rough figure. Every penny of fare equals about $1 million. There are about 100 million riders in the District of Columbia.

So, each penny less, you get from each one, means about $1 million a year. So, the difference between 25 cents and 30 cents is about $5 million.

Under the bill we would set the fare, just as we do now, but that would be a theoretical fare. The difference between the theoretical fare, and the amount fixed in the statute, would be made up by a subsidy paid to the company on a monthly basis.

The results of that would be a subsidy, as we see it, not for the company but for the bus rider. We say that for this reason: The amount of money that would be forthcoming and the profit which the owners of the company would get would be identical in both cases. The company would make no more profit under the subsidy bill than it would without the subsidy bill.

The only difference would be that a portion of those moneys under the subsidy proposal would be forthcoming from public sources and a portion from the fare box. Whereas, without the subsidy, the bus rider would have to pay the whole thing. That is why we characterize it, in our prepared statement, as a subsidy for the bus rider rather than a subsidy for the owners of the company.

However, I would like to make it clear, in that one regard, on that. This was subject to some discussion before the House committee. I am not saying there would not be any profit to the owners of the company under the subsidy proposal.

There would be a profit. However, the profit would be the same as without the subsidy. So, in that sense, granting the subsidy would not benefit the owners of the system.

Senator EAGLETON. Mr. Avery, with respect to profit, what is the rationale, in section 1 on page 2 of the bill, that the amounts paid by the Commission pursuant to this act shall not be against subsidyshall not be considered as income for Federal or District of Columbia income tax purposes?

Mr. AVERY. The rationale for that is that there is no point in the Government paying money to the company on the one hand and then taking it away with the other.

Senator EAGLETON. If there is a taxable profit, would the company have to pay taxes on the profit?

Mr. AVERY. Yes; it would have to do that in any event. We, in our prepared testimony, recommend that that language be stricken. We put it in there when we were first drafting it because we were concentrating on the effect as far as the subsidy payment is concerned. However, when we got down to further analysis on it, we found we had done something far more than we intended to do.

If you don't count that money for tax purposes they show a tax loss every year. That could shelter a whole lot of income from other

Sources.

Senator EAGLETON. You don't want shelters in here?