Section 4(1) is not opposed to this. ". .. The fact that a carrier is operating a route or furnishing a service at a loss shall not, of itself, determine the question of whether abandonment of the route or service over the route is consistent with the public interest as long as the carrier earns a reasonable return." (Emphasis added) The clear meaning of the law is that a given route may be operated at a loss but this loss must not be such as to be "unjust, unreasonable, or unduly preferential or unduly discriminatory either between riders or sections of the Metropolitan District." Furthermore, the law uses the word "efficient" several times. Clearly Congress intended that the Commission make a serious inquiry into the efficiency of the transit operator. Yet, the Commission has clearly never made any serious or even semi-scientific inquiry into the transit operator's efficiency.

Data available

Data is readily available which would form a key part from which more realistic internal profitability studies. could be made.

MR. SPEAR: What we do have is the system cost per mile information. We also have traffic studies of particular routes and lines, as you call them.

The traffic studies are not to be confused with cost studies. If I said that, I would like to correct it. I thought I had talked of traffic studies. If I said cost studies, I was wrong.

There was testimony about traffic studies in the record, and we do have the traffic studies and the work papers. Those are available, and we do have the system cost-per-mile information. (Tr. 1842-1843)

On page 42 of Order No. 684 the Commission states, "It was testified by both Mr. Bell, a vice-president of the company, and Mr. McElfresh, that it was not practicable to break cost figures down to obtain an accurate cost picture

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).