creased in value, as has all other real estate in Washington. You have, no doubt, heard a great deal to the effect that the company has spun off this real estate for the benefit of its stockholders. This is untrue. Not a single square inch of real estate has ever been spun off. Those who said this untruth and other untruths are simply confused.

What has happened is that the company has transferred surplus nonoperating real estate with the approval of the Washington Metropolitan Area Transit Commission to a wholly owned subsidiary corporation of the company. All of the stock of such companies is owned by D.C. Transit System and carried on its books at the book value. of the real estate at the time of its transfer to the subsidiary. The fact that the properties may be worth more than the book value on today's market have led some to believe that the company had disposed of its real estate below the market. This is untrue.

The stock of the subsidiary company on the books of D.C. Transit System was necessarily set up at the original cost of the real estate, less depreciation. This was necessary and proper since no regulatory commission will even permit a write-up in the value of property while it remains on the books of the system.

There are certain business and legal advantages to be gained from this method of handling property which are normal in everyday commerce. To date D.C. Transit has invested, at no cost to the U.S. Government or the District of Columbia government, $40,662,149 in the following capital improvement areas, which account, incidentally, sir, for our high debt ratio.

Either we bought $40 million worth of equipment or we didn't. When we did it, it was for the benefit of the public to do so, in our judgment. The buses aggregated $31,430,000; the buildings and land, $7,600,000; and various other equipment-shop, garage, office, et cetera—approximately $1,800,000.

The present value of our maintenance base alone, which was constructed at a cost of $6 million, is about $10 million. Just to give you an idea of how things have gone up, the present value of the total D.C. Transit System, including all of its real estate and its rightsof-way-it owns miles and miles of rights-of-way, much of it in fee simple is in excess of $75 million, less current and long-term debt, which we estimate at approximately $30 million.

Our evaluation of the transit system will be supported by nationally recognized transportation engineering firms who have made engineering appraisals in many major cities of the United States.

Incidentally, may I say, sir, the answer to the question that was in your mind is, "yes," all of this real estate and all assets are available for my company in its normal business operations.

Senator EAGLETON. Legally available, in your opinion, Mr. Chalk? Mr. CHALK. Maybe not legally. I don't think legally in terms of the WMATC being in a position to order it.

But I have expressed an intention, and I always do express an intention, to do what I consider the right thing.

Our company is a wholly owned subsidiary-and I do owe obligations to stockholders of the D.C. Transit System of Delaware, which has approximately 10,000 stockholders. I must act in the interest of the public, in the interest of the stockholders, and these two balance out and must both be considered.

The stock is listed publicly and traded daily. We have approximately 2,800 employees and have been recognized by many foreign countries as maintaining a model of efficiency and service throughout the world. The company is constantly striving and struggling to keep its expenses down, but the technology of bus transportation-you still have only one operator, one bus, we can't get it down to a half man-has not significantly advanced so that great savings can be made. The opposite is true, because more complex equipment, such as air-conditioned buses, radio-dispatching equipment, require more costly maintenance and because gasoline, oil, tires continue to increase in price, plus the fact we now have a very significant cost item caused by increased vandalism. This is a result of 1968.

I would call your attention to the fact that the company owns more air-conditioned buses than any other system in the United States. Our labor costs are not static, because the union contract calls for increasing wages and cost-of-living adjustments. The last cost-of-living index increase caused an increase of 5 cents an hour. That was just recently in wages, and a contract increase of 8 cents an hour is due in May. This is a total of 13 cents. That is only recently, and that happens almost quarterly.

Each cent represents approximaeely $70,000-13 cents represents almost a million dollars additional cost per annum added, through no fault of ours.

In addition, the company has been required to set up a pension plan and a health and welfare fund, which caused greatly increased expenses. In the aggregate, labor amounts to 82 percent of our expense.

There is a great deal of confused thought which believes that the company should be required to sell its capital assets in order to keep fares below cost. The fallacy of this is readily apparent to any proper thinking person. There are others who think surplus real estate could be converted to cash and thus keep the rates down.

I can assure you that such utilization of the company's assets would have no effect upon the rate structure of the company. Whether we sold our real estate or we still didn't sell the real estate, the costs of operation will continue to climb. They have nothing to do with the real estate. Irrespective of whether the capital is equity or debt, the cost of operations will be no different.

I believe Chairman Avery has testified to that, too.

The main issue is that the company should be permitted to operate on a basis to pay expenses and a reasonable rate of return just as every other business. No sound businessman would subscribe to the theory that he should be forced to sacrifice his capital assets to subsidize his customers. This was the intention of the Congress, which I believe fully intended that the company should be given the opportunity to earn a return of at least 61/2 percent after taxes based upon gross operating revenue. That was the wording in the franchise prepared by Congress. I draw this conclusion from the legislative history of the franchise, including the floor debates and the committee report at the time the franchise was approved. All this was reiterated again 4 years later, when the area compact was passed by the Congress.

The fact is that the company has never been allowed the opportunity to earn this rate. The regulatory bodies have set lower fares, and the rate structure so ordered has not even returned the income projected

for those lower rates. And this is the root of our trouble. We have not been permitted to earn sufficient money year in and year out, good years and bad years, to pay our expenses and a fair rate of return for the operation of the company.

For example, the rate of return projected by the Commission since 1966 was 6.03 percent. The return realized by the company before interest was 4.28 percent. In 1967 the rate predicted was 5.2 percent. The rate realized was 3.26 percent. In 1968 a return of 5.34 was projected, but the company showed a loss of 0.84. Much of that was attributable to the problems of 1968 and the public uprising.

The average actual rate of return from 1957 through 1968 is 3.22 percent before interest. Our dollar loss for 1967 was $256,050, and in 1968, $1,715,787. The company is continuing to lose money in 1969. By way of comparison, the 1969 edition of Moody's Manual for Investment shows other Washington utilities' income based on operating revenue for 1967 to be 13.03 percent in one case, 29 percent in another, and 141⁄2 in a third. An ICC statement shows returns on class I railroads in the United States for 1967 to be 6.53 percent after taxes.

The company has not paid a dividend since July 1966. Its ratio of dividends paid to gross revenue for the period of the franchise has been 1.16 percent, which is in contrast to dividends of 5.2 for railroads, 11.5 for electrical power companies, and 10.2 for telephone companies.

The company has received approximately $3,400,000 from subsidiary real estate companies to cover its requirements. And contrary to what you may have read, the interest rate paid by the company is the same as that charged on the bank loan to the subsidiaries and in one case less. Because the company has not had a rate structure which will permit it to earn sufficient income, it has fallen behind in its payment to the union pension plan and the health and welfare fund. In connection with that, a suggestion was made a year ago, on April 9, as a matter of fact, to solve that problem, to the union, to which no solution has as yet been found. We believe it could have been solved last year on a company-union basis. But I can discuss that at another time.

We have proposed to the union whether a subsidy is granted or a rate increase is granted to pay 75 percent of company profits to the plan and fund with 25 percent going to other bills that are normal. In other words, we have proposed to the union that whatever profits there are, 75 percent of them will go to liquidate their indebtedness unless it can be done sooner by other means. I will come back to that point, sir. With regard to S. 1814 providing for a Government ownership of the bus system, I do not agree that such a plan is in the best interest of the public. The expense of the company will continue to rise under either Government or private business operation, and no greater service can be rendered unless fares are increased. It is a fallacy to believe that the Government can operate cheaper, more efficiently and more effectively than private enterprise. Expenses and fares will go up in either case without a subsidy, but private enterprise, having the incentive to make a profit, will do more to keep expenses down and will do more to render better service because of its private ownership and responsibility of personal management.

Many seem to think there will be a saving by the Government in operation of the bus company as it eliminates dividends to stockholders. However, it should be borne in mind that dividends would be more

than offset by the interest paid on the Government bonds issued to cover the purchase price. Interest rates today and those foreseeable are considerably higher than the highest rate of return authorized by the Washington Metropolitan Area Transit Commission.

We would like to state unequivocally we are firmly against public ownership and for good reason. Public ownership assures no advantage to the public and, consequently, is not in the public interest. First, public ownership will not lower fares.

Second, public ownership will not lower wages.

Third, public ownership will not improve service without higher cost.

Fourth, subsidies, if approved, will be greater under public ownership than under private operation.

Fifth, the cost of purchasing the system would be an unnecessary financial burden on the public.

And, sixth, public ownership in our Nation's capital could bring a concept of state socialism much nearer to reality.

As a matter of fact, all of the aforementioned elements of operation would worsen under public ownership. The incentive to make a return would no longer be present. Political considerations, which invariably accompany public ownership, would lead to unnecessary increases in personnel and to wasteful and inefficient service.

The natural assumption by the riding public is that with public ownership fares will be decreased and that service will be increased. Let there be no illusion as to what will happen. If fares are not increased to compensate for increased expenses, then subsidies in the form of additional taxes will have to be raised.

The results predicted under public ownership are based on known fact. In every city where there is public ownership, fares are increasing or subsidies are increasing, or both are increasing. The D.C. Transit System cannot cope with increased operating costs, particularly rising expenses for labor, without an increase in the rates of fares. Increases in the fare will inevitably produce a loss in ridership, thereby adding to the traffic congestion.

Paralleling this problem are the social repercussions which, in effect, mean that the public cannot cope with increases in the fare. It particularly will work a hardship on those least able to assume the burden on higher fares.

The solution appears to be to reduce the fares and arrange for a plan whereby the general public will subsidize the riding public to the extent of the differential between fares actually paid and the fares required to enable the company to continue in operation. Even if the transit facilities were to be operated as a public-owned utility, it will be necessary to increase fares or pay an operating subsidy plus an annual capital outlay budget, which, for buses alone, will be approximately $4 million.

Additionally, we believe the cost of Government operation will be even greater than under private ownership on the basis of the costs being paid in cities of public ownership. I refer to Chicago, 40 cents; Boston, 40 cents applied for; Detroit. 30 cents; et cetera.

The record has shown that the D.C. Transit System-and I am going to my conclusions that the D.C. Transit System provides as good or better bus transportation system by comparison with any

other system in the world. Its costs are as low as can be effectively achieved. No one can do a better job than we have done without increased cost.

We believe we can do a better job for the same or lower cost than any Government agency. Yet, despite our maximum effort for efficiency, we are faced within the next few weeks with the prospect of filing an application for an increase in fare to 35 cents. We are distressed, as you may be, that we have no choice except to meet higher costs with higher fares.

And now, in conclusion, with due regard to all the reasons I have presented to you contained in my testimony as to why private operation of the transit system is more desirable and in the best public interest as compared with public ownership, the company has nevertheless come to an opposite recommendation.

I respectfully submit to this committee that the D.C. Transit System has carefully considered the expressions of the vocal public, the Mayor, and the City Council, the apparent feelings of the news media, and some Members of Congress. It has come to the conclusion that the company, the last privately owned transit system serving a major city in the United States, should not interpose any further objections to the desires of people for public ownership. The D.C. Transit System will not stand in the way of the concept provided in S. 1814 in the form submitted by Senator Tydings.

If the bill is enacted into law, we will cooperate fully.

Thank you, sir.

Senator EAGLETON. Mr. Chalk, earlier in your testimony you mentioned a figure of $75 million as your evaluation of the worth of the D.C. Transit System. Did I hear your correctly?

Mr. CHALK. You heard me correctly, sir.

Senator EAGLETON. Now, what comes under that $75 million?

Mr. CHALK. I divide that into two categories: The transit system as an operating entity, which has been evaluated by transit engineers at approximately $40 million; the balance, real estate.

Senator EAGLETON. Now, in the $40 million, what portion of that would be rolling stock and garages, and what connected with the rolling stock?

Mr. CHALK. I don't have the figures with me. I will be glad to submit them to you in the various categories. They are broken down into 20 or 25 different categories.

(The information follows:)

CATEGORIES COMPRISING THE PRELIMINARY VALUATION OF THE COMPANY AS AN OPERATING ENTITY, EXCLUDING REAL ESTATE

a. Passenger buses.

b. Improvement to leased buses.

c. Accessories and equipment for buses.

d. Tools and work equipment.

e. Automotive service equipment.

f. Shop and garage equipment.

g. Furniture and office equipment.

h. Communication equipment.

i. Materials and supplies.

j. Expensed fuel, oil and grease.

k. Intangible assets.

The above includes both D.C. Transit System, Inc. and Washington, Virginia and Maryland Coach Company, Inc. The preliminary figure of approximately $40,000,000 given in testimony must be adjusted to date since the analysis and appraisal on which the estimate was given was completed in July 1968.