PRESIDENT'S LETTER

Our 42nd Annual Meeting will convene at the Sheraton-Park Hotel, in Washington, D. C., on June 23, 1971.

It is truly fitting we meet again in the Nation's Capital and the home office of the Interstate Commerce Commission, which will make this year's meeting even more meaningful for you and more enjoyable for your family.

Some of us visit Washington frequently while others never have the opportunity. This is an opportunity for you to bring your family on an historic Washington holiday. Numerous events aside from the business meetings are being planned for the family, not to mention the many points of interest in our Nation's Capital.

A special committee for the Annual Meeting Program was appointed several months ago, with John Guandolo serving as Chairman and Harold E. Mesirow as Vice Chairman. The Committee members are: John M. Cleary, Carl V. Lyon, William C. Mahoney, Stanton P. Sender, John R. Sims, Jr., Paul J. Tierney, and Charles A. Webb.

The theme for the program will be "Transportation Policy and Regulation in Changing Times." A great program of outstanding speakers is being put together to highlight our meeting. We will have two excellent Workshop Seminars relating to "Agency Procedures for Intermodal Joint Through Rates" and "New Problems and Issues in Rate Cases."

Plan now to be in Washington June 23-25, 1971, for a spectacular program and an unforgetable family holiday.

PHILIP H. BOUDREAUX, JR.

President

THE RAIL PASSENGER SERVICE ACT OF 1970

ROBERT W. HARBESON

All are aware that intercity railroad passenger service has declined steadily and sharply since the close of World War II. In 1949 the railroads reported 29.6 billion passenger miles in intercity service, about the same volume as they reported for the peak years of the early 1920's. By 1959 the total had fallen to 17.5 billion passenger miles and by 1969 to 7.6 billion.1 Several factors underlie the accelerated decline during the last decade. First, during the late 1950's came the inauguration of the Interstate Highway System and enlarged appropriations for other parts of the highway system. Second, airline route mileage expanded rapidly and toward the end of the 1950's jet aircraft were introduced. Third, the Transportation Act of 1958, by conferring upon the Interstate Commerce Commission jurisdiction over the discontinuance of passenger train service, removed the roadblocks to discontinuance which existed in some states. Fourth, the reorganization of Post Office operations, involving the discontinuance of Railway Post Office cars, hastened the demise of many passenger trains. Finally, a widely held view ascribes the decline in rail patronage to deterioration of the service offered, but the decline in patronage has been at least as much the cause as the result of deterioration of service.

Viewing the foregoing trend, the Interstate Commerce Commission, in a report submitted in 1968 to the House and Senate Committees on Interstate Commerce, concluded that "On balance, significant segments of our intercity rail passenger system appear headed into a final downward spiral," and that "The wholesale collapse of all noncorridor intercity service is not imminent, but the prognosis is grave-fatal in some areas. It therefore recommended, among other things, that the Federal government immediately undertake a study of the need for, and means of, preserving a national railway passenger system and that steps be taken to prevent the further erosion of passenger service pend

2

Robert W. Harbeson, Professor of Economics at the University of Illinois, holds an A.B. from Western Reserve University and A.M. and Ph. D. from Harvard University. Dr. Harbeson was formerly Principal Economist in the Bureau of Economics at the ICC.

1 The decline in intercity passenger miles is greater than the figures shown indicate. All single-trip tickets are reported as intercity but there is evidence that a substantial proportion of these are used for travel within commuter zones. Commutation passenger miles have declined much less sharply from peak levels than have intercity passenger miles and have shown a stable to slightly rising trend in recent years.

2 Intercity Rail Passenger Service in 1968, Report and Recommendations of the Interstate Commerce Commission to Senate and House Committees on Interstate Commerce (Washington, D. C., June 25, 1968), pp. 49, 51.

ing the outcome of that study. Congress, however, was slow to act. During the 1960's various bills designed to cope with the rail passenger service problem had been introduced and extensive hearings held but no action was taken. It may be surmised that reluctance to face the financial implications of a program of Federal support for rail passenger service was a major reason for the lack of action. Finally, perhaps spurred by the prodding of the Interstate Commerce Commission and the increasing financial difficulties of the railroads, Congress passed the Rail Passenger Service Act of 1970, which became law on October 30, 1970. In the following pages we shall undertake a brief description and evaluation of this legislation.

I

First, the Secretary of Transportation, "in cooperation with other interested Federal agencies and departments," is directed to draw up recommendations for a basic national rail passenger system, specifying the routes over which, and the points between which, intercity passenger trains are to be operated and the quantity and type of service to be provided. It is specified that the exclusion of a particular route, train, or service from the basic system shall not create a presumption that such route, train, or service is not required by public convenience and necessity in any train discontinuance proceeding under the Interstate Commerce Act. Within thirty days after enactment of the law the Secretary of Transportation is directed to submit to Congress, the Interstate Commerce Commission, state commissions, and representatives of railroads and railway labor organizations a preliminary report designating the basic system. The commissions and railway and labor representatives have thirty days in which to submit to the Secretary of Transportation their comments and recommendations with respect to the plan. Within ninety days after enactment of the law the Secretary must submit to Congress his final report designating the basic system, including a statement of the recommendations made to him and his reasons for rejecting any of them. The final report becomes effective upon submission to Congress and is not subject to judicial review.

Second, there is established a National Railroad Passenger Corporation (hereinafter referred to as NRPC, or the Corporation), a forprofit corporation, not an agency or establishment of the Federal gov

3 See, for example, Proposed Passenger Train Act of 1960, Hearings before on Surface Transportation Subcommittee of Senate Committee in Interstate and Foreign Commerce, 86th Cong., 2nd Sess. (1960); The Crisis in Passenger Train Service, Hearings before the Senate Committee on Commerce, 89th Cong. 1st Sess. (1965); Passenger Train Service Legislation, Hearings before Subcommittee on Surface Transportation of Senate Committee on Commerce, 91st Cong. 1st Sess. (1969).

4 P.L. 91-518, 91st Cong. 2nd Sess. The measure was passed on October 14, 1970 when the Senate accepted the House bill without amendment.

ernment. Its stated purpose is "to provide intercity rail passenger service, employing innovative operating and marketing concepts so as to fully develop the potential of modern rail service in meeting the Nation's intercity passenger transportation requirements" (Sec. 301). To this end it is empowered to own, manage, operate, or contract for the operation of intercity passenger trains, carry mail and express in connection therewith, conduct research related to its mission, and acquire or contract for equipment and physical facilities necessary for rail passenger operations. Railroads are to provide the crews necessary for the operation of the trains.

The Corporation may have outstanding, in such amounts as it may determine, common stock, to be issued initially only to railroads, and cumulative preferred stock with a dividend rate of not less than 6 percent and convertible into common stock, to be issued to parties other than railroads or persons controlling one or more railroads. Both kinds of stock have voting power. No one railroad may hold directly or indirectly more than 33% percent of the common stock and no stockholder or affiliated group of stockholders may hold more than 10 percent of the preferred stock. Additionally, the Corporation is authorized to issue "nonvoting securities, bonds, debentures, and other certificates of indebtedness as it may determine" (Sec. 304e).

The Corporation has fifteen directors, eight appointed by the President with Senate approval for four-year terms, three elected by the common stockholders, and four by the preferred stockholders. The Presidential appointees must include the Secretary of Transporation and a consumer representative and may not have any employment or financial relationship with railroads. The President is directed to appoint a fifteen-man financial advisory panel, six members to represent banking and railroads, two to represent the Secretary of the Treasury, and seven to represent the public on a regional basis. The task of the panel is to advise the directors on ways and means of increasing the capitalization of the Corporation. Not later than January 1, 1971, it must submit a report to Congress evaluating the initial capitalization of the Corporation and prospects for inceasing the same.

In connection with its annual reports to the President and Congress the Corporation must submit recommendations for amendments to the law, including the provisions relating to the amount of financial assistance needed for operations and capital improvements. In addition, one year from the date of enactment of the law and biennially thereafter the Secretary of Transportation and the Interstate Commerce Commission must submit reports on the state of rail passenger service and the effectiveness of the law in meeting the requirements for a balanced national transportation system.

The Corporation is considered a common carrier by railroad and is subject to all provisions of the Interstate Commerce Act except those relating to (1) regulation of rates, fares, and charges; (2) abandonment or extension of lines of railroad used solely for passenger service, or abandonment or extension of operation over such lines by trackage rights

or otherwise; and (3) regulation of routes and service, and, except as otherwise provided in this measure, discontinuance or change of passenger train operations. The Corporation is not subject to any state or other law pertaining to the transportation of passengers by railroad insofar as it relates to rates, routes, or service. Railroads are exempted from the antitrust laws to the extent necessary to permit them to enter into contracts with the Corporation for the use of equipment and facilities. The accounts of the Corporation are to be audited annually in accordance with generally accepted accounting standards by independent public accountants. Additionally, they may be audited by the Comptroller General in any fiscal year in which Federal funds are available to finance any portion of the operations of the Corporation.

A provision which reflects current extensive criticism of the quality of rail passenger service authorizes the Interstate Commerce Commission to prescribe regulations which it considers necessary "to provide safe and adequate service, equipment, and facilities for intercity rail passenger service," and to assess penalties for violation of these regulations (Sec. 801).

The heart of the law is contained in the provisions relating to the transfer of rail passenger service to the National Railroad Passenger Corporation. The law provides that from and after May 1, 1971, but before January 1, 1975, a railroad which has entered into a valid contract with the NRPC shall be relieved of all responsibilities as a common carrier of passengers by rail in intercity service, but railroad discontinuing trains under this provision must observe the notice procedures (though not the other requirements) governing discontinuances contained in Section 13a of the Interstate Commerce Act. In consideration of being relieved of responsibility for intercity passenger service the railroad must pay NRPC the smallest of the following amounts: (1) 50 percent of its fully-distributed passenger service deficit for 1969, (2) 100 percent of the avoidable loss on all intercity passenger service rendered by it in 1969, or (3) 200 percent of the avoidable loss on intercity service provided between points on the basic national rail passenger system in 1969.5 Avoidable loss is defined as the avoidable costs of providing passenger service less revenues attributable thereto as determined by the Interstate Commerce Commission. The amount due must be paid over a three-year period in cash or, at the option of NRPC, by a transfer of equipment or provision of future services. Disputes as to the amount owed are to be resolved by the Interstate Commerce Commission. In exchange for the payment the railroad may receive common stcok of NRPC; however, if the railroad waives its claim to

5 The passenger service deficit for 1969 is reported to be $463,619,000 on the basis of fully-distributed cost and $224,905,000 on the basis of solely related cost. Avoidable loss is a refinement of the solely related deficit and has not been computed for the railroads as a whole. It was computed for eight railroads in a special Interstate Commerce Commission study in 1969. See footnote 12.