the stock the payment may be treated as a tax-deductible expense in the year in which it is made.

On May 1, 1971, the NRPC must begin service between points on the basic system unless such service is already being provided by a noncontracting railroad or, on a basis acceptable to NRPC, by a regional transportation agency. No railroad or other person may, without the consent of NRPC, perform passenger service over any route on which NRPC is performing service. The Corporation may contract with railroads or regional transportation agencies for use of tracks or other facilities and for the provision of services, with disputes over the terms to be settled by the Interstate Commerce Commission. The NRPC may provide service in excess of that prescribed for the basic system, either within or outside the basic system. Any such service provided for a continuous period of two years shall be designated by the Secretary of Transportation as part of the basic system. State, regional, or local agencies may request service beyond that provided on the basic system and the Corporation shall provide such service if the agency agrees to reimburse it for a "reasonable portion" of any losses involved. Reasonable portion is defined as "no less than 66% percent of, nor more than, the solely related costs and associated capital costs, including interest on passenger equipment, less revenues attributable to such service" (Sec. 403c). Disputes over terms are to be decided by the Secretary of Transportation.

Unless it has entered into a contract with NRPC no railroad may discontinue any intercity passenger service prior to January 1, 1975, regardless of the provisions of any other law or of the decision of, or pendency of proceedings before, any court or regulatory agency. After the latter date train discontinuances will be subject to the provisions of Section 13a of the Interstate Commerce Act. The NRPC must provide service for which it has contracted within the basic system until July 1, 1973. Service beyond that prescribed for the basic system may be discontinued at any time except, as noted above, when such service has been provided continuously for two years and has thereby become part of the basic system. If after July 1, 1973, the Corporation finds that any trains in the basic system "are not required by public convenience and necessity, or will impair the ability of the Corporation to adequately provide other services" these may be discontinued under the procedures provided in the Interstate Commerce Act. However, these trains may not be discontinued if a state, regional, or local agency requests continuance and within ninety days agrees to reimburse NRPC for a "reasonable portion" of the losses involved, reasonable portion being defined in the same way as in the case of requests for new service under Section 403 (c) as described above. All discontinuances arising as a result of the initial contract between a railroad and NRPC or subsequently are subject to protective labor conditions no less favorable than those provided by the Interstate Commerce Act in connection with railway consolidations.

The final portions of the law contain the provisions for Federal financial assistance. This assistance consists of (1) an appropriation of $40 million in fiscal 1971 to assist in carrying out the functions of the Corporation; (2) loan guaranties of up to $100 million to assist the Corporation in financing the upgrading of roadbeds, purchase of new rolling stock, rehabilitation of existing rolling stock, and other corporate purposes; and (3) loans and loan guaranties of up to $200 million to assist railroads to enter into or carry out contracts with NRPC.

II

A definitive evaluation of this measure must, obviously, await experience with its interpretation and administration, but a few tentative observations may be ventured. The measure may be said to achieve, in varying degrees, five principal objectives. First, it will arrest a trend which, if unchecked, would probably result in the almost total demise of intercity rail passenger service. Second, the language of the section of the law establishing a basic rail passenger service network indicates an intent that the scope of the latter be governed by adequate profitability and economic welfare criteria. Furthermore, the preliminary recommendations for the basic system call for a further sharp reduction in the quantity of intercity passenger train service below the current greatly reduced level in an apparent effort to minimize current deficits and eventually to achieve an overall operating profit, although some cross-subsidization of deficit services appears likely to remain. Whether this policy can be maintained in the face of local and regional pressures remains to be seen. Third, the measure relieves the railroads of the burden of passenger service deficits, a burden which has contributed substantially to the financial weakness of a number of carriers. Fourth, it compels state and local interests to face the necessity of providing funds for any passenger service which they may desire in excess of that which meets the reasonably exacting standards which, hopefully, will be applicable to the basic system. Finally, it will afford an opportunity (provided adequate financing is available) for a further test of the validity of the popularly held view that with substantial service improvements and active promotion rail passenger service can be made self-sustaining.

On the other hand, in the writer's opinion the most serious weakness of the measure in question may prove to be in the provisions relating to organization and finance. The law contemplates that the capital of the NRPC will be contributed by the Federal government, the rail

6 In designating the basic system the Secretary of Transportation is directed to consider, among other things, "the importance of a given service to the overall viability of the basic system; adequacy of other transportation facilities serving the same points; unique characteristics and advantages of rail service as compared to other modes of transportation; the relationship of public benefits of given services to the costs of providing such services; and potential profitability of the service." (Sec. 201)

roads, and private investors. However, in view of the notorious record of rail passenger service deficits it seems most improbable that private investors would purchase any substantial amount of the preferred stock, or of subsequent issues of common stock, of NRPC in the absence of some kind of government guarantee. Nor will the sale of such securities be made any easier by the provision that private investors shall have only minority representation on the NRPC board of directors. Moreover, in view of the weak overall financial condition of the railway industry it seems likely that a large part of the carriers' payments to NRPC may be in the form of equipment and services rather than in cash, even though acceptance of payments in kind is optional with NRPC and provision is made for loans and loan guaranties to railroads to assist in financing payments.7

If the foregoing predictions prove to be correct financial support for NRPC will depend predominantly upon the government's cash appropriations and loan guaranties. Since the amount of the government's contribution may have been calculated upon the assumption that a substantial portion of the required capital would be provided by railroads and other private investors, and since no specific provision is made for meeting possible (or probable) deficits, there is reason to question whether the financing provided for NRPC will be adequate fully to implement its ambitious mission-to provide "modern and efficient intercity railroad passenger service" on a nationwide basis. There is at least some danger that the available funds may not permit the degree of upgrading of rail passenger service which will be necessary if the market potential for such service is to be fully exploited. Very large sums will be required for new and rebuilt equipment, refurbished stations, and upgrading of roadbeds to permit higher speeds. Of course, the expenditures will have to be related to the best estimates of the traffic potential on the various parts of the basic system; the level of expenditure justified in the Northeast Corridor would not be justified elsewhere.

The possibility that the present arrangements may result in inadequate financing, plus the likelihood that in any event the bulk of the financial support will be provided by government, suggest that NRPC might better have been established as a strictly public corporation with full financial responsibility for rehabilitating rail passenger service. After all, in the absence of government guaranties, it seems scarcely reasonable or prudent to rely upon substantial private financial assistance for a venture in which the most that can reasonably be expected is the avoidance of operating deficits. One of the main problems in connection with the establishment of NRPC as a public corporation would probably have been arriving at an equitable basis for the acquisition of present rail passenger equipment and facilities, but this

7 The likelihood that this will be the case is increased by the bankruptcy of Penn Central, the largest intercity passenger carrier.

problem is by no means completely avoided by the present arrangements.8

Moreover, while the present arrangement may be justified on the legalistic ground that as public service corporations railroads are obligated to provide passenger service even at a loss, and should therefore be required to indemnify the public for the privilege of being released from this obligation, it is difficult to imagine any equitable or economic ground for such a requirement, particularly since passenger service losses have contributed substantially to the inability of many railroads to earn an adequate return from their overall operations. In general, it would have been simpler, more realistic, and more conducive to accomplishing the goals of the present measure if NRPC had been established as a public corporation. Alternatively, the present measure should have limited the private interest to the initial contribution of the railroads, either in exchange for stock or in the form of a taxdeductible transfer, and should have specifically established the responsibility of the Federal government for meeting any further financial requirements of NRPC.10

Three other features of the present law require brief notice. First, there is no provision for participation by regional, state, or local agencies in drawing up the basic national rail passenger system even though the design of this system is a matter of great concern to these interests. Although it is doubtless desirable that the final decisions concerning the layout of the system be made by Federal agencies which are in a better position to take a broad view of the problem, it would nevertheless have been desirable to have given regional, state, and local bodies an opportunity to participate in an advisory capacity. It is quite possible that a provision to this effect might have been included had it not been regarded as urgent to secure rapid implementation of the law. Regional, state, and local agencies also received unsatisfactory treatment in the section of the law dealing with train discontinuances. It is provided that NRPC may not discontinue a train if one of the agencies in question requests continuance and within 90 day agrees to reimburse NRPC for a "reasonable portion" of the losses involved as defined in the law. The 90-day period would seem to be unduly short in view of the fact that the financial commitments required would probably involve legislative action.

8 The value of property and services contributed to NRPC in lieu of cash will have to be determined.

9 If NRPC had been established as a public corporation rail passenger service property contributed to the Corporation would have been removed from state and local tax rolls. The necessity of reimbursing state and local governments for the loss of tax revenue would consequently have become an issue.

10 By way of comparison it may be noted that in Canada when railways are required to continue the operation of money-losing passenger trains they may be reimbursed for 80 percent of the avoidable loss incurred by such trains as determined by the Canadian Transport Commission.

Second, some difficulties may arise in establishing the boundaries of NRPC operations and their relation to other rail operations. For example, operations within the Northeast Corridor presumably fall within the jurisdiction of the NRPC but there is no mention of the relation of the present law to the High Speed Ground Transportation Act under which these operations are currently conducted. Likewise, although the present law specifically excludes "commuter and other shorthaul service in metropolitan and suburban areas" these terms are not so precise as to eliminate possible jurisdictional questions in borderline cases.11 Again, not all railroads will participate in NRPC, either bebecause they operate no passenger service or for other reasons. portions of these roads should be included in the NRPC basic passenger system operating problems and conflicts of jurisdiction with the Interstate Commerce Commission may arise in connection with the establishment of through routes and joint rates and the abandonment of lines and trackage rights.

If

Finally, in computing the overall passenger deficit of the railroads and in connection with train discontinuance cases the present law prescribes the use of "avoidable costs as determined by the Interstate Commerce Commission." The reference is apparently to a special ICC study of the passenger service costs of eight railroads in 1969.12 Avoidable costs as developed in this study represent a refinement of solely related costs as reported under current ICC regulations. A substantial revision of carrier accounting requirements will be necessary if avoidable costs as used in this study are to be regularly reported by all carriers. If this step is not taken the ICC might be overburdened in attempting to develop these costs in disputed cases referred to it by NRPC.

More fundamentally, it may be argued that the foregoing comments are beside the point; that intercity rail passenger service is functionally obsolete and consequently hopelessly uneconomic; and that therefore government should neither obstruct its abandonment nor itself undertake to continue the service on a subsidized basis. In the writer's view, this position can be accepted only with significant qualifications. Economists recognize that subsidies may be justified under special circumstances to achieve desirable social objectives which would not otherwise be achieved through the working of the market mechanism. Thus, in congested corridor areas with under-utilized rail plant and crowded air and highway transport facilities the marginal cost of handling additional rail passengers with existing plant would be much less than the

11 This question has already arisen in connection with the application of Penn Central to drop twenty-two Boston-Providence passenger trains. See Wall Street Journal, October 20, 1970; Traffic World, November 23, 1970, pp. 54-55.

12 Investigation of Costs of Intercity Rail Passenger Service, Report of the Interstate Commerce Commission to Senate and House Committees on Interstate Commerce (Washington, D. C., July 16, 1969).