contribute toward keeping the fares down. If you eliminated the sightseeing service, which I would not recommend that you do, because you have the largest and best sightseeing service in the city, with no one able to furnish as many buses for any particular requirement as the Transit System, which is the natural, you would then be placing the company in a position where it would need more for that theoretical fare and more subsidy, because you are eliminating funds that tend to reduce and hold the fares down.

Senator SPONG. Mr. Chalk, although you have taken a new position today with regard to public ownership, there are some questions that we should put to you to put in the record in regard to this overall picture.

Would a subsidy, such as is proposed in S. 1813, put the company in a substantially better financial position than a rate increase from 30 to 35 cents?

Mr. CHALK. The subsidy would make no difference to the company whatsoever. All we need is the difference between cost and a reasonable profit to be a healthy company. The subsidy does not make a particle of difference to the pocket of the Transit System.

Senator SPONG. As far as you are concerned, then, your answer to me is that the financial position of the company would be the same regardless of whether a subsidy is enacted or a 5-cent rate increase? Mr. CHALK. That is correct.

Senator SPONG. You were present earlier when I asked Mr. Avery, I believe, about his conversations with you concerning the indebtedness to the union. I inquired about your letter of April 9 to Mr. Apperson.

If the financial position of the company would be the same, why did you state that you would pay off the entire obligation if you received a subsidy but it would be 2 years before the obligation was paid off if a rate increase was allowed?

Mr. CHALK. I don't recall having put it that way to him. I think what he meant was that the granting of a subsidy might make a difference, but that was in his opinion.

Senator SPONG. Mr. Chalk, I am not speaking of anything you put to Mr. Avery. Mr. Avery's testimony was that you said the union indebtedness would be paid off immediately in either event, whether there was a rate increase or a subsidy. I questioned Mr. Avery about your letter to Mr. Apperson dated April 9, in which, in outlining what you would do, you said that in the event a subsidy was enacted, indebtedness would be paid off immediately.

Mr. CHALK. I said that in the letter?

Senator SPONG. I think you did. You earlier said that in the event of a fare increase, in the event the payments have not been sufficient, the entire balance, if any, will be fully paid at the end of 2 years.

I was interested in why, if the financial condition of the company would be the same, there would be any difference in the position of the company with regard to paying off the indebtedness.

Mr. CHALK. In terms of earning power, it wouldn't make any difference either way. In terms of the psychological impact, say, on financial institutions, it might make it easier to go into a bank and say, "I would like to borrow some money."

Senator SPONG. Do you believe the bus company can be a paying proposition if it must compete with a subway system under different ownership and management?

Mr. CHALK. If it would compete with the bus system? I can't conceive of it

Senator SPONG. If it must compete with a subway system under different ownership and management.

Mr. CHALK. I don't believe it is intended under the compact and under the laws as they presently exist for the bus system to compete with the subway system. It is intended to supplement and act as a feeder into the bus system.

Senator SPONG. You don't foresee any possibility of any competition for passengers at all?

Mr. CHALK. If it were two different ownerships, there could be that possibility, yes.

Senator SPONG. In 1965 before this committee, I think, you foresaw that possibility.

Mr. CHALK. That is correct. That was on some routes. On some routes we would be competitive.

Senator SPONG. You said there was not sufficient business to sustain two systems, one or the other would suffer financial hardship.

Mr. CHALK. It depends on how they ran it. If they ran it competitively, it is very possible that the bus company could suffer financial harm. If they were run together, then, of course, one would complement the other. I believe that is the intent. I think that is the only way it would make sense.

Senator SPONG. You would say, then, it is in the interest of all concerned, including the public, if the bus and the subway system were unified under one management, preferably under one ownership? Mr. CHALK. I think so, sir.

Senator SPONG. Thank you very much.

Mr. CHALK. Thank you, sir.

Senator EAGLETON. Mr. Chalk, since you are now a reluctant convert, I will call you that, to the cause of public ownership and since there is before this committee S. 1814, which is a draft of a public ownership bill, I would like to get your comments on the bill, itself, or any other proposals you might like to make, as to how Congress can best achieve public ownership with the least friction and in the easiest way, if it decides to go that route.

Mr. CHALK. I would ask leave to really analyze the bill, which I have not as yet done in terms of its mechanical features and weigh one part against the other, but I would be glad to make a proper analysis and give my recommendation and fully cooperate in any suggestions that I might think are favorable toward a public ownership concept.

Senator EAGLETON. We would love to have in due course in written form, and we would make it a part of the record, any suggestions you have on the bill, how it could be improved, changed, modified, and made more functional insofar as the acquisition of this company is concerned, if that be the decision.

(Subsequent to the hearing the following information was received:)

ANALYSIS AND RECOMMENDATION ON S. 1814

The time period of three years contemplated for negotiation to acquire ownership of D.C. Transit System, Inc., is excessive. It is the opinion of management that if there is a willing buyer and a willing seller, negotiation can be completed in six months. This was the case in connection with the original purchase by DCT from Capital Transit wherein the negotiations including Congressional action required approximately 90 days.

The bill should be amended to cover both D.C. Transit System, Inc. and Washington, Virginia and Maryland Coach Company, Inc., as they represent an integrated system operation.

A provision for arbitration by qualified appraisers-one selected by the Company, one selected by the WMATA, and the third a qualified independent appraiser not connected with the Federal Government, selected by the two in the event they are unable to agree-would be preferable to a provision for condemnation as arbitration would not be subject to the lengthy delays of court condemnation. Section 5 Interim Assistance, S. 1814, is indefinite and unrealistic. A much better solution would be to incorporate the provisions of S. 1813 in place of Section 5. S. 1813 vests authority for determining the proper rate of fare in the duly constituted regulatory authority in accordance with existing law. WMATC is that authority and has the expertise to properly evaluate and determine fare structures. The Commissioner's office does not have this background and would be basing its judgment on political considerations subject to great external pressure.

Obvious faults of Section 5 are as follows:

Section 5.a. This provision does not make it mandatory to provide interim assistance. Assistance could be withheld or diluted on the sole judgment of the Commissioner of the District of Columbia.

Section 5.b. While certain limitations and conditions are mentioned, no real guidelines or standards of the type provided in S. 1813 are included in this section. The decision is left to the judgment of the Commissioner whose Deputy has already testified against any further fare increase and against any subsidy. Therefore, the attitude of the Commissioner would be hostile with respect to interim assistance and he should not be placed in a position of controlling such assistance in view of his predetermined position.

Section 5.b.2. This section gives the Commissioner a "club" to force the Company into any arrangement desired by the Commissioner even though such arrangement might be contrary to the interest of the public in a sound transportation system.

Section 5.c. This section is too indefinite to be of any value. While it is desirable that the indebtedness to the retirement and health and welfare programs be liquidated as soon as possible, consideration must also be given to other creditors.

Section 5.d. The definition of excess profits, income or other funds is not given and the implication may be drawn that no profit is to be realized so there would be no funds available to pay the existing indebtedness to the Union funds and other creditors (also see objection to Section 5.c.).

Mr. CHALK. I think, without studying the bill too much in depth at this moment, I might suggest that the condemnation feature be taken out of it or the amendment that was suggested this morning be not considered. I think the bill as originally drafted on a negotiating basis would be more of an arm's-length transaction and proper and would tend, I think, toward a more favorable result on both sides.

Senator EAGLETON. What do you think about the 3-year period? Is that not a long time to have this thing over our heads?

Mr. CHALK. I think it is definitely too long. Once you have decided on a course of action, then if you don't follow through immediately, things start to fall apart.

For example, one of the greatest assets that we have is its manpower and its management. If these people don't know what their future is, it could have a very serious effect on the future conduct of the transit system. We have men who have spent a lifetime in their jobs, and

they know it well, and they should never be placed in jeopardy of not knowing what the future holds and "promises, promises" 3 years from now.

Senator EAGLETON. Of course, the bill contemplates an interim subsidy while the negotiations are going on.

Mr. CHALK. My comment is that is too long a period of time. Senator EAGLETON. Let me ask this. If the period were shortened, 2 years, 1 year, 6 months, or what have you, what kind of final club should be over the heads of the parties in order to bring it to a conclusion? What if your figure is a million dollars and WMATA's figure is half x and you can't get together? What kind of structure would you envision in order to bring it to a final conclusion?

Mr. CHALK. It seems to me that if it is done on a negotiated basis, you don't need a club. If the parties come to an impasse, I suppose we could come right back here to the committee or joint committee and present the problems, as was done originally when the franchise or contract at that time was granted to the D.C. Transit.

There were certain problems that arose and that were brought to the attention of the committee, and conferences determined it.

Senator EAGLETON. Of course, from our point of view we gaze into the future, and would like to draft a perfect bill that makes it unnecessary for you to come back here, did not necessitate further hearings, and which had a built-in procedure to resolve disputes. You do not envision that kind of procedure?

Mr. CHALK. Not as long as it is a negotiated transaction. Then the rules of reason would apply and conferences would bring about the result.

Senator EAGLETON. In your proposed contract to WMATA, submitted to them last year at their request, you proposed an arbitration procedure. You pick an evaluator, they pick an evaluator.

Mr. CHALK. I did.

Senator EAGLETON. What about building that kind of procedure into the law?

Mr. CHALK. I suggested it then. I stand on it today.
Senator EAGLETON. Mr. Chalk, you are a lawyer.

Mr. CHALK. Yes, sir.

Senator EAGLETON. You are very familiar with the regulation of public utilities, especially transit systems. What is your position as president of this company and as an attorney with respect to the question I asked Mr. Avery earlier; to wit, if Congress were to revoke your franchise, how do you view your rights to function under the certificate of convenience and necessity?

Mr. CHALK. There seems to me to be a concept prevailing that the certificate, itself, without the franchise would authorize it to continue operations.

Senator EAGLETON. Is that a theory that is backed up by some case law that you know of?

Mr. CHALK. I believe so. I have not personally researched it.

Senator EAGLETON. Would you ask your staff, then, in addition to preparing a critique of S. 1814 from your point of view as to how it could be improved, a separate memorandum, if they would, giving their legal observations on that specific question? With the revocation

of the franchise, what operating potential would exist under the certificate of convenience and necessity?

Mr. CHALK. I will, sir.

(The information follows:)

The Company has not prepared a brief or legal memorandum with reference to operation of the Company under Certificates of Convenience and Necessity now held. The statement of the witness was made on the basis of informal discussion with counsel and informal opinions of counsel.

Senator EAGLETON. Thank you, Mr. Chalk.

Mr. CHALK. Thank you.

Mr. Chairman, for the record I also would like to clear up something that no one asked me.

Senator EAGLETON. Go right ahead, Mr. Chalk.

Mr. CHALK. Mr. Jack Eisen gets credit for this. He seems to know the transit system pretty well. He asked me, does this include the W.V. & M. Virginia lines. My answer is, "Yes." I believe in that $40 million valuation the Virginia lines were also included. I think that is important that you know.

Senator SPONG. I am glad you answered it, but I had assumed that, Mr. Chalk.

Mr. CHALK. I completely forgot that. Thank you.

Senator EAGLETON. Senator Spong will introduce our next witness, Mr. Babson.

Senator SPONG. Mr. Chairman, we are privileged to have with us today the chairman of the WMATA board of directors, Mr. Frederick A. Babson.

Mr. Babson is a practicing attorney. He is the chairman of the Fairfax County Board of Supervisors. He is also a former board chairman and past chairman of the Metropolitan Washington Council of Governments, and former chairman of the National Capital Regional Transportation Planning Commission.

We are happy to have you with us today.

STATEMENT OF FREDERICK A. BABSON, CHAIRMAN, WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY; ACCOMPANIED BY GEN. JACKSON GRAHAM, GENERAL MANAGER OF THE WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY; SCHUYLER LOWE, EXECUTIVE OFFICER AND COMPTROLLER; AND JOHN KENNEDY, GENERAL COUNSEL

Mr. BABSON. Thank you very much, Senator Spong and Mr. Chairman. I appreciate the gracious introduction.

Mr. Chairman, I would like to introduce Gen. Jackson Graham, general manager of the WMATA; next to me on my right, Mr. Schuyler Lowe, executive officer and comptroller, and our general counsel, John Kennedy, on the end.

Mr. Chairman, I will capsulize my prepared statement, omitting certain portions, knowing that it has been introduced for the record. I appreciate the opportunity to appear before you today to discuss Senate bills S. 1813 and S. 1814. The former would provide for public financial assistance as determined necessary by WMATC to privately owned mass transit bus companies operating in the Dis