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). tive programs designed to stimulate increased ridership as a means of obtaining necessary additional revenues. Patently, S. 1813 will remove any existing incentive, either for more efficient operation or to increase ridership. For all of the above reasons, we oppose the adoption of S. 1813. We endorse the principle of S. 1814, with two exceptions. D.C. Transit's Congressional franchise should be revoked, and its rights should be transferred to the Washington Metropolitan Area Transit Authority. However, we oppose conditioning revocation upon acquisition of all of D.C. Transit's facilities "used for mass transportation" by WMATA as provided by section 3(a) of S. 1814. As WMATA does not have the power to run the bus company now, it will be necessary to amend the interstate compact creating it. We recommend that this compact be amended to permit WMATA to operate the bus company on an interim basis, rather than permanently as contemplated by S. 1814. During this interim period WMATA should seek whatever public funds may be available to support demonstration projects designed to determine under what circumstances, if any, the services offered can be made self-supporting. After such a period of experimentation and study, we believe it should be possible to determine whether mass transportation by motorbus in the WMATA area can be operated at a profit. If so, the Authority should contract with a suitable private operator for the provision of services under a short-term franchise of, for instance, five years. If not, it will then be appropriate to determine whether subsidization of a private operator (as proposed under S. 1813) or permanent public ownership (as proposed under S. 1814) is the more desirable. Thank you for affording me the opportunity to present the views of the D.C. Republican Committee. Mr. PENDLETON. We endorse the principles of S. 1814, with two exceptions. We feel D.C. Transit's franchise should be revoked, and the rights should be transferred to the WMATA. Second, as WMATA does not have the power to run the bus company now, it will be necessary to amend the interstate compact creating it. We recommended that this compact be amended to permit WMATA to operate the bus company on an interim basis rather than permanently as contemplated by S. 1814. After a period of experimentation and study, perhaps a couple of years, we believe it should be possible to determine whether mass transportation by motorbus in the WMATA area can be operated at a profit. If so, the authority should contract with a suitable private operator for the provision of services and a short temporary franchise, of, for instance, five years. It will then be appropriate to determine whether subsidization for a private operator, as proposed under S. 1813, or permanent public ownership as proposed under S. 1814, is the more desirable. With these two exceptions, we endorse the bill S. 1814. I appreciate this opportunity to appear before you. This is a matter of prime concern to the citizens of the District of Columbia. If there are any questions, we would be glad to answer them. Senator EAGLETON. How do you, or your counsel, view what would happen, as a practical matter, if the franchise were revoked? What kind of bus business would be conducted in the District at that time? Mr. PENDLETON. I don't think you could have immediate revocation without having the opportunity for WMATA to be prepared. I think if Congress were to revoke it tomorrow, it would be unfortunate. I think WMATA must be given the opportunity to become effective at a future date, and put itself in the position to operate a bus system with equipment acquired from D.C. Transit or other sources. 29-234 069- -12 Mr. RUSH. I might add we think this is the best way to end a deadlock in negotiations and to guarantee a fair price, to leave WMATA's hands untied in negotiating what is necessary to run the transit system. So if the price seemed too high and other buses were available, they would be free to obtain those buses. Senator EAGLETON. As you stated, then, we would just revoke the franchise and we would not have to put in a provision on condemnation or anything like that? Mr. RUSH. No. The two things you would have to do is give them the authority to own and operate, which they clearly do not have, which they expressly do not have in the case of buses now. Senator EAGLETON. The authority to operate? Mr. PENDLETON. Yes. That is WMATA. Senator EAGLETON. Right. What about the time lag that is going to intervene, insofar as getting the compact ratified in both Maryland and Virginia, in terms of giving them operating authority for WMATA? Mr. PENDLETON. This would certainly require a number of months, perhaps a year. I don't think you could start anything sooner than that under any approach, but we do think that if you pick a future date, make their authority effective as of that time, that this could be accomplished. Mr. RUSH. This would be the only circumstance where we could envision interim emergency financial assistance being provided, where it is clear that the system would be brought, at least for an interim period, to develop it under public ownership. Senator EAGLETON. Do you envision, under that interim period, some form of subsidy? it. Mr. RUSH. Subsidy or direct financial assistance, if it is necessary. Senator EAGLETON. Thank you, gentlemen, very much. I appreciate Mr. RUSH. Thank you, sir. Senator EAGLETON. Mr. Reginald Booker, chairman, Emergency Committee on the Transportation Crisis. Is Mr. Booker here? Mr. Tilford E. Dudley, Former Chairman of the D.C. Citizens Council. STATEMENT OF TILFORD E. DUDLEY, FORMER CHAIRMAN, D.C. CITIZENS COUNCIL Senator EAGLETON. We are glad to have you with us. Mr. DUDLEY. Mr. Chairman, I am Tilford E. Dudley, residing at 2942 Macomb Street, N.W., Washington. From late 1962 until the spring of 1967, I was chairman of the Citizens Council of the D.C. Government. Our responsibility was to advise the three commissioners on matters of public interest. In the spring of 1966 we became aware of the probable need for an increase in the bus fares for D.C. Transit. We believed that an increase in the fares was undesirable and therefore undertook an investigation of the desirability of a government subsidy as a means of holding the fares down, or perhaps lowering them. Public hearings were held on June 10 and on October 28, 1966, with notices mailed to hundreds of persons believed to have an interest therein and with a wide cross-section of witnesses responding. Our report and recommendations were finally adopted on December 16, 1966 and transmitted to the District Commissioners on that day. You will note that the subject of our inquiry and recommendations is precisely the subject before this Committee today. We anticipated then that the community would be where it is now. Mr. Chairman, our report traced in some detail the history of mass transit in the District and especially the finances of the last two operators. Likewise it analyzed in detail the reasons for and against government subsidy and/or ownership. I suggest, Mr. Chairman, that in the interest of time, the report be incorporated into the record of this hearing and that I then summarize it and indicate the conclusions I would draw from it. Senator EAGLETON. The report will be made part of the record. CITIZENS COUNCIL FOR THE DISTRICT OF COLUMBIA, Memorandum to: The Board of Commissioners. In the spring of 1966, the Citizens Council became aware of the likelihood of an increase in bus fares in early 1967. Concerned with this danger and interested in obtaining lower fares, if possible, the Council undertook an investigation of the desirability of a government subsidy for the transit system as a means of maintaining fares at the present, or perhaps a lower level. Public hearings were held on June 10 and October 28, 1966. Today the Council unanimously adopted the attached Report and Recommendations, which it hereby transmits to you for your consideration. The Council's conclusion is in opposition to subsidies. Instead it recommends that D.C. Transit be acquired by the Government and transferred to a public authority to be operated at the lowest possible cost. The Report traces the historical development of mass transit facilities in the District and records in detail the finances of the present operator and the reasons favoring a transfer to a non-profit authority. Perhaps the following table of the contents of the report will assist in reading it. We hope this study will be helpful to you in formulating your recommendations for the Congress. TILFORD E. DUDLEY, Chairman. CITIZENS COUNCIL FOR THE DISTRICT OF COLUMBIA-REPORT AND RECOMMENDATIONS ON THE DESIRABILITY OF GOVERNMENT PAYMENTS TO THE MASS TRANSIT SYSTEM IN THE DISTRICT On January 26, 1966, the Washington Metropolitan Area Transit Commission issued its Order No. 564 denying, in the main, the 1965 application of D.C. Transit System, Inc., for authority to increase its bus fares. However, the Commission found in its Order that D.C. Transit should have a margin of some $550,000 to $650,000 as a cushion over and above operating costs, interest and dividends "to assure some measure of financial stability" for 1966 and concluded that the Company "is entitled to net (operational) earnings in the amount of approximately $2,000,000 in 1966." The Commission predicted that D.C. Transit would experience net earnings of only $648,357 in 1966 and found that "it must be allowed additional return in the approximate amount of $1,350,000." To provide this additional return, the Commission authorized the Company to use, that is to transfer "to net operating profit," a reserve established by order of the U.S. District Court for "the purpose of benefiting transit users" which order arose out of a 1960 application by the Company for a fare increase. The Commission found, in January, 1966, that the reserve had a balance of $1,360,765.21, which would make the Company's projected earnings $2,009,122. These rulings gave the following projections for 1966: Gross operating revenue_ Net operating revenue.. Transfer of court-ordered reserve_. Net retained earnings for 1936-- $33, 338, 872 648, 357 1,360, 765 2, 009, 122 The Transit Company thereupon issued a public announcement, stating that this "would represent a rate of return on gross operating revenues of 6.03%, the highest ever authorized by the Commission." These findings and rulings by the Commission were notice to the Washington community that unless there were substantial changes in 1966, the Company would be in position to get fare increases in 1967 to take the place of the courtordered reserve which would then be exhausted. Concerned with this trend and interested in the possibility of lower fares, the Citizens Council decided in the Spring of 1966 to hold public hearings on the "desirability of a government subsidy for the mass transit (bus) system in the District." It announced that consideration would be given to the principles involved, the importance of lower fares, estimated deficits, the impact of lower fares on the volume of automobile traffic, the desirability of reducing such traffic, and to all relevant opinions, observations and information that might be submitted. The first hearing was held on June 10, 1966. Notice was published beforehand in the D.C. Register and mailed to the Commissioners' mailing list and to 115 other persons and organizations thought to have a special interest in the subject. A second hearing was held on October 28, 1966. Notice was published again in the D.C. Register and mailed to everyone who had responded in any way to the first notice and to 100 others thought to have a special interest in the second hearing. Witnesses from the federal government, civic organizations, D.C. Transit and individuals appeared to give information, analyses and expert judgments. A list is attached hereto. The testimony and related information were then studied by a Committee of the Council, consisting of Peter Calomiris, Chairman, Martin Atlas, Annette Gottsegen, Rev. Everett Hewlett, Arthur Jackson, Helen Latimer, Bayne Marbury and the Council's chairman, Tilford Dudley, ex officio. The Committee reported to the Council on December 9 and again on December 16, on which date this report was adopted. The Importance of Transportation The recent action of President Johnson and the Congress in creating the new Department of Transportation illustrates the importance of transportation. It has always been so. Countries and cities have risen and fallen as their transportation facilities have flourished or declined. The movement of people and goods is essential for economic, cultural and political growth. In the Urban Mass Transportation Act of 1964, Congress noted the special needs of our cities, citing the concentration of the Nation's population in rapidly expanding metropolitan and other urban areas and the need for federal assistance in the development of efficient and coordinated mass transportation system. As recently as October 15, 1966, President Johnson reported that "today we are confronted by traffic jams" and "by commuter crises." Charles M. Haar, Assistant Secretary of the Department of Housing and Urban Development, testified at the hearing: |