the Seaboard Coast Line, the Southern Railway System, and the Union Pacific. These systems provided more than 40 percent of the nation's noncommuter rail passenger miles in 1968. While the results of this investigation cannot be used to pinpoint the burden of intercity passenger service provided by the other railroads, the results for the study carriers' operations give every indication that most of the other intercity passenger service, except for high frequency operations in such places as the Northeast Corridor, is also in serious financial condition. The purpose of the investigation was to determine what the eight systems would have eventually saved if they had not operated the amount of passenger service provided in 1968. The concept of avoidable costing was employed as a realistic measurement of these savings. In effect, it also portrays the burden which the carriers' remaining operations had to absorb in 1968 and an estimate of how much increase in revenues would have been necessary to bring intercity rail passenger operations to a breakeven point. In 1968, the eight passenger systems studied would have eventually saved, before income taxes, $118 million more in expenses than they would have lost in revenues. For every $1.00 in revenues that these carriers, as a group, would have lost by not operating any intercity passenger service in 1968, they would have avoided $1.83 in expenses. For the Santa Fe, C&O-B&O, Great Northern and Missouri Pacific, the savings per dollar of revenue lost would have been virtually the same $1.80, $1.82, $1.83 and $1.82, respectively. The Southern Railway System and Union Pacific would have saved more- -$2.42 and $2.08. The Illinois Central and Seaboard Coast Line would have saved less-$1.45 and $1.68. The estimated savings were based on actual expenditures, passenger traffic levels and operating conditions which existed in 1968. The study carriers also could have recouped $69.2 million in net salvage from the facilities and equipment that would no longer be needed to provide the December 1968 quantity of passenger service. Reinvestment of this salvage capital would provide an estimated $4.2 to $6.6 million annual return to the carriers. The investigation also ascertained the cash drain to these carriers created by the expenses of operating the 1968 level of passenger service. (Cash drain represents the loss in funds available for capital investment and dividends.) The total annual cash drain was estimated at $61 million. Differences between the savings in expenses of $118 million and the cash drain were attributable, principally, to the elimination of depreciation, which is a noncash item, and the added income taxes which would have to be paid on the more profitable remaining service of the carriers. Due to various employee protective agreements, the carriers would not be able to achieve full cash savings immediately. If all the passenger service were discontinued at one time, the projected cash drain would be reduced by $24.3 million in the first year, $44.8 million by the third year, $52.0 million by the fifth year and $58.1 million by the tenth year. Last year the Commission submitted its views on the condition of intercity rail passenger service to the Congress. We noted that the rapid decline in intercity rail service during the past two decades had accelerated sharply in 1967. During 1968, intercity passenger miles decreased 20 percent from 1967-the largest relative decline in any year since the post World War II era. Revenues of intercity passenger trains have dropped even more dramatically than the quantity of service from 1966 through 1968. Intercity coach revenues decreased nearly $78 million, or 24 percent; sleeping and parlor car revenues declined by over $35 million, or 43 percent; mail revenues dropped more than $171 million, or 57 percent, and express revenues dropped almost $41 million, or 65 percent. The past year has only substantiated our opinion that significant segments of the remaining intercity service, except for rail service in high density population corridors, such as the Northeast Corridor, will not survive the next few years without a major change in Federal and carrier policies. In June, 1968, there were approximately 590 regular intercity trains providing service. Today, there are less than 500 intercity trains in scheduled service. A number of the last trains which are still operating have been proposed for discontinuance because of increasing losses. Approximately 50 of the remaining intercity trains are presently involved in discontinuance proceedings before this Commission. We continue to believe that the paramount requirement for establishing an adequate national policy for noncorridor intercity rail passenger service is a broad evaluation of what rail service is required by the public for medium and long distance trips outside of major population corridors, how much the pro vision of that service will cost, and what Federal assistance is necessary to provide that required level of service. Unles a study similar to the one recommended by this Commission last year and introduced as S. 3861 and H.R. 18212 in the 90th Congress is begun immediately, intercity rail passenger service in this country appears destined to be reduced even more drastically in the next two years. We cannot overemphasize the need for immediate action if a minimal network of passenger service is to be preserved, and massive capital outlays for equipment avoided. In view of the need for prompt resolution of this problem and the mounting losses to the carriers, we urge that such a study be completed in no less than twelve months and that, in the interim, more restrictive provisions be placed on the discontinuance of the last remaining passenger trains on intercity rail routes in operation today. Relief from operating losses of other trains would still be possible under the present discontinuance procedures, except for those last trains which are shown to be required by the public. e a so support those additional changes in Section 13a of the Act which were contained in the legislation proposed by the Commission in 1968. A bill to accomplish the above recommendations has been recently introduced in Congress as H.R. 12084. This bill is similar to S. 3861 and H.R. 18212, which were considered in the last Congress. In addition, we are also forwarding the views of the Association of American Railroads, Railway Labor Executives' Association, National Association of Regulatory Utility Commissioners and the National Association of Railroad Passengers on the means of reducing the costs of intercity rail passenger service, which are included in the report as Appendix F. While the replies of these groups indicate some support for such means as tax relief, reduced labor costs, Federal capital assistance, and lower terminal costs, which would improve the present situation, they also recognize that the preservation of some minimal level of intercity service will require even greater commitments on the part of the government and the carriers. Under the present law, the carriers cannot be required to continue the operation of trains which constitute unreasonable financial burdens. Government subsidies or other forms of substantial Federal aid may well be necessary to continue the operation of intercity passenger trains. Should the public need for such services warrant retention of these trains that cannot be operated without significant losses, we would support a program of Federal aid to the carriers. The first step, however, is to find out what service the public needs and how much that level of services would cost. Sincerely, VIRGINIA MAE BROWN, Chairman. CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Hon. VIRGINIA MAE BROWN, DEAR CHAIRMAN BROWN: This acknowledges your letter of July 16 enclosing copy of report prepared by the Commission entitled "Investigation of Costs of Intercity Rail Passenger Service." The investigation analyzes eight intercity rail passenger systems: the Santa Fe, the C&O-B&O, the Great Northern, the Illinois Central, the Missouri Pacific, the Seaboard Coast Line, the Southern Railway System, and the Union Pacific. It appears that the data represent the amount of expenses which each carrier states it would have saved had it not operated passenger service during the year 1968. While your report, of course, is informative to a degree, it is not fully responsive to the request made in my letter to you of October 15, 1968, and emphasized and repeated in further letters thereafter to former Chairman Tierney dated October 28, November 7 and December 30, 1968. As I wrote to him, it seemed to me that a probe of the character contemplated by you into the costs of railroad passenger service to be valuable must include consideration of what savings actually had been accomplished by those carriers that had been discontinued either complete passenger service or certain individual trains. As I set out in those successive letters, I felt that it was most essential to determine what savings actually had been achieved compared with the savings that had been represented to you would be obtained by such discontinuances. I see nothing in this report which gives such information. Sincerely yours, HARLEY O. STAGGERS, Chairman. JULY 28, 1969. Hon. HARLEY O. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, DEAR CHAIRMAN STAGGERS: In reference to your letter dated July 17, 1969, the Commission is continuing to study the estimated savings which several carriers achieved as a result of the discontinuance of their last remaining rail passenger service. The problems inherent in such a historical inquiry, as noted in my letter to you of January 14, 1969, are substantial. I expect that a more complete report on our efforts in this area should be transmitted to you in approximately two months. Sincerely, VIRGINIA MAE Brown, Chairman. CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Hon. VIRGINIA MAE BROWN, One exhibit for instance would seem to indicate that the problem is the need for a major change in the Commission policy. Your table on page 54 which sets forth the dollar savings which you have found six railroads would experience as the result of the elimination of certain net avoidable costs if they were completely to abandon passenger service seems to imply that at least as to five (the sixth being rather insignificant in passenger business) of these railroads, they would save much more today if they were to go out of the business than they would have saved had they gone out of the passenger business in 1966! The table seems to indicate that this would be the effect even though there has been a remarkable reduction in the number of passenger train miles operated (your table says dollars but I think you mean miles) in this 2-year period. Presumably most of this reduction occurred as the result of applications over which you had authority. How can these things be inasmuch as I should think you could not have permitted the discontinuance of these trains without there having been a finding that there would have been a substantial savings in costs? This table would seem to indicate that this was not true and you must have been greviously misled in the analysis of the data which were presented to you at the time that you granted these discontinuances. Inasmuch as this is an appalling conclusion, if it be true, I should appreciate your discussion of whether or not this interpretation of your own table is correct. Sincerely yours. HARLEY O. STAGGERS, Chairman. Hon. HARLEY O. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C. DEAR CHAIRMAN STAGGERS: Your letter, dated August 7, 1969, requests an interpretation of the presentation appearing on page 54 of the Commission's recent report entitled "Investigation of Costs of Intercity Rail Passenger Service." You are correct in stating that the figures in columns 3 and 4 are train miles rather than dollar amounts. 51-728 0 71-pt. 2- -13 The data contained in Table 23 (and the discussion on the preceding page) show, as you note, that the potential savings per train mile (excluding the revenues and expenses of mail) from the discontinuance of rail passenger service by six of the study carriers were greater in 1968 than they were in 1966. For five of the six railroads, the total potential savings for all passenger trains were greater despite reductions in train miles. The figures shown in columns 1 and 2 of the table are net figures-avoidable expenses less passenger revenues. For the six carriers as a group, the 1966-68 period showed the following decreases: 1. passenger revenue excluding mail dropped 39.6 percent; 2. avoidable expenses related to those revenues declined only 18.7 percent; and 3. train miles decreased 29.7 percent. During the two-year period, the expenses of operating passenger trains increased more than 10 percent as a result of wage increases, higher material costs, and greater fringe benefits. If the 1968 expenses per train mile are adjusted to eliminate these price increases, three of the six carriers had lower avoidable expenses per train mile than they did in 1966. And as a group, the total adjusted avoidable expenses declined 26.9 percent compared with a decrease of 29.7 percent in train miles. The most significant reason for the increasing losses was the decline in revenues on the remaining trains. For example, The Great Northern reduced its passenger train service by only 5.6 percent from 1966 to 1968, yet its passenger miles declined 17 percent and coach revenues decreased over 15 percent during the same period. All six carriers received less revenue per train mile in 1968 than they did in 1966 despite fare increases that averaged nearly 6 percent for the country as a whole. The continuing decline in patronage in trains has also been observed in the vast majority of discontinuance cases before this Commission. You suggest that the data contained in the table do not indicate that the discontinuance of a number of trains has relieved the carriers of substantial burdens. The data contained in the table and the underlying statistics were not designed to show the savings from discontinuances, nor do they indicate that the carrier failed to achieve substantial savings. The data do suggest, however, that the overall costs of the remaining service to the carriers are continuing to mount primarily as a result of a loss in patronage on the remaining trains and price increases. Sincerely, VIRGINIA MAE BROWN, Chairman. CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Hon. VIRGINIA MAE BROWN, Washington, D.C., September 3, 1969. Chairman, Interstate Commerce Commission, DEAR CHAIRMAN BROWN: This will acknowledge your letter of August 25 in response to my request of August 7 for an interpretation of the presentation appearing on page 54 of your recent report entitled "Investigation of Costs of Intercity Rail Passenger Service". This table shows that despite a substantial reduction in passenger train miles between 1966 and 1968, 5 of the 6 carriers set forth in the table had a greater potential savings in absolute dollar amounts from the abandonment of all passenger service in 1968 than they would have had in 1966. I note your statement that the data contained in the table and the underlying statistics were not designed to show the savings from discontinuance nor do they indicate that the carriers failed to achieve substantial savings. As I have written to you before, it seems to me most important that in the setting out of a record of your stewardship for these past ten years of the authority granted to you to permit the discontinuance of passenger trains, you have some kind of indication of whether or not the savings that were claimed would result from the discontinuance of trains actually were achieved. Sincerely yours, HARLEY O. STAGGERS, Chairman. APPENDIX M TESTIMONY OF BEATRICE AITCHISON, DIRECTOR, TRANSPORTATION ECONOMICS, POST OFFICE DEPARTMENT My name is Beatrice Aitchison. I am Director of the Transportation Economics Branch, Transportation Economics and Development Division, Bureau of Operations, Post Office Department and have held that or a similar position for 17 years. I have been asked by the Chairman of the Subcommittee to supply some postal figures which may be of some help in your deliberations. POST OFFICE DEPARTMENT OBLIGATIONS FOR RAILROAD SERVICE Exhibit 1 shows the payments to railroads by obligation account, or in terms of the services rendered which created the obligations. The accounts described as (1) Railway post office, (2) Line-haul storage, and (3) Terminal and piece handlings are essentially related to passenger train service operation. "Special contract" can be related to passenger or freight train service or substitute service of some kind. The large increase between 1968 and 1969 is accounted for by contracts covering movement of mail from large mailers' plants, in freight service and in exclusive mail trains. The other accounts are for either freight service or ancillary services. "Railway post office" service includes the furnishing of the only special equip ment required by the Department, a passenger-train car especially equipped for sortation of mail by postal employees. Transportation is paid for on a round trip basis. Line-haul storage obligations are based on the line-haul transportation of mail in baggage or other cars which can run in passanger trains. This is often termed "storage service," to contrast with RPO, where the mail is being worked en route. Terminal and piece handling charges are assessed for loading and unloading storage car mail, normally at passenger stations. In some instances, mail which has not and will not receive rail line-haul transportation at the point involved, usually a passenger station, will be handled by a railroad, to and from star route or government vehicles. Compensation to the rail carrier is encompassed in the "non-rail mail handling" account. There are some places where cars containing mail must be switched to or from a postal facility. If there are separate charges for this service they are included under "Switching." "Ramping, deramping, and cartage" covers the terminal services connected with movement of mail in trailers or containers on flatcars, normally in freight service. Usually the Department performs its own cartage to and from the trailer yards, but occasionally it will contract with the railroad involved. "Freight" is the account covering the line-haul transport of mail on freight trains, either in trailers or containers on flatcars or in freight-train cars. Other movements of freight from mailers' plants and on exclusive trains are included in the "special contract" account. In 1969 about $19 million of this account should be added to freight to get the whole picture in freight service. "Shipment of mail bags" covers the freight shipment of empty mail bags back to areas where they are needed. This movement can be in freight cars or trailers on flatcars. Exhibit 2 gives the breakdown by accounts of Post Office Department payments to individual railroads. These figures will not agree with those reported as mail revenue to the Interstate Commerce Commission. Aside from a minor lag between performance of service with entry of obligations in the Department's |