Mr. LOOMIS. I think that is right.

Mr. O'HARA. Mr. Chairman, I raised the question this morning, and I think some of my colleagues concurred with me, that we were probably running smack into a question that would probably have to go at least technically to the Ways and Means Committee. I certainly did not raise the point to create any discord, but, rather, to face the practical situation which I thought this subcommittee should be aware of.

Mr. LOOMIS. I simply wanted to explain why we had brought it here.

As I say, I am no expert on the parliamentary features of the House, but I also wanted to explain that Mr. Prince had outlined it to the Ways and Means Committee, so that they already have some testimony on it and are familiar with it.

Mr. O'HARA. I think, Mr. Loomis, it is also true that there is a feeling among the individuals on the subcommittee that it is certainly well for us to have the testimony pertaining to it, but I am still concerned that we may have to refer that part of it to the Ways and Means Committee.

Mr. ROBERTS. Certainly we can find out, through proper inquiry, further about it, and it is entirely possible that we could work with the Ways and Means Committee on a problem of this kind.

Mr. LOOMIS. I was going to say it may be a matter in which both committees have some concern.

Mr. ROBERTS. How much more do you have in your statement, Mr. Loomis?

Mr. LOOMIS. I would think it might take 10 or 15 minutes. If you have a call, I can come back in the morning.

Mr. ROBERTS. Would it be convenient for you to be here in the morning?

Mr. LOOMIS. Yes, perfectly.

Mr. ROBERTS. There is a gentleman here from Chicago who says. that he simply has to get back this afternoon.

The CHAIRMAN. That is Mr. Marsh, is it, or Mr. Williams?

Mr. ROBERTS. Mr. Williams.

The CHAIRMAN. Suppose then we do this: We will take you again in the morning, Mr. Loomis, and after we answer this quorum call we will come back and take Mr. Williams, and he will be the last witness of the afternoon.

Mr. ROBERTS. And, if there is time, would you permit me to ask Mr. Loomis a few questions this afternoon? I might not be able to be with you in the morning.

The CHAIRMAN. So you would be back with us after the quorum call for some questions?

Mr. LOOMIS. That will be fine.

Mr. ROBERTS. The committee will adjourn until 3: 15.

(A brief recess was taken.)

The CHAIRMAN. The committee will come to order.

Mr. Loomis, you may resume where you left off when we were interrupted.

Mr. LOOMIS. I had one further comment to make with respect to the construction reserve and the question that was raised this morning. that it could be used for both replacements or additions with particu lar respect to equipment.

That, of course, is true. During the past couple of years, ending with last fall, the railroads had increased their freight-car net by about 50,000 cars. The railroads had embarked on what they hoped would be a 5-year program that would bring about a total increase in cars of about 125,000, or an average of 25,000 a year.

During the first 2 years they were just about on the nose on that program, but with the recession and the need for conservation of cash, even with the stronger roads not having the reserves, the orders for freight cars have fallen off very badly, and, of course, we are falling way behind in keeping up the goal that we established and had hoped to carry out, of bringing about that increase in the freight-car fleet. A construction reserve, had it been in effect during the last 4 or 5 years, would have enabled long-range planning and ordering that would have gone far toward accomplishing the goal of increasing the freight-car fleet.

Turning now to the matter of competitive rates, in the hearings before the Senate Surface Transportation Subcommittee during these past months the railroads advocated the adoption of H. R. 5523 and H. R. 5524. This committee is thoroughly familiar with those bills and conducted hearings on them during 1957, and no further comments on my part would appear to be necessary.

For the convenience of the committee, there is attached to my statement, as the last document, an excerpt from S. 3778 setting forth the provision that is contained in that bill with respect to the subject of competitive rates. That provision is based on the interpretation of the Interstate Commerce Commission in New Automobiles in Interstate Commerce. That was 259 I. C. C. 475, decided in 1945, and the Senate committee, in its report, commented on that decision and on its desire to restore that rule of ratemaking, as follows:

The subcommittee wishes to affirm the interpretation of the Commission given in the Automobile case epitomized in the words quoted above. The subcommittee therefore believes it necessary to amend the act only so as, in effect, to admonish the Commission to be consistent in following the policy enunciated in the Automobile case thus assuring reasonable freedom in the making of competitive rates.

While we still favor the proposals in H. R. 5523 and 5524, suffice it for me to say that the railroads support the proposed legislation contained in S. 3778. Other witnesses will follow me who will explain in greater detail the position of the railroads in this connection.

In closing this part of my statement I merely want to emphasize that, while the provisions contained in S. 3778 do not in certain respects go as far as we would like to see them, nevertheless they are certainly helpful and are fair and just, and should be adopted by the Congress. And in making this statement I speak for the entire railroad industry as represented by the Association of American Railroads. (Documents previously referred to follow :)

ABANDONMENT OF SERVICE AND INTRASTATE RATES

SEC. 2. Section 1 of the Interstate Commerce Act, as amended, is amended (1) by inserting in subparagraph (a) of paragraph (2) thereof, after the word "aforesaid" and before the semicolon following that word, the words "except as otherwise provided in this part" and (2) by striking out the period at the end of the proviso in subparagraph (a) of paragraph (17) thereof and inserting in lieu thereof the following “and except as otherwise provided in this part."

SEC. 3. (a) The first sentence of paragraph (4) of section 13 of the Interstate Commerce Act, as amended, is amended to read as follows:

"(4) Whenever in any such investigation the Commission, after full hearing, finds that any such rate, fare, charge, classification, regulation, or practice causes any undue or unreasonable advantage, preference, or prejudice as between persons or localities in intrastate commerce on the one hand and interstate or foreign commerce on the other hand, or any undue, unreasonable, or unjust discrimination against, or undue burden on, interstate or foreign commerce (which the Commission may find without considering in totality the operations or results thereof of any carrier, or group or groups of carriers wholly within any State), which is hereby forbidden and declared to be unlawful, it shall prescribe the rate, fare, or charge, or the maximum or minimum, or maximum and minimum, thereafter to be charged, and the classification, regulation, or practice thereafter to be observed, in such manner as, in its judgment, will remove such advantage, preference, prejudice, discrimination, or burden: Provided, That upon the filing of any petition authorized by the provisions of paragraph (3) hereof to be filed by the carrier concerned, the Commission shall forthwith institute an investigation as aforesaid into the lawfulness of such rate, fare, charge, classification, regulation, or practice (whether or not theretofore considered by any State agency or authority and without regard to the pendency before any State agency or authority of any proceeding relating thereto) and shall give special expedition to the hearing and decision therein." (b) Section 13 of the Interstate Commerce Act, as amended, is amended by inserting after paragraph (4) thereof a new paragraph (5) as follows:

“(5) In any proceeding before the Commission involving an investigation of or authorization or permission for a general adjustment in rates, fares, or charges, or any of them, of carriers subject to this part for the transportation of property or passengers, or both, in interstate commerce throughout, or substantially throughout, the United States, or one or more of the three major rate classification territories thereof (Official, Western or Southern), any such carrier or carriers parties thereto may by petition seek authority or permission of the Commission for a comparable adjustment of rates, fares, or charges for the transportation of like property or passengers wholly within an individual State or individual States. If, in such proceeding, the Commission finds (as it is hereby authorized to do) that authorizing or permitting an adjustment in interstate rates, fares, or charges without authorizing or permitting a comparable adjustment in intrastate rates, fares, or charges would cause, or create a circumstance of, advantage, preference, prejudice, discrimination or burden declared in paragraph (4) of this section to be unlawful, the Commission shall, incident to any adjustment it may authorize or permit in such interstate rates, fares, or charges, authorize or permit a comparable adjustment in such intrastate rates, fares, or charges. Pursuant to such authorization the said carrier or carriers, upon making any adjustment so authorized or permitted by the Commission in such interstate rates, fares, or charges may without further authority make a comparable adjustment in such intrastate rates, fares, or charges, and adjustments so made in intrastate rates, fares, or charges shall be observed while continued in effect by the said carrier or carriers, the law of any State or the decision or order of any State authority to the contrary notwithstanding." SEC. 4. The Interstate Commerce Act, as amended, is amended by inserting after section 13 thereof a new section 13a as follows:

"SEC. 13a. A carrier or carriers subject to this part, if their rights with respect to the discontinuance or change, in whole or in part, of the operation or service of any train or ferry engaged in the transportation of passengers or property in interstate, foreign and intrastate commerce, or any of them, or of the operation or service of any station, depot or other facility where passengers or property are received for transportation in interstate, foreign and intrastate commerce, or any of them, are subject to any provision of the constitution or statutes of any State or any regulation or order of (or are the subject of any proceeding pending before) any court or an administrative or regulatory agency of any State, may, but shall not be required to, file with the Commission, mail to the Governor of each State in which such train, ferry, station, depot or other facility is operated, and post in every station, depot or other facility directly affected thereby, notice at least thirty days in advance of any such proposed discontinuance or change. The carrier or carriers filing such notice may discontinue or change any such operation or service pursuant to such notice except as otherwise ordered by the Commission pursuant to this section, the laws or constitution of any State, or the decision or order of, or the pendency of any proceeding before, any court or State authority to the contrary notwithstanding. Upon the filing of such notice the Commission shall have authority during said

thirty days' notice period, either upon complaint or upon its own initiative without complaint, to enter upon an investigation of the proposed discontinuance or change. Upon the institution of such investigation, the Commission, by order served upon the carrier or carriers affected thereby at least ten days prior to the day on which such discontinuance or change would otherwise become effective, may require such train, ferry, station, depot or other facility to be continued in operation or service, in whole or in part, pending hearing and decision in such investigation, but not for a longer period than four months beyond the date when such discontinuance or change would otherwise have become effective. If, after hearing in such investigation, whether concluded before or after such discontinuance or change has become effective, the Commission finds that the operation or service of such train, ferry, station, depot or other facility is required by public convenience and necessity and that such operation or service will not result in a net loss therefrom to the carrier or carriers and will not otherwise unduly burden interstate or foreign commerce, the Commission may by order require the continuance or restoration of operation or service of such train, ferry, station, depot or other facility, in whole or in part, for a period not to exceed one year from the date of such order. The provisions of this section shall not supersede the laws of any State or the orders or regulations of any administrative or regulatory body of any State applicable to such discontinuance or change unless notice as in this section provided is filed with the Commission. On the expiration of an order by the Commission after such investigation requiring the continuance or restoration of operation or service, the jurisdiction of any State as to such discontinuance or change shall no longer be superseded unless the procedure provided by this section shall again be invoked by the carrier or carriers."

PROPOSED AMENDMENT TO INTERSTATE COMMERCE ACT
(A-September 11, 1957)

(a) It is hereby declared to be the general policy of Congress to promote and encourage, in the interest of national defense and public welfare, the construction, reconstruction, reconditioning, or acquisition of equipment and other property used in the transportation business by railroad corporations, and the retirement (in whole or in part) of debt incurred for such purposes after the effective date hereof. It is the purpose of this Act to provide implementation of this general policy through the establishment by any railroad corporation subject to part I of the Interstate Commerce Act of a construction-reserve fund, with the privileges and subject to the limitations herein prescribed. Such construction-reserve fund shall be established, maintained, expended, and used in accordance with the provisions of this section and rules or regulations to be prescribed jointly by the Interstate Commerce Commission and the Secretary of the Treasury. Such fund shall be maintained in a separate cash deposit, or in obligations of the United States or any agency thereof.

(b) In computing the taxable income under section 63 (a) of the Internal Revenue Code of 1954 of any railroad corporation subject to part I of this Act there shall be allowed as a deduction, in addition to the deductions specified in that code, all amounts deposited in the said construction-reserve fund prior to the filing of the income-tax return of such railroad corporation for such taxable year.

(c) In computing the gross income under section 61 (a) of the Internal Revenue Code of 1954 of any railroad corporation subject to part I of this Act there shall be included all amounts withdrawn from the said constructionreserve fund for purposes other than those specified in subsection (a) of this section: Provided, That any amount deposited in the reserve fund which shall be permitted to remain in such fund for five years after having been deposited therein shall be considered to have been so withdrawn from such fund on the first day following the expiration of such five-year period. Such amounts shall be subject to tax at the rate or rates and shall be subject to the provisions of the Internal Revenue Code applicable to the year in which such amounts were deducted under subparagraph (b) of this section (including the interest provisions of such code, as if a tax deficiency for such year, whether or not a tax deficiency would exist for such year otherwise). For the purpose of this section, any amounts expended or withdrawn from the reserve fund shall be applied against amounts deposited therein in the order of the deposits.

(d) The basis for determining gain or loss and for depreciation, for the purposes of Federal taxes, of any property constructed, reconstructed, reconditioned, or acquired by the taxpayer, in whole or in part, out of the constructionreserve fund, shall be reduced by that portion of the deposits in the fund expended in the construction, reconstruction, reconditioning, or acquisition of such property, or expended to retire debt incurred for such purposes after the effective date thereof: Provided, That no expenditures shall be made from such fund for such purposes in excess of the then adjusted basis of the property to which such indebtedness relates.

(e) As used herein, qualifying expenditures shall include only expenditures which are chargeable to the accounts prescribed by the Interstate Commerce Commission to show the investment of a railroad corporation in property devoted to transportation service.

September 11, 1957.

CONSTRUCTION RESERVE

SEC. 7. The Interstate Commerce Act, as amended, is amended by inserting after section 25 thereof a new section 25a as follows:

"SEC. 25a. (1) It is hereby declared to be the general policy of the Congress to promote and encourage, in the interest of national defense and public welfare, the construction, reconstruction, reconditioning, or acquisition of equipment and other property used in the transportation business by common carriers subject to the Interstate Commerce Act, and the retirement (in whole or in part) of debt incurred, after the effective date of this section, for such purposes. It is the purpose of this section to provide implementation of this general policy through the establishment by any such carrier of a construction-reserve fund, with the privileges and subject to the limitations herein prescribed. Such construction-reserve fund shall be established, maintained, expended, and used in accordance with the provisions of this section and rules or regulations to be prescribed by the Interstate Commerce Commission and the Secretary of the Treasury. Such fund shall be maintained in a separate cash deposit or in obligations of the United States or any agency thereof.

"(2) All earnings of the fund shall be deposited in the fund. Such earnings may be withdrawn by the carrier only for expenditures for the purposes established in paragraph (1) of this section. If such earnings are not expended

for such purposes within five years from the date of deposit in the fund, 85 per centum of such earnings shall be paid to the United States as a tax, in lieu of any other tax which may be applicable to such earnings.

"(3) In computing the taxable income under section 63 (a) of the Internal Revenue Code of 1954, as amended, of any common carrier subject to this Act there shall be allowed as a deduction, in addition to the deductions specified in that code, the amounts deposited in the said construction-reserve fund prior to the filing of the income-tax return of such common carrier for such taxable year, without limitation except that the deduction allowed pursuant to this section shall not exceed in any one year an amount equal to the depreciation recorded in the operating expense accounts for such year under the provisions of the uniform system of accounts prescribed by the Interstate Commerce Commission.

"(4) In computing the gross income under section 61 (a) of the Internal Revenue Code of 1954, as amended, of any common carrier subject to this Act there shall be included all amounts withdrawn during the taxable year from the said construction-reserve fund for purposes other than those specified in paragraph (1) of this section: Provided, That any amount deposited in the reserve fund which shall be permitted to remain in such fund for five years after having been deposited therein shall be considered to have been so withdrawn from such fund on the first day following the expiration of such five-year period. Such amounts shall be subject to tax at the rate or rates and shall be subject to the provisions of the Internal Revenue Code of 1954, as amended, applicable to the year in which such amounts were deducted under paragraph (3) of this section (including the interest provisions of such code, as amended, as if a tax deficiency for such year, whether or not a tax deficiency would exist for such year otherwise). For the purpose of this section, any amounts expended or withdrawn from the reserve fund shall be applied against amounts deposited therein in order of the deposits.