RAILROAD PROBLEMS

FRIDAY, MAY 23, 1958

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

SUBCOMMITTEE ON TRANSPORTATION AND COMMUNICATIONS,

Washington, D. C.

The subcommittee met at 10 a. m., pursuant to recess, in room 1334, House Office Building, Hon. Kenneth A. Roberts presiding.

Mr. ROBERTS. The subcommittee will be in order.

The first witness today is Mr. James M. Symes, president of the Pennsylvania Railroad. Is he present?

We have quite a number of witnesses today, and we are hoping that we can finish the list. If the witnesses and those in attendance at the hearing will give me your cooperation, I think we can.

Mr. Symes, it is a pleasure to have you sir, and you may proceed with your statement.

STATEMENT OF JAMES M. SYMES, PRESIDENT, THE PENNSYLVANIA RAILROAD CO.

Mr. SYMES. Thank you, sir.

My name is James M. Symes. I am president of the Pennsylvania Railroad Co. I have been associated with the railroad industry for 42 years, mostly in the operating department.

I would like to express my gratitude for the opportunity which you have given me to appear in these comprehensive hearings. While it is my understanding you are looking into the problems of the railroad industry in general-and I will be glad to attempt to answer any questions you may have on any phase of the general situation-my testimony will deal primarily with the difficulties experienced in obtaining State commission authority for the abandonment of heavily losing services, and to apply in intrastate service rates and fares authorized by the Interstate Commerce Commission for interstate services.

While I will be discussing some of the problems facing railroads other than my own company, it should be understood that my views are being expressed on behalf of the Pennsylvania Railroad Co. only. In my testimony before your subcommittee on May 6, in connection with H. R. 11527, I emphasized that the really serious situation exists primarily among eastern railroads and is most acute for those lines which have a large volume of passenger business, and especially commuter business. This latter is largely intrastate and is subject to primary regulation, both as to fares and services, by the State commissions.

Ample studies have been made which demonstrate conclusively that passenger services generally are performed at very heavy losses. As a result, the railroads which have a relatively larger share of this business inevitably get into trouble when the profitable freight business falls off substantially, as it has within the last year.

I think everyone agrees that something must be done soon about the passenger service losses, because they seriously distort the real performance of the railroads that have to carry them.

For example, in the calendar year 1957, the Pennsylvania Railroad had net railway operating income from its freight service of over $100 million. This had to subsidize the passenger service to the extent of $57,531,000, with the result that net railway operating income was only $43 million. After allowing for nonoperating income of $25 million and miscellaneous deductions from income of $5 million, there was left available for fixed charges only $63 million. After paying fixed charges just under $44 million, we had net income of only $19 million. And a considerable portion of those fixed charges went for equipment and facilities used exclusively in the passenger service.

In the 10-year period 1948 through 1957, the Pennsylvania Railroad had a passenger service net railway operating income deficit in every year, aggregating $523,767,000 for the decade. It had a freight service net railway operating income totaling $1,124,046,000 during the same 10 years. Because of the passenger deficit, net railway operating income totaled only $600,279,000 for a net return on depreciated investment of only 2:49 percent. If the passenger service had just broken even, our net railway operating income would have been increased by the amount of the passenger service net railway operating income deficit, for a total of 4.67 percent return on investment and, after putting it through for income taxes, the return would have been 3.67 percent and, in dollars after taxes, we would have had $282 million more cash to use.

If this were true, the railway industry problem would be much less serious. Our credit would be good. We would be able to take advantage of many technological advances, to give our patrons the benefit of the better service and the lower rates thereby made possible.

We could keep our equipment and facilities in much better condition instead of accruing large amounts of deferred maintenance. We would have more nearly normal employment and purchases instead of having to cut our employment to alltime record lows, and reduce purchasing to an absolute minimum. On the Pennsylvania we have had to defer all heavy maintenance. We are operating with equipment averaging 31 years old for our passenger fleet, and 27 years for freight cars, with 26,000 freight cars now in bad order and not usable. We could own additional equipment to alleviate freight-car shortages, with their severely hampering effect on both our patrons and our revenues. We would be in better position to adjust our freight rates to meet those of our subsidized competitors and to give even better

service.

But realities are different. The freight service is expected to subsidize the passenger service. As a result, the railroads are steadily losing freight business to their highway, waterway, and airway competitors, which not only are subsidized by Government but do not have to include in their charges a plus factor to subsidize a losing passenger business.

By and large, the various State commissions have long exhibited the attitude that the freight service of the railroads should be expected to subsidize their passenger service. And this attitude was backed up by the United States Supreme Court in its recent decision on the increase in commutation fares ordered by the Interstate Commerce Commission under section 13 proceedings for the Milwaukee Railroad in its Chicago suburban service. The Supreme Court said that the railroad must first prove that it was losing money on its total intrastate business, both freight and passenger, before it was entitled to an increase on its heavily losing suburban passenger service.

The New York State Commission, in denying recent well-merited intrastate passenger fare increases, said it was well known that the passenger business could not be operated at a profit, but it was the function of the freight service to make up its loss. And only last week an examiner for the New Jersey Board of Public Utility Commissioners, in his report on our application seeking approval of the discontinuance of one train each way between Trenton and Redbank, N. J., with the substitution of motorbus service, recommended denial of the application on the basis that the proposed bus substitution would not provide "comparable" service and that data on freight revenues on the line have not been provided, so that it could not be determined whether the line was operating at a loss when all revenues therefrom and expenses in connection therewith were considered. Thus, we are forced to continue a service on which we are losing $250 per day in out-of-pocket costs alone, and for which we filed application for removal in February of 1957, 15 months ago.

That is the last time we filed an application. We have had applications before the Commission for this service since 1942.

There are about 20 schoolchildren moving a distance of about 15 miles from Freehold into Trenton. A bus would amply take care of them. But they figure in bad weather or rainy weather the bus might be late and get the youngsters into school a little too late. So, therefore, we have to operate the service at this great loss.

Where we wish to discontinue through trains in interstate service, State commissions may require us to operate what we call ghost trains to represent their State's portion of such through train schedules. Typical ghost train operations the Pennsylvania has been forced to run during the past 7 years include 1 couplet-1 train in each direction-between Steubenville and Dayton, Ohio, for 84 days, at an out-of-pocket cost of $128,000; 3 trains in Indiana, involving a couplet between Richmond and Terre Haute, and 1 train between Chicago and Fort Wayne, for 543 days, at an out-of-pocket cost $396,000; 1 couplet between Martinsville and East St. Louis, in Illinois, for 235 days at an out-of-pocket cost of $220,000; and one couplet between Williamsport and Troy, in Pennsylvania, for 185 days at an out-of-pocket cost of $68,000.

Since the spring timetable went into effect on April 27 of this year, we have been operating a couplet between New York and Trenton, in New Jersey, at an out-of-pocket cost of $250 per day. That has already cost us over $7,000 since April 27. It represents the New Jersey portion of two trains formerly operated between New York and Washington. And, incidentally, between New York and Trenton we have

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76 other trains operating. So there certainly is no lack of service to justify the operation of these two ghost trains.

In addition, since the 1958 spring timetable went into effect, we have been operating 23 unnecessary local trains within the State of New Jersey at an out-of-pocket cost of $523 per day. These represent trains which would have been taken off through consolidation or "bobtailing" shortening the run-to operate between New York and New Brunswick, instead of between New York and Trenton, for example, which the New Jersey Board of Public Utility Commissioners has prevented our discontinuing.

No other private business is expected to keep its production up when sales fall off. And that is in spite of the fact that practically all businesses produce a product which is tangible, which can be warehoused and held for later sale.

The railroads produce a passenger transportation service. It is a completely perishable commodity. If not used as produced, it is generally lost forever because it cannot be warehoused and held for later use. Yet the railroads are constantly required to operate services, particularly passenger, for which the market has disappeared or for which the demand has fallen off to such an extent that a heavy loss is involved in the production. For example, the ghost train couplet which the Pennsylvania was required to operate between Williamsport and Troy, Pa., for 185 days, that I have previously mentioned, averaged less than one passenger per day, with an average passenger fare revenue per day, including the trains in both directions, of only 57 cents. And it cost the Pennsylvania Railroad $187.16 in out-of-pocket cost alone every day to operate those two trains.

Can you imagine any other business being required to do anything comparable? Even the electric and gas utilities, which have a true monopoly, are not required to produce more than their customers wish to buy.

Other businesses and other utilities are free to decrease production as soon as their sales decline. Not so the railroads. We must apply to State commissions for permission to reduce or even change service, to tailor it to meet actual current sales requirements. And the commissions frequently take an excessive length of time to arrive at a decision. A recent compilation involving 6 trains in the State of Pennsylvania and 13 in the State of New Jersey showed an average of 424 days between the time we filed application with the Commission and the time approval for withdrawal of service was granted-364 days beyond the 60 calendar days, which certainly should be a reasonable maximum time for a decision. And this includes seven trains which we are still operating, since no decision has been reached. In 1 case, involving 3 trains in the State of New Jersey, application was filed in July of 1956-nearly 2 years ago. Our out-of-pocket loss is $1.45 per day, and that loss goes on while we wait for a politically motivated regulatory body to arrive at a decision. No wonder our passenger service suffers staggering losses.

State commissions are reluctant to authorize train discontinuances even where there will still be service afforded to the territory involved. Illustrative of this is the fact that all of the 4,337 scheduled daily passenger train-miles removed or scheduled for removal so far this year have required hearings and approvals by State commissions. In

fact, some of those, scheduled for removal during the April 27 spring timetable changeover, we are still having to operate pending a commission decision, as brought out earlier in my testimony.

As our business continues to leave us to the highway or to the air-it becomes important to completely discontinue all service on more and more lines. And it is the removal of that last train which is both the most difficult for which to obtain authority and very important from the standpoint of economy to the railroad. Much opposition to the removal of that last train comes from civic bodies and real-estate interests who believe the value of their property will depreciate if the area has no rail passenger service. It is not that they actually use the service; they just want it known that it is available if someone does want to use it.

On the other hand, the railroad can realize the savings of only the out-of-pocket cost until all service is discontinued. And that out-ofpocket cost, representing the wages of train and engine crews, fuel, train supplies, and expenses and equipment maintenance, is less than half the fully distributed cost, which includes passenger stations, the maintenance of track and signal systems for passenger train speeds, and everything else that goes to maintaining the passenger service proper as opposed to the freight service.

On the average, last year our out-of-pocket cost was $3.94 per trainmile, whereas the fully distributed cost was $9.25, and total passenger service revenues averaged $7.07 per train-mile, so that we lost, on the average, more than $2 on a full-cost basis for every passenger trainmile operated. Today our out-of-pocket cost is running $4.35 per train-mile, average revenue $6.92, and fully distributed cost $10.06. Naturally, if there is only one train remaining on a run, and that has no patronage, it ought to be removed.

In 1951 the National Association of Railroad & Utilities Commissioners made a study of unprofitable passenger train operations in the United States for the month of May. This showed that there were then 1,191 individual passenger trains in the United States operating at a deficit, considering out-of-pocket cost only. These involved 7,157,186 train-miles, with an out-of-pocket net loss of $7,035,365 for the month of May alone. And this did not include any suburban service or commutation trains.

To quote from the 1952 Report of the Special Committee on Cooperation with the Interstate Commerce Commission in the Study of the Railroad Passenger Deficit Problem of the National Association of Railroad & Utilities Commissioners:

to the extent the passenger deficit is a burden upon freight traffic, the Interstate Commerce Act, as interpreted by the Interstate Commerce Commission, not only permits, but requires, that freight service bear the burden in order to produce satisfactory aggregate earnings. Also, to the extent that passenger service fails to bear its share of joint or indirect costs, the act is interpreted to permit and to require that freight service bear the passenger portion of those costs.

The imposition upon freight service of such direct and joint costs as may fairly be allocated to passenger service has important consequences upon the national economy. First, it adds to the difficulties of the railroads in meeting truck competition for carload freight traffic which is vital to successful operation of the railroads as private enterprises. Second, it makes clear the fact that the passenger deficit, or at least a portion of it, is eventually borne by the general public in the form of higher prices for all commodities the prices of which are affected by freight rates.