AMENDING THE RAILROAD RETIREMENT ACT OF 1937 WEDNESDAY, FEBRUARY 18, 1959 U.S. SENATE, SUBCOMMITTEE ON RAILROAD RETIREMENT OF THE Washington, D.C. The subcommittee met at 2 p.m., pursuant to recess, in room 4232, New Senate Office Building, Senator Wayne Morse (chairman of the subcommittee) presiding. Members of the subcommittee present: Senators Morse (presiding) and Clark. Committee staff members present: Stewart E. McClure, chief clerk; Samuel V. Merrick, special counsel to the subcommittee; and Raymond Hurley, professional staff member. Senator MORSE. The subcommittee will come to order. I will place in the record at this time two letters received by the chairman from the Railroad Retirement Board. (The letters follow:) Hon. WAYNE MORSE, UNITED STATES OF AMERICA, Chairman, Subcommittee on Railroad Retirement, Committee on Labor and Public Welfare, Washington, D.C. DEAR MR. CHAIRMAN: In my appearance before your esteemed group on Monday, February 9, you graciously granted to me the privilege of substituting a broader summary for the penultimate paragraph on page 6 of my statement concerning S. 226. Only In the last 2 fiscal years, fraud determinations were made in 1,076 cases. 388 were referred to United States attorneys for prosecution and 286 convictions were reported. Sincerely, THOMAS M. HEALY. 143 RAILROAD RETIREMENT BOARD, Hon. WAYNE MORSE, Chairman, Subcommittee on Railroad Retirement, Committee on Labor and Public Welfare, U.S. Senate, Washington, D.C. DEAR SENATOR MORSE: The supplemental statement by me, referred to in Mr. Habermeyer's communication to you, dated February 13, follows: In my appearance before your committee on February 9, and with your permission, I summarized results of checks by field representatives of the Board for possible employment on days claimed as idle by claimants for unemployment insurance benefits under the Railroad Unemployment Insurance Act during period July 1, 1956, and September 30, 1958, showing that, as of December 1, 1958, less than 50 percent of the recoverable payments had been recaptured. In the communication referred to, it is stated that "separate records are not kept of amounts determined to be recoverable because the claims were fraudulent or of the amounts of such benefits which are ultimately recovered." And, in the table on page 4, it is shown that for a selected 4-year period, a total of $5,759,664 in unemployment insurance benefits were deemed to be recoverable and, of that amount, $5,113,956 had been recaptured. As the report states, that is the record of the total amount of benefits held to be recoverable and includes, as well as fraud, clerical and administrative errors, benefit rate adjustments, pay for time lost, etc. A statement compiled by the Bureau of Unemployment and Sickness Insurance, dated February 13, shows that in the last 8 fiscal years, in 59,641 cases checked for employment on days claimed as idle, 11,990 cases of recoverable payments were found, aggregating $1,294,552. As of December 31, 1958, the accounts receivable for recovery of unemployment insurance benefits stood around $620,000, including, of course, all items. However, audits of four regions in 1957-Atlanta, New York, Kansas City and Dallas-revealed that in accounts receivable aggregating $442,252 a total of $365,405, or 83 percent, involved fradulent claims and payments. Since the accounts receivable for unemployment insurance benefits on December 31, 1958, was around $620,000, 83 percent of that sum, or, around $514,600, would be reasonably chargeable to fraud. This does not include (nor does the table referred to on page 4 of the Board's report of February 13) a total of $140,385 in recoveries of unemployment insurance payments that were actually waived, for one reason or another, during the 8 fiscal years' period, 1950-51 through 1957-58. The Board's report on pages 7 and 8 show benefits paid in the fiscal year 1957-58 to employees who were discharged or left work voluntarily. In October and November 1958, the Board's Director of Research, at my request, prepared some estimates of the ratio of such benefits to the total unemployment insurance payments which I now respectfully offer for your consideration: Senator MORSE. This afternoon we will proceed with the witnesses representing the carriers. We will have as our first witness Mr. Daniel P. Loomis, president of the Association of American Rail roads. Is there anyone associated with you whom you care to have sit with you? If so, you may have them do so. The witness may proceed in his own way. STATEMENT OF DANIEL P. LOOMIS, PRESIDENT, ASSOCIATION OF AMERICAN RAILROADS Mr. LOOMIS. Mr. Chairman and gentlemen of the committee, my name is Daniel P. Loomis. I am president of the Association of American Railroads, with headquarters in Washington, D.C. I appear here on behalf of the member lines of the Association of American Railroads to oppose enactment of S. 226 in its present form. Just last year I appeared before this committee in opposition to S. 1313 which also proposed similar unwarranted amendments to the Railroad Retirement and Unemployment Insurance Acts, and I showed that it was bad legislation for the railroads, bad for the employees, bad for the national economy, bad for the shippers and travelers, and bad for the national defense. It will not be my purpose to comment on the bill section by section. I would, however, like to point briefly to some of the more important aspects of S. 226. All annuities under the retirement system would be increased by 10 percent and benefits under the unemployment system from 8 percent to 25 percent with a general advance of 20 percent. The period of time over which a railroad worker could receive unemployment benefits would be extended for as long as 26 weeks in each benefit year beyond the period provided for at the present time. The bill would increase the tax rate for retirement paid by employers and employees each from the present 614 percent to 634 percent on January 1, 1959. In addition, the retirement tax rate would go to 71⁄4 percent on January 1, 1962, and in a number of steps would eventually reach 9 percent on January 1, 1969. The unemployment insurance tax rate which is now 3 percent would be increased to 32 percent. Both the new retirement tax rate and the unemployment tax rate would be applied to $400 a month of employee earnings rather than $350 of such earnings, the present base. These retirement and unemployment tax changes would impose on the railroads immediate payroll tax increases of $102 million per year, and when the future changes have taken place the additional annual taxes will total $228 million. I should add that if the bill were amended to increase the unemployment tax to 4 percent, as has been suggested by two members of the Railroad Retirement Board and the witness for the Railway Labor Executives' Association, the immediate additional taxes would become $130 million per year, and the future additional annual taxes assessed against the railroads would total $256 million. There is no justification to provide increased retirement benefits to the extent proposed in S. 226, when the railroad system is already far more generous than even the recently amended Social Security Act, which covers workers in other industries, including the railroads' competitors. There is also no justification to increase benefits payable under the railroad unemployment insurance system-a system already far more liberal than the State systems applicable to workers in other industries. That the railroads are not in a position to assume unwarranted increases in operating costs is well known to most members of this committee. Such a fact was fully developed by the Subcommittee on Surface Transportation of the Senate Committee on Interstate and Foreign Commerce in hearings last year. Legislation enacted by the Congress following those hearings is hopefully expected in the long run to provide assistance to the railroads in working toward solution of their problems, but that legislation has not removed or even lessened the continuing need for avoiding extravagant expenditures of railroad funds. Congress obviously was aware that even though they enacted the Transportation Act of 1958, many difficulties still confront the railroad industry. That was evidenced by the adoption of Senate Resolution 303, providing for a comprehensive study of transportation policy and related problems, and now Senate Resolution 29 in the new Congress, now under consideration. To proceed, two major factors adversely affecting the railroads are competition and inflation. Diversion of traffic from the railroads to their growing competitors, higher wages and material costs, and expanded fringe benefits for their employees represent opposing economic pressures of such magnitude that the result has been a serious decline in railroad profits. The railroads have failed to participate in the prosperity enjoyed by other industries since World War II. Intercity freight traffic in the United States has been on the rise, with only brief, occasional interruptions in the trend, for the past 25 years. Railroads have in some years participated in this traffic growth, but since 1947 railroads have experienced a decline in their freight traffic, while other forms of transportation have shown sharp increases. Thus, the railroad share of total intercity ton-miles has declined, as shown in table I. May I ask that table I be copied into the record? Senator MORSE. That will be done. Table I will be copied into the record at this point. (Table I follows:) TABLE I.-Percentage distribution of intercity ton-miles Mr. LOOMIS. Whereas railroads handled nearly three-fourths of the freight traffic in 1929, they handled less than 47 percent of the total in 1957. For 1958 it is estimated that the railroad proportion was less than 46 percent. For every year since 1943, the peak year for the railroads since 1929, the proportion of intercity ton-miles handled by the railroads has shown a decline under the preceding year. The greatest relative gains were made by motor carriers and by operators on the inland waterways, whose rights-of-way are provided for them by the public. Passenger traffic has also left the rails, as travel by bus, airplane, and private automobile-again on public rights-of-way-has increased by leaps and bounds. Distribution of intercity passengermiles among the commercial carriers is shown in table II. May I ask that that also be copied into the record. Senator MORSE. It will be included in the testimony at this point. (Table II follows:) TABLE II.-Percentage distribution of intercity passenger-miles (excluding private automobiles) Mr. LOOMIS. For every year since 1944, the proportion of commercial intercity passenger-miles handled by the railroads has shown a decline under the preceding year. Air is the only form of commercial passenger transportation that has shown a significant increase in its share in the period since World War II, and that form of transportation enjoys substantial subsidies. Even more significant than the shift in ton-miles and passengermiles has been the shift in revenues from the railroads to their principal competitors. This situation is set forth in table III. May I ask that table III be put into the record? Senator MORSE. It will be included in the record. (Table III follows:) TABLE III.-Ratio of truck and airline traffic and revenues to railroad traffic and revenues (excluding unregulated carriers) Mr. LOOMIS. You will note the ratio of truck revenue to rail revenue has gone up from 21.4 to 56.8, and the airline revenue to railroad revenue from 12.8 percent to 182.3 percent. To proceed, data for trucks in table III cover only that portion of the motor carriers which is subject to ICC regulation. Since such carriers account for about one-third of all truck ton-miles, it is apparent that the total revenue value of all trucking substantially exceeds the freight revenues of the railroads. Air travel by other than the scheduled domestic airlines is also excluded from table III. The significance of table III is that in 1957 the ratio of truck revenue to rail revenue was more than four times as great as the truck-torail ratio based on ton-miles. Similarly, the air-to-rail ratio was |