exceedingly necessary in our inflationary economy. This is easier said than done. For example, the average compensation of one of our largest group of employees, clerks and freight handlers, has increased more than 255 percent in the last 20 years, not including the so-called fringe benefits which now add about 20 percent to direct railroad payroll costs. In 1958, when Lackawanna carloadings were down 17 percent, payroll increases of 12 cents per hour on an annual basis resulted in additional costs of $2,160,000. Our taxes have increased, our payments for materials and supplies have greatly increased.

The problem of holding the line on expenses is not unrecognized. In a recent individual study conducted by the New York State Public Service Commission at the request of the New York State Legislature, one of the recommendations contained is that real estate taxes be frozen for a 2-year period. This is considered as interim relief only. Additionally, last year the New York State Legislature passed a bill which was signed by the governor, permitting local taxing districts in New York State to make agreements with the railroads abating taxes.

If I can digress from the text at this point, I might add we really beat the bushes in New York State last fall in calling on assessors in all of the local districts, as a result of which we obtained a reduction of approximately 10 percent in the districts where tax aggrievements days were set last fall. But even so, with a reduction in our reassessments of over $1 million, our taxes, due to the increase in rates, are about the

same.

So that even though year after year we obtain in New York State $1 million reduction in assessments, the taxes which we pay to New York State remain fairly constant.

Only last week the governors of the States of New York, New Jersey, and Connecticut, together with the mayor of the city of New York, held a joint meeting to consider the financial crisis of the railroads serving the New York metropolitan area.

Again I might digress and say I presented a statement before that committee, and I am not too hopeful at the present time that anything will result constructively from the committee.

Governor Ribicoff is not interested in assuming the tremendous burden of the railroads in the State of New Jersey. I told that committee that the Lackawanna expects in the near future to present to the New Jersey Commission a proceeding under which we would discontinue substantially all of our suburban and commutation service which over a period of 10 years we have sustained a loss on of $30 million.

During the same period we paid the State of New Jersey $30 million in taxes. In other words, I think we have reached the point now in our economy where freight can no longer carry these tremendous deficit operations from passenger service.

We have suggested to the State of New Jersey that they either forgive taxes on our passenger facilities, which even in the terminal area at Hoboken amounts to approximately three quarters of a million.

Senator CLARK. Are those State taxes or are they mostly local taxes? Mr. DAVIS. The assessment is made by the State and apportioned locally. You have a very complicated tax situation in New Jersey. We went into court on the basis that our assessments were 100 percent and everybody else's was but 50 percent and were told that the court agreed with us in substance, but the standard of proof that we had to

make was completely impossible. So we had, shall I say, a hollow victory.

At this point I would like to clarify my position with respect to our employees. I am not against increasing benefits to workers whenever it is financially possible. More important, we are trying to protect their jobs on the Lackawanna Railroad, but we cannot do so with a deficit operation.

Again digressing, if we discontinue our suburban service it will affect about 20 percent of the 7,000-odd Lackawanna employees which we sitll have on our payroll.

You gentlemen are aware that railroad traffic is being diverted to other means of transportation, mainly because of unfair competition. Most of our competitors are being subsidized in the form of highways and terminals that are constructed and maintained by Federal, State, and local Governments and are largely tax-free. I am sure that you understand that the railroads as taxpayers are bearing a substantial portion of the cost of providing these free facilities for our competitors.

These competitors do not have to bear the high payroll taxes that are being borne by the railroads. Bus and truck employees are subject to social security and accordingly, their employers bear a tax of 21⁄2 percent on the first $4,800 of wages earned by each of those employees. On the other hand, the railroads being subject to the railroad retirement tax at the present rates are paying 61⁄4 percent of the first $350 earned during the month or on $4,200 per year. If the Lackawanna Railroad were under the Social Security Act instead of the Railroad Retirement Tax Act, our tax payments involved in 1958 would have been $777,000 instead of $2,159,000 actually paid.

On the Lackawanna the additional cost imposed by S. 226 is most substantial. For the years 1959 to 1961, inclusive, the additional cost would be more than $800,000 per year and from 1962 to 1964, inclusive, the increased cost would be about $1 million per year.

Gentlemen, I submit to you, does the Congress, regardless of pressures upon it, have the right to force upon the Lackawanna Railroad, a proud agency of transportation already in deep financial distress, further increases in welfare costs? As one believing in the necessity for financial integrity, our company must concur in meeting the cost of increased benefits already in effect, but any increase in these benefits must come from other sources.

More is involved than Lackawanna's 7,300 employees. Seriously affected are Lackawanna's approximately 8,500 stockholders located in every State of the Union. More than 40 percent of our registered stockholders are women. More than 82 percent of our stockholders own 100 shares or less. Many are retired people to whom investment in Lackawanna securities is exceedingly serious. To them as citizens-and as voters-the decision of the Congress in this matter should reflect an appreciation of their responsible and real interest.

I am strongly opposed to S. 226 as presently before you. I would reluctantly support the measure with respect to its 1959-61 changes only, if concurrently the Railroad Unemployment Insurance Act were amended as suggested by Mr. Loomis and as will be covered in detail by Mr. Calhoun.

In

Frankly, the suggested and recommended changes will modify the expense to the Lackawanna of the increased cost of the Railroad Retirement Tax Act. this connection, since the Lackawanna Railroad operates in New York, Pennsylvania, and New Jersey, may I call your attention to the fact that employees of other industries in those States receive in unemployment and sickness benefits: In New York from $10 to $45 weekly; in Pennsylvania and New Jersey from $10 to $35. By comparison, the practical minimum in effect on our railroad today for all contract workers is $39.40 weekly. S. 226 would increase this minimum to 60 percent of the last daily rate of pay, or $47.30 a week, more than the maximum in any State in which we operate. Is it not fair to inquire of you as to the justification for this new discrimination in favor of railroad workers?

Neither my railroad nor the industry can afford this kind of treatment. I state to you in the utmost seriousness that the great sums of money, involving additional costs, which would be required by S. 226, can well be the difference between solvency and insolvency for some of the eastern railroads.

Again I would like to digress. Mr. Loomis mentioned some of the railroads, the Pennsylvania and New York Central, but they serve

not only the East, but the Midwest. If you look strictly at the eastern railroads, the Lackawanna, the Lehigh Valley, and some of the New England railroads, you will find that they have not had any increase in traffic. And, as a matter of fact, they are not doing as well in 1959 as they did in 1958. And we all know that 1958 was a very poor year for those railroads.

You must decide whether or not the broad and real public interest here involved justifies your taking the discriminatory action against the railroad industry inherent in this legislation. It would be ironic indeed if the passage of S. 226 as proposed were a milestone toward Government ownership and operation of our country's transportation system.

Senator MORSE. Thank you very much, Mr. Davis.

Any questions?

Senator CLARK. Just a couple short ones, Mr. Chairman.

Mr. Davis, when did the Lackawanna last pay a dividend?

Mr. DAVIS. The last dividend we paid was in Nickel Plate stock and was in the spring of 1957, if I am not mistaken.

Senator CLARK. When did you suspend cash dividends?

Mr. DAVIS. The last cash dividend was paid in, I think, about November 1, 1956.

Senator CLARK. Have you paid on any interest on your bonds? Mr. DAVIS. Not as of the present time. We will not be able to pay, I do not believe, our contingent bond interest this year.

Senator CLARK. What is your contingent bond, an income bond? Mr. DAVIS. Yes, sir. We certainly did not earn it.

I can give you, sir, the dividend payments from 1948 through 1958 on the Lackawanna. The stockholders received 59 cents per share and that included the distribution of Nickel Plate stock.

Senator CLARK. That is the total dividend for the 10-year period? Mr. DAVIS. Yes, sir.

Senator CLARK. Now on your passenger traffic, do you still run through trains to Buffalo?

Mr. DAVIS. Yes, sir.

Senator CLARK. How many a day?

Mr. DAVIS. Through to Buffalo, sir?
Senator CLARK. Yes.

Mr. Davis. All the way from Hoboken to Buffalo-let's see, No. 3, 5,7, 15-four each way.

Senator CLARK. Does that carry a through car in the Middle West? Mr. DAVIS. No. 3 carries a sleeper to Chicago, via Nickel Plate; through coach to Chicago, via Nickel Plate; No. 7 carries a through sleeper and a through coach.

Senator CLARK. Now, with respect to your service into the anthracite region in Pennsylvania, your passenger trains have been pretty largely curtailed coming out of Scranton. Do you go to Scranton? Mr. DAVIS. Do we go to Scranton now? No, sir.

Senator CLARK. How many trains a day are you running from Hoboken to Scranton? I do not want it exact.

Mr. DAVIS. There will be six out of Scranton and six to Scranton. Senator CLARK. Of course the other four to Buffalo go through Scranton?

Mr. DAVIS. I am including those. There are two more than the through Buffalo trains.

Senator CLARK. Aren't you by way of curtailing that service even further?

Mr. DAVIS. We have no present program at the present time to curtail our through service here. Don't get me mixed up with the Lehigh Valley.

Senator CLARK. No, I am not. I know about them, too.

You have taken 1948 as a base year, to 1958. Do the years intervening show a casual falling off of revenues and gradual increase in costs, or is there a sharp decline in some period? Some people think

1948 was not

Mr. DAVIS. 1948 was not the best year for Lackawanna. I do not have the figures for all of the intervening years; 1958 was a very poor year with a $4 million deficit. In 1957 we were in the black by about $400,000, but we had an income tax credit. Without that we would have been in the red for over $1 million.

Senator CLARK. I do not want to make it too long, but what I was thinking about was

Mr. DAVIS. 1956 was fair, 1955 was the flood year, if you

Senator CLARK. 1955 was what?

Mr. DAVIS. Was the flood year.

Senator CLARK. So you have a deficit there?

Mr. DAVIS. We certainly did have a deficit that year.

will recall.

Senator CLARK. How about right after the Korean war, how about 1953?

Mr. DAVIS. I do not have those figures. 1952 and 1953 were not too bad years. We had a slump and we came back a little bit and then we went down, sir.

Senator CLARK. Very well.

Senator MORSE. Thank you very much, Mr. Davis.

Mr. DAVIS. Thank you, sir.

Senator MORSE. I understand Mr. Whitman will be here in the morning?

Mr. LOOMIS. Yes, sir.

Senator MORSE. And Mr. Calhoun is here today?

Mr. LOOMIS. Right.

Senator MORSE. The next witness will be Mr. Calhoun on behalf of the Association of American Railroads.

We may not be able to complete your testimony today, Mr. Calhoun, but we will go as far as we can.

Mr. CALHOUN. All right, sir.

Senator MORSE. If we do not complete it will it be convenient for you to be here at the morning session tomorrow?

Mr. LOOMIS. May I ask, Mr. Chairman, if you would be good enough to take Mr. Whitman first in the morning so that he can get out of town?

He has come all the way from San Francisco.

Senator MORSE. We will be very glad to accommodate.

STATEMENT OF LEONARD J. CALHOUN, ON BEHALF OF THE ASSOCIATION OF AMERICAN RAILROADS

Mr. CALHOUN, Mr. Chairman, my name is Leonard J. Calhoun. I am a member of the law firm of Harter, Calhoun, Lishman & Williams. I am appearing on behalf of the Association of American Railroads, which I shall refer to in my statement as the association. My testimony will be with respect to railroad unemployment insurance. I have had certain background experience which I think qualifies me to discuss this subject. From 1935 until 1943–

Senator MORSE. I believe you educated us on this last year.
Mr. CALHOUN. I will be glad to skip that part, Mr. Chairman.

I would say that, unfortunately, there are several matters which will have to be commented on by me as the pending bill would increase the wage base for unemployment, sickness, and maternity benefits and the supporting tax to $4,800 and the bill itself would increase the tax rate to 312 percent. And I believe that there has been testimony before this committee that it will require more appropriately 4 percent.

Also, the bill would extend benefit periods backward and add periods and additional benefits forward, enabling some to draw benefits continuously for well over 2 years.

Third, it would eliminate the initial registration requirement and open up the system to paying unemployment benefits every time a person lost a day's work in a 2-week period.

Fourth, it would increase benefit rates to a point where in many instances the incentive to work would be seriously impaired.

These proposals and the railroad's counterproposals to keep the system within reasonable limits, to avoid some of the more glaring inequities, to limit benefits to persons genuinely attached to the labor market require, unfortunately, a considerable time for even the briefest discussion. However, in view of the limitations of time, I shall omit much of my formal statement with the request that it be set out in the printed hearings.

Senator MORSE. The full printed statement of Mr. Calhoun will be printed at this point in the record.

(The statement by Mr. Calhoun follows:)

STATEMENT OF LEONARD J. CALHOUN ON BEHALF OF THE ASSOCIATION OF

AMERICAN RAILROADS

My name is Leonard J. Calhoun, I am a member of the law firm of Harter, Calhoun, Lishman & Williams. I am appearing on behalf of the Association of American Railroads, which I shall refer to in my statement as the association. My testimony will be with respect to railroad unemployment insurance. I have had certain background experience which I think qualifies me to discuss this subject. From 1935 until 1943 when I went into the Navy I was Assistant General Counsel of the Social Security Board and its successor, the Federal Security Agency. In 1946 I headed the special social security technical staff of the Ways and Means Committee which was established to make a comprehensive study and report on unemployment insurance, old age and survivors insurance and public assistance.

By way of preface, I shall state the generally agreed principal objective of unemployment insurance, as I shall refer to this key objective from time to time. Unemployment insurance it intended to provide, within practical cost limits, to persons normally employed but currently unemployed due to lack of work and through no fault of their own, temporary benefits reasonably related to their normal earnings and of such size as to afford a reasonable floor of protection

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