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AMENDING THE RAILROAD RETIREMENT ACT OF 1937
THURSDAY, FEBRUARY 19, 1959
Washington, D.C. The subcommittee met at 10 a. m., pursuant to recess, in room 4232, New Senate Office Building, Senator Wayne Morse (chairman of the subcommittee) presiding.
Present: Senators Morse (presiding), Clark, and Cooper.
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 hearing will come to order.
Our witness this morning is Mr. Fred Whitman, president of the Western Pacific Railroad, San Francisco, Calif.
Mr. Whitman, will you come forward and proceed in your own way. STATEMENT OF FREDERIC B. WHITMAN, PRESIDENT OF THE WEST
ERN PACIFIC RAILROAD, SAN FRANCISCO, CALIF. Mr. WHITMAN. Mr. Chairman and gentlemen of the committee, my name is Frederic B. Whitman. I am president of the Western Pacific Railroad, having held that position since July 1, 1949.
I started my railroad service as a locomotive fireman in 1919 with the Fort Worth & Denver City Railroad just after graduation from college.
The Western Pacific Railroad is one of several railroads which link the rapidly growing West with the Midwest and East. We operate 1,189 miles of main track—the principal line running from the San Francisco Bay area through California and Nevada to Salt Lake City, Utah.
Our gross revenues in 1958 amounted to about $52,100,000.
I deeply appreciate the opportunity to appear before you and to try to tell you, in the brief time allotted to me, what the cost of unemployment compensation presently means to the Western Pacific Railroad Co. and also describe to you the serious adverse impact that the proposed enlargement of unemployment compensation benefits will have upon our employees, our financial picture, and upon our ability to carry out our obligation to furnish our shippers' adequate service at reasonable rates.
I am proud, and I believe justifiably so, of the operating record that the Western Pacific has been able to establish among class I railroads. There are certain indexes that are used to measure efficient operation—such as average freight-train speed, average car-miles per car-day, gross ton-miles per train-hour, and freight-locomotive miles per day—and the Western Pacific ranks high in most of them. This officiency in operation has been accomplished, within the limits of our financial ability, by taking advantage of and, in some instances, pioneering the technological advances in the industry. To do this has required a tremendous investment in diesel power, centralized traffic control, extension of sidings, improved roadway and modern rolling stock. Since 1948, we have made capital expenditures for roadway of approximately $37,604,000, financed almost entirely from earnings. In addition, we have spent, or have become obligated for, $53,695,000 for the purchase of new equipment which also has been paid for, or will be paid for, from earnings.
The Western Pacific operates in one of the fastest-growing areas in the country and in a highly competitive field. If we are to maintain our position in this highly competitive transportation field and render the public service to which we are committed, it is imperative that we devote every available dollar toward improving our plant and equipment and toward maintaining our credit so that we are in a position to perform the type of service our customers insist upon if we wish to have them continue as our customers. It is essential that we do this not only in the public interest but also for the wellbeing of the company and the continued well-being and employment of our employees.
Our proposed capital expenditure program for 1958 amounted to about $7,778,100, but, because of heavy capital expenditures in 1957 and previous years along with decreased earnings during the 1957– 58 recession, our cash position was such that we were only able to go ahead with a program in 1958 of about half that size roughly, a total of $4,704,833. Thus, we were obliged to defer much of a badly needed rail and ballast program, which expenditures must be made up in future years. While our cash position improved during the latter months of 1958, we continue to find ourselves in 1959 obliged to make additional further deferments in maintenance.
Our total expenditure program this year is planned at $7,391,950, but this is, again, only about half of what we would be spending if the funds were available.
One of the items in this budget of $7 million is for piggyback freight cars amounting to about $1,300,000, and we elected to go ahead with the purchase of those cars and to defer ballast and rail programs, because we felt it was important that we provide these in order to serve the public need.
These expenditures, past and future, are for the purpose of holding the business that we have and attracting the additional business we must have if we are to remain a going concern. If we don't remain a going concern because of our inability to retain and also increase our traffic, employment opportunities on the railroad will worsen or disappear accordingly. I am sure that our workers are much more interested in continued and improved employment opportunities than they are in unemployment compensation.
I have dwelt on the matter of our finances and financial necessities at some length because they offer some background for a proper understanding of what the cost of doing business means to us and to our shippers and employees. It also indicates how important it is to all of us that our costs be not enhanced without an adequate return. . Out of a total of $39,100,715 operating expense in 1958, our payroll amounted to $23,908,531. This amounts to over 61 percent of our
total of 44:70nd ballast, hier our cash por
operating expenses, and, I may add, amounts to 46 percent of our gross revenues. That is a litle bit lower than the average for railroads generally.
In addition to our payroll, however, we have two other very substantial items of direct labor cost; for example railroad retirement cost us $1,016,962 and unemployment insurance $406,951, a total of $1,423,913.
When Congress passed legislation in 1956, granting an additional 10 percent in railroad retirement benefits to railroad employees, no provision was made for financing these additional benefits. To provide for financing this 10 percent increase and to provide an additional increase in benefits comparable to that granted last year under the social security system, the railroads have expressed a willingness to increase their contribution to the Railroad Retirement Fund from 61/2 percent to 634 percent, on a base increased from $350 per employee per month to $400 per employee per month.
We estimate that this will cost the Western Pacific continued additional payments of approximately $200,000 annually in the future, or an increase of about 20 percent over our present continuing payments.
Now as to unemployment compensation.
In 1958 our payments cost the Western Pacific $406,951. For 1959, based on the present law, the cost will be $488,300. However, under the proposed legislation, which you are considering and which increases the percentage from 3 to 312 percent on a new base of $400 per employee per month, our cost would amount to $638,400.
Furthermore, it does not appear that the 312 percent will be adequate to finance the increased benefits proposed by S. 226, as you will note the Railroad Retirement Board's report submitted to your committee states that, in all probability, 334 percent—or possibly even 4 percent-would be necessary to finance the proposed additional bene
· Should this legislation be passed and a rate of 334 percent is found necessary, our annual cost would become $684,000; at a 4 percent rate, $729,600.
Thus, it is clear that if the bill becomes law we can expect to have to divert additional amounts of between $150,000 and $241,300 each year, away from productive expenditures to a use of doubtful value. I say “of doubtful value” because of the record of abuses of unemployment insurance in the railroad industry, which has been discussed in the testimony of Railroad Retirement Board member Thomas Healy presented to you on February 4, 1959.
Furthermore, I would point out that when we are required to divert these additional funds away from funds which should be used for much needed maintenance and improvement—the railroads are in a less favorable position to maintain and enhance employment opportunities that would be available if we were able to make these expenditures. .
I have prepared, and there have been distributed to you, two charts which will give you a visual demonstration of what occurs to employment as business drops off.
Senator MORSE. May I interrupt just a moment. I will instruct the reporter to include exhibit A in the record at this point.
(Exhibits A and B follow:)
EMPLOYMENT AND COMPENSATION
Average Number of Employees 50-IIIIIIIIIIIIII
1945 46 47 48 49 50 51 52 53 '54 '55 '56 '57 58
REVENUE PER TON MILE
EXHIBIT "B" REVENUE NET TON MILES TOTAL OPERATING REVENUE THE WESTERN PACIFIC RAILROAD COMPANY 1945-1958
1945 '46 47 48 49 50 51 52 53 54 55 56 '57 '58