Mr. FINNEY. Not payroll taxes?

Mr. ROGERS. Just as appropriations, subsidy payments.

Mr. FINNEY. No, sir; I do not consider that a necessity, certainly. I do not know that that matter has ever been considered by the industry. We certainly have not advocated any subsidizing of the Railroad Retirement Act.

Mr. ROGERS. Now, that is what is going to happen to the railroad worker in the future, when this system destroys itself. That is the thing that concerns me.

Mr. FINNEY. It is of concern to the railroad industry, too, you understand, Mr. Rogers.

Mr. ROGERS. I am sure of that.

Mr. FINNEY. And it is our position that something should be done to decrease the present deficit rather than to increase it.

Mr. ROGERS. Well, but, then you also have the problem at hand, that the people who are receiving these benefits must have sufficient funds to live on; otherwise the whole purpose of the act is defeated. Do you have any suggestions as to how it could be worked out? That is the thing that concerns me.

Mr. FINNEY. No, sir; I do not.

Mr. ROGERS. I am deeply concerned about it.

I believe that is all I have, Mr. Chairman.

Mr. DOLLINGER. Mr. Hale.

Mr. HALE. I have no questions.
Mr. DOLLINGER. Mr. Dolliver.

Mr. DOLLIVER. No questions.

Mr. DOLLINGER. Mr. Finney, we thank you very much for the very fine statement you have made. The committee appreciates your views.

Mr. FINNEY. Thank you for the courtesy of listening to me, Mr. Chairman.

STATEMENT OF J. ELMER MONROE, VICE PRESIDENT, ASSOCIATION OF AMERICAN RAILROADS, AND DIRECTOR, BUREAU OF RAILWAY ECONOMICS, WASHINGTON. D. C.

Mr. DOLLINGER. Mr. Monroe, we will be glad to hear you. Will you kindly identify yourself for the record.

Mr. MONROE. Mr. Chairman and gentlemen of the committee, first of all, we would like to extend to the chairman of this subcommittee, Mr. Harris, our deepest sympathy for the loss of his mother.

My name is J. Elmer Monroe. I am vice president of the Association of American Railroads and director of the Bureau of Railway Economics, with offices in the Transportation Building, Washington, D. C. I appear here on behalf of the member lines of the association.

Railroads constitute one of the great industrial enterprises in the United States. By the very nature of its product-mass transportation services the industry is deeply imbued with the public interest. Yet the well-being of the railroads is constantly a matter of national

concern.

The economy of the United States, since the close of World War II, has been operating at recordbreaking levels. Although the railroads have been participating to some degree in this high level of

business activity from the standpoint of volume of freight traffic, they have, unfortunately, not been able to participate to any great degree from the standpoint of net earnings. In fact, their net earnings of recent years have been relatively less than those earned during the late 1920's, notwithstanding the fact that the volume of business handled in 1955 was 35 percent higher than during the late 1920's.

With those preliminary remarks, I would like to present an analysis of the factors which have prevented the railroads from participating in the Nation's recent level of prosperity. To aid in my presentation I present a series of tables which picture the trends in railroad earnings and operation.

Table I compares the gross and net earnings of railroads of class I for the 5 years ended with 1955 with the 5 years ended with 1929.

I assume that the committee has copies of my statement; and may the tables from my statement go into the record?

Mr. DOLLINGER. Yes, Mr. Monroe.

(The tables referred to are as follows:)

TABLE I.-Gross revenues and net earnings, railroads of class I in the United

TABLE II.-Rate of return, railroads of class I in the United States

Source: Computed from reports of Bureau of Railway Economics and the Interstate Commerce Commission.

TABLE III.-Ratio of net income to net assets of manufacturing corporations

Source: The First National City Bank of New York.

NOTE.-For manufacturing corporations the return on net assets averaged 11 percent during the years 1925-29, and increased to 13.5 percent for the years 1951 to 1955. The return for the railroads, calculated on the same basis as for manufacturing corporations, averaged 6.5 percent during the 1925-29 period, but declined to 5.1 percent during the period 1951-55.

TABLE IV.-Increased operating costs since Jan. 1, 1955

Item

Total increased cost of wages and materials and supplies.

1. Health and welfare plan for nonoperating employees (1⁄2 of total cost). 2. Yard conductors, increase of 25 cents per day.

3. Road conductors and trainmen, increase of 20 cents per day and graduated rates in freight service.

4. Dining car stewards, increase $5 per month.

5. All operating employees, general wage increase and payment in lieu of health and welfare plan.

6. Dining car stewards, yardmasters and dispatchers, general wage increase and payment in lieu of health and welfare plan.

7. Yard trainmen and switchmen, increased wages for conversion to 5-day Dec. 1, 1955 workweek.

8. Nonoperating employees, wage increase of 141⁄2 cents per hour.

9. Yard engineers and firemen, increase for conversion to 5-day workweek. 10. Additional cost of health and welfare plan for nonoperating employees. 11. Increase in cost of fuel, materials and supplies..

12.

13. Increase in payroll taxes on wage increases..

81, 985, 000 6,108,000 23,900,000

251, 464, 000 21, 562, 000

do.

Mar. 1, 1956

14. Increase in unemployment payroll tax rate....

Jan. 1, 1956

7,965,000 42, 055, 000

15.

Grand total, increase in annual costs since Jan. 1, 1955.

611, 665,000

TABLE V.-Ratio of wages and salaries to value of sales, 1954

Source: Ratios computed from reports of Interstate Commerce Commission and U. S. Department of Commerce.

TABLE VI.-Distribution of commercial intercity freight traffic

TABLE VII.-Income account adjusted for increased costs and increased freight charges, railroads of class I in the United States

1 Represents 95 percent of total increased costs, assuming 5 percent to be charged to capital account. 2 Estimated reduction in income taxes because of increased costs.

Mr. MONROE. Total operating revenues as shown on table I represent gross revenues received by the railroads from transportation services performed. The item of net railway operating income is what is left out of revenues after paying operating expenses and taxes.

Net income is after the payment of interest and other fixed charges and the amount available for reinvestment in the property, reserves, dividends and other corporate purposes.

Looking at table I in my statement, it will be noted that during the 5 years, 1925 to 1929, gross revenues of the railroads average $6,207,000,000 per year.

Net railway operating income average $1,165,000,000 per year. Net income average $773 million a year. That was the average for years, 1925 to 1929.

the 5

The gross revenues of the railroads for the 5 years, 1951 to 1955 increased to an average of $10,223,000,000 per year, net railway operating income declined to an average of $1,026,000,000 and net income averaged $806 million.

In other words, notwithstanding an increase of 64.7 percent in gross revenues, net railway operating income of the railroads has averaged less by 11.9 percent than that earned during the 1925-29 period. Net income was greater by only 4.2 percent.

The railroads are earning a very low return on their net investment in transportation facilities.

The return in the years 1925-29 averaged 5.11 percent.

During the 5 years 1951 to 1955, this return was only 3.92 percent as shown by table II of my statement.

The railroads have not experienced, and are not now experiencing, the prosperity experienced by industry in general.

The First National City Bank of New York published figures relating to the rate of return earned on net assets for a large number of manufacturing corporations. Those rates of return are set out in table III.

For manufacturing corporations the return on net assets averaged 11 percent during the years 1925-29, and increased to 13.5 percent for the years 1951 to 1955.

The return for the railroads, calculated on the same basis as for manufacturing corporations, averaged 6.5 percent during the 1925-29 period, but declined to 5.1 percent during the period 1951-55.

The railroads were recently before the Interstate Commerce Commission seeking an increase in their freight rates and charges to offset increases experienced in their operating costs on account of increases in wage rates, increases in the unit prices of their materials and supplies, and an increase in the payroll tax for unemployment and sickness benefits which became effective January 1, 1956.

The railroads sought an increase of 7 percent in freight rates and charges, but by decision dated March 2, 1956, the Commission only authorized freight rate increases averaging about 5.3 percent, only about 75 percent of the increased revenues needed to offset increased costs.

H. R. 9065 and identical bills propose to increase the current payroll tax for railroad-retirement benefits and thereby bring about another increase in labor costs.

Increases in operating costs experienced by the railroad industry just since January 1, 1955, have amounted to $611,665,000 on an annual basis.

Looking at table IV, item 1 shows that effective February 1, 1955, the health and welfare plan which was then inaugurated and the cost of such plan being divided equally between the railroads and the employees, one-half paid by each, cost the railroads $31,616,000 annually. Then on June 1 the railroads experienced a further increase in labor costs of 25 cents a day increase to yard conductors, amounting to $1,800,000 annually.

Then came June 16, 1955, and the road conductors and trainmen secured increases of 20 cents per day and the dining car stewards an equivalent increase of 20 cents per day at a cost of about $11,500,000 per annum.

Then on October 1, 1955, the wage rates of all operating employees were increased, and they also secured an increase in pay in lieu of a health and welfare plan. That amounted to a total cost of nearly $82 million per annum.

Then also on October 1 dining car stewards were further increased, and their wages were increased to the extent of costing the railroads about $6,100,000 per annum effective from October 1, 1955.

Came December 1, 1955, and the cost to the railroads of placing the yard trainmen and switchmen on a 5-day week amounted to