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deficiency deepen in this system for several years, we strongly supported the establishment of an independent Commission to review the causes of the deficiency and to recommend changes that would place the system on a sound financial basis. Congress established such a Commission in

1970 and provided for it to include representatives of

railroad labor, railroad management, and the public.

After a year and a half of intensive study, in a report that was exhaustively detailed and documented, all but one of the Commissioners agreed that "unless corrective action is taken promptly there will be large cash flow deficits, and the system will go broke in about 16 years."

Reporting date. The Commission report offered several alternatives for permanent financing. Following its submission, the Congress then provided an additional period of time, to March 1 of this year, for the industry to agree on a permanent solution. Events have shown, however, that even after the eighteen month Commission study followed by eight more months of intra-industry bargaining, the representatives of labor and management have not been able to come to an agreement on financing the cost of the system either transitionally or

permanently.

We are encouraged' by the fact that the collective bargaining agreement calls for continued work on developing a means for permanent financing of the retirement system.

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In view of this, we support an extension of time for the industry to submit their recommendations to the Congress.

swever, we believe the time extension contained in H.R. 7200 is excessive for two reasons:

First, in view of the effort already made by the
Railroad Retirement Commission and by the industry in

the past two years, another 16 months should not be
necessary. .

Second, an extension of the reporting date to June 30, 1974 followed by an expiration date of temporary benefits by December 31, 1974 would provide only six months for consideration and enactment of whatever legislation might be required.

: Therefore, we support the provision in s. 1867 that the deadline for the industry to recommend an arrangement for permanent financing be fixed at March 1, 1974.

Stop-gap financing. We are disappointed that a permanent arrangement for sound financing of the system could not have progressed further than it has by this time,

Each past "temporary" benefit increase was made in the hope that it would be the last one. In fact there have been three such temporary increases and the necessary extensions since 1970--none of which has been supported by corresponding revenue. In the aggregate, they are now drawing upon reserves of the fund at the rate of about $600 million a year.

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Therefore, we strongly support the provision in s. 1867 which would initiate new payroll taxes on January 1, 1975, as an essential stop-gap measure to avoid further depletion of reserves after that date.

Any further delay in paying the bills would only serve to aggravate the problem. This would be particularly unfortunate at a time when the fund is headed toward

bankruptcy and there is no plan at hand for reversing

this condition.

s. 1867 is an essential step in the direction of reversing this course, which has already been pursued for much too long. The Administration would, in fact, prefer an earlier effective date for the new stop-gap tax provisions. We consider it unfortunate that the losses would be permitted to continue for another eighteen months.

The Commission on Railroad Retirement stated nearly a year ago: "Immediate tax increases present the only real option for restoring financial solvency to the railroad retirement system...." At the same time we recognize the factors which led to the selection of January 1, 1975, as the effective date.

However, I must call attention to the fact that if these benefits continue to be unfunded for the next 18 months,

they will increase the Federal budget deficit by $600 million in FY 1974 and $300 million in 1975 for the halfyear through December 31.

Shifting the tax burden. Both bills provide for railroad management to take over all payments to the fund during the period September 1973 to December 1974 in excess of those the railroad employees would have paid had they been under social security. We have no objection to whatever shifts in the tax burden the railroad employees and the carriers may wish to make among themselves. But it should be emphasized that the shift is not for the purpose of, nor does it have the affect of reducing or eliminating the deficiency.

This interim step should not limit future consideration of permanent financing arrangements because, as the Actuarial Advisors to the Commission on Railroad Retirement stated: "... There is no way except for greatly increased tax rates, for the system to survive on a self-supporting basis...."

. Unless benefits are reduced or eliminated, the amount of the additional taxes needed to fully finance the system will be very high and we should not dismiss from future use any potential source of revenue for the fund.

Accordingly, the Administration believes that any shift in the tax burden at this time must be considered interim in nature, subject to reconsideration when long-term solutions are being developed.

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In view of these considerations, the Administration prefers s. 1867 to W.R. 7200. We are strongly opposed to the enactment of H.R. 7200 in its present form.

This completes my prepared statement. I will be happy to respond to your questions.

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