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ing at this matter from the point of view of an inducement to the Congress to act, I think it is fair and reasonable to point to the fact that under H.R. 7200 there is a different kind of an inducement in the sense that the temporary benefits are scheduled to expire on January 1, 1975.

Now, I don't think that is necessary myself, and the carriers take no exception whatever to making the temporary increases permanent. I simply observe that there is an alternative inducement with respect to action by the Congress to section 121 in the House bill, and it is that very time pressure, I suggest, that is responsible for the very expeditious action that the Congress has taken to this present time.

Again from our point of view, I don't propose this be done. We don't oppose the making of the temporary increases permanent. We do expect they will be made permanent. · I realize what I have said so far does not dispose of the matter, because it could be said that even granted that what I have said is true that there could be no harm in, in effect, an insurance policy, more of an inducement to the parties, more pressure upon them.

But as to that, it seems to me that the testimony of Mr. Dennis yesterday underscores the fact that there is a very considerable risk in following the course of action reflected by section 121 of S. 1867. . I think that I understood Mr. Dennis yesterday to take the position, and I don't think there is any doubt about it, that from his perspective this is not only a very undesirable provision, but that it is incompatible with the collective bargaining agreement between the parties.

I think the term he used was that the agreement would be kaput. I was raised as an alien Irishman in a small community in Minnesota, and I never learned the language well, but I got the gist of the word “kaput". I am afraid what Mr. Dennis means is that we are in for some trouble on this score.

That doesn't mean we would agree with the unions if they took the position that section 121 is incompatible with the collective bargaining agreement and therefore would justify an end to that agreement, but if the unions do take that position, it is clear to me that where we are headed is the courthouse and not the collective bargaining table, and that would be the first very undesirable consequence, it seems to me, to the enactment of this legislation with that provision in it.

We are trying to stay out of the courthouse, and indeed are trying to stay out of the Congress. We think we have learned a lesson in the last decade or so, and if we were to become involved in a controversy of this sort, it seems to me not only that much of the painstaking effort that has been put into the renovation and rehabilitation of collective bargaining in this industry over the last year or two would be very substantially undermined, but the chances for a collectively bargained resolution not only on the retirement issue but of the whole broad range of labor problems that we face would be seriously and measurably reduced.

Then I, in my position, must look at the further possible consequences of this scenario. I don't know very much about legislation, but I do know something about litigation, and I know enough never to be confident about predicting the outcome of a lawsuit, and I think at least it can be said that Mr. Dennis' position is not an insubstantial one, and in those circumstances I must face the possibility that such litigation would lead to an unfavorable result from the carriers' point of view, and then consider the position that the carriers would be in. We would then be faced with renegotiating our existing wage and work rules and fringe benefit programs that we have for the 18-month period in a very awkward posture. That is to say, the major concession that we have made is the take-over of the tax burden on the employees under this legislation.

At that point, that concession would have been made for us, in effect, by the Congress in this legislation. I cannot think of a more unenviable position for the carriers to be in than trying to renegotiate the collective bargaining agreements that we had thought had been settled.

Essentially, it is for those reasons that the carriers very strongly second the position taken by Mr. Dennis with respect to the undesirability of section 121 in its present form.

I think the only other thing that I would want to say by way of preliminary remarks is that with respect to the other procedural differences between S. 1867 and H.R. 7200, we really take no exception.

I have made a couple of points and we hope the subcommittee will take them into account. They are in my prepared statement. The only part of S. 1867 that really bothered me on this count is the provision with respect to keeping of minutes and the remarks of the chairman yesterday considerably allayed my anxieties there.

I would hope that the subcommittee might change the language somewhat. I do think that the ground rules of the—that we established in our recent negotiations we ought to be able to adhere to, because they were helpful. What we said at the outset was because of the complexity of the issue, anybody on either side should be free to take a position and say the next day “I was wrong, my facts were wrong, I change my mind," or whatever.

If it is the idea to have a summary of some sort so that the Congress would know we are moving, then I would hope we would be able to do it by way of a summary of the subjects discussed, so that we would not be obliged to set forth the positions taken by the parties.

Senator HATHAWAY. I am sure that would be perfectly agreeable. Mr. DEMPSEY That is all I have to say.

Senator HATHAWAY. We don't want to know the details of who said what. We want to get assurances that you are holding the meetings as described in the bill, so that we know that some progress is being made, and I am sure that that satisfies the committee and it satisfies the Congress.

So I don't think we will have any difficulty on that score. Now, with respect to section 121, you are indicating that you are going along with Mr. Dennis' statement of yesterday that this would jeopardize the collective bargaining agreement, and for that reason the unions might be able to make out a case in court that the agreement had, in effect, been abrogated.

Is that based on the 3.75 division between the two of you? Mr. DEMPSEY, Yes. Senator HATHAWAY. Is it based on the provision as a whole ? Mr. DEMPSEY. Well, so far as I am concerned, I think my position is based upon what Mr. Dennis said about the consequences of a division of the 7.5 percent. As I understand him, he takes the view that this provision would be less attractive to the unions than it would be to the carriers, and for that reason it would embarrass collective bargaining during this period, and for that reason the unions might take the position that it was incompatible with the collective bargaining agreement.

So it is the division, as I understand it, which gives rise to the problem. It seems to me it does not really matter very much whether I agree with that position. The point is that the unions might very well take it. So that so far as I am concerned

Senator HATHAWAY. I was asking you as a lawyer, do you believe that this would be a proper basis for court action?

Mr. DEMPSEY. I think it is an arguable basis.
Senator HATHAWAY. It is a what?

Mr. DEMPSEY. An arguable basis. As I say, unless an argument is absolutely frivolous, I am not prepared to predict the outcome of litigation. That is what gives me cause for alarm.

Senator HATHAWAY. Do you agree that the 3.75 division is favorable to the carriers and not favorable to the unions, because the carriers could pass on that cost, and therefore they won't bother to negotiate on a way to finance the fund ?

Mr. DEMPSEY. Not in that respect. I don't think whether we can pass on the costs matters. I don't think that is very important in this respect, basically because of what the chairman had to say about the difficulties of passing on the costs in terms of market realities.

I don't think that is at the root of the matter. As I understood Mr. Dennis, his point was that the carriers might very well say to themselves, “Well, this isn't so bad after all if we can have a split of the 7.5-percent tax, and maybe it is better than we can do on negotiation.”

That is a very conjectural matter, and I would hesitate to say that the carriers could reasonably take the view that this would be more advantageous than what they could get in negotiations.

For example, we are dealing here with a rather high figure, and 7.5 percent is the figure based on the Railroad Retirement Board's estimates, but it does not correspond with the views of the Commission.

Senator HATHAWAY. I understand.

Mr. DEMPSEY. So one must then make a judgment as to which of those sets of figures could ultimately come out of the legislation and the negotiation and then a further judgment as to how much of an impact on the figure—that figure, whatever it is—would have on the restructuring of the benefit formula.

So I don't think the matter is clear by any means, and I would rather put it in terms of saying it is at least arguable that the relative disadvantage might favor the carriers. Let's put it that way.

Senator HATHAWAY. Well, what if section 121 were altered to state that a tax would be imposed of 7.5 percent, the division to be made by the Secretary of the Treasury in the absence of any agreement by the carriers or the unions prior to January 1, and that every quarter thereafter, if there is no agreement, then the Secretary of the Treasury continues to impose the tax on the carriers and the unions in the proportion that he deems equitable.

Mr. DEMPSEY. The only thing that gives me pause is—I would like to reflect on that, Senator. The only thing that gives me pause in what you say is the delegation of authority to the Secretary of the Treasury. In other words, from my point of view, if the allocation between the parties of the 7.5 percent were not fixed by this legislation, but were left open for decision, if the parties don't come to an agreement, or if Congress doesn't do something else by January 1, 1975, then the problem that I have seen in the section would be removed.

Senator HATHAWAY. Yes.

Mr. DEMPSEY. It would be all right. But the matter of delegating authority to make the division to the Secretary of the Treasury is simply something I haven't reflected on at all, and we may have a problem.

Senator HATHAWAY. We may run into an unconstitutional delegation of power, is that what you had in mind ?

Don't let me give you any ideas.

Mr. DEMPSEY. I didn't really have any legal point in mind. I just haven't given any thought to it.

The thing that has bothered me really, and I understand the point you are getting at, is that if you leave the matter open to be resolved by Congress, then you really don't have a fail-safe mechanism, if that is part of the delegation.

In other words, if you had a statute that provides that a 7.5-percent tax would be imposed, failing all else, but the allocation would be made by the Congress, that is what I really would prefer, but I concede that that doesn't give you a fail-safe.

In other words, if the Congress doesn't act, then it is not selfexecuting.

Senator HATHAWAY. Right. Mr. DEMPSEY. I have sort of stumbled over that problem myself in trying to work out some alternative to suggest-excuse me.

Senator HATHAWAY. We would be happy to let you think about this. Mr. DEMPSEY. Could I send a letter?

Senator HATHAWAY. You can respond. As a matter of time reference, we are going to have a markup on this bill in the subcommittee this morning, and it will go to the full committee next Tuesday, and I presume that it will be before the full committee that we will have our greatest debate on this bill, and so any time before that date we would appreciate receiving your letter.

Mr. DEMPSEY. We will certainly get something in.

My initial reaction is that I would much prefer it if the allocation of the tax were left open to be decided by the Congress. That would be my preference.

Senator HATHAWAY. Right. Mr. DEMPSEY. But if we could reflect further on the question of delegation

Senator HATHAWAY. Right.

You might also reflect on whether or not there is any allocation that would not prejudice the collective-bargaining agreement, if we changed it from 3.75 to 2.50 or whatever.

Mr. DEMPSEY, The difficulty here, as I think would be the case in any approach of this sort, is that it is almost impossible to come to an absolutely even balance.

In other words, if you move it in our direction, we would object to it, but we will certainly give that thought, too.

Senator HATHAWAY. Fine, thank you.

Yesterday, as you will recall, Mr. O'Neill testified in answer to a question that I posed to him about H.R. 7200. He said that he would, if that were the bill that were passed, that he would have to recommend a veto.

Do you have any reaction to this eventuality, having in mind that we probably won't get this bill—say H.R. 7200 is the bill, reported out by the full committee and it goes to the floor under the unanimous consent agreement, the other two committees, Commerce and Finance, have 10 days in which to report. It may be the last week of the month before we got to this and through conferences and so forth, having in mind the President can hold the matter for 10 days before acting upon it, we may go beyond the June 30 deadline.

Isn't this in and of itself a good reason to have some fail-safe mechanism, or some section in this bill that would induce the parties to come up with an agreement next year, and allay any fears on the part of the administration that such an agreement would not be forthcoming ?

Mr. DEMPSEY. Well, perhaps I didn't understand Mr. O'Neill accurately. I thought that he was a little ambiguous about whether he would recommend a veto to the President. I thought he said something of the sort that situations do change, and he was reluctant to come right out and say that would be their position.

But obviously, whatever he said, it is clear from OMB's statement, I suppose, that there is at least some risk of a Presidential veto. I don't know exactly how to respond to that problem. Obviously, we wish that risk weren't there.

There is a remedy available, I guess, if the President does veto, and if he did veto, I would hope that remedy would be taken.

If it comes to a choice, it would be, I am sure, a hard one. But from our point of view, we would rather run the risk of a veto and take our chances, than to run the risk of a blowup of this collective bargaining arrangement that has been put together with very considerable effort.

I do appreciate the problem and I do understand that section 121 is addressed to that problem. I do have the feeling, Senator, and perhaps Mr. O'Neill could be asked this question by the subcommittee staff, I do have a feeling that the allocation of the tax is of no consequence to them, and that if section 121 were simply revised to pro vide in effect that a 7.5 tax will be imposed, leaving the allocation open for future action by the Congress, that that would be sufficient. But that can readily be checked. As I said, that is my impression. Senator HATHAWAY. Yes.

I want to allay fears you have with respect to my acting capriciously in this matter with respect to section 121, but we may not be successful as we were before in overriding the veto, having in mind the override last time came in the waning hours of the campaign year, which was a little bit different from an off year, and having in mind that many comments were made in the Senate and the House last year that this matter would be taken care of. We are going to have Members of the House and Senate who are committed to sustaining the President's veto, because they are locked into statements that they have made in the past.

Mr. DEMPSEY. We are sorry that you weren't successful in overriding the veto last time. We are hopeful you would be successful this time.

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