Mr. DOLLIVER. Is that relatively uniformly distributed over the country?

Mr. GETTY. Fairly well, I would say, geographically.

Mr. DOLLIVER. Do the results profitwise that have come out of those expenditures justify the expenditures?

Mr. GETTY. Absolutely. The industry would be in a very bad way today if those expenditures had not been made, and I point this out, that our wage rates have increased 150 percent, and what we get for performing one unit of service has only increased about 50 percent. Now, that gap between 150 percent increased cost and 50 percent increased income has been bridged largely by the beneficial effects of these capital expenditures of $9 billion.

Mr. DOLLIVER. I certainly think the railroad industry is to be congratulated upon that showing. Is it anticipated that there will be further capital improvements in the rolling stock and facilities of the roads?

Mr. GETTY. We certainly hope so, because that, we think, is the only way we will keep alive, to continue to make those capital expenditures. Because of our rather poor credit position, we have to depend upon earnings as the source of those funds for capital improvement purposes. Every cent of that $9 billion either came out of past, current or future earnings of the railroads. At the present time, we have about $2,700 million of outstanding equipment securities, which have to be paid for, as you know, generally, out of earnings. That is a mortgage on future earnings. It is not like new capital being brought into the industry, and invested permanently. It is installment buying.

Mr. DOLLIVER. That installment buying of new equipment is a wellestablished procedure in the railroad industry, is it not, dating back many years?

Mr. GETTY. Oh, yes, it goes back many years, and it is a historical thing, or one of the historical means of financing.

Mr. DOLLIVER. The method has been recognized by the banking and lending interests of the country, as a legitimate security for the loaning of funds for these improvement purposes?

Mr. GETTY. Yes, it certainly has, and will probably continue. But, in addition thereto, it is my personal opinion that the railroads should have access to new capital being brought into the industry and new equity capital, if you please. Under present conditions, however, railroads cannot get new equity capital, because the earnings record and the dividend record over a period of years is such that new equity capital cannot be obtained under favorable and reasonable terms. And the same applies to a lesser extent on new long-term debt.

Mr. DOLLIVER. Thank you, Mr. Chairman, that is all.

Mr. STAGGERS. I am very much interested in the figures you presented. I have been trying to follow along as much as I could. I have here the railway revenues and expenses issued by your association on January 27, for the years of 1952 and previous years. The revenues have jumped for the year 1953. The statement does not give the figures you have given for January and February of this year.

For the fiscal year, the net income has increased by several millions of dollars, approximately $75 million I believe, in one year's time.

Now, you say the railroads are in bad shape. Well, I noticed on the television a few days ago that a great fight between two financial men of the Nation was in progress. They went on to explain their sides

of the story and it is a great fight for a great railroad in this country. 1 am just wondering why those men are fighting for a railroad, if you say that the railroad industry is practically dead. Mr. Young has been known as a financial wizard. In 1938 a banker told me that if he wanted to make money, he would follow Young's investments.

Mr. Young is fighting for the New York Central Railroad and I am just wondering why this great fight if the railroads are not making

money.

Mr. GETTY. You referred in the course of your comment to the railroads being dead. I do not want anybody to understand my statement that the railroads are dead or dying. They are not. They are a very alive and dynamic industry. We have had financial problems for many years, and we still have them. They are with us constantly. But, we are doing the best we can to keep going, and we will keep going for many years to come.

Now, this fight that you refer to between the New York Central and some outside interests, so far as the offices of the New York Central are concerned, of course they are trying to do their best to protect the interest of the property to which they are entrusted.

Now, what Mr. Young's interest in the property is, I would not attempt to say in detail other than he hopes to make some financial profits out of the transaction.

Mr. STAGGERS. Most of what I have said is really irrelevant to the bill under consideration. I just made the statement because I have been watching this battle in the papers and I happened to see both of them on television the other day.

Mr. GETTY. I would not like to comment on what Mr. Young's motives are, if you please. That is something that will be straightened out at the next stockholders' meeting as to who gets control of the property.

Mr. STAGGERS. That was just a statement I wanted to make. I was interested in the figures given out by the Interstate Commerce Commission that the railroads had improved at least one-hundredth of 1 percent during the year 1953 over 1952 in their net revenues.

Mr. GETTY. Of course all of that improvement took place in the first 7 months of 1953, while the Korean war was still in progress, and after the Korean situation our earnings have turned down sharply and the increases that we had enjoyed in the first 7 months of the year were all but wiped out. There was a smaller margin left. But, looking ahead into the future, the prospects for earnings look very unfavorable at the present time. We are hopeful that a turn will come in economic conditions.

Mr. STAGGERS. What is the reason for this downturn? Is it just a matter of the trend of the year or the time? Are you expecting an upturn soon?

Mr. GETTY. Of course, the basic reason for the downturn in business activity is the transition from a period of wartime conditions to a peacetime period. Now, we are very hopeful that this present low period of traffic volume and earnings will soon change into an upward trend. We do not believe that we will get back in 1954, at any time during 1954, to the level of traffic or earnings that were experienced in 1953. But our predictions at the present time are that revenues will be off for the year as a whole, between 5 and 10 percent. Now, presently, they are off much more than that.

So our view into the future anticipates that there will be some pickup from the present low level. We look every week to see whether or not there are any indications that that upward trend has started, but certainly up to the present moment there are not such indications.

Mr. STAGGERS. I have one other question in connection with that. When revenues decline, do not the railroads cut expenses at the same time? My home town is a railroad town. I know there are 450 men laid off in the shops there. That is just in a small town.

Mr. GETTY. We, of course, have to reduce our expenses as much as possible, but it is not possible to reduce expenses dollar for dollar with the reduction in revenues. As a general rule, you can generally say you lose a dollar in revenues and you will save about 50 cents of it in reduced expenses. Sometimes, it is a little bit more and sometimes a little bit less. But the margin of profit that the railroads work on is so small that any downturn in business makes us take drastic measures to keep the expenses somewhat in line with the

revenues.

Mr. STAGGERS. That is all, Mr. Chairman.

Mr. O'HARA. Mr. Getty, I wonder if, in the light of your statement as to the dropping off of volume of railroad business, you could give us the figures on unemployment nationwide in the railroad industry? I am speaking about the increase over 1952 or the increase over 1953 up to date. That is 1952 as compared with 1953 and the operations as of the first of the year to date, and whether there has been an increase in the figures?

Mr. GETTY. I am sorry, I do not have those detailed statistics with me, but I can furnish them to you. There has been a decline in railroad employment as compared with a year ago, or as compared with 2 years ago. I would say, offhand, that that has probably been in the neighborhood of 100,000 employees, but I am speaking very roughly and generally, and I will be glad to supply the precise figures for the record.

Mr. PRIEST. Did you say, as I understand you to say, possibly 100,000?

Mr. GETTY. Somewhere in that general neighborhood; yes.

Mr. O'HARA. Do you mean by that, that there are now approximately 100,000 railroad workers who are laid off and unemployed? Mr. GETTY. That would be the conclusion; yes. About a year ago, I would say, our employment was around 1,200,000 and today it is around 1,100,000. Those are temporary layoffs, of course, and if business picks up they will be called back to duty.

Mr. O'HARA. That is all.

Mr. GETTY. But even with that reduction in employment, all of the railroads in the United States, in January, only had a net income of $18 million. Many of them operated in the red.

Mr. PRIEST. If the gentleman will yield, again, I wonder when Mr. Getty supplies the figures for the record that you have requested, Mr. O'Hara, if it would be possible to supply at that time the percentage of unemployment as compared to the percentage in industry nationwide? Mr. GETTY. Well, I think so, sir, if I can get the figures for outside industries. I can get them for the railroads. There is no question about that. I will be glad to, if I can, get the information.

(The information is as follows:)

Hon. CHARLES A. WOLVERTON,

ASSOCIATION OF AMERICAN RAILROADS,

BUREAU OF RAILWAY ECONOMICS,
Washington, D. C., March 18, 1954.

Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C.

DEAR MR. CHAIRMAN: During my appearance yesterday before your committee, at hearings on H. R. 7840, Congressman O'Hara requested that I furnish for the record a statement of recent trends in railroad employment. I show below the number of employees of class I railways in the United States at the midmonth point of each of the past 4 months. These statistics were drawn from official reports of the Interstate Commerce Commission.

Congressman O'Hara also asked me to supply for the record a comparison of these statistics with total employment and unemployment data for the country as a whole. According to the United States Bureau of Labor Statistics, trends in total civilian employment in the United States in the same months were as follows:

Because of normal seasonal fluctuations in employment and of the normal increase in the total civilian labor force during the past year, the foregoing figures, while informative, do not accurately reflect the extent of unemployment at the present time. According to the Bureau of Labor Statistics, unemployment in the total civilian labor force of the United States increased from 1,418,000 in November 1952 to 1,428,000 in November 1953; from 1,412,000 in December 1952 to 1,850,000 in December 1953; from 1,900,000 in January 1953 to 2,359,000 in January 1954; from 1,800,000 in February 1953 to 3,385,000 in February 1954.

Comparable data showing total unemployment of railroad workers are not available. Possibly some of the presently furloughed railroad employees have found work in other fields, but it seems clear that the loss of employment in the railroad industry has been relatively more severe than for industry generally. This situation has been brought about by reason of the fact that railroad traffic has fallen off to a greater relative extent than has general economic activity. In January and February 1954, for example, carloadings of railroad freight decreased 10.7 percent below the same months of 1953. The index of industrial production in the United States, as published by the Federal Reserve Board, showed a decrease of only 7.5 percent in the same period.

Trusting that the foregoing statistics cover Congressman O'Hara's request, I am,

Very truly yours,

GRAHAM E. GETTY, Assistant Vice President.

The CHAIRMAN. Are there any additional questions? Mr. HALE. Mr. Getty, is there any railway financing by stock issues at all?

Mr. GETTY. Practically none. In the last 8 years, I think, there have been 3 instances of stock financing which raised, as I recall, about $10 million. One of those was the Southern Pacific, which sold debenture bonds, which were convertible into stocks, and those debentures were actually converted into stock several years after the issue of the debentures.

Mr. HALE. I do not call convertible debentures financing by stock issue, really.

Mr. GETTY. There has been practically none in the railroad industry in pretty close to 20 or 25 years. There were some during the late 1920's and early 1930's, but practically none since that time.

Mr. HALE. Is that not rather indicative of what the public feels about the profit possibilities of the railroad industry?

Mr. GETTY. Very much so.

Mr. HALE. If we had some relief on double taxation of dividends, would that make any difference?

Mr. GETTY. I doubt it in this particular instance, sir, although it would not hurt.

Mr. HALE. This may be a foolish question because, of course, I appreciate that the credit standing of different roads differs materially, but what are the lowest interest rates on mortgages of railway right-of-way and so on?

Mr. GETTY. The average interest rate on outstanding railroad mortgage bonds at the present time is around 4 percent. Whether or not the railroads could float additional issues at that interest rate at the present time, I do not know. I doubt it seriously.

Mr. HALE. In other words, it would have to be a pretty well situated railroad that could borrow at 4 percent on its right-of-way at the present time.

Mr. GETTY. That would be my opinion; yes,

sir.

Mr. DEROUNIAN. Mr. Getty, do you think that tax relief, if it were given in the form of quicker rate of depreciation on new equipment, would help the situation? I am referring to the pending revenue

bill.

Mr. GETTY. I am not familiar with what may be pending before the Congress at the present time, but I am, of course, quite familiar with the accelerated amortiziation provisions that apply to defense facilities and that, of course, has been of very great help to the industry.

In 1953, for example, our income taxes were $150 million less than they would have been without this amortization provision. However, in that connection, I want to point out that is not an escape from income taxes. It is merely a deferral of income taxes. We are taking credits today for depreciation and for tax-computing purposes, which, of course, as time gones on will no longer be available.

We are borrowing tax credits against taxable income from future years, so while it helps us today, we are going to have to pay for it tomorrow. But it is a very great help to us today; there is no question about that.

Mr. O'HARA. Will the gentleman yield?