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authorities will be overturned by the courts only upon a showing of arbitrary or capricious action by those authorities.

(b) Recommendations on equalization procedures.-A prerequisite to achieving equality of assessment ratios between assessing jurisdictions is a scientific method of ascertaining relevant facts. To do this some State agency must be empowered to conduct ratio studies in order to determine what kind of equalization action is needed and how much assessments must be changed to bring about the desired equality. The Committee on State Equalization of Local Property Assessments, supra, stated in its report:

It seems fair to say that, in the past, equalization action has often been taken on the basis of unsatisfactory evidence, occasionally approximating sheer guesswork. It is true that the careful compilation of facts in preparation for equalization action is a time-consuming and expensive process. It is, furthermore, a process which must be repeated year after year. Many States have conducted admirable factfinding programs in order to bring about administrative reforms or to serve as the background for legislative action. But all too often these efforts have been relaxed after a year or two of intensive study. If the property tax is to be effectively administered, it must finally be recognized that a substantial expenditure of time and money is essential and that such an expenditure must be written into the property tax statutes to provide for annual activity, so that equalization may become as regular an event in the tax calendar as the compilation of tax rolls and the collection of taxes. For too many years the property tax has been administered at bargain rates. Unfortunately, the quality of the product has often suffered as a result.

The detailed techniques, methods, and practices employed by State agencies in the equalization process or that refinement or procedures recommended by authorities on the subject are outside the scope of this report. The point intended to be established here is that the inequities that have developed in the procedures for the assessment of property for ad valorem tax purposes generally have not been remedied by State equalization agencies as they currently operate. Therefore, the resulting discrimination, as between classes of taxpayers, is not being redressed under existing conditions and there is little practical hope of substantial relief from this discrimination by refinement of equalization procedures or court review unless overhaul action is taken by the cognizant legislatures.

The fact that State aid is apportioned, largely, on the basis of assessed valuation lends emphasis to the need for improvements here. Constitutional provisions and outmoded laws and practices often make it difficult for the property tax to keep pace with changing economic conditions. Low and inequitable assessments, unrealistic tax limitations, and a wide range of tax exemptions are among the most important difficulties. Since 1945 over half of the States have passed legislation providing for comprehensive reappraisals of valuation, equalization of assessments (as between districts or classes of property), State assistance to local assessors, and other revisions in the property tax field.**

For specific recommendations on strengthening equalization procedures, requiring legislative change in almost all States, see par. VI, "Recommendations, by the Committee on State Equalization of

54"Tax and Revenue Problems," the Council of State Governments, 1959.

Local Property Tax Assessments." " In brief, this committee recommends:

(1) Establishment of a permanent fact finding agency to show the distribution of individual assessment ratios around the average assessment ratio for each county;

(2) Improvement of assessment practices along scientific and uniform means and procedures;

(3) Publication of annual assessment ratio studies to minimize political barriers to equalization-the changes to be made gradually to frustrate irrational political opposition;

(4) Strengthening the appeal power of the individual taxpayer where he seeks to make use of evaluation machinery for relief; and

(5) Maintaining constant surveillance of practices once equalization is obtained to prevent findings becoming outdated. 4. Apportionment of allocated values among local tax districts The final procedural step in ad valorem property taxation of carrier property following the determination of system value, allocation to the State of its share of the system value, and equalization of this allocated share with local assessments, is to divide the central assessment among the several local tax districts, or, in other words, the intrastate allocation.

Ordinarily, each local government having the power to levy property taxes is assigned a share in the assessment of the carrier owning or operating property within its jurisdiction.

Apportionment among local tax districts is much like allocation of interstate carriers among States, however, since the 14th amendment to the Constitution does not apply to intrastate apportionment the central assessment may be divided in almost any manner acceptable to the State legislature. The procedures for apportionment, accordingly, vary considerably between States. They range from the simple method of dividing State assessment by the total number of miles of road in the State and then multiplying the result in turn by the number of miles in each local tax district, to a highly complicated task that presumably requires the identification of every separate structure on the line and an intimate knowledge of all variations in weight of rails, spacing of ties, amount of ballast, frequency of cuts and fills, and so on.

General

56

CHAPTER 2. GOVERNMENT TRANSPORTATION

A. INTRODUCTION

Our interest in the subject of transportation of persons and things for the Government account centers about the question of whether or not Government as a user of transportation is or is not following a course of action detrimental to its objectives as promoter and regulator of transportation in the national interest. In some cases we

believe that it is.

Proceedings of 51st Annual Conference of the National Tax Association, 1958. "Board of Investigation and Research on Carrier Taxation, 1944," p. 125.

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The subject of Government transportation can be subdivided into three parts. They are: (1) Government as a purchaser of regulated transportation; (2) Government as a purchaser of unregulated transportation; and (3) Government use of its own transportation. Each of these will be treated separately.

1. Government as a purchaser of regulated transportation

As a purchaser of regulated transportation Government officials are, supposedly, bound by procurement regulations which apply to procurement generally and which require seeking the lowest price at which the commodity or service can be bought through competitive bidding. This fact is often stressed by Government agencies which desire to reduce their budgets at the expense of regulated carriers. Procurement regulations, however, were never designed to produce bargains for the Government but only to insure a just and reasonable price from unregulated competitors. In the presence of price regulation by a Government agency the bidding provisions of procurement regulations lose much of their meaning and should be inapplicable. The fact that much important procurement from unregulated sources has, for a variety of reasons, been exempted from bidding requirements lends support to the position that competitive bidding is certainly not necessary in addition to Government price regulation.

Furthermore, it is a stated policy of the Federal Government to promote healthy economic conditions among the regulated carriers. We must presume, in the absence of evidence to the contrary, that pricing approved by the regulatory agency is just and reasonable to carrier and user alike. If it is deemed otherwise, Government has the same recourse as any other user. In view of this fact it seems contrary to policy to provide a special avenue of price reduction to governmental agencies which is not available to nongovernmental users (who must share the burden of supporting the transportation system) and which is not subject to control by the regulatory agency. Finally, in view of concepts of cost related pricing advocated elsewhere in this report, special reductions to governmental agencies not justified by cost considerations would represent an unsound deviation from an economic policy which should be equally applicable to all. 2. Government as a purchaser of unregulated transportation

The indispensable nature of regulated for-hire carriers as the backbone of our transportation system has been emphasized elsewhere in this report. To the extent Government diverts traffic from regulated to unregulated for-hire carriers it is negating its own promotional and regulatory objectives which are established in the national interest. Such action on the part of a Government agency is far less reasonable than similar action on the part of a private shipper who, so long as his actions are within the law, can be excused for seeking thus to minimize his costs. It is not the individual responsibility of a shipper singlehandedly to assure a healthy transportation system— it is a responsibility of Government.

We recommend legislative direction by Congress to all Federal agencies that, in the procurement of for-hire transportation services, preference will be given regulated carriers whenever reasonably available, and that this directive take precedence over any other provision

of law. The directive should be so written as to include for-hire transportation procured by contractors in direct connection with Government contracts.

3. Government use of its own transportation

Whenever any agency of the Federal Government, and particularly the Department of Defense, uses its own equipment and personnel to provide itself with transportation services the action is likely to call forth loud protests of "unfair competition with private industry." That sometimes these protests are reasonable is beyond question. That some of them are filed solely from a selfish viewpoint with no consideration of national interest is certain. In fairness, it should not be expected that private operators will cheerfully watch traffic move. by Government equipment if there is any way they might get it for themselves. This is true even when the private operator knows that there are sound reasons for use of the Government equipment. Among the reasons for having a government is to plan and arrange for national welfare and security. It is up to Government to evaluate those cases of national interest which justify use of Government equipment in commercial-type traffic; to make the decision known with reasons therefore; and to steadfastly reject pressures from special interests to compromise the purpose of the decision. Usually the decision is made on grounds other than price, and should be.

While, as a matter of sound policy, the Government has decided against exercising the rights of private carriage as a usual thing this should never be construed to mean that the public as a whole has irrevocably denied itself a type of transportation permitted to its citizens if, after analysis of all factors in the specific case, such operation is found to be in the national interest.

We subscribe to the general policy that Government should not compete with private enterprise unless peculiar circumstances justify. This policy should be extended to all aspects of Government activity— not only to transportation-and should be applied uniformly and in consideration of only the national, as opposed to local or limited, interest.

We believe that the Congress has a responsibility to express this policy clearly, without equivocation, and then to stand behind it in all respects.

We recommend that the executive branch publish directives in accordance with the congressional policy so expressed. Such directives should contain broad guidance from the higher levels and become progressively more specific at the lower levels of organization.

Further we recommend that the Congress conduct periodic review of the "do it yourself" operations of Government agencies independently of outside pressure or demand to assure itself of compliance with policy. Such review should be particularly directed at the mission of the agency concerned, to verify that it is currently in accord with the most recent plans and objectives, and at the objectivity of the reasoning used to justify the Government operation. In the process the Congress should satisfy itself that the operations conducted are limited to those required to achieve the objectives.

Finally, we recommend that the decisions of governmental agencies to operate commercial type activities be published together with the analysis leading thereto as a matter of public interest. We know of

no case in which disclosure of such analysis requires disclosure of details of classified plans.

B. ANALYSIS OF REDUCED RATES FOR GOVERNMENT

1. Description

A highly controversial transportation policy problem, which developed during the post-World War II period, is the use of section 22 of the Interstate Commerce Act by Government agencies for the movement of their freight and passenger traffic.57 This provision sets forth the type of transportation that may be handled by carriers regulated by the Interstate Commerce Commission free or at reduced rates. Included within this specific exemption from the economic regulations of the act are: freight and passenger traffic of the United States; freight traffic of State and municipal governments, as well as charitable institutions; and passengers such as ministers, blind persons, soldiers on leave, carrier employees, etc.

For the purposes of this report, the only portion of section 22 that is being considered is that which reads as follows:

Section 22(1): That nothing in this part shall prevent the carriage, storage, or handling of property free or at reduced rates for the United States, State, or municipal governments * * * or the transportation of persons for the United States Government free or at reduced rates * * *

This provision permits Federal, State, and local government agencies to obtain reduced rates from ICC regulated carriers, either on their own initiative or on that of the carriers. These section 22 rates can be given on short notice without any of the restrictions normally applicable to rates published for use by commercial shippers, such as 30-day notice, suspension, or review by the ICC as to their reasonableness or discriminatory nature.

2. Origin and purpose

Section 22 was part of the original act to regulate commerce of 1887, now called the Interstate Commerce Act. Its inclusion in the act was perfectly legitimate because it sanctioned previous reduced rate agreements between the Government and carriers. Many railroads, prior to passage of the act, received land grants from the Federal Government and other benefits from State and local governments. These roads, in return, had to move Government traffic at reduced rates over the land-grant mileage.

Other railroads wishing to share in this Government traffic had to meet the lower land-grant rates. Prior to passage of the act, this presented no problem, since no Federal statutes were violated. However, upon passage of the act, this equalization of rates would have become illegal without some sort of exemption from the rate regulations made applicable to railroad rates in general. Thus section 22 permitted such competition to continue. Furthermore, by broadening it in future years to include other forms of transport which came under the jurisdiction of the ICC, it extended the right to all types of regulated surface carriers (rail, highway, water, and freight forwarder) to compete for Government traffic free from Federal regulatory control.

This paper applies equally to similar provisions of the Interstate Commerce Act affecting other modes of surface transportation, secs. 217b, 306c, and 405c.

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