COMPTROLLER GENERAL OF THE UNITED STATES, Hon. HARLEY O. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, DEAR Mr. CHAIRMAN: This is in reply to your letter of April 17, 1973, asking for a report on H.R. 6777 which provides that upon enactment it may be cited as the "Rolling Stock Utilization and Financing Act of 1973." The bill would deal with a problem of the railroad industry commonly called the freight car shortage problem by increasing the supply of railroad rolling stock and improving its utilization. Section 103 of Title I of H.R. 6777 would establish a Federal Railroad Equipment Obligation Insurance Fund which the Federal Railroad Equipment Obligation Insurance Board would use to insure the interest on, or the unpaid principal balance of, any equipment obligation that a railroad or car-pooling company submitted to the Board conforming to regulations prescribed by the Board. Subsection 105 (a) (4) of H. R. 6777 requires the Board to find that the common carrier operations of the railroad or car-pooling company submitting the equipment obligation to be insured are sufficiently efficient to assure economic utilization of the rolling stock that is subject to the obligation. This might be construed as requiring refusal of insurance applications submitted by railroads that are currently undergoing reorganization under section 77 of the Bankruptcy Act, 11 U.S.C. 205, which would add to the problems already being encountered by those railroads. We also note that there is no provision limiting the unpaid principal amount of equipment obligations insured for any one railroad or car-pooling company. Subsection 105(d) authorizes amounts not to exceed 5 percent of the premium charges collected for the loan guarantees to be used by the Railroad Equipment Obligation Insurance Board to pay administrative expenses connected with the loan guarantee program. It would not be possible to use subsection 105(d) to authorize payment of more than the actual costs of administering the program if 5 percent of the premium charges prescribed and collected by the Board are insufficient to cover the administrative costs of the loan guarantee program. But in order that it be clearly understood that the 5 percent availability figure is to be used only if there are justifiable costs of administration, perhaps a section similar to section 9 of the Emergency Rail Services Act of 1970, approved January 8, 1971, Pub. L. 91-663, 84 Stat. 1978, could be substituted for subsections 105(c) and (d). Subsection 108 (a) would provide the Comptroller General of the United States with authority to audit the Board; subsection 108(b) would provide him with the right of access to records belonging to or in use by any obligor for which the Board has insured an equipment obligation; and subsection 108 (c) would require him to report the results of any audit to the Congress, and to send copies of each report to the President, the Secretary of Transportation, and the Board. There is no need for the audit authority of subsection 108(a) because section 2 of the Budget and Accounting Act, 1921, 31 U.S.C. 2, defines a department and establishment to include boards. Thus, under the Budget and Accounting Act, 1921, and the Accounting and Auditing Act of 1950, our Office has authority to audit this Board. It is recommended that subsection 108(a) be deleted from the bill and the reason therefor be explained in the Committee report on H.R. 6777. If subsection 108(a) is deleted, we recommend that the following subsections 108(a) and (b) be inserted in place of subsection 108(b) now in the bill: Section 108(a) Each recipient of Federal assistance under this Act, pursuant to grants, subgrants, contracts, subcontracts, loans, loan guarantees, or other arrangements, entered into other than by formal advertising, and which are otherwise authorized by this Act, shall keep such records as the Chairman of the Federal Railroad Equipment Obligation Insurance Board shall prescribe, including records which fully disclose the amount and disposition by such recipient of the proceeds of such assistance, the total cost of the project or undertaking in connection with which such assistance is given or used, the amount of that portion of the cost of the project or undertaking supplied by other sources, and such other records as will facilitate an effective audit. (b) The Chairman of the Federal Railroad Equipment Obligation Insurance Board and the Comptroller General of the United States, or any of their duly authorized representatives, shall, until the expiration of 3 years after completion of the project or undertaking referred to in subsection (a) of this section, have access for the purpose of audit and examination to any books, documents, papers and records of such recipients which in the opinion of the Chairman or the Comptroller General may be related or pertinent to the grants, contracts, subcontracts, subgrants, loans, loan guarantees, or other arrangements referred to in subsection (a). In the case of loan this authority shall remain in effect for 3 years after repayment of the loans. Section 301 of H.R. 6777 provides that if within three years from the date of enactment, the Interstate Commerce Commission has not found that there is no longer a continuing freight car shortage arising from an inadequate supply of rolling stock and inadequate car service and the Secretary of Transportation has not found that there has been a substantial increase in utilization of such roling stock, a corporation known as the Rolling Stock Authority is authorized to be created. The corporation would acquire, maintain, and provide rolling stock, manage a pool of such rolling stock, and employ innovative concepts for equitable distribution and efficient and expeditious use of such rolling stock to meet the needs of the national economy. Subsection 306 (a) subjects the Rolling Stock Authority to the provisions of the Government Corporation Control Act, as amended, 31 U.S.C. 841 et seq., so long as the capital stock of the Authority is owned by the nited States. It is our view that, even though provisions are ade in section 307 to retire outstanding obligations guaranteed by the United States at the time of sale of all capital stock owned by the United States, so long as the Authority has outstanding obligations guaranteed by the United States after the sale of all stock owned by the United States, there should exist audit authority similar to that formerly provided by the Government Corporation Control Act. Accordingly, we recommend that a new subsection 306(d) be added to the bill, which is as follows: After all capital stock of the Authority that is owned by the United States has been disposed of, the accounts and operations of the Authority for any period during which it has outstanding obligations guaranteed by the United States, or Federal funds are available to finance any portion of its operations, shall be subject to audit by the Comptroller General at such time and to such extent as he shall determine. The representatives of the General Accounting Office shall have access to all books, accounts, records, reports, files, and all other papers, things, or property belonging to or in use by the corporation and necessary to facilitate the audit, and they shall be afforded full facilities for auditing the accounts and operations, and in verifying transactions with the balances or securities held by depositaries, fisal agents, and custodians. A report of any such audit may be made by the Comptroller General to the Congress when he deems it necessary to keep Congress informed of the operations and financial condition of the corporation, together with such recommendations with respect thereto as the Comptroller General may deem advisable. One of the requirements of the Government Corporation Control Act is an annual audit by our Office and a report to the Congress on the results of the audit not later than six and one-half months following the close of a corporation's fiscal year. Requirements for annual audits are not entirely compatible with the flexibility we need in order to meet the heavy demand made on our professional resources by the increasing number and complexity of Congressional requests and the audit functions vested in the Comptroller General by recent legislation. We therefore suggest a new subsection 306(e) to insure this needed flexibility, which is as follows: Notwithstanding the provisions of sections 105 and 106 of the Government Corporation Control Act, the financial transactions of the Rolling Stock Authority shall be audited by the Comptroller General not less than once during each three year period and reports of the results of each such audit made to the Congress within six and one-half months following the end of the fiscal year covered by the audit. Attached for your consideration are references to some technical changes in the bill. Sincerely yours, Enclosure. PAUL G. DEMBLING, For the Comptroller General of the United States. ATTACHMENT In line 11, page 13, the period should be deleted. Lines 13 through 15, page 14. Some words necessary to make the language relate intelligibly to the preceding lines seem to be missiong. Subsections 201(c), (d), (e), and (f) on pages 14 and 15 apparently should be renumbered 201(b), (c), (d), and (e), or a subsection 201(b) should be added to the bill. In line 8, page 16, the number 202 should be substituted for the number 201. In line 4, page 27, the comma does not seem to be needed. COMPTROLLER GENERAL OF THE UNITED STATES, Hon. HARLEY O. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: We refer to the request_communicated by your staff for our comments on H.R. 12891, 93d Cong., 2d Sess. (1974). Upon enactment the bill may be cited as the "Transportation Improvement Act of 1974." The bill deals with several areas of common carrier regulation and is designed to assure that rates are compensatory, to allow more flexibility in establishing rates, to facilitate the abandonment of uneconomic rail lines, and to prohibit discriminatory taxation of interstate carriers. The bill also provides for assistance in the financing of rail transportation and the development of a rolling stock scheduling and control system. Section 4 of the bill would amend Section 5a of the Interstate Commerce Act to require a conference, bureau, committee, or other organization established pursuant to a Section 5a agreement to finally dispose of any rule, rate, or charge docketed for its consideration within 120 days. Although four months should be enough time in most instances to dispose of matters up for consideration, it is quite conceivable that several matters could be presented for the consideration of a conference, bureau, committee, or other organization at the same time of such complexity that a four month time limit would effectively preclude any meaningful consideration. Perhaps some degree of flexibility could be included in this section. Section 7 of the bill would amend Section 22 of the Interstate Commerce Act to prohibit the carriage, storage, or handling of property, other than property exempt from economic regulation under the provisions of Part II and Part III, for the United States, State, or municipal governments free or at reduced rates except in time of war. Over the years, various bills have been introduced to limit, restrict, or repeal the provisions of Section 22 of the Interstate Commerce Act, 49 U.S.C. 22(1)(1970). While our position has consistently been against the repeal of Section 22, and against limiting its application to time of war or national emergency, we have agreed that the Government should pay as much for its transportation services as any other shipper would pay for similar services, but that it should pay no more. We have not opposed the philosophy that rates and charges established under Section 22 should be reasonable and compensatory. Rather, our primary concern has been that repeal or limiting of Section 22 would deprive the Government and the carriers of the benefits available through the flexibility of the Section to arrange for the many unique requirements of the public business at prices comparable to those obtained by private shippers under published and filed tariffs in similar circumstances, without encountering the delays and complications of the regulatory process, which could seriously hamper the public business. Examples of the flexibility of Section 22 which benefit both the carriers and the Government are: 1. Section 22 simplifies tariff publication procedures and reduces publication and distribution expenses for the individual carriers. A Section 22 rate or a change in a Section 22 need only be filed with the Interstate Commerce Commission to meet legal requirements. Copies of a Section 22 are filed with the central offices of one or several Government agencies, but copies do not have to be posted at stations concerned or sent to the hundreds of shippers who might be interested in a proposed commercial rate. 2. Government transportation patterns do not always coincide with commercial patterns and many of the commodities which the Government ships in large volume are uniquely governmental in nature and seldom found in commercial channels. Also, many Government shipments must move on short notice over routes or between points for which there are no commodity rates in commercial tariffs. In the absence of commodity or other favorable rates, such shipments would have to be charged at class rates which are unreasonably high for the large volumes shipped. Under the provisions of Section 22, the shipments can be made when and as required, while a reasonable rate is negotiated with the carrier and retroactively applied to the shipments. 3. Many Government shipments require special services and arrangements not available under commercial tariffs. Section 22 offers a quick simplified method of providing for special services and arrangements, such as storage and processing of ammunition and explosives, and special loading of cars so that the material can be unloaded in the order needed as was done during the Cuban missile crisis. 4. Most importantly, Section 22 arrangements are reflective of the trend towards, and help advance the cause of, simplification of the transportation rate structure and the facilitation of transportation pricing, billing, and payment procedures. Section 22 arrangements encourage the adaptation of pricing and payment techniques to computer operations. For example, the Department of Defense and the General Services Administration have negotiated "all freight" Section 22 rates with various carriers. These rates are not "reduced rates" but reflect average tariff costs as determined by a computer on the basis of one year's traffic. The carriers and the Government benefit from the reduction in paperwork, and the simplified pricing, billing, and payment for such shipments. 5. The responsibility of the General Accounting Office to audit Government transportation payments gives us a special interest in simplified pricing, billing, and payment procedures. The present complex transportation rate and tariff structure makes this task a costly and time-consuming operation for both the Government and the carriers. We are exploring ways to simplify the rate structure to reduce the number and sources of rates used in determining the proper charges for Government shipments, including the feasibility of developing a cost-based formula for determining transportation charges. Without Section 22, this convenient and expeditious means of experimentation, including testing of various simplified methods with carriers, would not be possible. The main critics of Section 22 allege that Section 22 is being used to subsidize the transportation requirements of the United States at the expense of commercial shippers. We have recently completed for Senator Philip A. Hart, a study of Department of Defense rail carload shipments which moved under Section 22 rates and charges. A copy of the study is enclosed. Our study showed that, even though the charges under Section 22 were significantly less than the charges otherwise available under commercial tariffs, the overall charges under Section 22 were compensatory, whether fully allocated or variable costs were used as the measure of compensatory charges. Section 22 charges were about 117 percent above the carriers' fully allocated costs of providing the services, and about 175 percent above the carriers' variable costs of providing the services. The charges for the same services under commercial tariffs were about 400 percent above the carriers' fully allocated costs of providing the services, and about 534 percent above the carriers' variable costs of providing the services. We therefore recommend that Section 22 be left in its present form. The provisions of Section 10 of the proposed bill, requiring the Interstate Commerce Commission to investigate rates which are below the variable cost of service, could provide adequate safeguards that Section 22 rates do not become unjustly and unreasonably low. Your committee might wish to consider an amendment specifying that the investigation required by Section 10 of the proposed bill include Section 22 rates. As the enclosed study indicates, present Section 22 rates are fully compensatory. Section 11 of the bill would authorize the Secretary of Transportation, with the approval of the Secretary of the Treasury, to guarantee any lender against loss of principal and interest on securities, obligations, or loans issued for the purpose of financing the acquisition, construction, maintenance, or development of specified types of railroad facilities and equipment. The bill would require certain conditions to be met before the Secretary could guarantee a security, obligation, or loan, and the bill provides that the aggregate unpaid principal amount of such guaranteed securities, obligations, or loans outstanding at any one time may not exceed $2 billion. The bill would not (1) require borrowers whose securities obligations, or loans are guaranteed by the Secretary of Transportation to maintain complete records and (2) authorize either the Secretary or the Comptroller General, or their representatives, to examine for purposes of audit the records of such borrowers. We therefore recommend that language substantially as follows be added to Section 11 of the bill. "Each recipient of funds obtained pursuant to the guarantee provisions of this part shall keep such records as the Secretary of Transportation shall prescribe, including records which fully disclose the amount and disposition by such recipient of the proceeds of such securities, obligations, or loans; the total cost of the project or undertaking for which the funds were obtained; the amount of that portion of the cost of the project or undertaking supplied by other sources; and such other detailed and supporting records as will facilitate an effective audit. "The Secretary of Transportation and the Comptroller General of the United States, or any of their duly authorized representatives, shall, for any period during which any recipient has outstanding obligations guaranteed by the Secretary pursuant to this part and for a period of three years after such guaranteed obligations have been repaid, have access for the purpose of audit and examination to any books, documents, papers, and records of such recipients which, in the opinion of the Secretary of Transportation or the Comptroller General, may be related or pertinent to such guaranteed obligations." Also attached are some suggested technical changes in the bill. Sincerely yours, Attachments. R. F. KELLER, Deputy Comptroller General of the United States. TECHNICAL CHANGES In line 13 of page 2, the comma after "consideration" should be omitted. In line 2 of page 11, the word "standard" should be "standards." In line 1 of page 18, "ing," should be omitted from the beginning of the line. In line 11 of page 33, "; and" should be replaced by a period. Hon. HARLEY O. STAGGERS, FEDERAL MARITIME COMMISSION, Chairman, Committee on Interstate and Foreign Commerce, U.S. House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: This refers to S. 1149, H.R. 5385, H.R. 12891, H.R. 13487 and related bills on which hearings are presently being held before your Committee. Of these bills H.R. 5385 and H. R. 9069 both contain provisions dealing with funding of surface transportation programs. H.R. 5385 additionally contains provisions relating to recycling rates and matters which have a direct effect upon the functions of this Commission. For instance Title IV, Section 406 of H.R. 5385 would require the Federal Maritime Commission to investigate and identify within 24 months all discriminatory rates and conditions existing among the common carriers by water subject to its jurisdiction. After this process, corrective orders would have to be issued and standards for future increased recycled material transport be formulated. The Federal Maritime Commission views on this type of legislative approach to the recyclable issue were set forth in my letters to you concerning H.R. 11878 (January 22, 1974) and H.R. 6637 (March 11, 1974). These comments, specified with respect to similar measures, H.R. 12536 and H.R. 12567, are equally applicable to the comparable provisions in H.R. 5385. I am enclosing copies of the letter of March 11, 1974, re H. R. 12536 and ask that it be considered in connection with H.R. 5385's recycling provisions and any other like matters which may be brought up during the hearings. Separate comments will be submitted with respect to those portions of H.R. 5385 and H.R. 9069 which pertain to the Federal Maritime Commission in matters other than recycling provisions. The Office of Management and Budget has advised that there would be no objection to the submission of this letter from the standpoint of the Administrations' program. Sincerely, Enclosure. HELEN DELICH BENTLEY, Chairman. 36-300 0-7418 |