DEPARTMENT OF TRANSPORTATION

WILLIAM L. SLOVER, Editor

Inside The Department

General News

DOT Head Orders Internal Review

Characterizing his action as an effort to keep the Department of Transportation from imposing unnecessary burdens on the private sector, Secretary of Transportation William T. Coleman, Jr. has ordered an extensive review and revision of the internal procedures that are used to justify DOT regulations. Although the DOT Secretary denied that the present controversy over FMVSS-121, the recently promulgated truck and trailer air brake safety standard, was specifically responsible for his action, it does follow severe criticism of the standard. Specifically, the White House's Council on Wage and Price Stability, which reached an independent conclusion that the standard would not necessarily reduce accidents, condemned the National Highway Traffic Safety Administration ("NHTSA") for its inability to justify the need for the standard. Despite DOT denials of the fact that the air brake standard alone prompted the Secretary's order, a spokesman for the DOT did indicate that this was a factor in the decision to institute the review, which is, at least in part, designed to render the DOT less vulnerable to the harsh criticism aimed at FMVSS-121.

Secretary Coleman's order indicated that the proceeding was designed to insure that the Department's regulatory proposals "are supported by an adequate analysis of their anticipated costs and consequences before they are proposed or finalized." Toward that end, DOT officials have been directed to evaluate the expected consequences of a proposed regulation, and to provide the Secretary with a thirty (30) day advance warning when potentially costly or controversal regulations are involved. Additionally, these officials are directed to reexamine those controversal regulations already in existence.

This evaluation has to be completed before the issuance of a Notice Of Proposed Rulemaking and it must include an estimate of cost "to the private sector, to consumers, and the federal, state and local governments, as well as an evaluation of benefits and other impacts.

While some observers voiced skepticism over the effectiveness of the new procedure, an official at NHTSA pointed out that, at the very least, the dockets in future rulemaking proceedings will contain a more elaborate justification than has appeared in the past.

DOT'S FRA Reviews Rail Safety

The DOT's Federal Railroad Administration, after completing a comprehensive review of the Federal/state railroad safety enforcement

program, has forwarded its report, including recommendations for possible changes, to Congress. The report, which is based upon a survey of the forty-eight contiguous states and the District of Columbia, details the extent of their participation and concern with respect to the national safety program. At present, there are twelve states involved in the state participation program, which has been in operation since 1974, and was recently expanded to include state railroad equipment inspectors. All states were asked to estimate the extent of future participation, number of inspectors, and the funding required. State responses indicate that twenty-nine states intend to participate in track inspection; twenty-two in freight car inspection; twenty in occupational safety; twenty in operating practices; and fifteen states intend to participate in railroad passenger car inspection. Funding requirements were estimated to reach 6.9 million dollars by 1981, with 190 to 240 state inspectors projected to be joining an estimated 350 to 520 member FRA inspection force.

In their report to Congress, the FRA identified the following five areas of concern, including recommendations for improvements:

1. Funding. Many states do not have the financial resources to participate in the program. The FRA will evaluate the impact of the present 50/ 50 federal/state matching ratios and revisions of legislative restrictions requiring maintenance of state funding levels over that existing in the years 1969-70 for rail safety activities.

2. Authority of state agencies. Several states asked that federal legislation be amended to give them the same enforcement powers as the FRA in addition to inspection and surveillance authority.

3. Qualification requirements for state inspectors. Several states contended that the inspector qualification requirements are high. The FRA recently modified these requirements and does not plan additional changes until the results of that program are evaluated.

4. Railroad safety standards development. Questions have been raised with regard to the timing and delays in the FRA's promulgation of rail safety standards and in future priorities. Initial standards were delayed because of the technical complexities. The standards development process is currently under review and internal controls are being tightened to achieve more timely action on new rules and regulations. 5. Operational considerations. Complaints were registered on the amount of paperwork needed, excessive federal control of inspection activities, and in general communications with the FRA. Some reductions in paperwork were incorporated in the recently revised regulations. FRA has established an organizational entity directly responsible for all state programs and will continue to improve the administrative and communication process.

DOT Asks CAB For Decision

The Department of Transportation has asked the Civil Aeronautics Board to issue a tentative decision in the transatlantic route proceeding

and to reopen the record in order to enable interested parties to submit new evidence. The proceeding, for which hearings were originally held in 1974, involves U.S. air carriers' applications for renewals of temporary authority and grants of new authority for routes over the North Atlantic, and while a CAB Administrative Law Judge has issued a recommended decision, the Board has yet to act on it.

In making their request, the DOT pointed out that the evidence in the original proceeding used base data for the year 1972 and forecast data for the year 1975. However, recent data shows that actual traffic and financial results for 1975 did not reach the forecasts relied upon by the Administrative Law Judge in arriving at his recommended decision.

Based upon its own studies, the DOT said that it:

has concluded that certain of these new routes could not be profitably operated because of significant economic developments which have occurred after the completion of evidentiary proceedings in this case. The transatlantic markets have undergone major structural and other alterations of the basic economic underpinning of the original record which have further reduced its value. Changes in service patterns have occurred on certain of the routes in issues resulting from a far-reaching route exchange of TWA and Pan American approved by the board after the record in this case had been compiled. Unilateral service suspensions have also resulted in changes in service patterns. In addition, the regulations governing charter operations have been substantially liberalized.

The DOT did indicate that it will make public any data not contained in the record used to develop the DOT recommendation to the President; a recommendation which will be forwarded after the CAB reaches its decision.

"We would prefer," the DOT said, "to give our views first to the board so that it may take proper account of them in an opinion that will have the best prospects of being sustained by the President."

Regulatory Reform

DOT Seeks Subsidies For Small Town Air Service

The DOT has forwarded legislation to Congress designed to insure continued air service to small communities. The proposed legislation involves the creation of a federal subsidy program, and it is designed as an amendment to the Administration's airline regulatory reform legislation currently before Congress. In effect, it represents an effort to halt the continuing decline in air service to small towns by encouraging low cost commuter airlines to fill the gaps left by the withdrawal of the larger, CAB-regulated airlines from unprofitable markets. Secretary Coleman stated that:

For more than a decade, regulated airline service to small communities has continued to decline. We've spent more than a billion dollars in

federal subsidies since 1960 to ensure services to these communities. But these efforts have failed, and regulated airlines have dropped nearly a third of the points they once served.

This emerging pattern reduces inefficiencies, since it makes little sense to schedule a stream of jets into a market enplaning only 20 to 30 passengers daily, and it eliminates high subsidy costs while providing levels of service tailored to the market. The amendment we have proposed today, provides the freedom for this pattern to continue.

Commuter airlines, neither subsidized nor regulated, today account for a total of 6.7 million passengers annually, providing service to 400 airports, without subsidy, at passenger fares which are generally lower than those of regulated airlines. The legislation, as characterized by Secretary Coleman, will "liberalize the present exemption from economic regulation which allows the commuters to thrive so successfully and also ensure that the Civil Aeronautics Board does not impose restrictive economic regulation on commuter lines in the future.” The Secretary also noted that as air service throughout the country improves, the "feeder" traffic generated by small communities should increase. The legislation, Secretary Coleman said, "should increase materially the quality of air service in the United States.

DOT Secretary Describes Air Reform

Stating that, "I did not invent regulatory reform," Secretary Coleman, in remarks delivered before the Wings Club in New York City, outlined the substance of the Administration's current attempt to reform the regulatory processes affecting the airline industry. Before discussing the three-pronged attack on the current regulatory system, Secretary Coleman stressed two points: "(1) we are not proposing total deregulation; and (2) we realize the necessity for transition period to maintain stability and to avoid any disruption in service." The Secretary then described the three prongs of the proposed legislation.

"First," he said, "we favor a policy of easier market exit. Under the proposed legislation, an airline could stop service at any point already served by another scheduled carrier upon ninety days notice. Or, where alternative service is not provided, any carrier not meeting its fully allocated costs for one year, or direct operating costs for three months, could leave the market. There is no reason to believe that this would result in wholesale abandoments. Regional and local service airlines have been quick to fill any markets opened by a cessation or reduction of trunk carrier service."

The Secretary pointed out that the proposed subsidy program for commuter service represents the Administration's effort to ensure that small communities are not deprived of air service. Turning to the second prong of the DOT program, the Secretary stated that:

we favor a policy of flexible fares. Some of my friends who consider me over-zealous on the subject of regulatory reform point out that there

is nothing in our proposal which will bring the costs of air transportation down. Fuel and labor and food costs, and all the rest, they maintain, would not diminish. This is true, but what my friends know-and perhaps aren't saying—is that air transportation is extremely sensitive to load factors, in that profits rise rapidly when load factors exceed the break-even point. The CAB's present rate-making policies, and prohibitions against true price competition, tend to tolerate and even reward mediocrity and inefficiency.

Secretary Coleman pointed out that:

Where carriers have offered lower fares in special markets, in the case of intrastate operators in Texas and California, service has improved and demand has grown. The central conclusion of the SIMAT report on state regulation of intrastate air carriers issued last January is that millions of additional passengers would use air transportation if fares were lower. The key to intrastate carrier profitability has been their higher load factors, induced-in large part-by lower fares; fares that have not compromised safety or service.

The Secretary emphasized, however, that "we are not urging complete rate freedom, only greater flexibility. Our proposal would not condone or permit predatory practices. The Aviation Act preserves intact the present authority of the CAB to declare unlawful any rate which would be discriminatory, prejudicial or preferential."

Finally, the DOT Secretary discussed the third prong of the Administration's reform proposals, liberalized entry. He stated that "my economists tell me that with pricing flexibility, the only way to protect those caught in a monopoly market is through liberalized entry. Liberalized entry, under the Aviation Act, will have the effect of curbing any excesses under a competitive price system. The threat of potential and I emphasize the word potential entry will police carrier behavior and keep prices at a level which is low enough to forestall entry by competitors."

Secretary Coleman concluded his remarks by stating that "the art of progress, in the words of Alfred North Whitehead, is to preserve order amid change, and to preserve change amid order. That is our course and purpose.

Outside the Department

ATA Faults Testimony

The American Trucking Association, continuing to combat the National Highway Traffic Safety Administration's ("NHTSA") air brake standard FMVSS-121, has criticized what it feels were numerous discrepancies and half-truths in testimony concerning that standard delivered before the House Commerce Consumer Protection and Finance Subcommittee. Specifically, the ATA has, in written testimony delivered to the House Subcommittee, criticized "serious inaccuracies" in the testimony of Doctor James B. Gregory, NHTSA chief.