III. Justification

Both the House and the Senate have approved USRA's $10 million budget request for the current fiscal year. This completes the Appropriations authorized under existing legislation. Unfortunately, it now appears that the Association will not be able to get through the current fiscal year without a supplemental appropriation.

During the past month, we have conducted an intensive review of the requirements that our officials now see growing out of current congressional review of the Final System Plan, the preparation of an adequate conveyance package, and preparation and conduct of the litigation that is expected to follow conveyance. A number of factors have combined to make it necessary for USRA to seek additional funds for the current fiscal year. In the first instance, the cost of preparing the Final System Plan exceeded our estimates by several millions of dollars. This came about because of increases in data processing costs and the fact that we were still completing the Final System Plan well into August of this year. In addition, we now find that the costs of legal services in connection with both conveyance and litigation are now substantially more than estimated a year ago. The entire supplemental of $4.1 million for Fiscal Year 1976 will be used for contractual services. Contractual Services were estimated at $2.5 million in our original budget estimate and are now estimated at $6,827,000. Part of the increase of $4,327,000 has been made up by reprograming, the remainder requires a supplemental appropriation. The following table indicates by office and function the amounts involved.

As indicated, there are four areas where contractual requirements have had to be increased: litigation, conveyance, asset valuation, and completion of the Final System Plan. Each of these is discussed briefly in the following paragraphs.

Litigation.-There are five major problem areas that we must be prepared to contend as part of the litigation expected before the Special Court. In each case an estimate of the amount of professional time required from outside counsel has been made and translated into a contractual requirement. The key areas for litigation are:

1. Defense of Con Rail financial projections and the valuation of Con Rail securities _ _

2. Defense of net liquidation values and legal standards for use of net liquidation as opposed to earnings-based, or other possible valuation methods.

$375,000

450, 000

4. Defense of the fairness and equity of the Final System Plan as a reorganization process that is consistent with constitutional doctrines

3. Defense of the principles used to identify and quantify "other benefits" arising under the act.

150, 000

5. Determination of the Special Courts jurisdiction, powers, and procedures.

400, 000

350, 000

The total amount projected for litigation in Fiscal Year 1976 is $1,725,000. This compares with an estimate prepared last year of $865,000, an increase of $860,000. It should be noted that our estimate of a year ago did not make a distinction between conveyance and litigation problems so that the $865,000 figure is a somewhat arbitrary breakdown of $1,065,000, the total estimate for contractual services in the General Counsel's office that was included in our original Fiscal Year 1976 budget estimate.

Support of the General Counsel's litigation efforts will be provided by all of the program offices. Additional contractual services are projected for Operations Planning and Financial Planning. In the case of Operations Planning no contractual services were forecast for the current fiscal year. We now foresee a definite need for backup information on operating costs and revenues to support the litigation in an amount totalling $395,000. Backup information from Financial Planning will involve securities valuation and allocation in support of the litigation of these matters and is estimated to cost $237,000. No funds for this type of support were included in our budget of last year. The total of additional amounts for litigation including General Counsel, Operations Planning and Financial Planning is $1,492,000.

Conveyance. The most critical aspect of the conveyance process is the work needed to transfer the real estate that is involved. The three major activities required for this are (1) a definitive, dependable geographic description; (2) a conveyance document which will identify for the Special Court how the properties will be distributed from the 90 odd transferors to the 30 transferees; and (3) recordation of the changes in property interest ownership in local county or township property record offices.

The basic descriptions are contained in some 25,000 documents-valuation, section, or atlas maps-which the railroads have in their files. These must be brought up to date and checked for accuracy. There are some 5,000 boundaries that must be specifically site checked because a division must be made between property remaining with the estate and property being transferred or between property that is designated part of a light density line and property being transferred to a carrier. Some properties will be split among several transferees.

There will probably have to be some 200 separate documents describing the property of more than 90 transferors in conveying to each of 30 odd transferees. Separate conveyance documents will have to be prepared for each of the 450 counties in which relevant railroad properties are located.

Additional research is needed to determine exactly what will be required of the Association in connection with the recordation of deeds. It is currently our view that the conveyance documents will prove adequate for the recordation of deeds in the various localities.

While this discussion has focused on real estate, there are also many (but less complex) problems associated with specific identification of equipment, materials and supplies, and administrative properties and assets. The latter group includes offices and furniture, executory contracts and agreements for purchase of services and supplies, accounts receivable and payable, pension plan assets and obligations, licenses and franchises, easements and leases, and many others.

On site inspections plus special analyses of inventory and asset valuation records will be required. Title companies and special counsel will also be required to assist in preparation of the required documents. We are estimating that the additional amounts required for contractual services totals $830,000 for conveyancing: $425,000 for the General Counsel, $180,000 for Operations Planning and $225,000 for Financial Planning.

Valuation. The costs of contractual services relating to valuation are now $250,000 more than was budgeted last fall. The increase is needed to provide information for a certification of valuation to the Special Court. This involves additional data processing costs to conform the files with final inventory information and an internal audit of all records and computations prior to certifying them to the Special Court.

Final system plan.-The preparation of the Final System Plan took more time and involved significantly more money for data processing than was originally contemplated. The Final System Plan was actually completed on July 26th about one month later than was forecast when the Preliminary Plan was released. In addition the Final System Plan was followed by a supplement which was not issued until mid-September.

The increased use of data processing and the stretchout of the time schedule resulted in substantially rising costs for contractual services in Fiscal Year 1976.

The largest amounts are in Operations and Facilities Planning. As noted earlier, our original budget included no funds for contractual services in Fiscal Year 1976 for this Office. Now we are estimating additional obligations of $300,000 to cover the close-out costs of the facilities inventory contracts. This is about 5 percent of the original estimate on these contracts.

Operations and Facilities Planning incurred data processing costs during the first quarter of the current fiscal year of $300,000 and required $240,000 for various contractual studies in support of the Final System Plan. Activities in support of the Final System Plan, primarily data processing, will require an additional $538,000 in the second and third quarters of the fiscal year to assess some of the major criticisms of the Final System Plan.

The additional requirement of $150,000 in Financial Planning was obligated for data processing in support of the Final System Plan during the first quarter. This included costs associated with completion of Con Rail pro forma financial statements and the preparation of sensitivity analyses of the Final System Plan financial forecasts.

These supplemental funds for the current fiscal year are required because USRA's need for contractual services now exceeds by over $4 million the estimates made a year ago. However, the obligations for these contractual services will in large part be incurred in the first half of the fiscal year. As a result, the Association will obligate more than $8 million of its $10 million Fiscal Year 1976 appropriation by December 31st. Before the end of February, the Association will have exhausted all of the obligating authority to be made available to it in the Department of Transportation and Related Agencies Appropriation Bill, 1976. Therefore, it is imperative that action be taken on our supplemental estimate prior to next February.

When we submitted our budget a year ago, we did not include funds for the transition quarter. The reason for this was that at that time we felt that most of USRA activities that would take place during the transition quarter would be in connection with the financing of Con Rail and that these funds could be obtained by borrowing under Section 210 of our Act. We now know that a substantial part of our transition quarter expenses will result from litigation and these are not funds that would normally be financed with Section 210 monies. In addition, our Final System Plan proposes that we provide funds to Con Rail through the use of appropriated funds rather than borrowed funds. In light of these facts, USRA must now seek appropriated funds for the transition quarter. Since our Fiscal Year 1976 situation requires us to seek a supplemental appropriation at this time, we are also taking this opportunity to seek administrative expenses for the transition quarter in the amount of $2 milion.

Mr. SKUBITZ. If you subtract that $5.8 million that we gave you from the $14 million that we had given you, you still have a balance 01 $8.2 million.

Mr. DEAN. Yes, sir.

Mr. SKUBITZ. Which I assume is not obligated money. Am I right? Mr. DEAN. That is correct, sir.

Mr. SKUBITZ. You came in I believe for an additional $6.7 million, did you not?

Mr. DEAN. Yes, sir, that is a request for an additional 1976 fiscal year supplemental.

Mr. SKUBITZ. $6.7 million. That is to cover your expense from May to September?

Mr. DEAN. That is correct.

Mr. SKUBITZ. We allowed you not that $6.7 million, but $6 million, isn't that right? The Senate hasn't acted, is this correct?

Mr. DEAN. Yes, sir.

Mr. SKUBITZ. If you take that $6 million from your $8.2 million of unobligated money, you still have $2.2 million.

Mr. HAGEN. $1.5 if we get the full $6.7 million requested.

Mr. DEAN. But we are appealing the reduction in the Senate.

Mr. SKUBITZ. I understand you are doing that, but based on these figures you still have money that we have given you. Why do you charge this $6.7 million in this second supplemental against this $20 million that you are asking for, when you have already got an authorization and you could take the $6 million out of that authorization and still have money left over?

Mr. DEAN. Mr. Skubitz, you are correct on that point, but we also gave a pending request for $12.1 million to fund us in the 1977 fiscal year. If you add this figure to the $6 or $6.7 million, the total far exceeds the existing authorization.

The question thus arose as to the best way of increasing the authorization and amending the present legislation. In discussions with your staff, taking into account the need to make us eligible for future continuing resolutions, it was decided to insert a new figure in the law which would be a total of $20 million. This would be composed of the $6.7 million now in process and the $12.1 million requested for 1977 fiscal year, leaving a balance of $1.2 million.

Mr. SKUBITZ. I understand exactly what you did, but it took me 35 or 40 minutes last night to figure out how you did it.

Mr. DEAN. It took us that long, also.

Mr. SKUBITZ. I try as best I can to help Mr. Rooney on the floor, but it seems that all Mr. Rooney does is have to go to that floor constantly, explaining why we need more money.

Here is a deficit here. Here is another deficit somewhere else. Here is another authorization. We keep complicating the authorizations. Isn't there some way that we could simplify this that we are just needing this $20 million new authorization without saying really we are only asking for $12 million because we have all this stuff left over?

Could we ask for $8 million because you have $12 million left, or something of that nature?

Do you follow my reasoning that it makes it easier on the floor? Mr. DEAN. We understand the difficulty there.

Mr. SKUBITZ. Maybe that isn't difficult for Mr. Rooney. He is happy to do it. But it really is for me. I am glad that you have to do it all the time, Mr. Rooney.

Mr. DEAN. We did spend a great deal of time in collaboration with committee staff to try to find an approach that would meet the needs of both the committee and USRA. This language, which admittedly is a little difficult to explain in words, is legally satisfactory and will do what we are seeking.

There is one other thing, Mr. Skubitz. We have already presented, as you know, to the House Appropriations Committee both our 1977 estimate and our case for the additional supplemental for 1976. So you have John McFall and his associates who are quite knowledgeable in what is transpiring here, and they have these estimates before them.

Mr. SKUBITZ. But we have to explain it on the floor .That is what bothers me. I would like to get it as simple as we can and as low as we can on the floor.

Mr. DEAN. This difficulty arises, however, out of something that the committee has adopted as a matter of policy; namely, that you