STATEMENT OF E. S. PRESTON, DIRECTOR, OHIO DEPARTMENT OF HIGHWAYS

I make this statement because my home State of Ohio, like the Federal Government, has a moral obligation to the people who pay taxes in both levels of government.

Ohio is keeping faith with its 92 million residents and has moved forward in its efforts to construct as rapidly as possible the National Interstate and Defense System which Congress committed the Nation to in 1956.

Because of the national highway financing problem, Ohio faces:

1. A curtailment of its highway program from $300 million a year to a rate of about $50 million annually.

2. Shelving of every interstate project. No interstate projects have been sold since June. Just this week, Ohio was forced to cancel the sale of $7 million in primary road projects because it also has used all its allocation of Federal primary funds. Interstate sales were halted earlier.

3. Unemployment of 10,000 workers in the highway construction industry with resulting loss in annual payroll in excess of $200 million.

4. A breakdown of negotiations with industry wanting to locate in the State because of proposed highways.

5. A declining economy in areas dependent on good roads. Although it recognizes the burden of taxes already imposed on the motorists it passed this year a 2 cents per gallon gasoline tax increase so it would be in a position to fulfill its part of the bargain with the Federal Government. makes the present combined Federal-State gasoline tax in Ohio 10 cents.

This

Ohio has its share of matching road money and is ready. But we cannot proIceed without some assurance from the Federal Government that the 1961 allocation will be forthcoming.

People in Ohio know the State already has lent the Federal Government $40 million through approved procedure as prescribed by the Bureau of Public Roads, because the State believed it was the intent of Congress to build the system as rapidly as possible. The loan was in the form of contracts let in anticipation of the 1961 allocation.

People in Ohio also face the possibility of driving by huge stretches of interstate highways which cannot be used because the State will be unable to let contracts for connecting projects.

We believe there are two very serious economic factors which should be taken into consideration before Congress arrives at a solution. We feel that a thorough understanding of these factors can lead to but one conclusion. That the highway construction program should be continued at or near past levels.

The factors are these: The direct and indirect economic waste caused by any interruption or substantial curtailment of the program.

If there is a substantial interruption in the program many contractors will be forced to cut back on their recently enlarged organization of both equipment and personnel. When the program is resumed a second buildup will be necessary. These rapid changes will cause losses which, without question, will show up in future construction costs. These increased costs represent one economic factor. The other one is this: These tremendous new highways are opening new frontiers for economic expansion-frontiers which have remained undeveloped because inadequate transportation facilities have been simply choking off economic expansin. Any delay in the building of these new interstate and defense highways will retard economic expansion we could otherwise confidently look forward to.

As far as Ohio is concerned, the important factor is not how Congress solves the problem of continuing Federal-aid program; rather, the vital question is when. If Congress does not soon authorize the 1961 interstate and ABC allocations, it will result in the loss of at least 10,000 jobs in the highway-construction industry in Ohio alone. This would involve no less than $200 million in annual payroll. Like falling dominoes, the adverse impact will be felt in all allied business such as the suppliers of materials which go into highways and the manufacturers of roadbuilding equipment.

When Congress passed the Federal-Aid Highway Act of 1956, it committed the Nation to building a very badly needed system of highways. The financing portion of the act provided for an amount of revenue equal to the then anticipated cost of the system. The financing section, however, did not contemplate then, and does not now, that revenue in each fiscal year would equal the amount spent in that particular year. An added amendment, commonly called the Byrd

amendment, forced a situation in which the program had to be kept on a yearby-year pay-as-you-build schedule. The financing section, however, never was revised to meet this condition. As a result, even if Congress had not accelerated the program last year, and had the cost not increased substantially, the expenditures in some years would have exceeded income on the basis of a 13-year program.

We believed then, and we are just as convinced now, that the system will pay for itself when it is built. The vital issue, it seems to Ohio, is to build it adequately as rapidly and economically as possible.

We favor the pay-as-we-build concept, but we see nothing wrong with applying the principle to the life of the program, rather than on a year-to-year basis. If Congress feels that in order to continue the interstate program at or near past levels some tax adjustment must be made, we are convinced this would be much more acceptable to the American motorists than a complete cessation for a 2-year or longer period.

Without being presumptuous, I would like to point out to this committee how inconsistent it would be to call a 1- or 2-year moratorium on allocation of Federal funds when related to action of Congress last year. As you recall, Congress then authorized the spending of an additional $1.6 billion on highways to counteract the recession. It certainly seems that halting the program at this time would completely negate any antirecession effect which last year's action may have had. In conclusion, I would like to summarize Ohio's position in this manner: Take any reasonable course you deem best to solve this impasse. But, by all means, keep the program moving at or near past levels. It is economically sound to continue the program and, conversely, economically unsound to interrupt the program.

We firmly believe that Congress has an economic, moral, and political responsibility to continue this long-overdue highway-construction program. Any combination of the currently considered methods to allow continuance of the program would, in our opinion, be workable and acceptable.

Whichever solution you select will be much more economical than halting the program entirely or authorizing only a token program.

The CHAIRMAN. Our next witness is Mr. Thomas.

STATEMENT OF J. K. THOMAS, CHAIRMAN, LEGISLATIVE COMMITTEE OF THE NATIONAL ASSOCIATION OF MOTOR BUS OPERATORS

The CHAIRMAN. Please identify yourself for the record by giving your full name, address, and the capacity in which you appear. Mr. THOMAS. Mr. Chairman, and members of the committee, my name is J. K. Thomas, and I appear today as chairman of the Legislative Committee of the National Association of Motor Bus Operators. I am a vice president of the Atlantic Greyhound Corp., a member of the association. Ours is the national trade association for the industry which provides intercity motor bus service.

Our industry has consistently supported the expanded highway program. During the hearings on the 1956 Highway Act, we indicated our readiness to attempt to absorb the additional taxes originally proposed, despite the hardships involved.

We presented irrefutable evidence at that time, however, that any further tax burdens on this industry would impose an intolerable financial burden and would jeopardize existing essential transportation services.

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Our position today is unchanged. We believe that the highway construction program can proceed substantially on schedule without undue delay by raising needed revenues from sources other than an increased tax burden on highway users.

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The Highway Act of 1956 authorized a total of $25 billion over a 13-year period for the construction of a 40,000-mile Interstate Highway System.

Actual expenditures were expected to continue over a 16-year period, due to the timelag between authorization and construction. Additional sums were authorized in the regular, but expanded, ABC roads program, the program of Federal aid for primary, secondary, and urban road extensions.

To pay for the expanded highway program, Congress turned to a new concept of highway financing, the highway trust fund. The fund's revenues were to come from certain existing, increased and entirely new taxes, levied on highway users.

Total revenues over the 16-year period of the highway program were set at a level to match total expenditures, although there was to be a period in the middle years during which expenditures would exceed revenues. As originally proposed, that deficit in the middle years was to be paid out of excess revenues in the early and later years, with repayable advances from the general fund during the middle years. Before final approval of the 1956 act, however, the Senate added the so-called Byrd pay-as-you-go amendment. That amendment prohibited authorizations which would create a deficit in the trust fund, but it did not provide any alternative for financing the programed deficit of the middle years.

Thus, from the very outset, the highway program and its trust fund have had a built-in contradiction. And the Highway Act of 1958 only increased the problem.

As an emergency antirecession measure, an additional $1 billion was authorized for commitment in the first part of the program. To avoid immediate curtailments of commitments, the act also suspended the Byrd amendment for 2 years, fiscal years 1959 and 1960, thus postponing the need for a decision on financing the programed deficit until the time for commitment of the 1961 authorization.

The hour of decision is now at hand. Commitments under the 1961 authorization must be made immediately if construction is to proceed uninterrupted. But, in view of the Byrd amendment, the Secretary of Commerce has had to announce that there can be no commitments of the 1961 authorization.

We are entering the period of deficit programed for the middle years. If authorized funds were fully apportioned, the cash surplus in the trust fund would be exhausted in the current fiscal year, and there would be a deficit of $1 billion by the end of 1961, and of $2 billion by the end of 1962.

We suggest that there are several possible courses that Congress might follow in providing needed revenues so that the highway program can proceed without undue delay during its middle years.

First, the Byrd amendment might be repealed, permitting the trust fund to borrow from the general fund as originally planned.

Second, the trust fund might sell revenue bonds directly to the general public.

Third, a part or all of the taxes which are now paid by the highway users into the general fund, such as the general fund's share of the excise taxes on new automobiles, trucks and buses, could be transferred to the trust fund.

Our industry recommends that the money needed at this time should be obtained by any of these methods. I would like to point out that none would materially affect the 1960 budget. The deficit in the trust fund is expected to be small at the end of this fiscal year.

We are unalterably opposed to an increase in gasoline taxes. Supporters of such an increase seek to cloud the issue by pointing to the fact that estimates of the cost of completing a 40,000-mile Interstate Highway System have increased sharply since enactment of the 1956 act. The cost is now placed at $34 billion, an increase of $9 billion over the $25 billion estimate in 1956.

We readily agree that the increase of $9 billion in estimated cost is a significant development. But the advocates of a gasoline tax are crossing their bridges before they come to them.

The Congress has not increased the $25 billion program originally authorized to $34 billion. The problem before your committee, then, is how to finance the $25 billion in original authorizations during the middle years of what is admittedly a self-liquidating program.

There are several good reasons why the decision on how to finance an additional $9 billion in authorizations should be deferred until the Congress decides to make such authorizations.

First, this committee cannot determine the amount of additional revenues needed annually until Congress sets the period and level of appropriations for the additional $9 billion.

Second, actual trust fund revenues will exceed original estimates by a considerable amount. Revenues in 1958, a recession year, exceeded estimates by 6.5 percent. Thus, a significant part of the additional $9 billion will be raised without a change in taxes.

Third, the question of the distribution of the highway tax burden is under study by the Department of Commerce under the mandate of the 1956 Highway Act. Any revision of the present revenue structure should be deferred until the Department's final report is submitted in January 1961.

Finally, your committee is undertaking a comprehensive review of our overall tax structure. Any increase in the taxes assessed for the benefit of the trust fund should be delayed until your committee has completed its deliberations.

At this point, we want to mention that the prospective deficit in the trust fund which confronts your committee today has not resulted from an excess of expenditures on the highway program.

By the end of 1962, the fund will have paid $2 billion on authorizations which were made prior to the 1956 Highway Act. Another $1 billion will have been paid on the expenditures authorized in 1958 as an emergency antirecession measure. If those amounts had not been charged against the trust fund but, instead, payments from the fund had been limited to the expanded Federal program, there would be a $1 billion surplus at the end of 1962 instead of the $2 billion deficit anticipated.

We urge that your committee reject the increase in fuel taxes proposed by the administration. Not only is such a drastic measure unnecessary at this time, but it would be patently unfair.

At present rates, the highway users will pay more than $17 billion in excise taxes into the general fund, over the 16-year period of the highway program. Thus, the total tax burden on highway users still

exceeds the estimated total cost of the Federal highway program by almost $8 billion, even after allowing for the anticipated $9 billion increase in costs. And this tax burden has been imposed despite the fact that many others also benefit directly from the highway program. The extent to which such non-highway-user groups benefit from the program is graphically shown in the third progress report of the Secretary of Commerce on the highway cost allocation question.

Under such circumstances, I am sure that even the stanchest supporters of an increased fuel tax could not defend it as the fair or equitable solution to the problem. How, then, can such a drastic: measure be justified at this time?

The increase in motor-fuel taxes would be extremely harmful to intercity transportation service and, as a consequence, harmful to the rural communities and lower income groups who rely on the intercity bus industry for essential transportation. There are about 40,000 communities in the United States which are dependent upon our buses as their only means of common-carrier passenger transport.

In addition, we provide these communities with package-express and pouch-mail services. Hospitals and industrial plants in many of these towns depend on this service for emergency shipments and many of our smaller post offices receive and dispatch all of their first-class pouch mail by intercity bus.

The economic health of the intercity bus industry is not good.. Passenger traffic has been declining rather steadily for the past dozen years, primarily as a result of the increase in use of private automobiles. The total decline over this period has been more than 30 percent. This fact, coupled with steadily rising costs, has resulted in substantial cuts in service, abandonment of some routes, and com-plete liquidation of a substantial number of carriers.

Following a thorough study of intercity bus operations, the Interstate Commerce Commission concluded that the total expenses of carriers, exclusive of income taxes, should not be in excess of 85 percent of gross revenues.

An analysis of operations during 1958 showed that the industry was far short of that goal. At least four out of every five of the largercarriers had expenses totaling more than 85 percent of revenues; one out of two had expenses totaling more than 95 percent of revenues, while nearly a fourth actually finished the year in the red.

The condition of our small carriers is even worse. Figures for 1958 are not available, but representative data for 1957 indicate that, for this entire group, expenses exceeded 98 percent of revenues.

These small carriers are a large and important part of our industry. Out of almost 1,000 intercity motor bus operators subject to the jurisdiction of the Interstate Commerce Commission, only about 150 have annual gross revenues of $200,000 or more every year. The majority of the remainder are very small enterprises; many of them are family affairs involving the operation of one, two, or three buses. Yet the small bus operators are in the most precarious financial condition and would be hardest hit by the increased tax.

The officials of many States have become so concerned over the alarming rate of bus company failures and the consequent loss of essential service that tax-relief measures have been found necessary..