INTERSTATE COMMERCE COMMISSION REPORTS

f. Description and explanation of any changes in the provision of service for this particular movement since 1966 (car type, car assignment, time in transit, unit train, car fittings, scheduled service, etc.).

g. If there were no like movements in 1971, reason for the loss of traffic.

340 I.C.C.

STATEMENT OF GEORGE M. STAFFORD, CHAIRMAN, INTERSTATE COMMERCE COMMISSION, BEFORE APPROPRIATIONS COMMITTEE, U.S. HOUSE OF REPRESENTATIVES, MARCH 29, 1973

Mr. Chairman and Members of the subcommittee, it is my pleasure to appear before you today to discuss our resource requirements for Fiscal Year 1974. Let me say that our appearances before this Subcommittee always seem to produce a complete and open discussion of the problems within the transportation industry, and the resources the Commission needs to cope with them. Speaking for the Commission, we appreciate the opportunity to present our situation to you. I hope that my remarks here today and any questions and answers that follow, will continue to be informative and beneficial both to the Congress and the Commission.

1973 BUDGET SITUATION

Before moving into the specifics on the Fiscal Year 1974 request that is before you, I thought it might be helpful if I first reviewed our 1973 situation. Last year this Subcommittee recommended, and the Congress approved, 100 positions and $1,460,000 more than the President's Budget had recommended for the Commission. You will recall that in previous years when this was done, the Office of Management and Budget (OMB) placed the additional funds in reserve. This year it was different. OMB has released all of the funds appropriated and has also approved a request for a supplemental appropriation to cover most of the cost of the recent Federal pay raise. The Commission was able to absorb 20 percent of the increase ($125,000) from the savings which accrued during the President's government-wide freeze on employment and promotions. For the first time in 10 years, the Commission experienced an upturn in its employment levels. I might add that this turnabout was due in great measure to this Subcommittee's persistent efforts to get equitable funding for the Commission.

Notwithstanding the increases authorized for 1973, our employment remains lower than that experienced in the 1930s, while the industry and our legislated responsibilities have grown in staggering proportions. Even though we have made significant progress through the use of these additional personnel, there are still complaints which cannot be processed on a timely basis; there are tariffs becoming effective that have not been reviewed as completely as desired; there is unanalyzed information available which would permit meaningful financial forecasts; there are carriers operating without adequate insurance to protect the public; there are transportation companies failing to fulfill their mandate by unlawfully accepting only preferred shipments, refusing the undesirable or dispensing preferential service; and there are unauthorized carriers preying on unsuspecting shippers-all problems which could be dealt with more readily if additional resources were made available.

1974 BUDGET REQUEST

Our Fiscal Year 1974 request calls for 1935 positions and $35 million. This represents an increase of 70 positions and $2,190,000 over our 1973 operating level. The net increase in funds, however, will only amount to $1,880,000 because of a $310,000 reduction in the request to continue our investigation of railroad freight rate structure. The Commission feels that the 70 new positions requested are the minimum number needed to keep pace with the work required of us in 1974. At this point, I would like to briefly discuss those areas the Commission feels will be major considerations in Fiscal Year 1974.

EASTERN RAILROADS

On March 26, the Commission submitted to the Chairmen of its substantive committees draft legislation designed to meet the problems surrounding railroad service in the Northeast. As you know, there are half-a-dozen major Eastern railroads in bankruptcy, and there seems to be no prospect that they can be successfully reorganized or that vital rail services can be maintained without Federal intervention. The Commission has, therefore, proposed a major change in the government's railroad policy.

Long-range Federal aid would be provided for the rehabilitation and modernization of principal railroad lines, yards, and terminals. These facilities would first be selected by the ICC for inclusion in a new "Federal-aid Railroad System." They would then be eligible for Federal funds for reconstruction, with the rebuilding program being administered by the Commission.

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The Commission's recommendations also provide for a Federal grant program to maintain needed low-density rail lines, but for a limited period of three years. This program would feature Federal-State matching funds, on a 70-30 percent ratio, to meet operating losses. It would be coupled by the institution of expedited procedures for handling railroad abandonment applications, and by a requirement that the railroads give 18 months advance notice of possible abandonment plans. Our proposed legislation also provides for emergency and interim relief, by which needed rail services, faced with shut-down, could be maintained temporarily while the operations of the carriers in reorganization were being restructured under the Commission's direction.

I believe that copies of our proposal have been supplied to the members of the Subcommittee, but an additional copy is available for inclusion in the record if you so desire.

INVESTIGATION OF RAILROAD FREIGHT RATES

As you are aware in Ex Parte No. 270 and related cases, the Commission has undertaken a far-reaching and intensive investigation of the railroad rate structure, the adequacy of railroad service, and the railroad rate base and rate of return. This investigation responds to widespread concern that general increases in railroad rates, made necessary by the upward trend in wages and other costs of providing railroad service, may have had an adverse impact on shippers, railroads, and the general consuming public. There is little doubt that the railroads needed additional revenue to meet the rising costs of doing business. What is not clear is whether the rate structure as it existed before this current inflationary period, or as it has evolved as a result of the increases, yields an economically effective and equitable system of prices for the movement of traffic by rail.

The investigation is exceedingly complex. It involves literally thousands of individually formulated rates and rate patterns which may or may not have pertinence one to the other. The relationship of these rates to the costs of providing the services, the competition among sources and markets for the hundreds of commodities transported by rail, the competition among railroads and between railroads and alternative modes of transport, the quality of service rendered by railroads and that desired by their patrons, the investment patterns and needs of the railroads, and the public interest in a viable railroad system are all serious questions which must be examined.

Last year we obtained funds and we have applied them to contracting for economic studies, consultants and a Special Counsel to support this investigation. Our economic research contract calls for a series of studies involving the nature of the rail rate structure and how it has changed since 1966, the relationship of costs to the rate structure, the characteristics of demand for railroad service, quality of rail service in relation to rates, and various matters associated with the railroads' rates of return. Work in these areas is in various stages of production and we expect to finish this phase by the close of FY 1974.

Recently we entered into a contract with former Senator Allott to serve as Special Counsel. Under this contract, Special Counsel has the general mission of providing on the record an unbiased appraisal of the rate structure with recommendations for such changes in the law or ratemaking policy as he deems necessary in the public interest. More specifically, he is expected to formulate issues, obtain and analyze information and data, present the results of his analyses in evidence, and to take a position in respect to the issues with a full statement of his views and reasoning. Present funding will support this contract for approximately two years. Special Counsel will, of course, have access to the results of the economic research already under contract. In addition, we have retained individuals on a consultant basis to assist us in certain areas.

The Commission is requesting an additional $450,000 for Fiscal Year 1974 to fund economic studies which were not contemplated when we appeared before you last year. As a result of increased emphasis on the environmental issue, it is necessary to expand our present studies to consider more fully the question of how the demand for rail transportation of recyclable materials might respond to changes in rates. In addition, the Commission staff has in progress an initial study of rail service characteristics. In developing the specifications for this study, it was found necessary to encompass a wider range of service considerations to provide a closer focusing on the rail service performance in relation to the demand for service.

FORMAL PROCEEDINGS

In recent years, the proliferation and sheer complexity of economic, regulatory, and other problems experienced by the transportation industry and the public it serves have threatened to overwhelm our capacity to manage them. The Commission has little or no control over the number or kind of proceedings it receives for decision in the public interest. Applications for licenses, for authority to merge with or control other carriers, changes in tariffs affecting rates and practices, complaints, declaratory orders, and numerous other pleadings are filed by persons seeking relief to which they are entitled by statute.

Despite the successes achieved through the Commission's constant efforts to streamline and improve its procedures, its limited budgetary resources, as well as its growing statutory duties (as in the environmental area), make it increasingly difficult to adjudicate these proceedings in the prompt and responsible fashion so vital to the smooth and efficient flow of our Nation's commerce. This lack of resources has two major consequences; it can result either in increased 'regulatory lag" where statutory deadlines do not apply (e.g., issuance of operating authorities and approval of merger or control proposals) or in decisions based upon less than complete records and analyses in those areas governed by statutory time limits.

To ensure the development and maintenance of a balanced, stable national system of surface transportation that is and will continue to be fully responsive to the ever-changing service needs of the traveling and shipping public, the Commission is initiating comprehensive investigations and rule making proceedings in increasing numbers. These proceedings, in which the vital interests of carriers and public alike are fully explored, look toward the resolution of present and foreseeable transportation problems on a regional or national basis and involve the expenditure of large portions of our available resources. They include such matters as household goods transportation, the C.O.D. and freight-collect practices of regulated carriers, equal employment opportunity within the regulated industry, a review of the entire rail rate structure and the rate base for measuring carrier rate of return.

Legislation and judicial decisions continue to impose new and added decisional responsibilities on the Commission. Among the most significant of the new duties is the need to explore, in every proceeding, the environmental consequences of, and alternatives to, a considered proposal and to explain in detail the economic and environmental trade-offs embodied in the final decision. To the Commission, compliance with the requirements of the National Environmental Policy Act represents a new, broad decision-making area which requires the prompt development of new expertise. The courts have plainly indicated that the Commission is not to regard lightly its environmental responsibilities or to avoid the full consideration of a sweeping variety of such economic factors as the anticompetitive nature of allowing a railroad access to a new terminal. In addition, the struggle to preserve, through Amtrak, intercity rail passenger service; the pruning and rationalizing of the existing railroad plant through abandonments, routing, merger, and other proceedings; and the establishment and best utilization of needed rail car equipment—all will call for greater Commission participation. As the Commission's caseload increases in both size and complexity, so does the need for an experienced professional and supporting staff. The assistance of economic experts, financial analysts, accountants, and secretarial and other clerical support must be made available on a continuing basis to the Commission and its legal staff who are daily confronted with increasingly sophisticated financing techniques, problems resulting from the creation of conglomerates and mergers, and ever more refined cost-finding questions presented in rate increase proceedings. For example, a finding as to whether a rate is compensatory and in the public interest depends in important measure on the cost estimates and analyses provided by the cost-finding staff. There is also an evident need in the economic area for (a) more timely and penetrating observation and interpretation of industry performance and trends, (b) better identification of underlying cases of carrier distress and shipper problems, and (c) greater evaluation of the economic consequences and effectiveness of regulatory action or inaction.

COMPLIANCE

The Commission has the responsibility to insure that all regulated carriers comply with the provisions of the Interstate Commerce Act. This compliance activity is carried out primarily by our field staff. The functions they perform are largely consumer oriented.

The magnitude of such an undertaking can be partially appreciated by realizing that in Fiscal Year 1972, the field staff alone handled 30,000 complaints from the public about motor carrier service, 15,800 applications for operating authority, 983 enforcement investigations, 1,420 compliance surveys, and physically checked over 3,800 railroad stations and yards. The departmental staff, in addition to assisting the field staff in its widespread efforts, processed 10,400 complaints related to insurance, processed 17,700 certificates of insurance and rendered 4,100 legal interpretations.

The transportation of household goods probably has more direct impact on the individual consumer than any other major category of surface transportation. In response to an ever growing number of complaints from householders, the Commission has stepped up its compliance activities in this industry. So far, our efforts have resulted in investigations of 9 of the leading household goods carriers in the country. In some instances, the investigation has resulted in the issuance of cease and desist orders and suspension of portions of the carrier's operating authority.

In addition to attacking the problem through the carriers, we have been increasing our efforts to help the consumer directly. We have issued advisories explaining the regulations governing household goods shipments, established consumer affairs offices in four major cities and established a telephone service where the public may call on a 24-hour basis to obtain information on Commission activities.

Another perennial consumer problem relates to loss and damage claims. The Commission receives thousands of complaints each year in this area and the number continues to increase. It is no wonder that it does. It is estimated that railroads handle 2.5 million claims annually, and motor carriers handle 1 million more. This year the Commission began publishing a statistical report on the loss and damage claims of motor carriers with revenues of over $1 million. The latest report shows that 1,697 carriers paid over $4.9 million to claimants during the second quarter of 1972.

In a further attempt to remedy this problem, the Commission issued rules for processing cargo claims. These rules established a format for presenting claims and require a carrier to acknowledge and investigate each claim promptly. If a claim is not disposed of within 120 days, the claimant must be kept informed of its status and the reasons for the delay.

In other actions, the Commission has struck down claims rules of carriers that arbitrarily limited claims liability, and initiated a separate investigation into claims involving perishable commodities.

As we prepared the budget document before you, the freight car supply picture was relatively bright. A sluggish economy and a series of labor disputes had reduced the demand for rail equipment and there were no serious shortages.

In the intervening weeks, the situation has changed drastically. With news of the large sale of grain to the Soviet Union, the demand for freight cars to ship the grain rose tremendously. Almost simultaneously shipments of lumber and steel increased significantly.

As a result, the daily shortage of boxcars rose from 910 last August to 17,638 early this month. During the same period, the shortage of covered hoppers rose from 767 to 16,211. In total, the shortage of all types of cars now exceeds 42,000 per day. The shipment of grain, lumber, paper and steel have been the most severely affected. The Commission has been working closely with the President's Cost of Living Council, particularly with regard to the movement of grain and lumber.

The Commission has taken action in all of the above areas to alleviate the problems. We must depend heavily on our car service agents to move these cars along, and our staff is spread rather thin. In some areas, we have had to move employees into the car service area to handle major bottlenecks, at the expense of our other compliance activities.

The examples I have just related demonstrate that the Commission can and will take effective action to insure industry compliance. The problem we face is the magnitude of the operation. Last year our field staff alone handled 30,000 complaints about carrier service. When you add in the workloads relating to carrier insurance, operating authorities, railroad stations and yards, compliance surveys and enforcement investigations, and compare that to staff increases, you begin to realize how difficult a job it is to keep`apace, even with productivity improvements. The Commission most certainly needs and can effectively use the additional positions requested for compliance work in 1974.