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hold no reasonable prospects for generating benefits commensurate with costs.
Let me now turn to the subject of the relationship between waterway user charge and subsidization practices, and the manner in which they relate to various forms of past and present public assistances to railways. I note that user charge opponents have recently begun to propogate the contention that rail transport is not and has never been as self-sustaining as both rail partisans and various independent observers typically represent it to be. I think the cause of historical accuracy demands that several general observations be made concerning this contention.
I certainly do not want to deny that there has been significant public assistance to rail transport at various periods in this country's transport history. However, I think we should note that no single significant Federal rail subsidy has endured for a period of time comparable to the life span of user charge-free navigation activities.
Public aid or public assistance programs for rail transport have occurred in what can be described as periodic lumps. For example, they occurred in the 19th century in conjunction with the birth and growth phase of the industry. They occurred in 1920, as a result of the unique set of circumstances involving Government management of the railway system during World War I.
During the 1930's, we got the Reconstruction Finance Corporation, which made loans to numerous railway companies. A few individual railways subsequently defaulted, but most loans were repaid with interest.
In the post-1970 period, we have entered into federally sponsored efforts to reorganize the plant, equipment, and services of bankrupt railways in the northeast. Such efforts have involved some large Federal outlays for which no Federal reimbursement will ever be made. However, it is interesting to note that even the Northeast situation involves requirements for repayments of certain types of assistance, as a reading of the financing provision in the Railroad Revitalization and Regulatory Reform Act of 1976 will reveal.
We thus have a thread running through the pattern of public assistance to rail transport which differs distinctly from the pattern of water transport assistance. That is, there has been a tendency to require at least some repayment in the rail aid area. This has occurred even in the case of noncash aid, like the land-grant program that went on from roughly 1850 to 1870 in which the railways received large amounts of land free of charge and from which some of them are still reaping significant economic benefits. The point here is that all rail carriers that received land grants were required to grant significant concessions in both freight and passenger rates to the Federal Government for many, many years. The last of those concession requirements did not expire until 1946.
I would like to conclude with the observation that the Congress established the Consolidated Rail Corporation which some people erroneously think has no obligation at all to repay anything to the Federal Government on the premise that Con Rail is, in the longer ruin, to be self-supporting, and that it is expected to recover all of its costs, including right-of-way, track structure, and real estate tax expenses. In conjunction with the latter expense element, it is interesting to note that Con Rail recently resumed payment of tales on real estate, an obligation which the bankrupt carriers had stopped paying when they entered procedings under section 77 of the Bankruptcy Act. When you look at this action, and ConRail's break-eren mandate, I don't think one can reasonably escape the conclusion that a similar obligation should be at least as feasible and appropriate for the much more financially sound entities which utilize inland navigation facilities. On this thought I will close. Thank you for your attention.
Senator DOMENICI. Let me thank both of you and ask you a couple of general questions. Professor Spychalski, are you paid by either barge companies or the railroad industries
Mr. SPYCHALSKI. No, sir; I am not.
Senator DOMENICI. Let me ask both of you to comment on this question. Mr. Gidez, in his testimony this morning, stated the following:
Given the complexity of the issue involved and the deficiencies of the past and current impact studies, it would be desirable, prudent, and necessary for Congress to seek that information and data needed to shed more light on the issues and impacts before accepting any decision for a change.
Would you agree? Do we have enough information to make some decisions or do we need to wait for more studies?
Mr. SPYCHALSKI. My own view is it is time to stop cutting bait and start fishing. We have studied this for 50 years. There is no such thing as perfect information. I would agree there are some questions about which it would be nice to have more information.
But I think the Government must move ahead on the basis of the information that is available. Business firms do this every day in pricing decisions. Many of them lack information that is perfect. But they have to move ahead. They have to sell support services, for example.
Senator DOMENICI. If you are familiar with Senate bill 790, there are 18 months of deliberations, rulemaking, and opportunity for Congress to veto the decision-3 years into its implementation of the first 5-year phase, there is an opportunity for a midcourse correction.
Are you saying that perhaps that kind of mechanism can be the one that develops the more precise information if that is what is needed?
Mr. SPYCHALSKI. Yes; I would say that would provide adequate information for this.
Senator DOMENICI. Would you agree, in supplementation under S. 790, that the first-year goal of 10 percent of O. & M. equitably applied, could not be very wrong even with us needing additional information?
Mr. SPYCHALSKI. If I may say so, the first-year goal of 10 percent is as mild as 3.2 beer in comparison with Old Grand Dad.
Senator DOMENICI. That is your way of saying modest.
Senator DOMENICI. How about you commenting on that, Mr.
Mr. HANKE. I would second those remarks. I think the bill, although you can be commended by certainly taking a step in the right direction, it is so mild with the phasein and limitation restrictions that we are in no danger of a wild pricing policy that throws us too far off line.
Senator DOMENICI. Did you answer the question as to whether you are paid by any outside sources? You did, didn't you?
Mr. HANKE. Yes; I am not.
Senator DOMENICI. Both of you talked about congestion fees. I am pretty well aware of congestion. But I really don't quite understand how you suggest that it be implemented. Let me give you an example of what I do know and then would you comment on this example and tell me how we might begin to impose a fee.
In our first set of hearings, certain testimony indicated that it cost about $150 to $200 an hour to operate a typical tugboat, not counting any of the costs related to the barge itself. General Graves of the corps testified last year that the average barge unit spent 6 hours waiting at locks and dam 26 in the year 1975.
If that is so, the delay costs each tugboat owner about $900 per trip, if you assume those hours and assume those expenses. If you multiply that by the 14,000 annual commercial lock cages at this particular lock and dam, and the waterway industry, it seems, has inflicted on itself a congestion toll, if my arithmetic is right of about $12.6 million.
Strangely enough, the barge industry has a pamphlet supporting continuation of no charge and reconstruction of locks and dam 26. The pamphlet, which we have seen, sees that the average delay is 18 to 21 hours, creating, if our arithmetic is correct, an inefficiency cost as high as $42 million annually. That would be just at that facility.
These are not perfect calculations. We are using averages and the like. Would you agree that user charges would tend to diminish that congestion and would thus create savings that they have not discussed with us, in terms of the economics that concern them? If you do agree with that, could you tell me how your suggested congestion fees might apply to this fact situation and ameliorate it?
Mr. HANKE. I will go first on this. For one thing, the straight user fee will probably not do too much to relieve the congestion problem because that will only reduce perhaps some of the aggregate traffic on any particular segment. But it would not cause anyone to reschedule in particular.
The congestion toll would be time specific. It would cause you to reschedule. This is how you would get the savings. The higher valued users would be the ones willing to pay and go through the locks first.
You mentioned the industry now imposes congestion tolls on itself. It doesn't impose congestion tolls but costs.
Senator DOMENICI. These are difficult to calculate because they are really not out-of-pocket costs like O. & M. or construction costs, that kind of thing. So in terms of implementation, you are going to have to go with some kind of experimental process to get this type of congestion toll adjusted properly so that you equate supply and demand for these locking facilities that do exist.
So you will have to gradually try one level or price to see what kind of reaction you get in resecheduling by the shippers and either adjust it upwards or downwards to equate supply and demand and eliminate or reduce the queue at the locks. That is the whole purpose in these things.
So it would be experimental. It won't be the kind of thing you could just calculate immediately. In that sense, of course, you will get all kinds of objections that well, nobody knows how to do this and administratively it would be impossible to implement this kind of a program.
I don't think that is particularly true. The private sector does this all the time, of course, with seasonal pricing for hotel facilities, recreational facilities, haircuts, you name it. There are all kinds of matinees and what-not.
What I would think in this experimental process, one would essentially, if you are operating a barge up or down stream of the lock, you would simply call in and find out what the cost of the call would he, if you plan to pass a certain lock at a certain time, and then you would make a decision as to whether you would make the run then or wait a little bit for a reduced toll. So it is just a little more complicated than the standard cost calculation and conceptually a little different, but I see no reason why it couldn't be implemented.
It is that kind of things that is implemented in the private sector all the time.
Senator DOMENICI. Do you have any comments?
Mr. SPYCHALSKI. I would in general terms subscribe to what Professor Hanke has just said. I would say in terms of administrative feasibility it is conceivable that it may require a very rough application. For example, you may have a series of seasonal changes in charges for the use of different segments of the waterway based on recent experience in terms of traffic flow or demand for the use of facilities. That may be as close as you could come.
Of course, this parallels the current season we have, for example, in both certain types of freight and passenger carrier pricing. In some ways it parallels what I mentioned earlier in my testimony concerning what goes on at present in the exempt inland water freight sector insofar as the pricing of the barge line's own services are concerned. There is in effect a market mechanism that provides a price-based rationing system for the existing barge transport capacity.
This market pricing goes up and down with changes in supplydemand relationships for barge service.
Mr. HANKE. Senator, may I make one other comment. In regard to the bills, if the revenue limitations are left on the bills, I would prefer to see all the revenue derived from the use of congestion tolls. I think this would improve the efficiency of the utilization of the waterways to a much greater extent than a user fee or segment toll or annual license fee or anything along these lines.
Senator DOMENICI. Again, even with the limitations is 790, I read the bill as saying during that 18-month period all of this can be explored at public hearings; and if that be what the rulemakers decide, it would come back to the Congress for veto if it was not reasonable.
Any combination of what you were discussing and something else could also be passed on during that 18 months. But you are saying even with the limitation of 50-percent recoupment, you would hope they would consider this.
Mr. HANKE. If the limitation remains, I would recommend collecting all of that revenue from congestion tolls and have no license and no user fee.
Senator DOMENICI. Can I go over to a part of your testimony, Dr. Spychalski? You spoke about the land grants with the Western railroads. I suspect that before this process evolves, that we will hear a lot about that. Let me ask you if the facts that I have are somewhat similar to the facts you have on that.
As I understand it, in return for the land grants, the railroads were required to first lay tracks and then they could sell off landin many instances they were forced to—to adjoining homesteaders at prices that were fixed by the legislation, according to our research, of $1.25 to $2.50 an acre.
This policy led to what we understand is about 8 percent of the rail mileage in the country. But that wasn't the extent of it. In return the railroads were required to provide reduced rates to the Federal Government; most of the railroads were required to carry Government freight and personnel at 50-percent reduction. Is that correct?
Mr. SPYCHALSKI. In some cases it went to as much as 50 percent. In other cases it was 80 percent of the regular charges. It depended on what type of traffic was involved.
Senator DOMENICI. This policy lasted for almost a century.
Mr. SPYCHALSKI. That is correct. The land-grant rate obligations as they were called existed until 1940 for non-military Federal Government traffic and mail. They existed until 1946 for military freight and passenger travel.
Senator DOMENICI. Our research indicates that that produced a net reduction in Federal costs of at least $1.25 billion in freight rates. Do you have any independent research on that?
Mr. SPYCHALSKI. I have never done any myself. I have looked at the record of work done by others in this area. There was, for example, extended discussion of this in the proceedings of the American Historical Association in the mid-1940's. There have been other investigations of the same topic both before and during the 1910's. These occurred in conjunction with broader studies of national transport policy.
Senator DOMENICI. So you wouldn't have any reason to quibble with the $1.25 billion?
Mr. SPYCHALSKI. No. I wouldn't quibble with it. I would say it is entirely plausible.
Senator DOMENICI. If that is correct, our conclusions are that that sum is about 10 times the land value when granted; and, to put it into perspective as to inland waterways it is about equal to 3 vears of inland navigation investment at the present rate. Is that about right if the $1.25 billion is correct?
Mr. SPYCHALSKI. The only point on which I might hesitate, Senator, is the question of changes in the purchasing power of money.