STATEMENT OF WILLIAM J. TAYLOR BEFORE THE SUBCOMMITTEE ON WATER RESOURCES OF THE SENATE COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS 95TH CONGRESS, FIRST SESSION APRIL 19, 1977– Mr. Chairman, Members of the Committee, my name is William J. Taylor. I am President and Chief Operating Officer of the Illinois Central Gulf Railroad. My purpose here is not that of an expert to expound upon some specific item of data. Instead, I am asking you to consider the prob lems raised in this legislation for an executive of a direct competing form of transportation. I ask you to examine from my perspective the Locks and Dam 26 controversy as an illustration of the often destructive and counter-productive role of government in freight transportation when that role is played with no overall plan and without regard to the impact on the total system. For years we have had the luxury of a resilient an forgiving national financial structure, which provided us with a wide margin of error to cushion the adverse impacts of erroneous transportation decisions. But the cumulative impact of many erroneous decisions over the past several decades combined with radically new limits on the nation's financial resources, have reduced that margin of error to a thin line between economic viability and insolvency. reached the stage where one or more erroneous decisions favoring one form of transport over another by the federal government may bring rail freight transportation to its knee Massive spending by the federal government on We hav facilities for the use of competing carriers has had several major impacts on the rail industry's ability to maintain reliable freight service to the nation's shippers. equity - The capital investment market - be it debt or makes its decision to invest or not to invest, and at what interest rates, on the basis of risk assessment. When the industry seeking funds represents a risk to the security of the investment through insolvency, funds dry up or become extremely costly. The capital market makes its risk assessment on a variety of factors, including the competition faced in the industry. If the industry seeking private capital must compete with an industry which has much of its capital needs made available to it by the government, without cost, then the market automatically places a logical and substantial penalty on the industry which is forced to stand on its own feet. This is exactly the situation facing the rail industry today. The rail industry must pay the full cost of its operation; the barge industry gets a free right-of-way paid for in full by the federal government. It is this uneven hand of federal support among competing modes of transportation which played a key role in the collapse of the rail system in the east and northeast. Having materially assisted in creating the competitive and financial pressures leading to such collapse by its policies, Congress was then forced, by political and economic necessity, 88-866 - 77-44 rail. to try to put Humpty Dumpty together again by creating ConThus, aid begets more aid, and government is attempting to redress the inequities which resulted in an inadequat and weakened transportation system in the Northeast. There is an additional element of risk analysis applied by the market which affects the rail industry's access to the capital market. Even if there were full repay ment of government costs, financial markets would assess the economic wisdom of the decision. Wholly apart from the question of who pays the cost, there remains the question of whether the investment will be beneficial or harmful to freight transportation. If we create an oversupply of transportation facilities, we run the risk of destructive and predatory rat competition which substantially weakens both the quality and reliability of freight transportation. When supply - in th far exceeds the demand availab to support it, the inevitable result is atrophy of the transport system. This atrophy harms both the operators of the freig transport system and those who depend upon it for service. It is of little comfort to a shipper vitally dependent on a freight system to be told that his service must be curtailed or eliminated because other traffic necessary to maintain th system has been diverted to other modes by government intervention. The financial market includes the economic wisdom of an investment decision in its risk analysis. If government is the investor, the market examines the wisdom of that investment in evaluating the investment requests of competitors to the government. The market also examines the methods of decision-making by investors to determine whether the decision is economically sound. Locks and Dam 26 is a particularly appropriate example of the dynamics of counter-productive government investment in freight transportation. Financial markets have already reacted to the failure of government to analyze adequately the economic necessity and impact of the project. It is no longer sufficient under the thin margin of error now available to us given the demand for capital resources to rely upon excuses traditionally used to avoid rigorous Proponents should no longer be allowed to hide analysis. behind technical jargon to conceal the lack of solid supportEng data for their proposals. Nor is the claim that the issue has been studied to death sufficient to justify approval of an economically Piling empty paper study on empty paper nsound project. |