5. To reduce future capital requirements for freeways, highways and parking facilities.

6. To increase real estate values in downtown areas and along transit routes, with corresponding increases in real estate revenues.

7. To provide a transportation capacity wholly independent of surface congestion and weather conditions.

8. By inhibiting urban sprawl, to limit the cost of municipal services such as water supply and sewerage.

9. Because of its greater mobility, to make possible a larger worker pool for employers, and a wider range of opportunities for employees, thus improving the area's competitive economic position.

10. To provide greater travel safety, comfort, convenience, speed and dependability for all transit passengers.

For these reasons and for many others, which I am sure, other witnesses before this Committee have given you, I, as one who has had the opportunity to know by years of experience the extent of the problems involved, on a local level as Chairman of a Metropolitan Authority, on a regional level as a member of a Regional Planning Council, and on a national level as Vice-Chairman of the Urban Passenger Transportation Committee of the American Bar Association, urge you to persuade the Congress to pass all legislation which validly and realistically aids mass transit in any way. The bills before you which I understand are Mr. Sparkman's bill No. S. 2977, Mr. Magnuson's bill (for himself, Mr. Jackson, and Mr. Tydings) bill No. S. 3061, Mr. Williams bill No. S. 2804, and Mr. Tydings bill No. S. 3227, are all tremendously important in helping to obtain the very necessary objectives which I have just stated to you. Because of the magnitude of the facilities to be constructed and operated, it is essential to have trained and competent personnel in managerial, technical and professional positions, and to train persons to carry on comprehensive research in the problems of transportation in urban areas. Therefore bill No. S. 3227 is especially urgent and of great practical value.

In closing, I would like to quote from the words of a great statesman, who emphasized much more eloquently than I possibly can, the need for action on the transportation problems resulting from burgeoning urban growth-I quote:"To conserve and enhance values in existing urban areas is essential. But at least as important, are steps to promote economic efficiency and livability in areas of future development. In less than twenty years, we can expect well over half of our expanded population to be living in over forty great urban complexes. Many smaller places will also experience phenomenal growth. The ways that people and goods can be moved in these areas will have a major influence on their structure, on the efficiency of their economy, and on the availability for social and cultural opportunities they can offer their citizens. Our national welfare, therefore, requires the provision of good urban transportation. with the properly balanced use of private vehicles and modern mass transport to help shape as well as serve urban growth

"Accordingly, I recommend that long-range Federal aid and technical assistance be provided to help plan and develop the comprehensive and balanced urban transportation that is so vitally needed not only to benefit local communities, but to assure more effective use of Federal funds available for other urban development and renewal programs." (End of quote.)

So John F. Kennedy spoke in his message on transportation to the Congress on April 5, 1962. We've come a long way under the enlightened leadership of President Johnson, but there's still a long way to go. The battle is big, but the victory is bigger.

Mr. Chairman and Gentlemen of the Committee, I thank you for the opportunity to appear before you, and I particularly offer my heartiest thanks to my good friend, Senator Tydings, who extended the invitation, and whose interest in and awareness of the need for more and better mass transit facilities bodes well not only for the citizens of the State of Maryland, but for the entire nation as well.

Senator WILLIAMS. This will conclude the morning session. We will return at 2:15. Mr. Tomlinson has been cooperative indeed and agreed to go over until this afternoon. Thank you very much.

(Whereupon, at 1:05 p.m., the subcommittee recessed, to reconvene at 2:25 p.m., of the same day.)

AFTERNOON SESSION

Senator WILLIAMS. Mr. Tomlinson.

STATEMENT OF J. RICHARD TOMLINSON, DIRECTOR OF PASSENGER SERVICES, READING CO.

Mr. TOMLINSON. Mr. Chairman, I am very glad to have a chance to talk to you today about the commuter service deficit. With your permission, I would like to take a case study approach, using the Reading Co. as an example, to describe how we envision the provisions of your bill would actually work with a specific railroad.

PASSENGER DEFICIT THREATENS FREIGHT SERVICE

As background, I would like to briefly describe the Reading Co. to you. It is a 1,300-mile route serving southeastern Pennsylvania, New Jersey, and Delaware and producing revenues amounting to more than $100 million annually. It is one of the important freight lines linking Philadelphia, New York, and other major cities in the East and New England with cities in the Midwest and West. Its passenger service accounts for about 10 percent of total corporate expenses and consists almost entirely-97 percent of a Philadelphia commuter service. Hence, in this particular case study the two are synonymous. The passenger service has operated at a loss in each year since 1938-the earliest year for which records are available. These losses were absorbed by freight revenues until 1958, when freight revenues declined $30 million. Since that date the passenger deficit has resulted in a general deterioration of the passenger service and threatened Reading's ability to serve its 7,000 freight shippers and receivers.

It should be noted that during the 6-year period, 1959 through 1964, the railroad had a cummulative net loss before tax adjustments of $23.5 million from all operations. This loss is attributable entirely to its passenger service.

In 1965, with the current increase in freight business and improvements in the passenger programs, with capital improvements made possible by the $30 million Government loan, and with better management controls and operating procedures for both freight and passenger, installed under the guidance of the newly elected President Charles E. Bertrand, Reading Co. showed a profit of $2.9 millionan improvement of $8.3 million over the prior year.

I make this point only to illustrate Reading Co. can manage its business, when it is given a chance. With respect to the commuter service, and given the kind of assistance your bill provides, I think we will have a chance in the passenger area.

PASSENGER OPERATING DEFICIT REDUCED 25 PERCENT

The improvements I have just mentioned have been reflected in the pasenger service. Since 1958 Reading Co. has been an active participant in various public programs for its passenger service financed by local governments and by the Federal Government under the Housing Act of 1961. Between 1958 and 1964 these programs resulted in higher patronage and provided evidence that rail service should be retained.

They did not, however, make any major contribution to reducing the passenger service operating deficit.

In 1963 Reading Co. retained an outside consulting firm to study its passenger service operations. This firm found that the annual total gross operating deficit as measured on an avoidable cash basis and excluding the effect of public programs amounted to $5.1 million in 1963. There has been a great deal of discussion of how you measure the cost of the passenger service. In this case we looked at it as an incremental product line. What would happen to cost and revenues in that year if this service was not provided? If you care to, we can go into that a little further later.

The railroad immediately took certain steps to reduce the deficit including rearrangement of repair shop activity and restructuring of the train service. In addition, a new type of public program, "Operation Reading," was begun in April 1965. I believe this has already been alluded to earlier today.

This program provides for extensive exploration and testing of all feasible alternatives available for eliminating the deficit and has resulted in a significant improvement in passenger service operating results.

As a result of these steps the operating deficit was reduced to $4.5 million in 1965 and it is estimated that it will be further reduced to $3.8 million in 1966. This is shown on the chart by the declining stairstep line from $5.1 million to $3.8 million in 1966. It should be pointed out that this total improvement of $1.3 million-approximately 25 percent was achieved through an increase of 1 million passengers carried a 9-percent increase-representing an increase in revenue earned of $700,000 annually and through a decrease in costs of about $600,000. This cost decrease was achieved in the face of wage, fringe benefit and material price increases in the same period that amounted to $900,000.

During this same 4-year period shown on the chart, the contract payments, which we have discussed earlier, increased from $1.7 million in 1963 to an estimated $3.1 million in 1966. Hence, the net loss to company for this commuter service during this period shown by the red bar declined from $3.4 million in 1963 to an estimated $700,000 in 1966. It is clear that the railroad itself

Senator WILLIAMS. Wait a minute. That is not what that shows: 1963

Mr. TOMLINSON. In 1963 the public payments were $1.7 million. And they increased to $3.1 million in 1966.

Senator WILLIAMS. I see.

CAPITAL FUNDS REQUIRED TO SUSTAIN SERVICE

Mr. TOMLINSON. It is clear that both the railroad and the public have contributed to a reduction of the net loss, the area indicated by red. The operating loss declined, public payments have increased. During the same 4-year period, however, while the railroad has been looking for a solution to its passenger service problem, it has incurred a cumulative $9 million out-of-pocket loss: $3.4 million in 1963, $3 million in 1964, $1.9 million in 1965, and an estimated $700,000 in 1966. We are now convinced that further experimentation in service and fare levels will not eliminate the operating deficit now estimated at $3.8 million. Rather, we must have improvements in the quality of service. Unfortunately, a high quality of service is very expensive, which is why Reading Co. faces two serious problems concerning passenger service at this time.

New equipment and facilities must be provided, as those now in use are becoming unusable and service will no longer be operable.

Moreover, the deficit must be eliminated since current financial support is largely the result of Federal demonstration programs which probably will not continue and the railroad has no assurance, or even expectation, that the present level of public assistance can be increased or even maintained by State and local government alone. In the face, of these two problems Reading Co. has three alternatives:

First, it can continue to operate as at present and anticipate increasing passenger service deficits. This course could not knowingly be followed as it would force the railroad into bankruptcy.

Second, it can abandon its passenger service, thereby destroying a large part of southeastern Pennsylvania's mass transportation system. Third, with financial support as described in the commuter service bill, it can better serve its passenger market and preserve the financial resources necessary to continue to serve its freight customers. This is by far the best course for all concerned.

Reading Co. has already submitted to the responsible public agency, Southeastern Pennsylvania Transportation Authority, a capital program of $36.2 million. (Exhibit 2.) The major expenditure, $21.1 million, is for new equipment and rehabilitation of existing equipment. The balance is for extensions of service to new communities, increased parking, and station renovation to improve the quality of the service and for track and signal reconstruction necessary only to preserve the passenger service.

The proposed program has been developed with the objective of drawing a reasonable balance between money to be spent and quality of service to be provided. An alternative higher quality capital program of $79.5 million would include all new cars, rather than rehabilitation, and would include an additional track to provide faster service. Essentially we have a choice in the quality of service to be provided, a choice the region must make.

I raise the point at this time merely to suggest the Federal Government may wish to consider establishing guidelines as to the level of quality the Federal Government can and should finance.

CAPITAL PROGRAM WILL LOWER DEFICIT

The capital expenditure program proposed by Reading Co. will enable it to

(a) Raise the quality of its present service, thereby obtaining a larger share of its present market potential;

(b) Have the capacity to accommodate the market growth anticipated merely as a result of present population growth trends; and

(c) Reduce its cost per passenger carried.

The financial effect of this program (exhibit 3) is that the current operating deficit of $3.8 million should be eliminated by 1974. The reasons for this change are:

Greater market penetration and lower per unit costs will reduce the deficit by $2.3 million. This estimate is the marketing gamble that is implicit in this program and is based on studies done by outside consultants for SEPTA. There is some evidence this greater