provision for notice to be given to the public, as would be provided if it were intended that the plan would contain provisions materially and adversely altering the passenger service offered the public.

Subdivision (e) then goes on to provide that when the judge shall approve the plan it shall be submitted by the Commission to the creditors and stockholders of the debtor. Creditors and stockholders are given the opportunity to vote on the plan, and the judge is authorized to confirm the plan if satisfied that it has been accepted by two-thirds of the creditors and two-thirds of the stockholders. There is no provision for the submission of the plan to the public, nor is the public given any opportunity to vote thereon, as would be the case if it were intended that a plan contain provisions materially and adversely altering the passenger service to be rendered to the public. Railroads were successfully reorganized in equity receivership for the many years preceding the enactment of section 77. During this period railroads were expressly excluded from the provisions of the Bankruptcy Act. It was not until March 3, 1933, that section 77 was enacted. Congress then provided, in what is now subdivision (d), that any plan proposed in a section 77 proceeding must be found compatible with the public interest before it is approved. The public interest should be determined at the time a plan is approved.

The provisions in the plan of reorganization for the Central Railroad of New Jersey, with respect to curtailment of passenger service, require a forecast of what may be the public interest many years after the plan is approved, confirmed, and consummated. These provisions only become operative when the specified deficit figure has been exceeded during any 24 months' period after the plan is consummated. This may be many years after the date of approval, confirmation, and consummation of the plan. Curtailment of service then becomes effective without reference to any regulatory body.

Abandonment or curtailment of service is always passed upon in the light of the situation as it exists when the application for abandonment or curtailment is made. Public hearings are held before the Interstate Commerce Commission and the State Public Utility Commission. There is thus afforded the requisite opportunity to balance the public interest and the financial needs of the railroad in the light of the situation prevailing at the time.

H. R. 6012 preserves and maintains this historic procedure.

Mr. DREIER. Our next witness is Mr. Joseph Harrison, the deputy attorney general of the State of New Jersey.

Mr. REED. We will be very glad to hear him.

STATEMENT OF JOSEPH HARRISON, DEPUTY ATTORNEY GENERAL STATE OF NEW JERSEY, ON BEHALF OF THE PUBLIC UTILITIES COMMISSION, STATE OF NEW JERSEY

Mr. HARRISON. My name is Joseph Harrison. I am a deputy attorney general of New Jersey and am here to represent the Board of Public Utility Commissioners of New Jersey. At the outset I wish to convey greetings to you gentlemen from your former colleague, Lane Powers, who now is one of the members of our public utilities commission. He wanted me to be sure to convey his respects and his regards to you gentlemen.

The Public Utilities Commission of the State of New Jersey is vitally interested in the passage of Congressman Case's bill amending the Bankruptcy Act. It is the position of the board that there is no valid basis in law, in fact, nor in principle for the usurpation of the field of State and Federal regulation by such a device as has been approved by what we feel is a perversion of the congressional intent as expressed in section 77, subsections (b) and (f), of the Bankruptcy Act.

As far as the law is concerned, a careful reading of section 77, subsections (b) and (f), which are proposed to be amended by H. R. 6012, will indicate that what Congress intended there was solely to

deal with the financial structure of railroads and the financial difficulties attendant upon a railroad going into bankruptcy.

There is nothing at all in section 77-which deals only with the rights of creditors, claims, finances-nothing specifically touching upon matters of service and the operation of a railroad. And, of course, it is clear that all matters dealing with the financial aspects of the operation of a railroad are definitely and properly within the scope of bankruptcy law and regulation.

It was never the intent, and there is nothing in that section of the act which would even intimate remotely that it was the intent, of Congress to permit the overriding of all State and Federal regulatory bodies in matters of passenger service and the actual operations of a railroad.

Therefore, as a matter of law, we feel very strongly that the interpretation that has crept into one or two court decisions is due to an unfortunate statement in a dictum. We feel, with all deference, that it is due to an unfortunate statement of Mr. Justice Frankfurter in Palmer v. Massachusetts, to the effect that by the device of reorganization proceedings of a railroad in bankruptcy a railroad may be permitted to avoid its service obligations, regardless of State laws and State regulatory bodies. In only one instance has it been so used, and it has brought about a situation which certainly was not contemplated in the true intent and purpose of this legislation—that is, section 77 of the Bankruptcy Act and it calls for a clarifying enact ment by Congress at this time.

Of course, we feel that the enactment of H. R. 6012 would be particularly timely, because we in New Jersey are threatened with a very serious situation in that part of the State that is served by the Central Railroad Co. of New Jersey.

Assuming that the situation were such that both the Federal and State regulatory bodies were acting arbitrarily or were not acting reasonably with the railroad in its financial difficulties, then perhaps there might be some justification in fact for such a drastic interpretation or provision in the law-but it simply is not so.

The Central of New Jersey Railroad alone has made in the past 10 years 42 applications for relief, in the matter of abandonments of one kind or another and the record shows this: In 32 instances the applications have been granted in full. In 3 instances the applications were allowed in part. In 2 they were withdrawn, and another 2 are pending. We submit that record shows that very reasonable and very fair treatment has been accorded to the Central Railroad Co. by the New Jersey Public Utilities Commission.

Certainly the Interstate Commerce Commission would, we are sure, adjudge itself to be fair and reasonable in the treatment it accords to the railroads. And yet, by a very curious course of interpretation, the Interstate Commerce Commission may simply divest itself of all future jurisdiction. Once it approves a plan of reorganization including the railroads' right to abandon service, the public convenience and necessity at some future date are not, and cannot be, considered. The circumstances, the economic conditions of some future date, are entirely beyond the consideration of the Interstate Commerce Commission, as well as beyond the State regulatory body, and it is all left within the complete discretion of the railroad.

Now, we come to our final point on which we base our opposition, and that is the matter of principle. We feel that such divestment of regulatory control permitting a railroad within its own discretion to determine to whom and where and when it will give service is, even to that limited degree, getting us right back to that very undesirable era of uncontrolled and unregulated utilities and conditions which brought on our utility regulatory laws. It would permit the exercise of favoritism and discrimination, since the manner, the extent, and the localities to be served, within the limits of the approved plan, are entirely within the discretion of the railroad and only the railroad, since it would be beyond the control of any regulatory body or commission to order otherwise if the misinterpretation of section 77 is permitted to stand unremedied by legislation.

I have very briefly summarized what I have in my prepared statement which I have filed. I shall not read it in full, in deference to the request of the chairman.

There is one other aspect which I think is very important and which I neglected to insert in the prepared statement, and I think it is important enough to take just a few minutes of your very valuable time to bring it to your attention.

The chief executive officer of this railroad in bankruptcy in a proceeding before our board gave an indication that the passenger service was unprofitable, that it is a losing proposition and he thinks that some public authority should probably take it over.

And, Commissioner Powers just looked over the desk and asked, "You mean to say you would put the State in the railroad business?" And with all credit to Mr. Wyer, he said, or he intimated, "Well, either the State or some other public authority."

Now, it is quite a coincidence that in Massachusetts-or so it is my understanding, and it will no doubt be elaborated upon more authoritiatively by the next speaker-we understand one of the alternatives there is for the State to take over the operation of the railroad and to render the service which was previously rendered by the New York, New Haven & Hartford Railroad.

We submit that putting the State into the railroad business, into the ownership and operation of railroads, is a very undesirable and even dangerous precedent. We think it goes entirely contrary to our whole basic philosophy of having private enterprise exercise the ingenuity that has made this country great all along the line.

If they are losing something in the passenger service, then we feel they are certainly making it up in their freight operations. Certainly, we ought to exhaust every other possible remedy and every possible bit of resourcefulness before we put the State in the business of owning and operating public utilities. I do not think I have to dwell on that point too much, but I think this unjustified misinterpretation or seetion 77 of the Bankruptcy Act is a step in the wrong direction and in a dangerous direction. We are not quite ready, I feel, to give any comfort to those who would lead us on any path toward socialism, of which the ownership and the operation of public utilities is a principal tenet.

Of course, I will not posing a plan like this. for their own interests.

criticize the bondholders' committee for proThey are looking out, solely and primarily, That is their privilege in our present system.

However, it is also a basic part of our system to provide for the protection of the public and to assure aedquate public utility service at reasonable rates. Through the Houses of Congress or through the regulatory bodies, we provide for the protection of the public interest. And it is from these considerations that we strongly urge this subcommittee and the Congress to act favorably on Congressman Case's bill. Thank you very much.

Mr. REED. Mr. Hobbs has a question.

Mr. HOBBS. I would like to ask a question about these difficulties in New Jersey with regard to taxation. Have they been resolved? Mr. HARRISON. I believe they have, sir. There has been a settlement, and I believe everybody is happy about it. The railroad and the State both gained by the settlement. I think it was a fair settlement.

Mr. HOBBS. You do not think there is any chance of the State of New Jersey coming to own the railroad? In other words, you do not think the State of New Jersey can, through the taxing authority?

Mr. HARRISON. I can categorically answer to you, sir, that there is no such danger. I don't believe there is. I believe there has been some legislation that has been enacted very recently with reference to railroad taxation that insures continued fair treatment of the railroads operating within New Jersey. That whole situation in New Jersey calls for a more extensive exploration than I am sure you want me to make here, but there are more sides to it than meets the eye. Mr. HOBBS. We know that is true; we have heard the tax problem detailed to us and we are thoroughly familiar with the situation, not only the situation you gentlemen are stressing this morning, but also the tax.

Mr. HARRISON. Are you aware it has been settled, and of the terms of the settlement?

Mr. HOBBS. We are perfectly aware that there has been some serious attempt on the part of some. I did not know whether it was satisfactory or not, and I was just simply asking, realizing you are on the State side.

Mr. HARRISON. That is true, but even though I am on the State side, I want to stick to the facts and present as accurate a picture as I can.

Mr. HOBBS. If I had not thought that, I would not have asked the question of you.

Mr. HARRISON. Are you aware, sir, that there has been a settlement actually of the tax question? Do you know there has been a settlement, whereby the State's tax claim has been compromised and that this settlement has been consummated? That is correct, is it not, Mr. Scott? Mr. Scott represents the bondholders.

Mr. SCOTT. Mr. Chairman, my name is Willard P. Scott. What Mr. Harrison says is true of the past tax loads. There has been a great amount of litigation, and there is still a considerable question outstanding between the railroads running through the State and the State itself, as to the current taxation.

Mr. HARRISON. And as to the amount, it is to be limited to what it was under a previous formula which gave some preference to the railroads. In other words, there was a limitation of $3 per hundred tax regardless of what the local tax rate was.

Then, the new constitution was adopted which provided that all property, railroad or anybody else's, the property had to be taxed at the same rate locally as any other property within the locality. But then, there has been a bill introduced, I believe, sponsored by the State Tax Policy Commission, which would in effect, as I understand it, keep the level of taxation on the railroads at what it was under the old basis with some difference being made up by the State to the municipalities by some other means, so that the State, certainly the present administration, is making every effort to be as fair as possible to the railroads, having in mind what the problem is and its effect on transportation.

Mr. HOBBS. And you think that this settlement and the litigation preceding it have borne in mind the public interest as well as the interest of the bondholders?

Mr. HARRISON. It certainly has borne in mind the public interest very definitely, and I feel that it has borne in mind the interests of the bondholders, and of all parties concerned. I sincerely do, sir. Mr. HOBBS. Thank you.

Mr. REED. There being no further questions, we thank you. (Statement submitted by Joseph Harrison is as follows:)

PREPARED STATEMENT OF JOSEPH HARRISON, DEPUTY ATTORNEY GENERAL OF NEW JERSEY, REPRESENTING THE BOARD OF PUBLIC UTILITY COMMISSIONERS OF THE STATE OF NEW JERSEY, NEWARK, N. J.

My name is Joseph Harrison. As one of the deputy attorneys general of New Jersey, I am assigned as one of counsel of the Board of Public Utility Commissioners of New Jersey, whose principal office is at 1060 Broad Street, Newark 2, N. J.

The New Jersey Board of Public Utility Commissioners is authorized by law, title 48 of the Revised Statutes of New Jersey, as the State agency to have general supervision and regulation of and jurisdiction and control over all public utilities, including railroads, within the State of New Jersey. By statute, the State of New Jersey has exercised jurisdiction over railroads within the State for over 80 years. Under the present laws, the board of public utility commissioners exercises control over the service, operation, and rates of carriers by rail within the State.

The New Jersey Board of Public Utility Commissioners strongly urges the enactment of H. R. 6012.

The position of the New Jersey board is based upon the following circumstances and premises:

The

There is now pending before the Interstate Commerce Commission a plan of reorganization of the Central Railroad Co. of New Jersey, in bankruptcy. text of article III of the plan is before your committee and need not be repeated here. However, certain essential aspects of article III bear repetition. One of the terms of the plan provides that upon the approval by the Interstate Commerce Commission and the Federal district court, the railroad may discontinue passenger service, abandon stations, and in general change the type and character of service in the event the carrier sustains certain losses in its passenger service. The original plan would have permitted such abandonment of service when and if the railroad showed an annual loss of $500,000 for two consecutive years. (At the hearing, however, the company's then executive officer, William Wyer, thought the figure should be $750,000 annually.) Under the proposed plan the railroad would still be obligated to render passenger service but only to the extent that such service would not result in an annual loss of more than $500,000. The plan further provides that passenger service losses shall be determined by some formula to be approved by the Interstate Commerce Commission. Thereafter, regardless of any consideration of public convenience or necessity, or charter or State law, the New Jersey board's only recourse in the event of the railroad's discontinuance of service would be to challenge the accuracy of the railroad's application of whatever loss formula is approved.

In only one instance to our knowledge since 77 (b) was enacted has such a provision in a reorganization plan been approved by the Interstate Commerce