« iepriekšējāTurpināt »
KEY POLICY QUESTION Let me suggest that I think those types of questions we have been asked really lead to a way of approaching the Conrail sale issue. The crucial issue is really a fundamental policy question; whether or not where we are now is where the 3R Act and the 4R Act and Staggers and NERSA are directing us to go. There are a series of questions which Congress has to deal with and answer and are primary before you begin to deal with questions such as particular pricing issues.
As you well know, the goal that so many people have worked so hard for has been to produce a viable rail system in the Northeast out of the chaos that was inherited. Many people contributed to the achievement and success of the rail system.
The Government contributed. The Congress passed legislation which helped clean up the situation that existed and made some very hard political judgments.
The States contributed by creating tax forgiveness. Rail labor contributed enormously by making great sacrifices, and other railroads contributed. Perhaps most of all we had enormous support from the shipping community, which was desperate to have service restoration.
So that as you look at a proposal, whether it is a proposal for a sale to another railroad or a proposal of a public offering or any other kind of proposal, the fundamental questions that have to be asked are whether or not the service capability that is going to exist in the region when the transaction is completed is one which meets and is satisfactory to the needs of the people in the region.
COMPETITION AND SERVICE
There has always been a difficult balance between the need for competition and the ability to have a viable service component because of the declining rail traffic in the area. As we look at these questions, and as you ask and raise questions with us about the shape of the different proposals for a transaction, that is the primary issue that has to be faced at this point. Do we have a system and will we have a system in place which provides service to those of us in the Northeast region?
What the U.S. Railway Association staff has been asked to do by different congressional committees, I believe, has been to try to gather some of the information and data which could be useful to the Congress in making those decisions.
That is the process we are engaged in now. The report that we issued this week to the House Energy and Commerce Committee is one building block of information, and the staff is ready to provide whatever other information you would find useful in your deliberations.
Senator ANDREWS. Thank you very much, Mr. Berger. We have your complete statement, and it will be made part of the record.
(The statement follows:)
STATEMENT OF STEPHEN BERGER
I appreciate the opportunity to appear here today to report
on the status of Conrail and the work of the Association.
the Committee is aware, USRA's request for $3 million of new
spending authority was omitted from the President's budget for fiscal 1986. The Office of Management and Budget (OMB) informed USRA that its omitted request was a part of the Administration's
ongoing efforts to eliminate Federal subsidies to the railroad
industry. Notwithstanding that omission, the date and means of Conrail's return to the private sector are still uncertain and
Congress again will want to make a determination as to the need for continuing USRA's Conrail monitoring functions.
The past year was indeed a dramatic one for Conrail.
significant increase in traffic volume combined with increasingly efficient operations produced substantial financial improvement. In 1984 Conrail had an operating income of $466 million, representing an increase of $178 million over 1983 and a $98 million
increase over the 1984 budget.
After the inclusion of non-operating items, Conrail's net
income in 1984 was $500 million compared with $313 million in 1983. cash flow from operations was $703 million, an increase of $152 million over 1983. After providing for capital outlays,
Conrail was able to add $313 million to cash balances during the
The ending consolidated cash balance for 1984 was
During 1984, the continuing process of shaping and down-sizing
the physical plant to foreseeable traffic levels permitted Conrail
to achieve substantial operating leverage and financial gain.
Operating revenues increased nearly ten percent, or $303 million, while operating expenses increased less than five percent, or $125 million, the latter figure includes a $67 million contingent labor expense provision retroactive to July 1, 1984.
Much of Conrail's success is attributable to the expense
reduction provisions contained in the Northeast Rail Service Act (NERSA), Conrail's aggressive defense of its traffic base under rail deregulation, and the continuation of employee wage concessions during the first half of the year. The success of
Conrail has done much to lift employee morale and develop a sense
of corporate esprit.
Although Conrail was able to increase its traffic volume in
1984, competition continues to be quite severe.
are so constrained by the transportation marketplace that Conrail actually did not fully recover costs attributable to inflation,
modest as it was during the year.
Nevertheless, Conrail's success
at achieving operating efficiency is noteworthy.
ratio declined four percentage points to 86.2 percent in 1984.
All components of the operating ratio showed improvement. As in 1983, Conrail again elected to spend more capital funds than originally budgeted for track rehabilitation, and additions and improvements. The greatest portion of the increase was in the discretionary track program, providing for additional track miles of rail, ties, and related track work. Increased productivity in this area also resulted in lower unit installation costs than in
the previous year.
In 1984, Conrail did not draw down any federal funding in
support of operations, nor does it have any future plans to do
Conrail has not drawn down any federal funds since June 1981.
Conrail's 1985 budget forecasts an operating income of $414 million. Including non-operating income items, Conrail's net income would be about four percent less than 1984. However, given Conrail's generally conservative estimates in recent years of achievable operating efficiencies, operating income
more likely will be about equal to that of 1984.
volume is expected to be virtually equal to 1984, although
the commodity mix will change.
The coal share of total tonnage
will decline slightly to thirty-three percent.
The budget for 1985 is based upon reasonable assumptions including continued track rehabilitation, additions and improvements, and equipment acquisitions. Nevertheless, Conrail is extremely dependent upon traffic that is increasingly more susceptible to highway movement competition. Conrail cannot afford to overlook any opportunity for cost reduction and productivity improvement.
In each succeeding appearance before this committee, I have been progressively heartened by the renewed vigor of the northeast's principal railroad, as well as by the joint accomplishments of Conrail management and its employees. I am confident that the railroad is well poised to adjust to the cyclical demand for transportation that is the constant dark cloud over the railroad industry.
At this decisive juncture for Conrail, the Association's
work program is to continue to provide the congress with
independent expertise on the myriad of issues, concerns and decisions attendant to the sale of the government's interest in the railroad. We were recently requested by Senator Metzenbaum of the Committee on the Judiciary to assess the sale and the
divestiture plan called for by the Justice Department in terms
of the resultant competitive structure in the Conrail service
Also, we have been requested by Chairman Dingell of the
House Committee on Energy and Commerce to analyze Conrail's
prospects over the next few years, as well as by Sub-committee
Chairman Florio and Congressman Foglietta to conduct an impact study of the proposed sale to Norfolk Southern on the Philadelphia
region, including the Port of Philadelphia.
Turning to USRA's other major activity the valuation litigation with the bankrupt railroads that transferred assets to
the year has shown progress regarding the two parties
that remained. The settlement reached with the Lehigh and New England Railway Company (LNE) resulted in a closing on June 15,
1984, leaving the Central Railroad Company of New Jersey (CNJ), as the only party which has not settled its claims. In December
1983, the Special Court ruled that the 1976 net liquidation value of CNJ's conveyed properties was $42.5 million. The CNJ then pursued two additional legal arguments the constitutionality of the 8% interest rate provided in the Regional Rail Reorganization Act of 1973, as amended, and severance damages associated
with the decision not to transfer the Newark Bay Bridge to Conrail.
The Special Court resolved these issues in favor of USRA's position in an opinion dated June 15, 1984 which was finalized in its order
of July 23, 1984.
CNJ appealed the decision and order of the
Special Court to the U. S. Supreme Court pursuant to section
303 (a) of the Rail Act.
The Supreme Court on January 7, 1985
affirmed the decision of the Special Court bringing the valuation
litigation before the Special Court to an end. The results of this decision possibly could lead to further proceedings in the
CNJ reorganization court, but we hope it will lead to settlement
and redemption of the Certificates of value issued pursuant to
the Special Court's order of July 23, 1984.
In another matter, in February of 1983 USRA received from
the Erie Lackawanna Inc. 50,263 shares of Erie Lackawanna
Capital Stock as settlement of disputed 211(h) claims totaling
At the same time the Department of Justice received
53,520 shares in payment of claims of the United States against
the former Erie Lackawanna Railroad.
The Department of Justice
transferred its shares to the Department of the Treasury.
November 1984, USRA joined with the Department of the Treasury
in a sealed bid auction to dispose of the combined 103,783 shares
of Erie Lackawanna Capital Stock.
On January 3, 1985, the sale
of the stock was closed with USRA receiving net proceeds amounting
to $4,080,350 which were credited to the USRA account at the
Federal Financing Bank,
reducing USRA's outstanding 211(h) debt.