Following Penn Central's collapse, Initial U.S. proposals called for closing a quarter of rail mileage in Illinois. Later plans were more modest, and now a state rail plan is in the offing. State or local government subsidies may be needed By JOHN F. DUE
Since 1948, he has been professor of economics. University of Illinois, Urbana,and chairman of the department, 1963-67 and 1970-71. He was a memberof the Governor's Revenue Study Committee, 1968-69, and is author of various publications in public finance and transportation. Due received his A.B. and Ph.D., from the University of California, Berkeley.
Following Penn Central's collapse, Initial U.S. proposals called for closing a quarter of rail mileage in Illinois. Later plans were more modest, and now a state rail plan is in the offing. State or local government subsidies may be needed
DESPITE the growth of other forms of transport, railroads still play a major role in movement of freight in Illinois. There was, therefore, a sharp reaction to a February 1974 proposal that called for abandonment of nearly a quarter of the mileage in the state. A subsequent proposal in February 1975 and the final plan of July 1975 were more modest about abandonment. Nevertheless, the concern was such that the Illinois Department of Transportation has been preparing a state railroad plan, and consideration is also being given to state and local government subsidies, if necessary, to preserve rail facilities.
Rail development, abandonment
Most of the railroad network of Illinois was built during the 19th century. At that time, because of the expense of hauling by wagon, it was profitable to build lines relatively close together. Additional mileage arose out of competitive building and the desire of western railroads to reach Chicago. With the development of good highways and trucking by motor vehicles, there was less need for such a dense network, and diversion of freight to trucks has resulted in the traffic on many rail lines becoming relatively light. There is clearly more rail mileage than is optimal in view of present conditions, but elimination of existing lines would result in injury to the communities served. In addition, various businesses must either experience higher costs or relocate. The shippers most adversely affected are grain elevators, feed and fertilizer dealers, lumber yards, mines, and manufacturers who bring in materials in bulk over substantial distances or ship their products longer distances in large quantities.
Over the years some abandonment has occurred. For example, between 1921 and 1945, 1,145 miles, or nine per cent of the mileage in the state was abandoned, and between 1945 and 1975, about 2,000 miles. But many of these earlier abandonments were of little concern; some consisted of duplicate trackage which resulted in no loss in service or lines exclusively serving only very small villages. For example, the Casey & Kansas and the Kansas & Sidell and their predecessors operated a long north-south route in eastern Illinois, 109 miles from Sidell to Oiney, but the abandonment left only a few small elevators without service. The largest village served by the Hoopole, Yorktown & Tampico railroad had a population of 200.
In the last five years, however, the issue has become a highly significant one. Thisis primarily because of the federal plans for restructuring the northeast railroads following the collapse of the Penn Central, but also because of the efforts of the Baltimore & Ohio to abandon substantial mileage and of other roads to abandon significant amounts, as well as the generally depressed condition of the railroad industry. Between 1945 and 1974, railroads in the state sought to abandon 768 miles of intercity lines other than strictly parallel trackage; approval was given for 404 miles, denied on 80 miles and pending on the remainder (mostly Penn Central and B & O).
Proposed to abandon 2,600 miles
The Regional Rail Reorganization Act of 1973 provided for restructuring northeast railroads and required the federal Department of Transportation (DOT) to develop a plan to do this. This plan was released in February 1974. Only the eastern two-thirds of Illinois was affected, but the plan called for abandonment of 2,600 miles of line—24 per cent of the state's mileage (see-sidebar). The basis for retention of each line was the total number of cars originating and terminating on the line at points other than those having service from other railroads, without including
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through traffic, and excluding all points handling less than 75 cars a year.
The effect would have been to deprive about 40 communities with population in excess of 1,000 of service, to leave several larger towns (e.g., Paris, Robin- son) on the ends of stub branches, and to eliminate several major through routes, such as the Peoria & Eastern and the Toledo, Peoria & Western, both of which are profitable lines.
Reaction followed quickly. The communities involved-farm groups, agribusiness, and others-protested to Congress and at hearings held by the Rail Services Planning Office (RSPO) of the Interstate Commerce Commission set up to evaluate these plans, and elsewhere. While it was generally recognized that there was excess mileage in the state, there was widespread feeling that the proposals relating to solvent lines were not called for by the legislation, and that the decisions had been made by formula, in part on the basis of erroneous data, without any regard for the effects on the communities served.
A less drastic plan from USRA
The next proposal from a federal agency came a year later (February 1975) and it put to rest the extreme concern of shippers and communities, at least for the time being. This plan was prepared by the United States Railway Association (USRA). USRA was established under the 1973 act to implement the transfer of the lines of the bankrupt railroads to still another federal agency, CONRAIL. (CONRAIL is a semi-private profit-making enterprise, federally established and initially federally controlled, to operate the northeast railroads.)
Initial 1974 proposal by DOT
Major routes for which abandonment was proposed included:
Perm Central: The Peoria & Eastern (Peoria- Indianapolis), the Chicago-Cairo line; the line from Terre Haute via Paris to Decatur and Peoria, and the old New York Central main line from Indianapolis via Terre Haute and Mattoon to St. Louis.
Illinois Central Gulf: Pana to Freeport via Decatur; Evansville via Mattoon to Peoria; Effingham to Indianapolis; Potomac via Rantoul to Le Roy, and Kankakee to Bloomington.
Baltimore & Ohio: Beardstown- Shawneetown.
Norfolk & Western: Peoria via Paxton to Lafayette.
Toledo, Peoria & Western: Entire line.
February 1975 proposal by USRA put to rest extreme concern of shippers and communities. It sought to determine the viability of lines, considering the and revenues
Net result for Illinois
USRA's proposal, termed the "Preliminary System Plan." built upon the earlier DOT plan. It also made some use of the evaluation of the earlier plan made by the Rail Services Planning Office (RSPO) of the Interstate Commerce Commission after hearings at which Illinois spokesmen testified. The plan abandoned the formula approach and sought to determine the viability of each segment of the light traffic lines considering the revenues and costs of each line. Also. the 75-car rule was dropped, and only the Penn Central lines were considered. USRA also relaxed somewhat the DOT emphasis on concentrating the traffic on a smaller number of lines. But USRA recommended for inclusion only those lines whose revenues exceeded their costs. The net result for Illinois was the recommendation to exclude from CONRAIL-that is, to abandon unless locally subsidized-lines totaling 354 miles as follows:
1. The Penn Central (ex-New York Central) line from Paris to Harrisburg. The Penn Central southern Illinois coal traffic would be handled through trackage rights on other lines. While the large towns on this line are served by other lines, several towns shipping substantial amounts, particularly Hutsonville, with a large coal fired power plant, would be left without rail service. There was substantial criticism of the abandonment of this through route. The injury may be lessened somewhat by proposed Illinois Central Gulf (ICG) acquisition of the Hutsonville-Robinson portion. The report ignored the Olmstead-Cairo segment of this line, now partially out of service; this is of concern because it serves Cairo's largest employer, a manufacturing plant.
2. The Penn Central line extending from Terre Haute via Paris to Decatur and Peoria (the ex-Pennsylvania Peoria line). Major cities served would still have rail service but several towns (Lake City, Prairie Hall, Tabor, Waynesvilie) shipping several hundred cars a year, mainly grain, would lose service. The Illinois Terminal sought to acquire the ensure line from Decatur to Peoria, thus insuring continued service on this portion but apparently will be unable to obtain trackage rights on the ICG from Decatur to Maroa now held by the Penn Central and thus may abandon the project.
3. Kankakee to Sheff, Indiana. USRA had proposed elimination of this route, even though DOT had not indicated it to be potentially excess. Several major shipping points would be left without service.
4. Miscellaneous lines, four small segments, three in the vicinity of Depute in the Illinois valley, one from Matteson west to Frankfort. Most of the opposition to abandonment centers around loss of the Kankakee belt route, and other roads have indicated interest in acquiring segments.
Pending questions
The question of abandonment of the Paris-Decatur line was complicated by the Baltimore & Ohio's application to abandon its line from Indianapolis to Decatur except the Ficklin-Newman segment, and to operate over the Penn Central line noted above from Indianapolis to Decatur.
Pending is an application of the B & O to abandon its entire line from Beardstown through Springfield and Flora to Shawneetown. An independent firm is seeking to acquire the southern portion of this line and has received administrative judge approval.
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Rail lines affected by abandonment in USRA final plan
The USRA final plan was issued in late July and now awaits Congressional action: if Congress does not reject the plan it will be implemented, although positive Congressional action is required to provide additional funds. The final plan differs relatively little from the preliminary plan. The lines not to be included in CON RAIL under the final plan are shown on the map. The principal differences from the preliminary plan are:
The USRA final plan
Thus the net effect is the exclusion from CONRAIL of 264 miles of Penn Central trackage, but it is likely that segments of this will be acquired by other roads, so that the final abandonment may be less than 200 miles.*
Temporary solution
The state fares relatively well under the USRA plan, particularly if other roads acquire the segments of the Penn Central in which they have an interest. In contrast is Michigan, which would lose over 1,000 miles out of a total mileage of 6,990 miles and all service into the upper portion of the lower peninsula except the Detroit & Mackinac on the east side. Accordingly, the extreme concern of Illinois shippers
*There is, however, strong justification for retention of operation of 53 miles of this trackage: Hutsonville-Robinson; the segment from Midland City to Tabor and Waynesville; the Kankakee-Sheldon line and the segment from Lovington to Lake City and Prairie Hall.
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Major alternatives to abandonment are (1) operation of a line by a locally owned company—shippers, for example—or (2) operation by a local government
and communities of last year has been put to rest, at least for the time being.
The Illinois Department of Transportation (IDOT) did induce USRA to reevaluate the lines not to be retained under the preliminary plan on the basis of entire routes instead of segments, in the hope that some portions may be retained, but they had little success. It has also sought amendments to the Rail Act of 1973 to freeze all abandonments for two years (with 100 per cent federal subsidy) pending attainment of better data and to broaden the uses to which subsidy money can be put. It also seeks more comprehensive federal railroad legislation.
While the crisis is over, the abandonment problem will almost certainly continue, if in less spectacular form than that proposal in 1974. One of the worst features at present is the uncertainty, since doubts about the permanence of particular lines deter investment in facilities on them, and thus reduce the traffic potential.
State plan, federal subsidies
The Illinois Department of Transportation is now engaged in the development of a state railroad plan, based upon the needs of the shippers and the characteristics of the railroad lines. One objective is to determine which lines are marginal, and to work with the shippers and railroads to solve problems that may have arisen. The general aim is to plan the development of the rail network more scientifically, to seek to take measures to avoid loss of lines ^here feasible, and to identify lines that serve no useful purpose.
The Rail Reorganization Act of 1973 Provides tor possible retention through subsidy of the lines not to be included in CONRAIL, The federal government would put up 70 per cent of the subsidy, but the initiative must be taken by localities, the state, or other groups to put up the other 30 per cent. The federal subsidy is provided on a two-year basis only but of course may be extended. The legislation applies to the Northeast only, but in time may be extended to the entire country. House Bill 3097 was passed in the spring session of the General Assembly to authorize IDOT to develop a state plan for rail transportation and local rail services. This bill, introduced by the House Transportation Committee, chaired by Rep. Benedict Garmisa (D., Chicago), will enable the state to qualify for federal assistance. The bill does not, however, provide for state or local rail subsidies. It was expected that this would be considered at the fall session.
Alternatives to abandonment
Abandonment proposals in the future are almost certain to threaten to eliminate rail service from some towns which now have substantial rail traffic. This situation raises a major question:are there alternatives preferable to outright abandonment? There are two major ones: (1) transfer of operations to a locally owned company—typically owned by the shippers, and (2) operation by a local government unit.
There are a number of examples of the former, and an Illinois firm, Trans-Action Associates of Joliet, has been active in taking over and managing such enterprises. Trans-Action currently is seeking to take over some of the lines in the state that the Baltimore & Ohio has proposed for abandonment. Local operation offers two major advantages: costs are lower because of greater flexibility in the use of labor and the ability to pay wages based on local wage levels, and services can be adjusted much more effectively to the needs of the shippers. These appear to more than offset the advantages of possible better utilization of equipment and specialized personnel enjoyed by the major rail systems.
The second alternative is for a local government unit to take over the line and operate it, or contract for operation by a management firm, making up any deficits from tax revenues. Two cities in the United States have successfully operated railroads for many decades (Prineville, Oregon, and Belfast, Maine), and a third (the village of East Troy, Wisconsin) has maintained a very small line. Municipal operation offers the advantage of freedom from federal income tax and most or all property taxes, and it does enable the road to have direct access to tax revenues in years of deficits. (The Prineville line could not have survived the depression of the 1930's without city assistance, but since then has yielded the city substantial profits.)
Whether a local government should attempt such a venture depends, of course, upon the importance of the rail line to the community and the potential traffic, which will determine whether or not the line can cover its costs or come close to doing so. The importance depends on the nature of economic activity and, in many instances, the
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closeness of water transport. The most serious danger to a community from the loss of a rail line is that future development of businesses requiring rail service is foreclosed.
The volume of traffic necessary for a line to be viable depends upon the length of the line (the longer the line, the greater the potential deficit), the share of the joint rates offered by the connecting main line, the frequency of service required by the shippers, and the general rate level on the commodities handled.
Source and form of subsidy
While the advantage of retaining a rail line are primarily local in scope, there are some state and nationwide benefits, including the preservation of an integrated national rail network that facilitates optimal location of all forms ' of economic activity. Railroads are more efficient users of fuel and therefore create much less pollution than motor carriers—about one-fourth on the average. Rail use lessens expenditures on highway maintenance, the demand for additional highway construction, and the burdens on automobile users created by heavy truck traffic. Accordingly, there is justification for federal and state subsidy. But an optimal subsidy program is difficult to design. The provisions of the 1973 act provide subsidies to cover deficits, but this may eliminate incentive to improve service and hold costs down and may tend to preserve institutional arrangements which are not the best.
Some form of subsidy system is needed that maintains efficiency while providing federal and state assistance to preserve economically justifiable lines that cannot cover costs on their own. A further justification for federal-state assistance is the very limited tax sources of the local governments and the strong resistance to further property tax increases.
Down to dollars
The amounts of money involved are small: $5 million a year would probably keep all light traffic lines in Illinois in operation even under present institutional arrangements. This is not to suggest that they should all be retained. Some have little economic justification, and for others, particularly ones serving small country grain elevators, reorganization of the grain storage industry with concentration of shipping at larger elevators on remaining rail lines is preferable to retention. But some lines are important to the communities and do have economic justification though all costs cannot be covered from revenues even with local operation.
Abandonment and a broader problem
Regardless of the general earnings picture of the railroads, some abandonment of rail lines would be desirable to eliminate duplication and to cease operating where industry no longer exists (decline of a mining area, for example). But much of the abandonment that is currently being considered is a product of the inadequate earnings of the railroad industry in recent years. The overall return has rarely exceeded 3 per cent. The best roads do not attain the earnings of American industry as a whole; the weaker roads have no safety margin and experience losses whenever business activity drops, as in the present year. Yet the total volume of rail traffic has continued to rise (1974 was the peak year in ton mileage). In addition, rail service is the low cost carrier for longer distance volume shipments (though the difference, relative to unregulated private carriers and owner operated carriers of exempt commodities, is not as great as once believed); third, rail service is the most efficient user-of fuel and space and creates the least pollution.
Why need money?
There are several basic sources of the low earnings: (1) regulation has often prevented rail rate adjustments necessary to meet truck and water competition and has prevented the railroads from operating trucks to any extent; (2) productivity per man hour and unit of capital has lagged, partly because of the failure of management and labor to work out suitable arrangements for the sharing of productivity gains in such a way as to permit flexibility in the use of labor and use of optimal numbers of workers; (3) some governmental subsidization of larger motor vehicles and water carriers through inadequate user charges has reduced rail traffic; and (4) railroad management itself has been slow to adjust policies in many instances. The net result of inadequate earnings has been deterioration of track and services, which leads to still further loss of traffic, and transfer of capital out of the industry through diversification.
Clearly excess mileage has played some part as well—though only a small part. But unfortunately, the federal Department of Transportation and USRA, along with some prominent transportation economists, have seized upon excess mileage as the main culprit and appear to believe that all problems can be solved by "slimming down" the railroad system. Granted, some abandonment is desirable—but there is grave doubt that this approach can solve the basic problems and can do much harm. There are substantial grounds for arguing that the basic approach requires much broader measures—greater flexibility for the railroads in rate setting and use of other forms of transport;more adequate payments to government by motor and water carriers; encouragement to further progress in modifying labor agreements; improved rail management; and governmental assistance to retain lines that are economically justified but can not cover costs.
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