Of course, you must realize, too, that while the trucks pay heavy taxes, and most of that goes for the upbuilding of highways, most all of the municipalities in the United States do not benefit by that particular tax, but they have to maintain their own streets; the taxpayers in the municipalities have to maintain their streets, while these taxes are for the maintenance of highways.

Mr. FLETCHER. That is true.

Mr. HOLMES. Something ought to be done to correct that in some way, ought it not? I did not want to leave the record stand in that manner. There are other maintenance items outside of those taxes.

Mr. FLETCHER. I suppose that is the reason, Mr. Holmes, why most of us in driving over the country find the worst roads in the little towns.

Mr. HOLMES. Well, that may be so. We are trying to eliminate that, too. I do not have any more questions.

Mr. PETTENGILL. Mr. Reece.

Mr. REECE. It is not universally true that municipalities do not derive any benefit from those general taxes, is it, Mr. Holmes? As I recall, in some States there is a form of contribution on the part of the State out of the general revenues by which the municipalities do receive a portion of those general taxes.

Mr. HOLMES. I understand that that is true in some cases, but I think that you will find in a majority of the cases the State collects the taxes and spends that money on the construction and maintenance of State highways, leaving the municipalities themselves to raise their own money by taxation for the maintenance of the highways within their communities.

Mr. REECE. In the course of your statement you call attention to the fact that the enactment of this and other legislation which the railroads are interested in would not, in itself, restore the railroads to the condition which obtained in 1929, unless other business was improved likewise.

On the other hand, the restoration of business generally would not restore the railroads, unless some of this legislation which the railroads believe is essential is likewise enacted.

Mr. FLETCHER. That is a very sound observation, Mr. Reece, I think.

In other words, if there is to be a revival of business, the railroads think they ought to be, and are entitled to, share in that revival; when they can bring that about through their own activities and own usefulness, unhampered by regulation which handicaps them and puts them at a disadvantage with their competitors, then they think that they ought to be on a level with their competitors in that respect. That is all there is to that statement.

Mr. REECE. Is it your view that unless some of these laws which you feel are handicapping the railroads are modified in some way to the advantage of the railroads that it will be impossible, regardless of the general improvement in business conditions, for the railroads to be restored to a normal earning condition?

Mr. FLETCHER. I think so. Or, at least, I think the country is entitled to have an experiment made to determine if the railroads are useful and necessary and an economical mode of transportation, and the only way the experiment can be made fairly is for them to be put on an equality as to regulations.

Is there anything else, Mr. Chairman?

Mr. PETTENGILL. That is all.

Mr. MARTIN. I wanted to ask one more question.

Mr. PETTENGILL. Excuse me, Mr. Martin.

Mr. MARTIN. I want to ask Judge Fletcher if he has any information showing to what extent the carriers have acquired truck and bus services or auxiliaries or feeders.

Mr. FLETCHER. I do not have the information before me, but I think it can be gotten, Mr. Martin, and I will be glad to file it.

Mr. PETTENGILL. That will be interesting. That is all, Judge. Thank you.

Mr. FLETCHER. Thank you.

STATEMENT OF JOSEPH G. KERR, WASHINGTON, D. C., ASSISTANT TO THE VICE PRESIDENT IN CHARGE OF TRAFFIC, ASSOCIATION OF AMERICAN RAILROADS

Mr. PETTENGILL. We will hear Mr. Kerr.

Mr. KERR. My name is Joseph G. Kerr, of Washington, D. C. Since January 1, 1935, I have occupied the position of assistant to the vice president in charge of traffic, of the Association of American Railroads.

For more than 30 years prior to this year, over 20 years of which was in supervisory and official positions, I was with a large and prominent southern railroad which, since its incorporation in 1850, has had to constantly face the general character of competitive situations which I shall discuss in my testimony.

I appear here in behalf of all railroads which are members of the Association of American Railroads, in which is represented about 98 percent of the class I railroad mileage of the United States.

The class I railroad mileage today approximates 239,000 miles, and by class I railroads I mean those railroads that are so classed by the Interstate Commerce Commission. The Commission puts in class I those railroads which normally have a gross operating revenue of $1,000,000 or more per annum. I should add here, although I do not, perhaps, speak directly for them, that most of the short lines of the country are associate members of the Association of American Railroads, and if that mileage could be added to that of the class I railroads, it would represent approximately 95 percent of all the railroad mileage in the United States.

In approaching this problem, I desire to make several general state

ments.

First. We fully recognize the fact that the motor, water, and pipeline transportation carriers are here to stay and, where economically justified, have a place in the transportation system of this country just as surely as have the railroads.

Second. The railroads of this country are absolutely essential at all times, and especially in a time of national emergency, whether that be a state of war or of depression. This fact is well recognized by the War and Navy Departments and all other authorities, as well as the general public, and especially the shippers.

Third. That there is no intention to criticize the Interstate Commerce Commission, realizing as we do that that body is administering

the fourth section in harmony with what it conceives to be the spirit and intent of the entire act.

Fourth. That we are asking for fair treatment and for an opportunity to conduct our own business, which is transportation, on a businesslike basis, and somewhat more free from the rate strait-jacket in which we now find ourselves and which in practical effect and application largely eliminates us from any real opportunity to handle traffic between points which are served by water carriers and which also, in large measure, prevents us from handling traffic from interior manufactuing points to points on the navigable waters, and which also prevents us from effectively meeting, in many cases, motor truck, pipeline, and market competition.

Fifth. I shall only discuss the more general and certain economic phases of the situation, leaving to railroad witnesses who will follow ine a more detailed discussion of the difficulties confronting them in western, eastern, and southern territories.

So far as the long-and-short-haul clause of the fourth section is concerned, it forbids the making of a greater rate or charge for a shorter distance than for a longer haul, the shorter being embraced within the longer:

(a) But the Commission may, in special cases, authorize the carriers to depart therefrom, and to prescribe the extent of such relief; (b) Except that the Commission shall not permit the establishment of any charge to or from the more distant point that is not reasonably compensatory";

66

(c) Except that when relief is granted because of one route being more circuitous than another, the authority or relief shall not include intermediate points on the circuitous route where the hauls are not longer than that of the direct line or route between the competitive points. This is commonly known as the equidistant rule; and

(d) Except that no relief shall be granted on account of merely potential water competition not actually in existence.

I have thus stripped section 4 of its verbiage in order to get the essential provisions into as plain language as is possible.

While the words and the provisions may sound very simple, and one unused to their application might think the railroads would obtain thereunder substantial equality of opportunity to compete on reasonable terms with their competitors, the fact is that the clause has been drastically and niggardly administered; in many instances it has been found impossible to obtain relief from its provisions; in others, the relief granted is not sufficient to protect the situation and is, therefore, practically worthless; in still others the conditions under which it is granted are very difficult or impossible to comply with; and there is required a great deal of labor, expense, and delay, and often months and even years elapse before a decision is rendered.

In advocating the enactment of the Pettengill bill proposing the repeal of the long-and-short haul clause of the fourth section of the Interstate Commerce Act, we do so because of the sincere belief that the railroads are entitled to share in the traffic moving to, from, or between points located on navigable waters and other competitive points and to bring about a condition whereby there is some reasonable opportunity for manufacturers or producers at inland points

served by the railroads to market their products and move them by railroad to water-competitive markets in competition with manufacturers or producers who have the benefit of all-water transportation, and that the railroads shall be in position to determine for themselves whether the competitive rates they seek to establish yield some measure of profit so long as the intermediate points are not charged unreasonably high rates and are not discriminated against. While under the present wording of the fourth section the Commission is given authority in special cases to permit the railroads to charge less for a longer haul than for a shorter haul over the same route, and it is further directed by section 15 a (2), as amended in 1933, to give due consideration, among other factors, in fixing rates "to the effect of rates on the movement of traffic ", actually section 4 is so drastically administered as to almost eliminate, in a practical sense, the railroads from any opportunity to share in the movement of traffic between points served by water carriers. This is accomplished either by outright denial of the railroad applications for relief or by other restrictions of such a burdensome character as to practically result in no relief whatever.

Mr. MARTIN. Would you permit a question there?

Mr. KERR. Certainly.

Mr. MARTIN. Is it your view that the Pettengill bill eliminates section 4, as a practical effect?

Mr. KERR. It completely eliminates that part relating to the long and short haul.

Mr. MARTIN. You are in favor of its complete elimination?

Mr. KERR. Yes, sir; because, Mr. Martin, we contend that sections 1, 3, and 15, already give power to the Commission to require the application of reasonable rates at the intermediate points and remove any discrimination. We do not think that the complete elimination of this clause by the Pettengill bill will take away from the Commission the power to protect the public.

Mr. PETTENGILL. To put it this way, is it your contention that the Pettengill bill would not deny to intermediate towns adequate protection against discrimination?

Mr. KERR. Yes, sir; that is fully protected under section 3 and other sections of the act. We are only advocating here to make it clear, the elimination of the long-and-short-haul clause of the fourth section.

Now, continuing my statement, if I may go back in order to get the sense of it

Mr. FLETCHER. Would Mr. Kerr object to saying what there is left in the fourth section after the long-and-short-haul clause is taken out, in response to Mr. Martin's question?

Mr. KERR. It would be chiefly that part relating to the combination of intermediate rates. I think also there is a clause in that section that is not proposed to be changed relating to increasing the water rates after water service disappears, or something to that effect.

I would have to make a comparison of the law as it is now written in order to do that.

Mr. PETTENGILL. If you wish to supplement that later, you may do so.

Mr. KERR. All right.

What we ask is that the long-and-short-haul clause should be eliminated entirely, thus leaving to the carrier the primary duty of determining and making effective whatever rates are necessary to meet and to fairly reflect the circumstances and conditions surrounding the movement of the particular traffic, and without the necessity of waiting until our competitors have virtually stripped the traffic from the rails and also from the producers in the land-locked interior, largely dependent upon railroad transportation, before we can make an application to the Commission, and then spend much time, expense, and labor preparing fourth-section applications, participating in elaborate formal hearings in relation thereto, and wait months and, in important instances, years, before we can get a decision as to what we can or what we cannot do.

The elimination of the long-and-short-haul clause will not in any way deprive the general public of any remedy now available to it for the correction of unjust or unreasonable rates or practices, or of abuses or other discriminations, for we still have sections 1, 3, 15, and other sections of the Interstate Commerce Act which authorize the Commission to prescribe maximum and minimum and nondiscriminatory rates where the carriers fail to do so, and even to suspend rates for 7 months pending investigation.

From 1887 to 1910, section 4 permitted the railroads to meet competition as they found it and without the penalty of observing such rates as maxima at intermediate points where the competitive conditions were substantially dissimilar, and without the necessity of having the Commission first review the situations and determine to what extent, if any, the carriers' action meets with its views.

In 1910, as a result of the Mann-Elkins Act, there was taken from the carriers and vested with the Commission the authority to determine whether or not circumstances and conditions at the intermediate points were substantially dissimilar to those at the competitive points, and to establish and make effective competitive rates limited in application to such points. While for some years following the 1910 amendment the Commission permitted long-and-short-haul relief, as subsequent developments in administration have proven, if the act had been specificially amended so as to prohibit the rail carriers from transporting any great amount of traffic between points served by water carriers and to further provide that interior producers were to turn over to their competitors the business done at or adjacent to the points on navigable waters, and to allocate water-competitive traffic almost wholly to water carriers, it could hardly have been more effective.

The only reason that this situation has been slow in developing is that, as already stated, for some years following 1910 the Commission rather freely permitted relief, many of the old water-competitive rates remained in effect until comparatively recent years, and much of the business formerly enjoyed by interior cities has so slowly slipped away from them to their competitors on or adjacent to the navigable waters that it was not at first seriously missed by them; especially was the latter true during the boom days.

To be more specific, for many years prior to our entry into the World War, the transcontinental railroads were permitted to maintain rates that enabled them to share with the water carriers in the