Loans v. Gifts

Last week the railroads of the land chuffed their freight rate problem back into the roundhouse that is the Interstate Commerce Commission. Presented by the Association of Railway Executives was a petition accepting the Commission's suggestion of a credit pool-but with major amendments.

When the I. C. C. last month rejected the roads' plea for a flat 15% rate-upping as an emergency revenue measure, it proposed, as a substitute, an increase in carload rates ($3 and $6) to add between $100.000.000 and $125,000,000 per year to carriers' income (TIME, Nov. 2). But the Commission tied a strong string to its proposal: this extra revenue must be pooled and from the pool weak roads which could not pay their bond interest and other fixed charges must receive as outright gifts whatever they needed in cash to escape bankruptcy. Any balance in the pool thereafter might be distributed equitably among the other roads. In effect, under the I. C. C. plan, strong lines were to use the rate increase to earn a surplus with which to keep weak lines out of the ditch, to maintain the financial stability of U. S. transportation as a whole.

The A. of R. E. counterproposed: Let the credit pool, to be known as Railroad Credit Corporation, with twelve regional directors, come into being as a result of the suggested increase in freight rates; let loans-not gifts-be made from the pool to roads unable to pay their fixed charges; let the strong roads ultimately get back the money they made by the increase. The A. of R. E. petition excluded as pool borrowers lines which were in receivership or already in default, or which would be unable to meet their interest payments even with a loan, or which earned less than 50% of their total revenue from freight.* The "best available collateral" would be required for these loans, running a maximum of four years. No borrowing road could pay a dividend until its pool loan was canceled. Arguing for pool loans rather than pool gifts the petition declared:

"It is just that the stockholders of the carrier earning the revenue by performing the service from which the fund arises, should be preferred over the stockholders of the carrier that does not earn it. ... To treat the advances as loans does not increase the indebtedness of the recipient carrier. ... It manifestly imposes no additional charge upon shippers."

The I. C. C. had suggested that, if a road reduced a freight rate after accepting the carload increase, the cut be made from the basic rate and not from the sur-rate, thereby insuring a full flow of excess revenue into the credit pool. The A. of R. E. petition protested this arrangement on the ground that roads were justified in cutting some rates to retain business and should not be asked to contribute any part of their present revenue to the pool.

The A. of R. E.'s pool plan quickly came under critical fire. The I. C. C.'s intent, it was argued, was to ease the financial strain on roads that were weak because of their poor geographical position by having stronger and better placed lines contribute to their support during the emergency. While loans to pay fixed charges might not increase their actual debt, it did not bring them any closer to financial daylight. Critics also complained that the proceeds of any freight rate in- crease, under the A. of R. E.'s loan plan, would ultimately return to the strong carriers which did not need them.

In Manhattan, meanwhile, a nine-man committee of the A. of R. E. was making a rear-end attack on the carriers' financial troubles by a series of conferences with organized Labor. Into the New York, New Haven & Hartford's board room marched representatives of 21 railroad unions to ask for: 1) a six-hour day; 2) a billion-dollar U. S. bond issue to eliminate grade crossings; 3) Federal laws for accident indemnity, retirement insurance, et al.;

4) a national railroad employment agency:

5) a mobile force of rail workers to be shifted from system to system as traffic conditions required. But when the rail executives asked the labor executives to accept voluntarily a 10% pay cut, they refused. Thereupon the carriers prepared to force the reduction under the terms of the Railroad Labor Act, with a long and acrimonious struggle in prospect.

* An example: the Long Island which last year carried 15 passengers to every ton of freight.

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