N.P. Ry.

George W. Hilton's The Transportation Act of 1958

The Northern Pacific versus the Interstate Commerce Commission





The Transportation Act of 1958 grew out of post-doctoral work at Northwestern's Transportation Center and is, unfortunately, something few people seem to be interested in these days.
Compounding the troubled financial picture of many of that day was of course the need for passenger train discontinuance. Hilton points out that many state commerce commissions seemed to uphold a zero tolerance level for the discontinuance of even the most pathetically patronized service. North Dakota, for example, forced the NP to continue branch service where patronage was calculated at one passenger per trip. Another interesting case was the state of New Jersey. Both North Dakota. and New Jersey commissions upheld the continuance of marginal runs with defenses which included such concepts of ''expense vs. total state passenger revenue,'' ''expense vs. total state freight revenue'' or ''expense vs. system net income.''
In New Jersey, unfortunately, almost none of the arguments would work as few if any of the short intrastate runs could actually turn a profit. Added to this was the state's railroad tax schedules, which ran about five times the national average. The resulting orders to continue the service were of course, confiscatory. The ICC, faced with the necessity of reducing service, was of course, bent to political will rather than fiscal reality.
In the face of overwhelming evidence against the profitability of passenger operations, the ICC's cruel answer was to argue for larger patronization by the US Post Office and Department of Defense. (The former of these notions held no water as the USPO's conversion to the ZIP code meant the death of RPO service and thus the head-end mail business which was the saving grace of many a secondary passenger run.)
In practice, requests for discontinuations as appealed from the state authorities were almost always met with a continuance order that could stretch anywhere from 12 to 18 months. These orders were almost always sent out in the face of overwhelming evidence of unprofitability. Thus, the ICC's modus operandi was to order up another year or more worth of red ink. This pattern began to backfire severely once the RPOs had been pulled off and the formerly propped-up runs began to come in with record amounts of red ink. (Estimated at six hundred million for 1968.) To add to the woe, this often meant the difference between profitability and unprofitability for marginal carriers. Unfortunately, a few roads took actions which only served to highlight the preposterousness of the situation. The most humors examples of this stem from the Southern Pacific.
Seeing the possibility of reducing crews, and thus costs, the train cut one of its secondary runs back to a three-car consist which was made up of a Pullman, a diner, and a coach--a move which allowed the use of a single brakeman. This provoked the ICC to such an extent that the Commission actually dictated train consists to a railroad. Another innovated move on the part of the Friendly was to begin to run some trains as mixed freights. (I believe Hilton states was the old ''Imperial'' to Tucumcari and a connection with the Rock Island.) The introduction of piggyback cars to this train reduced its maximum speed from 40 to 60 miles per hour. In addition, California law mandated mix trains to operate with the passenger cars at the rear of the consist, necessitating special power cars. To top it off, the SP closed ticket sales for this train two hours before its scheduled departure. The upstart was, of course, that ridership had been far less than 50 passengers each way even before the SP introduced its novel approaches.
Practices like these gave the ICC ammunition for the last and most outlandish of its claims--that passenger numbers fell because of poor service and discouragement on the part of the carriers themselves. (Not that the interstates or the airports had anything to do with it.)
Below, some pointed comments and data from Hilton's The Transportation Act of 1958 a very good read.


In the cases where it required continuance the Commission behaved as if it could not predict a continued decline in passenger traffic and a continued adverse movement of costs, when in fact few things could be predicted so easily.
The Commission, almost simultaneously with the passage of the Transportation Act of 1958, had been presented with a definite demonstration of the hopelessness of rail passenger service, but because of the political unpopularity of basing its actions on such a recognition, was unwilling to accept the argument.
In 1956, acting under its power and obligation to keep itself informed of conditions in the industry subjected to its controls, the ICC directed its most highly regarded examiner, Howard Hosmer, to report on the railroad passenger deficit. Hosmer and his staff in September 1958, only a month after the passage of the Act of 1958, submitted their report, copious in its detail and inexorable in its logic. After reviewing the circumstances of the decline of the passenger train, Hosmer concluded forthrightly that is future was hopeless:
For more than a century the railroad passenger coach has occupied an interesting and useful place in American life, but at the present time the inescapable fact--and certainly to many people an unpleasant one--seems to be that in a decade or so this time-honored vehicle may take its place in the transportation museum along with the stagecoach, the side-wheeler, and the steam locomotive. It is repetitious to add that this outcome will be due to the fact that the American public is doing about 90 percent of its traveling by private automobile and prefers to do so.
If the railroad passenger-miles (other than commutation) continue to decline at the average rate of reduction between 1947 and 1957, the parlor and sleeping car service will have disappeared by 1965 and the coach service by 1970... pp. 116-117

Of the early cases arising under 13a(2), two resulted in refusals. [The second case] was dismissed for want of jurisdiction. The case rose once again out of the adamancy of the North Dakota Public Service Commission, in this instance in requiring the Northern Pacific to operate a mixed train between Carrington and Turtle Lake, plus some other mixed trains in the area. The Carrington-Turtle Lake train averaged 1.23 passenger for the trips in 1957, and another (Esmond-Oberon) averaged under 1.0. The North Dakota commission had also denied a request of the railroad to reduce freight among to Jamestown, Oberon and Leeds from six times weekly to three times. The Act of 1958 was phrased so as to cover discontinuance of a train of any sort, but this is the only early case in which a freight train was at issue.
The dispute between the state commission and the Northern Pacific had a lengthy history even when the Act of 1958 was passed. The NP and its highway subsidiary, the Northern Pacific Transport Company, applied jointly to the commission on May 21, 1955, for permission to transfer passengers, express and LCL freight from the mixed trains to combination bus-truck vehicles which the Transport Company proposed to buy. On May 15, 1956, the Public Service Commission denied the application, refusing to rule on an application submitted jointly by the railroad and its highway subsidiary. The railroad then sought a writ of mandamus to require the commission to hear the joint application. It secured the writ in 1957, but the commission, after hearing, denied the application of the Transport Company. The railroad then appealed to the state courts. A district court on October 18, 1957, reversed the commission's order, holding that the two applications should have been held jointly, that there was no substantial evidence to support the commission's conclusions, that the public convenience and necessity did not require the rail service, and that the highway subsidiary was entitled to the certification requested. On March 23, 1959, the state supreme court upheld this decision, remanding the case to the Public Service Commission. On August 10, the commission issued the motor carrier certificate to the Transport Company.
By the time the Northern Pacific had won this lengthy dispute, passenger traffic on the trains had almost disappeared, and the railroad was reluctant to buy dual-service vehicles. Rather than reapply to the Public Service Commission, the Northern Pacific chose to make an application to the ICC under Section 13a(2) for complete discontinuance of the mixed trains. The Public Service Commission argued that the favorable decision which the Northern Pacific had extracted from it rendered the railroad ineligible for relief before the ICC. The ICC agreed that it had no jurisdiction on two grounds: first, there was no retroactive provision in Section 13a(2), and the case had arisen some three years before the passage of the Act of 1958; second, the Northern Pacific's application to the ICC was markedly dissimilar to its original petition to the North Dakota Public Service Commission. pp. 122-123

Beginning around 1964, the ICC generally allowed discontinuance of the individual, lightly-traveled local train which had been controversial in the earliest cases. The criticism of the Commission is essentially that it was unwilling to face the fact that the more heavily traveled and famous trains were proceeding along the same path to extinction as locals. p. 116

The cases involving what the Commission felt was active discouragement of passenger necessarily raise the question of what the ICC considered a normal show of diligence in maintenance of passenger service. The point is an important one on at least two grounds. First, advocates of preservation of the passenger train were essentially forced to argue that this means of travel was declining because railroads were actively discouraging passenger. Individual instances of trains being dropped from timetables or otherwise downgraded were used, rather as a fallacy of composition, to demonstrate that the entire institution was declining unnecessarily out of a policy of discouragement by some, but not all, railroads. People who interpreted the decline of the passenger train in this fashion found continuous verification of their views in the deterioration of the quality of service. Actually, reduction in standards of service was an inevitable comitant of the changes in demand conditions which the industry faced. Since the service had a negative income elasticity, remaining patronage was increasingly concentrated among low income people, who consistently wanted very basic economy service. Pullman patronage declined at almost double the rate of coach--24 percent to 14 percent in 1967--and dining cars, lounges and other luxury aspects of rail passenger service were withdrawn steadily. This was frequently irritating to retired persons and to railroad enthusiasts, both of whom might consistently combine a low evaluation of time with a desire for a high standard of service. These two groups generated most of the argument that downgrading of service was a willful and only too successful effort of the railroads to discourage passengers. Take at face value, this interpretation essentially amounted to an argument that the difference between the quality of service of the Northern Pacific or other aggressively pro-passenger railroads, and the Southern Pacific [noted for its use of discouraging passenger tactics] was more important than the difference between what either of them could offer and what United Air Lines offered. This position was clearly unsound, but was widely held throughout the early and mid-1960s.
Second, the Commission was about to be confronted with some massive actions for discontinuance for which its existing jurisprudence under Section 13a was questionably adequate. The ICC's jurisprudence in these matters had been developed mainly in a first generation of cases which concerned branch line or secondary main line trains of the North Dakota sort. After this, it entered upon a second generation of cases of the character of the Olympian Hiawatha and California Zephyr, major trains which were unprofitable but still had a high absolute rate of utilization. Inevitably, the Commission after 1963 came to be confronted with a third generation of cases of weak railroads seeking to annihilate passenger trains by the dozens or even by the hundreds. [Example, the struggling New Haven's filing on October 11, 1965 to discontinue 274 passenger trains--the ICC's decision on April 5, 1966, allowed the elimination of just 40.] pp. 128-129

By 1968, as the Hosmer Report would have led one to expect, the passenger network had decline to a point where the basic grid of inter-city trains was being threatened. The withdrawal of railway post offices and other forces operating against the passenger train had caused the deficit to rise from $480 million in 1967 to a rate expected to reach $600 million in 1968, a deficit of about the same magnitude as in 1958--in spite of a reduction in the number of inter-city passenger trains from 1,448 to 590 in the intervening decade...Whereas it had been fashionable to classify railroads as ''pro-passenger'' or ''anti-passenger'' as late as 1966, the removal of the RPOs had demonstrated to every railroad, what had been clear to the Southern Pacific and New York Central since the early 1950s: passenger service was hopeless.
The imminence of the end of the basic network was not lost on those who sought to preserve the passenger train. Accordingly, political pressure on the ICC to end what was widely regarded as the unnecessary, if not positively malicious, extinguishing of passenger service became greater, rather than less, after 1967. In this situation, the Commission might either have held that the market test of profitability now indicated unambiguously that the passenger train was hopeless, or yielded to the political pressures for preservation by greater stringency in its discontinuance actions. This was, of course, essentially the choice that had confronted the Commission ever since 1958.
It reacted consistently in its behavior in rejecting the Hosmer Report of 1958, by providing greater stringency in discontinuance decisions, and placing successively greater reliance on the specious argument that the decline was due to discouragement of passengers by the railroads. pp. 146-147

With the withdrawal of the Lark through California state procedures in 1968, the [Southern Pacific] had at length achieved its ambitions of some years, concentrating the dwindling remaining passenger traffic on a single passenger train on each major route. There was little question that the policy had benefited the company: in 1965 the Southern Pacific's passenger deficit consumed only 19 percent of the company's net railway operating income, as compared with 30.4 percent on the Santa Fe and 48.3 percent on the Northern Pacific--a railroad widely looked upon by the preservationists as exemplar. pp. 148

The ICC...demonstrated no real recognition that the costs of operating passenger service represented sacrificed alternatives for society, or that operation of losing services represented malallocation of resources. Further, when confronted with the survival of passenger service as a whole it behaved as if it could not predict the over-all continued decline of patronage and secular increase in operating costs, although in consideration of the high ages of railroad passengers, the negative income elasticity of the service, and the impossibility of generating gains in productivity among the employees, there was probably nothing in the entire economy that could have been predicted with equal certainty.
As a consequence, the Commission required continuance of several hopeless passenger trains for a year or more, entailing pecuniary losses to the railroad and welfare losses to society of several million dollars. Its unwillingness to face the inevitability of the decline of passenger service as a whole was inconsistent with its recognition in many of the cases where it allowed discontinuance of individual trains that the downward trend of utilization could be expected to continue, and also that continuance would represent economic waste. In this instance, there was no fallacy of composition in recognizing that what was true of trains individually was true of passenger service as a whole.
The Commission, once again, is not entirely to be blamed for its behavior, for in this instance also Congress had provided it with no adequate rule for its behavior. Congress, in fact, had foregone an opportunity to do precisely that when it allowed Senator Javits to remove the net-loss criterion for discontinuance from the original draft of the bill. The deleted criterion would have squared entirely with the presumption that revenue represented the social benefit, and cost the sacrificed alternative to the operation of the train in question. The text, enacted in the absence of this criterion, left the ICC with a degree of discretion which made inconsistency, vacillation and yielding to casual qualitative arguments concerning use of trains inevitable. pp. 194-195

STATUS OF PROCEEDINGS UNDER SECTION 13a(1) AS OF JULY 31, 1967
FORMAT: Filed; Effective Date; Investigation Ordered; Hearing Date; Action and Notes; Number of Trains; Points Served
11-24-58 12-27-58 12-15-59 01-29-59 04-13-59A 02 Staples, Minn.-Oakes, N.D.
11-24-58 12-28-58 12-18-58 02-02-59 04-22-59B 02 Mandan, N.D.-Glendive, Mont.
09-27-65 10-31-65 10-19-65 12-13-65 02-18-66C 02 Spokane, Wash.-Lewiston, Ida.
01-24-66 02-28-66 00-00-00 00-00-00 02-16-66D 02 Jamestown-Mandan, N.D.
12-02-66 01-05-65 00-00-00 00-00-00 12-21-66E 02 Minneapolis-Duluth, Minn.
05-12-67 06-18-67 06-06-67 06-17-67 00-00-00F 02 St. Paul, Minn.-Jamestown, N.D.

STATUS OF PROCEEDINGS UNDER SECTION 13a(2) AS OF JULY 31, 1967
FORMAT: Filed; Hearing; Examiner's Report; Decision; Action and Notes; Number of Trains; Points Served
11-24-58 03-26-59 07-13-59 10-28-60G 02 Valley City-McHenry, N.D.
11-24-58 03-20-59 06-24-59 10-21-60H 02 Jamestown-Wilton, N.D.
11-24-58 03-24-59 07-13-59 08-29-60I 02 Fargo-Streeter, N.D.
11-24-58 03-23-59 07-06-59 05-10-61J 02 Jamestown-Oakes, N.D.
11-24-58 03-19-59 06-24-59 08-29-60K 02 Jamestown-Leeds, N.D.
11-24-58 03-17-59 06-10-59 08-01-60L 02 Carrington-Turtle Lake, Esmond-Oberon, Oberon-Leeds, Jamestown-Oberon, N.D.
11-24-58 03-25-59 07-31-59 10-25-60M 02 Fargo-Marion, N.D.
05-13-66 00-00-00 00-00-00 06-28-66N 02 Mandan-Mott, N.D.


ACTION and NOTES
A--Granted; St. Paul Division, Second Sub-Division, Main Line, 17.6 miles; Fifth Sub-Division, Fergus Falls Branch, 151.5 miles
B--Partial continuance required for one year (until 04-22-59), 307 ICC 173; Yellowstone Division, First Sub-Division, Main Line, 100.4 miles; Second Sub-Division, Main Line, 106.1 miles
C--Granted; Idaho Division, Second Sub-Division, Main Line, 9 miles; Sixth Sub-Division, Palouse and Lewiston Branch, 136.3 miles
D--Granted without investigation; Fargo Division, Second Sub-Division, Main Line, 107.5 miles
E--Granted without investigation; St. Paul Division, First Sub-Division, Main Line, 130.8 miles; Lake Superior Division, Second Sub-Division, Main Line, 139.2 miles; Duluth and Superior Terminals, Second Sub-Division, 4.2 miles; Duluth and Superior Terminals, Third Sub-Division, 3.6 miles; Duluth and Superior Terminals, First Sub-Division, 5.9 miles
F--On-going; St. Paul Division, First Sub-Division, Main Line, 141.3 miles; St. Paul Division, Second Sub-Division, Main Line, 106.3 miles; Fargo Division, First Sub-Division, Main Line, 97.2 miles
G--Dismissed; Fargo Division, First Sub-Division, Main Line, 10.5 miles; Fifth Sub-Division, Cooperstown Branch, 62.9 miles
H--Dismissed, 312 ICC 309; Fargo Division, Seventh Sub-Division, Devils Lake Branch, 21.3 miles; Eighth Sub-Division, Wilton Branch, 92.8 miles
I--Granted; Fargo Division, Third Sub-Division, Fargo and Southwestern Branch, 147.5 miles
J--Denied, 312 ICC 559; Fargo Division, Sixth Sub-Division, James River and Oakes Branches, 69.1 miles
K--Granted; Fargo Division, Sixth Sub-Division, James River and Oakes Branches, 69.1 miles
L--Dismissed, 312 ICC 150; Fargo Division, Ninth Sub-Division, Sykeston Branch, 84.9 miles; Tenth Sub-Division, Oberon Branch, 27.5 miles; Seventh Sub-Division, Devils Lake Branch, 108.6 miles
M--Dismissed; First Sub-Division, Main Line, 20.1; Fourth Sub-Division, Casselton Branch, 60.2 miles
N--Dismissed; Twelfth Sub-Division, Mandan South Line, 126.4 miles
pp. 217-228

Excerpted from George W. Hilton, The Transportation Act of 1958, A Decade of Experience (Bloomington: Indiana UP, 1969).



Author: J.A. Phillips, III. Title: George W. Hilton's Transportation Act of 1958
URL: pw2.netcom.com/~whstlpnk/icc1958.html.

© December 23, 2004

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