Message to Congress on the Railroad Problem.

To the Congress:

During the past month I have consulted with a large number of individuals on the increasingly difficult problem of our railroad transportation. As the Congress is aware, the relationship of the Federal Government to the railroads has been for fifty years through the medium of the Interstate Commerce Commission. This distinguished body was originally set up with the primary purpose of ending serious abuses on the part of the carriers, such as rebating and cutthroat competition.

As the years went by the Congress, from time to time, has extended the authority of the Interstate Commerce Commission, vesting in it other quasi-legislative and quasi-judicial powers and giving to it also a number of purely executive functions. While the latter powers are, in all probability, unconstitutional in that they create executive authority in a fourth branch of the Government instead of in the President, I do not at this time raise that issue because for the present it is more important for all of us to cooperate in preventing serious bankruptcies among a large number of railroad companies, great and small.

I invited Chairman Splawn of the Interstate Commerce Commission, and Commissioners Eastman and Mahaffie to present somewhat hurriedly and informally, recommendations relating to this serious situation—and I have kept the chairmen of the appropriate committees of the Senate and House of Representatives informed of the report.

Summarized, the three members of the Interstate Commerce Commission recommend as a means of immediate relief the following:

1. That approximately $300,000,000 be made available from Government funds for the purchase of railroad equipment, the equipment to be the security for the advance.

2. That for twelve months the Reconstruction Finance Corporation be empowered to make loans without certification by the Interstate Commerce Commission that the railroad can meet its fixed charges.

3. That other forms of Government credit be considered from the point of view of public policy.

4. That Government traffic pay the full rate by eliminating land grant reductions.

5. That the Commission does not feel justified in expressing an opinion for or against reduction of railroad wages.

6. That reorganization procedure under section 77 of the Bankruptcy Act receive the attention of the Congress, and they suggest consideration of the establishment of a single court in charge of reorganizations.

The long-term program suggested by the Commissioners includes:

1. That a Federal Transportation Authority be created for two years to plan and promote action by railroad companies to eliminate waste, aid consolidation and coordination.

2. That the Interstate Commerce Act be amended to broaden the powers of the Commission with respect to pooling of earnings or traffic, to eliminate "the consolidation plan," and to approve unifications; that the Authority be permitted to intervene in such proceedings before the Commission, and make recommendations through the Commission to the President and the Congress.

3. That the Authority investigate economy and all types of transportation, encourage special fitness, and abate destructive competition.

4. That attention be given to railroad financial abuses now under investigation.

The full report of the three members of the Interstate Commerce Commission is transmitted herewith, and I am transmitting also certain comments which have been made by others with whom I have talked:

(a) Letter to the President from the Secretary of the Treasury, March 25, 1938.

(b) Letter to the President from the Chairman of the Reconstruction Finance Corporation, March 28, 1938.

(c) Letter to the President from the Chairman of the Securities and Exchange Commission, March 28, 1938.

(d) Memorandum to the President from Assistant Secretary of Commerce Ernest G. Draper, March 29, 1938.

(e) Memorandum to the President from the Administrator of Farm Security, March 31, 1938.

(f) Memorandum to the President from Henry Bruere, president of the Bowery Savings Bank, New York City.

(g) Memorandum to the President from J. J. Pelley, president, Association of American Railroads, April 4, 1938.

(h) Letter to the President from George M. Harrison, president, Brotherhood of Railway and Steamship Clerks, April 2, 1938.

(i) .Statistical data from the Interstate Commerce Commission relating to revenues and expenses of transportation in the United States in the year 1936, separated between types of transport.

Insofar as information in regard to the railroad problem is concerned, there is probably no other subject to which the Congress, year after year, has devoted more study or obtained more information. The troubles of the railroads are not new, but they have been getting, on the whole, steadily more difficult since before the World War. It is true that a general upturn in business would undoubtedly help to keep many railroads from actual receivership. But it is also true that resumption of traffic at last year's level would not solve their growing difficulties permanently.

Most of us have definite objection to Government subsidies to the railroads to enable them to meet the interest on their outstanding bonds or for any other purpose, and most of us also oppose Government ownership and operation of the railroads. I do.

The suggestions made by the three members of the Interstate Commerce Commission should, of course, be read in the light of the comments thereon made in the letters appended thereto.

I ask your special consideration of the fact that matters relating to transportation in its wider sense are now dealt with by the following departments or agencies of the Government:

1. The Bureau of Public Roads of the Department of Agriculture.

2. The Bureau of Air Commerce of the Department of Commerce.

3. The United States Maritime Commission.

4. The Division of Transportation of the Bureau of Foreign and Domestic Commerce of the Department of Commerce.

5. The Interstate Commerce Commission.

6. The Lighthouse Service of the Department of Commerce.

7. The Bureau of Navigation and Marine Inspection of the Department of Commerce.

These agencies deal with special phases of transportation rather than the transportation problem in its broader national aspect. Some of the functions are executive, some are legislative, and some are judicial.

From the point of view of business efficiency, such as a private corporation would seek, it would seem to be the part of common sense to place all executive functions relating to all transportation in one Federal department—such as the Department of Commerce, the Department of the Interior, or some other old or new department. At the same time all quasi-judicial and quasi-legislative matters relating to all transportation could properly be placed under an independent commission—a reorganized Interstate Commerce Commission. And such action would be highly constitutional.

I refer to this, not by way of recommendation, but only as one method which should receive congressional study.

In the meantime, and until it has been possible for the Congress to make any and all studies for permanent solution of the railroad problem, some immediate legislation is, I believe, necessary at this session, in order to prevent serious financial and operating difficulties between now and the convening of the next Congress.