Is This Any Way To Ruin A Railroad?


In the aggregate, these deficits for the years 195057 amounted to over five and one quarter billion dollars. Good grief! How could any industry survive under such a staggering burden? Obviously, none could. The passenger-service deficit, so-called, is and always has been a statistical mirage, a fraud, a phony; most useful, perhaps, as a means of singling out those railroad executives who lie to the public (even, occasionally, to their own shareholders) and betray the public interest with the greatest effrontery.

Over the years their distortions have been designed to convince us all that the carriage of passengers by the railroads is ever and everywhere unprofitable and can be maintained thanks only to the profitable carriage of freight. Their flimflam has been, and still is, based on a venerable formula, prescribed by the Interstate Commerce Commission, by which the railroads are required to separate a set of imprecise costs that are imperfectly understood even by their own officers.


The formula is called “Rules Governing the Separation of Operating Expenses, Railway Taxes, Equipment Rents and Joint Facility Rents Between Freight Service and Passenger Service on Class I LineHaul Railroads,” and as Stanley Berge, professor of transportation at Northwestern University, has pointed out, even the title has a Victorian ring.

The formula was concocted in 1887, when the chief concern was to keep freight rates and passenger fares within reasonable bounds. Cost accounting was both unknown and unnecessary in that time of monopoly, and so the commission required only that the railroads file a schedule separating expenses “chargeable to passenger traffic” from those “chargeable to freight traffic.” Expenses chargeable to both services were to be divided in proportion to the train-miles of each service.

Almost at once the formula was assailed by the Association of American Railway Accounting Officers as “an arbitrary rule” that “will furnish misinformation if used … for any practical purpose.” Soon afterward the formula was savaged by the state railway commissioners as “grossly erroneous, not to say preposterous.” Taking the hint, the commission itself retired the formula in 1894, but twenty years later it was revived and elaborated, and it still stands today, more bewildering than ever. In brief, the formula now requires that the railroad companies charge their passenger service with millions of dollars of maintenance and other overhead costs, all of which would still have to be paid if every passenger train vanished tomorrow.

This phantom deficit continued to bother a lot of people, in and out of the industry. A prominent I.C.C. official confessed publicly in 1954 that the commission’s estimate was “overstated” by two or three hundred million dollars. Two years later, the governors of the New York Stock Exchange felt sufficiently concerned on behalf of the shareholders to ask for an investigation of the railroads’ accounting practices.

The spate of criticism led the I.C.C. to hold hearings in 1957 on the separation rules that had created this bugaboo. More objections were at once voiced, including one from the Post Office Department.

Then something most curious happened. The Association of American Railroads submitted a statement urging, in effect, that the rules be left unchanged. It was a complete turnabout from the association’s position two years earlier, when the formula had been derided for producing data “of questionable value.” How came this astonishing switch by the association? Easily, quickly, once it had been determined by the lords of the railroads that the phantom deficit was a most useful hobgoblin with which to alarm impressionable congressmen. In 1957 and 1958 they were exerting pressure on Congress to amend the Interstate Commerce Act so that unwanted passenger trains might be more easily lopped off; the bigger the deficit could be made to seem, the sooner Congress would act. The amendment was duly enacted. The butchery of the passenger service proceeded briskly. Between two and three hundred intercity trains vanished each year.

Now, when a passenger train that moves back and forth between two cities is discontinued, in all likelihood the old-time way of hauling the mail between those two cities has been jeopardized. When several thousand such intercity trains are cancelled, the disruption of mail service is almost complete. Back in 1935 the railroads had operated some ten thousand mail-carrying passenger trains, but by 1959 there were fewer than two thousand passenger trains available to carry the mails, and not all of these were running on schedules that made them useful or attractive to the Post Office Department.

Meanwhile the load of mail had enormously increased and the Post Office was rapidly becoming everybody’s favorite whipping boy. With increasing frequency, the Post Office decided to cancel its contracts with the railroads for the handling of bulk mail and to award the contracts instead to truckers and, even for ordinary first-class mail, to the airlines.