Business: Roosevelt on Railroads

Emerging from the White House, where he was summoned three times last week to exchange ideas with Franklin Roosevelt on the railroad crisis, President John J. Pelley of the American Association of Railroads remarked: “I found the President very sympathetic with our situation and anxious to do anything he can consistently to help out. . . .”

Sympathetic indeed was Franklin Roosevelt to the railroads last week, and hardly a day went by without his active attention to the problem. As the roads gloomily revealed that car-loadings last week were lower than for the same week in 1932 when Depression was at its blackest, the President called a Cabinet meeting where he was reported to have said that he would favor letting the roads go “through the wringer” to reduce top-heavy capitalizations were it not that large insurance companies and banks would suffer greatly. That afternoon he told his press conference that he had decided against the outright subsidy proposed last fortnight by Railway Labor’s George Harrison. Subsidies are hard to stop, said the President. What if, for example, the Government had undertaken to subsidize trolley cars ten years ago when that industry went on the skids? Precisely what he would do, said he, he still did not know, but sometime this week he would send recommendations to Congress and release the text of the special report prepared by ICCommissioners Splawn, Eastman and Mahaffie.

By the President’s next press conference, however, the Splawn report had somehow become general knowledge. Its 60 pages offer both immediate remedies anda long-range program to pull the roads out of the deepest ditch in their history.

Immediate Proposals: 1) RFC to make available $300,000,000 for new rail equipment purchases; 2) ICC to be relieved of its present necessity to certify that roads applying for RFC loans are not in need of reorganization; 3) wage cuts; 4) abolition of the reduced rates on Government traffic over the so-called land-grant lines; 5) amendment of section 77 of the Bankruptcy Act to speed railroad reorganizations, possibly by a special railroad court; 6) the Government to guarantee or underwrite bonds issued in voluntary railroad reorganizations to insure their payment and thus expedite reorganizations.

Long-range Proposals: 1) Creation of a three-man Federal Transportation Authority to plan and promote operating economies and speed consolidations, unification of terminal facilities, car and revenue pooling, etc.; 2) methods of correcting railroad financing abuses to be left to the Senate Interstate Commerce Committee, which is now investigating them; 3) consideration of the desirability of placing all forms of transport under “equal and impartial regulation of a single agency of Government.”

Primed with these ideas, reporters gave the President a brisk quizzing. What did he think of Government guarantee of re-organization bonds? Franklin Roosevelt replied that he could see no more justification for guaranteeing railroad reorganization bonds than for those of a cotton mill, steel company or automobile factory. A reporter suggested that it might be done to protect insurance companies and others with large railroad holdings. There has been a lot of loose talk about that, snapped the President, when, as a matter of fact, banks and insurance companies generally make a practice of writing down their portfolios along with the decline in market value.

This week, as he promised, Franklin Roosevelt finally sent his recommendations to Congress. Possibly piqued by Congressional balking of his Reorganization Bill (see p. 16), possibly too baffled by the railroad problem to have a solution, the President contented himself with sending along the Splawn report together with the comments of such advisers as Jesse Jones, Henry Morgenthau, J. J. Pelley, William O. Douglas, most of whom gave it less than complete approval. As his own comment, the President took occasion to call certain functions of the Interstate Commerce Commission “in all probability unconstitutional,” to repeat his opposition to Government ownership of the roads, to agree that from a long-range point of view consolidation of all U. S. transport under one body would be advisable. But on the immediate question of how the hard-pressed roads are to keep on meeting pay rolls and fixed indebtedness, Mr. Roosevelt passed the buck completely to Congress.

Said he: “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.”