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96- 3 KSU LIBRARIES 

GOVERNMENT

Storage

USRA AUTHORIZATION

:UME 

im 16 1977

FARRELL LtBRARIET

KANSAS' STATE 

uNivERsiT4. 1ARING .1:1-

BEFORE THE

SUBCOMMITTEE ON

TRANSPORTATION AND COMMERCE

OF THE

COMMITTEE ON

[NTERSTATE AND FOREIGN COMMERCE

r11

S" HOUSE OF REPRESENTATIVES

NINETY-FIFTH CONGRESS

FIRST SESSION

ON

H.R. 4049

A11900 8 

A BILL TO AMEND THE REGIONAL RAIL REORGANIZATION

ACT OF 1973 TO AUTHORIZE ADDITIONAL APPROPRIATIONS

FOR THE UNITED STATES RAILWAY ASSOCIATION

MARCH 15, 1977

Serial No. 95-3

Printed for the use of the

Committee on Interstate and Foreign Commerce

U.S. GOVERNMENT PRINTING OFFICE

86-993 0 WASHINGTON : 1977
'*s

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE

HARLEY 0. STAGGERS, West Virginia, Chairman

JOHN E. MOSS, California

JOHN D. DIN GELL, Michigan

PAUL G. ROGERS, Florida

LIONEL VAN DEE RLIN, California

FRED B. ROONEY, Pennsylvania

JOHN M. MURPHY, New York

DAVID E. SATTERFIELD III, Virginia

BOB ECKHARDT, Texas

RIFHARDSON PREYER, North Carolina

CHARLES J. CARNEY, Ohio

RALPH H. METCALFE, Illinois

JAMES H. SCHEUER, New York

RICHARD L. OTTINGER, New York

HENRY A. WAXMAN, California

ROBERT (BOB) KRUEGER, Texas

TIMOTHY E. WIRTH, Colorado

PHILIP R. SHARP, Indiana

JAMES J. FLO RIO, New Jersey

ANTHONY TOBY MOFFETT, Connecticut

JIM SANTINI, Nevada

ANDREW MAGUIRE, New Jersey

MARTY RUSSO, Illinois

EDWARD J. MARKEY, Massachusetts

THOMAS A. LUKEN, Ohio

DOUG WALGREN, Pennsylvania

BOB GAMMAGE, Texas

ALBERT GORE, JR., Tennessee

BARBARA A. MIKULSKI, Maryland

W. E. WILLIAMSON, Chief Clerk and Staff Direetor

KENNETH J. PAINTER, First Assistant Clerk

ELEANOR A. DINKINS, Assistant Clerk

LEE S. HYDE

ELIZABETH HARRISON

JEFFREY H. SCHWARTZ

BRIAN R. MOIR

KAREN NELSON

SAMUEL L. DEVINE, Ohio

JAMES T. BROYHILL, North Carolina

TIM LEE CARTER, Kentucky

CLARENCE J. BROWN, Ohio

JOE SKUBITZ, Kansas

JAMES M. COLLINS, Texas

LOUIS FREY, JR., Florida

NORMAN F. LENT, New York

EDWARD R. MADIGAN, Illinois

CARLOS R. MOO RHEAD, California

MATTHEW J. RINALDO, New Jersey

W. HENSON MOORE, Louisiana

DAVE STOCKMAN, Michigan

MARC L. MARKS, Pennsylvania

Professional Staff

MARGOT DINNEEN

Ross DAVID AIN

CHRISTOPHER E. DUNNE

WILLIAM M. KITZMILLER

MARK J. RAABE

THOMAS M. RYAN

J. PAUL MOLLOY, Associate Minority Counsel

SUBCOMMITTEE ON TRANSPORTATION AND COMMERCE

FRED B. ROONEY, Pennsylvania, Chairman

RALPH H. METCALFE, Illinois

BARBARA A. MIKULSKI, Maryland

JAMES J. FLO RIO, New Jersey

JIM SANTINI, Nevada

MARTY RUSSO, Illinois

BOB GAMMAGE, Texas

JOHN M. MURPHY, New York

HARLEY 0. STAGGERS, West Virginia

(Ex Officio)

JOE SKUBITZ, Kansas

EDWARD R. MADIGAN, Illinois

NORMAN F. LENT, New York

SAMUEL L. DEVINE, Ohio (Ex Officio)

WILLIAM T. DRUHAN, Staff Director

WILLIAM L. KOVACS, Chief Counsel
0

CONTENTS

Page

Text of H.R. 4049 2

Statements of U.S. Railway Association—

Cole, Donald C., Vice President and Secretary to the Board of Directors 4

Dean, Alan, Vice President for Administration 4

Dickieson, Cary, General Counsel 4

Lewis, Arthur D., Chairman of the Board and Chief Executive Officer_ 4

Murphy, Russell, Vice President, Finance and Operations 4

Additional material submAted by U.S. Railway Association—

Appendix to Mr. Lewis' prepared statement—$10.1 million administrative expense budget 11

Résumés of the top seven employees—

Dicello, Francis P., Deputy Assistant General Counsel—Litigation 24

King, G. Joseph, Assistant General Counsel—Litigation 21

Rector, Edwin, Assistant General Counsel—Finance 28

Rogers, Stephen C., Deputy General Counsel—Litigation 20

Ross, Robert J., Deputy Assistant General Counsel—Litigation _ 25

Siegel, Douglas L., Assistant General Counsel—General Law_ 30

Wilchins, Howard M., Deputy Assistant General Counsel—

Litigation 26

(m)

USRA AUTHORIZATION

TUESDAY, MARCH 15, 1977

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TRANSPORTATION AND COMMERCE,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C.

The subcommittee met at 10 a.m., pursuant to notice, in room

2218, Rayburn House Office Building, Hon. Fred B. Rooney (chairman)

presiding.

Mr. ROONEY. The subcommittee will come to order.

This morning, we will have hearings on H.R. 4049. This bill amends

the Regional Rail Reorganization Act of 1973 to authorize additional

appropriations, not to exceed $12 million, for the U.S. Railway

Association, for the period beginning October 1, 1978, and ending

September 30, 1979.

A total of $65.8 million has been previously authorized. This

authorization would bring the total amount authorized to USRA

since its inception to $77.8 million, of which $64.3 million has already

been appropriated.

It is my understanding that most of these funds will be necessary to

obtain legal assistance to litigate controversies which have arisen

from the reorganization of the bankrupt railroads. In addition, some

of those funds are necessary to carry out the additional supervisory

responsibilities of the association imposed upon it by the Railroad

Revitalization and Regulatory Reform Act of 1976 and by the Rail

Transportation Improvement Act of 1976.

Without objection, the text of H.R. 4049 will be printed at this

point in the record.

[The text of H.R. 4049 follows:]

(1)
95TII CONGRESS

1ST SESSION

9

40'9

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 24, 1977

Mr. STAGGERS (for himself, Mr. ROONEY, Mr. DEVINE, and Mr. SKUBITZ) introduced the following bill; which was referred to the Committee on Interstate and Foreign Conimerce

A BILL

To amend the Regional Rail Reorganization Act of 1973 to

authorize additional appropriations for the United States

Railway Association.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 That section 214 (c) of the Regional Rail Reorganization

4 Act of 1973 (45 U.S.C. 724 (c) ) is amended to read as

5 follows:

6 "(c) ASSOCIATION.—For the fiscal year ending Sep7 tember 30, 1978, there are authorized to be appropriated

8 to the Association for purposes of carrying out its admin9 istrative expenses under this Act such sums as are necessary,

10 not to exceed $12,000,000. Sums appropriated under this
)

3

2

1 subsection are authorized to remain available until Septem2 ber 30, 1979.".
Mr. ROONEY. The chairman notes the ranking Republican member

is here. I don't know whether or not everyone has heard the news but

over the Lincoln Day recess Mr. Skubitz announced that he is going to

retire at the end of this Congress.

We both came to Congress together, in the 88th Congress, and it is

with sadness and happiness I make this announcement—sadness

because of the tremendous contribution he has made to this committee

over the years, and happiness because in the next session of Congress,

our committee meetings will begin on time.

Mr. SKUBITZ. Thank you, Mr. Chairman.

It made me think. I had John Erlenborn out to address my Lincoln

Day celebration and John didn't know I was retiring until the moment

I announced my retirement. John looked at the audience and said,

"I view this with mixed emotions." He said, "You know what mixed

emotion means? That is when you see your mother-in-law drive your

Cadillac over a cliff."

I will be with you to harass you and needle you for 2 more years,

anyway.

Mr. ROONEY. Our first witness today will be Mr. Arthur D. Lewis,

chairman of the board and chief executive officer, U.S. Railway

Association, 2100 Second Street SW., Washington, D.C.

For the benefit of the record and the chairman, I would appreciate

it very much if you would introduce your colleagues.

STATEMENT OF ARTHUR D. LEWIS, CHAIRMAN OF THE BOARD AND

CHIEF EXECUTIVE OFFICER, U.S. RAILWAY ASSOCIATION, ACCOMPANIED BY DONALD C. COLE, VICE PRESIDENT AND SECRETARY TO THE BOARD OF DIRECTORS; CARY DICKIESON, GENERAL

COUNSEL; RUSSELL MURPHY, VICE PRESIDENT, FINANCE AND

OPERATIONS; AND ALAN DEAN, VICE PRESIDENT FOR ADMINISTRATION

Mr. LEWIS. Yes, sir. I would like to introduce Mr. Russell Murphy,

on my extreme left, Vice President for Finance and Operations. On

my immediate left, Mr. Cary Dickieson, General Counsel. On my

right is Alan Dean, Vice President for Administration, and Mr.

Donald Cole, Vice President and Secretary.

Mr. ROONEY. You may proceed.

Mr. LEWIS. We are very honored to be here. Mr. Skubitz, I would

like to say on our behalf we wish you well when you leave here. It

has been a very real and pleasant relationship in the last year and a

half that we have had.

Mr. SKUBITZ. I would much rather you say you hate to see me leave

than, "Thank God, he is leaving."

Mr. LEWIS. I have submitted a statement, Mr. Chairman.

Mr. ROONEY. Without objection, the statement will become part

of the record.

Mr. LEWIS. Mr. Chairman and members of the subcommittee, I

am pleased to testify on behalf of an authorization of $13 million for

the administrative expenses of the U.S. Railway Association for

fiscal year 1978.
5

As required by the Regional Rail Reorganization Act of 1973, as

amended, the Association transmitted to the Speaker of the House,

the President of the Senate, and the Office of Management and Budget,

on November 19, 1976, its appropriations request for fiscal year 1978

in the amount of $10.1 million. The Association subsequently transmitted to Congress by letter of February 10, 1977, its request for a

fiscal year 1978 authorization of $13 million to provide for a $2.9

million contingency authorization to cover certain events unanticipated in September, but which now appear likely to impact adversely

the Association's administrative expenses.

Approximately 80 percent of our authorization request will be

utilized in the litigation efforts of the Association, 15 percent will be

used in financing ConRail and monitoring its operations, as well as

monitoring the loans provided for the D. & II. and Katy, and 5 percent

will be needed to process and monitor the loans provided under the

211(h) programs. This present mix of activities represents a substantial shift during the past year from planning to litigation support.

We anticipate that our current staff of 146 will decline moderately,

to 132, by the end of fiscal year 1978. Contractual services will continue to be substantial for litigation support, primarily for outside

counsel, for documentation, and for asset valuation. In fact, we may

have been much too optimistic in our budget forecast when we forecast

that contractual services would decline from $7 million in the current

fiscal year to $5.1 million in 1978. Since that assumption was made

last September, it has become evident that there will be little, if any,

decline.

I would like to emphasize the Association has made every effort

to reduce its staff to a level consistent with its current mission. At the

end of fiscal year 1975, we had a staff of 311; at the end of fiscal 1976,

we had a staff of 162; and today, our staff totals 146.

This reduction would have been greater if the litigation had not

required an increase in our legal staff from 17 to 48 with an additional

20 people involved in direct litigation support. Thus, the way we use

our personnel is significantly different from what it was 1 year ago.

I would also like to emphasize, as part of the staff reduction, we

have sharply reduced the number of high-salaried positions. For example, the number of officers of vice president rank or higher has been

cut from 11 to 5. Substantial reductions have also been made in the

monthly rate of expenditures for travel, communications, and office

supplies.

Skipping now to page 4 of my statement, I would like to reiterate,

it is, I believe, appropriate to raise a word of caution concerning our

administrative expense estimate of $10.1 million for fiscal year 1978.

This estimate was prepared in September, 1976, and reflected the

Association's best judgment as of that time as to how the litigation

would proceed.

We did not know then, and do not know now, how the special

court will decide to try the issues in this very complex litigation. The

special court has not yet ruled on such vital matters as the valuation

theories under which the parties will be permitted to introduce

evidence, the order, or the pace, at which the many issues will be

heard, and the number of special masters, and therefore, the number

of spearate proceedings, that the special court will use in the factfinding process.

86-993 0 - 77 - 2
6

We do not anticipate that these uncertainties will be resolved until later this year. Back in September, we anticpated that the factfinding

process would have begun by June 1977, and would be winding down in the latter part of fiscal year 1978. Based on that assumption, our

expense estimates projected a reduction in our contract and personnel expenditures for litigation counsel and consultants in fiscal year 1978.

Were we to provide our best judgment as of today, we would probably project those efforts continuing at their present level and this would imply an expenditure in fiscal year 1978 of approximately the full $13 million for which have we requested on authorization.

I would like to emphasize, on the other hand, it is also possible that actions could occur which would permit our expenditures to remain within the $10.1 million budget estimate. For example, it is possible that any ruling by the special court preventing the transferors from introducing evidence on theories of value they are advocating would be appealed to the Supreme Court this summer.

If the Supreme Court were to hear such an appeal, it is unclear what actions the special court would require the parties to take during the period while the case was before the Supreme Court. One possibility is that the special court would direct the parties to pursue further the current discovery process with the commencement of hearings delayed until after the Supreme Court's ruling. In that circumstance, our expenditures could probably be kept within the $10.1 million estimate for fiscal year 1978.

On the other hand, there are other contingencies that could impact the Association administrative expenses beyond even the $13 million authorization request. One, no provision has been made for the funding that would be required if the special court's ruling made it necessary for the Association to prepare evidence based on theories of value in addition to its own or to respond to such theories as the court may allow the transferors to pursue.

Two, the budget does not include funds for studies that may be required in connection with the transfer or conveyance of additional rail properties under the supplemental transactions provision of the Rail Act.

Three, funds have not been established in the budget to cover reimbursement to ConRail for expenses incurred in seeking payment from a bankrupt estate for an obligation paid on its behalf under section 211(h) (1) of the Rail Act. This reimbursement from Associa- tion funds is required by a section 211(h) amendment contained in Public Law 94-555.

Beyond that, the special court has not established the basic pro- cedures that will be followed in the conduct of the litigation resulting

from their reorganization of the railroads covered by our basic legisla- tion and the Association's budget for fiscal year 1978 was premised

upon our judgment as to the appropriate litigation procedures.

At this time, we do not possess the precise data, unfortunately,

upon which to base an increase in either our $10.1 million appropriations request or our $13 million authorization request. All we know

today is that several things could occur or decisions could be made by the special court which would have a significant impact on the total line of expenditures, as well as the timing of when they will

occur.
7

We believe that any modification to our current budget for 1978

should await further rulings by the special court that will enable us

to advise this committee more precisely as to our needs.

Mr. Chairman, I would be happy to respond to any questions

which the Committee may have.

[Mr. Lewis's prepared statement and attachments follow]

STATEMENT OF ARTHUR D. LEWIS, CHAIRMAN OF THE BOARD AND CHIEF

EXECUTIVE OFFICER, U.S. RAILWAY ASSOCIATION

Mr. Chairman and members of the subcommittee, I am pleased to testify on

behalf of an authorization of $13 million for the administrative expenses of the

United States Railway Association f of fiscal year 1978.

As required by the Regional Rail Reorganization Act of 1973, as amended,

the Association transmitted to the Speaker of the House, the President of the

Senate, and the Office of Management and Budget, on November 19, 1976, its

appropriations request for fiscal year 1978 in the amount of $10.1 million. The

Association subsequently transmitted to Congress by letter of February 10,

1977, its request for a fiscal year 1978 authorization of $13 million to provide

for a $2.9 million contingency authorization to cover certain events unanticipated

in September, but which now appear likely to impact adversely the Association's

administrative expenses.

These funds are required to permit the Association to conduct the litigation on

behalf of the government which has arisen from the reorganization of the bankrupt

railroads; to supervise the provision of funds to Conrail for working capital and

rehabilitation and to monitor the use of those funds; to assess Conrail's progress

toward attainment of financial viability; to provide and monitor the use of funds

for the payment of certain pre-conveyance claims against the estates under Section 211(h) of the 3R Act, as amended; to administer Section 211(a) loans to the

Delaware and Hudson and the Missouri-Kansas-Texas railroads, and to ensure

some margin of safety for unforeseen contingencies.

Approximately 80 percent of our authorization request will be utilized in the

litigation efforts of the association, 15 percent will be used in financing Conrail

and monitoring its operations, as well as monitoring the loans provided for the

D. & H. and Katy, and 6 percent will be needed to process and monitor the loans

provided under the 211(h) programs. This present mix of activities represents a

substantial shift during the past year from planning to litigation support.

We anticipate that our current staff of 146 will decline moderately—to 132—by

the end of fiscal year 1978. Contractual services will continue to be substantial for

litigation support, primarily for outside counsel, for documentation and for asset

valuation. In fact, we may have been much too optimistic in our budget forecast

when we forcast that contractual services would decline from $7 million in the

current fiscal year to $5.1 million in 1978. Since that assumption was made last

September, it has become evident that there will be little, if any, decline.

The association has made every attempt to reduce its staff to a level consistent

with its current mission. At the end of fiscal year 1975, we had a staff of 311; at the

end of fiscal 1976, we had a staff of 162; and today our staff totals 146. This reduction would have been greater if the litigation had not required an increase in our

legal staff from 17 to 48 with an additional 20 people involved in direct litigation

support. Thus, the way we use our personnel is significantly different from what it

was 1 year ago. As part of the staff reduction, we have sharply reduced the number

of high-salaried positions. For example, the number of officers of vice president

rank or higher has been cut from 11 to 5. Substantial reductions have also been

made in the monthly rate of expenditures for travel, communications, and office

supplies.

LITIGATION

The special court is now hearing arguments on the valuation to be assigned to

the properties conveyed to Conrail. I know that the committee is very interested

in this litigation and the possible effect it may have ultimately on Federal expenditures. Of course, the stakes in this litigation are very high and are impossible to measure accurately at this time. Currently, we are in the final stages

of preparing briefs which will be submitted shortly to the special court covering

basic constitutional issues, primarily those concerned with the determination of a

a "constitutional minimum" compensation for the properties conveyed to Conrail
8

on April 1, 1976. Argument on these briefs is expected in April with a court de- cision several months later. Just how the special court will proceed after these events is unknown.

Every office of USRA is deeply involved in helping to prepare for and support the association's litigation effort. Inevitably, the leadership of this effort lies with the General Counsel's Office. The General Counsel has recently expanded its staff from 25 to 47. We anticipate that this staff level will continue throughout fiscal

year 1978. We are now hoping to perform a significantly larger proportion of our legal work inhouse rather than through the use of outside counsel. This will produce substantial savings to the association since the hourly rate for inhouse

attorneys is less than one-third the hourly rate for outside counsel. When fully staffed, the General Counsel's Office will contain 25 attorneys, 11 para-legals, and 11 secretaries.

The association will continue to employ two law firms with special expertise to augment our inhouse staff. We are currently using these firms at a monthly rate of about $180,000. We expect this rate to decline over the next year to a level of less than $150,000. The association will employ outside resources to design and insti- tute an automatic storage and retrieval system for all of the documents that have been or will be produced in connection with this case. The retrieval and litigation support system we have adopted is based on the JURIS system developed by the Department of Justice. Setting up and operating this system, including reimbursement of the Justice Department, is expected to cost $800,000 during fiscal year 1977 and approximately $350,000 during fiscal year 1978. It has been estimated that well over a million separate documents have already been pro- duced which must be introduced into this litigation support system on a full text or abstract basis.

The litigation support work of the Office of Finance and Operations includes responsibility for the basic work required to develop values for all of the rail properties which were conveyed on April 1. The final system plan included the results of extensive work concerning property valuation, but this information is now being verified in order to bring the historical documentation up to a sufficient evidentiary quality to support the association's valuations in the special court proceedings.

Counsel have designated a nuniber of areas, the so-called "cut-across" issues

or assumptions, in which they feel further analysis and documentation is necessary

to bolster the master liquidation plan presentation. These issues include the costs of liquidation, discount rates, real appreciation, and other problems that signifi- cantly affect property values. Counsel have also requested the asset valuation staff to engage a panel of senior real estate appraisal experts to direct a substantial field project to audit and verify the land valuations developed for the final system plan.

The operations staff of the Office of Finance and Operations will support the litigation effort during fiscal year 1978 as issues concerning Conrail's profitability begin to surface. At that time, further analysis will be required to update the final system plan projections of Conrail operating results. This analysis will be benefited by 2 years' operating experience.

Financial requirements for litigation support can be summarized as follows:

Fiscal year1977 1978

General Counsel's Office $3,587 $3,272 Office of Finance and Operations 5,113 2,948 Other support 1,600 1,390

Total 10,300 7, 610

CONRAIL MONITORING

The association must be capable of independently assessing Conrail's financial viability and identifying appropriate alternative actions for the Board of Directors

and the Finance Committee in the event that a positive judgment concerning financial viability is not possible. Through analysis of reports and onsite observa- tions, USRA will maintain an understanding of what Conrail is doing, the whys of Conrail's actions, and the basis for Conrail's own expectations for the future.
9

Onsite observations will be used to monitor track and equipment rehabilitation,

equipment utilization, and rail operations. Regular statistical reports will be

available on all of these factors and the reports will be analyzed and assessed by the

Office of Finance and Operations.

Specific attention must be focused on progress relating to each of the major

"turn around" efforts of the railroad. Special reports and meetings will be held to

assess progress. The major "turn around" items as we view them are:

Rehabilitation program.

Capital programs.

Equipment utilization planning.

Profit margin analysis systems.

Marketing efforts.

Intermodal traffic.

Labor relations.

Management systems.

Passenger and low density line subsidies.

Trackage rights agreements.

Organization, intergration and consolidation.

Monitoring efforts will, of course, involve the review and analysis of the various

reports required by the financing agreement between the association and Conrail.

These include:

Monthly, quarterly, and annual financial statements.

A Business Plan concerning the use of financing proceeds, as well as

anticipated revenues and expenses.

Interim projections indicating the extent to which Conrail is tracking its

Business Plan.

Quarterly maintenance reports which will cover maintenance of way

expenditures and indicate progress on the facilities and rehabilitation

program.

Comparison and variance analyses which will assist the Association in

understanding the reasons for differences between actual results and the Conrail Business Plan.

Copies of reports to SEC, security exchanges, lenders, ICC, and shareholders.

Daily cash receipts and disbursement and two-week forecasts of the same.

All of this information will provide the data on which the staff will base its

recommendations concerning the financial viability of Conrail.

In addition to the monitoring of Conrail, the Office of Finance and Operations

must monitor USRA loans to the Delaware & Hudson Railway Co. and the

Missouri-Kansas-Texas Railroad Co. These loans, amounting to $28 million and

$19 million, respectively, involve periodic visits to each of the railroads and

regular and frequent review and analysis of reports on the use of loan proceeds and

on the operating results of the railroads.

Fiscal year1977 1978

General Counsel's Office $52 $59

Office of Finance and Operations 1,295 1,081

Other support 854 741

Total 2, 201 1, 881

SECTION 211(11)

Section 211(h) of the Regional Rail Reorganization Act authorizes the Association to borrow funds using its Section 210 authority in the amount of $350

million to pay the following classes of claims against the estates: supplier claims,

shipper claims, employee wage-related and collective bargaining claims, Federal

Employees Liability Act claims, and pension fund claims. The funds are loaned

to Conrail which acts as agent for the estates in making eligible payments from

the loan funds.

The statute provides that Conrail has a direct claim for reimbursement from

the estate for any claims paid with loan funds. The statute also provides that

Section 211 loans to Conrail can be forgiven under certain conditions if Conrail

is unable to collect on its claim against the estates. However, with minor excep-
10

tions, the forgiveness of the Conrail loans will occur after three years from the

date of advance. Once Conrail is forgiven then the USR A succeeds to the claim

against the estates.

The Association has employed a contractor to provide monitoring and audit

of Conrail's role under Section 211(h). It is expected that this contract will be

funded during fiscal year 1978 at a level of approximately $20,000 per month, or

$240,000 for the year.

We are optimistic that repayments on Section 211(h) loans over the years will

recover a substantial portion of the funds loaned. The Penn Central estate has

agreed upon, and the bankruptcy court in Philadelphia has approved, a settlement

which essentially assures repayment of its Section 211(h) loans to the Association.

It appears that the Penn Central estate has sufficient resOurces to discharge this

obligation in full. This settlement may provide something of a model for settlement with the other estates and thus provide for repayment of most of their

Section 211(h) obligations. We believe that the various estates will have sufficient

resources to make full payment, however, we cannot say that with certainty at

this time.

The General Counsel's Office is expected to be regularly involved in Section

211(h) problems and may have to undertake rather extensive work in connection

with collection actions against the estates. These later actions, however, are not

likely to become burdensome until fiscal year 1979.

Fiscal year1977 1978

General Counsel's Office $51 $60 Office of Finance and Operations 569 364 Other support 213 185

Total 833 609

It is, I believe, appropriate to raise a word of caution concerning our administrative expense estimate of $10.1 million for fiscal year 1978. This estimate was

prepared in September, 1976, and reflected the Association's best judgment as

of that time as to how the litigation would proceed. We did not know then, and

do not know now, how the Special Court will decide to try the issues in this very

complex litigation. The Special Court has not yet ruled on such vital matters as

the valuation theories under which the parties will be permitted to introduce

evidence, the order, or the pace, at which the many issues will be heard, and the

number of Special Masters (and therefore, the number of separate proceedings)

that the Special Court will use in the fact-finding process. We do not anticipate

that these uncertainties will be resolved until later this year. Back in September,

we anticipated that the fact-finding process would have begun by June, 1977,

and would be winding down in the latter part of fiscal year 1978. Based on that

assumption, our expense estimates projected a reduction in our contract and

personnel expenditures for litigation counsel and consultants in fiscal year 1978.

Were we to provide our best judgment as of today, we would probably project

those efforts continuing at their present level which would imply an expenditure

in fiscal year 1978 of approximately the full $13 million for which we have requested

an authorization.

On the other hand, it is also possible that actions could occur which would

permit our expenditures to remain within the $10.1 million budget estimate.

For example, it is possible that any ruling by the Special Court preventing the

transferors from introducing evidence on theories of value they are advocating

would be appealed to the Supreme Court.

If the Supreme Court were to hear such an appeal, it is unclear what actions

the Special Court would require the parties to take during the period while

the case was before the Supreme Court. One possibility is that the Special Court

would direct the parties to pursue further the current discovery process with the

commencement of hearings delayed until after the Supreme Court's ruling. In

that circumstance, our expenditures could probably be kept within the $10.1

million estimate for fiscal year 1978.

There are other contingencies that could impact the Association administrative

expenses beyond even the $13 million authorization request:

1. No provision has been made for the funding that would be required if the

Special Court's ruling made it necessary for the Association to prepare evidence
11

based on theories of value in addition to its own or to respond to such theories

as the Court may allow the transferors to pursue.

2. The budget does not include funds for studies that may be required in connection with the transfer or conveyance of additional rail properties under the

supplemental transactions provision of the Rail Act.

3. Funds have not been established in the budget to cover reimbursement

to Conrail for expenses incurred in seeking payment from a bankrupt estate for

an obligation paid on its behalf under Section 211(h) (1) of the Rail Act. This

reimbursement from Association funds is required by a Section 211(h) amendment

contained in Public Law 94-555.

4. The Special Court has not established the basic procedures that will be

followed in the conduct of the litigation resulting from the reorganization of the

railroads covered by our basic legislation and the Association's budget for fiscal

year 1978 was premised upon our judgment as to the appropriate litigation

procedures.

At this time, we do not possess the precise data upon which to base an increase

in either our $10.1 million appropriations request or our $13 million authorization

request. All we know today is that several things could occur or decisions could

be made by the Special Court which would have a significant impact on the total

line of expenditures, as well as the timing of when they will occur. We believe

that any modification to our current budget for 1978 should await further rulings

by the Special Court that will enable us to advise this Committee more precisely

as to our needs.

Mr. Chairman, I would be happy to respond to any questions which the Committee may have.

APPENDIX

$10.1 MILLION ADMINISTRATIVE EXPENSE BUDGET

The Association had an unobligated balance of $1,334,000 at the start of fiscal

year 1977. This amount plus the fiscal year 1977 appropriation of $12 million

will be obligated during fiscal year 1977.

The following tables summarize the Association's administrative expense

budget and provide information by organization, by major program, and by

object of expense.,A staffing summary by organizational unit is also included.

A. REQUIREMENTS BY ACTIVITY

[Dollar amounts in thousands]

Fiscal year

1976

actual

Transition Fiscal year

quarter 1977

actual estimate

Fiscal year

1978

estimate

Executive direction $1,446 $112 $418 $421

General counsel 2,559 972 3,690 3,391

Finance and operations 9, 779 3, 008 6, 977 4, 393

Administration 2,931 723 2,249 1,895

Total 16,715 4,815 13, 334 10, 100

PERCENTAGES BY PROGRAM FOR FISCAL YEAR 1977-78

Litigation Monitoring Sec. 211(h) Total

Executive direction 60 32 8 100

General counsel 96 2 2 100

Finance and operations 67 25 8 100

Administration 60 32 8 100

Total 75 19 6 100
B. PROGRAM BY FISCAL YEAR

tin thousands of dollars]

Personnel

related

costs

Fiscal year 1976 Fiscal year 1977 Fiscal year 1978

Contracts Other Total

Personnel

related

costs Contracts Other Total

Personnel

related

costs Contracts Other Total

Litigation support:

General counsel $303 $1, 172 $1, 475 $932 $2, 655 $3, 587 $1, 072 $2, 200 $3, 272 Finance aRd operations 438 1,073 1,511 930 4, 183 5, 113 841 2, 107 2,948 Other support 727 95 $360 1, 182 796 129 $675 1, 600 706 105 $579 1, 390

Total 1, 468 2,340 360 4, 168 2, 658 6, 967 675 10, 300 2, 619 4, 412 579 7,610

Monitoring:

General counsel 121 195 316 52 52 59 59 Finance and operations 438 215 653 903 392 1, 295 729 352 1, 081 Other support 457 60 227 744 425 69 360 854 376 56 309 741

Total 1, 016 470 227 1, 713 1, 380 461 360 2, 201 1, 164 408 309 1,881

Sec. 211(h):

General counsel 30 98 128 51 51 60 60 Finance and operations 103 215 318 104 465 569 112 252 364 Other support 135 18 67 220 106 17 90 213 94 14 77 185

Total 268 331 67 666 261 482 90 833 266 266 77 609

Final system plan:

General counsel 151 489 640 Finance and operations 2, 371 4, 926 7, 297 Other support 1, 372 179 680 2,231

Total 3, 894 5, 594 680 10, 168

Total 6,646 8,735 1,334 16, 715 4,299 7,910 1,125 13, 334 4,049 5,086 965 10, 100

t\.,
C. REQUIREMENTS BY OBJECT CLASS

[In thousands of dollars'

Fiscal year

1976

actual

Transition

quarter

actual

Fiscal year

1977

estimate

Fiscal year

1978

estimate

Fiscal year

1976

actual

Transition

quarter

actual

Fiscal year

1977

estimate

Fiscal year

1978

estimate

I-1

CA

Personnel costs__ _ 6, 187 1, 061 3,950 3,730 Equipment purchase and rental 82 47 75 75

Travel 

Transportation of things (relocation) 

Rents, communications, and utilities 

384

65

669

67

18

287

284

55

610

259

50

510

Contracts 

Other contractual services 

8, 735

195

3, 282

20

7, 190

180

5, 086

170

Printing and reproduction 253 8 150 100

Supplies 145 25 120 120 Total 16,715 4,815 13,334 10,100
D. REQUIREMENTS BY MAJOR CATEGORY OF EXPENDITURE

[In thousands of dollars]

Fiscal year 1976 actual Transition quarter actual Fiscal year 1977 estimate Fiscal year 1978 estimate

Personnel Personnel Personnel Personnel related related related related costs Contracts Other Total costs Contracts Other Total costs Contracts Other Total costs Contracts Other Total

Executive direction 1,311 135 1,446 113 113 403 15 418 421 421 General counsel 605 1, 954 2, 559 222 750 972 1, 035 2, 655 3,690 1, 191 2, 200 3,391 Finance and operations 3, 350 6,430 9, 780 548 2,459 3,007 1,937 5, 040 6,977 1, 682 2,711 4, 393 Administration 1, 380 216 1,334 2, 930 263 73 387 723 924 200 1, 125 2, 249 755 175 965 1,895

Total 6, 646 8,735 1, 334 16, 715 1, 146 3, 282 387 4, 815 4, 299 7, 910 1, 125 13, 334 4, 049 5, 086 965 10, 100
15

Mr. ROONEY. Thank you very much, Mr. Chairman, for your

enlightening presentation.

Concerning the USRA staff reduction, you stated in your testimony

you sharply reduced the number of high-salaried positions, yet added

31 people to your legal staff, with 20 additional people for litigation

support.

My question is, Mr. Chairman, is there really, then, a substantial

reduction in staff expenses?

Mr. LEWIS. I would like to ask our Vice President for Administration

to specifically answer that.

Mr. DEAN. Yes, Mr. Chairman, because the increased in-house

legal capability has been more than offset by the reductions that have

taken place in other aspects and other offices of the Association. For

example, the budget estimate that we testified to in the House provides for a personnel services cost of $3,730,000 for the 1978 fiscal year.

For the current fiscal year, our personnel services costs are at $3,950,-

000. Thus the 1978 estimate projects a substantial reduction.

We are also reducing our total staff in numbers. Including the

employees of the General Counsel, the total staff of the Association

will decline to 132 employees by the end of the fiscal year.

At the present time, we have about 146 employees on board.

Mr. ROONEY. How many were transferred from USRA to ConRail?

Mr. DEAN. Thirty-four employees have gone from USRA to ConRail.

Mr. ROONEY. I wonder if you would comment on in-house attorneys

that cost about as much as one-third as outside legal firms. These

firms, I understand, cost $180,000 a month. Why don't you, in that

case, in order to save money, hire in-house attorneys?

Mr. LEWIS. I will ask Mr. Dickieson to answer that.

Mr. DICKIESON. We did that. We went from a total of seven

attorneys that were on the rolls at the time of conveyance to the,

present total of 21 attorneys. We felt that was the largest number we

could absorb at this point in time. It was also a level we felt comfortable with in that we would clearly have an adequate amount of work

to keep them fully occupied. It is, in effect, a peaking problem.

Mr. ROONEY. On page 8 of your statement, Mr. Chairman, and I

will direct this to your Counsel, you state you contracted out for outside counsel at $240,000. Why didn't you do this as an in-house

operation?

Mr. DICKIESON. The primary work that the outside counsel has been

doing for us over the past few years falls into two general areas.

One area is to prepare the major briefs and to present the arguments

before the special court on the basic valuation issues in the proceedings. We could not have geared up the inside office to have

handled that as well as they can handle it. Another major area in

which they have been working has been in guiding the development

of our valuation case, which will be the foundation for the basic

testimony we will be presenting in the case.

It was necessary to use outside counsel, both because of their greater

experience, and because, at that point in time, the in-house staff was

primarily being used as part of the planning process.
16

Mr. DEAN. Mr. Chairman, I would like to add that the figure you cited from page 8, the $240,000, really applies to the cost of monitor- ing the section 211(h) program. Actually, we are reducing the monthly

rate for the legal contracts from $180,000 to $150,000.

Mr. SANTINI. On the point of the employment of attorneys, do

you think it would be appropriate for this committee to consider a

threshold figure of six points that in the local association would provide

a source for employment?

Mr. ROONEY. As you well know, Mr. Santini, I have often referred

to the Railroad Revitalization Regulatory Reform Act of 1976 as really the "Lawyers' Relief Act."

Mr. SANTINI. It is most appropriate.

Mr. ROONEY. I think your budget today bears this out to a degree.

I wonder if you could explain briefly to the committee what all these in-house and out-house lawyers are doing to prepare for the court

case?

Mr. SANTINI. Mr. Chairman, I must interject, and I don't know that one follows the other. I don't know where the expression "in- house" came from. I do know where the expression "out-house"

came from.

Mr. ROONEY. Do you want to comment on that?

Mr. DICKIESON. At the present time, our two outside counsel firms are primarily involved in preparing the briefs and arguments

to the special court, and in assisting in the preparation of the basic testimony, in the case, itself.

The inside lawyers that we have hired since April of 1976 have

been working initially in a variety of areas. First, we have taken in- house all the miscellaneous litigation in which the Association participates. Second, we are now 

Mr. SKUBITZ. What do they participate in, for example?

Mr. DICKIESON. The Association is involved in a total of about 10

or 12 lawsuits before the special court flowing out of the conveyances

to ConRail. The Penn Central trustees have filed several suits against

ConRail, and against ourselves, relating to the conveyance of properties.

Mr. SKUBITZ. That is a part of the total picture. Penn Central, I

think has indicated that their participation was worth around $16 billion; is that correct?

Mr. DICKIESON. They have used a number that high, at times.

Mr. SKUBITZ. I would assume that would include the very things

you are talking about right now.

Mr. DICKIESON. These relate to properties which they say we did

not have the authority to convey to ConRail and which they want

back. So, they are a separate aspect.

Mr. SKUBITZ. In other words, those outside firms you have hired

have nothing to do with these cases?

Mr. DICKIESON. That is right. We have handled those in-house.

We also handle in-house any legal activities required under the

section 211(h) program. In our handling of the main valuation case,

we are steadily increasing the amount of work we do in-house. The

discovery process, the analyzing of our basic documents and the

collection of data for our trial preparation is now being done in-house.

111111M1
17

Mr. ROONEY. Mr. Chairman, it has been brought to my attention

that a number of parties have approached ConRail for the purpose of

acquiring property conveyed to it in accordance with the final

system plan. As I understand it, some of the parties contend that the

properties in question are not necessary to rail operations and should

not have been conveyed.

I am asking you, would it be possible to fine-tune the conveyance

decisions and to recall certain properties without opening up the

entire final system plan or jeopardizing the valuation of the court

case? I understand Mr. Jordan has issued an order that no properties

whatsoever would be conveyed. There are many of them, as was

suggested, that are not part of the ConRail system.

Mr. LEWIS. I haven't heard of any order he has made like that. I

will look into it and determine it. We are in the process of fine-tuning

the whole conveyance process at the present time, and working not

only with ConRail but with the trustees in attempting to determine

those properties that are clearly not being used in rail service and

that might be returned to the estates.

On the other hand, ConRail is asking for certain properties and

parcels of property and land that were not conveyed. There have been

some exchanges—and Mr. Dickieson, under whose jurisdiction this

comes, can talk to that a little more precisely than I can—and there is

a mechanism today for working out arrangements between the trustees

and ConRail on these properties.

Mr. ROONEY. It seems to me that many of these properties throughout the entire system are decaying rapidly. Many of the local municipalities want to encourage businesses to come in and take them. In

other words, why can't you enter into some long-term arrangement,

with the right of first refusal?

Mr. LEWIS. I will let Mr. Dickieson tal, to that part of the problem.

Mr. DICKIESON. That would be something that ConRail could do

if it chose to. If I may, I will explain a little bit about our conveyance

process. The Association, back in the fall of 1975, when it published

the Final System Plan was, in fact, only beginning a very complicated

matter. Between July of 1975 and the conveyance in March of 1976,

there was a very elaborate process that was undertaken, in which the

trustees would nominate or identify parcels of property along these

lines that were to be conveyed which they felt were not required for

ConRail's future operations and which they retained the ownership

of.

There would be meetings between the trustees and ConRail and

USRA, at which it would be determined whether or not the properties

were, in fact, needed for ConRail's anticipated operation. The correction process that is now going on is an endeavor to go back over the

actual conveyance documents to make sure they reflect the intent of

these literally thousands of decisions on these parcels.

This is, again, a consentual process, in which the trustees' representatives, ConRail's and our own, meet together. We have come across

virtually no instances in which the properties that we intended to be

conveyed, are not, in fact, being used by ConRail in the manner we

anticipated they would be.

Mr. ROONEY. I would appreciate very much your discussing this

with Mr. Jordan.
18

Mr. LEWIS. Yes; and I will report back to the committee.

Mr. ROONEY. Mr. SKUBITZ?

Mr. SKUBITZ. Thank you, Mr. Chairman.

Mr. Lewis, I think you have made one very significant statement

here when you say that the stakes are high in this game.

Mr. LEWIS. Yes, sir.

Mr. SKUBITZ. And they are very high. I think that because they

are—a full million dollars here or there could mean billions down the

road. I am going along with this request, but I would like to ask a

question. You have increased your legal staff from 17 to 46. What are

the salaries you pay the lawyers?

Mr. DICKIESON. We pay salaries competitive with the salaries paid

by the Government.

Mr. SKUBITZ. Now, give me the salaries.

Mr. DICKIESON. The salaries depend on the experience of the in- dividual. Mr. Dean has the precise figures. The bulk of the people

we have hired—we have 21 attorneys. Of these 

Mr. SKUBITZ. You are going to go to 48.

Mr. ROONEY. That is the total personnel, clerical personnel, paralegals, and the like?

Mr. DICKIESON. Eleven of the people we have hired are paralegals.

Mr. SKUBITZ. What is a paralegal?

Mr. DICKIESON. Generally speaking, it is a college graduate who

has gone, as well, through a technical course and trained as a legal

assistant. They are very useful in organizing and analyzing the

massive amount of documents.

Mr. SKUBITZ. Anything is useful. How much do you pay the

paralegals?

Mr. DICKIESON. $11,000 a year.

Mr. DEAN. The facts for each category of lawyers are as follows

The junior attorneys are paid an average of $18,000 per annum;

senior attorneys $26,000 per annum; deputy assistant general counsels, $36,000 per annum; and $47,000 per annum for an assistant

general counsel.

Mr. SKUBITZ. Can you give me a breakdown for how many you

have in each classification?

Mr. DICKIESON. We would have, taking it from the top—we have

four individuals that are assistant general counsel.

Mr. SKUBITZ. What do they draw?

Mr. DICKIESON. That is the one that is on the average of $47,000.

Mr. SKUBITZ. They average $47,000?

Mr. DICKIESON. That is correct.

Mr. SKUBITZ. They draw more than Congressmen.

Mr. ROONEY. That is $10,000 less.

Mr. SANTINI. Would the gentleman yield? Do you--

Mr. SKUBITZ. You know, I promised to support, in your bill 

Mr. SANTINI. Just a point. Do you have, in deference to the gentleman from Kansas, any unemployed teachers presently on your working ranks?

Mr. DICKIESON. Not as far as I know.

Mr. SANTINI. Maybe we can strike a balance-18 former teachers

and 18 attorneys. I thank the gentleman for yielding.

Mr. SKUBITZ. Four assistant general counsel at $47,000.
19

Mr. DICKIESON. We have three deputy assistant general counsel.

Mr. SKUBITZ. What is their salary?

Mr. DICKIESON. An average of $36,000. Six senior attorneys, and

they average $26,000, and six attorneys 

Mr. SKUBITZ. What do the six attorneys average?

Mr. DICKIESON. $18,000.

Mr. SKUBITZ. Now, getting into background and experience of

these attorneys, clear up to the assistant counsel and four assistant

general counsel that you have, how many of them have had outside

legal training; courtroom practice and this sort of thing?

Mr. DICKIESON. All of them are not directly involved in the litigation. One works primarily in finance and one is primarily in the general

law area. The assistant general counsel, who handles general law matters, conveyances, and other matters, is 61 years old and has a great

deal of legal experience.

Mr. SKUBITZ. All four of them had legal experience. They are not

just moved along from Government?

Mr. DICKIESON. Both litigation assistants have extensive experience

in private law firms.

Mr. SKUBITZ. What about the three deputies?

Mr. DICKIESON. They have been in private practice and with the

Government.

Mr. SKUBITZ. Would you submit for the record the experience and

background and former employment of the top seven people?

Mr. DICKIESON. We would be glad to do that.

[The following material was received for the recordl
20

STEPHEN C. ROGERS

DEPUTY GENERAL COUNSEL - LITIGATION

Education:

Preparatory: Phillips Exeter Academy

Exeter, New Hampshire

Graduated 1959

College:

Law School:

Harvard College

Cambridge, Massachusetts

A.B. 1962

Georgetown University Law Center

Washington, D.C.

J.D. 1968

Class Rank: 5th in class of 238

Activities: Case and Note Editor, Vol. 56,

Georgetown Law Journal 

Bar: District of Columbia; Member, Legal Committee (1973-74)

Employment Experience:

Sept. 1962-Sept. 1965: Copyboy (4 months) and reporter for

the Washington Post

Summer 1967: Summer associate, Dewey, Ballantine, Bushby,

Palmer & Wood, New York City

1968-1969: Law Clerk to Judge James R. Browning, U.S. Court of

Appeals for the Ninth Circuit, San Francisco, California

Sept. 1969 to present: Associate, Covington & Burling, 888 Sixteenth St.,

N.W., Washington, D.C. 20006. The major focus of

my work has been in litigation in antitrust and

related trade regulation areas. It has included

participation in matters before federal trial and

appellate courts; adjudications adn investigations

before the Federal Trade Commission; proceedings

under the Antidumping Act of 1921 before the

U.S. Tariff Commission (now International Trade

Commission); and miscellaneous other matters

before other federal administrative agencies.
Admitted:

Fall 1970 

to Present 

21

G. JOSEPH KING

ASSISTANT GENERAL COUNSEL - LITIGATION

United States District Court and United States Court of

Appeals for the District of Columbia; and United States

Supreme Court.

Experience

Associate, Howrey & Simon, 1730 Pennsylvania Ave., N.W.

Washington, D.C. 20006. -- I have worked predominantly on

antitrust cases with principal responsibility for preparing

all pleadings and briefs at both the trial and appellate

levels (copies available upon request). I take depositions

regularly, make trial court appearances, have been involved

in major trials, and argue appeals. Because of my close

association with William Simon, I have acquired considerable

experience in procedural matters and trial tactics, and

have developed an ability to litigate aggressively.

Additionally, I have worked on FTC cases, one ICC and one

bankruptcy proceeding, and several merger matters in

which I have developed expertise.

1969-70 Law Clerk to the Honorable Gerald McLaughlin, Senior Judge,

Term of Court United States Court of Appeals for the Third Circuit.

U.S. Courthouse, Newark, New Jersey, 07102. Telephone:

(201) 645-3483.

1969-70 Lecturer, Department of Economics and Business Administration,

Academic Year Wagner College, Staten Island, New York. I taught introductory

courses in "Principles of Economics I and II", and an

advanced undergraduate and graduate course (M.B.A.),

"International Trade". Department Head: Dr. Charles L. Kramer.

1968-69 Law Clerk to the Honorable Anthony T. Augelli, then Chief

Term of Court Judge, United States District Court for the District of

New Jersey. Judge Augelli is now the Arbitrator for the

General Motors Corporation, with offices at Gateway One,

Suite 2501, Neward, New Jersey, 07102. Telephone:

(201) 622-4996.

July 1967-

June 1968 

Economist, Banking Markets Section, Board of Governors

of the Federal Reserve System, Washington, D.C., 20551.

Primarily, I analyzed the competitive effects of bank

mergers and bank holding company formations and acquisitions

and prepared memoranda thereon for the Board; I attended

Board meetings at which these cases were considered.

Supervisor: Dr. Bernard Shull, currently Professor of

Economics, Hunter College, New York, New York. Joe M. Cleaver,

with whom I worked at the Board, is now section chief.

Telephone: (202) 452-3905
January - 

July 1967 

1964-1966 

1963-1964 

1964-1968

1963-1964 

1959-1963 

22

Legislative Assistant, Department of the Interior,

Washington, D.C. 20240. I drafted legislation and wrote

departmental reports on various bills for congressional

committees. I also prepared testimony for delivery at

congressional hearings by departmental witnesses. I

attended many hearings as an observer and prepared memoranda

thereon. The Deaprtment sponsored my attendance at a

40-hour U.S. Civil Service Commission course, "An

Institute in the Legislative Function". Superviros:

Frank Harrison, Esquire. Telephone: (202) 343-1100

Economist, U.S. Tariff Commission (currently U.S.

International Trade Commission), Washington,D.C. 20436.

I prepared reports for the Commission on the eocnomic

effects of tariffs, imports, and trade agreements on

specific firms, groups of workers, and affected industries,

and on international trade in various commodities.

Supervisor: Dr. David Lynch, Chief Economist, now retired.

I worked in large part under the direction of G. Patrick

Henry, who retired as the Commission's Director of

Investigations. Telephone: (301) 593-2362

Teaching Assistant, Department of Economics, University

of Notre Dame. As a first-year assistant, I was engaged

in research under various faculty members; primarily, I

worked on a project concerning the natural gas industry

for the department head, Professor T. J. McDonough.

Education 

Georgetown University Law Center, Washington, D.C. J.D.,

June 1968. Member of Phi Delta Phi; and Vice President,

International Law Society. The Faculty Clerkship Committee

endorsed me for certain Federal and high State Court judicial

clerkships.

Notre Dame Graduate School, South Bend, Indiana. A.M.

in Economics, August 1964. I was offered a position as a

teaching assistant until completion of doctoral studies in

Economics.

Manhattan College, Riverdale, New York. B.A., June 1963.

Majors: History and Economics. Vice President of Pre-Law

Society. I held a New York State Regents Scholarship for

four years.
23

Publications 

Co-authored, with A. Duncan Whitaker, "Antitrust Considerations For The

Oil Industry -- From the Producing Fields To The Service Station".

Proceedings From The Southwest Legal Foundation Twenty-Fourth Annual

Institute On Oil And Gas Laws And Taxation, 25-109 (1973).

"Normative Elements in Economics: Comment", 26 Review of Social Econora

37-39 (March 1968).

Affiliations

District of Columbia and American Bar Associations. I am a member of the

American Bar Association's Antitrust Section (Committee on Private Antitrust

Litigation); Section on Corporate, Banking and Business Law; International

Law Section; and the Litigation Section. Also, I am a member of the National

Lawyers Club.

m11
24

FRANCIS P. DICELLO

DEPUTY ASSISTANT GENERAL COUNSEL - LITIGATION

PRESENT EMPLOYMENT Senior Trial Attorney, Tax Division, U.S. Department of

Justice. I have been an attorney with the Tax Division of the Department of

Justice since October, 1970. In June, 1975, I was promoted to the position

of Seniro Trial Attorney in the General Litigation section of the Tax Division.

In the course of my employment with the Department of Justice I have had primary

trial responsibility for a docket averaging in excess of seventy cases in

United States District Courts throughout the United States. These cases have

included both collection and refund actions in which a determination of corporate

or individual income tax, excise tax, payroll or responsible officer tax

liability was sought. In addition these cases have included actions for

injunctive relief and actions involving a determination of priority between

federal tax claims and the claims of secuared creditors and other third parties.

In the past two years I have also represented the U.S. in a number of major

proceedings for the reorganization or arrangement of a corporation pursuant to

Chapters X or XI of the Bankruptcy Act in which the U.S. had a contested

claim for taxes or a question arose as to what property should properly be included in the estate of the debtor for application to the claims of creditors.

As Senior Trial Attorney my duties have also included some supervision of and assistance to other attorneys in the preparation of their cases for trial.

PREVIOUS EMPLOYMENT During the period from 1966 to 1970 I served as a captain

in the Judge Advocate General's Corps of the U.S. Army. In assignments at

Fort Bragg, North Carolina, Fort Myer, Virginal and in Vietnam, I served in or

supervised offices which provided legal aid to military servicemen and their

dependents. During this time I also served as prosecutor or defense counsel

in over forty General or Special Courts-Martial. These cases included contested

charges of Assault, Assault with Intent to Commit Mruder, Larceny, and Possession

and Sale of Certain Narcotic Drugs.

EDUCATION I graduated from the University of Notre Dame with a Bachelor of Arts

degree with a major in history in 1963, and from the Fordham University School

of Law in 1966. I have completed twelve semester hours of graduate work in

taxation at Georgetown University School of Law and George Washington University

School of Law. In addition, I have attended recent ALI-ABA Seminars on the

Rules of Bankruptcy Procedure and on Reorganizations and Arrangements under

the Bankruptcy Act.
25

ROBERT J. ROSS

DEPUTY ASSISTANT GENERAL COUNSEL - LITIGATION

EDUCATION: Law School: Wayne State University, J.D. 1970

Undergraduate: University of Michigan, A.B. in History and

Economics 1966

WORX EXPERIENCE:

September 1974

to present:

August 1971 to

August 1974:

August 1968 to

August 1971:

1967 to 

August 1968:

Trial Attorney with the U.S. Nuclear Regulatory Commission,

Office of the Executive Legal Director, Bethesda, Maryland.

This position involves advising the Commission's Staff on

legal matters relating to nuclear energy, representing the

Staff in adversary public proceedings for the licensing of

nuclear facilities. Representation of the Staff at these

proceedings involves motion practice, discovery, preparation

of witnesses and testimony presentation of evidence, crossexamiantion, oral argument and preparation of appellate

briefs.

Associate Attorney with Hill, Lewis, Adams, Goodrich and

Tait, Attorneys at Law, Detroit, Michigan, a 30-man

private law firm. My practice involved civil and criminal

litigation, and included experience in motion practice,

pleading preparation, discovery, and representation of

clients at trial, both jury and non-jury. In addition,

I was engaged in estate planning, probate practice and

some corporate work.

Trust Officer, Manufacturers National Bank of Detroit,

Detroit, Michigan. While a Trust Officer, I supervised

approximately 150 probate estates, inter-vivos and testamentary

trusts, agency accounts and investment accounts in which the

bank served as fiduciary. Experience included accounting,

investment analysis and probate administration.

Trust Administrator, Bank of the Commonwealth, Detroit,

Michigan. This position involved aiding a trust officer

in managing probate estates.

BAR ADMISSIONS: State Bar of Michigan - January 1971

U.S. District Court - Eastern District of Michigan - 1972
26

HOWARD M. WILCHINS

DEPUTY ASSISTANT GENERAL COUNSEL - LITIGATION

Admitted: U.S. Court of Appeals for the District of Columbia

U.S. District Corut for the District of Columbia

Member: American Bar Association

Federal Bar Association

District of Columbia Bar Association

Work Experience: July 1972 to Present - Trial Attorney with the United States

Nuclear Regulatory Commission (formerly the United States

Atomic Energy Commission), Bethesda, Maryland. I participate

in regulatory licensing proceedings for nuclear power

facilities and am concerned with all facets of these cases,

including radiological, environmental and financial problems.

These proceedings involve complex negotiations with multiple

parties, a significant amount of prehearing discovery, advice

to expert witnesses in the preparation of their direct

testimony, preparation of witnesses for cross-examination

and, when necessary, oral argument before the hearing boards

of the Commission. In April 1974, I was promoted to the

position of deputy section chief and, in addition to my

prior duties, aid in the supervision of staff attorneys.

In August 1974, I was appointed legal advisor to a committee

charged with developing Commission policy regarding financial

qualifications required for licensing applicants.

March 1972 to June 1972 - Associated with Kirsten, Solomon

and Friedman, a firm located in Neward, New Jersey. Most

of my time was divided among securities law, plaintiff's

antitrust cases and all facets of public utility law.

June 1970 to February 1972 - Special Assistant to the

New York Public Service Commission, in Albany, New York.

The primary purpose of my psoition was to write analyses

of rate proceedings and applciations for certificates of

environmental compatibility for the Commission and to

prepare Commission decisions. These cases encompassed

virtually every type of regulated industry, including gas,

electricity, water, telephones, buses and trucks. I also

had the opportunity to participate in all aspects of public

utility rate proceedings.

June 1969 to May 1970 - Attorney with the Federal Power

Commission, General Counsel's Office in Washington, D.C. I

was associated with the Area Rate Division and was concerned

with the regulation of the wholesale price of natural gas at

the wellhead. My specific assignments ranged from the

preparation of economics witnesses in rate cases to assisting

in the completion of appellate briefs.
Education:

27

Summer 1968 - Law Clerk with the Department of Justice,

Civil Rights Division, in Washington, D.C.

1966 - 1969 - The University of Chicago Law School,

recieving a J.D. degree in 1969

1962 - 1966 - Michigan State University, being

recruited for a special honors program and

receiving an A.B. degree in economics, with

high honors, in 1966.

Honora & Awards: Law School - 1968-1969 Scholarship recipient

College - Phi Eta Sigma, Tau Sigma, Blue Key,

Omicron Delta Kappa, 1964-1965 Michigan State Outstanding

Junior Award.

Extracurricular Activities:

Law School - Fall 1967 Entrant in the Hinton Moot Court

Competition, 1968-1969 representative to the Law

Student Association

College - Vice President of the Student Body,

Speaker of Student Congress, President of Tau Upsilon

Chapter of Tau Delta Phi Fraternity

Miscellaneous Background:

I am a member of the Public Utility and Antitrust Sections

of the American Bar Association participating on the

Subcommittee on Fuel and Energy of the Industrial

Regulation Committee of the latter section. I am an

active member of the District of Columbia Chapter of

the University of Chicago Alumni Club.
28

EDWIN RECTOR

ASSISTANT GENERAL COUNSEL - FINANCE

EXPERIENCE

April 1974 to Director, Bureau of International Affairs,

Present Civil Aeronautice Board.

Chief staff responsibility for the legal and economic

analysis and preparation of recommended positions for

the United States Government in international negotiations

on the exchange of civil aviation operating rights.

Served as primary advisor to Members of the Civil

Aeronautics Board on United States international civil

aviation rights, obligations and policies; and

the interpretation of international air transport

agreements and conventions.

June 1971 to

March 1974

Special Assistant to the Chairman, Civil Aeronautics 

Board. 

Responsible for congressional and intra-governmental

matters of concern to the Chairman. Served as the representative of the Chairman in international negotiations

of civil aviation operating rights.

January 1970 to Staff Assistant to the President of the United States 

June 1971 Responsible for implementation of Presidential

personnel policies; including staffing of Presidential

level and policy making positions within the Executive

Branch and interpretation of conflict of interest

statutes and regulations.

March 1969 to Legislative Assistant.

December 1969 U.S. Congressman Clarence E. Miller, 10th District,

Ohio. Responsible for drafting and analysis of legislation

presented to the U.S. Congress and its committees;

formulation of press releases and policy statements

issued by the Congressman. Legislative coordination

with various Committees of the U.S. Congress.

December 1966 to Chief Claims Officer.

January 1969 For all U.S. Government activities -- civil and military --

in the country of Greece. Responsibilities included

preparation, submission, prosecution and settlement of

international claims in favor of the United States;

as well as defending and negotiating settlement of

claims against the United States under U.S. Statutes

and the NATO Status of Forces Treaty.
EDUCATION

29

Highland Park High School; Topeka, Kansas.

Graduated First in a class of 130.

U.S. Naval Academy; Annapolis, Maryland.

Bachelor of Science degree, with distinction. Dean's

list 7 of 8 semesters. Graduated 35th in a class of 791.

Georgetown University School of Law; Washington, D.C.

Juris Doctor degree. American Jurisprudence Prize

for excellence in study of the administration of

criminal justice.

University of Oklahoma; Norman, Oklahoma. M.A. in

Economics. Elected to Omicron Delta Epsilon, National

Economics Honors Society.
30

DOUGLAS L. SIEGEL

ASSISTANT GENERAL COUNSEL - GENERAL LAW

EDUCATION:

City College, New York, B.S. - 1938

Brooklyn Law School, L.L.B. - 1937

Brooklyn Law School, J.S.D. - 1939

EXPERIENCE

1974

1969

to

to

1975

1974

Acting General Counsel, United States Railway Association

Director, Office of Installations and Logistics

Department of Transportation, Washington, D.C.

1967 to 1969 Chairman, Department of Transportation Contract Appeals

Board, Wahsington, D.C.

1962 to 1967 Associate General Counsel, Federal Aviation Agency,

Washington, D.C.

1958 to 1962 Senior Attorney, Office of the General Counsel, Federal

Aviation Agency, Washington, D.C.

1957 to 1958 Counsel to the Airways Modernization Board, Washington, D.C.

1948 to 1957 Attorney, Office of the General Counsel, Civil Aviation

Administration, Washington, D.C.

1946 to 1948 Contracts and Claims Attorney, Army Chemical Corps

Procurement Agency; Legal Asisstant, The President's

Amnesty Board; Price Attorney, Office of Price Administration

1941 to 1946 Military Service, U.S. Army, Private to First Lieutenant

1938 to 1941 Private Law Practice
31

Mr. SKUBITZ. The reason I asked the question is I started on Capitol

Hill, years ago, as an administrative assistant. We were getting $3,900

for the job. They are doing that same thing today that we did when I

was here and now they are up in the $40,000 bracket.

Mr. SANTINI. Would the gentleman yield?

Mr. SKUBITZ. And not doing any work either.

Mr. SANTINI. During the same period of time, if the gentleman will

recall Union Army sergeants were only making $72 every 2 months.

Mr. SKUBITZ. We will have to forgive the gentleman from Nevada.

He has only been here a short while. He doesn't quite understand what

this is all about.

This doesn't really have anything to do with your problem here

today, Mr. Lewis, but I remember when we had ConRail before us,

last fall, I believe it was, and we required that the Secretary of Transportation and the Secretary of the Treasury had to serve on the Board,

as I recall. They had to attend the Board meetings.

Mr. LEWIS. Yes.

Mr. SKUBITZ. When this legislation left this body, we made no such

requirement. But a newspaperman got the story and he leaked the

story out. The net result was that the Senate got ants in their pants

and put the clause in there that the Secretary of the Treasury and the

Secretary of Transportation had to be present. We, on our side, had

backbones like a piece of macaroni, and went along with them.

We have changed administrations. Do you think we ought to change

the law and make it possible for the Secretary of Transportation to

send a high-ranking man, and the Secretary of the Treasury to do the

same thing?

Mr. LEWIS. The present law says that the Secretary of Transportation and his deputy, the Under Secretary or Deputy Secretary of

Transportation could serve; and the same thing is true with the

Secretary of the Treasury, the Deputy Secretary of the Treasury

could. I don't have a strong feeling about it one way or the other, Mr.

Skubitz. I think that one of the problems that occurred was some of

the Departments were not looking upon this as a very important

assignment and the people sent to represent—at least one of the

Departments, Treasury—were not interested in the fundamental,

substantive areas of concern.

This was a decision by the Congress. There had been a large number

of people representing the Department over a period of time. The

Secretary of the Treasury never attended a meeting. I never discussed

one substantive thing with the Secretary of the Treasury in the

years' time he was there. As to governmental representation now on the

USRA Board, I don't really care one way or the other. It depends upon

what the Congress wants.

Mr. SKUBITZ. Could it have been that those matters were handled

by someone else within the Department far more knowledgeable

than that Secretary was?

Mr. LEWIS. In some cases, it was true but in some it was handled

by somebody that was not informed.

Mr. SKUBITZ. If somebody wanted a job in your agency would

they start above them? If I wanted to get a job for somebody in

your agency, I don't start with you, I start with somebody below you.

I have no further questions, Mr. Chairman.
32

The chairman has reminded me of something I should have asked

you. You said that one of your duties was to monitor the $19 million

loan to Katy. Would you tell me whether the new loan Secretary

Coleman negotiated is on this loan?

Mr. LEWIS. There is a loan that we made 2 years ago to the Katy

for the rehabilitation of some of their lines down in the area of Texas,

outside of Houston. They have completed, or nearly completed.

that project. The company is doing somewhat better than we forecast it would do.

The loan agreement has worked out well. The one we negotiated

with the Katy has, so far, worked out well. Included in that loan

agreement was a repayment schedule based upon the extent in which

the Katy holding company, Katy Industries, received tax benefits

from the losses of the Katy Railroad. That has proceeded—and we

have benefited from that. Now, that work is going on. It is outstanding. They have completed their work, or at least within the

last 10 to 15 percent of it.

They have asked for another loan, in addition to that, a guaranteed

loan, which comes under the authority of the Secretary of Transportation. We are currently analyzing that—because we must give approval

to it—to see if it impacts adversely the operations of the Katy in

such a way as to make our earlier loan less secure.

We are currently in the process of analyzing that second loan.

Mr. SKUBITZ. I see.

Mr. LEWIS. But this comes under the Department of Transportation.

Mr. SKUBITZ. Will you keep me advised on what is going on?

Mr. LEWIS. Yes, we will.

Mr. ROONEY. Mr. Santini.?

Mr. SANTINI. No questions, Mr. Chairman.

Mr. ROONEY. I have just two more questions, Mr. Chairman.

As a Government corporation, the Association's financial statements, I understand, are audited by the General Accounting office,

at least every 3 years; is that correct?

Mr. DEAN. Yes, sir.

Mr. ROONEY. What have been the results of the audits by the GAO?

Mr. LEWIS. We have had a small—you might say a restricted—

audit of our activities in the latter part of 1974. They are currently

auditing us, really, for the first time on a broad scale. That process

is not completed I am not able to give you any comments about that

until it is completed.

Mr. ROONEY. Has GAO ever had to qualify its opinion on your

audits?

Mr. LEWIS. Not in a normal sense of the word. The GAO has

recognized we operate under special rules set up by the Secretary

of Transportation. These regulations take full cognizance of the special

kinds of problems we have.

The original statement indicated that if we had, followed standard

Government procedures, we would have had some conflict of interest.

On the other hand, in terms of the conflict rules set up by the Secretary of Transportation, I do not believe there were any conflicts of

interest. Also, we have an ability to contract without the normal

competitive procedures in order to expedite our work.
33

Again, in commenting on it, they simply indicated that we had

utilized those special rights and had not at all times used competitive

bidding procedures. Mr. Dean, did they have any other comments?

Mr. DEAN. Those were the two principal points. There was, at

that time, some disagreement about how the word "competitive" was

used. We went competitive in the sense that the law gave us discretion

in this area. If we sought two or more possible bidders, we felt it was

competitive. We are familiar with the Federal procurement regulations, which do not apply to us. GAO auditors felt we might be using

the term in instances in which regular agencies were not. But that

was not a serious difference.

They also suggested that we record on our books certain improvements to our premises as assets, which we readily agreed to do. That

was about all, for the audit took place only about 2 months after we

were activated.

GAO is now in the latter stages of our first comprehensive audit

and we are working very closely with the auditors. We rely on the

GAO as a fine group of professionals to review us independently from

time to time.

Mr. ROONEY. One final question. Has a phaseout plan been developed for USRA?

Mr. LEWIS. No, we haven't anticipated a phasing-out plan prior

to completion of the litigation in the case. We have projected what

we think are the litigation requirements in the next year or two in

attempting to define what we need to do.

We see the litigation going on a heavy scale for 3 to 4 years, in

heavy operation, and maybe, considerably beyond that point in terms

of appeals and things of that sort.

But, the funding of ConRail is a relatively short-term thing. In

another 2 years, 1978-79, it will be just about completed. But the

real requirement for USRA, special status and the like, in my mind,

is to give us flexibility to handle that legal case as effectively as possible. As you may know, the Department of Transportation and the

Justice Department have requested us to lead the litigation on behalf

of the Government.

Mr. ROONEY. There is a possibility the duties and responsibilities

of USRA could be transferred to DOT.

Mr. LEWIS. I would guess it could, under some special arrangement,

but I would think you wouldn't want to do that for at least another 2

or 3 years.

Mr. ROONEY. Mr. Murphy?

Mr. MURPHY. No questions, Mr. Chairman.

Mr. ROONEY. Thank you very much, gentlemen.

Are there any further questions?

If not, the meeting stands adjourned.

[Whereupon, at 11 o'clock, the subcommittee adjourned.]

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