Conrail: getting signals that it's heading for roundhouse
Washington — It now seems certain that Uncle Sam soon will be doffing his freight train engineer's cap for good. The Reagan administration wants to sell the federally subsidized Consolidated Rail Corporation (Conrail). Despite strong opposition from railroad employees and some local officials whose regions could be affected, movement in Congress indicates that the question now is one of "when" and not "if."
So far this week: Transportation Secretary Drew Lewis announced that Conrail's major customers (including the three largest automakers, General Electric, Bethlehem Steel, and the American Farm Bureau Federation) support the administration proposal; the Senate Commerce Committee approved the Reagan plan; and a Democratically controlled House transportation subcommittee voted an alternative bill that continues federal rail freight subsidies for a time but still envisions turning Conrail over to private railroad companies.
Conrail assumed control of the Penn Central and six other bankrupt railroads in 1976.With help from Washington, it was supposed to become "an economically viable system capable of providing adequate and efficient rail service." Instead , it has absorbed $1.8 million a day in federal subsidies totaling some $3.3 billion. Net losses, which had been projected as $200 million through 1980, now total closer to $1.5 billion.
Still, supporters say the system is vital to the 14 Northeastern and Midwestern states it serves. It ranks only behind the Burlington and Northern Railroad in amount of freight it carries. A smaller part of its business also provides transportation for 231,000 commuters in five Northeastern states.
There are several reasons for Conrail's financial difficulties. It is concentrated in an area whose economy in recent years has lagged behind the rest of the country. While tonnage has fallen below anticipated figures each year of its existence, the cost of upgrading track and equipment has grown.
The biggest impediment of its financial viability, however, has been labor costs. The number of employees has dropped from 100,000 to 80,000 since Conrail was formed. But labor costs consume 56 percent of Conrail's revenues, compared with less than 50 percent for the industry overall and 42 percent for more profitable lines.
Particularly grating to Conrail's critics are contract provisions that essentially guarantee lifetime jobs until retirement age. Unions demanded such protection as their price for supporting Conrail. There is general agreement that no private railroad would buy a portion of Conrail with such a long-term, no-benefit cost as part of the deal.
A key component of the administration proposal is repealing this provision and providing a lump-sum severance payment of $25,000 to the estimated 12,000 -to-18,000 "non-productive" workers Secretary Lewis says will have to be let go. Unions warn that fired Conrail employees could total as many as 50,000, and have threatened to strike if the plan is adopted.
Other critics fear that private railroads would "cherrypick" the most profitable routes, leaving smaller communities with much reduced freight service. Lewis promises that 95 percent of Conrail's rail service would be preserved, either through private ownership or some federal help.
Officials from Conrail and the US Railway Association (Conrail's government-established financial monitor) say that with perhaps four or five more years of federal subsidies, the troubled railroad could recover and become profitable. House Democrats, led by Rep. James Florio of New Jersey, also want to give Conrail more time to prove itself before putting it up for sale. Unions have offered to forego $229 million in future wages and benefits. That concession, however, appears to be a matter of too little, too late.