4

1 obligations as acquired by him under this subsection. All 2 redemptions, purchases, and sales by the Secretary of the

3 Treasury of such notes or other obligations shall be treated 4 as public debt transactions of the United States.

5

"(d) There are authorized to be appropriated to the 6 Secretary such amounts, to remain available until expended, 7 as are necessary to discharge all his responsibilities under 8 this section.".

9 SEC. 2. The table of contents of the Regional Rail Reor10 ganization Act of 1973 is amended by adding at the end 11 thereof the following new item:

"Sec. 606. Guarantees by the Secretary.”.

I now want to call upon several of my colleagues who have cosponsored this legislation and wish to comment. Our very distinguished author of this legislation, Hon. Mary Rose Oakar, is the scheduled first witness but perhaps you may wish to yield to your colleagues. Ms. Oakar, I recognize you.

MS. OAKAR. Thank you, Mr. Chairman. First of all we wish to thank you, Mr. Chairman, for having such a speedy hearing, and I would be delighted to yield to my colleagues before I get on with my testimony. So I will yield to Congressman Mottl, of Ohio.

STATEMENT OF HON. RONALD M. MOTTL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. MOTTL. Thank you, Mr. Chairman, members of the committee. I would like to thank my distinguished colleague from Cleveland, Mary Rose Oakar, for being the prime sponsor of this important piece of legislation and for allowing me to go first because I have a brief statement to provide the committee and also would like to congratulate not only her but also my colleague from south Boston, Joe Moakley, for being a cosponsor of this piece of legislation.

Mr. Chairman, I welcome this opportunity to speak out against the proposal that the bankrupt Penn Central Railroad be allowed to escape its tax debt to school districts and other government subdivisions by paying only 44 or 50 cents on a dollar. The subdivisions and schools provided Penn Central and its employees with the full gamut of services and should be paid in full for those services.

The railroad's debt to Cleveland city schools alone amounts to more than $14 million. Debts to other Cuyahoga County taxing districts, including Cleveland schools, total more than $16 million.

With school costs continually mounting and voters resisting new levies and bond issues, it is imperative that Penn Central be made to satisfy its legitimate debt in full.

Every school district in the Nation is experiencing difficulties with financing and drastically needs these long overdue tax dollars. It is not a windfall for them but payment of a legitimate debt long overdue and long awaited.

With this in mind I have enthusiastically cosponsored legislation introduced by my colleague, Representative Oakar, guaranteeing that the Federal Government would insure payment of the taxes and interest in full.

To insure that local subdivisions and school districts get priority payment of the delinquent taxes, I will introduce legislation calling for the Federal Government to waive all claims against Penn Central until the railroad pays its tax bills in full to local and State creditors second and to the Federal Government third.

Cleveland city schools and other school districts are teetering on the brink of bankruptcy and desperately need this money. It has been too long in coming.

Thank you, Mr. Chairman, and I certainly appreciate Ms. Oakar's allowing me to go first.

Mr. ROONEY. Thank you very much for your great interest in your constituency and your fine presentation.

MS. OAKAR. I yield now to my colleague from Massachusetts, Mr. Moakley.

STATEMENT OF HON. JOE MOAKLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS

Mr. MOAKLEY. Thank you, Mr. Chairman, for giving me the opportunity to speak on behalf of H.R. 8882, Congresswoman Mary Rose Oakar's amendments to the Regional Rail Reorganization Act of 1973. Basically the above-mentioned legislation authorizes the Secretary of Transportation to guarantee notes issued to States and local taxing authorities to secure payment of real property tax obligations owed by a railroad in reorganization-in this case the Penn Central. The object of this legislation is quite simple.

It has been estimated that over $500 million is owed some 1,100 units of government by the Penn Central Corp. As a member of the Massachusetts delegation, I can testify that Penn Central owes the city of Boston some $13.5 million and the Commonwealth of Massachusetts some $24.2 million in back property taxes. The drain this places on the already financially beleaguered cities of the Northeast is incalculable. I believe there must be some sort of a legislative remedy for this critical situation, one that takes into account the dire straits of the American railroad network as well as the financial abyss that so many older, hard-pressed northeastern cities find themselves in. Such a remedy is best expressed in Ms. Oakar's H.R. 8882.

As chairman of the New England Congressional Caucus' Task Force on Transportation, I believe I can speak for the majority of the urban New England congressional delegation in stating that our local hospitals, school systems, and police and fire protection services desperately need the revenue due them but which is presently tied up due to Penn Central litigation.

When the Penn Central declared bankruptcy in 1970 the Federal district court in Philadelphia ordered the trustees of the Penn Central Corp. to make no tax payments until the courts further ordered it. Obviously this action presents serious constitutional ramifications for the States. Does the Federal Government have the authority to intervene in an area such as local tax abatement, which has tradiationally been an area of local or State authority?

At present Penn Central is attempting to have local and State authorities settle their back tax claims for 50 percent of postbankruptcy taxes, or about 44 percent of all taxes owed. Massachusetts officials, as is the balance of State officials in New England, are not happy with this proposal.

H.R. 8882 addresses itself to an alternative proposal currently before Judge John Fullam of the U.S. district court in Philadelphia. This proposal would provide for an immediate cash payment of 20 percent and the remaining 80 percent of taxes to be paid through the issuance of Penn Central notes to the affected parties. The crux of this legislation is that the Federal Government would provide Federal guarantees for these series C and D notes.

The history of Federal involvement in this matter is extensive. In the first place it was the Federal Government that ordered Penn Cen

tral to pay no taxes until the litigation was settled. Second, it was the Federal Government which ordered the birth of ConRail, supplanting all old rail lines, including Penn Central. We are trying here to offset a bad precedent that has already been set, which was to insert the Federal Government between the State and local governments and a private corporation with its financial obligations and to abrogate the authority of those State and local governments. The Federal Government's administrative expenses have the first lien against the bankrupt railroad. This effectively puts State and local taxes behind those moneys that were designed to keep Penn Central running. This situation should not be permitted to continue.

The decision on which repayment option to choose must be made by October 22 of this year. The choice obviously presents great difficulties to the taxing authorities. The question is: Should the States and local governing bodies accept the only 50-cent dollar, suffering a substantial loss and effectively removing any further chance for compensation, or should they choose to accept the Penn Central notes, which, as it stands now, would be akin to accepting Confederate currency in payment of any debt? Additionally, by accepting Penn Central notes, the States would suffer serious delay since the notes would not mature until 1987, which would be a full 17 years since the State and local governments would have been able to collect on what Penn Central has owed them since 1970.

Penn Central notes are at this time deemed good. Because of the recent massive problems incurred by the railroad the notes are difficult to market. It is precisely this inability to market the notes that would make it necessary to hold them to maturity. Backed by the full faith. of the U.S. Government, the notes will be immediately marketable and our States, cities, and school districts will be able to realize the money owed them.

Finally, I am sure all of you are more than aware of the plight of many American cities, especially those in the Northeast. These older cities are all too often witness to the flight of industry and commerce to the South and the West. It is just these cities that are also most acutely affected by the Penn Central bankruptcy. The Federal Government must find a remedy for this situation. I strongly believe that H.R. 8882 is part of the prescription necessary to make our cities healthy again.

Once again, Mr. Chairman, thank you very much for the speedy hearing, and I thank my colleague for allowing me to go ahead of her. Mr. ROONEY. Thank you, and I also thank you for the great leadership you have shown on behalf of the congressional delegation in the New England area. It has been very helpful to this committee and I appreciate very much your statement.

MS. OAKAR. Mr. Walgren, of Pennsylvania, would like, with your permission, to give his testimony.

Mr. ROONEY. It is very kind of you to yield your valuable time.

The Chair recognizes our colleague who serves on the full committee and who has made a very substantial contribution in the area of health in our committee. Mr. Walgren, we welcome you and you may proceed.

STATEMENT OF HON. DOUG WALGREN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA

Mr. WALGREN. Thank you, and thank you, Congresswoman Oakar. I just want to very informally add my voice to the purposes of this bill and to the mechanism that this bill sets out to address this problem. When it was first explained to me by a lawyer in Pittsburgh, I thought that there was no way that anyone could defeat his claim for those taxes; but I apparently was operating under the old adage that there are only two things that are inevitable in this world, and those are, of course, death and taxes.

But that apparently did not take into account the Federal Government and its power to intervene itself in a way that very directly threatens to deny these local communities of the revenue that they had a right to expect.

The greatest difficulty is that the mirror image or inevitable result of that is that the property taxpayers in these communities are going to have death and double taxes. From my offering myself on the platter in town meetings, I come back with one clear message, and that is that anything that can be done to alleviate the residential property tax burdens of these taxpayers is imperative on every member of the Government to pursue. It is even more so when the result of Government action is to increase the burden of those property taxes which they didn't have a right to expect to have to pay in the first place.

So I really felt that, from the Pennsylvania side and the Pittsburgh side particularly, when this kind of an issue comes up, that much should be said.

I really appreciate the efforts of my various colleagues to enact this legislation and I would urge the committee to give it the most direct attention because it is at that edge where people are hurting most. I appreciate your time, sir.

Mr. ROONEY. Thank you, Congressman Walgren.

MS. OAKAR. Mr. Chairman, with your permission, I yield to Congressman Regula, of Ohio.

STATEMENT OF HON. RALPH S. REGULA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. REGULA. Thank you, Mr. Chairman. I am sure you have heard all of the arguments. I think it is simply a matter of equity that these notes be guaranteed. This will enable the local subdivisions of government to use them as security or, in the event they should choose to do so, as an asset salable at a discount basis. The notes will ultimately provide the local governments with the taxes they anticipated, the taxes upon which they based their budgets.

Since the Federal Government has taken the responsibility through Con Rail of operating these facilities, it seems to me that this is a logical responsibility also of the U.S. Government to secure these notes. There is nearly $500 million in taxes that State and local governments have not yet received. An important fact is that approximately 70 percent of these funds would go to our financially strapped school systems. In my district, the 16th Ohio District, $2,880,000 is owed to local government.