overall plan for the Department of Transportation regarding the overall railroad industry in the United States.

We have the Rock Island problem. I assume that once that problem is disposed of, we are going to have other railroad difficulties and transportation difficulties around the United States.

Has the new Secretary of Transportation_been working on an overall planned recommendation from the Department of Transportation to the Congress to solve what appears to be an everincreasing problem with regard to the rail industry in general? Mr. JOHNSTON. Well, if for the answer to your question you would hope for a map that would draw every line that would be federally supported, the answer would be "no." But if the question is: Do we have a strategy, are we developing a strategy for preserving the private-sector railroad system? The answer is definitely "yes."

We view the process taking place in the Midwest now, which has had its rough spots in accomplishing, as the preservation with Federal help of a strong private-sector railroad system. By going through this process, painful as it is, in a bankruptcy situation, in which you allow other railroads to express their interest to pick up the slack, and in some cases rely on Federal help to expand service, what you are doing is redrawing the map in a way that will have healthy private-sector railroads operating, rather than a large, federally supported and federally operated system such as we have on ConRail.

The other half of our strategy is the issue that this committee has already dealt with and is continuing to deal with: the question of changing the way we regulate this industry to encourage it to develop and to improve its own health.

I think those are the two parts of the process.

Senator EXON. I have no further questions.

Senator Kassebaum?

Senator KASSEBAUM. No.

Senator EXON. Gentlemen, thank you very much.

Mr. JOHNSTON. Thank you.

Senator EXON. In order to accommodate Mr. Kassel, who wishes to testify on behalf of the Iowa Department of Transportation, we will call Mr. Kassel at this time. We understand that he has another meeting that requires that he finish his testimony as quickly as possible.

So at this time, Mr. Raymond Kassel, we will be glad to recognize you for your presentation.

Welcome.

STATEMENT OF RAYMOND KASSEL, DIRECTOR, IOWA STATE DEPARTMENT OF TRANSPORTATION; ACCOMPANIED BY MAURICE VAN NOSTRAND, DIRECTOR, MARKETING RESEARCH, AGRI-INDUSTRIES, DES MOINES, IOWA; AND DEAN KLECKNER, IOWA FARM BUREAU

Mr. KASSEL. Thank you very much, Mr. Chairman. It is a pleasure to be here.

I would like to introduce some of the people of the panel with me. We have Maurice Van Nostrand from the Agri-Industries, and I have Dean Kleckner, president of the Iowa Farm Bureau, and

Dean will have a few brief statements to make about where we are. Also in the audience we have Ed Williams from the Central Iowa Power Co., Cedar Rapids; We have Bob Krause, who has now recently been appointed as Mr. Goldschmidt's representative out in Region VII in Kansas City, with us. Mr. Krause is very active in the Iowa program and knows where we're at.

In the interest of helping you save time, I am going to very briefly summarize the highlights of my written testimony and the vast appendix that I have attached to it.

Senator EXON. Without objection, your entire statement has been accepted into the record, and we would appreciate your summary. Mr. KASSEL. The one map you see, which almost speaks for itself, shows you the major shippers on the Rock Island Railroad System in Iowa. We have clearly identified those by various symbols. This particular map [indicating] is not in the appendix, but there is a series of maps which give the same story.1

What you get out of that is: We show that we have 32 unit-train shippers that ship grain in Iowa, and we have 171 other grain shippers in the State that are significant in the amount of grain they ship on the Rock Island.

We have 30 large industries that are served by that Rock Island System that employ over 14,000 people in our State, which gives you an idea of the importance of it.

The Rock Island System moves approximately 100 million bushels of export grain from Iowa each year, and moves 28 percent of all of Iowa's rail traffic.

The importance of this system came home to us very quickly and very clearly when we had the interruption of service during the strike. We documented very clearly and quickly that we had over $300,000 a day increased transportation costs with the loss of that service on the Rock Island System. That is over $100 million a year in added, real, hard dollars of transportation costs.

More importantly, we lost $165 million of export sales due to fertilizer movement. And one of the points I have to make at this time is: Fertilizer is moving into the State now, and has to move into the State now, for the planting of our crop this coming season. And if that fertilizer is not there, we will have a 25-percent reduction in agriculture output of our economy, and of course that also has a reduction that goes all the way through the system.

So we are especially concerned that enough time exists for the smooth transition of the ownership and operation of the Rock Island. And to this end, we propose that Congress direct the ICC to continue directed service, which is set to expire March 2, for a period of at least 60 days on the present basis. This gives a chance for the transition that has been clearly identified by our Senators from Iowa and some of the other statements that have already been made as to the problems that are involved in that transition period.

We do know that there is a means of continuing that service through voluntary bids for temporary operating authority, which would not require the settlement of outstanding issues on the lines. Many railroads naturally are reluctant to commit themselves to

he fact the maps were in color, reproducing them would lose their value, therefore committee files.

this expensive service-but I think that issue must be settled before the final transfer can be implemented.

This really deals with settling the question of labor protection payments for nonretained workers which, perhaps, is the major barrier; the transfer of the unexpired railroad equipment lease because these railroads that take this over must have equipment; and finance the purchase and rehabilitation of the lines, and the availability of adequate Federal aid for those railroads to meet the high acquisition costs.

As you are maybe aware, we do have a very unique branchline upgrading program. We are talking to the companies who have been interested in coming into Iowa, and we want to continue this program with them.

To that end, we now have about $10 million more available for the coming year. Our legislature has continued to support this program. We have upgraded over 800 miles of branchlines in our State at a total cost of about $35 million.

The output of that has been very significant. And in the appendix you will see some of the payoffs that have come from that. It has made a difference of a minimum of 2 cents a bushel more to our grain raisers at the elevator. They get 2 cents more a bushel. When you talk about millions of bushels of grain, it is significant to our economy. The payoff has been very great.

I think it is important that we do finance the available successor, from the State, the Federal, and the shippers' levels. I think all three parties have to be involved, along with the railroads.

Therefore, we would recommend that Congress amend section 5 of the Railroad Revitalization and Regulatory Reform Act of 1976 to allow the use of section 505 redeemable preference shares to be used for the purchase of the Rock Island.

As we talked earlier, I think the major barrier is to make sure we adequately protect labor. That has to be involved by the successor carrier, as well as those that can be handled by the carrier. I propose that, in order to overcome this barrier, that we may look at a labor protection provision for the Rock similar to what has been provided for the Milwaukee, or we set some sort of a definite limit so it is not wide open, and we can handle that and rationalize what that cost is. That cost undoubtedly should be eventually borne by the trustee and the assets of the Rock Island Railroad, rather than being a burden to the Federal Government, or to the carriers that take over, or to the employees themselves. And for this reason, we very much support S. 2253.

In summary, I would like to just briefly make three points that need attention:

Continue the uninterrupted service;

Funding of the DSO and the restructuring;

Labor protection must be resolved.

Then I think we can successfully restructure the Rock system in the Midwest. I am sure that the figures you see there [indicating] as an example of Iowa-I mean, you look at the tons originated and the costs-are similar to the States in the Midwest such as Minnesota, Kansas, and the rest of the States that have been served by the Rock.

Obviously, we do not have the time to deal with that. I would like at this time to allow, if you would, Mr. Dean Kleckner to make a few remarks, and then we will have Maurice Van Nostrand to conclude the panel.

Mr. KLECKNER. Thank you, Mr. Chairman, Senator Kassebaum. We recently formed a transportation user group, TUG, in Iowa, composed of agricultural shippers-all shippers, agricultural, agrelated shippers, industrial and manufacturing. They selected me as chairman of this group.

We have met frequently with the Iowa DOT, with Mr. Kassel and his staff. We support what they are saying here today. It makes sense. We think it is an obvious solution, temporarily, to this problem.

We think directed service must continue, but these deadlines have to be met. It just can't be put off forever without being resolved. We think the bill that is being discussed does that, so we support it.

One last statement about the cost of lack of rail transportation in our State. I am a farmer. Part of the Rock goes near my farm and near my elevator. My hometown co-op is on the Milwaukee line, but one town away is the Rock.

When they can bid rail transportation versus truck bids, there's 20 cents a bushel difference-20 cents. That just shows the importance of continuing this, and not letting the directed service stop. They need to know that they can keep bidding, rather than living almost day-to-day. When they are in doubt and of course when managers are in doubt they don't bid to the farmers.

We think this is very, very important and we support it.

Mr. KASSEL. Mr. Kleckner reminded me of one thing. That is, I forgot to mention that we have arrived at our position not only with the transportation user groups that Mr. Kluckner represents, but we have had hundreds of open public meetings in our State with our shippers, and they are firmly supporting the direction we are going. They consistently make the point: We support the Iowa DOT; we're looking for the Iowa DOT to provide the leadership out of this situation and they are willing to follow us.

Along that line, on the last page of the appendix of the statement I gave to you is a map entitled "Iowa's Minimum Rail Service Needs." This is a map where we've looked at those lines that have to be abandoned in our State because they're not economical. Our shippers, when we gave this to them, are making constructive suggestions to change it. But basically, they are supporting_that system as being reasonable to provide the needed service for Iowa; and they see that the Rock is a very integral part of providing essential service across the State.

Maurie?

Mr. VAN NOSTRAND. Senator Kassebaum, Senator Exon, I appreciate being given this opportunity to speak to you.

My name is Maurie Van Nostrand. I am director of market research of Agri Industries of West Des Moines, Iowa. Agri Industries is a 76-year-old regional grain marketing cooperative. It is owned by 325 country elevator cooperatives, most of which are in Iowa, although we have members in Minnesota, South Dakota, and Louisiana.

These 325 country elevator cooperatives, which have 440 grainloading stations, are owned by 130,000 farm families. Agri Industries has an 8.4 million bushel grain terminal in Des Moines, two soybean processing plants, three barge-loading terminals on the Mississippi, and an export terminal in Lake Charles, La.

Agri Industries supports in its entirety the position taken by Iowa's Department of Transportation on this and other railroad issues. We consider ourselves lucky to have a State DOT with the knowledge and professionalism continually demonstrated by Director Ray Kassel and his fine staff.

While Agri Industries and its member elevators have made their own independent analyses of the viability of the various segments of the railroad lines serving Iowa, we agree on almost every point with our DOT, and we share their optimism that railroads can be made to work in Iowa.

While concurring with Director Kassel's statement, I would like to take this opportunity to make a few other points we consider important.

Agri Industries markets almost one-third of the corn and soybeans in our State that leave the community in which they are raised. In the fiscal year ending August 31, 1979, we marketed 210 million bushels of corn, and 70 million bushels of soybeans.

Of this amount 70 million bushels moved by barge down the Mississippi River to New Orleans ports. The balance in most cases moved over one of the five railroads serving Iowa. Approximately 70 percent of the grain we handled went into export channels. Our company operates through leases 2,350 grain hopper cars. Our members, in addition, have 4,000. I think this makes us the third largest operator of grain hopper cars in the Nation.

In 1979 we saw a near-collapse of rail transportation in Iowa. While our State raised the biggest crops in history, we saw a continued deterioration in the capability of Iowa railroads to move that grain. Turnaround times on our trains to the gulf, which we have operated since 1973, which average 14 to 16 days in 1974 and 1975, fell to 22 to 24 days in 1979.

This declining ability of our railroads to move grain caused great economic distress. On the average, in 1979, our member elevators, and I think it is true of the other elevators as well, bought and sold grain from 10 to 12 cents under the market solely because our transportation system denied us access to the most attractive mar

kets.

For example, our company out of its Des Moines terminal, sold 10 100-car trains of corn to be loaded out of Norfolk, Va., 9 cents less to us than we could have received had we been able to tap the best market, which almost consistently in our State is the gulf. But our only outlet at the time was via the Norfolk & Western Railroad, which required that those cars not leave their line.

I must emphasize the frustration which comes from developing an effective marketing organization which knows what the markets are all around the world at any given time, and then being forced to sell 32 million bushels of corn at 9 cents a bushel under the best bid solely because rail transportation couldn't handle the load. Speaking for Agri Industries, and I think the rest of the grain shippers in Iowa, our people do not expect other Iowans or other