Special Message to Congress on the Financial Problem of the Railroads

To the Senate and House of Representatives:

It is necessary to call the attention of Congress to the obligations of the Government to the railroads and ask your cooperation in order to enable the Government to discharge these obligations There is nothing new about them, but only recently has there come an understanding which seems well to justify a sincere .endeavor to effect an early settlement. These obligations already have been recognized by the Congress in the passage of the Transportation Act restoring the railroads to their owners, but previous recognition was made in the contract under which the railroads were operated by the Government for the period of the World War.

The contract covering operation provided that the railways should be returned to their owners in as good condition as when taken over by the Government, and the Transportation Act, recognizing that betterments and additions belong to capital account, provided that such sums as the railway companies owed the Government for betterments and new equipment, added during the period of Government operation, might be funded. There has been at no time any question about the justice of funding such indebtedness to the Government. Indeed, it has been in progress to a measurable degree ever since the return of the railroads to their owners. It has been limited, however, to such cases as those in which final settlements with the Railway Administration have been effected. The process is admittedly too slow to meet the difficult situation which the owners of the railroads have been facing, and I believe it essential to restore railway activities and essential to the country's good fortune to hasten both funding and settlement.

Quite apart from the large sums owing to the Government, which we are morally and legally bound to fund, the Government admittedly owes the railway companies large sums on various accounts, such as compensation, depreciation, and maintenance. There has been a wide difference of opinion relating to the amount the Government owes, due in the main to the claim of the owners that in spite of materials and hours of labor being estimated in proper relations to similar expenditure in the prewar test period, the "inefficiency of labor" still left a wide difference between actual upkeep and the expenditure made during the Government operation.

In order to expedite settlement and funding, an informal understanding, which is all that is possible or practical, has been reached, under, which the railway claims based on the "inefficiency of labor" are to be waived to hasten complete and final settlements, without surrender of any rights in court in case there is failure to settle. I have no doubt that early, final, and satisfactory settlements will be reached, since the policy of the Railway Administration already has been effective in finally settling the accounts of roads filing claims amounting to $225,568,764, resulting in the payment to them of $68,141,222.

The way now would seem to be clear to very early adjustment and relief, except for the fact that the Railway Administration, though possessing assets, does not command the funds necessary to meet with what will be its admitted obligations.

There is no thought to ask Congress for additional funds. Perhaps $500,000,000 will be necessary. The Railroad Administration has, or will have in the progress of funding, ample securities to meet all requirements if Congress only will grant the authority to negotiate these securities and provide the agency for their negotiation.

With this end in view, you are asked to extend the authority of the War Finance Corporation so that it may purchase these railway funding securities accepted by the Director General of Railroads. No added expense, no added investment is required on the part of the Government; there is no added liability, no added tax burden. It is merely the grant of authority necessary to enable a most useful and efficient Government agency to use its available funds to purchase securities for which Congress already has authorized the issue, and turn them into the channels of finance ready to float them.

I can readily believe that so simple a remedy will have your prompt sanction. The question of our obligation cannot be raised, the wisdom of affording early relief is not to be doubted, and the avoidance of added appropriation or liability will appeal to Congress and the public alike.

The after-war distresses of two great and fundamental activities have been riveting the anxious attention of the country. One is the readjustment and restoration of agriculture; the other is the distress of our railway transportation system.

Pending proposals for relief and their discussion have already brought to the attention of Congress the very promising possibilities of broadening the powers of the War Finance Corporation for the further relief of agriculture and live-stock production. This corporation has proven itself so helpful in the relief thus far undertaken that I cannot help but believe that its broadened powers, as have been proposed to meet agricultural needs, will enable it wholly, to meet the nation-wide emergency. This is an impelling moral obligation to American farming in all its larger aspects, and it will be most gratifying to have your early sanction.

In the Case of the railroads there is a moral and a contractual obligation, and your favorable action is no less urgent and will no less appeal to public approval. Railway solvency and efficiency are essential to our, healthful industrial, commercial, and agricultural life. Everything hinges on transportation.

After necessary and drastic curtailments, after harrowing straits in meeting their financial difficulties, the railways need only this financial aid which the fulfillment of our obligations will bestow to inaugurate their far-reaching revival. Its effects will be felt in varied industries and will banish to a large degree the depression which, though inevitable in war's aftermath, we are all so anxious to see ended.

I am appending herewith memoranda concerning the progress of railroad liquidation and revealing existing conditions which Congress will be interested to note while considering the simple remedy proposed for the relief of the situation. The information is submitted by the Director General of the Railroads.

WARREN G. HARDING

THE WHITE HOUSE, July 26, 1921.