SPEAKERS CONTENTS INSERTS
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74–386 PS
2001
THE PROPOSED CLOSURE
OF THE NORFOLK
SOUTHERN HOLLIDAYSBURG, PENNSYLVANIA CAR SHOPS
(107–34)
HEARING
BEFORE THE
SUBCOMMITTEE ON
RAILROADS
OF THE
COMMITTEE ON
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TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
JULY 16, 2001
Printed for the use of the
Committee on Transportation and Infrastructure
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
DON YOUNG, Alaska, Chairman
THOMAS E. PETRI, Wisconsin, Vice-Chair
SHERWOOD L. BOEHLERT, New York
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
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WAYNE T. GILCHREST, Maryland
STEPHEN HORN, California
JOHN L. MICA, Florida
JACK QUINN, New York
VERNON J. EHLERS, Michigan
SPENCER BACHUS, Alabama
STEVEN C. LaTOURETTE, Ohio
SUE W. KELLY, New York
RICHARD H. BAKER, Louisiana
ROBERT W. NEY, Ohio
JOHN COOKSEY, Louisiana
JOHN R. THUNE, South Dakota
FRANK A. LoBIONDO, New Jersey
JERRY MORAN, Kansas
RICHARD W. POMBO, California
JIM DeMINT, South Carolina
DOUG BEREUTER, Nebraska
MICHAEL K. SIMPSON, Idaho
JOHNNY ISAKSON, Georgia
ROBIN HAYES, North Carolina
ROB SIMMONS, Connecticut
MIKE ROGERS, Michigan
SHELLEY MOORE CAPITO, West Virginia
MARK STEVEN KIRK, Illinois
HENRY E. BROWN, Jr., South Carolina
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TIMOTHY V. JOHNSON, Illinois
BRIAN D. KERNS, Indiana
DENNIS R. REHBERG, Montana
TODD RUSSELL PLATTS, Pennsylvania
MIKE FERGUSON, New Jersey
SAM GRAVES, Missouri
C.L. (BUTCH) OTTER, Idaho
MARK R. KENNEDY, Minnesota
JOHN ABNEY CULBERSON, Texas
BILL SHUSTER, Pennsylvania
JOHN BOOZMAN, Arkansas
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
PETER A. DeFAZIO, Oregon
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
ROBERT MENENDEZ, New Jersey
CORRINE BROWN, Florida
JAMES A. BARCIA, Michigan
BOB FILNER, California
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EDDIE BERNICE JOHNSON, Texas
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
JUANITA MILLENDER-MCDONALD, California
ELIJAH E. CUMMINGS, Maryland
EARL BLUMENAUER, Oregon
MAX SANDLIN, Texas
ELLEN O. TAUSCHER, California
BILL PASCRELL, Jr., New Jersey
LEONARD L. BOSWELL, Iowa
JAMES P. McGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania
NICK LAMPSON, Texas
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
BRIAN BAIRD, Washington
SHELLEY BERKLEY, Nevada
BRAD CARSON, Oklahoma
JIM MATHESON, Utah
MICHAEL M. HONDA, California
RICK LARSEN, Washington
(ii)
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Subcommittee on Railroads
JACK QUINN, New York, Chairman
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HOWARD COBLE, North Carolina
JOHN L. MICA, Florida
SPENCER BACHUS, Alabama
JERRY MORAN, Kansas
JIM DeMINT, South Carolina
ROB SIMMONS, Connecticut
SHELLEY MOORE CAPITO, West Virginia
TODD RUSSELL PLATTS, Pennsylvania
MIKE FERGUSON, New Jersey, Vice-Chair
DON YOUNG, Alaska
(ex officio)
BOB CLEMENT, Tennessee
JERROLD NADLER, New York
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
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BOB FILNER, California
ELIJAH E. CUMMINGS, Maryland
EARL BLUMENAUER, Oregon
JOHN ELIAS BALDACCI, Maine
RICK LARSEN, Washington
WILLIAM O. LIPINSKI, Illinois
JAMES L. OBERSTAR, Minnesota
(ex officio)
(iii)
CONTENTS
TESTIMONY
Edelman, Richard S., Esquire, O'Donnell, Schwartz, and Anderson, Counselors at Law
Geist, Richard, Pennsylvania State Representative
Goode, David R., Chairman and CEO, Norfolk Southern Corporation
Jubelirer, Robert C., Pennsylvania State Senator
Lutton, Thomas, President, Transport Workers Union of America Local 2017
Maslanka, Gary, International Staff Representative, Transport Workers Union of America
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Stern, Jerry A., Pennsylvania State Representative
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Edelman, Richard S
Geist, Richard
Goode, David R
Jubelirer, Robert C
Lutton, Thomas
Maslanka, Gary
Stern, Jerry A
SUBMISSIONS FOR THE RECORD
Geist, Richard, Pennsylvania State Representative:
Comments and requests for conditions by the Transportation Committee of the Pennsylvania House of Representatives, October 21, 1997
Comments of the Transportation Committee Chairman of the Pennsylvania House of Representatives on the first general oversight report submitted by Norfolk Southern Corporation and CSX Corporation
Goode, David R., Chairman and CEO, Norfolk Southern Corporation:
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Additional information requested by Rep. Quinn
Statement and supplemental statement of Robert H. Belvin
Joint statements of David L. Vernon and Michael A. Ricciardi
2000 Hollidaysburg Car Shop Daily Production Summary, charts, September-December, 2000
2001 Hollidaysburg Car Shop Daily Production Summary, charts, January-July, 2001
Letters
Lutton, Thomas, President, Transport Workers Union of America Local 2017:
Declaration of Robert G. Chirdon
Additional responses
Declaration of C. David Vittur, General Manager Mechanical Maintenance-Car, Norfolk Southern Corporation
Maslanka, Gary, International Staff Representative, Transport Workers Union of America:
The Norfolk Southern Commitment to Continue Operations at Hollidaysburg Car Shop, The Real Truth, Exactly What They Said
Additional responses
Declaration of Joseph H. Letcher, former Carman for Norfolk Southern, Altoona, PA
ADDITION TO THE RECORD
Johnstown America Corporation, John E. Carroll, Jr., President, statement
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THE PROPOSED CLOSURE OF THE NORFOLK SOUTHERN
HOLLIDAYSBURG, PENNSYLVANIA CAR SHOPS
Monday, July 16, 2001
House of Representatives, Subcommittee on Railroads, Committee on Transportation and Infrastructure Washington, D.C.
The Subcommittee met, pursuant to call, at 11:09 a.m., in Altoona Blair County Convention Center, Altoona, Pennsylvania, Hon. Jack Quinn [Chairman of the Subcommittee] presiding.
Mr. QUINN. Good morning, and the Subcommittee will please come to order. I am Congressman Jack Quinn from New York, Chairman of the Transportation and Infrastructure Subcommittee on Railroads. I would like to thank the members of the full Transportation and Infrastructure Committee for joining me here today. In particular, Mr. Jim Oberstar from Minnesota, the Ranking Member of our full Committee in Washington, D.C. Jim, thank you for being with us. We have a visitor from the great State of Pennsylvania, Mr. Frank Mascara, who is also with us. And of course, our host here this morning, Mr. Bill Shuster, is with us as well.
We have a few housekeeping things we would like to take care of here before we begin. The first is to thank Bill Shuster for his hospitality and the arrangements that he has made for us to visit here in Pennsylvania to be with you this morning to hear testimony on the issue at hand and to discuss with those witnesses that will be with us, and to discuss with each other, the importance of that issue that we are here to discuss this morning.
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We also want to thank the people of the Altoona area for their hospitality today in this great, great facility and convention center. I think I will get the Congress member from here to help me do one of these up in Buffalo somehow one of these days soon.
We regret that we couldn't be here under maybe more pleasant circumstances, but we are here today because of the Norfolk Southern Railroad's announcement that they intend to close the Hollidaysburg Car Shop on October 1, 2001, which will affect the workers who are employed at that shop. We will be—just so everyone who is in the building understands sort of some ground rules for us this morning and this afternoon, this is serious business for all of us and for all of you. And when we travel from Washington, D.C. anywhere around the country, and we do, we are thrilled to be here in Pennsylvania with you, but we intend and will proceed in a professional and orderly fashion so that we may make the most of our visit here to accept as much information as we possibly can so that in the future we can make the best decisions for the railroad industry, and for the people of Altoona, Pennsylvania, and the people of our great country, the United States of America.
We have, at times, done this before in Washington, D.C., but it is more to our liking when we can get out and talk to the people firsthand and join you here in Pennsylvania today. And again, we thank Bill Shuster for his work in getting us here, and making sure that this facility meets our needs, and it goes beyond that.
The purpose of the hearing today is to highlight the concerns of the employees in the local community that will be affected by the proposed closing of the shops. We will, of course, hear testimony from Norfolk Southern explaining why it intends to close those shops, and the Chairman and CEO is with us and our first panelist this morning.
Several of the unions in the Commonwealth of Pennsylvania have objected to the closing of the shops and are seeking relief from the Surface Transportation Board, the STB, the Federal Government agency with power over the economic regulation of the railroad industry. The STB, as we know, has ordered Norfolk Southern to show cause why it is closing the shops and has submitted its pleading to the STB in June. Union members in the Commonwealth in Pennsylvania are scheduled to submit pleadings today and this week.
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Our plan this morning is to accept some opening statements from the members on the panel, Mr. Oberstar, Mr. Shuster, and Mr. Mascara, and then to move to our first panel, Mr. Goode. Our plan then is to rotate some questions from the panelists to the witness. We will take as long as that takes to get that done before we move to the second panel, repeat ourselves for the second panel in the same fashion, and then move to the third panel.
I want to commend our new colleague, Congressman Bill Shuster. I have mentioned his name a couple of times this morning. We will be talking about him a little bit later. His diligent efforts to pursue the interest of the workers of the Hollidaysburg Shops is something that we are very proud of and we commend. Because of his efforts and the recent filings by Norfolk Southern, it is confirmed that any worker at Hollidaysburg will have the opportunity for continued employment at Norfolk Southern, and Norfolk Southern is willing to certify all transferring employees for New York Dock income protection of up to six years.
I would like to now yield to Mr. Oberstar for some opening remarks before we go to Mr. Shuster and Mr. Mascara. Jim.
Mr. OBERSTAR. Thank you very much, Mr. Chairman, and thank you for holding this hearing and for your laying out the agenda as you did, and I fully subscribe to the Chairman's plan to proceed and hear every witness and be as thorough, and meticulous, and professional as humanly possible. Today, Congress has come to Pennsylvania, and that is no mean feat. We are here because the issue is serious and because your representative in Congress, Mr. Shuster, has made the case and asked us to come to hear on the spot what the issues are and to look at ways in which we can help this community with what lies ahead.
When Norfolk Southern and CSX were jointly working to acquire Conrail, Norfolk Southern represented on a number of occasions that it intended to make use of the Hollidaysburg car repair shops. Norfolk Southern, at times, was eloquent about the quality of the workforce, the necessity of such a facility for its operations once it acquired its portion of Conrail. Norfolk Southern even made representations and promises to spend several millions of dollars to upgrade the facility to handle more repair work, to in-source work. It claimed it would be bringing more work to the facility and consolidating work now done in other shops in Atlanta and elsewhere. CSX even signed a three-year contract to supply cars to Hollidaysburg Shop for repair work.
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But then, a little over a year after the acquisition was complete, Norfolk Southern announced intention to close the shops. Originally, it was going to be closed on March 1st of this year. But when the Former Chairman of this Committee, Bud Shuster, threatened to hold hearings on the matter, they backed off and said they would keep the shops open for another year and intensify efforts to bring new work into the facility.
Then, as I examined the chronology of the events after Chairman Shuster announced his plans to retire, the railroad announced it was closing the shops. Now, these are not ordinary shops. I would have loved to have had a facility of this magnitude in my district. They were built by the Pennsylvania Railroad between 1952 and 1955 to bring all of car repair work under one roof. And it's some roof—700,000 square feet, one-half mile long. It is an extraordinary facility. It is the largest of its kind in the world. It would be a tragedy for any community to lose an economic development facility of this kind. It would be a worse tragedy to lose it without exhausting every avenue of opportunity to keep it open and keep it operating, to work with the railroad to see what it is they need to keep this facility going.
And I understand, it is operating at only 30 percent of capacity. There are a number of reasons the flow of repair work has not developed. The decline in export coal, and loss of traffic to trucks as shippers left the railroad with the service difficulties after Conrail acquisition are two reasons. But there are encouraging signs on the horizon. Coal traffic is coming back due to the high cost of other fuels. New coal-fired plants are being built. And with the Conrail assets fully integrated into CSX and Norfolk Southern, the railroad ought to be in a position to win back much of the traffic it lost. But the question for me, and I discussed this with the former Chairman Shuster at the time this announcement was made, is whether in the rush to dismember Conrail the buyers failed to develop a business plan including worst case scenarios, such as fuel price increases, and market turndown, and whether the Surface Transportation Board itself failed to insist on such plans. Could the Norfolk Southern have failed to notice the size of these shops and the possibility of excess capacity? Could experienced captains of industry have not sensed that there might be a problem and not admitted it up front?
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The economic loss to Altoona is not just the jobs at the plant, but the secondary jobs. I have been through this in my congressional district--iron ore mining in northeastern Minnesota. When the great god steel in Pennsylvania has a cold, we get pneumonia in the iron ore mining country in northern Minnesota. We lost 10,000 jobs in the early 1980's. I understand, Bill Shuster, what it is to be faced with job losses. Early this year, 1,400 jobs were shut down in a taconite plant that had to close because of steel imports.
So with a community of 50,000 losing these jobs, it is devastating. And it raises further questions about promises made and commitments to the employees, to the city, to then Chairman Shuster. Was it a promise with a wink? In the political and public arena where we work, and with my former colleague, Chairman Shuster, when he gave his word, you could put it in the bank. He lived by his commitments, no matter how changed the circumstances, no matter how uncomfortable or how inconvenient the commitment.
So I will be looking for a good faith effort by the Norfolk Southern to maintain the current and future economic viability of this proud community of hardworking people steeped in the storied traditions of railroading. Thank you, Mr. Chairman.
Mr. QUINN. Thank you, Mr. Oberstar. Mr. Shuster.
Mr. SHUSTER. Thank you, Mr. Chairman, and I would first like to welcome all of you here to Blair County today. Mr. Chairman, let me begin by thanking you for convening this hearing. As you are well aware, the issues we address today are critical to our local economy and the livelihoods of hundreds of families in central Pennsylvania. I also want to thank the Ranking Member, Mr. Oberstar, and my colleague, Mr. Mascara, for joining us.
Mr. Chairman, while I am grateful you accepted my request to be here, I must confess that today's hearing is a necessary exercise. I assumed that Norfolk Southern would uphold its commitments to the employees of Hollidaysburg Car Shops and the community of Blair County. This has not been the case, however.
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Shortly after the Conrail split date, Norfolk Southern moved forward with its plans to close Hollidaysburg Car Shops. With such a rash departure from its initial comments, or commitments, is there any question that Norfolk Southern never intended to fulfill this obligation to our community, but rather, made commitments to conveniently gain merger approval.
Since 1850, when maintenance activity first began on trains traveling through Altoona, the railroad industry has been a way of life in Blair County. We sensed a revival to this proud heritage with the Norfolk Southern's arrival to Hollidaysburg. Norfolk Southern was received with open arms and its original pronouncements were taken in good faith by the employees of Hollidaysburg Car Shops. According to the plan submitted to the Surface Transportation Board by NS as part of its merger application, there is ample evidence identifying the Hollidaysburg Car Shops as a strategic advantage in the marketplace because of the shop's capabilities and the skills of its workforce. This assessment is bolstered by Norfolk Southern's commitments to upgrade the facility by $4 million, aggressively pursue work that will fully utilize the Hollidaysburg facility. In fact, Norfolk Southern reiterated the importance of the shops to Congress and the Commonwealth of Pennsylvania.
Other railroad companies, such as Boynton, Northern, and Santa Fe, have determined that insourcing car repair work can provide competitive rates and improve service over outsourcing. Moreover, railroad maintenance companies, such as Gunderson, contend that all railroads will continue to perform a combination of in-house as well as third party repairs.
Adding to this, on March 20, 1997, Norfolk Southern CEO, David Goode, testified before the Senate Transportation Appropriations Committee, and I quote, ''I had a very good tour of the facilities'' meaning Hollidaysburg and Juniata, ''and they are excellent facilities. We are in a position of not only being able to give assurances that we will keep those shops and keep them operating, we are going to need them.'' The question, therefore, remains, if prior to the merger, Norfolk Southern believed that Hollidaysburg Car Shop offered a strategic competitive advantage and recognized the facility as an inseparable part of its operation, why has the management of Norfolk Southern not offered a plan to keep the Hollidaysburg Car Shops open for the long term?
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In closing Hollidaysburg facility only 18 months after the split date, it would appear that Norfolk Southern never intended to keep the car shop open despite the strategic objectives set forth in their operating plan.
On June 25, 2001, Norfolk Southern filed papers with STB regarding this proposal to close the Hollidaysburg Shops. In its submission, the railroad claimed it must close the shops because of deteriorating economic operating conditions. Let us not forget that Norfolk Southern's weakened financial position was precipitated from a bidding war with CSX for Conrail assets that left Norfolk Southern with above industry debt levels. Clearly, Norfolk Southern wanted the merger approved by any means and was willing to submit an overly optimistic operating plan intended to cloud the judgment of the STB, which approved the merger.
The STB is now evaluating Norfolk Southern's proposal to close the Hollidaysburg Car Shops and will issue a decision in the coming weeks. A decision by the STB in favor of the Hollidaysburg Car Shops would not constitute government micro-management, but instead, an action consistent with the facts that Norfolk Southern made commitments in their operating plan without caveats for sudden deteriorating economic conditions.
This hearing will, therefore, focus on the testimony from distinguished panel members who understand the empty commitments offered by Norfolk Southern, suggesting they would keep the Hollidaysburg Car Shops as a viable, strategic option. Norfolk Southern has disregarded the obligation set forth in the STB submission, and now the STB must exercise its authority to upheld the commitments made by the company.
I want to again thank Chairman Quinn, my fellow members of the Committee, and our panelists for holding this important hearing as a basis to present facts, to refute the argument cited in Norfolk Southern's response to Decision 186, and inquire as to the real intentions of Norfolk Southern's decision to close the Hollidaysburg Car Shops. Thank you, Mr. Chairman.
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Mr. QUINN. Thank you, Mr. Shuster. Mr. Mascara.
Mr. MASCARA. Thank you, Mr. Chairman. And I would also like to acknowledge Ranking Member Jim Oberstar with the Full Transportation and Infrastructure Committee, and Bill Shuster for inviting me here today to participate in this very important hearing. As a Pennsylvanian, and a congressman from a rural district with significant railroad activity, I am pleased to join in the discussion about the future of the Hollidaysburg Shop. Hopefully, we will gain a better understanding from both sides concerning this problem.
My understanding of the issue before us is that this is a dispute about commitments made in 1997 and the economic changes which have occurred since then. The validity of these promises are for the Surface Transportation Board, the STB, to rule on, and not us here today. However, perhaps what we hear here today will be useful to the STB.
I can understand Norfolk Southern's need to cut costs in order to remain financially healthy, but I want to get a clear understanding of the thinking behind the decision to close this facility. We all know that the railroad industry in this nation is operating closely to the line, no pun intended.
Subcommittee Chairman Quinn and former Chairman of the full Transportation and Infrastructure Committee, Bud Shuster, have been very good friends of the railroad industry. I think both of these gentlemen will agree that our government has worked with the railroad industry to make it viable. The railroad industry cannot be held fully responsible for their economic conditions, but at the same time, they cannot use current economic conditions as a scapegoat for every problem. I believe a full and detailed explanation needs to be given so we can understand both the economics and the logic that went into the decision to close this shop.
I also want to express my concern for the fine working men and women who reside in the Altoona area. Not more than a decade ago, my district experienced a crushing layoff due to the steel mills and closures of the many mining operations in the Midmont Valley where I reside. We are still struggling from those changes. I know firsthand how quickly and painfully communities will suffer when major employers close up shop. The assurances that Norfolk Southern has given for continued employment to the Hollidaysburg employees is an honorable gesture, but I am eager to hear in greater detail what both Norfolk Southern is offering and what the workers feel would be a fair deal to them should this closure be approved.
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Again, I thank Chairman Quinn for allowing me to participate in this discussion. Much is at stake, and hopefully, we will come to a resolution that gives this shop and these fine folks a good future. Thank you, Mr. Chairman.
Mr. QUINN. Thank you, Mr. Mascara. You are a very valuable member of our full Committee and we are thrilled you are with us today. I just will point out, Mr. Mascara, that you are a valuable member to our Veterans Committee in Washington, D.C., where you and I both serve. So we appreciate you joining us with Mr. Shuster and Mr. Oberstar.
Mr. MASCARA. Thank you.
Mr. QUINN. We did not plan a time limit on statements this morning, but we are going to ask our witnesses to summarize their written statements, because everything that is written and spoken here today will become part of our very official transcript here, and I am sure referred back to in the future.
Since Congressmen Mascara and Shuster are not members of the Railroad Subcommittee, at this time, I would like to ask unanimous consent that they be allowed to participate in this hearing. Without objection, it is ordered.
I also want to ask unanimous consent to hold the record of this hearing open for 30 days for members to submit additional questions to the witnesses, and also, for witnesses to submit any responses, for an additional 30 days. Is there objection? Hearing none, it is so ordered as well.
Finally, we would like to ask everybody's cooperation here this afternoon. We mentioned at the onset this is important official business and we appreciate your help in every way.
Mr. David Goode is the CEO of Norfolk Southern. Sir, we know you are a very busy man, and we appreciate your effort to be with us this morning on this Monday in Blair County, Pennsylvania. And with that, we would defer to you. The Floor is yours and we would ask you for some opening remarks.
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STATEMENT OF DAVID R. GOODE, CHAIRMAN AND CEO, NORFOLK SOUTHERN CORPORATION
Mr. GOODE. Thank you, Mr. Chairman. I appreciate the remarks and the statements of the members of the Committee. I have, indeed, submitted my written testimony in full, and I will endeavor to summarize it in the interest of time and leave time to respond to questions from the Subcommittee.
Mr. QUINN. Thank you very much.
Mr. GOODE. I am pleased to have the opportunity to address you this morning. I, too, wish it could be under different circumstances.
Earlier this year, Norfolk Southern did announce its intention to close the Hollidaysburg Car Shops, and several of the Unions in the Commonwealth of Pennsylvania, as well, have petitioned the Surface Transportation Board to stop that closure. They argue that Norfolk Southern committed to keep the shops open, notwithstanding business operation or economic conditions, and that the commitment had no limit in time.
The Board ordered Norfolk Southern to show why it should not order us to keep the shops open, and we are trying to do so, and have filed a good deal of information with the Board to that effect. We responded to the Board's order three weeks ago. We explained in that, that there was no commitment to keep the shops open, and further set forth many of the business considerations and the background facts that led to our decision to close the facility. We believe that the facts do not justify an order preventing the closure of the shops and argued that to the Board.
This morning, I will try to put the issues in context. First, our decision to close the shops cannot be viewed apart from a number of other actions that we have taken at this time to right-size our infrastructure to meet the conditions that we face in the real world now. Second, Norfolk Southern is and will continue to be a significant presence in Pennsylvania. We are proud of that fact and happy to be here. I will describe our significant efforts and investment that demonstrate our dedication to the Commonwealth of Pennsylvania. And finally, I will address briefly the broader policy issues which I believe are involved. We need the flexibility in the rail business to make the complex day-to-day business decisions governing the operation of the company on a system-wide basis and we need the flexibility to do those promptly.
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Norfolk Southern operates the Hollidaysburg Car Shops, as has been pointed out, as a result of our joint acquisition of control with CSX over Conrail by an agreement made in 1997. The Surface Transportation Board approved the transaction in July of 1998, and we began operating our allocated portion of the assets, which included Hollidaysburg, on June 1, 1999. Part of the application to the STB was the operating plan, a description of how we intended to operate the new Norfolk Southern system. The operating plan, which was a very extensive document, included statements concerning our intended use of the shops, and it was based upon a number of assumptions and expectations, and not surprisingly, many have changed or have not been borne out by events.
Obviously, many market and economic factors have changed over time. The marketing and economic realities we have faced, subsequent to split date—and you, Mr. Chairman, and Mr. Oberstar, mentioned a number of them—have required us to be flexible and to fundamentally rethink our operations as we have gone forth. This is a natural part of adapting to change in the business world. We are working to right-size the physical plant to reflect the actual traffic and revenues of the expand Norfolk Southern system. Such changes are necessary if we are to fill our mission of providing high quality, efficient, and affordable transportation throughout the eastern half of this country.
We have curtailed the purchase of new freight cars, we have disposed of several thousand others, although, we anticipated expanding the car fleet when we filed the operating plan. Earlier this year, we began implementing a line rationalization program targeting 3,000 to 4,000 underutilized or duplicate track miles. This will make us more efficient and control costs. We have curtailed operations, closed, or announced the closure of several facilities in places other than Hollidaysburg, including the 38th Street Car Shop in Norfolk, Virginia, the foundry and parts reclamation facility in Roanoke, Virginia, the Roanoke, Virginia Car Shops, the Birmingham, Alabama frog shop, and the Coster wheel shop in Knoxville, Tennessee. We are studying the consolidation or disposition of several other facilities. These are just a few of the actions we have taken that have resulted in lowering expenditures, increasing profitability, and improving our cash flow, and enabling us to provide the transportation service, which is our primary obligation.
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These are fairly fundamental actions taken in response to changing operating conditions and financial challenges. None of them were anticipated in the operating plan. Many of them have affected employees and communities on other parts of the Norfolk Southern system, but we believe all of them were the result of reasonable and necessary business decisions. Norfolk Southern has operated our new and expanded system consistent with the long-term health of the enterprise, which is in everybody's interest, including Norfolk Southern, the employees, and the public. After some transition problems, we are now offering good service to our customers and are beginning to show better returns to our investors.
Talking about Hollidaysburg itself, I note that Norfolk Southern has made many efforts to develop and obtain additional work, the so called insourcing work from other railroads and car owners to supplement the work done at the facility on our own fleet. We created an office devoted to insourcing efforts at Hollidaysburg and other facilities. We conducted a national advertising campaign. We made extensive use of direct customer contact in order to obtain new business from other railroads and elsewhere for these shops. We went further and resorted to substantial price reductions in order to obtain new business. We made repeated efforts to do so. The effort did prove successful in brining in some business. We built, for example, new coil steel hoods for GE Rail. We modified GATX equipment. We performed program repairs for Greenbrier, GATX, First Union, and others. We tried hard to fill the shops with business and people helped, but even with the substantial insourcing efforts, the Hollidaysburg Car Shops continue to operate today only at about one-third capacity, as they have since split date.
We took a hard look at the facts. Other currently active car repair facilities on the Norfolk Southern system have the physical capacity with the transfer of employees from Hollidaysburg to perform the repair work on Norfolk Southern equipment generally performed at Hollidaysburg now. The shops at Hollidaysburg are redundant. They are by far the largest car shop in the Norfolk Southern system. They operate at a low level of capacity, and consequently, with higher overhead. We made the difficult business decision to close the facility. Further growth in insourcing is not the answer for these shops. As we demonstrated in our filing made three weeks ago with the STB, freight car owners have a growing number of options for utilizing independent private car repair shops, one quite close to us here in Johnstown. Hollidaysburg simply cannot compete against the independent shops, many short of business themselves, many closing themselves, and many aggressively seeking what business is available. Closure of these shops we, unfortunately, have to say is the correct business decision.
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We realize that the closure of the Hollidaysburg shops will affect the local economy. Recognizing that, and recognizing that although each and every employee, agreement employee, will have an opportunity for continued employment with Norfolk Southern, the facility itself will be closed and the Norfolk Southern work moved. Therefore, Norfolk Southern has taken and continues to take significant steps to help the local community mitigate those effects. Among other things, we have employed the possibility of selling the shops to other operators to maintain employment in Blair County. We have worked closely with and provided matching funding to the Altoona Blair County Development Corporation to aide redevelopment in the Altoona/Blair County area and the shops facilities. Norfolk Southern would be willing to explore any reasonable initiative to redevelop the facility for others with the explicit recognition that we intend to close the facility in October.
Obviously, we do not know what type of enterprise will ultimately utilize the site. The building itself is, Mr. Oberstar pointed out, is a half-mile long. But Norfolk Southern also is working with the Altoona Blair Development Corporation and the Governor's Action Team to develop other properties in the immediate area as well. We have ongoing efforts to make the best use of our facilities, and we have devoted our own economic development team to work with the local teams and the State teams in the efforts to develop facilities—and all of our facilities in this area—for best use. I note that Marty Marasco was here earlier, and I guess till is, and we have worked closely with him and the development group and continue to do so.
Further, I would like to point out that Norfolk Southern has devoted substantial resources to develop its system elsewhere in Pennsylvania and with significant results. Our industrial development department has assisted in the location or expansion of several industries since we came to the Commonwealth of Pennsylvania. We have also invested in new infrastructure where businesses dictate it in places like Harrisburg, Bethlehem, Enola, Conway Yard, and a long list of investments in Pennsylvania. We are proud of our efforts in Pennsylvania. Our investment in Pennsylvania since the transaction was completed has exceeded $300 million over the past two years. That is more than in any other state in which we operate. The expenditures have also enhanced things like the Commonwealth's fiber-optic network, delivery systems for its power plants, and the Commonwealth's infrastructure. We have brought through these investments additional jobs to the Commonwealth. I believe Pennsylvania has done well for my presence, as much as or more so than any other area in our system, notwithstanding this particular plant closure.
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Now, I should also like to note that our purchases of materials and supplies from Pennsylvania business—from Pennsylvania business—last year exceed $543 million in 2000 alone. That is more than was spent by Conrail in any year in Pennsylvania. So I stress the point that our presence in Pennsylvania has, on the whole, been a good thing for the Commonwealth.
Finally, and let me stress this point again. Each and every Hollidaysburg agreement employee will have the opportunity for continued Norfolk Southern employment. The work at the facility is being transferred for consolidation in smaller shops, not being eliminated. In the Conrail transaction we negotiated agreements that provided for relocation benefits in excess of those called for in the New York Dock labor conditions, which set forth the legal requirements for the protection of employees affected by the transaction. Three of these agreements generally provide that transferring employees will have their earnings level protected for up to six years. We will extend this protection, as we have made clear, and as, Mr. Chairman, you recognized, to employees represented by the other shopcraft unions who transfer as a result of the Hollidaysburg transaction as part of the negotiated implementing agreements with their unions.
In the end, however, we still have before us the possibility that the Surface Transportation Board will order Norfolk Southern to rescind its notice of closure of the shops. We have made a concerted effort in Hollidaysburg, but we have now made the decision to close that facility. It was a difficult decision. We knew it would be unpopular. We knew it would affect the community. We are willing to do everything we can to mitigate those effects, but ultimately, this needs to be a business decision for Norfolk Southern to make.
The Board has observed that the Government cannot operate private business as well as private business themselves, and frankly, we agree with that. In the case of a major rail facility, such as the Hollidaysburg shops, the fact of the matter is that facility rationalization decisions cannot and must not be made in an environment divorced from consideration of their impact across the rail carrier system. If we had to keep this facility open, it would cost somewhere else on the system and/or transportation service would suffer.
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Norfolk Southern and other privately owned railroads need to have the ability to make the necessary business decisions to react to changing business, operational and economic conditions, and we need to do so on a prompt basis. To do otherwise could force us to operate to our detriment, and ultimately, to the detriment of our employees, our customers, and the public. It is up to us to run the day-to-day operations of the system. We do so the best we can. We have done so by taking this difficult and unpopular action, as well as other difficult and unpopular actions that we have taken in Virginia and elsewhere to right-size our expansive system to the business operational and economic environment in which we now find ourselves.
We recognize that this affects the local community, but we have taken our responsibility seriously and we have worked and will work to help the community mitigate the effects of the closure as we continue our other efforts and investments throughout the Commonwealth. I would be pleased now to take any questions you might have.
Mr. QUINN. Thank you, Mr. Goode. I yield to Mr. Shuster at this time.
Mr. SHUSTER. Thank you, Mr. Chairman. Mr. Goode, I appreciate you being here today because I believe that you are the only one that can really answer all these questions that we have to pose to Norfolk Southern. My question is, in your verified statement on CSX and Norfolk Southern application to the STB, you made specific references to only a few facilities and plant changes in the hundreds of pages of the submission, and you mentioned the Hollidaysburg Car Shops in Juniata, specifically, a $4 million investment in Hollidaysburg Car Shops to use CSX as a major component of your insourcing, consolidating car work in Hollidaysburg, the Juniata Shop, the $63 million investment, and 170 or 178 jobs in Juniata.
My question is, in all those hundreds of pages, you only cite a few places. Why did you pick out Hollidaysburg Car Shops and Juniata to mention in that lengthy document?
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Mr. GOODE. Well, I think a number of facilities were mentioned in our operating plan in various places. Obviously, the Hollidaysburg Shops are important facilities. It has been recognized here. I think they are the largest shops, car shops, in the country, maybe in the world. Some people have said that. I haven't been able to verify it, whether they really are in the world or not, but they certainly are in the country, so they are significant facilities and we did mention the plans that you refer to.
Mr. SHUSTER. But again, my question is why, specifically, did you talk about the various investments and various things you were going to do to achieve that? Again, in my opening statement, I talked about you mentioned them—why you mentioned them, I think, to get the merger approval. Is that the basis for it? Because again, it doesn't appear after eighteen months from the split date, and you have got the first ten months, which I think we, generally, say is sort of a throw-away, that you have got eight months, and then all of a sudden, you are closing the shops after such a lengthy discussion and commitments. So again, my question is—you mentioned just because of their size or—
Mr. GOODE. Well, Congressman, I expected everything I said in that statement was intended to achieve the approval of the transaction before the Surface Transportation Board. Certainly, that was the objective.
Mr. SHUSTER. Well, then is it your view that it was unreasonable for people to read those statements, and that you were going to truly use those shops and not walk away from them when it was convenient?
Mr. GOODE. Well, all of those statements, as, indeed, the operating plan that we filed with the Surface Transportation Board, are representations of what we anticipated doing and what, in fact, we did do. The operating plan, as you recognized, always recognized, that bringing substantial amounts of insourcing business into the shops was a necessary requisite because of the size of the shops. As you well know, the shops were always underutilized by Conrail itself and had been subject to a significant history of closures, and the business plan, as you recognized, called for insourcing efforts. And insourcing efforts were made.
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I am sure you have read the statements filed before the Surface Transportation Board in which the Director of Insourcing that we have specifically brought in or appointed to look for business for the Hollidaysburg Shops made extensive efforts to do that, and a lot of efforts were made to market the shop, some of them successful. But in the current economic climate in which we find ourselves, and reality is what it is, Congressman Shuster. If you read your newspapers, what you see is that car shops all over the country are closing and there is insufficient work for private car shops, many of which appear to have some competitive advantages over the shop. And I think the bottom line of this is that we made efforts to fully utilize the facility, but have simply been unable to do so. I think there is every incentive for Norfolk Southern itself, as I have said to you privately. We have every incentive to bring as much business in. Our incentives were all to try to do it, and I think the record amply demonstrates our efforts to do that. But occasionally, in business, you simply, despite your best efforts, are not able to create a business climate that works. And then it is the responsibility of managers of business to accept the reality and make the best decisions they can and move on, rather than continue to absorb economic losses that, really, are for the detriment of everyone.
Mr. SHUSTER. Well, again, that shop operating at one-third capacity was prior to the merger, so it has continued. And then I come back to the—you are talking about the smaller shops that can do it more efficiently, I guess, than you are saying Hollidaysburg, but that was occurring before the merger. So you knew those two facts going into it, so you made all these other commitments—we call them commitments. The split date occurs on June 1999. The first ten months, like I said, I think is generally—and you tell me if I am wrong—the first ten months are sort of throw-away months. Nobody is doing anything the way it should be, efficiently. So when you get up to speed ten months later, you have eight months of what you have really been efficiently trying to operate those shops, and you believe that that is an ample amount of time?
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Mr. GOODE. In the business world, Congressman, a couple of years can be an eternity. One thing that you learn in business—and I know you are a businessman, so I know you know this—is that when you are bleeding, you have to address the issue, and that is what we did. When we consolidated, this was a very large business consolidation, and there were a lot of things that we learned both before and after the business consolidation occurred. But most importantly, the economy changes with the speed of light, and the economy has changed. We find ourselves today—and I know Congress sees this in a lot of other context—but I looked this morning, as I do every morning, at my railroad car loadings for the month, and coal, which is doing rather well, aside, Mr. Oberstar—and coal is doing very well, God bless it, right now. But notwithstanding that, July car loadings on our railroad are down almost 10 percent from the car loadings last July, which were not wonderful. This is a time of serious challenge for the rail industry. We are addressing that throughout our system. Excuse me.
We are addressing that by systematically looking throughout our system at ways to make the system more efficient. And that produces change, and change has to be honored and respected, and you have to act on it. And that is what is going on here.
Mr. QUINN. Thank you, Mr. Goode. For the benefit of everybody here—thank you, Mr. Shuster—we are going to go through a questioning of the panel and then return for a couple of rounds if it is necessary. Mr. Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman. And again, for all those who are not familiar with Chairman Quinn, he comes from a railroading family and he is very proud of his railroading past. His father worked for the railroad. He grew up understanding it, and so he brings a very special perspective to this hearing. And I am also very appreciative of our colleague, Mr. Mascara, joining us—Dr. Mascara, a scholar who has played a vigorous role in surface transportation in his district as Commissioner of Transportation.
Thank you for your testimony, Mr. Goode, and for being here. It is a tribute to you that you are willing to come personally and not send a surrogate to take the questions, and I appreciate that. But what I am wondering about is that there are lots of gaps in your presentation. You observe that the shops are operating at a third capacity since the split date. Simple math says that is 12,000. How many cars were repaired at HCS in its heyday>
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Mr. GOODE. I would have to look back at the history.
Mr. OBERSTAR. How many cars does it take, in your judgment, to make this operation, whatever you call it, profitable or sustainable?
Mr. GOODE. I can submit that answer for the record.
Mr. OBERSTAR. You don't have that with you?
Mr. GOODE. Mr. Serano had that at my fingertips. We have done extensive business plans and business analyses on this, much of which we filed with the Surface Transportation Board. And obviously, it requires producing a higher volume than—
Mr. OBERSTAR. How many car shops does NS operate and where?
Mr. GOODE. We operate them—we operate car shops in Virginia, we operate them in Georgia, and Tennessee, and Decatur, Illinois, Bellevue, and I think that constitutes the list of them.
Mr. OBERSTAR. Essentially, four other car shops?
Mr. GOODE. Well, there are a number of—as you know, there are a number of small light repair facilities throughout the system. We have offered the transfers of jobs to the folks here, principally, of the shops in Illinois and Ohio.
Mr. OBERSTAR. Well, they would have to transfer to Virginia, Georgia, Tennessee, or Illinois if they accept those jobs?
Mr. GOODE. Yeah, and Ohio.
Mr. OBERSTAR. Not a joyful opportunity.
Mr. GOODE. Well, it is never—transfers are never pleasant.
Mr. OBERSTAR. When you were putting—
Mr. GOODE. We, of course, you know, do the best we can for people when they transfer.
Mr. OBERSTAR. When you, Northern Southern, and CSX were putting together the divestiture and absorption of Conrail, you, personally, visited these plants—this plant—as I understand?
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Mr. GOODE. Yes. That is correct.
Mr. OBERSTAR. Did it occur to you that this might be more capacity than you might need?
Mr. GOODE. We knew this was a shop that had not been used recently to its capacity, and that is why the plans, as Mr. Shuster recognized in the operating plan recognized that insourcing would be part of the plan.
Mr. OBERSTAR. But at the time, you assured the Surface Transportation Board that not only would you keep the shops open, but you would invest some $4 million to upgrade and to attract new repair. Did you make that investment?
Mr. GOODE. We haven't made all of it. We made—I just looked this morning. We made something north of $3 million that has been made so far in that.
Mr. OBERSTAR. And what did that include, what types of—
Mr. GOODE. It involved a number of improvements in the machinery in the shop, some material handling investments, a number of environmental investments.
Mr. OBERSTAR. And did CSX live up to its commitment to move cars to NS to be done at Hollidaysburg?
Mr. GOODE. We have been working on cars for CSX in Hollidaysburg. The commitment that we had with CSX was a three-year commitment, and I don't have at my fingertips the number of cars we have worked on for CSX, but—
Mr. OBERSTAR. Well, your statement says last year only 4,000 cars went through Hollidaysburg, half were insource work done for others. Was that all CSX—were there other railroads?
Mr. GOODE. No. There was other work done for—I mentioned some of them in my thing, some for First Union, GATX, a number of other independent works.
Mr. OBERSTAR. The GATX is a leasing operation?
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Mr. GOODE. Yes, as was First Union was a leasing operation.
Mr. OBERSTAR. Your statement suggests, but it does not say, that the maintenance operation operating at a third is, therefore, operating at a loss, or it is not making money for the company. My experience in the railroad sector, in trucking, in aviation, is that maintenance is not a profit center. In airlines, it used to be at one time, but when aviation expanded so much, airlines needed all their capacity to do their own maintenance. Maintenance is a necessary part of the business, so how do you determine profit/loss? How do you determine whether this is making the grade or not?
Mr. GOODE. Well, I am not counted on this, but we filed, and I would be glad to supply your office, if you haven't seen it, we had a statement done specifically on these shops. As you point out, that is not in the—that is not the way you look at it in the normal course, but given this proceeding, we did a statement on this, and for that purpose, we priced out the work done.
Mr. OBERSTAR. You don't have that with you today?
Mr. GOODE. I did not bring it with me. I could get that to your office.
Mr. OBERSTAR. I would like to review that.
Mr. GOODE. For the record, it has been filed with the Surface Transportation Board.
Mr. OBERSTAR. Have you considered what it might take to downsize this operation, to close out part of it and operate it at, say, a 4,000 car level?
Mr. GOODE. We looked at it, but as you point out, it is a very large facility, and we have the capability in other shops around the system which are much smaller operations. We yet have the ability. The shops, historically, have done, in addition to bringing in the insourcing, a lot of program work. As you are aware, one of the characteristics of the rail business now is the more efficient utilization of cars. One thing that is happening in the business is that as you try to make better use of assets and investments, one of the things you try to do is increase velocity of cars and, therefore, need fewer cars even to absorb growth. And that, in fact, is what is happening. What we are seeing is that we need fewer cars and that we have surpluses of cars. So rather than a lot of car work being available for program heavy car repairs for which Hollidaysburg and a number of other car shops are available, there is a shortage of that work, and that is why you see the independents closing down facilities just as you do the railroad.
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Mr. OBERSTAR. I understand that at the current time, but it was only just a couple of years ago when throughout the railroad sector there was a shortage of cars, 1,400,000 rail cars in the country, and there weren't enough. And they weren't being built fast enough, they weren't being maintained fast enough. So the economic cycles move and swing, and fuel prices are going down, and loads are going back up again, and it just seems to me there ought to be a better effort made to utilize this facility.
Mr. Chairman, I will withhold at this point and come back later.
Mr. QUINN. Thank you, Mr. Oberstar. Mr. Goode, I, too, appreciate your being here this morning to take the questions, take the heat a little bit, personally, and we appreciate that, and your staff, and others from the company.
You mentioned just now a follow-up to Mr. Oberstar's question that you priced out—you are going to supply that to Mr. Oberstar, but you priced out what it would take to make this Hollidaysburg facility profitable, or at least, whatever word you want to use, so that it could remain open. When did you do that?
Mr. GOODE. We have done that over—we prepared a business plan very shortly after—maybe even before the split date, and then we have been working on that. Naturally, that is an—
Mr. QUINN. My question would be a business question. Don't we think that maybe that pricing out or that business plan should have been done before statements made to the Surface Transportation Board, or was it not possible to do those then, before these people and employees were promised that it looked like it was going to stay open?
Mr. GOODE. Well, I think we had a—you may be right, that may be so, that we, arguably, in retrospect, we should have been further along on the business plan. We recognize that insourcing would be completed, and as we did the planning for this, we prepared a business plan which contemplated insourcing. And then as we went forward on this, we constantly reviewed it as we were trying to bring more and more business into it. For example, we made several changes in the pricing of our product in order to try to make ourselves more competitive in the marketplace.
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Mr. QUINN. And I suppose it is easy to go back and second guess, but I am just wondering out loud after reading the documents this weekend a little bit, and last night, and this morning again on the way here, that a situation that will affect so many families and others—Mr. Oberstar is right. My grandfather was a railroad person, my fathers and others, so that when an action is taken that affects a railroader, it also affects, as we know and will hear from some of our panels later, thousands and thousands of people. In retrospect, you say maybe that plan should have been done before everyone made representations and went to the Surface Transportation Board. Thank you. Let me ask you this.
Mr. GOODE. If I may say, I respect that statement. And certainly, we have a lot of—we don't do things without concern for our employees. Our employees are an asset, and we regard them very highly, and that is why we have offered the employees who are affected by this closure jobs elsewhere on the system. They are good people and we want them to continue as employees. I know how hard it is to move, but we have done what we can to try to mitigate the human effects in this.
Mr. QUINN. Thank you. In more technical—I don't know if you have this information here—I appreciated in your submission to the Surface Transportation Board on page 6, and in your oral testimony this morning, you have talked about some of the other difficult decisions that the company has had to make, curtailing operations at the 38th Street Car Shop in Norfolk, Virginia, close the Roanoke foundry and parts reclamation facility, idled the Roanoke Car Shops, closure of the Birmingham, Alabama frog shop, closure of the Coster wheel shop in Knoxville, Tennessee, all difficult decisions to make. Getting the company to the flexibility you talked about, to run a business, in general, in all those other places—and I just don't know this, personally—in Norfolk, Virginia; Roanoke; Birmingham, Alabama; Knoxville, Tennessee; were any commitments made to the people of those locations that you would stay operating there?
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Mr. GOODE. I think a number of the—I mean, to the extent that, you know, we are talking about commitments to the people that were—and we are equating our operating plans, and the statements in the operating plans with commitments, I dare say that the operating plan encompassed all of those facilities. I guess my point continues to be that the commitments, if you call it, that we made were the best views that we could make in the—
Mr. QUINN. At that time?
Mr. GOODE. At that time, that we knew, and if they were commitments in forms of contract, that would be one thing. But nobody is suggesting that there were anything like formal commitments, or contracts, or anything that were enforceable here. What we are talking about were statements made and expectations, even before the Senate Committee, which Mr. Shuster quoted. The question that Senator Specter asked me was, what was my expectation for the future, and I answered that as honestly as I could at the time. All of these have to be accepted in the context that economic conditions do change and you make the best balances as you can.
Mr. QUINN. Thank you. And I am just—I just want to make sure we don't have to hold hearings in Norfolk, and Roanoke, and Birmingham—
Mr. GOODE. Well, I hope not. I, certainly, hope not. And every situation, obviously, is a different one, and in all cases, we try to provide for the employees as best we can.
Mr. QUINN. Thank you. Thank you very much. Mr. Mascara.
Mr. MASCARA. Thank you, Mr. Chairman. And thank you, Mr. Goode, for coming. I see you have a senior vice president here and assistant to the vice president, Mr. Cochran and Mr. Anthony. I bet they are glad they are sitting there and they are not sitting where you are sitting.
Mr. GOODE. Well, they will be around today.
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Mr. MASCARA. First of all, I would just like to make a statement. It seems like I have seen this happen before in other industries and large corporations. You talked about insourcing, trying to provide more work for the employees, but you also spoke of independent private car repair shops, and that is where I have a problem, because many of these independent car shops are using non-union work. They are not providing healthcare, they are not providing pensions. And my question to you is, is Norfolk Southern going in the same direction by affecting the working men and women and having a negative effect on workers, generally?
Mr. GOODE. No. That is why we are not—we are moving this work to other car shops and moving people to other shops in the facility, where we believe it can be done more efficiently. But we are going to be doing the work with our people, we are not talking about moving this to some other facility, and that is why we are moving this work.
Mr. MASCARA. In the 1998 agreement between Norfolk Southern and CSX, and the unions, Norfolk Southern stated that they may move program repair work from Macedonia, Ohio; Decatur, Illinois; and Williamson, West Virginia to Hollidaysburg. If the Hollidaysburg facility is currently operating at one-third of the capacity as I have read, would the proposed increase in work here ever occur, and if not, why?
Mr. GOODE. We are not at the moment doing any program repair work. We moved the work back at the initial date as the operating plan. The situation, however, is that we are not doing—we are not and have not for the last year performed program repair work, and we don't see for the foreseeable future we will be doing any program work on cars, because as I said to Mr. Oberstar, what we see now is we have a surplus of cars in the business.
Mr. MASCARA. What is the future of the operations in Ohio, and Illinois, and West Virginia facilities?
Mr. GOODE. Well, I think that those facilities, which are smaller, and therefore, with less overhead facilities, we anticipate those facilities being there. Again, as here, I think in business you always have to maintain flexibility to recognize economic decisions.
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Mr. MASCARA. Did you make any commitments for the future to these facilities and other Conrail facilities that were acquired in the merger?
Mr. GOODE. I am not aware of any.
Mr. MASCARA. Do you have any idea of the operating costs at those facilities compared to Hollidaysburg?
Mr. GOODE. Not in my head or with me. We could probably provide some comparisons if you would like.
Mr. MASCARA. Yes. Mr. Chairman, thank you.
Mr. SHUSTER. Seeing as the Chairman as left, I guess that makes me it, and a Shuster with a hammer, that could be trouble. Back to your filing, you were talking about the different facilities. I don't believe—and tell me if I am wrong—that the size of the Roanoke facility, Hollidaysburg, and Juniata shops, you didn't make any specific reference and talk about, ver specifically, the things you were going to do. I think that is what makes this a difference. Your comments on that?
Mr. GOODE. You mean, in the verified—
Mr. SHUSTER. Correct.
Mr. GOODE. I would have to look back at my verified statement to—but if you have looked at it and that is what is there, then fine.
Mr. SHUSTER. That is, I think, what makes the difference in this case, and I think that is why we are here today, because saying that in that STB filing I think makes all the difference in the world. A couple of other questions that I had—
Mr. GOODE. I am sorry—saying what—
Mr. SHUSTER. I believe that you made specific statements, specific commitments in that STB filing concerning the Hollidaysburg Car Shops, concerning Juniata. You made some reference to Roanoke, but it wasn't as in-depth as it was to Hollidaysburg and to Juniata. And again, that is why I think that makes it a significant difference in what you said and what you are doing. And that is, again, why I think one of the reasons—the big reason we are here today.
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As you mentioned, I am a small business person myself, and I have been involved in several transactions, none to this magnitude, $5 billion, 5.2, or whatever it was, to buy Conrail. But economic analysis is the same, just the dollar numbers are different. The accounting is the same. And my question is, when I buy a business or when I attempt to, I look at the upside as well as the downside. Did Norfolk Southern do in-depth economic analysis as to, okay, what is going to happen if the economy does—or did you just assume we were going to continue on that—
Mr. GOODE. Of course we did a sensitivity analysis on the upside and downside on this, sure.
Mr. SHUSTER. And what was your—did it show that you were going to have to—if there was a downturn in the economy, you were going to have shutdown Hollidaysburg or what were the outcomes of that?
Mr. GOODE. Well, I don't know that the downside sensitivity analysis showed that you took actions, and specific actions, with respect to specific facilities, because those are decisions that you make at the time based upon the facts as you know them. Your knowledge is better every day after you have a property and operate it. But certainly, we did a number of downside analyses which involved if revenues were lower than anticipated, then it is necessary to be confident that you can operate with expenses lower.
Mr. SHUSTER. And doing that analysis, showing a downside, you still made the commitment in the STB filing to Hollidaysburg.
Mr. GOODE. Well, you keep saying commitment in the filing. Of course, we don't—we just don't agree that that is so and, you know, we said what we said.
Mr. SHUSTER. Right. And that is the problem. You said it in the filing, you said it to Specter, you said it to the former Chairman. I think you said it to the State of Pennsylvania. So that is, again, why we are here. What you said is what we are trying to hold you to.
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Again, I come back to—I asked this question before. I don't know if you gave ma an answer; I wasn't clear on it. Eighteen months from split date, and is it true the first ten months are pretty much a throwaway period, you can't really judge your operations because things are helter-skelter, whatever you want to call it. Things aren't operating efficiently. Is that accurate?
Mr. GOODE. I don't want to say this lightly, but certainly, that first ten months was a very intense, difficult period for me and for everybody else at Norfolk Southern as we fought hard in implementing a very large, very complex transaction in the industry to maintain service levels and do the best we can in a lot of areas. And Chairman Quinn knows well how hard we struggled to keep the traffic moving through Buffalo and through the Niagara frontier during those periods, and as he knows, how many changes we had to make in additional investments that we didn't anticipate.
Mr. SHUSTER. That is not a criticism.
Mr. GOODE. So you know, I guess I quarrel with characterizing that as a throwaway. That was a period in which we learned a lot about our system. I mean, I am not ashamed to say to you that while we did an extensive amount of business planning, this was a transaction unlike any transaction that had been done before in our industry or, really, in any other industry. It was a very large business combination. We were surprised by a lot of things, we learned a lot of things. There were a lot of things that we had to do better than we did on day one. We had to very quickly improve them and do them better. So we changed a lot of things in that operating plan. We did it very quickly, and I am proud—you know, while I regret every service failure we had during that period, I am still proud of the Norfolk Southern people and the way they responded quickly to the challenges. And that is Norfolk Southern people, many of whom used to be Conrail people, who responded to those challenges and never allowed a meltdown to happen, never allowed service to fail throughout that period, and today, have an efficiently operating rail system, albeit, with less business than we anticipated having, less business than we need to have.
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Mr. SHUSTER. And that is not a criticism. I am asking the question, is that first ten months—it is difficult to gauge how efficient, how well you are learning, even your numbers coming in had to be—
Mr. GOODE. Well, you learn as you go along, but we were—in the case of this facility that we are talking about today, we were from the word go trying to market the facility, trying to bring in insourcing business, trying to—and we made, you know, not the whole $4 million, but a lot of investment in improving the facility and trying to market it throughout this period. And the record amply demonstrates the marketing efforts. I really would be surprised to hear the suggestion that we didn't try. The incentives were all for trying to make that facility work as best—and certainly, your predecessor in your seat in Congress helped in many ways and gave us a lot of encouragement in efforts to market the facility, and I think the people in the facility tried their best here. But again, I have to come back and say that the economics are what they are, and that makes it necessary to make a difficult and unpleasant decision. I am not having fun here, I assure you.
Mr. SHUSTER. I understand. Neither am I and neither is anybody in this room. We are faced with what we have to be faced with. But my point is that eight months, is that enough time to really gauge—going through a ten-month period where you are putting out fires, you are doing everything you can to keep service alive, can you do the proper analysis? Can you put the proper effort into marketing that shop? And at the same time, I read, that in 2000 you cut back your marketing efforts, so how did that affect the Hollidaysburg Shop?
Mr. GOODE. We have been working on this. I mean, we quibble about how we count this, I suppose. It seems to me we have been working on this for two years, and then the additional year that we were planning this. And I think the efforts have been there and the economics are just not working. Now, I believe that a good business manager, when he and his—and with good advice, and the best people he can muster, and the best advice he can get, including outside help on this, precludes that the best judgment is that this is not going to turn around, it is not going to work out, then I think you have an obligation on behalf—not only of the 300 people who are involved in it, but of the 31,000 other people in the enterprise, to make the best decision you can and go on with the best ongoing business plan, and that is what we are trying to do.
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Mr. SHUSTER. And that is where, I guess, we differ. I don't believe eight months is enough, eight months of solid focus with the other things, and that is my judgment. Obviously, I come from a different side than you do, but I just don't believe eight months is enough to put the effort into that facility.
Mr. QUINN. Thank you, Mr. Shuster. Mr. Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman. In your testimony at the Senate Transportation Appropriations Subcommittee before the Conrail acquisition, you assured the Committee that you would not only keep the HCS facilities operating, but would need them because Norfolk Southern had no other shops nearby. And now you don't need them?
Mr. GOODE. Again, that was in response to Senator Specter's question, what my expectation was for the shops. We had looked at—that was, if you look back at the date of that, that was pretty early in—
Mr. OBERSTAR. That was prior to the acquisition.
Mr. GOODE. That was prior to the acquisition. That was early in the proceeding. It was before we even had a business plan on it, and I responded based upon my view and belief to Senator Specter that we would need the shops and we would do it. And that was in the context of expecting to do program work, expecting to be able to bring in insourcing, and responding to a good facility. And you know, nobody argues that this is a good facility. It is that. It is just that, you know, the size and scope of the facility and business conditions don't—
Mr. OBERSTAR. Mr. Goode, I appreciate your comment. We have noted it. You learned more after the acquisition. I wish you had known all these things before you had the acquisition, prior to the acquisition. And certainly, just ask Union Pacific. In the aftermath of acquisition of Southern Pacific, they had a meltdown, a colossal meltdown, and you didn't, a tribute to Norfolk Southern. But your background is accounting. You are skilled in these matters, and you toured this facility. You took a look at it. Did it occur to you in the filing with the Board that this is much more than you needed? You ought to just say up front you were not going to need a facility this big. And what material effect would that statement have had on the Board?
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Mr. GOODE. I guess my answer to that is I don't know. You know, I think in terms of the overall transaction, this facility was one piece of it. I mean, it was one piece of a very large transaction. I don't know how crucial that any one facility would have been to the Board.
Mr. OBERSTAR. But including these representations, you say no commitment was ever made. There was no commitment to keep the shops open. I think we may have a disagreement about what is meant by commitment. When you say something in the business world, and we say something in the political arena where we are held to public accountability and the voters, and we don't last very long if our words that are taken as commitments aren't kept. We can have a discussion about what is commitment and what isn't, but what I want to have a discussion about is just what was understood, what was intended, in entering into this representation. Clearly, representations were made to encourage support for the dismemberment of Conrail.
I did not support that decision. I wrote to the Board saying that there would be serious loss of competitive opportunities, that the downstream effects of acquisition of this railroad would leave the country with two railroads, one or two east and two west of the Mississippi, that this would not be in the best public interest, and that the Board ought not to proceed. I think that the representations about this facility were fundamental in winning the support of the former Chairman of this Committee for the proposed merger. And now that a fundamental element is absent and the acquisition has gone forward, there is very little recourse. Is there, unless Norfolk Southern makes a commitment to downsize its operation, keep the shops going at some lower level of operation that is consistent with the traffic, and work to grow its operation and attract more business here in future years?
Mr. GOODE. Well, I mean, I understand your comment. I guess my question would be, if our judgment is correct, and we are making the best business judgment we can here, what other facility would you like us to close, or which shipper's rates should I raise, or which other employees should I discharge in order to make the proper business equation as business people? And we do not walk away and quibble over commitments and assurances. If there were a commitment that had been made, if there were a handshake, then it is another thing. But as Congressman Shuster says, we have a difference of view in that. But what we are talking about is the ability of an enterprise, over which your Committee has jurisdiction, to make the best decisions in order to perform the mission of the enterprise. And I guess what I am asking for is the ability to make those decisions in good faith and go on with them. Otherwise, the Committee is going to be faced with saying yes or no to a great many individual business decisions and I am not sure that that is the Committee's—
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Mr. OBERSTAR. Well, that may be more properly the role of the Board, and if I had your entire business plan, I might take you up on your offer to look over it with you and make some suggestions about how this can be done. But for this community, I just did a back of the hand calculation on the number of workers and the average pay. This is about a $19, $20 million, impact on this community in payroll alone. And about half of those, probably, will take employment opportunities elsewhere because they have to, regardless of the inconvenience in their lives; they will go someplace else. What are your plans at Norfolk Southern to help them replace a $19 or $20 million payroll?
Mr. GOODE. What we have tried to do is work with the community and work with the economic development authorities. We are working with the former Congressman, and I hope to continue to work with Congressman Bill Shuster, and the State of Pennsylvania, and all of the agencies, because we have got a large facility here, and other facilities in the area, which we have indicated our willingness to make available or to work however the best economic plan can be devised to work them. And I think—I believe that the economic development folks in Blair County will confirm that we have been trying to work with them and find whatever the best use is. It is our conviction that the best—that this does not have a future as the large half-mile long railroad repair facility. That is not the future. And when that is the case, then the best thing, in my view, is to go on and find what the best future is.
For example, we have indicated our willingness to make it available if there is an independent operator who believes, we talked about employee ownership and a willingness to make it available for that purpose. We have talked about a very wide range of options and had a variety of people look at it and continue to do so. I have heard that there is some interest for other purposes for economic development. We, certainly, committed ourselves, and I commit myself again to continue to work with the community on that.
Mr. OBERSTAR. Well, as a part of that commitment—and that is very commendable, and were I in Mr. Shuster's shoes, I would be appreciative of that effort. But I have had experience, all of us have had, with downsizing of industry. I mentioned earlier we lost 10,000 jobs in the iron ore mining industry, 28,000 people migrated out of northern Minnesota because of imported steel taking jobs away from domestic steel industry. And what happened along with that was the shutdown of the DMIR railroad maintenance shops at Two Harbors. We called it Black Friday. Seven hundred people went home and never had a railroad job again. They turned that roundhouse into an incubator, tried to create other jobs. Do you know what happened? The new jobs, we did get 200-300 new jobs, came in at about half or a third of the pay of the railroad jobs.
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The reason this hearing is being held is because the workers love railroading, they love their jobs, they like the pay, and they earn it. To shut the plant and walk away without an effort to look at how you can downsize it—there is a very careful effort to position the railroad to acquire its part of Conrail, but not as much care at the outset to what happens when this facility that we know is too big, we know is going to be bigger than we need, what are we going to do when we have to downsize it. And I think that is what is at the core of the concern. I know it is at the core concern of my good friend, the former Chairman, and the concern of his successor and of all the people in this community. I don't expect you to answer that, but I do expect that Norfolk Southern make a much more substantial effort. You are not trying hard enough, in my judgment.
Mr. QUINN. Thank you, Mr. Oberstar. Mr. Goode, we are going to go through this panel, and maybe one or two more questions, and then move on. We are at 12:30, going onto 1:00, and we appreciate your time a great deal. And I want to take a moment here now to thank you for your efforts, the company's efforts, in my section of New York State. Mr. Shuster talks about that ten-month period where everybody had little growing pains. I don't know what you call it in terms of a throwaway or not, but a lot of work was done on the situation we had up in the western part of New York, and I have already expressed that to you and so have our Union members as well as others up there. So we appreciate that.
I tried to boil this all down. Certainly, on the one hand, I have mentioned it twice now, and you have, your flexibility to operate a company is important, as you submitted to the Surface Transportation Board recently. But I think more than a business decision to close or to remain open in this situation in this community, as I read it sort of as an outsider, what complicates matters here for everybody is that they feel they were promised something. So it is bad enough when a business shuts down. I have lived through it, as Jim Oberstar has in his community with Bethlehem Steel, the Lackawanna plant in my section of the world. They feel like there were or have been either commitments made—you said expectations to Senator Specter. We are all in this business long enough that we can find the right words, each of us. But I think that complicates it a great deal here, that somebody feels, many people feel, along the way there were some commitments made, expectations made, promises made, and they are not being able to be kept right now for whatever the reason. I, personally, am not interested in pointing fingers at anybody. I think we need a solution here. Let me ask you this and give you a chance to respond anyway you want for the record. Is there anything that can be done in this situation, in your business plan, either by the local economic development folks, the State people, or yourself, the corporate world—is there anything that can be done to change Norfolk Southern's mind in this instance, or is this unchangeable at this point in your mind? Briefly.
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Mr. GOODE. We have looked at this extensively early on and constantly as we have gone through this, because this continues to be an important area for us. The main line is here. And I am not either comfortable or happy having the idea that we walk away from commitments, as we don't believe we are, but as you say, that is abundantly clear to us that that idea is here, and we want to make the best result.
We have looked as carefully as, in our best judgment, we can. We do not believe, we do not find, that we can operate this facility as a car repair facility for Norfolk Southern. That is not its future, and that is why we have tried to work and offer both assets and property, and efforts in as many ways as we can to work with the community on as much mitigation as we can find. That is why we offered jobs to all of the people elsewhere on the system, because we wanted to accept that, but our honest conclusion is—and I don't want to leave here with any question in anybody's mind about that—our honest conclusion is that this is a facility that needs to close.
Mr. QUINN. That is why I asked the question. Thank you. Mr. Mascara.
Mr. MASCARA. Thank you, Mr. Chairman. I have been looking at the information that was given to me and representations that were made. I guess it is a matter of semantics. I read representations made by Norfolk Southern to Congress, and if I might, if you will bear with me, I will read it. Your position was given to the Transportation Appropriations Subcommittee. ''John and I had a very good tour of the shops. They are excellent facilities since Norfolk Southern will be the likely beneficiaries of the line and of those shops. We do not have nearby shop facilities. As CSX did in Cumberland, so we are in a position of not only being able to give assurances''—that is another word—''that we will keep these shops and keep them operating. We are going to need them.'' I mean, those are pretty strong words, and you shouldn't be shocked or dismayed at the fact that you are getting these questions after having made those representations and assurances through the STB.
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What has dramatically changed? And we are talking about the economic downturn and those kinds of things. You felt so sure back on March 20, 1997 that you would need this facility and now you don't need it.
Mr. GOODE. We were looking at levels of business that we are not seeing today. We were looking at program repair work that was being done that we did not have other shop facilities to do, not being done today. We looked at the hope and expectation of insourcing a lot of facilities. And I wish that my judgement were always right on—I mean, I would like to pretend to you that every business judgment that I have ever made was accurate. That was a judgment in which we just don't in the reality today need these shops because the economy is changing. The economy is a far different economy today than it was in 1997.
Mr. MASCARA. As an accountant in my former life, I am sure you are making long-range projections. In those long-range projections, have you included the fact that while the economy is in decline, that as Ranking Member Oberstar said, there are new generation plants coming on line, there is a bright future for electric power generation. Have you calculated all of that into your findings that this operation—
Mr. GOODE. We have looked at as many of our facets of our crystal ball as we can, and again, nobody's crystal ball is absolutely accurate, and I don't want to pretend that mine is, but we do not see that the business is going to have the need for this kind of large repair shop facility. As has been stated several times, this is the largest one in the world, and that is not in today's world an advantage; it is a disadvantage.
Mr. MASCARA. Well, I am sure this company is not heartless, but let me say this. In my 27 years of Government service, and I was a county commissioner for a lot of years in Washington County, Pennsylvania, I have been to many places where I have seen that look of helplessness on peoples' faces that are affected; not only them, but their families. It is sad. And it has not stopped. And I am just wondering when it is going to stop, that business is going to make sure that—of course, we have to make sure that the people are productive, and I am sure that you would admit these people have been productive.
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Mr. GOODE. I would certainly agree with that.
Mr. MASCARA. That this has to stop someplace. I have been to too many funerals now over the years that I have been in Government service, and I would hope that you would go back and, even though you say you are not, go back and take another look. Maybe there is something you can salvage here at Hollidaysburg.
Mr. GOODE. I appreciate that. And the only thing I can, again, say is that we are sensitive to the human factor here, and that is why we are offering jobs to all the employees, understanding that it is difficult to move.
Mr. MASCARA. Do you have any early numbers on how many would accept jobs at another location? Have you—
Mr. GOODE. We have only the experience that we have had in other situations where we have seen 50 percent, or numbers in that range, who accept jobs. But let me be very clear, there is a job for everyone who chooses to take it and transfer.
Mr. MASCARA. Thank you, Mr. Chairman.
Mr. QUINN. Thank you, Mr. Mascara. Mr. Shuster, you started this line of questioning. We are going to let you finish it up with a final question.
Mr. SHUSTER. Thank you. You mentioned that there was 380, I believe was the number, and what I have seen is only about 156 jobs have been offered. Is that accurate?
Mr. GOODE. I think that is the—we have offered jobs to everyone. You are probably right about the number of job openings that have been posted for people to look at, but there will be jobs for everyone.
Mr. SHUSTER. The 380, roughly?
Mr. GOODE. Sure.
Mr. SHUSTER. And also, is it accurate to characterize Norfolk Southern as still in a cost cutting mode and still trying to bring themselves into financial health? Is that an accurate characterization of the mode you are still in?
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Mr. GOODE. I think that would be accurate, yes.
Mr. SHUSTER. My question then, again, is the 380 jobs—I have only seen about 156, so that doesn't add up. And the next question is, if you do offer 380 jobs, why would those employees take those jobs and move hundreds of miles away unless they have assurances on New York Dock that six months down the road you are going to say, well, we have got to close this facility down; it is not viable. And then there is going to be the argument that they didn't lose their job because of the merger but because of economic conditions. Are you willing at this time to give those 380—
Mr. GOODE. We have, indeed, made that offer and have negotiated an agreement with three unions to that effect. We have made that offer, so the people that elect to take the job will have the New York Dock protection.
Mr. SHUSTER. But that is an offer negotiated or that is a guarantee that you will?
Mr. GOODE. We have said we will do that, and we will. It is not in my power, as you know, to—I can only do that by agreement with the unions involved, so it is necessary for us to reach an implementing agreement to do this, but we have made that offer both directly to the unions and in public.
Mr. QUINN. Mr. Shuster, would you yield for just one second, please? Excuse me, Mr. Goode. One of the reasons we began this hearing by—I asked for unanimous consent that we leave the record open for 30 days—is that whenever we have a multiple panel discussion like we do this morning, you will leave, and the second panel of elected officials from the State—the Commonwealth—excuse me—of Pennsylvania, and then our friends here who are representing the workers and the families. And if we have a situation where information doesn't always jive, we leave the record open so that we can ask for some more information so that we can take a look at what was said here today in its entirety and maybe get back. So I would say to Mr. Shuster that if we have conflicting reports and information later on today, we have left the record for us not only to ask but to receive information back so we can make those decisions that need to be made. So we know that going into it, but that is the reason we did it when we started. Again, I appreciate your—
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Mr. SHUSTER. It is my understanding what you said, Mr. Goode, was that you will be willing to give a New York Dock guarantee to anybody, to the 380, if they decide, or whatever portion of that decides to go to Illinois or Atlanta? And they won't be down the road, six months, eight months, a year, lose their job, and you will equate that to economic downturn or other various things unrelated to the merger?
Mr. GOODE. That is what we have agreed with with the three unions that we have reached agreement with, and we will do the same thing—
Mr. SHUSTER. And you will do the same with the other four or five, or whatever the number is?
Mr. GOODE. Sure.
Mr. QUINN. Thank you, Mr. Shuster. Mr. Goode, we thank you again for your testimony this morning, and more importantly, for appearing with us and your other staff and other representatives from the company. You are invited to remain and stay for the rest of the hearing, of course, but if your schedule doesn't permit it, we also understand.
Mr. GOODE. I am afraid I will not. I moved a few things with notice of the hearing, so I need to be back for another commitment. My representatives will be here throughout, and I thank the Committee for your patience and concern about this.
Mr. QUINN. Well, on behalf of all of us here, but certainly, the full Subcommittee on Railroads, as well as the full Committee on Infrastructure, we thank you for your time and your interest here this morning. Thank you.
Mr. GOODE. Thank you.
Mr. QUINN. We are going to move directly to our second panel now and get things arranged for the Honorable Robert Jubelirer, the Honorable Richard Geist, and the Honorable Jerry Stern. Please come forward and we will take just a minute or two for everybody to stretch their legs.
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[Recess]
Mr. QUINN. We are going to begin our second panel as the members return. They are just a minute or two on their way, if it is okay with all of you, our elected official panel here this morning. Bob, if it is okay with you, I will start from there and work our way across. I would remind everyone that we have your written testimony. It becomes part of the record, permanent record, official transcript here this morning, so that we would ask all three of you to briefly summarize what is in your written statements. We will wait until all three of you are finished, and then we will begin a round of questioning as long as it takes. Okay.
STATEMENT OF ROBERT C. JUBELIRER, PENNSYLVANIA STATE SENATOR; RICHARD GEIST, PENNSYLVANIA STATE REPRESENTATIVE; AND JERRY A. STERN, PENNSYLVANIA STATE REPRESENTATIVE
Mr. JUBELIRER. Thank you very much. Mr. Chairman, members of the panel, we are delighted that you are here today. We are deeply honored to have the opportunity to present our testimony, and certainly, it was enlightening to listen to the previous speaker provide his testimony. We deeply appreciate the efforts of our Congressman, Bill Shuster, to push for this hearing, and we are grateful to the Chairman and members of the Subcommittee for the consideration given to this critical matter for the future of our region.
It is important for those in positions of responsibility to look at the situation up close and not solely through dry prose contained in legal briefs. This hearing will allow you to see the impact Norfolk Southern is having on a community, quite a different view from the outlook when Norfolk Southern and CSX divided Conrail, because I was very much a part of that and worked with the previous Congressman, Bud Shuster, who was then Chairman of this Committee, the full Committee, to bring, hopefully, stability to this area.
When Norfolk Southern came to town, they brought bright hopes about employment, and investment, and service. This was to be a huge step forward, a much needed revival of rail work, and nearly everyone in the community bought into the promise. Thus, there was understandable shock when the decision was announced to close the car shops and seriousness bitterness as the explanations and justifications have been made public, and I have listened to them again today.
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Since the announcement of the planned closing of the car shop, the workers, in tandem with their community of support, have pursued every possible legal and political avenue to reverse this decision. We have drawn a line in the sand here, determined to make a stand, and not with the idea that we are playing Alamo. I, along with State Representative Jerry Stern, joined in the suit to defend the interests of the workers and the community. The initial reaction from the Surface Transportation Board has been encouraging, but that is just an early stop in a very complicated and, obviously, very emotional struggle.
This is not the standard fight to protect jobs because of the circumstances under which Norfolk Southern gained control of the shops and the commitments that they made about the future of those facilities and the future of the rail in this region. I thought it was very interesting to listen to Mr. Goode's definition of commitment. It reminded me of a former elected official who tried to define the word ''is'' if I might.
No community parts easily with a large piece of their economic heritage or their future. And gentlemen, let me tell you, I grew up in this town, and as a little boy, remember 18,000 Pennsylvania railroad workers, 18,000. This was a company town, 18,000 Pennsylvania railroad workers. And today, I guess about 1,400-1,500, including both Hollidaysburg and Juniata. This was our heritage with the Altoona curve. It is the horseshoe curve you go around in a railroad, in a passenger train. We go up there, we watch. We have a railroad museum. We are a railroad town. It is our heritage, damn it, and they are trying to take it away. We want it to be our future. It is only right that we pass that onto the next generation.
And I sat here and listened to some of the things I heard here before, and let me tell you, it wasn't quite the business decision I think that Mr. Goode would have us believe it was. I believe it was preordained. I believe they had to have access. I believe there is no other choice for them than, frankly, to agree to almost anything. And Mr. Oberstar, you asked the key question. I believe it they had downsized this as they downsized the other part of it, and said that that was working fine, why couldn't they give half this shop to the Altoona Blair County Development Corporation and Marty Marasco to develop while downsizing and bringing their costs down? But there was never any intent to do that.
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No one surrenders good jobs without a fight, no one does. What makes this situation different from the rest is the contrast between what Norfolk Southern said when they needed approval and what they are now attempting to do. These commitments were not local, they were not an isolated phenomena. They were not casual comments. They did not come with caveats and footnotes. They were not called projections at that time. That is a new word that they have introduced, at least into the vocabulary I have heard, about jobs and economic development. They weren't commitments, they were projects, as I have heard time after time.
Our Governor, Tom Ridge, has said directly that Norfolk Southern has not lived up to the commitments it made to Pennsylvania, not projections. You know, we are very honest people here. We will give you a day's work for a day's pay, and I defy anybody to walk into those shops and see the work that these workers do and not say they are the hardest working people you ever saw. They understand the meaning of their word. We understand that. We are very basic about it. We understand honesty, we understand integrity. The Governor has had more than a decade of experience in Congress before becoming our State's Chief Executive, and I do not believe he fell for stardust or mistook projections for more substantial commitments.
The question that we are forced to confront is whether there is accountability in this regulated process. That is the question. If statements of purpose are to be treated as just a matter of convenience, then frankly, there is no reason for an oversight mechanism. The integrity of the governmental process and the credibility of the players in that process, I think, and I am sure these folks back here think, should matter very much. The outcome of this controversy is going to decide whether these things do, indeed, matter.
I have seen the argument made that Government has no business poking around in this sort of decision. Well, I strongly disagree with that view. If a company offered a product and misrepresented it, regulators would be all over that company to protect consumers. Why would it be any different with a service; particularly, one that has received Government aide? What you promise, people expect you to deliver.
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The workers, the leaders in this area, and the community, must challenge Norfolk Southern's intentions in regard to the Hollidaysburg Car Shop and we must challenge it. There was no discussion as with the backdrop of the uncertain fate of the Juniata shops, which are sitting out there. There is no commitment anymore that the Juniata shops and the 1,000 people who have jobs there are going to keep those jobs. That is the last vestige you see of our heritage. That is the last vestige of our future if the Hollidaysburg shops go. If we allow that to happen because good faith has been shattered, there is more than uncertainty now, you see. There is suspicion that the area risks more, for if the compelling factor is Norfolk Southern's economic interest, then they can do whatever they want whenever they want for whatever reasons they choose to offer. If there is no check on their actions, then promises, commitments, and guarantees can all evaporate faster than morning dew on a July day.
What makes this all so frustrating is that we must depend on Norfolk Southern irrespective of how the proceedings before the STB turns out. Thus, gentlemen, we are locked in intense and emotional battle with an entity that will make many decisions in years to come that can help or hurt our local economy. Presumably, there are going to be decisions on jobs and contracts that are highly discretionary. So victory comes not in a short-term decision that goes our way if the long-term implications are bad. At the same time, we are battling over what we regard as a broken commitment on Hollidaysburg. We are seeking to secure a lasting commitment on the future of the Juniata shops.
We ask several things of the Federal Government, and I think they are reasonable—to determine the extent of the obligation of Norfolk Southern, to decide a fair and appropriate remedy to this situation, and protect against retribution down the track.
My intention is not to give a voice to every concern, every worry, every fear to be found among the families affected by the proposal. They can give you that directly and effectively. And as they sit back here watching, and you look at their faces as you have said that you have done, you see their worry, you see their fears, you see their concerns about their future and their children's future. That is very, very alarming. But I do want to convey the sentiment prevalent across our community, a community that has fought back, a community that started many years ago when it got racked to fight back and pull itself up by its own bootstraps. We have worked very hard to get there, and by golly, we are not going to sit back and let a company take it away from us. The confusion and conflict that stretch across the months, and that will not end soon. And when Norfolk Southern comes to Congress asking for legislation to help them out, as everyone of us knows they will, we want to be sure that you understand what their definition of commitment is, how they abide by what they say, and where down the list of priorities they place the welfare of the workers and the interest of the communities that they are supposed to be serving.
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Once again, thank you, Congressman Shuster, for bringing this group here, and thank you for the opportunity, Mr. Chairman, to present these comments.
Mr. QUINN. Thank you, Senator. We appreciate your testimony very much. Representative Geist, we want to thank you for your work over the years on transportation issues, and particularly, MAGLEV. And you are the Chairman of your body. We address you as so. Mr. Chairman, you may begin.
Mr. GEIST. Thank you very much, Mr. Chairman. It is a pleasure for me to be here, and Bill, we want to thank you for bringing everybody here. Perhaps the most famous bicyclist in America is Jim Oberstar. I don't think there is anybody in our sport who doesn't know him, and we are looking forward to have him here for the League of American Bicyclists annual rendezvous called Bike Fest, which will be in Altoona July 31 to August 5. And Jim, I am looking forward to riding with you on some of the best bicycling roads in America.
Let me just say that after the testimony this morning, and I am not going to get into my written remarks, that I am going to talk a little bit about how some of that came about. And quite frankly, I was really surprised to understand these projections and promises that were part of this, because our committee had challenged early on Norfolk Southern's intention in Pennsylvania, not because of just happening on day one, but the history that went on when Norfolk Southern took a run at Conrail before. And just to refresh the memories of those here, when Norfolk Southern came on the scene, there was a marriage between Conrail and CSX. They had fallen in love and David Lavin was dancing them down the aisle.
Norfolk Southern had a hostile takeover. It was not what you would call a prearranged marriage. At some point, I guess they fell in love about $110 a share. Some of us never bought it. Some of us felt all along that this was seduction and we were going to be abandoned. Having that mindset, my committee held hearings across Pennsylvania. We asked for testimony from Norfolk Southern. And after that testimony was finished, we approached the Surface Transportation Board with a set of conditions. And this is what it boiled down to, and I wasn't going to do this, but I want to do this for the record. I am going to talk a little bit about it.
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We really felt that we were being sold a pig in a poke, no and's, if's or but's about it. We were now going to become the largest state in the Norfolk Southern system with a company that I believe, if the history perceives me right, was made up of 64 different railroads. And Mr. Quinn, I always felt this was Jay Gold going to Albany for those railroad buffs among us. So what we did is we took testimony. We asked them clear and specific questions about what they were going to do in Pennsylvania and how they were going to do it. When it was all said and done, we boiled that down into a document that we sent to the Surface Transportation Board, asking that it be included in the contract, and it was. It was never contested at any time by Norfolk Southern's lawyers and/or their spin doctors. So we felt very comfortable that the promises that were made to our committee were promises that were being made to Linda Morgan and her crew. So we feel like we are on solid ground.
The conditions requested by the Pennsylvania House Transportation Committee were this. In view of the foregoing conclusions, the Pennsylvania House Transportation Committee has serious reservations concerning whether or not acquisition of Conrail by Norfolk Southern and CSX is in the public interest. Certainly, we recognize that Norfolk Southern has the best operative and financial performance in the U.S. railroad industry and brings many strengths to this transaction. CSX also has impressive operating statistics and capabilities. Nonetheless, the committee is unconvinced the applicants can generate projected revenue levels from the diversion of truck traffic. They promise to take one million trucks off the road. Instead, we added trucks to the road, a little post-note there.
We are especially concerned that the applicant's intermodal projections are based on assumptions which did not adequately account for economic downturns or changes in equipment availability in years two through five of this transaction. We certainly hope that the projections presented by the applicants can be achieved, but our evaluation of this transactions is not driven by a predetermined goal to obtain STB approval. If Norfolk Southern and CSX projections are overstated, applicants will have to make up revenues from other sources of traffic or cut costs and defer capital projects which have been presented in the application as part of the public interest justification for this transactions.
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Accordingly, it is the position of the Pennsylvania House Transportation Committee that the proposed division and acquisition of Conrail by Norfolk Southern is a high risk transaction, and if approved, should be subject to ongoing monitoring by the Surface Transportation Board to assure compliance with proposed service schedules and FRA safety standards. In particular, STB oversight should monitor the integration of Conrail operations in Norfolk and CSX systems to ensure that management and operational breakdowns such as those experienced by Union Pacific do not occur in Pennsylvania.
Accordingly, the committee requests the Board condition its approval of this merger on the following public interest commitments, many of which have been proposed by Norfolk Southern themselves.
(A) That Norfolk Southern and CSX give priority for all job vacancies to former Conrail employees whose jobs were abolished or transferred as a result of this transaction.
(B) That hiring and placement for agreement and non-agreement positions within the Commonwealth be coordinated and administered through the Pennsylvania regional employment councils for communities adversely impacted by Conrail job terminations and transfers.
That for a three-year period, Norfolk Southern and CSX respectively allocate all equipment and supply purchases for Conrail lines on a competitive bid basis to former Conrail suppliers. We have a huge supply industry in this state.
That the following capital investments in new and improved facilities be undertaken. These were commitments made to our committee. Norfolk Southern Triple Crown Railroad terminal in Morrisville, Pennsylvania, $10 million; Norfolk Southern improvements to Greenwich Yard, $5 million; Norfolk Southern construct new automobile unloading facility near Philadelphia/Norristown, $15 million; CSX construct intermodal facilities in Philadelphia, including a new intermodal ramp at Greenwich, $15 million; and $14 million for double stack clearance in Philadelphia; CSX $4 million investment in Greys Ferry Bridge-Eastwick connection; Norfolk Southern conduct new intermodal facility in Harrisburg, $40 million; Norfolk Southern increase capacity on the Reading Harrisburg line, improved signaling and crossovers, $10 million; Norfolk Southern Hollidaysburg, Pennsylvania Car Shop, capital improvements, $4 million; Norfolk Southern improvements at Altoona, PA, locomotive repair shops, $63 million; CSX assignment of car repair work to Hollidaysburg and Altoona shops; Norfolk Southern construction, new locomotive repair facility in Beaver County, $30 million; Norfolk increased capacity of Pitcairn Yard intermodal facility at Pittsburgh, $5 million; Norfolk establish and staff regional and divisional operational headquarters in Pittsburgh; Norfolk Southern upgrade Harrisburg, PA to Binghamton, New York line; Norfolk Southern relocate NS main line from 19th Street in Erie.
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That Norfolk Southern and CSX be required to obtain independent review and approval by the Board as to future disposition of any overfunded portion of Conrail retirement plans.
We go on now to do the short lines, and I am not going to read that into the record.
Mr. QUINN. Thank you.
Mr. GEIST. But I want to do the conclusion because I think it goes way to the heart of all this. We had more attorneys, and more spin doctors, and more brass from Norfolk Southern, and it is kind of like a reapportionment year for Congress, and every ten years Congress falls in love with their Sate House. Norfolk Southern danced us, they waltzed us. There is no and's, if's, or but's about it. They had a full court press on for Pennsylvania to fall in love with Norfolk Southern. We questioned it. All of this was put into the Surface Transportation Board agreement, never once questioned by Norfolk Southern's attorneys.
Conclusion: In the meantime, the Pennsylvania House Transportation Committee will work closely with Norfolk Southern, and CSX, and other agencies of the Commonwealth to monitor rail operations within the state and the partnership of Norfolk Southern and CSX in the creation of rail served industrial parks, infrastructure improvement, and economic development projects. We understand that for better or for worse, the interests of the Commonwealth are linked to those of Norfolk Southern and CSX in doing whatever is possible to make this transaction succeed and assuring that efficiencies and safe railroad transportation is provided by the applicants to the citizens of the Commonwealth. If the concerns addressed and the conditions sought in this statement and that of the Pennsylvania State Transportation Committee are granted by the Board, this committee will support the proposed transaction and will look forward to a positive and productive relationship with Norfolk Southern and CSX.
That is all part of the agreement. And when Linda Morgan comes out with her statement that we have all read, and we have read the filing that Norfolk Southern put back in, I think about eleven pages of that were spent kicking Linda Morgan in the shins. I believe she made the right decision based upon the promises that Norfolk Southern made to us, and we look forward to working with them to have the best most productive shop with the best workers in the United States in a facility that can handle unit trains with a great workforce. I submit to you that Norfolk Southern made promises to this community, and we believe those promises should be kept. Thank you very much.
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Mr. QUINN. Thank you, Mr. Chairman. And I don't like you talking about the State House in New York that way. It is the Representative's turn.
Mr. STERN. Thank you, Chairman Quinn. I appreciate you and the members of the Subcommittee on Railroads in joining us in Altoona today, and I would also like to take this time to thank Congressman Shuster for bringing the Committee here to Altoona to hear testimony today.
The information that you have listened to earlier today presented may be new to some of the members on the Committee, but to those of us of this area, the development of the railroad is synonymous with the development of Altoona. There are a great number of families that have a history with the railroad. I know, and I have worked with many of the families who would be affected if the shops are closed and am aware of the difficulties it would create in their lives if this would happen. None of us can go anywhere in this community where there is not someone that we work with, or that we go to church with, or that we see in the grocery store or wherever in the community that does not have a connection to the Hollidaysburg or the Juniata shops in Blair County.
To give you a brief background of the shops in Blair County, for years, workers at the shops were always concerned about the possibility of the shops being closed. Rumors of possible closure came up every few years, but at each turn, these concerns were confronted with strong opposition from the community and the shops remained open. Those efforts were lead by former Congressman Bud Shuster in his position as Chairman of the House Transportation and Infrastructure Committee.
In 1997, the proposal for CSX to acquire Conrail and sell half to Norfolk Southern was being discussed. Although some job security concerns remained, having one of the best operating railroads take over a struggling Conrail had some appeal, and quite a good bit of appeal, from the community. The efforts led by Norfolk Southern to gain the support of government, political, community, and business leaders, and to diminish the job security concerns were very effective in putting to rest a great deal of these concerns and in gathering the necessary support necessary for this agreement. The arguments that they used in support of their efforts are legendary and well documented.
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From L.I. Prillaman, the Executive Vice President of Marketing for Norfolk Southern, March 19, 1997, ''We are very impressed with Conrail Shops at Altoona and Hollidaysburg. These are very important operating facilities, and we believe that they are underutilized and we will find a way to make these facilities grow.''
From a letter to legislators from David Goode, Chairman, President, and CEO of Norfolk Southern, dated April 4, 1997, ''All of us from Norfolk Southern were very impressed with the Altoona and Hollidaysburg facilities and the obvious commitment of the employees there. I want to assure you again that the locomotive repair and car shops will play an important role in Norfolk Southern's future.''
Again from Chairman Goode on June 1, 1999, in Altoona, to mark the beginning of the merger, ''I want people to look back 100 years from now and say that it (meaning railroading) is a tradition that has continued and Altoona is still the heart of railroading in the world.''
If these statements were, indeed, made in a truthful and a straightforward manner, then how now, less than 12 months after the agreement was finalized, does the best operating railroad in the country announce that the functions in Hollidaysburg are redundant and need to be eliminated? This action brings the credibility of all their statements into question. Norfolk Southern argues that these were no part of the formal agreement and cannot be used for a present business day decision. However, these are statements that go to the very basis of gaining the approval of that agreement. Whether they are part of the formal agreement or not is not relevant. Norfolk Southern can't have it both ways—use the arguments to garner goodwill and then discard them at its convenience and not be held to them.
Norfolk Southern makes the claim that the car shops operate at a loss. Mr. Oberstar brought this point up this morning. Any maintenance operation, by definition, will operate at a loss. By nature, maintenance is not a revenue generator, but a cost which must be closely monitored. For Norfolk Southern to make the claim that a $6 million loss is not expected does not make any sense, and to transfer work that would possibly make a profit, or at the very least reduce the operating loss, is immoral. This action was taken during an extremely difficult operating year for Norfolk Southern and with no commitment to work with the employees to increase efficiencies and thereby reduce operating costs.
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The basis of the goodwill developed during negotiations of the split of Conrail was based, in part, on high expectations for growth and expansion for the future of our area. I understand the need for Norfolk Southern or any other public company to be responsive to markets and their investors, and hate the idea of government getting involved in the operation of a privately operated company. However, when Norfolk Southern entered into the public realm to develop the goodwill necessary for the agreement to move forward, it forfeited some of that independence and opened itself up to public scrutiny.
The community now finds itself in the very difficult position of being at odds with the largest employer in the Altoona and Hollidaysburg area. This is not a position that I find myself particularly satisfying or am happy to be in. Altoona and Hollidaysburg need Norfolk Southern and we were led to believe that Norfolk Southern needed us. I remain committed to doing everything possible to make sure that Norfolk Southern sticks to their commitments. The families affected and the future of our area is too important to do otherwise.
Thank you very much.
Mr. QUINN. Thank you, Jerry. I appreciate all of your comments, all three of you, very much. I yield now to our host today, Mr. Shuster. Bill.
Mr. SHUSTER. Thank you, Mr. Chairman. I appreciate all three of you, Representative Stern, Chairman Geist, and Senator Jubelirer, for being here today. And my question is, from one legislator to another, concerning Norfolk Southern's claims that the Federal Government shouldn't be involved in this, they shouldn't try to micromanage them. When I look at it, I see that the railroads in this country, Norfolk Southern, they have been able to circumvent or supercede state laws and local laws based on the Federal Government, the various laws they have passed.
And so my question to you is how do you interact with the railroads on a state level and what is your general sense of that claim that Norfolk Southern makes that the Federal Government shouldn't be micromanaging or shouldn't be involved in this decision? Any of the three of you or all of you.
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Mr. JUBELIRER. I would just say, Congressman, that when you come to Government and ask Government to support you, and you ask for subsidies, and you ask for certain breaks that perhaps other companies don't have, and we have seen that both from the passenger carrier, Amtrak, as well as the freight carriers, I think Government has a right and does. We know that. I have been in Government now for 27 years as well, Mr. Mascara, the same as you, but I have been in Harrisburg for 27 years, and I can tell you that I think that Government has a right to at least monitor and make sure commitments are kept when Government is a partner.
In effect, they are saying to their partner, Government, because they want us as a partner when they want our money and they want our help, you know, let us do it our way. Well, that doesn't always work. I think our responsibility is the people's interest. And when the people's interest is paramount, I think we have a right to enter in and suggest that they at least keep the commitments they made when they came to us asking for our help. And they needed a heck of a lot of Government help to get where they are today, so I think we have every right to come here and expect them to keep the promises they made. And if they want to go it on their own, that is a different story, but we all know that in the transportation industry—I don't care whether it is airlines, or trucking, or railroads—they all need Government help. And so I think we have at least a right to say keep your promises.
Mr. SHUSTER. Chairman Geist.
Mr. GEIST. We could probably talk about this for two hours. After Staggers was passed, really, class one railroads in America became almost protected utilities by Congress. So I think that Congress, that you, have more say over the future of Norfolk Southern than anyone. We in the State of Pennsylvania will have our say if we have to have our say, but right now I would like to go along with David Goode's statement about having an unprecedented public-private partnership, and that is what Norfolk Southern spun before this deal was done.
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The regulation, and what they do, and how they conduct business is before Mr. Quinn's Committee constantly and in front of Mr. Oberstar constantly. These railroads, they can't go to the dance without you guys playing the tune. And right now, we want to make sure that we fall back in love again.
Mr. STERN. As members of Congress, I am sure you are well aware of the accountability that we all have to the taxpayers, not only of the United States of America, but here to the Commonwealth of Pennsylvania. Again, whenever companies come before the House of Representatives, the Commonwealth of Pennsylvania, or before the U.S. Congress, in asking for assistance or asking for relief of some sort or help, and also, to gain goodwill and that opinion that is necessary for certain agreements to take place, I believe that they put themselves at the public realm at that point and develop a point of oversight where we do, as legislators and elected officials, have a responsibility to make sure that they are accountable, just as we are accountable as elected officials in our actions as representatives of the people.
Mr. SHUSTER. No further questions at this time.
Mr. QUINN. Thank you, Mr. Shuster. Mr. Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman. I want to thank this panel for its very powerful testimony. I wish I had some of this information prior to the presentation of Mr. Goode, although, intuitively, some of that occurred to me. I, particularly, want to welcome Representative Geist, whom I have known for several years, and compliment him on his leadership for high speed rail.
Mr. GEIST. Thank you.
Mr. OBERSTAR. A solid, consistent, thoughtful voice for high speed rail, especially, the MAGLEV. And also, a great bicycling advocate. I am trying very hard to adjust my Minnesota schedule against the Washington schedule to come up for this—there is nothing I would love better having seen this territory than to bike those routes.
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Let me ask this, and I think, Representative Stern, you said it very well, that Norfolk Southern forfeited some of its independence to make these private business decisions when it asked Congress for help. They all come into us, they have all got an agenda, all the railroads. But there was a moment in time when Norfolk Southern and CSX were lobbying the Hill very intensively for support for, or at least absence of opposition to their proposal to merge. If in their filing Norfolk Southern had said—Mr. Goode said in his testimony today that the HCS facilities ''are redundant'' in that STB filing, what would have been the reaction from the legislature? What would have been the reaction from the public?
Mr. JUBELIRER. My answer to that would be, Representative Geist and I, and Representative Stern, and others had an opportunity to meet with David Goode in Harrisburg—what—a couple of months ago at a private meeting, not before the public. And I said to him—and this would be pretty much my answer as I think Harrisburg, at least—I don't speak for all of Harrisburg, but as, you know, the President and Pro Tem of the Senate, and somebody who has been there for a while working closely with the Governor on this issue and the Senate Transportation Committee, if we have got a problem, it seems to me the best way to solve a problem is all parties sit together and see how we solve it. We sit down. What I don't understand is, and Congressman Shuster raised the issue about the eight-month period of time, nobody was ever told that there was a problem here that they were having. They dropped a bomb on us is what they did. If there was to be a problem with the Hollidaysburg Car Shops, the least thing they could have done is said, now, here is our problem, we need to deal with this issue. At least we would have had that out front, because if they had a problem, frankly, anybody else would have had a problem as well who was bidding for this. Well, I don't know where all the bidders were that were out there looking to take over pieces of Conrail, but these, obviously, were the two major railroads that were going to have to have access to the northeast, and they dare not let anybody else have it. So they are going to say anything, do anything, in my judgment, evidently, to curry favor with Congress, and particularly, the Chairman of the Transportation and Infrastructure Committee, who happened to be in the heart of the district where they were going to need help. I still believe that it would have been possible to do that, but maybe we could have fixed it.
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See, our fear is now, there is no credibility anymore. Why should we believe—would you have your son or your daughter and son-in-law head to Atlanta to take a job based on David Goode saying, gee, we have no intention of closing our car repair shops down there? Would any of these people do that? I wouldn't. I mean, I wouldn't do that.
Mr. OBERSTAR. I said to Mr. Goode, I think his understanding of commitment and mine—
Mr. JUBELIRER. Are a little different.
Mr. OBERSTAR. Are very different.
Mr. JUBELIRER. Yeah. Well, mine, too, sir, because I tried to support him, and frankly, I think all the support we gave him was violated by what they did. And I am a very angry person here today as I was several months ago when I met with him because I believe we were betrayed in this community by the promises they gave. I can deal with the truth. I can deal with it as a politician, I can deal with it as a person. I can't deal with what they did because they lied to us, in my judgment. Had they been honest with us up front, I truly believe that the Governor and the members of the General Assembly would have had to—sure, there would have been reaction back here, but again, we know back here that we have had to fight for every job and hold onto every job.
Now we are sitting here on a powder keg, and it is called the Juniata shops. We don't know what is going to happen to the future of the Juniata shops. We may be without any jobs here. But if we dealt with them up front, if we knew that they were honest up front, maybe we could have helped. Maybe we could have fixed it. Frankly, we have one of the best economic development directors in the country right in our own area, who could take at least a good chunk of those shops and market it, and they should be, frankly, putting money into do that, and taking the remainder of the shops, as he said, when it is small and you don't have the expenses, they could do it. There has been a proposal by a member of the—or a worker from the Hollidaysburg Car Shops to take those shops and move them into Juniata and work out of Juniata. Has anybody responded from that from Norfolk Southern? You get a blatant dismissal, it can't work. How do we know it can't work? I mean, who are we to believe?
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Again, if they had been honest up front, I, frankly, believe we would have been able to deal with it and I think we would have gotten through with this thing. Would there have been—sure, there would have been a reaction, but at least if there had been integrity involved in this process, we would have had a shot. But without integrity, without credibility, here we are.
Mr. OBERSTAR. Well, I said in my exchange with Mr. Goode, I find it difficult to believe that a person with his experience and background as an accountant, could look into that 700,000 square foot operation, look at the size of it, a half-mile or more long, and say, we are going to build this, we are going to expand this operation, and not have any second thoughts about, well, maybe it won't work. I think candor, at least, honesty at the best, are required in this.
I would like to pursue these matters further. I think, Representative Geist, your recitation of the commitments put forth by your committee, by the State Legislature; Representative Stern, your comments all were very powerful, very persuasive. This was not just a wish. I think they—as I said at the outset, I think they made a statement with a wink.
Mr. JUBELIRER. Very well put.
Mr. OBERSTAR. And expected us to believe it. And now it has come home to roost. People are not throwaways.
Mr. JUBELIRER. Hear! Hear!
Mr. OBERSTAR. Thank you, Mr. Chairman.
Mr. QUINN. Thank you, Mr. Oberstar. Let me ask all three of you, and I am going to ask this question of the last panel as well. We are talking over 300 jobs here. Mr. Stern, I will start with you, because I happen to agree with you, local officials have the best pulse of the people, whether it is at church on Sunday, or the Little League field, or the shopping market, the grocery store, the same thing that I do when I go home every weekend for eight years now.
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From over 300 jobs, how many people do you think will be interested in transferring out of town and moving their families?
Mr. STERN. Well, when you look at the average age, and I am sure that will be brought up later on in testimony that will be given to the Committee. When you look at the average age of the worker that is impacted at the Hollidaysburg Shop, we are looking at somewhere in the late 40's, early 50's category. Now, you ask yourself a question. If you lost your job tomorrow and you had to take up your roots and possibly move to Atlanta or some other location, how easy would that be to do that, to make that move? Putting that in text with the statements that were made earlier today about these 300-some jobs that are affected, and offering positions somewhere else in the Norfolk Southern line, are you going to make that commitment to go; especially, whenever there have been commitments that we feel, as legislators, and the community, and as workers, that were made to this area by the CEO and by Norfolk Southern, and now they are telling us something else, would you be inclined to buy another pig in a poke, so to speak?
And the thought process, I believe, in the community, is one of Norfolk Southern has lost their credibility. And I believe that many people have found it very difficult to believe what they are stating in whether it is a public forum as today, or their pleadings with the STB in their filings. So we are only as good as our word, each and every one of us as elected officials, as you know. And if we start telling things that aren't truthful to the community, then it is going to come back and we are going to have to be accountable for that, and it is going to come back to haunt us. I believe Norfolk Southern's statements that they had made to this community, to Congress, to the House Transportation Committee, and to the elected officials, and economic development officials of this area should be taken into consideration and that they need to be held accountable for their statements.
Mr. QUINN. Mr. Geist, care to comment?
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Mr. GEIST. I agree with everything Jerry said, except there is one thing. A lot of these fellows are into benefits crap. They are so deep into railroad retirement that they cannot go—they have to go. You don't want to forfeit all those years of seniority and walk away with nothing. So I think that a lot of them are going to be forced to go and I think it is going to happen, as we downsized before here, we had a lot of fellows who went to New Jersey Transit, Metro North, and other facilities like that. They leave here Sunday night in a van, they room at a flop house or someplace like that, and they come home on weekends. And you really hate to see that happen. I mean, you see families break up, you see all kinds of problems. You know what all happens when that happens and, you know, I truly believe it is a mistake to do this. But I have counseled everybody that has come to my office that you can't afford to throw a lot of that away, and it is a terrible decision to make, and it just costs so much more than dollars.
Mr. QUINN. Senator Jubelirer, comment?.
Mr. JUBELIRER. I think both of my colleagues have responded very well. I don't know that we can calculate how many will go, but a lot of them will forfeit it rather than break up their families here. It is going to be very difficult for them to make that transition, and frankly, based on the credibility of the company itself, that is what really makes it difficult, because they don't know if they are going to be there six months—they could break up their homes, go down to Atlanta or wherever it might be, and six months later, they could be out of a job again and still lose those benefits.
Mr. QUINN. Well, Senator, that is exactly why, and Representatives, I asked the question, because it seems that Mr. Goode and others have staked their claim, though, that we are going to offer every single person a position. And Congressman Shuster probed that a little bit, about the fact that 156 have only been offered, and is there something for everybody. Representative Stern, that is, again, why I asked the question. I, as you know, grew up in a railroad family with four brothers. You may be interested to know that our Subcommittee is working on a railroad retirement bill right now. The members may need to help that out. We got a great deal of support from the people here at this table and elsewhere in the United States Congress, but it is not easy to turn your back on that kind of situation when the rest of the family is dependent upon it. So while that is an option, at least an offer that is being made, we all have to look carefully at that offer and just see what options you really end up with. It is a tough, tough decision, and we will maybe talk about that a little bit further down in the questioning. Mr. Mascara.
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Mr. MASCARA. Thank you very much. My claim to fame is my relationship with State Senator J. Barry Stout, with whom I have worked on many transportation projects.
Mr. JUBELIRER. I won't hold that against you.
Mr. MASCARA. Okay. I will tell Barry that. And I also want to compliment you gentlemen on your abilities to restrain your comments regarding the filing to close these facilities. I wondered why you were holding back. I just want to talk a little bit—I looked at, Senator Jubelirer, your statement here, and you indicate that along with Representative Stern you have filed, or joined in, a lawsuit. Is that in the State courts or Federal courts?
Mr. JUBELIRER. That is joined in with the Governor's filing with the STB.
Mr. MASCARA. Okay. So I was interested in seeing—and you say in your testimony here that it has been encouraging, the Surface Transportation Board has been encouraging. What did you mean by that?
Mr. JUBELIRER. Well, I think that at least from what I have, again, learned, seen, read, what have you, is they have not shut it out as far as saying to Norfolk Southern that they are out of it now. I think there at least is an implication that they are willing to monitor and see what has taken place. But it is not clear yet, but we are hopeful that the STB will take a positive attitude toward what the administration, with Governor Ridge and the administration, and those of us who have joined in will do. I think there is at least a united front that says—only one person is saying I didn't make a commitment; I made a projection. If I hear that one more time, I am afraid—I have never been accused of being restrained before, by the way—that I would perhaps say something that I might regret. But that just sickens me to suggest that they made a projection, not a commitment. And at least I think that there ought to be a review of what the agreement actually said.
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They are the ones to do it with your oversight. They are going to come back to you. You know they are going to be back to you. They have got to come back to you, and I hope that the day that you have spent here and the education you have gotten on this from around here will be an influence as they come back to you in recognizing whatever they say. I don't know how you get it in blood, but I sure as heck would want it before I would agree with them.
Mr. MASCARA. Thank you, Senator. I have no further questions.
Mr. QUINN. Thank you, Mr. Mascara. I think we are just about finished with this panel. We would like to—Mr. Shuster.
Mr. SHUSTER. Yes. Instead of asking a question, Chairman Geist has a tape a couple of minutes long, if we could watch that?
Mr. GEIST. What we did for our last hearing was we showed a tape. I didn't even make remarks. And we opened up with some quotes from Chairman Goode, and I think that they would be appropriate to watch. It is not very long.
Mr. QUINN. A couple of minutes?
Mr. GEIST. Yes, a couple of minutes.
Mr. QUINN. We will yield to Mr. Shuster then. We will finish with questions, and if we can get the tape here for two or three minutes, we can show that now, and then we will finish.
Mr. JUBELIRER. I am going to have to leave, but I thank you again very, very much for being here. We appreciate it.
Mr. QUINN. Thank you, Senator.
Mr. JUBELIRER. This is very important to this community. And Congressman Bill, thank you for your leadership in this.
Mr. SHUSTER. Thank you, Senator.
[Videotape played]
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Mr. QUINN. Thank you, Representative. We appreciate—
Mr. GEIST. There are also in that various cuts of press interviews with the Chairman, basically, making the same statements to our community. And the way we feel right now, they came up about 97 years short.
Mr. QUINN. The tape, along with your written testimony, becomes part of the record this afternoon. We appreciate that very much. And thanks for spending some time with us.
We would like to move to our third and final panel now, if we could, with Mr. Richard Edelman, Mr. Thomas Lutton, and Mr. Gary Maslanka. Please join us at the table, gentlemen. Good afternoon, gentlemen. Thanks for being with us, and we look forward to hearing your testimony. Just to review—I know you have been here in the Chamber this morning for all of our other testimony, but what we would like to do, if it is okay with you, is begin with Mr. Lutton and go down across the table. We have your written conversations, we have your written statements. We will, obviously, have them become a part of the record. We ask that you simply summarize what you have in your written testimony.
I do want to say that Mr. Mascara has a commitment back in his district, and he has really helped us with our deliberations this morning by being here for almost three hours now. So Frank, we appreciate that, and when you are ready to excuse yourself, certainly, we know these gentlemen are prepared for any additional questions that you might have. Sir.
STATEMENT OF RICHARD S. EDELMAN, ESQUIRE, O'DONNELL, SCHWARTZ, AND ANDERSON, COUNSELORS AT LAW; THOMAS LUTTON, PRESIDENT, TRANSPORT WORKERS UNION OF AMERICA LOCAL 2017; AND GARY MASLANKA, INTERNATIONAL STAFF REPRESENTATIVE, TRANSPORT WORKERS UNION OF AMERICA
Mr. LUTTON. Thank you, Chairman Quinn and distinguished member of the Committee. I am Thomas Lutton. I currently hold the position of President of the Transport Workers Union in Altoona. I began my career in the railroad industry in 1973 with the Penn Central, and then with Conrail, during which time, from 1978 through the present time, I have been a representative of Local 2017 of the Transport Workers Union.
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Chairman Quinn and members of the Subcommittee, before making my comments before the Committee, which will be brief, I would like to thank the Subcommittee for conducting a hearing and the opportunity to present testimony here today.
I appear here to offer testimony concerning Norfolk Southern's planned closing of Hollidaysburg Car Shop in Altoona, Pennsylvania from a Local perspective. In particular, concerning Norfolk Southern's repeated commitments to the workers at the shops, the organization, and our community.
In doing so, I point to the declaration of Robert G. Chirdon, who is actively employed by the Norfolk Southern at the shops here in Altoona, as I believe Mr. Chirdon's declaration provides an accurate account of what has taken place here from a local vantage point, an employee who has been directly subject to the Norfolk Southern's actions. I should also point out that this declaration is just one of two hundred signed declarations by workers here in Altoona, attesting to what Norfolk Southern committed to do in regard to the shops here in Altoona.
Chairman Quinn had asked a question earlier to our State Representatives about our people moving. I just would comment on that issue and refer to it this way, that 200 of our membership have signed declarations saying, basically, that they don't trust the Norfolk Southern. And that for people to move anywhere from 500 to 600 miles away to look for a job with them people would be kind of outrageous in my opinion.
In keeping with my comments being brief, I would like to address a bit further the issue of insourcing here at the shops. First, the insourcing team here at Altoona was aggressively seeking additional work for the shops and was quite successful in their efforts. The facts are there were several insourcing orders scheduled, numerous additional orders being negotiated, when Norfolk Southern turned away the work. And the reason I say that is the fact that in the year 2000, we had insourcing jobs that we could have completed. The local management, to my best knowledge, had asked for additional help those jobs and was turned down. In fact, we had to turn the work down.
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These insourcing jobs generated a substantial profit for the shops. In fact, it was common knowledge around the shops that the insourcing work was not only steadily increasing, but the profit margin of the work was substantial, even considerably higher than the profit margin figured on the bids themselves. To illustrate the fact, attached to these comments, Exhibit 2, is a financial breakdown which outlines the profits of insourcing for the work in 2000. When reviewing the document, which to my understanding comes from the manager of insourcing, you will see that January 2000 through November 2000, NS realized a profit on insourcing alone of $1.8 million.
In view of the foregoing, and the fact that there were numerous additional insourcing jobs scheduled, as well as numerous additional insourcing jobs being negotiated, insourcing projects were returning a substantial profit.
Chairman Quinn, members of the Subcommittee, these fine, dedicated employees, who on an average age of 48, with approximately 25 years railroad service, have experienced some difficult times through the years. They have been through different ownership's, bankruptcies, and government ownership. However, they have never experienced the type of situation they are now confronted with, a company that made repeated commitments and literally promised them that if the Conrail transaction was approved, the employment would be secure. A company who now, just a short period of time after taking over operations, is blatantly attempting to break their commitments.
I conclude my comments today with a brief—there is one additional point I would like to make concerning Norfolk Southern's actions. As you know, or as you are aware, it was November 2000 when Norfolk Southern initially announced plans to close the Hollidaysburg shop. In response, Congressman Shuster, Chairman Shuster, scheduled a hearing here in town of this Committee. However, subsequently to discussions with Chairman Goode, Norfolk Southern canceled the planned closing. What is important to point out is that as stated in the announcement canceling the shop closing, the need to work together to bring the work in the shops was important.
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I say this, that we made every effort to do that. Our people in the shops working under these conditions on an everyday basis, with the pressures of knowing that this job is closing or attempting to be closed, have kept their morals up. They have kept a good product going out. They have kept the production levels at high levels. And their safety has been second to none. I submit to you that these people are committed to this shop and have been lied to by the Norfolk Southern. Thank you.
Mr. QUINN. Thanks very much. Mr. Edelman—Mr. Maslanka—always out of order.
Mr. MASLANKA. Yes. We have got it.
Mr. QUINN. At the risk of tainting today's proceedings, everybody needs to know that Mr. Maslanka and I both hail from Buffalo, western New York. In the interest of full disclosure, we have known each other for about seven or eight years now, and pleased to have you be the one to join us here this afternoon. It is unfortunate we had to come a few hundred miles to say hello.
Mr. MASLANKA. Well, I don't question when counsel says, you go first, so I will just—
Mr. QUINN. Thanks, Gary. Go ahead.
Mr. MASLANKA. Good morning. Chairman Quinn and distinguished members of the Subcommittee, my name is Gary Maslanka. I currently hold the position of International Staff Representative for the Transport Workers Union of America. I began my career in the railroad industry in 1974 with the Penn Central Railroad, then Conrail. During the time from 1979 to 1998, prior to my current position with TW, I was a Local representative.
I am going to be real quick here, jumping around just to get through the couple of points I want to make. You have heard a lot. I don't want to be repetitious. I don't think, you know, it takes a rocket scientist to figure out what is going on here. But you know, we have to say that, you know, this is about a company, Norfolk Southern, which made repeated and firm unequivocal commitments to continue operations at Hollidaysburg Car Shops. This is about a company, Norfolk Southern, and its officials from CEO David Goode on down, which during an extremely aggressive campaign to win approval of the Conrail transaction, literally worked the stakeholders, including the United States Congress, the Commonwealth of Pennsylvania, the employees of Hollidaysburg, and numerous others, making repeated commitments, assurances, and promises that subsequent to approval of the Conrail transaction, Norfolk Southern would not only continue operation of the shops but would promote employment there.
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I just want to reference and call your attention—you have already seen most of them, but I mean, this is what our people were confronted with. There is a November 6—or November 18, 1996 full page ad in the New York Times, and you can't see it very well, but it says under Altoona, we are committed to continuing operation and promoting employment there.
Let me just point out one other—actually, there is two other ones. And these are fact sheets that were put out by Norfolk Southern, massive distribution throughout the country, throughout the regions where they were looking for support. And literally, on their internet for the entire general public to see. The first one there talks about—it is referred to as a fact sheet. It says, transfer of most freight car program work to Hollidaysburg, about $63 million in improvements for Altoona. And then it says, estimated $4 million in capital improvements at Hollidaysburg.
Now, I have been listening here today because this is near and dear to my heart for what these people are trying to do to our people. And I think I listened pretty good, and I thought I heard NSR CEO Chairman Goode say, well, we didn't maybe make all that investment, maybe around $3 million. I am here to tell you they didn't invest a dime. So I mean, just another reason why we can't trust these people. Again, it is just repeated and repeated.
And I believe this one is up there also. There is a press release out there, and it is stated just like it is stated in the full page ad, which, incidentally, was run in numerous other newspapers throughout the country. It says, Norfolk Southern is committed to operate Hollidaysburg Car Shop and Juniata locomotive shop and promote employment there. Now they are attempting—and incidentally, we are a little late because of some logistics, but the entire Committee has a copy of a document that we put together. It has got all and many more of these in there.
And you know, it is interesting to note on the front of this document, it says, the real truth, exactly what they said, not what NS is now attempting to convince people they said. They are saying now that they never said what they never said before. They are saying now, NS believed the shops would prove useful to it and hoped and expected to use them, but for no definite period of time. It has got a couple comments about that. Now, Norfolk Southern and its representatives from CEO David Goode on down had complete control of what they said in their aggressive journey to pick up their piece of Conrail. They had countless opportunities, just by reviewing this document here to say what they are now asserting, NS believed the shops would be useful to it and hoped and expected to use them, but for no specific period of time. They never said it. They had every opportunity, they never said it. So like I said before, the real truth is with respect to Hollidaysburg Car Shops, exactly what they said, and they said it, NS is committed to continuing operation at Hollidaysburg not once, but repeatedly, in several ways, and before every audience they could.
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I am not going to belabor—I know we are running behind here.
Mr. QUINN. Mr. Maslanka, we have time to hear whatever you have to say.
Mr. MASLANKA. Okay.
Mr. QUINN. We made the trip, we are here for the day, we will give you as much time as we need to get this. Please take whatever you need.
Mr. MASLANKA. Okay. You know, like I said before, these people are hardworking people. Beyond these types of commitments, what we had is a situation where during the merger proceedings, Norfolk Southern management appeared at Hollidaysburg Car Shop not once but on an ongoing basis, talking to people face to face, telling people, you know, we don't know how you do this. This is beautiful work. This is quality craftsmanship, you know, we are going to increase insourcing. I mean, Mr. Lutton will attest to that.
I would also, you know, say very briefly that with respect to insourcing, you know, the record is clear, contrary to what Norfolk Southern is now trying to say. They have done an excellent job in bringing work into these shops. I don't know if Tom mentioned the profit or not. The profit for 2000 was an $18.8 profit margin, I believe. And they literally turned work away and pulled the plug on insourcing. I mean, there is just no rhyme or reason.
And when I say I am going to be brief, I really want to turn it over to Counsel Rich Edelman, because I don't want to reiterate everything that has been stated here before and everything that we have stated in numerous exchanges before the Surface Transportation Board. But I would close in saying two things. First of all, what we are saying to you is absolutely true, and I think you had an opportunity to say, or to see today, firsthand, Mr. Goode use the word commitment loosely, without any thought. I mean, I saw that before my eyes.
And I would really be remiss if I didn't bring greetings from, and a personal thank you from, our International President, Sonny Hall, who as you know, has a very, very extremely busy schedule. He would have loved to have been here today. I can assure you that Mr. Hall has this on his radar screen. He is very concerned over this situation and it is a priority. And thus far, he has been committed and will continue to be committed to doing whatever it takes to make Norfolk Southern live up to its commitments.
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Thank you, Mr. Chairman and members of the Committee.
Mr. QUINN. Thank you, Mr. Maslanka. Mr. Edelman.
Mr. EDELMAN. Thank you, Mr. Chairman and members of the Committee. I am Richard Edelman of the law firm of O'Donnell, Schwartz, and Anderson. For the record, my name is spelled E-d-e-l-m-a-n. I am here speaking on behalf of all of the unions who represent workers at NS Hollidaysburg Car Shop. Those unions are the Transport Workers Union, the National Conference of Firemen and Oilers, the International Association of Machinists, the International Brotherhood of Boilermakers and Blacksmiths, International Brotherhood of Electrical Workers, Sheet Metal Workers International Association, and the Transportation Communications International Union.
The unions appreciate the Committee's decision to hold a hearing on this important matter, so that what NS is doing can receive public scrutiny, and so that this Committee, which has jurisdiction over transportation matters, including over the STB, can be informed as to what happened here and what is pending before the Board. We, again, thank Chairman Quinn and Members Oberstar and Mascara for coming here, and thank you, Congressman Shuster, for organizing all of this.
After today—I just finished this weekend, probably yesterday about 2:00, finishing the unions' joint response with the Commonwealth of Pennsylvania, with their attorney, the response to STB's filings of the Board. And after finishing that exercise, and after listening to Goode this morning, I sort of have a similar observation as Congressman Oberstar and Senator Jubelirer. I think I know what the problem is. NS doesn't know the meaning of the word commitment. They know how to use the word when it is convenient to do so, but they don't know what it means.
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Now, just for the record, Webster's New World Dictionary, commitment—a pledge, a promise to do something. They made pledges, they made promises to do things. You have seen them here. I am not going to reiterate them. But in particular, I point out the fact sheet and the press release with the map on it were contemporaneous with the filing of their application. This is what they told the world that our application says. That is what they went out with. This was obtained off of their web site. If you go there now, you won't find it, because they took it off.
In a recent filing with the Board, they said exactly what Mr. Maslanka said. NS believed the shops would prove useful to it and hoped and expected to use them, but for no definite period. I submit in answer to the question Congressman Oberstar asked, if NS had actually said that in 1998, what would have been the reaction of then Congressman Shuster, of Governor Ridge, of Senator Specter, or the entire Pennsylvania Congressional Legislation—Delegation. Thank you. They knew what they were doing.
Now, I also want to refer to Mr. Goode made reference, or Congressman Shuster asked about Mr. Goode's verified statement to the STB. Now, let us get real here. The man came here, he filed a 16-page verified statement under oath to the STB. He came here, he didn't even read it before he came here. He doesn't know what he told the STB. He is here talking off the top of his head like they have done for three years. And I would submit that that is a problem and it is indicative of a larger problem.
Mr. Goode has said, oh, well, that is similar to the things we said about other locations. It is not if you read his statement, if you look at the operating plan. That is a 400-something page operating plan. There were a few things referenced in his personal verified statement, and one of them was the Hollidaysburg Car Shop, as you pointed out, Congressman Shuster.
One other point about the word commitment. NS said, well, things have changed and things haven't worked out quite as we planned, but NS made commitments. You know, a lot of times it is in the nature of promises that it is harder to keep them than it is to make them. But once made, they should be kept. I heard Mr. Goode saying the same thing today. Change must be honored. That is what he said. We will look it up later. He will deny it, but we will look it up. He said, change must be honored. What about commitments? Commitments must be honored.
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NS says they have acted in good faith with respect to the shops, and to the employees, and to Pennsylvania. But as Congressman Shuster noted, again, a mere one-and-a-half years after split date, they are closing a shop down. That is when their notice was. And a mere eight months after they returned to normal operations. That can't possibly be viewed as good faith, as you have noted, Congressman.
Their lack of good faith is shown by their failure to invest the $4 million in the Hollidaysburg Car Shop that they said they would. And I am going to echo something that Mr. Maslanka said here. Mr. Goode said this morning that he thinks they have invested $3 million. Well, that is the first I have heard of it in three filings of NS that I have read. And the STB's decision 186, Footnote 7 on page 3, the STB said, NS acknowledges it has not made the anticipated $4 million expenditure for material handling improvements at the Hollidaysburg Car Shop. Once again, they are talking off the top of their heads when it is convenient to do so.
They have attempted to say, oh, we have good faith here because we might sell, or lease, or go for an ESOP, but they have made no demonstration of that sort, to just suggest possible alternatives that might exist in the ether somewhere. True good faith would have been, as I think it was Senator Jubelirer said, come to us in the beginning when you think you are having trouble, not after you have already planned to close the shop, and parcel everything out, and rip everything out. It is a lot easier to sell an active concern with going business in it and business going into the future than it is to try and do what they are trying to say they are going to do now. They have run the business off.
This mere eleventh hour floating of an abstract concept is more indicative of bad faith than good faith, and they didn't come up with it until the unions and the Commonwealth of Pennsylvania went to the STB and the STB said you had better show us something more. Then all of a sudden they start talking about this.
Now, I want to talk about the questions you have asked about the dealings with the employees. Now, I have again heard Mr. Goode stand here and say each and every Hollidaysburg agreement employee will have the opportunity for continued NS employment. That is not what they are telling us, that is not what they put in our papers to us. They have identified about 156, 158 jobs. Those are actual jobs they claim to exist, not 330. And I don't care how much they keep saying the same thing over and over again, if they don't show us where there are jobs, then they are not really saying they have them. And how are these people and other people who are working today supposed to make a decision on his say so that there is going to be job opportunities available for them when none of his people have identified a single—330 or more jobs? Where is the evidence?
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They haven't even explained what work is being transferred from these shops. We have asked them. It is in the record at the STB, what work are you transferring. They don't know and they are not saying. They are not saying because they don't know. You heard Mr. Goode here today say there is no program work going on here. So what are they transferring? Where are these people going to be going to? What work are they going to be doing when they get there when they don't know what work they are being moved?
A large amount of this work is insourcing work here, but they are saying they are not going to do it any other place. You heard Mr. Goode throw out a suggestion, that perhaps 50 percent of people won't take it. See, here is the trick. This is the scam. Under the New York Dock employee protective arrangements, an employee who has the opportunity to exercise seniority to go to another place by virtue of an implementing agreement, loses their benefits if they don't take that opportunity. So here is what NS does. They say there is 156 jobs there. Some people don't apply because they don't want to uproot their families to go to a place where they don't know what the future will bring. They don't want to move hundreds and hundreds of miles away, only to find that they are laid off in further cost cutting. So NS says, well, that is good. We don't owe that person any money. And they just work their way down the line. And that is what is going on here, because they know that that is not a real offer. And when they say to you that those people will get protection, are they saying to you that the people who stay here, who don't want to uproot their families, are going to get protection? Well, they are not saying that to us and I don't think I have heard them say that to you.
And do you know what, here is the other thing that they are going to do. When people get somewhere else and then when they say, gee, things again haven't worked out as we thought. As brilliant as we at NS think we are, we screwed up again. We are going to have to cut off more jobs. But that is not a result of the transaction. That is because the economy is bad. Or the economy didn't keep spiraling up on a ridiculous grade like it was and we are surprised. But that is what that is about. So you are not entitled to benefits because this cutback is not due to the merger or your transfer here. It is due to the economy. We don't have any control over that. Now, I submit to you, when you are dealing with Norfolk Southern with this history, you need to hear it both ways, you will be protected and we are not going to interpose defenses against you later on that some intervening cause took charge and why you can't get benefits.
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Mr. QUINN. Thank you, Mr. Edelman. Mr. Shuster, we are going to yield to you first.
Mr. SHUSTER. Yes. Thank you, all three of you, for being here today and your testimony.
The first question is a couple of times today somebody said there has been work that was turned down. Do we know what was turned down, exactly?
Mr. EDELMAN. Yes, we do.
Mr. SHUSTER. I mean, Norfolk Southern said no, you guys said yes.
Mr. EDELMAN. Yes, we do. We have submitted a declaration both from Mr. Lutton and from David Lecher—Joseph Lecher, who works in these shops, and has listed work that has been turned down. We would be glad to provide that to the Committee. All kinds of opportunities. Tom mentioned the Department of Defense work, work for Bombardier for gondola cars, work for Johnstown America, work for—
Mr. SHUSTER. Do you have any idea the total number of cars that was turned down off the top of your head?
Mr. MASLANKA. It was in excess of 18 orders; 10 of them already scheduled and 8 of them being negotiated with good prospects for being achieved, and I think it was about 4,000 or 5,000 cars total.
Mr. LUTTON. With the Department of Defense, which would be part of the federal record, because that is where it came from, the day before the last announced closing, the DOD was sending their first set of cars to Hollidaysburg for repair when we had to notify them and tell them we couldn't do them because we were closing down. That was 2,000 cars.
Mr. Mr. Lecher was on the insourcing committee at the HCS. He has indicated that there was work scheduled through the fourth quarter of 2000, into 2001, eight programs for 1,393 cars, 160 hoods. And then there are additional others set forth in his declaration.
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Mr. QUINN. Mr. Shuster, would you yield for just a second?
Mr. SHUSTER. Yes.
Mr. QUINN. Mr. Lutton, could I ask you, if that is not part of the information we receive from today's hearing, if you could follow up with us in a week or so and list the information Mr. Edelman has or collate that for us—Mr. Maslanka, as well—and put it together in one document for us? It sounds pertinent to what Mr. Shuster's question was. So I would formally ask you to get that to us in the next week to ten days.
Mr. LUTTON. Yes. I would be glad to.
Mr. QUINN. I yield back to the gentleman from Pennsylvania.
Mr. SHUSTER. Thank you. And during that first six months, ten months, of the split, did they ever—did Norfolk Southern ever come to you, the union, and say, hey, we are having trouble here in Hollidaysburg? Can we change something to make it more profitable or can we do something?
Mr. LUTTON. Yes, in the early stages we sat down with the NS management to make a deal to hire people to make it a more profitable center, and we were going to hire them at a reduced rate, and we thought we had an agreement, and NS turned it down. And that was early in the—after takeover, yes.
Mr. MASCARA. Would the gentleman yield, please?
Mr. SHUSTER. Yes.
Mr. MASCARA. As Mr. Quinn indicated, I have to leave, but I did want to get on the record here, Mr. Lutton, that in your testimony on page 2, you say that these insourcing jobs generated a substantial profit for the shops. In fact, it was common knowledge around the shops that insourcing work was not only steadily increasing, but the profit margin on this work was substantial. Then I refer you to Exhibit 2, where customers were billed for in excess of $10 million, and as somebody indicated earlier, that was over 18 percent profit. And I am just—you know, I am a bit perplexed as an accountant. Wouldn't the CEO or company officials say that this is a high profit center and continue to engage in insourcing? I am just confused. I wish someone could explain that to me. Perhaps we can ask—
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Mr. MASLANKA. We are just as confused. I mean, you know, the work was there. This gentleman shows in that chart, I believe, that they bid the work at 4 percent profit margin, but because of the efficiencies which were realized over the duration of the contracts, that went as high as 18 percent.
Mr. MASCARA. Well, that bothers me, and I am hoping we can get an answer to that. I am hoping that someone later on tells me why you would walk away from an 18 percent when you were only looking for 4 percent. I thank the gentleman for yielding.
Mr. QUINN. The gentleman from Pennsylvania controls the time.
Mr. SHUSTER. Where did you get your information on that 18 percent profit margin and on the profits of the cars? Is it reliable—I take it, it is going to be reliable.
Mr. LUTTON. Well, as we said earlier, we had a brother, one of our members, who is part of the insourcing team. And not only that, during the middle, the latter part of years at Conrail, they realized they needed to have the unions involved in the insourcing. And so we understood, as everybody around here would remember, we almost got into a deal with the Greenbrier Company to manage the Conrail fleet. There were some differences there, but you know, we were—what Conrail did for us is, basically, opened the books, and said this is how we operate. This is our overhead.
I always hear this word, Chairman Goode and a lot of people saying, we are not working at capacity. Well, capacity is based on work being done in the shop by the numbers of workers you have to do the work. The capacity is, yes, 30 percent, because that is all the employment that we have there. As noted earlier, we had other work that they could have increased the capacity but, you know, refused to do so. On costs, when we bid the insourcing work, we bid it at what we called the total overhead costs, which is about 210 percent, so that pays for everything.
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Mr. SHUSTER. All right. And is it accurate that Norfolk Southern actually reduced the workforce from 450 down to its present state of—
Mr. LUTTON. Oh, yes, through attrition and that, yes. The forces have been steadily declining, yes.
Mr. SHUSTER. And the final question is—and I pose this question to Chairman Goode—about, you know, why would people want—and you answered some of that—leave Hollidaysburg, go somewhere else unknown, and not have the New York Dock protection. He said that they were going to offer it to everybody. Without—I think I asked the question—without down the road saying they are going to lay off because the economy took a dip or something to that effect. Is that your understanding of it, you are going to get New York Dock protection?
Mr. LUTTON. No. Rich did an excellent job of explaining how New York Dock is divvied out, and we were never presented with that offer that Rich suggested we should have been made. To give you an example of New York Dock, one of the brothers in the back there who belongs to the Electrical Workers, he had three people who was to be transferred to, I believe it was Ohio. He, presently, has three electricians at that location. They do facility type maintenance. The facility is not increasing, the work is not increasing, so what are they going to do with the additional three people? I mean, that is the best way to describe how they tried to do the smoke and mirrors with New York Dock. There is no additional work there.
Mr. SHUSTER. And so there is no guarantee for anybody, the three unions he spoke about that had agreements, if they leave Altoona and go to Atlanta, and eight months down the road the economy is not doing good or they don't have enough work, are they going to lay them off and give them New York Dock protection wages? Is that the way that agreement works?
Mr. EDELMAN. If I may?
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Mr. SHUSTER. With those three unions.
Mr. EDELMAN. I am not—he wasn't specific about what he was saying. I believe that there is a suggestion that some of the unions negotiated in connection with the Conrail transaction a pre-certification, a certification arrangement that would say that people who were transferred were automatically affected and protected. One of the things that concerns me as a lawyer who has represented people in this process, is the ability of NS to come back later on, or their intent to come back later on and say, well, yeah, we certified you as protected by the merger and affected by the transfer, but what you are really being hurt by here is the layoff we had to do because export coal is down. And that worries me. Our experience is that you have to fight each step of the way on each one of these things and jump through a lot of hoops that they put up there. So I am not, you know, I am not sanguine that those people really have what Mr. Goode is saying. And if he is, I would like to hear it a lot more definitely and a lot more specifically.
Mr. SHUSTER. Well, then I guess my question—I am not sure if I am asking the right question. Are there agreements that no matter when they get laid off or for what reason, they are going to be protected for six years?
Mr. EDELMAN. I don't think so. I mean, we will see. I hate to be nonspecific, but unfortunately, you know, I am being asked to sort of say, what is NS going to do, and given what we have seen today, I don't know what they are going to do. We know what they said in various places, but I don't know what their lawyer is going to end up saying when actual individual people come forward with claims and say I want to be paid.
Mr. SHUSTER. Thank you. No further questions.
Mr. QUINN. Thank you, Mr. Shuster. Mr. Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman. Again, I thank this panel for very revealing and compelling testimony. I wish we had had some of this information at the outset to confront Mr. Goode with. Mr. Lutton, or any of the members of the panel, I suggested that one approach would be if this operation is not a profit center as alleged, and I would just take it on that without arguing the point, clearly, there is some level of operation which this facility could be operated, and then build toward the future from there. What is that level? Is there, Mr. Lutton, in your experience, a level of operation at which this plant could be operated successfully?
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Mr. LUTTON. Well, my estimation, as I said before, when we are doing insourcing work, we bid that at what is called the total overhead cost. In other words, when you bid a job in, you are bidding it in at the cost of operating that entire shop, just not that order, the entire shop. The shop is, as you said, a half-mile to five-eighths of a mile long. It is a four runway system. I would imagine if your question is could we shut two of the runways down, that would be a possibility, but you would be limiting yourself on what type of work you would be doing then.
Mr. OBERSTAR. And this is not an out-of-the way operation; this is on a main line. Right?
Mr. LUTTON. Right.
Mr. EDELMAN. If I may, also, Congressman, you asked this question a little bit earlier, and it is one of the things I did want to mention. When they say they are at one-third utilization, what they are doing if you look at the STB filing, they compared the fact that in 1978, they did 13,000 cars. They have done nothing like that in subsequent years. We have provided to the STB, and we will provide it to the Committee, a chart that shows every year how much production they have done at this shop since 1955. And when they made their—1995, for example, was the base year for the economic projections for NS when they filed with the STB; they did 4,667 cars; in 1999, they did 4,138; in 2000, they did 3,583.
NS can't come in here and tell you, you know, like Captain Reno in Casablanca, I am shocked to find that the shops are not being fully utilized. As you asked Mr. Goode, he was there, he looked around. They know those production numbers as well as anybody. This shop has not been working—so for them to say we have to shut it down because it is not at full capacity is disingenuous. They knew what was going on.
Mr. OBERSTAR. I asked him one-third of what.
Mr. EDELMAN. Right.
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Mr. OBERSTAR. One-third of 12,000? But you are saying it is one-third of some substantially smaller number, and it hasn't operated at 13,000 since 1978.
Mr. EDELMAN. Not only that, but in the mid 1980's, it did numbers in the 3,000's. This work is cyclical. A lot of times work is cyclical. The economy is cyclical. Any repair work you do on capital is sometimes cyclical. And to sit there and say eight months after they returned to normalcy, we have got to get out of here, is to ignore the reality of the actual history of this shop. And with respect to their statements about profitability, which we dispute, and Mr. Goode has referred to this one-page piece of paper they submitted to the STB, which is dense and inexplicable to me. And they have not, even though they have the burden of showing cause, produced any backup to support, and there are a number of questionable items in there. But let's accept it as true. If it is true they are losing money now, they were losing money at the time they made their commitments, because the level of utilization of the shops is not dramatically different now than when they made the commitment.
Mr. OBERSTAR. They have taken business in from GATX, which is a leasing operation. It used to be a manufacturing plant, but they mostly lease now. There must be other similar arrangements with not only leasing companies, but also, operating railroads. With a facility of this size, if you put the attention and effort to it, that would be able to operate at a very great efficiency, just taking business from other sources.
Mr. LUTTON. Well, just to show what kind of commitment they were not making, with the agreement with the CSX, we only completed—and I heard you asked that question before, how many cars did we complete for the CSX, and that was 350 of them the first year. We had last year—or I am sorry—this year, we had another 200 coal hoppers that we were to do rebodies for CSX, and we had another 125 boxcars that we were going to repair for CSX. We had them in the Hollidaysburg yard waiting for time to bring them in. When they made their announcement at a greater cost, they sent these cars—because they had a commitment with CSX to do these cars—sent them either back to a CSX repair shop or to an outside concern to do.
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Mr. OBERSTAR. Well, certainly, the longer this hearing has gone on, the more I understand the pain of this community, and the disappointment, and the discouragement over the NS decision. If we contrast what was said on that video by Chairman Shuster and Mr. Goode, we are a long way from there.
Mr. EDELMAN. Also, just to follow up on your question, Congressman, the other interesting thing that you pointed out, the opportunities in their filing with the STB, NS said, and you heard a little bit from Mr. Goode today, overall, there is a trend down against railroads owning their own cars so there is less maintenance for them to do. Well, that seems completely inconsistent with what they are doing here, because this is a shop that has the ability to insource. I assume that coal companies, wheat companies, iron ore companies, are not going to be setting up their own shops to maintain their cars. They are going to be looking for places like the Hollidaysburg Car Shop to do it.
Mr. OBERSTAR. One final question. Has the community offered incentives to Norfolk Southern to induce the railroad to continue operating the shops? Do you have an economic development plan?
Mr. EDELMAN. Mr. Congressman, I don't think I am—I can't really answer that, but there was a filing today by the unions with the Commonwealth of Pennsylvania that addressed that, including a declaration from somebody from Pennsylvania about what has been going on. I don't really have the knowledge to address that point.
Mr. OBERSTAR. Well, I certainly think that speaking for myself, my original judgment about the merger has tragically proven to be right on the mark. It has been disadvantageous. It has been advantageous for Norfolk Southern, but not for competition, not for the jobs here, and I would certainly hope that the STB will issue a very strong opinion on the issue pending and interpret commitment in a way differently than it has been interpreted at this witness table earlier. Thank you, Mr. Chairman.
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Mr. QUINN. Thank you, Mr. Oberstar. Our staff here tells us that when those filings are done on your behalf at the STB, that the Committee will have a copy of it for us. There are specific questions from others.
Mr. Lutton, let me ask a question, and we always run into this problem. Mr. Oberstar has mentioned that when we have three or four panels, we always wish we had the information from the third panel for the first panel, and vice-versa; it never fails. But let me ask you what I think was a rhetorical question from Mr. Goode this morning to one of us. And you have been in negotiations, you are a union leader, your people are in this room, your people are at the plant, they are at home wondering what is going on here today, and they will be filled in shortly. But you have been in some of those negotiations before. How do you answer the rhetorical question this morning from Mr. Goode when he said, well, if we keep this facility open, who do you want me to lay off? Where do you want me to lay other people off or what shipper do you want me to increase the shipping fees on? As if that was his only choice. In other words, if we all sat in this room today, collectively, and came out of here with a solution to keep this facility open somehow, the only other alternatives are the ones that I just laid out for you. Do you have any response to that? I don't want to catch you off guard, but I have got to believe you have had this question posed to you before in negotiations and other places with some of the unions.
Mr. LUTTON. Gary will answer that question for me.
Mr. QUINN. Sure.
Mr. MASLANKA. I will just simply say, I think there is an easy way to do it. Get all the cars that NS owns, or the other cars that they are working on out of the contract shops. At the same time they are sitting here saying they can't put work into that shop, and they are turning away insourcing work. You know, Congressman, you mentioned I am from Buffalo. If I drive along the 400 where the cars go into Ebenezer Railcar Services—I haven't checked it out, but there is a whole string of cars going into Ebenezer Railcar Services with the logo of Conrail, could very well be Norfolk Southern cars. I mean, if they want to make that place work and keep the other places working, I would submit they wouldn't even have to go that far. I think that is just trying to, you know, it is changing the issue here. I mean, there is plenty of work out there to be done. And I would also submit that the fleet isn't in the best of shape. I mean, there is plenty of work out there to be done.
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Mr. EDELMAN. Yes. If I may?
Mr. QUINN. Yes, Mr. Edelman. Thank you.
Mr. EDELMAN. We, actually, also submitted to the STB a document that showed that there are bad order car counts, that rejected cars from shippers were double in the first quarter of 2001 from the first quarter of 2000. NS is deferring maintenance that it could be doing. So when it says we don't have the demand for this, it is because they are deciding not to do it.
Mr. QUINN. Not to have the demand.
Mr. EDELMAN. That is right. And again, we also—the predicate of Mr. Goode's rhetorical question is that, in fact, they are losing lots of money at the shops, and we don't think they have shown that, other than their self-serving one-page document.
Mr. QUINN. Thank you, both. And Mr. Lutton, thank you. My question that I asked the other panel and that I was going to ask you has been answered, the question about how many people. In your information, the average age is about 48 with about 25 years of service. It is not an easy decision to make for anybody, either to move or not to move. And the whole question of New York Dock isn't satisfactorily answered for me. I know a little bit about New York Dock, as you might imagine. So I think there are at least a couple of unanswered questions as we finish the hearing today.
Now, again, that takes me back to about 11:30 this morning. We kept the record open for 30 days. I want all of you to know in this room, and everybody, that we don't intend, and we won't be able to because of Mr. Shuster's insistence—let me tell you that, folks who live here. We didn't just breeze into town here to spend a couple of hours with you. We came here to seriously hear what you have to say, and we intend to seriously consider what you have all said, all three panels. And through Mr. Shuster's efforts, and through his offices here, we definitely will be in touch with him and hope to see some ongoing conversation as we go into these next few weeks and months.
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I want to thank this third panel. I also want to take just a brief moment to thank Jimmy Miller and our staff on both sides that helped us put this hearing together today. I want to thank Mr. Shuster and his staff, who have taken great care of us. And to thank the staff at this terrific convention center here who prepared for us to come in, over the weekend, I guess, because today was Monday. So we deeply appreciate the courtesies you have paid us and the Committee members here. And we deeply appreciate, Bill Shuster, your leadership from the very beginning. Yes, sir?
Mr. MASLANKA. Mr. Chairman, you did say don't rush. Didn't you?
Mr. QUINN. No. I said don't rush 20 minutes ago.
Mr. MASLANKA. Counsel has one more question or one more statement.
Mr. EDELMAN. If I may?
Mr. QUINN. Is he the lawyer in the group?
Mr. EDELMAN. How did you know?
Mr. QUINN. It seems to me you would have something extra to say.
Mr. EDELMAN. Yes. And I won't say it all here. I put it in my statement, but I just want to address the point that Mr. Goode ended with, which is that there is something somehow wrong with the STB meddling in their business here. Beyond the points that were made by the State Legislators here, they have an immunity provision from other law that comes with this merger that they used. It is the death star of labor relations in this industry. They used it to kill the collective bargaining agreement for the Conrail employees here. Railroads have used it to override environmental laws, zoning laws, other state laws, shipper contracts with the railroads, and for them to have the temerity to come here now and complain about the Government looking into their commitments when they used the immunity the Government gave them to their advantage is wrong.
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Mr. QUINN. And I have the gavel, so I get the last word. On behalf of Mr. Oberstar, who as our Ranking Member of the full Committee took time out of his busy schedule, Mr. Shuster, Mr. Mascara, I want to thank you all for your hospitality here in Blair County. We appreciate it very much, and I declare that this hearing is now adjourned.
[Whereupon, at 2:40 p.m., the Subcommittee was adjourned.]