Federal Railroad Policy Under President Eisenhower

(Clicking on hyperlinks in the text will take you to original source documents, many of which are from the Eisenhower Library or other National Archives facilities and have never before been available online.)

American railroads were still making a profit when President Eisenhower took office, but the trend lines were heading downwards. Passenger traffic on railroads started declining after World War I (interrupted by World War II’s gasoline and tire rationing and government suspension of civil aviation). But federal and state regulations made it very difficult for railroads to cut back passenger service long after that service became a drag on their finances.

Meanwhile, railroads had seen other transportation modes consistently eat into their more lucrative freight market share. The construction of pipelines in the 1930s and 1940s had taken over a billion barrels of crude oil and refined petroleum liquids per year off railcars. And trucking had a much higher growth rate than rail – in fiscal year 1947, railroads made about $4 in operating revenues for every dollar made by trucking companies. By fiscal 1954, that ratio had dropped to just over 2 to 1.[1]

And the rates charged by railroads, motor carriers, barge operators, and oil pipelines were set by the calcified bureaucracy of the eleven-member Interstate Commerce Commission (ICC), which was known for taking years to consider requests for changes in rates due to altered market conditions.

Railroad strikes

Eisenhower’s initial brush with railroad policy as President came barely three months into his first term, when the Brotherhood of Railroad Trainmen were set to go on strike against the New York, Chicago and St. Louis Railroad. Eisenhower was determined not to react to railroad strikes as broadly as his predecessor, Harry Truman, had. On the campaign trail in 1952, Eisenhower told the story of how, when Army Chief of Staff in 1946, he had been on vacation in Georgia when Truman “directed that I return to Washington immediately to assume command of the railway strikers, who were going to be drafted into the Army. With a bitter protest, I refused.”[2]

Without seizing control of railroads, the President still had authority under the Railway Labor Act to order mediation of railroad labor disputes. Eisenhower did this in April 1953, issuing an executive order implementing a 60-day “cooling off” period, during which a presidential mediation board would hear both sides, issue a report, and give both sides time to evaluate the report.[3]

But the President tried to use his Railway Labor Act authority sparingly. White House chief of staff Sherman Adams later wrote that Eisenhower’s second Labor Secretary, James Mitchell, who took office in October 1953, “agreed with the President that labor officials should be discouraged from carrying their grievances to the side doors of the White House as Truman had encouraged them to do…When both labor and management faced up to the fact that the strike was not going to be settled by the President, the bargaining took on a new significance and disputes were soon resolved. In the first six years that he was in office, Eisenhower invoked the injunctive process only six times, half as often as Truman had done.”[4]

The 1954-1955 railroad study and “Weeks report”

In March 1954, President Eisenhower’s brother Milton (then the president of Penn State University and a member of his brother’s advisory committee on how to organize the government, chaired by Nelson Rockefeller) sent the President a fifteen-page memo entitled “Government Policies Adversely Affecting the Railroads” laying out all of these problems and suggesting that a more balanced federal transportation policy, one which did not discriminate against the railroads, was needed.[5]

The President then had his economic adviser, Gabriel Hauge, have a look at the memo, who recommended that the Commerce Department lead an investigation of transportation policy generally and railroad problems specifically.[6] After much back-and-forth with Milton’s advisory committee, the President established a Cabinet Committee on Transport Policy and Organization on July 12, 1954 (the same day as Richard Nixon delivered the “$50 billion highway program” speech to the Governors Conference), to provide “a comprehensive up-to-date review of over-all transportation policies and problems,” as well as federal government organization on the issue, and directed Commerce Secretary Sinclair Weeks to chair it.[7]  The committee was to report back by December 1, 1954.

By late September it had become clear that the Committee was going to confine itself to the railroad-versus-truck regulatory issues, not the broader transportation issues.[8] And by November, the staff of the Committee indicated that “There seemed to be general agreement in the Cabinet Committee that the recommendations would evoke opposition from nearly every interested group concerned. It may be possible, however, to bargain with these groups on some of the lesser recommendations which could be sacrificed. Mr. Weeks urged that the Committee take its position without regard to likely opposition.”[9]

The staff working group sent its draft report to the full Cabinet Committee on November 15, and the Cabinet Committee sent the report to the Cabinet Secretary (confidentially) on December 7. The draft report called for a system of “dynamic competition” between carriers that would “enable each form of transport freely to reflect its abilities in the market by aggressive experimentation in rates and service” – the exact opposite of the existing ICC regulatory framework.[10] The report also called for the end of regulatory loopholes that gave benefit to unregulated carriers, a cutback in abuse of the agricultural exemptions from regulation, the potential elimination of federal subsidies for highway construction (or an equalization so that the benefits of free roads did not unfairly benefit trucking companies), and making it easier for railroads to cut unprofitable passenger service.

That last point needs explanation – at the time, the federal government was only concerned with transportation as a part of interstate commerce. Most rail passengers, however, stayed within the boundaries of one state from start to finish, even though the railroad line being used might connect to the larger interstate rail network. Intrastate passenger rail service, therefore, was not subject to ICC regulation, but to state public service commissions. Those state regulators rarely let railroads cut back money-losing service, even though the money lost on the intrastate passenger service forced the railroads to increase their rates on interstate freight movement (or, if the ICC would not let them increase their rates, caused the railroad as a whole to lose money). The Cabinet Committee’s recommendation called for a change in law so the ICC could preempt state regulators and allow railroads to drop intrastate passenger service if that service posed an undue burden on interstate commerce.

At the last Cabinet meeting of 1954, on December 17, the paper came up and it was clear that everyone in the room knew that it was political dynamite. According to the minutes of the meeting, President Eisenhower warned of the “demagoguery and partisanship which would be certain to follow if the Administration introduced such legislation,” and hoped that someone on the ICC could be convinced to introduce it themselves.[11]

However, Commerce Secretary Weeks “emphasized that unless some action were taken along the lines of the report, the railroads could not successfully continue under private operation. The President stated emphatically that he wanted no part of Government operation or ownership of the railroads. He believed greater consolidation of the railroads might help solve some of the problems.”[12]

The Cabinet consensus was for the Committee to keep working, and they also noted that in the future, they might not announce the formation of Cabinet Committees with deadlines so publicly, as it created public anticipation and demand for a formal document.

The Cabinet considered the Weeks report again on January 28, 1955, but this time, it was in the form of a draft “Special Transportation Message” from the President to Congress, emphasizing that some of the legislative recommendations were his personally, not just those of the Commerce Department. The recommendations in the message included an end to federal financial aids to all forms of transportation, study of federal highway user taxes to ensure that heavy trucks paid their fair share of use, and new tolls on inland waterways so that federal improvement of those waterways would not unduly penalize railroads.

The minutes of the meeting show much discord and skepticism. Eisenhower himself spoke skeptically of the recommendation allowing railroads to discontinue passenger service and said that the statement on eliminating financial aids to all forms of transportation “was something of a gratuitous philosophical observation.”

Secretary Weeks “noted charges that the report was pro-railroad, which he frankly admitted” but said it would be justified if it would prevent eventual government ownership of the railroads. The Budget Director “called attention to a paragraph which seemed to close out the highway program even before it could be submitted to Congress” and later “spoke in favor of a ‘user tax,’ to which the President took exception.” The Attorney General asked for time to review the antitrust implications of the message, and the Labor Secretary said that even being a member of the Cabinet Committee was damaging his position with railroad labor unions.

At the end of the discussion, the President’s legislative liaison “emphasized the need for coordination with the Republican leadership and perhaps also the Democratic leadership in order to head off a probable controversy.” The President himself “voiced his own doubts about personally recommending programs in great detail when only a large group of experts were masters of the detail” and said he “thought it possible to divorce the Cabinet from the name of the Committee and the report.”[13]

Six days later, the Associated Press had the story, with headlines around the nation, including this one on page one of the New York Times: “Cabinet Reported Set to Help Rails Against Truckers: Program Sent to President is Said to Favor Relaxed Regulations for Carriers.” In the end, the President never submitted a National Transportation Message to Congress. A revised version of the Weeks report was circulated to the Cabinet on March 23 (but the panel had been renamed a “President’s Advisory Committee” instead of a “Cabinet Committee”), and the text of the final report was released by the President’s press secretary at 7 p.m. on a Monday, April 18, 1955, without any endorsement from Eisenhower.

At his May 5 press conference, Eisenhower called the report a “brilliant piece of work” while admitting that it had “details…that will be most argumentative, and will give rise to, I think, a very lot of discussion, probably heated discussion…But I think the basic principles are commendable, certainly I approve of them perfectly, and the purposes they announce.”[14] And in his January 1956 State of the Union message, Eisenhower did “earnestly recommend that the Congress give prompt attention to the [Weeks] committee’s proposals.”[15]

(Presciently, a Budget Bureau staff analyst told the advisory committee on which Milton Eisenhower served that “legislation of this kind particularly takes 2 to 4 years for Congress to digest…it undoubtedly will not be ready for Congressional hearings until next year.”[16])

A second railroad study and report

But aside from hearings in 1956, the Weeks proposals did not advance on Capitol Hill, and the situation of the railroads continued to worsen, especially once the economy slipped into a sharp recession in August 1957. In November 1957, Senator George Smathers (D-FL), chairman of the Surface Transportation Subcommittee, announced that he would hold extensive hearings beginning in January 1958 on the problems of the railroads, to inform railroad support legislation that he would draft and move later in 1958.

Sherman Adams organized a private meeting with railroad executives on December 5, after which he ordered the Cabinet Committee that produced the Weeks report to reconvene (it was later renamed a “Study Group”).

Smathers certainly did hold hearings – nineteen days worth between January 13 and April 3, totaling over 2,500 pages of transcripts. He scheduled governmental witnesses towards the end of the hearings and hoped that Secretary Weeks would present an Administration proposal on March 27. The Administration’s study group kept a close eye on the Smathers hearings.

On March 17, 1958, Eisenhower dictated a long file memo expressing his thoughts on the railroad problem. He said that he believed “unless something is done, there will be bankruptcies looming for a number of railway systems within a matter of a few months.”[17] He said that if the three percent tax on freight transportation could be repealed, and Congress could pass laws allowing for more railroad consolidation and efficient regulation, allowing long-term stability for the railroads, that the federal government could provide them with loan guarantees. He also noted that he had just received the report of the Transportation Study Group and that it suggested some of his own ideas.

The Cabinet considered the study group’s report at its March 28 meeting (so Secretary Weeks had to beg chairman Smathers for a delay in his testimony). The new report reiterated some of the recommendations of the three-years-prior Weeks report (allowing railroads to drop unprofitable services, eliminating the “private carrier” loophole, narrowing the regulatory exemption for moving agricultural products, and new rate policies which would place “greater reliance on competitive forces”).[18]

The new report also went beyond the final Weeks report, calling for the repeal of the federal excise taxes on transportation of persons and property, the regulation of all for-hire water carriers, new depreciation schedules for rolling stock and a centralized car-holding company that would then lease cars to railroads, and the drafting of legislation for direct financial assistance to the railroads, on an emergency basis, to be held “entirely confidential until such time (which, hopefully, will not come) when they might be needed.”[19]

(The report also called for centralizing federal transportation activities and breaking up the ICC, but we will discuss that in the “Transportation policy generally” portion of this series.)

The Cabinet went through the paper paragraph-by-paragraph. Before the meeting even started, the study group had agreed to drop the word “passenger” from the list of types of service that the railroads could drop, and to drop the reference to regulating water carriers because it “had insufficient value to warrant the controversy that would arise.”[20] The minutes of the meeting show that the Agriculture Department wanted to refine the agriculture commodities exemption recommendation and the Justice Department wanted to run an antitrust review of the parts requiring railroad cooperation.

There was disagreement over whether or not the Defense Production Act already gave the Administration legal authority to provide financial aid to the railroads, and there were also discussions of the timing of any excise tax repeal, its budgetary implications, and the need to coordinate the tax repeal with Congress.

Working out those kinks took several more weeks, but by April 21, the recommendations of the study group, as amended by the Cabinet, had been redrafted in the form of a 15-page letter from Secretary Weeks to Chairman Smathers. The letter explained, in detail, the five policy recommendations (greater ICC authority to allow railroads to drop service, closing the private carrier loophole, clarifying the agriculture exemption, revised rate regulation, and temporary financial assistance, with up to $700 million in loan guarantees. The letter said that “even if immediately effective, the first four recommendations will not for several years fully achieve their intended results,” so the emergency financial assistance was intended to give the railroads time to implement the cost saving programs.[21]

Weeks’ letter was sent to Capitol Hill the following day, along with an endorsement letter from Eisenhower, stating that “All the recommendations should be enacted into law with dispatch” and that “I hope that no effort will be spared to achieve this result.”[22]

The Transportation Act of 1958

Smathers’ subcommittee issued its report on May 8 that largely tracked with the recommendations in the Weeks letter. The full Interstate and Foreign Commerce Committee held two additional days of hearings just on the rate regulation provision and reported the bill out on June 3, after adding a clarification that, for all modes, “Rates of a carrier shall not be held up to a particular level to protect the traffic of any other mode of transportation” and making small tweaks to the agriculture exemption and private carrier loophole provisions.[23]

By the following week (June 11), the Smathers bill was on the Senate floor for debate. Senator Jacob Javits (R-NY) offered an amendment to restrict the ability given by the bill to the ICC to grant abandonments of passenger service if the “public interest requires the operation or service of such train, ferry, station, depot, or other facility.”[24] However, the Senate refused to grant Javits a roll call vote, and instead allowed his amendment to die on a show of hands. The issue was then taken up by Richard Russell (D-GA), who moved to strike the entire intrastate abandonment section, followed by a long discussion by the Senate of the intrastate-affecting-interstate issue, but Russell eventually withdrew his amendment. After some other discussion of the agricultural exemption, the bill passed the Senate by voice vote.

However, because the Smathers bill was not a Finance Committee bill (and because it bore a Senate bill number), it could not be used to repeal the existing federal excise taxes on transportation, as the Administration privately supported and the Commerce Committee publicly advocated. So on June 19, while an unrelated House-passed tax extension bill was being debated on the Senate floor, Smathers, on behalf of the entire Commerce Committee, offered an amendment to the bill repealing the transportation taxes, which at that point were bringing about $700 million per year into the Treasury.[25]

Richard Russell demanded separate votes on repealing the three percent tax on transportation of property (including oil and oil products by pipeline) and repealing the ten percent tax on transportation of persons. Repeal of the property transportation tax passed, 59 to 25, and then the repeal of the transportation of persons tax passed by a smaller 50 to 35 vote.[26]

The tax bill quickly went to a House-Senate conference, where negotiators split the difference – the final bill repealed the tax on the transportation of property, but not the tax on the transportation of persons. The conference report on the tax bill was brought to the House floor on June 27, where it passed by a vote of 366 to 9, and later that day, the House took up its version of the Smathers rail bill, which lined up very closely with the White House recommendations.[27]

House Commerce chairman Oren Harris (D-AR) noted “There are several Eastern railroads that are in difficulty…The Southern railroads and the Western railroads have less need for this kind of program, but there is no way for us to separate them.”[28] After debating amendments tinkering with the loan program and the farm exemptions (which did not pass), the House passed the rail bill by a margin of 348 to 2.[29]

The bill repealing the tax on the transportation of property was signed into law (72 Stat. 259) on June 30 (the last day of the fiscal year, to prevent certain income and excise tax rates from lapsing on July 1). House-Senate negotiations on the Smathers-Harris bill took slightly longer, as the two chambers had differing provisions relating to loan guarantees. Congressional Quarterly summed it up concisely: “The Senate-passed version of the bill authorized the ICC to guarantee $700 million in loans for purchase and maintenance of capital equipment and operating expenses. The House version put no limit on the total value of loans but permitted maintenance loans to be guaranteed only up to 50 percent. The conferees agreed to a $500 million limit. They struck out the House 50 percent limit on maintenance loan guarantees and the Senate provision on loans for operating expenses.”[30]

By the end of July, the conferees had agreed, both chambers passed the final bill by voice vote (and without debate in the House) on July 30, and President Eisenhower signed the Transportation Act of 1958 into law (72 Stat. 568) on August 12, the last significant change in railroad policy under his Administration.

The 1958 Act did not ultimately save the Eastern railroads from bankruptcy, but it may have bought them another decade of solvency. And the long-term trend towards a lighter hand in the regulation of rates and the reliance on competition between modes to provide the best service for shippers and consumers would continue under the next five presidents, culminating in the great transportation deregulation laws of 1978-1980.

[1] Fiscal year 1947 and 1954 totals from the annual Report of the Interstate Commerce Commission, p. 16 in the 63rd annual report, and p. 41 in the 70th annual report, respectively. Available online from hathitrust.org

[2] See footnote 3 on p.1357 of The Papers of Dwight David Eisenhower, volume 13.

[3] Executive Order 10449, April 24, 1953, Published in Federal Register, April 28, 1953, p. 2469.

[4] Sherman Adams, Firsthand Report, pp. 302-303.

[5] Described in footnotes 1 and 2 on p. 972 of The Papers of Dwight David Eisenhower, volume 15.

[6] Dwight D. Eisenhower, Memorandum to Gabriel Hauge, March 22, 1954. Reprinted in The Papers of Dwight David Eisenhower, volume 15, as document 790 on page 972 (see also footnote 3 carrying over to the following page).

[7] Dwight D. Eisenhower. Letter to Secretary Weeks Establishing a Cabinet Committee on Transport Policy and Organization, July 12, 1954. Reprinted in Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1954. Document 163 beginning on p. 627.

[8] Memorandum from Arthur Kimball to Nelson Rockefeller, Milton Eisenhower, and Arthur Flemming, subject “Cabinet Committee on Transport Policy and Organization,” September 21, 1954. Located in U.S. President’s Advisory Committee on Government Organization (Rockefeller Committee): Records, 1953-61, Box 21, folder No. 175 (“Transport policy and organization, 1954-1956”), Eisenhower Library.

[9] “Memorandum for the Files: Subject: Cabinet Committee on Transport Policy and Organization – Notes on Discussion with Ernie Williams, October 29, 1954.” Located in U.S. President’s Advisory Committee on Government Organization (Rockefeller Committee): Records, 1953-61, Box 21, folder No. 175 (“Transport policy and organization, 1954-1956”), Eisenhower Library.

[10] Report of the Cabinet Committee on Transport Policy and Organization, retyped as Cabinet Paper CP-6, December 8, 1954, p. 6. Original in DDE Papers as President, Ann Whitman File, Cabinet Series, Box 4, “Cabinet meeting of December 17, 1954” folder; Eisenhower Library.

[11] Minutes of Cabinet Meeting – December 17, 1954, pp. 2-3. Original in DDE Papers as President, Ann Whitman File, Cabinet Series, Box 4, “Cabinet meeting of December 17, 1954” folder; Eisenhower Library.

[12] Ibid p. 2.

[13] All quotes from the minutes are taken from Minutes of Cabinet Meeting, January 28, 1955. Original in DDE Papers as President, Ann Whitman File, Cabinet Series, Box 4, “Cabinet meeting of January 28, 1955” folder; Eisenhower Library.

[14] Dwight D. Eisenhower, The President’s News Conference of May 4, 1955. Reprinted in Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1956. Document No. 90, p. 459 (quote from pp. 474-475).

[15] Dwight D. Eisenhower, Annual Message to Congress on the State of the Union, January 5, 1956. Reprinted in Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1956. Document No. 2, p. 1 (quote from p. 19).

[16] William Finan, quoted in a memorandum from Arthur Kimball to Nelson Rockefeller, subject “Implementation of Report of Committee on Transport Policy and Organization,” April 28, 1955. Located in U.S. President’s Advisory Committee on Government Organization (Rockefeller Committee): Records, 1953-61, Box 21, folder No. 175 (“Transport policy and organization, 1954-1956”), Eisenhower Library.

[17] Dwight D. Eisenhower, Memorandum (no subject), March 17, 1958. Reprinted in The Papers of Dwight David Eisenhower, volume 19, document 610 beginning on p. 777.

[18] Report of the Transportation Study Group, March 1958. Reprinted as Cabinet Paper CP-58-77, March 25, 1958. Original in DDE’s Papers as President, Ann Whitman File, Cabinet Series, Box 14, folder entitled “Cabinet Meeting of March 28, 1958,” Eisenhower Library.

[19] Ibid.

[20] Minutes of Cabinet Meeting, March 28, 1958, p. 2. Original in DDE’s Papers as President, Ann Whitman File, Cabinet Series, Box 14, folder entitled “Cabinet Meeting of March 28, 1958,” Eisenhower Library.

[21] Letter from Sinclair Weeks to George Smathers, April 22, 1959, p. 3. Original in DDE’s Papers as President, Ann Whitman File, Cabinet Series, Box 14, folder entitled “Cabinet Meeting of March 28, 1958,” Eisenhower Library.

[22] Letter from Dwight D. Eisenhower to Sinclair Weeks, April 22, 1958. Original in DDE’s Papers as President, Ann Whitman File, Cabinet Series, Box 14, folder entitled “Cabinet Meeting of March 28, 1958,” Eisenhower Library.

[22] Letter from Dwight D. Eisenhower to Sinclair Weeks, April 22, 1958.

[23] U.S. Senate. Committee on Interstate and Foreign Commerce. Transportation Act of 1958: Report to accompany S. 3778. 85th Congress: Report No. 1647, p. 2.

[24] Congressional Record (bound edition), June 11, 1958 p. 10846.

[25] H.R. 12695, 85th Congress.

[26] Congressional Record (bound edition), June 19, 1958. Smathers amendments introduced on p. 11715, votes on p. 11735 and 11737.

[27] H.R. 12832, 85th Congress.

[28] Congressional Record (bound edition), June 27, 1958 p. 12529.

[29] Congressional Record (bound edition), June 27, 1958 p. 12555.

[30] “Railroad Aid Program.” In CQ Almanac 1958, 14th ed., 09-244-09-249. Washington, DC: Congressional Quarterly, 1959. https://library.cqpress.com/cqalmanac/cqal58-1341436

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