Conrail's Reduced Capital Program Could Jeopardize the Northeast Rail Freight System

CED-80-56: Published: Mar 10, 1980. Publicly Released: Apr 8, 1980.

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At the end of calendar year 1979, only $645 million remained of the $3.3 billion total Federal commitment to the Consolidated Rail Corporation (Conrail). In its August 1979 business plan, Conrail proposed reducing its capital spending in 1980 and 1981 from its earlier business plan levels by about $379 million to stay within the currently authorized $3.3 billion. Conrail stated that this reduction was necessary because the Congress had not appropriated any additional funds. In August 1979, Conrail believed that deregulation and estimated traffic levels would provide sufficient funds to rejuvenate the capital program in 1982, but this projection was based on uncertain assumptions concerning regulatory reform.

If Conrail defers maintenance on its system and regulatory reform permits it to rejuvenate its capital spending programs in 1982, it probably can live within the $3.3 billion already authorized. However, the proposed cutbacks would pose an unacceptable risk to the Federal investment in Conrail. The resulting deterioration in Conrail's physical plant and the decline in the quality of service would erode the benefits already bought with Federal funds. If Conrail defers maintenance but does not get the regulatory relief it expects, the Government may have to provide more money in 1982 to rejuvenate the capital program. Conrail may be able to pay for its own capital programs sooner and thereby minimize the Government's investment if Conrail is provided with adequate funding to continue an appropriate capital investment program. However, if Conrail continues an appropriate capital program but does not get regulatory relief, the Government may have to continue its funding or seek another solution. Several options exist for dealing with the situation: the Congress could defer any action, pledge additional funds, enact regulatory reforms, or seek an alternative solution to rail problems in the Northeast. These options are not mutually exclusive, and the optimum response may employ two or more of the possible options.

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