ing any hearing. So, I don't altogether trust the Santa Fe, at least not as much as Senator Hatch.

Now, within 3 weeks after that hearing was closed I read in the paper about this. I was out in Salina, Kans., one morning, and I read in the morning paper that those two lines had been requisitioned. That is the first I knew about it, and that operations were going to cease in the course of another week, as I recall it. I believe the first embargo was to go into effect September 19. Do I have that date right, sir?

Now, the people down there in those five counties are perturbed about this, and there are lots of them who would not object if this matter goes through to a hearing and decision of the Interstate Commerce Commission, if they were to lose their lines because of the finding by the Interstate Commerce Commission that the public convenience and necessity no longer required their operation. But, there might be a few folks that would not like it, but in general they would accept that, because they would know they had a fair hearing before the Interstate Commerce Commission.

Every witness in that territory that wanted to testify had an opportunity to go on the stand and tell his story. And, we spent four days at it. They were satisfied with the hearing, but they didn't know anything about any hearing before the O. D. T. or the W. P. B., and if they had any facts upon which they determined that that territory did not need those railroads, the people in the territory had no idea where they got those facts and they certainly didn't get them down in the territory.

There is one other thing I would like to bring out.

Naturally, I was interested to know, if I could, why the enthusiastic patriotism on the part of the Santa Fe, or why this sacrifice of so much of its rail. So, I thought I had better look into that and see if I could find anything for such overwhelming patriotism.

Take, first, the Madison to Moline branch, it has a salvage value, according to the return to questionnaire, of $343,000, and the other branch, the Emporia to Benedict Junction has a salvage value of $378,000, or approximately a total of $700,000. I don't have the figures before me right now. I have had them, but I don't just recall where they are. However, the book value of those two lines is in the neighborhood of $5,000,000. Of course, I know further, and this record reflects it, as far as that goes-the record in these abandonment proceedings shows that the Santa Fe Failway Co., together with most other railroads, this year is enjoying possibly the best net income before the deduction of income taxes that it had ever enjoyed. It is really making money.

Now, I can see and you can see that the difference between the salvage value and the book value of these lines is in excess of $4,000,000 and if, with a little patriotic encouragement the Santa Fe can get these lines off their books this year, the savings of income taxes will run into the millions of dollars. No one, of course, can tell today exactly what it will be, but we will know shortly when the new tax bill is passed, but at least, it will run into a great deal of money.

Senator JOHNSON of Colorado. It will do that through the capital gains and losses.

78692-43--6

Mr. GRAY. That is correct; in other words, they will mark off a loss on their book value of $5,000,000 less the $700,000 salvage.

Senator JOHNSON of Colorado. In other words, they will mark off a loss and take that loss in cold cash out of the Treasury of the United States; that is what they will do.

Mr. GRAY. Well, that might be the practical operation of it. It just would mean, I assume, that on a book proposition, it will show that much less net profit.

Senator JOHNSON of Colorado. Oh, no; they will take it out on capital gains and losses and make that pay them. Mr. GRAY. Back to their capital.

Senator JOHNSON of Colorado. That is right.
Mr. GRAY. That is correct; yes.

Now, I want you to stop and consider this, and this was another amazing thing. In the 10 years prior to this, we thought we had lots of abandonments in Kansas, and we did have. Six of them were Santa Fe abandonments. Then, on one day or possibly two days-but I think all on one day, we had five Santa Fe abandonments, that is, applications. That was accelerating the pace somewhat. We didn't know whether we would have any lines left or not in the course of week, at that rate. Naturally, I was somewhat surprised to find five abandonments, and when I investigated, I found they had two more; one at Enid, Okla., and one in New Mexico, or Texas.

Now, when you take the full aggregate possibility of the income tax savings from all of those abandonments, I think you will find that it would make a very good year's net income on the operation of the Santa Fe Railway Co., because I have no doubt it would run to ten or twelve million dollars-although I must say that I have not investigated the other lines, but from my own knowledge of what those lines are. About what their salvage value is, and pretty close to what their book value is, I would know it would run into a great deal of money, It would run into a lot more money than the Santa Fe Railway would expect to earn off of those lines, even though they were profitably operated for a very long time.

Senator JOHNSON of Colorado. I think you are making a very strong point, Mr. Gray. I feel strongly that the reason for all of this enthusiastic rail abandonment is because they have a splendid opportunity to turn a questionable investment into cold cash out of their income tax deductions.

Mr. GRAY. Well, my personal view is that that is the cause of it, because I do not think that the Santa Fe Railway Co. is one bit more patriotic than the ordinary citizen of Kansas and, in fact, I doubt very much that they are as much so, or the citizens of Colorado either, for that matter, because I never was able to tell where the line of Kansas left off and Colorado began; in fact, Colorado used to be a part of the Kansas Territory, and if I didn't live in Kansas, I would certainly live in Denver.

Senator REED. Besides that, Senator Johnson was born in Kansas. Senator JOHNSON of Colorado. I left Kansas and went to Colorado, and I could not blame you if you did the same thing.

Mr. GRAY. Well, I went to school out there at Boulder.

Senator REED. Mr. Gray, it is nearly 1 o'clock. Will you be in town tomorrow? Suppose we quit for today and let Mr. Gray come back tomorrow morning.

Will you have time between now and tomorrow morning to make a little closer calculation of the book value, if it is possible, such as credit against income tax?

Mr. GRAY. If the Interstate Commerce Commission will give me access to certain records, I can make an exact copy of it.

Senator JOHNSON of Colorado. I think that is a very interesting point. We will resume then at 10:30 o'clock tomorrow morning. (Thereupon, at 12:50 p. m., the subcommittee recessed until 10:30 a. m., Friday, October 9, 1942.)

REQUISITIONING OF RAILROAD PROPERTY

FRIDAY, OCTOBER 9, 1942

UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE
ON INTERSTATE COMMERCE,
Washington, D. C.

The subcommittee met, pursuant to adjournment, at 10:30 a. m., in the Capitol, Senator Edwin C. Johnson, of Colorado, presiding. Present: Senators Johnson of Colorado and Reed.

Present also: J. G. Luhrsen, executive secretary, Railway Labor Executives' Association, Washington, D. C.; L. M. Lombard, counsel, Distribution Branch, War Production Board, and Arden Yinkey, Assistant Chief, Special Projects Salvage Section, War Production Board. Senator JOHNSON of Colorado. The subcommittee will come to order, please. Mr. Luhrsen, will you give your name and address for the record, please?

STATEMENT OF J. G. LUHRSEN, EXECUTIVE SECRETARY, RAILWAY LABOR EXECUTIVES' ASSOCIATION, WASHINGTON, D. C.

Mr. LUHRSEN. My name is J. G. Luhrsen, executive secretary, Railway Labor Executives' Association, with headquarters at 10 Independence Avenue SW., and I speak for the following organizations: Brotherhood of Locomotive Engineers; Brotherhood of Locomotive Firemen and Enginemen; Order of Railway Conductors of America; Switchmen's Union of North America; the Order of Railroad Telegraphers; American Train Dispatcher's Association; railway employes' department, A. F. of L.; International Association of Machinists; International Brotherhood of Boilermakers, Iron Ship Builders and Helpers of America; International Brotherhood of Blacksmiths, Drop Forgers and Helpers; Sheet Metal Workers' International Association; International Brotherhood of Electrical Workers; Brotherhood Railway Carmen of America; International Brotherhood of Firemen and Oilers; Brotherhood of Railway and Steamship Clerks, Freight Handlers, Express and Station Employes; Brotherhood of Maintenance of Way Employees; Brotherhood of Railroad Signalmen of America; National Organization Masters, Mates and Pilots of America; National Marine Engineers' Beneficial Association; and the International Longshoremen's Association.

Ever since Executive Order No. 9138, dated April 21, 1942, was issued, we have been much exercised because of the immediate activities of assistance given from various sources to aid in the requisitioning of considerable rail lines. We are not opposed to the legitimate