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Government regulation
From approximately 1910 to 1921, the federal government introduced a
populist rate-setting scheme. During World War I the railroads proved
incapable of functioning as a cohesive network. This forced the United
States Government to nationalize the rail industry temporarily. In the
1920s railroad profits stagnated, many redundant and unprofitable
lines were abandoned, and many passenger facilities were allowed to
fall into a cycle of deferred maintenance, all of which in small ways
drove passengers away, either by higher fares or less appealing
service. At the same time, the rise in popularity of the automobile
and US Highways such as the Lincoln Highway began to eat away at local
rail passenger traffic. Increases in labor costs also further hindered
the railroads ability to make profits on smaller and more sparsely
populated lines.
The primary regulatory authority affecting railroads, beginning in the
late 19th century, was the Interstate Commerce Commission (ICC). The
ICC played a leading role in rate-setting which would at times
hindered railroad's ability to be profitable in the passenger market.
In the 1930s, train speeds were ever increasing, but no advance were
being made in signalling and safety systems to prevent collisions.
This led to the horrific Naperville train disaster of 1946 and other
crashes in New York in 1950. In 1947 the ICC issued an order requiring
US railroads, by the end of 1951, to install automatic train stop,
automatic train control or cab signalling wherever any trains would
travel at 80 mph (130 km/h) or faster.
Such technology was not widely implemented outside the Northeast,
effectively placing a speed limit in other areas which is still in
effect today, and why the 79 mph (127 km/h) maximum passenger train
speed is common in the United States. In 1958, the ICC was granted
authority to allow or reject modifications and eliminations of
passenger routes (train-offs). Many routes required beneficial
pruning, but the ICC delayed action by an average of eight months and
when it did authorize modifications, the ICC insisted that
unsuccessful routes be merged with profitable ones. Thus, fast,
popular rail service was transformed into slow, unpopular service.
The ICC was even more critical of corporate mergers. Many combinations
which railroads sought to complete were delayed for years and even
decades, such as the merger of the New York Central Railroad and
Pennsylvania Railroad, into what eventually became Penn Central, and
the Delaware, Lackawanna and Western Railroad and Erie Railroad into
the Erie Lackawanna Railway. By the time the ICC approved the mergers
in the 1960s, slower trains, years of deteriorating equipment and
station facilities, and the flight of passengers to air and automobile
transportation had taken their toll and the mergers were unsuccessful
at preserving these railroad's passenger train service. It is
important to note the Erie Lackawanna was never a major hauler of
passengers, nor its predecessor roads, and was mostly a freight
railroad. The Penn Central merger was a failure because it merged two
large struggling railroads on paper only, two separate management
structures remained with little or no integration of assets or
management of the former Pennsylvania Railroad and New York Central
system. The massive overhead costs of this operating scheme played a
far greater role in the Penn Central failure than any actions take by
the ICC or any other US Government agency.
Taxation
At the same time, railroads carried a substantial tax burden. A World
War II�era excise tax of 15% on passenger rail travel survived until
1962. Local governments, far from providing needed support to
passenger rail, viewed rail infrastructure as a ready source for
property tax revenues. In one extreme example, in 1959, the Great
Northern Railway, which owned about a third of one percent (0.34%) of
the land in Lincoln County, Montana, was assessed more than 91% of all
school taxes in the county. To this day, railroads are generally taxed
at a higher rate than other industries, and the rates vary greatly
from state to state.
Labor-related issues
Railroads also faced antiquated work rules and inflexible
relationships with trade unions. Work rules did not adapt to
technological change. Average train speeds had doubled from 1919 to
1959, but unions resisted efforts to modify their existing 100- to
150-mile work days. As a result, railroad workers' average work days
were roughly cut in half, from 5�7� hours in 1919 to 2��3� hours in
1959. Labor rules also perpetuated positions that had been obviated by
technology; for example, when steam locomotives were replaced with
diesel locomotives the rules required a fireman or stoker aboard the
engine at all times, even in switching yards. Between 1947 and 1957,
passenger railroad financial efficiency dropped by 42% per mile.
Subsidized competition
While passenger rail faced internal and governmental pressures, new
challenges appeared that undermined the dominance of passenger rail:
highways and commercial aviation. The passenger rail industry declined
as governments put money into the construction of highways and
government-owned airports and the air traffic control system.
As automobiles became more attainable to most Americans, the freedom,
increased convenience and individualization of automobile travel
became the norm for most Americans. Government actively began to
respond with funds from its treasury and later with fuel-tax funds to
build a non-profit network of roads not subject to property taxation.
Highways then surpassed the for-profit rail network that the railroads
had built in previous generations with corporate capital and
government land grants. All told between 1921 and 1955 governmental
entities, using taxpayer money and in response to taxpayer demand,
financed more than $93 billion worth of pavement, construction, and
maintenance.
In the 1950s affordable commercial aviation expanded as the Jet Age
arrived. Governmental entities built urban and suburban airports,
funded construction of highways to provide access to the airports, and
provided air traffic control services.
Loss of U.S. Mail contracts
Until 1966, most U.S. Postal Service mail was transported on passenger
trains. The mail contracts kept many passenger trains economically
viable. In 1966, the U.S. Postal Service switched to trucks and
airplanes, subsidizing planes instead of trains, which no longer had
mail as a source of revenue.
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