Senator DANFORTH. Thank you, Senator Cannon.

Our first witness is the Secretary of Transportation, Drew Lewis. Mr. Secretary.

STATEMENT OF HON. DREW LEWIS, SECRETARY OF TRANSPORTATION, ACCOMPANIED BY JOHN FOWLER, GENERAL COUNSEL; AND CHARLES SWINBURN, DEPUTY ASSISTANT SECRETARY FOR POLICY

Secretary Lewis. With your permission, we would like our written statement to be part of the record and I would like to make a brief opening statement.

With me today is John Fowler, General Counsel of the Department, and Charles Swinburn, Deputy Assistant Secretary for Policy. We are here today to outline the administration's views on regulatory reform of the intercity bus industry.

As the President has made very clear, removal of unnecessary regulatory burdens is a high priority of this administration. We feel that the marketplace and not a set of regulatory standards developed in 1935 should govern the behavior of managers of the bus industry. We're really here today to consider H.R. 3663. We believe that this does provide an appropriate framework for lessening regulation of the bus industry. And in very simple terms, we would like to see it modified along two or three lines.

First of all, we feel that entry should be based solely on a new, fit and willing and able test, which would focus on the applicant's safety fitness and his ability to secure adequate insurance.

Second, we believe there should be immediate entry for intrastate service provided on scheduled interstate routes. As far as pricing freedom goes, we would eliminate all Federal rate regulation 3 years from the enactment of the act.

As far as antitrust immunity goes, we would like to phase out all immunity for bus ratemaking activities by 1985.

As far as State preemption is concerned, we would like to slightly modify the exit provisions to shorten several time deadlines imposed at the Federal level and to delete what we call a burdensome public interest test.

As far as safety is concerned, rather than legislating specific insurance levels, we would like them to be determined within the Department through rulemaking. This gives us some flexibility in terms of judging conditions in the industry and in terms of what a valid insurance claim could be.

Basically, we think we have a good bill to work with here. We are looking forward to working with this committee and with you, Mr. Chairman. And also, I would like to say that we are looking forward to working with the Chairman of the ICC, Mr. Taylor, who I believe is going to testify later today. Jointly we think we can come up with a satisfactory solution that will be acceptable not only to this committee, but to the bus industry and to the administration.

Thank you, and we are prepared to answer your questions.

Senator DANFORTH. Mr. Secretary, thank you very much. Of course, the easiest thing for us to do would be to pass the House bill. That was a bill that was worked out with a considerable

amount of give and take and compromise. As far as I know, virtually everybody is in agreement with it.

Would the administration support such an approach?

Secretary LEWIS. We would like to make the modifications that I mentioned very briefly in my opening testimony, and that are also in the written statement. At the time the House bill was passed, we agreed with the House that, rather than have lengthy debate and amendments on the floor and discussion, the bill could be passed as is, with no opposition from the administration. The idea was that we could come to the Senate and hopefully make the adjustments that we would like to have made on the House floor, and then through conference work out our mutual differences.

So we do feel that actually the original administration position was carte blanche deregulation. We feel in the Department of Transportation, and the administration now concurs with our opinion, that that is too far to go and would be moving too fast. With the modifications we have recommended, we think that will make the bill stronger in terms of its deregulatory aspects.

Senator DANFORTH. Senator PRESSLER?

Senator PRESSLER. Mr. LEWIS, I want to ask you, in your testimony before the House subcommittee you indicated that you did not believe that a decrease in the rural bus service would be a result of regulatory reform. You should understand that these assurances are not particularly comforting to my home State.

Time and time again, I've been told that airline deregulation has resulted in the same level or increased level of service to small communities. Having flown in my home State of South Dakota many, many times, I know that this is not the case. Indeed, CAB statistics show that in the four-State upper Midwest region including South Dakota there has been a 28-percent decline in nonhub departures since airline deregulation. Many of these same nonhub communities are extremely dependent on passenger bus service, even more so now, particularly for those individuals in lower- or middle-income brackets.

With this in mind, what guarantees can you offer that the same thing will not happen after the passage of H.R. 3663, or as a result of the administration's proposals under discussion today?

Secretary LEWIS. I think, first of all, to compare the bus industry with the airline industry is comparing apples to oranges. The cost of an intercity bus is about $138,000. The smallest jet runs about $1.8 million. For a 737, we're talking about $12 to $13 million. So the cost of providing services is much higher in the airline industry.

And I also do not think we have seen the final shakeout of what is going to happen in terms of service to your State and others. I do understand your State's service is down about 14 percent. In other States where we had concern about airline service, service is actually up now and they are getting better service than they did before. Examples are both Nevada and New Mexico.

So it does not mean that in the long term your State will necessarily be hurt by airline deregulation. That does not solve your problem now.

But coming back to the bus area, we think that through easy entry and easy exit you're going to find more innovative kinds of

services in the bus industry than you saw before with the possibility of a $138,000 bus, or scaling it down to a jitney kind of a service, you will not be hurt.

Now, obviously we cannot give you a definitive assurance on that. That is our view of what will happen with bus deregulation. Senator PRESSLER. I may be quoting somewhat one out of order, but here are some figures on the cost of entry in a small State; a bus costs $150,000, at least two drivers with total costs of approximately $30,000 apiece, and fuel costs of about $20,000 a year. You are talking about a fairly sizable investment. And although that is not as expensive as an airline, certainly it is a very expensive proposition for a small independent line.

Do you agree that these would be the costs for a minimum-sized bus company?

Secretary LEWIS. Well, our figures we used, $138,000 which is a figure comparable to that which we are paying for transit buses that are subsidized by the Department. So we are not arguing much. But again, it depends on the size of the bus. In some smaller communities, you might be talking about one driver, a jitney service, or even a pool of the community going together for bus service. But again, compared to the entry of aviation, there is very little comparison of costs.

Senator PRESSLER. I guess as a matter of philosophy our national transportation system was built by having carriers being assigned some very rich, profitable routes, some marginal routes and maybe some routes that are not profitable. That is how we built our national transportation system. We built interstate highways into every State on which to haul grain and other commodities. We built these highways into even sparsely populated States. Eventually some of the sparsely populated States became thickly populated. Who knows what our population shifts will be in the future.

But now under all of this deregulation, we are abandoning the common carrier principle and discarding the responsibility to bring transportation to lesser populated areas or rural areas. The same thing is true in New York, not just in the Midwest.

We are abandoning that as a concept in our society. While other major industrialized countries have not abandoned it. They have kept their national transportation system grid. We are abandoning this system in the rural and smaller towns, upper New York State, the Midwest or wherever. We are really saying to them, you are out of the ballgame.

At the same time we are saying to the big carriers, you can have things like coupon fares to fly people to major points for $89 a weekend. Yet when I go home to South Dakota it costs me nearly $500 to fly. That is more than a roundtrip to Hawaii costs. So, before we take the step of deregulating buses, I want to be sure that we are not abandoning the basic principles that made our national transportation system work.

Secretary LEWIS. I do not believe we are, Senator. A good example is Florida, where we had deregulation and you have seen no deterioration in the service and actually an improvement in many cases. There are also some countries in the world that are going to deregulation, as you know. England has gone this direction in bus deregulation. And if you look at some of the things that are hap

pening, for example, in rail deregulation, you actually have stronger railroads now than you had prior to deregulation.

I do not think deregulation itself is necessarily the negative that you are implying, and I think you will find that there will be adequate bus service in your State under deregulation. In some cases it could potentially even improve.

Senator PRESSLER. If the Chairman will allow me just one final comment. Florida is served by Trailways and Greyhound. A lot of the Midwestern States are not. Indeed, Florida geographically is oriented in such a fashion that it is perhaps an example of where this will work.

But to conclude. At this moment, I will have to go on record in opposition to the administration's proposals. I also have reservations about the bill until I am persuaded that we are able to take care of the lesser populated areas.

Senator DANFORTH. Senator Cannon?

Senator CANNON. Thank you, Mr. Chairman.

Mr. Secretary, bus transportation is improving in some areas. They tell the story in my State about the Texas gambler that came to Nevada in a $15,000 Cadillac and left in one of those $138,000 buses you were talking about.

In the Airline Deregulation Act, Congress provided a very simple and effective way of dividing up the Federal and State responsibilities. Interstate carriers are regulated only by the Federal Government and intrastate carriers are regulated only by the State involved.

Would that kind of an approach be simpler and more fair than the preemption provision that you have outlined?

Secretary LEWIS. Well, our concern is that if you do not have some type of preemption there is no assurance that there will not be overregulation within the States, and that the service that we are trying to provide, in point of fact, will not be provided.

Actually, we would prefer to have no preemption and that was the original objective of the administration. But we do not see how you can have this kind of a bill without some preemption.

Senator CANNON. So it is sort of a compromise or fallback position as far as you are concerned?

Secretary LEWIS. That is correct.

Senator CANNON. At one time Chairman Reese Taylor suggested that we might consider using this bus legislation to also deal with the question of entry in the trucking business. Do you feel it would be appropriate to deal with that issue in this legislation?

Secretary LEWIS. We feel not, and it is not that we necessarily disagree in theory with what Chairman Taylor would like to do. We are afraid that if you go that direction we will end up with no bill at all, because at that point we are going to add another controversy to a bill that is already somewhat controversial, as Senator Pressler has indicated. So we would prefer to have this bill stand on its own, evaluate the merits within the bus industry, and vote this one up or down and not confuse it with motor carrier entry.

Senator CANNON. Would you be prepared to speculate on whether the President would sign the bus legislation that was passed by

the House of Representatives if the Senate were to enact the same legislation without any changes?

Secretary LEWIS. The reason we have come back with the recommended changes here is the administration would not support the House bill as it presently stands. That is my concern as Secretary of Transportation, to try to reach a compromise that is a little more deregulatory than the House bill, but not carte blanche deregulation, which was the original recommendation which I received from the Office of Management and Budget.

Senator CANNON. So you are saying that the House bill per se would not be acceptable, but with the changes that you have recommended the President would sign that legislation?

Secretary LEWIS. That is correct.

Senator CANNON. Would you give us your views on the provisions in H.R. 3663 that deal with foreign reciprocity and direct the ICC not to grant operating authority to foreign carriers from countries where the government discriminates against American carriers?

Secretary LEWIS. At the present time this would have to be redefined, in the 2-week period that the chairman indicated we would have to put in additional material. The administration is now looking at the whole issue of reciprocity, not just in this particular industry, and has asked us not to make a specific statement on this, as a segment within a broader picture at the present time.

It is very clear that in Mexico there will be no entry for our carriers. It is not clear whether we are going to try to reach some kind of a compromise on other issues that would come back to you. And what I am really saying is I do not know the answer to your question at the present time, until we resolve a number of other issues internally.

Senator CANNON. Well, we would hope you have that done before we finish consideration of this legislation, so we could have the benefit of your views at that time.

Secretary LEWIS. Yes. I think there is even going to be a hearing here I do not know whether it is in the Senate or the House-on this specific issue on March 25, and that is the only reason that I am deferring answering the question at the present time. Senator CANNON. Thank you, Mr. Chairman.

Senator DANFORTH. Mr. Secretary, thank you very much.
Secretary LEWIS. Thank you.

[The statement follows:]

STATEMENT OF HON. DREW Lewis, SECRETARY OF TRANSPORTATION

Mr. Chairman and members of the subcommittee, I am pleased to be here today to outline the Administration's views on regulatory reform of the intercity bus industry.

As President Reagan has made clear, removal of unnecessary regulatory burdens is a high priority of this Administration. Regulation of the transportation industries is a prime target for reform. Immense progress has been made over the past seven years through bipartisan efforts in both Houses of Congress and particularly in this Committee, where your efforts, as well as those of Senator Cannon, are well known. So far, regulation of the airline, railroad, and trucking industries has been addressed. Now it is time to focus on deregulation of the intercity bus industry.

The Aministration shares your interest in the intercity bus industry. It constitutes an important segment of our nation's passenger and freight transportation system. It serves more points and carries more passengers in the U.S. than any other form of intercity public transportation.