The General Accounting Office has new doubts about the future profitability of Consolidated Rail Corp. in a study scheduled to be made public today.
If recent downward trends in rail freight business continue in the Northeast and Midwest states served by Conrail. the 17,000-mile Conrail system could suffer cumulative losses of up to $3 billion for the years 1978 to 1982, GAO concludes.
But Conrail, a railroad organized under federal legislation to supplant six bankrupt lines, is forecasting only a $35 million loss through 1982 and a breakthrough to marginal profitability by 1980.
In 1976 and 1977, Conrail had losses of $572 million, about in line with projections. But conditions have deteriorated in the past year and Conrail's loss for the first six months of 1978 was $277 million. Through June 30, the federal government had invested $1.55 billion in the firm.
According to the GA, Conrail's forecasting is questionable because of certain methods used and because of "favorable assumptions, which are contrary to current trends" about such key factors as rate increases, customer service and labor productivity.
The new study also criticizes Conrail and a federal monitoring agency, the U.S. Railway Association, for failure to include two contingencies in its forecasts - additional money for the railroad retirement system and employe protection that could add up to $680 million through 1982.
Conrail has recognized that such additional funds may be required but has made to provision for them in its business planning - apparently assuming that new federal legislation will meet any shortfall.
GAO's report is the third extensive federal study published this year on Conrail's problems since the railroad firm took over from the former Penn Central and other lines on April 1, 1976.
In many respects, GAO is the mildest of the three putting into a broader prepestive the declining customer service and problems with aged locomotives and freight cars - problems detailed in earlier reports by the Interstate Commerce Commission and the U.S. Railway Association, as well as internal assessments of Conrail.
But today's report emphasizes that forecasts of future Conrail profitability have been too optimistic. Moreover, the GAO study is being made public as Congress prepares to act on legislation allocating more federal aid to the railroad.
Under the Regional Rail Reorganization Act of 1973 and amendments, the private Conrail was authorized federal assistance of some $2.1 billion in grants and loan guarantees to enable the Philadelpia firm to become profitable by the end of next year and to stand on its own in subsequent years.
But economic recession, serve winter weather over two seasons and strikes made a shambles of earlier economic forecasts. Last February, Conrail conceded that it would need far more extensive aid and proposed an additional $1.3 billion in federal support through 1982.
A $1.2 billion authorization bill is ready for House action this week but a persistent critic of Conrail, Rep. Toby Moffett (D-Conn.), plans to offer an amendment that would reduce the authorization to $700 million and require a progress report to Congress by the rail firm before additional sums would be appropriated.
Rep. Andrew Maguire (D.N.J.) and David Evans (D-Ind.), who joined with Moffett is asking for the GAO report, indicated they would support the Moffett motion. "They predict they'll need more money, then they predict that they won't meet their stated objectives, followed by another request for additional funds," said Evans of Conrail.
Moffet said yesterday he wants to put Conrail's management on "a shorter leash . . . to insure that they'll make the needed improvements and provide the kind of service we need."
However, the GAO report makes clear that Conrail management is not at fault for many of the railroad's problems. And Conrail Chairman Edward Jordan, in Capitol Hill testimony earlier this year, admitted that economic projections being followed were on the "optimistic" side. Otherwise, he said, more pessimistic assessments could themselves become a self-fufilling prophesy of doom.
GAO says a particular problem has been lost freight revenues because of inadequate equipment. The new rail firm got fewer serviceable freight cars and locomotives than had been promised earlier by the federal government in its final plan for the new system, GAO notes.
Although many of Conrail's current problems may reflect improper government forecasts about equipment and the shape of the economy, GAO warns that additional federal aid "may not assure profitability."
To reverse negative trends, "decisive and innovative management action is needed," GAO states. In response, Conrail Vice President Richard Sullivan said yesterday that since his firm has not seen a final draft of the GAO study, no comment could be made. Both Conrail and the U.S. Railway Association were invited to comment on earlier GAO drafts and the rail association objected to some criticism of its operation - specifically a GAO finding that the government monitoring agency has been slow to warn Congress about some adverse trends affecting Conrail performance.
Among other findings, GAO said:
Conrail has been slow to begin major rehabilitation of yards and terminals considered important to its ultimate success.
The absence of adequate freight cars and locomotives has hurt Conrail business by driving away some customers to trucks and barges and hampered the railroad's campaign to attract new business.
Conrail must achieve a forecast level of rate increases (wrong in the past), increase labor productivity, rehabilitate yards and terminals and improve service "vastly" to meet its favorable economic forecast through 1982.