President Carter's "lean and austere" budget for fiscal 1980 forecasts generally stable conditions for most sectors of the economy -- with the notable exception of the railroad industry, which the administration sees as "struggling for financial survival."
To help meet the industry's financial crisis, the administration soon will propose broad legislation to reduce regulation by the Interstate Commerce Commission. This will be coupled with $1.2 billion in new financial assistance during the next five years. The administration has proposed $250 million for fiscal 1980.
Transportation Secretary Brock Adams said the administration is drafting new legislation to help meet the "growing crisis in our rail industry." He said the proposal would provide economic assistance to the industry over the five-year period in which federal regulation of the railroads would be virtually abolished.
Following on the heels of last year's airline deregulation, yesterday's budget message made clear that the next priority in the administration's drive to eliminate wasteful government economic controls will affect the nation's railroads.
Although trucking and bus deregulation also will be pursued, Adams told reporters that the financial decline of railroads "must be reversed or we face the specter of nationalization."
Adams sent to the White House a set of legislative proposals that would curtail ICC control over maximum rates after five years. During the interim period, a "zone of reasonableness" would be established and any rates falling within that zone -- based on a percentage above a base rate when the law is enacted -- would not be subject to ICC suspension. The ICC could only stop a rate hike if evidence was found that a railroad abused market power.
In addition, the administration plan would open to the public all meetings and activities of rate-setting industry bureaus and prohibit industrywide general freight rate increases. Rail mergers would be subject to the Clayton Act, rather than the Interstate Commerce Act, presumably removing that ICC role and giving it to the Justice Department.
Within three years of enactment, railroads would be permitted to discontinue service over any line after giving the public 240 days' notice.
Carter conceded in his message yesterday that the new legislation would end certain cross-subsidizations in rail rates and penalize some shippers to the benefit of others. "In the long run, the nation cannot afford the cost to the economy and the taxpayer of maintaining these economic inefficiencies," he added.
The alternative to moving in a new direction would require "massive amounts of federal aid" for an industry without flexibility to vary rates and services according to fluctuating supply and demand, while facing increased competition, the President added in his budget messages.
Carter also emphasized that direct budget savings from rail deregulation will be small, but he argued that the overall economy will grow more healthy in future years, thereby combatting inflation, improving productivity and reducing pressure for even more federal aid.
Aside from the gloomy outlook for the railroad industry, the overall tone of the Carter message accompanying his $531.6 billion budget proposal to Congress was one business leaders generally could embrace. In his message, the President saw the need for a tight budget as "imperative... to overcome the threat of accelerating inflation."
Under Carter's proposal, the federal deficit would be sliced to $29 billion and the emphasis is on controlling the growth of future government spending.
Among the highlights of the budget message in areas affecting business and investors:
A new $5.4 billion mortgage-aid program was proposed under which the government would make home loan payments for up to 18 months for persons who lack funds for FHA-backed loans.
Tax-exempt housing bonds issued by states and local governments would be limited to low-income and moderate-income housing.
Small-business assistance would remain about the same level as the current year -- $3.9 billion of new commitments for guaranteed loans -- but the share of Small Business Administration aid to minority businesses would be increased 30 percent.
In the Agriculture Department, outlays for farm price supports by the Commodity Credit Corp. are projected to decline sharply from $5 billion to $2.7 billion, with lower production of feed grains and improved markets for grains estimated for the year.
Federal subsidies for the U.S. Postal Service would be sliced by $100 million to $1.7 billion and are projected to decline the following two years by smaller amounts. The budget forecasts a postal surplus of $170 million for the current fiscal year, followed by a deficit of $504 million in fiscal 1980.
Carter called for a reduction in subsidies for Amtrak, the national rail passenger corporation, with fiscal 1980 outlays falling to $634 million from $779 million this year, necessitating a sharp cut in some long-distance train operations.