When the Penn Central railroad went bankrupt in 1970, it left a lot of state and local tax collectors holding the bag. Now, some 1,100 of them say Penn Central owes them almost $454 million in property taxes, and some of them have formed a coalition to get it back in full.
All told, Penn Central owes money to 15 states and the District of Columbia. New York leads the pack with claims of $144 million, followed by Ohio with $80 million and Indiana with $49.5 million. Maryland is owed $11.4 million, the District $1.64 million and Virginia $1.1 million.
On April 1, 1976, the Consolidated Rail Corp, took over the assets and the liabilities of Penn Central, as mandated by the Regional Rail Reorganization Act of 1973. A bankruptcy court in Philadelphia, which is overseeing the Penn Central reorganization, has proposed two alternatives by which the tax authorities can get their money.
The first is for the government units owed taxes to accept a flat payment of from 44 to 50 cents for each dollar owed. The second is to accept a 20 per cent payment on the principal sum followed by 10 per cent for each of the next three years and notes for the remaining 50 per cent, due in 1987. The tax authorities have until Oct. 19 to make a decision.
But Vincent Campanella, auditor of Cuyahoga County, Ohio, which includes Cleveland, charged at a press conference yesterday that Penn Central is using "high-pressure tactics" to get local governments to settle for "50 per cent less than that which is owed to them."
Campanella has a different suggestion. He wants Penn Central to pay the 20 per cent, issue notes on the remaining 80 per cent and have the federal government guarantee the notes. With the federal guarantee, Campanella said, local governments could sell the notes on the private market and get their money in full quickly.
Last week, Rep. Mary Rose Oakar (D-Ohio) and 12 cosponsors introduced a bill to provide the federal guarantees. Campanella said House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) promised he would support it. O'Neill's congressional district includes part of Boston, which Penn Central owes $17.5 million.
"It sounds like a bailout of a private corporation, but it isn't," said an aide to Oakar, who worked on the legislation. "The Justice Department and the Penn Central trustees assure us they can pay off these notes.
"The investment community is scared of anything with Penn Central's name on it. They're looking for a guarantee, which would make the notes immediately marketable."
Campanella is trying to get as much support as the can to push the legislation through quickly - before the Oct. 19 deadline for a decision. Therefore, he does not want anyone to accept the 50 per cent payment proposed, and said those that do will be regarded as "sellouts," despite the fact that many local governments and school districts are hard pressed for cash.
Besides the 1,100 governmental units, Penn Central also owes $10,000 or less to each of another 1,400. Those obligations will be paid in full. This week, Penn Central began sending checks to everyone, explaining that those that accept the 50 per cent payments can do so simply by cashing the checks.
Campanella also spoke to about 30 local and county tax officials from the Midwest and Northeast who met yesterday to form the coalition and discuss lobbying strategy for the proposed legislation.
"We're asking you not to accept the checks," he said. "By not waiting the eight weeks [until Oct. 19], you're precluding yourself from the chance to get the full amount."
William Culitz, director of public relations for Penn Central Transportation Corp., which is alive and healthy, despite the collapse of the railroad, denied in a telephone interview yesterday that the company is pressuring anyone by sending the checks.
"We're just trying to make available all the information we can to them [the tax authorities]," Culitz said. "Whether they want to accept the checks is entirely up to them." He said he wouldn't comment on the proposed legislation because he hasn't seen it.