The railroads, like other parts of the nation's transportation system, took major hits in this year's deficit-reduction package. But in an unusual lobbying effort, railroad management and labor joined to block about $200 million in new retirement taxes and to keep $180 million a year in general revenue flowing into the industry's retirement system for two more years.

The success came as a surprise to almost everyone. The rail lines and the railroad brotherhoods weren't sure they had won until the budget reconciliation bill -- to which the tax measures had been attached -- was being passed by the House and Senate. It was Monday afternoon, after the budget bill had passed on Saturday, Oct. 27, before they had final proof on paper.

Railroad workers and retirees were brought into the lobbying effort near the end while railroad officials concentrated on more traditional techniques. Even as congressional negotiators worked into the night in the final days of Congress, a trickle -- and then a flood -- of calls from railroad workers began pouring into congressional offices.

"We had turned on the industry and our million retirees," said a union official who asked not to be named. "It was the joint cooperation of us {labor and management} getting together and not acting like children."

The lobbying concentrated on members of the House Ways and Means and Senate Finance committees. It helped that some key members were from Chicago, the rail center of the country for more than a century. Rep. Marty Russo (D-Ill.), whose district has the second greatest number of railroad retirees in the country, became a key player. Ways and Means Chairman Dan Rostenkowski (D-Ill.) was on board early. Rep. Bill Frenzel (R-Minn.) is from Minneapolis, another longtime rail center.

The House leadership was not immune. Majority Whip William H. Gray III (D-Pa.) is from Philadelphia, headquarters of Conrail and a major Amtrak employment center.

During the budget talks, the Office of Management and Budget had made it clear the railroad retirement issue was nonnegotiable. In fact, OMB wanted more than $2 billion to $3 billion in new taxes.

But after including $200 million in extra taxes in its original Ways and Means bill, Democrats dropped them from their version, which eventually passed the House. The original Senate bill included the taxes. As one of the last acts of the House-Senate conference on a final bill, the House version prevailed.

The other railroad lobbying involved big bucks for the railroad retirement system. Railroad retirement is similar to Social Security, but includes extra payments to retirees beyond what they would get if they had been under Social Security. These extra payments are called Tier II payments.

Starting in 1983, Congress decided to charge income taxes on both Social Security and retirement benefits, but to return those tax revenues to the retirement systems rather than place them in the Treasury. After five years, however, the income tax on Tier II payments -- which OMB considers the equivalent of a private retirement system -- was to go to the Treasury. Congress then extended the deadline to Oct. 1, 1990.

The final budget pact this year extended the deadline two more years, a decision worth $180 million a year to the retirement system.