Deregulation Leaves Towns Stranded (2024)

Peraldo lives in a small community, in an economically underdeveloped state. Her situation illustrates what some critics of deregulation of transportation say is one of its faults -- small towns and farming communities across the United States might be left stranded.

As the economic environment changes, and profit rather than government determines the price and availability of public transportation, some who benefited when prices were spread more evenly among customers might end up without services they once took for granted or might end up paying more.

"In an environment where there is an awful lot of competition, I would believe in deregulation," said George Paul, an information officer with the Montana Wheat Research & Marketing Committee. "But what works for one may not work for another. The decisions are made in Washington, based on what's happening in the East. If you apply that rule to a western state, it may not necessarily fit."

In good markets, such as major cities and along the populous East Coast, deregulation has resulted in competition that has sharply reduced transportation prices and has provided clear benefits to many consumers. Several studies by the Department of Transportation go further. These analyses have found that the overwhelming majority of those surveyed, including people in small towns and rural areas, believe service has stayed the same or improved as a result of deregulation, said Edward H. Rastatter, chief of the DOT's regulatory policy division.

And to critics, advocates reply that small communities benefited for many years from what amounted to a subsidy paid by other consumers to maintain services that were less and less economically viable. Now they are paying.

But in tiny farm communities in Montana (a state with a population of 5.3 persons per square mile), hard-luck coal mining communities in West Virginia, and other communities that are in economic decline, deregulation might compound other problems.

Services are lost, then businesses collapse and new businesses become harder to attract. Population is lost, and the cost of providing services to the remaining population increases beyond the amount the remaining people can pay. Then services are lost.

In its heyday, when coal mining provided a nearly full-employment economy in McDowell County, 232 buses pulled into Welch every day. County clerk Hilda Taylor, who has fought to sustain bus service to and from Welch, has a picture of United Mine Workers founder John L. Lewis on her office wall. Nearby is a poster from the late 1940s touting the area's prosperity, boasting of the area's regular transportation.

Until 1984, Welch -- now a center of high unemployment -- had bus service, through Logan, W.Va., to Huntington and Charleston, West Virginia's two largest cities. Now, "The only way to get out by bus is to go to Bluefield," said Taylor. Until earlier this month Trailways operated one bus a day, to and from Welch. On June 5, the service increased to two buses a day, but getting anywhere from Welch by public transportation is complicated.

A passenger traveling from Welch can get to Huntington by taking the Trailways bus to Bluefield and changing to a Greyhound bus. But the trip, which once took slightly more than four hours, now takes nearly seven. Even at that, because it has service, Welch is one of the lucky communities, according to state officials.

"There are a significant number of communities which were abandoned and which are faced with no public transportation except taxicabs -- and that's not intercity," said Franklin Crabtree, director of the transportation division of the state's Public Service Commission.

"There's a lot of people just hurting for the bus. After you get through here Welch , you're on foot if you don't have a vehicle," said Emory Kennedy of Bradshaw, who had stopped by the empty bus terminal in Welch, which is closed for all but a few hours a day, to check schedules.

The Bus Regulatory Reform Act of 1982 made it much easier for bus companies to abandon unprofitable routes. Although the legislation contains two tests for whether a market may be abandoned -- revenue and the public interest -- West Virginia officials contend that the public-interest test has been abandoned by federal regulators considering appeals by bus companies. "So it became merely an exercise in futility for a state to disallow a petition to abandon service," said Crabtree.

DOT officials note, however, that the ICC has been upheld by the federal courts in cases in which it preempted state decisions, suggesting the agency is meeting whatever tests the law imposes.

"It was real simple. We were losing our shirt on the service," said Malcolm Myers, vice president for traffic for Trailways Lines Inc., explaining the company's petition to abandon part of its service from Welch. Traffic was "very, very meager" on those routes, he said.

"It was unbelievably low, and we thought it was a pure travesty that the regulatory people and the politicians in the area would expect anybody to hold onto it. Our average ridership was down in the neighborhood of two to three people per bus."

West Virginia officials said more than 80 communities have lost scheduled bus service that provided -- in most cases -- their only public transportation. "It would be a simpler question to ask what's left," said Thornton Cooper, a staff attorney for the PSC.

Deregulation "is fine if you're in the mass market," said Rex Campbell, head of the department of rural sociology at the University of Missouri. "If you're in the metropolitan centers, deregulation is probably a net benefit. But for the rural areas, it's raised the cost of just about everything."

Congress recognized that small communities might not benefit or might suffer from deregulation and built provisions into the law -- such as the public interest test for bus service -- that were supposed to provide some protection. However, some of those provisions -- such as one protecting air service to isolated areas -- are scheduled to expire. Others, including protection for shippers who have no realistic alternative to a single railroad, aren't working to the satisfaction of those they were designed to protect.

In Montana, a group of wheat growers has been fighting since 1980, when they filed a lawsuit, for lower railroad shipping rates. There is a single railroad left in Montana, the Burlington Northern, and grain growers and the state say the railroad has been allowed to charge them too much to get wheat to out-of-state markets. The state of Montana filed its objection shortly after passage of the Staggers Rail Act of 1980, which largely deregulated the pricing of railroad services, challenging the rates that would be considered base rates under the act. The proceeding has been before the Interstate Commerce Commission for nearly six years.

"We don't feel the ICC has carried out the intent of Congress where captive shippers are concerned," said Bill Fogarty, who heads the transportation division of the Montana Department of Commerce. Captive shippers are those who have no alternative, a description that fits Montana's wheat growers, according to Fogarty.

In a state such as Montana, where the distances are vast and the roads often are not very good, the cost of trucking, compared with rail transportation, is so high that trucking provides no real competition, he said. According to Fogarty, the cost of shipping bulk commodities by rail in the state is 1.9 cents per mile, compared with a cost of 4 cents per mile by truck and 3.25 cents per mile for a combination of truck and barge transportation.

As a result, left to its own devices, the railroad theoretically could charge considerably more than its costs and still undercut competition. Railroad officials say they don't -- that their rates are fair and that it is not in their long-run interest to gouge farmers. If they put growers out of business, "that's a lot of empty grain cars," said Patrick D. Hiatte of Burlington Northern. "We feel like we need to be in an alliance with these producers, selling wheat in the Pacific Rim. If we can't sell it at competitive prices, we're all going to fail together."

The ICC is supposed to make sure that prices for captive shippers are not marked up beyond a fair rate of return. But from the point of view of the shippers, that regulatory oversight has been missing in action.

"You can complain to the ICC. You can write letters to the ICC, but that's about as productive as trying to see the president," said Dave Mattson. Mattson and his wife Karen operate a wheat farm near Chester, Mont., and are among the plaintiffs in the class-action suit filed by wheat growers.

"I'd feel a lot better if we had a strong ICC. From what I've seen it's an organization in name only," Mattson said.

"Generally speaking, the Staggers Rail Act is a good piece of legislation, where you have competition," said Mike Ogborn, an attorney representing the grain growers and Montana. "Where it falls apart is where the regulators have to step in, where there is a monopoly. What falls apart is the commission's handling of the rate cases -- the delays and the costs are enormous."

The farmers' suit, filed in 1980, was referred to the ICC. In 1981, an administrative law judge at the ICC decided the case in favor of the farmers. But the ICC reopened the matter, and it has been tied up since. The farmers have spent about $400,000 on the case. The state's challenge to rail rates was joined to that case, and the Montana legislature appropriated $310,000 in the spring of 1984 to keep the case going.

At the same time, small farming communities in Montana have been living with other changes -- some of which flowed from deregulation and others that were compounded by it. A change made by the railroads before deregulation, a switch to larger, 52-unit trains, was designed to increase shipping efficiency and to lower costs to shippers. It did -- and resulted in Burlington Northern's using fewer but larger grain elevators. At the same time, deregulation has made it easier for the railroad to abandon branch lines, many of which were "too expensive and inefficient to operate," according to a 1982 report by the Governor's Transportation Advisory Council.

Taken together, those changes probably will result in the demise, over time, of at least some small communities that grew up around small grain elevators. There were 400 grain elevators in Montana before 1980, according to Paul, of the wheat research committee. Now there are fewer than 150.

Shippers might benefit from the more cost-effective shipping network but they worry about its potential impact on their home towns at the same time.

Railroad officials note that the price of shipping grain has gone down by about 17 percent in Montana between 1980 and 1985. That reduction in price suggests the railroad hasn't used its monopoly power to extract higher prices, they say. Fogarty concedes that prices have been reduced, but so have the railroad's costs, he said, suggesting that better regulatory oversight would have resulted in still lower prices.

Deregulation might ultimately bring other changes to states such as Montana. Truckers hauling agricultural products, lumber and coal are unregulated, but Montana -- and many other states -- regulate trucks that haul other products. In return for the right to carry freight on lucrative routes, they are required to haul freight on routes where the payoff is less attractive.

Montana's legislature twice has considered and rejected proposals to deregulate intrastate trucking, and there are bills in Congress that effectively would preempt state regulation of trucking. That bothers Ben Havdahl, executive vice president of the Montana Motor Carriers Association Inc.

"We would have some problems with regard to service to communities in Montana," he said. "The costs would be increased, not decreased, and service would be cut off to small communities." According to DOT studies, there is no cause for concern. "Shippers and receivers in very remote areas were as satisfied with their service as were their counterparts in more accessible small communities," said a summary of one representative study.

But Havdahl is skeptical. "Deregulation's not going to open competition. There's not going to be any competitors. There's nobody standing in line to serve those communities," he said.

Further deregulation of air travel could leave communities in Montana, and elsewhere, stranded. A federal "essential air services" subsidy has kept air service in communities in 37 states. Many of these areas could not sustain the service on their own.

Big Sky Airlines, with revenue of about $4.6 million, is receiving $1.8 million in subsidies. "At the high point, subsidy revenues were probably 50 percent of operating revenue," said Big Sky President Terry Marshall. Marshall said his aim has been to make the airline less and less dependent on the subsidy. The subsidies are scheduled to end in 1988.

"If the program expires and nothing is done on any level, of the eight markets we serve with the subsidy , we probably would continue to serve two of them," said Marshall. Montana and western North Dakota, which Big Sky also serves, suffered last year from a serious drought in addition to the general downturn in the agricultural economy.

"Had we had better economic times, maybe two or three more" communities would be economically attractive markets, he said.

"My background is in economics," said Marshall. "That doesn't mean that personally I have to go off the deep end and live in that sterile world without any human or social element," he said. But it does mean he understands arguments against subsidies for service to areas that cannot support it.

But Marshall grew up on a farm in Kalispell, Mont., and that gives him another perspective. "That still leads me to have some pangs about whether it's the wrong thing to end service."