Executive Memorandum #384
June 14, 1994
6/14/94 384HOW TO KEEP THE PROMISE TO REINVENT GOVERNMENT: ABOLISH THE ICC In an attemp t to help the Clinton Administration follow through on last year's promised "reinvention" of govem- ment, Representatives John Kasich (R-OH), Joel Hefley (R-CO), Gary Condit (D-CA), Christopher Cox (R-CA), and Tom DeLay (R-TX) are proposing an amendment t o H.R. 4556, the Transportation Appropriation Bill of 1995 that will abolish the Interstate Commerce Commission (ICC). The amendment, which could be voted on as early as tomorrow, is based loosely on a proposal originally rumored to be part of the Administ r ation's first draft of the Na- tional Performance Review, although it was not contained in the final version. - An identical version of the amend- ment fell just eleven votes short of passage in the House of Representatives and received 39 votes in the Se n ate last year. The amendment would begin a two-step process that eliminates all Fiscal Year 1995 funding for the ICC and then transfers the agency's remaining responsibilities to the Department of Transportation (DOT). The Congres- sional Budget Office ha s estimated that the transfer would save between $15 million and $45 million the first year and between approximately $30 million and $50 million in following years. Although the ICC disputes the need for reform and the level of the resulting budgetary sav i ngs, even the Commission itself acknowledges that at least $2 million would be saved in the first year with $37 million in savings to follow over the next five years. The trans- fer of authority would not increase the DOT's operating expenses, however, si n ce the DOT would not be allowed to expand their workforce in response to the amendment. Therefore, net savings to taxpayers would be substantial. Loong and Less-Than-SuccesdW EUstory. Created by the Interstate Commerce Act of 1887 to oversee the na- tion' s rapidly expanding railroad industry, the ICC is the nation's oldest federal regulatory agency. Over the next half century of its existence, and especially with the enactment of the Motor Carrier Act of 1935, the ICC's powers were greatly expanded to incl u de trucking, barges, buses, freight forwarders, and express companies, in addition to railroads. The ICC's primary responsibility was the control of how firms move into and out of the regulated sec- tors, and the regulation of rates charged by those firms to ensure they were "just and reasonable." This meant firms regulated by the ICC could service only specific areas, and could be required to continue service even if it was un- profitable. For example, a trucking firm might have been required to provide s e rvice from City A to City C by go- ing well out of their way to service City B in route, regardless of how unprofitable it was to do so. Businesses were also required to file rate schedules or "tariffs". detailing their service charges, which the ICC had t he power to re- ject. The effect of these ICC regulations was the creation of transportation cartels,,Iimited consumer choice, and re- duced service quality. Because of these problems, in 1980, with President Jimmy Carter's encouragement, Con- gress passe d three bills that greatly deregulated the trucking, railroad, and moving industries. The Motor Carrier Act of 1980, the Staggers Rail Act of 1980, and the Household Goods Transportation Act of 1980, provided those sectors with rate-making flexibility and a llowed easier market entry and exit. Two years later, the Bus Regulatory Reform Act of 1982 did the same for the bus industry. Thomas Gale Moore, senior fellow with the Hoover Institu- tion in California, notes of motor carrier deregulation: "!I has been h ighly successful. Rates have decreased; serv- ice has improved; shippers are pleased with the results." Likewise, Tim W. Ferguson of 77w WaU Street Joumal notes, "Trucking, indeed the whole interstate freight industry, has been made razor sharp by federal deregulstion.... Extraordinary gains for shippers and therefore consumers have resulted, not only in price but performance."
In effect, deregulation has made the ICC's job nearly obsolete, since the agency no longer has the explicit author- ity to set r ates or determine market entry and exit. Accordingly, staffing has fallen from approximately 2,000 in 1980 to just over 600 today. Yet, a handful of administrative regulations remain in force, including the require- ments that carriers receive formal perm i ssion to operate and that they file rate tariffs with the ICC. Since the ICC now has little power to deny entry or regulate rates, its only function today seems to be to impose a paperwork bur- den. Consolidating the ICC into the DOT. Recognizing that the remaining ICC tasks do not require the existence of a separate bureaucracy, the amendment before Congress would transfer these responsibilities to the DOT. But to ensure the DOT cannot use the consolidation as an excuse to increase the size of its own bur e aucracy, the amend- ment would force them to handle their modest new responsibilities with existing resources. This would be a wise move since the ICC's remaining tasks are primarily administrative and could easily be car- ried out by the DOT. In addition , since the amendment requires that the DOT administer its new responsibilities with existing resources, it would encourage the agency to eliminate inefficient regulations that no longer serve a purpose, such as the current rate-filing provisions. The Gene r al Accounting Office (GAO) has stated that such regu- lations are merely formalities. If the motor carrier rate and entry rygulations were abolished, the GAO has esti- mated it would save the ICC approximately $17 million per year. Even ICC Vice Chairman K aren Borlaug Phil- lips hal testified to Congress that economic regulation of the trucking industry is inefficient and should be re- duced. Finally, Thomas Gale Moore estimates that the complete elimination of all remaining federal Nnd state mo- tor carri e r regulation would result in approximately $12 billion in savings for the economy each year. Chance to Keep Reinvention Prondse. Congress and President Clinton now have an opportunity to make good on the promise of serious government reform by abolishing t he InterSLate Commerce Commission and transferring its remaining functions to the Department of Transportation. Its mission is now redundant and a waste of taxpayer dollars. Consumers and the commercial sector would both benefit from the eventual eliminat ion of the agency's in- efficient and costly regulations. If the ICC remains, only bureaucrats will benefit.
Adam D. Thierer Policy AnalystI Thomas Gale Moore, "Unfinished Business in Motor Carrier Deregulation," Regulation, Summer 199 1, p. 52. 2 Tim W. Ferguson, "Deregulation Delivers the Goods," The Wall Street Journal, June 29, 1993, p. A 19. 3 Kenneth M. Mead, Interstate Commerce Commission: Transferring the ICC's Rail Regulatory Responsibilities May Not Achieve Desired Effects, U.S. General Accounti n g Office, GAO/RCED-94-222, June 9, 1994, p. 10. 4 Karen Borlaug Phillips, Testimony Before the U.S. House of Representatives Surface Transportation Subcommittee of the Committee on Public Works and Transportation and Subcommittee on Transportation and Haz ardous Materials Committee of the Committee on Energy and Commerce, June 9, 1994. 5 Moore, op. cit., p. 54.