Tug-of-War Escalates in Conrail Sale : Multimillion-Dollar Campaigns Attempt to Sway Congress

The proposed sale of Conrail has spawned a multimillion-dollar tug-of-war, complete with paid lobbyists, expensive mailings and T-shirts and frequently pitting officers of the government-owned railroad against Transportation Secretary Elizabeth Hanford Dole.

“Let Conrail Be Conrail,” proclaimed bumper stickers and buttons manufactured for Conrail in its fight against the hand that fed it.

For months, Dole engaged in a running commentary with the railroad about the propriety of using its funds to promote its views about the sale to Norfolk Southern Corp. that she eventually proposed, which Conrail opposes.

She cited mass mailings and “extensive use” of Conrail’s congressional relations staff to lobby Congress, which must approve any Conrail buyer.

Still Subsidized

“What you have to remember is that Conrail exists today because it received billions of dollars in taxpayer funds,” said John Riley, head of the Federal Railroad Administration, an arm of the Transportation Department.

“It is still publicly subsidized in that it pays no state taxes,” Riley said. “You really have to question the expenditure of tens of thousands and probably millions of dollars in lobbying expenditures and mass mailings,” he said.

Dole’s attention was piqued by a mailing on Nov. 5 in which Conrail Chairman L. Stanley Crane sought support for his proposal that the railroad, which is 85% owned by the government, be sold in a public offering.

Riley said Conrail has been reluctant to divulge lobbying expenditures. “Conrail is treating Mrs. Dole not like an owner or a public official but like someone involved in a hostile takeover,” he said.

Sent 78,000 Letters

Crane’s letter was sent to 18,980 shippers, 42,000 employees, 309 mayors and 250 news media organizations, as well as to members of Congress, governors, state transportation officials, union officers and state legislators, according to two members of the Conrail board of directors.

Conrail also sent the same people 78,000 copies of the congressional testimony by one of its executives, according to board members Roger Hillas and Stanley Hillman.

These mailings cost $34,083, not including the price of 1,000 bumper stickers and buttons.

The bidder favored by Conrail’s management--an investment group headed by Morgan Stanley & Co. of New York--has since printed T-shirts bearing the same slogan, lobbyist Pat Griffin said.

Hillas and Hillman, co-chairmen of a committee monitoring the sale, pledged to Dole that no further mass mailings or solicitations would be made without the board’s approval.

On Sept. 24, Crane ordered another mass mailing--board members said no approval was sought--to respond to an advertising campaign by Norfolk Southern. Full-page ads placed by Norfolk Southern in about 80 newspapers said that many Conrail employees had been “left in the dark,” by Conrail’s management.

Defending Crane’s response, which was mailed to Conrail’s 36,000 employees, spokesman Saul Resnick said the charges “had nothing to do with the sale process per se.”

“We think that at any point in time where somebody goes directly to our employees and questions the credibility of Conrail’s management--saying in effect that they are keeping people in the dark or lying--that has nothing to do with the sale issue,” he said. “We think Mr. Crane has an obligation to address such comments.”

Responds to Charge

Crane’s response denied that workers were not receiving adequate information and reiterated his view that freight competition would be severely undercut by a Conrail-Norfolk Southern merger, costing as many as 10,000 jobs.

Norfolk Southern has countered that the consolidation would give Conrail new resources, enabling it to survive economic downturns and aging equipment.

Conrail reported a profit of $210 million during the first half of the year. It no longer gets operating subsidies.

To sell its viewpoint, Norfolk Southern boasts former Navy Secretary Edward Hidalgo on its side as well as three former governors--Republican Christopher Bond of Missouri, Democrat Robert McNair of South Carolina and Democrat Edward Breathitt of Kentucky, the corporation’s vice president for public affairs.

Morgan Stanley hired the law firm in which former Democratic National Committee Chairman Robert Strauss is a partner, while Lyn Nofziger, a former adviser to President Reagan, worked for a time on Conrail’s behalf in the dispute.

While both parties are reluctant to disclose their lobbying expenditures, Paul Molloy, an attorney for Norfolk Southern, said a $2-million estimate of Norfolk Southern’s cost was “conservative.”

“It doesn’t surprise me that Norfolk Southern would spend that much,” Morgan Stanley’s Griffin said. “They’ve got a lot to gain.”

Riley said the lobbying “has done a lot to resuscitate Washington’s economy.”