Senate Agrees to Consider Reagan's Conrail Sale Plan

Times Staff Writer

The Senate voted overwhelmingly Thursday to take up the Reagan Administration's controversial plan to sell Conrail, the government-owned freight railroad, to Norfolk Southern Corp. for $1.2 billion.

The procedural vote of 90 to 7 on the nearly year-old proposal paved the way for possible final Senate action next week in what is expected to be a key test of the Administration's efforts to return the railroad to the private sector.

Opponents of the Transportation Department plan have argued that the sale to Norfolk Southern is not the best alternative for Conrail, which was created by Congress after the bankruptcy of the Penn Central and several other rail lines in the early 1970s. Critics say the deal is anti-competitive and will create a new rail monopoly that could harm some regional railroads.

Antitrust Questions

Two key critics, Sens. Howard M. Metzenbaum (D-Ohio) and Arlen Specter (R-Pa.), agreed Thursday to allow the procedural vote so the Senate could debate the issue, but they warned that they had not changed their minds about opposing the Administration plan.

Specter said several attempts would be made to send the measure back to committee so the sale's antitrust implications, as well as alternative sale plans, could be discussed. A $1.4-billion offer for Conrail has been made by a group of investors organized by Morgan Stanley & Co., a New York investment banking firm, while an offer for $1.6 billion has emerged more recently from the financial houses First Boston Corp. and Allen & Co. of New York.

Despite the criticism of the proposed sale, President Reagan, at a meeting with 150 business leaders at the White House, urged Congress to approve it, declaring: "Government ownership is no way to run a railroad.

"If we're going to bring down deficit spending, what better place to start than by trimming away those costly activities like Conrail, which the government should never have been involved with in the first place."

Reagan described Norfolk Southern as a strong company that promises to promote Conrail's financial strength and service. "When the private sector can deliver better service for less money than the public sector, as it can with Conrail, then the government must step aside," he said.

Norfolk Southern has proposed to pay the government $1.2 billion in cash on the day of the sale, along with other considerations. The Transportation Department, which considered 14 proposals before choosing Norfolk Southern last February, has steadfastly defended the plan as the best proposal for the railroad and its employees.

The Justice Department reviewed the proposal and gave its tentative approval to the Norfolk Southern bid but is still working on a more detailed analysis.

Opponents of the plan, such as Specter, have questioned whether Norfolk Southern's $1.2-billion bid for the government's 85% interest in Conrail is adequate. Specter has called Morgan Stanley's $1.4-billion offer "infinitely superior" because it would enable the current Conrail management to stay in place and would allow the resale of stock to the public.

In response, the government has argued that it prefers the Norfolk Southern plan because Norfolk Southern has agreed to waive $2.1 billion in certain tax advantages that it could otherwise have claimed, because it has agreed to a minimum annual capital investment of $350 million to $500 million on Conrail's lines and because it has pledged a number of employee protections.

Sen. John C. Danforth (R-Mo.), the bill's floor manager, said Thursday that--although a Treasury Department report has estimated that the Norfolk Southern plan would produce a $174-million revenue loss through 1990, while the Morgan Stanley proposal would produce a $24-million gain--the report noted that revenue effects in the long run would be highly similar.

Calling Norfolk Southern "perhaps the strongest railroad in the country," Danforth said that he would be willing to give up some of the revenue for the assurance that the financial strength of Conrail would be preserved.

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