592 F.

2d 658

AUTOMOBILE CLUB OF NEW YORK, INC. and AAA Clubs

of New
Jersey, Plaintiffs- Appellants,
v.
William M. COX, Administrator, Federal Highway
Administration, Brock Adams, Secretary, United States
Department of Transportation, and the Port Authority of New
York and New Jersey, Defendants-Appellees.
No. 29, Docket 78-6054.

United States Court of Appeals,

Second Circuit.
Argued Oct. 16, 1978.
Decided Jan. 12, 1979.

Anthony S. Genovese, New York City (Kissam, Halpin & Genovese,

Richard J. Tufano and William J. Quirk, New York City, of counsel), for
plaintiffs-appellants.
Richard J. Weisberg, (Asst. U. S. Atty., New York City, Robert B. Fiske,
Jr., U. S. Atty. for the S. D. N. Y., Patrick H. Barth, Asst. U. S. Atty.,
New York City, of counsel), for defendants-appellees, William M. Cox
and Brock Adams.
Joseph Lesser, New York City (Patrick J. Falvey, Gen. Counsel, The Port
Authority of New York and New Jersey, New York, N. Y., Isobel E.
Muirhead, Arthur P. Berg, Vigdor D. Bernstein, and Sholem Friedman,
New York City, of counsel), for defendant-appellee, Port Authority.
Before FRIENDLY, TIMBERS and VAN GRAAFEILAND, Circuit
Judges.
FRIENDLY, Circuit Judge:

The Automobile Club of New York, Inc. and AAA Clubs of New Jersey (the

Auto Clubs) appeal from an order of the District Court for the Southern District
of New York 444 F.Supp. 174 (1978), dismissing their complaints in an action
to review a decision of the Federal Highway Administration, 1 which approved
the 1975 action of the Port Authority of New York and New Jersey (PA) in
increasing the tolls on its four interstate bridges2 from $1 to $1.50 per round
trip. The thrust of the Auto Clubs' objection was that, insofar as the Highway
Administrator's approval rested on the proposition that the increased tolls were
needed to provide a fair return, he erred in considering not only the four bridges
but also the Holland and Lincoln Tunnels, PA's bus terminals at the Manhattan
ends of the Lincoln Tunnel and the George Washington Bridge, and the Port
Authority Trans-Hudson Railroad (PATH). Although we find the problem a
great deal more difficult than did the district judge and are not in complete
agreement with him, we nevertheless affirm on a qualified basis developed in
the course of this opinion.
2

The parties agree that the four bridges were constructed under the provisions of
the General Bridge Act of 1906, 33 U.S.C. 491-98, 3 and that the applicable
legal standard for fixing tolls is found in the last sentence of 33 U.S.C. 494, as
it then stood:If tolls shall be charged for the transit over any bridge constructed
under the provisions of said sections, of engines, cars, street cars, wagons,
carriages, vehicles, animals, foot passengers, or other passengers, such tolls
shall be reasonable and just, and the Secretary of the Army may, at any time,
and from time to time, prescribe the reasonable rates of toll for such transit over
such bridge, and the rates so prescribed shall be the legal rates and shall be the
rates demanded and received for such transit.

The function originally granted to the Secretary of the Army was transferred in
1966 to the Secretary of Transportation, 49 U.S.C. 1655(g)(6)(B), who has
delegated it to the Federal Highway Administrator, 49 C.F.R. 1.48(i)(1). The
question here is how this septuagenarian statute is to be applied to the complex
of different services owned and operated by the PA in the urban sprawl of
southeastern New York and northeastern New Jersey. Before addressing the
question directly it is necessary to outline the relevant history of the PA.

I.
4

The PA was established in 1921 by legislation of New York and New Jersey,
which Congress approved as an interstate compact by a joint resolution, 42
Stat. 174. Its principal purpose was to effectuate "a better co-ordination of the
terminal, transportation and other facilities of commerce in, about and through
the port of New York." N.Y. Unconsolidated Laws, 6401.4 The compact
created an extensive Port of New York District, whose boundaries might be

changed from time to time by joint legislative action, 6403.5 The PA was to
have the powers enumerated in the compact and "such other and additional
powers as shall be conferred upon it by the legislature of either state concurred
in by the legislature of the other, or by act or acts of congress, as hereinafter
provided." 6404. The PA was empowered "to purchase, construct, lease
and/or operate any terminal or transportation facility" within the district,
6407. Transportation facility was defined to include, Inter alia, "railroads, steam
or electric . . . tunnels, bridges . . . and every kind of transportation facility now
in use or hereafter designed for use for the transportation or carriage of persons
or property." 6423. In contrast, while the definition of "terminal facility" was
also broad, there was no reference to passenger stations and the catch-all clause
was limited to freight, 6423. The original compact was shortly followed by an
agreement on a comprehensive plan for the development of the Port of New
York, Unconsolidated Laws 6451-68, also approved by Congress, 42 Stat.
822 (1922).
5

On March 2, 1925, Congress consented to the construction of the four bridges,

43 Stat. 1094, subject to the provisions of the 1906 Bridge Act. The Goethals
and Outerbridge Crossing bridges were opened for traffic in 1928, the Bayonne
and George Washington bridges in 1931. Before any of these dates the Holland
Tunnel, constructed under an earlier 1919 compact, 41 Stat. 158, had been
opened on November 13, 1927.

In 1931 the two states adopted identical legislation for "bridge and tunnel
unification." Unconsolidated Laws, 6501-25. The states agreed "that the
vehicular traffic moving across the interstate waters within the port of New
York district . . . constitutes a general movement of traffic which follows the
most accessible and practicable routes, and that the users of each bridge or
tunnel over or under the said waters benefit by the existence of every other
bridge or tunnel since all such bridges and tunnels as a group facilitate the
movement of such traffic and relieve congestion at each of the several bridges
and tunnels." Accordingly the states agreed "that the construction,
maintenance, operation and control of all such bridges and tunnels, heretofore
or hereafter authorized by the two said states, shall be unified" under the PA "to
the end that the tolls and other revenues therefrom shall be applied so far as
practicable to the costs of the construction, maintenance and operation of said
bridges and tunnels as a group and economies in operation effected, it being the
policy of the two said states that such bridges and tunnels shall as a group be in
all respects self-sustaining." Unconsolidated Laws 6501. Control of the
Holland Tunnel was vested in the PA and the earlier compact concerning it was
abrogated; a new Midtown Hudson tunnel (later christened the Lincoln Tunnel)
was authorized. Unconsolidated Laws 6502, 6510. In 1946 the PA was

authorized to construct a motor bus terminal, Unconsolidated Laws, 670106, which was located on W. 40th Street and 8th Avenue near the Manhattan
end of the Lincoln tunnel. Ten years later it was authorized to construct another
bus facility in Washington Heights, N. Y. "as an addition and improvement to .
. . the George Washington bridge." Unconsolidated Laws 6505.
7

The addition of PATH was more controversial; part of the story has been
recently recounted in United States Trust Co. v. New Jersey, 431 U.S. 1, 9-12,
97 S.Ct. 1505, 52 L.Ed.2d 92 (1977). The Hudson & Manhattan Railroad had
operated an interstate electric commuter system between points in New Jersey,
including Newark, Hoboken and Jersey City, and points in downtown and
midtown New York City through two downtown and two midtown tubes, and a
connecting subway system in New York City, and also owned the Hudson
Terminal Buildings in downtown New York. It had become insolvent, in part
because of "loss of passengers to publicly financed vehicular crossings of the
Hudson River by bridge and tunnel." Spitzer v. Stichman, 278 F.2d 402, 406 (2
Cir. 1960). The solution was to transfer its properties to PA which would
modernize the rail operations and would replace the outmoded office buildings
with the World Trade Center. The legislatures responded in 1961 with the
necessary legislation, Unconsolidated Laws, 6601-18, which was
characterized as supplementary to the 1921 compact. However, in contrast to
the 1931 bridge and tunnel unification legislation, there was no recitation that
the users of PATH benefited from the bridges and tunnels or Vice versa, and no
direction for a "single unified operation" such as had been made with respect to
the bridges and tunnels in Unconsolidated Laws 6501 and 6504.

II.
8

On April 10, 1975, PA adopted new bridge tolls effective May 5, 1975; this
was the first increase in more than four decades. PA raised the standard
automobile round trip rate on its four bridges from $1 to $1.50, and the
commuter round trip rate from 50 cents to $1, and increased the truck rate by
50%. Bus tolls were not increased and PA instituted a carpool discount whereby
vehicles carrying three or more persons during weekdays would be charged
only $.50. Tunnel tolls were similarly altered. In notifying the Secretary of
Transportation of the new tariffs, the Chairman of PA advised:

9 plan is to devote the additional revenues derived from these toll increases to
Our
four presently-authorized but new Port Authority mass transit projects:
The expansion of the midtown Port Authority Bus Terminal;
10
The extension of PATH to Plainfield via Newark International Airport;
11

12 access between Kennedy International Airport and Penn Station, Manhattan

Rail
using Long Island Railroad tracks and high-speed MTA cars; and
13
Direct
rail service from New Jersey into Penn Station, Manhattan for certain trains
on the Erie Lackawanna Railroad.
14

The first of these four projects has been nearly completed, the second and third
have been abandoned at least for the time being, and the fourth is still under
study.

15

The Auto Clubs and others promptly protested to the Administrator that the
new bridge toll rates were not reasonable and just within the meaning of the
General Bridge Act. After what seem to have been unduly protracted
preliminary proceedings, the Administrator, on April 8, 1976, ordered an
evidentiary hearing over which an ALJ was to preside. This occurred on
November 3-9, 1976.

16

On May 9, 1977, the ALJ issued a recommended decision and order that PA
restore the charges to their previous level. He thought it to be "clear that the
framers of the term (reasonable and just) had in mind the needs of the local
population" and that their purpose was "to protect the local users of toll
bridges." See 40 Cong.Rec. 1717, 59th Cong., 1st Sess. (1906). Believing that a
1952 statute relating to the Delaware River Port Authority, 66 Stat. 747-52,
greatly relied upon by PA in support of a combined approach, which we will
discuss in Part IV below, worked against PA's contention rather than for it, he
concluded that "facilities other than the four bridges involved in this
proceeding may not be considered for the purpose of forming the rate base
since such has not been authorized by Congress." The ALJ also decided that the
four bridges could properly be grouped and that a rate of return on net
investment in excess of 6.5% Per annum would be excessive.6 He concluded
that the increased charges should be found unreasonable and unjust, that the
previous charges should be restored, and that PA should make a comprehensive
feasibility study and recommendation (including higher peak hour charges) and
submit this to the Administrator within a year.

17

The Administrator, in disagreement with the ALJ, upheld the increase. He first
found that bridge users do not "have any justifiable expectation that, in an era
of escalating costs, tolls will remain the same", and that the increased toll
compared "favorably to those applicable to river crossings elsewhere in the
vicinity", being "identical to that charged by the Triborough Bridge and Tunnel
Authority on the Triborough, Bronx-Whitestone, and Throgs Neck bridges, as
well as for the Queens Midtown and Brooklyn-Battery tunnels." Although

regarding these findings as having established the "fairness of the tolls to the
users", the Administrator went on to "consider the relation of the revenues
produced by the tolls to the needs of the Port Authority." He thought that "if
net operating revenues produced by the tolls exceed an appropriate return on
the investment used in the rate base, the tolls cannot in any circumstance be
found by the Administrator to be reasonable and just". Relying on the direction
to PA under 1931 legislation, N.Y.Unconsolidated Laws 7002, to pool all
surplus revenues from facilities acquired by the sale of bonds to establish a
general reserve fund in an amount equal to 10% Of their par value,7 the
Delaware River Port Authority analogy, and "regulatory law from other fields",
the Administrator determined that the rates should be fixed on the basis of the
combined operation of the four bridges, the two tunnels, the two bus terminals,
and PATH, since "(t)he record shows that if any one facility were not in
existence, the use of others would increase correspondingly, as, significantly,
would the congestion of these other facilities."8 On the basis indicated, the
increased tolls would produce only a 4% Return on the unamortized investment
in use in 1976 and 1977 and less thereafter. After the Administrator overruled
exceptions and denied petitions for reconsideration, although making some
minor corrections in his opinion, plaintiffs brought this action in which they
sought, Inter alia, a declaration that the decision approving the increase should
be set aside. As stated above, the district court dismissed the complaint, 444
F.Supp. 174, and plaintiffs have appealed.
III.
18

IV.

Although neither the parties nor the district court discussed the standard of
judicial review, we deem it desirable to begin by doing so. In disagreement
with the district court in Delaware River Port Authority v. Tiemann, 403
F.Supp. 1117, 1126-27 (D.N.J.1975), vacated and remanded,531 F.2d 699 (3
Cir. 1976), on remand 421 F.Supp. 142 (D.N.J.1976), we think the proper
standard is that provided by 5 U.S.C. 706(2)(A), to wit, "arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with law", rather than the
possibly stricter standard of 706(2)(E), "unsupported by substantial evidence".
The substantial evidence standard is mandated only for cases "subject to
sections 556 and 557 of this title or otherwise reviewed on the record of an
agency hearing Provided by statute" (emphasis supplied). The approval of rates
for the future constitutes rulemaking, not adjudication, 5 U.S.C. 551(4), (5),
(6), (7), and is not required by 553 or 554 to be conducted pursuant to
556 and 557. Since the General Bridge Act of 1906, Supra, does not provide for
a hearing, it is immaterial that, pursuant to regulations promulgated by the
Administrator,49 C.F.R. 310.10-310.12, one was had in this case.

19

Since both the Administrator and the district court placed great weight on the
1952 Congressional legislation relating to the Delaware River Port Authority
(DRPA), we shall now deal with this. In 1946, Congress adopted a new
General Bridge Act, 33 U.S.C. 525-33, to govern the construction of bridges
approved after August 2, 1946. One section, 33 U.S.C. 526, vested in the
Secretary of the Army, later the Secretary of Transportation, rate-making
authority in terms quite similar to the General Bridge Act of 1906. However,
another section, 33 U.S.C. 529, provided:

20tolls are charged for the use of an interstate bridge constructed or taken over or
If
acquired by a State or States or by any municipality or other political subdivision or
public agency thereof, under the provisions of (sections 525 to 533 of this title), the
rates of toll shall be so adjusted as to provide a fund sufficient to pay for the
reasonable cost of maintaining, repairing, and operating the bridge and its
approaches under economical management, and to provide a sinking fund sufficient
to amortize the amount paid therefor, including reasonable interest and financing
cost, as soon as possible under reasonable charges, but within a period of not to
exceed thirty years from the date of completing or acquiring the same. After a
sinking fund sufficient for such amortization shall have been so provided, such
bridge shall thereafter be maintained and operated free of tolls.
21

In 1952 Congress granted its consent to a supplemental compact between the

states of New Jersey and Pennsylvania which created DRPA, 66 Stat. 747.
Section 3 of this contained the provisions quoted in the margin. 9

22

The 1952 statute, standing alone, might seem to work against PA rather than for
it, as the ALJ thought. Congress deemed it necessary to make a specific grant
to DRPA of the power to fix bridge tolls on the basis of the combined operation
of bridges, tunnels, railroads, etc., but has made no such grant to PA.
Furthermore the collection of any bridge tolls by DRPA was to end "fifty years
from the date of the opening to traffic . . . of the bridge latest constructed or
acquired . . . after the effective date of this Act . . .", a limitation to which PA is
not bound. Against this it can be said with force that such an exemption was
needed for the DRPA but not for PA because of 506 of the 1946 Act, 33
U.S.C. 529, which has no counterpart in the 1906 Act. Still, this leaves the
matter just as it would have been if the 1952 statute had not been enacted, i. e.,
with no fair inference either supporting or refuting PA's contentions and the
Administrator's decision.

23

The basis asserted for drawing a more favorable inference from the 1952
legislation is a passage from the House Report, H.R.Rep.No.2293, 82d Cong.
2d Sess. at 3 (1952), thereon, which states:

24
Having
consented to a similar development of the port of New York, the only other
port lying within the territory or jurisdiction of two States, the Congress has ample
precedent for approving this legislation which provides the only practicable means
for developing the Delaware River Port district as a vitally necessary center of
commerce.
25

This is sought to be supplemented by an extract from a report of the Department

of Commerce which was included in the same House Report at pp. 9-10, and
also in the Senate Report on a counterpart bill, No. 2089, 82d Cong. 2d Sess. at
8-9. We quote this in the margin.10

26

We think the Administrator overstated the importance of this. While the quoted
sentence can be taken as the Committee's answer to questions of the Bureau of
Public Roads, mentioned in the House Report at 2, concerning "the desirability
of compelling interstate bridge traffic to support nonbridge facilities", we
believe most of those Congressmen who read the report would have had the
impression, see United States v. Public Utilities Comm'n, 345 U.S. 295, 319, 73
S.Ct. 706, 97 L.Ed. 1020 (1953) (concurring opinion of Mr. Justice Jackson),
that the Committee considered these questions to have been already answered
by the statements in the report that only 5.04% Of the existing bridge traffic
"continued without terminating their trips or making a major stop in the port
district" and that local users appearing before the Committee had urged the
pooling of revenues, and that the quoted passage dealt rather with the more
general issue of the need for a bi-state authority to handle a bi-state problem.
Thus few Congressmen would have believed they were placing the seal of
legislative approval on the application to PA of a similar philosophy of rate
making simply by approving the DRPA compact. The Department of
Commerce report annexed to the two reports also says considerably less than
defendants appear to argue. The statement that DRPA should be empowered to
establish, operate and finance multiple types of facilities on a unified and
integrated basis similar to PA could refer simply to PA's practice of pooling all
surplus revenues and not to the proper rate base for setting bridge tolls. In
saying that "tolls or other charges" should "be collected on all facilities so
combined without any limitation as to time", the Department of Commerce was
not necessarily stating that bridge tolls could be kept high to make up for
deficits on other facilities. Indeed, even the 1938 letter from PA incorporated in
the report can hardly be read as suggesting that surplus revenue from bridge
tolls may be used to make up railway deficits, which, as we will see, is the true
issue here; what PA was asserting was the much more modest proposal that
tolls should not have to be related to the cost of a particular bridge. To assert, as
PA does, that the insertion of this 1938 letter in a 1952 Department of
Commerce Report which was annexed to House and Senate reports on

legislation dealing with another port authority shows that Congress was
instructing the Administrator to fix PA bridge tolls "from the standpoint of the
group as a whole" including in the group an entity, PATH, that was not to enter
it for another decade is more imaginative than convincing. We are inevitably
reminded of the observation of Mr. Justice Jackson that a court should reach its
results "by analysis of the statute instead of by psychoanalysis of Congress,"
and of Mr. Justice Frankfurter that the court should not "extrapolate meaning
from surmises and speculation . . ." United States v. Public Utilities Comm'n,
supra, 345 U.S. at 319, 321, 73 S.Ct. at 719, 720 (1953) (concurring opinions).
If the PA wished it to be clear that its bridge tolls should be fixed so as to
provide a fair return for "the group" as a whole (including an interstate railway)
and Congress was as approving as the PA now asserts, there was and still is a
simple method for achieving this. That course not having been followed, the
issue remains one for determination by the Highway Administrator under
principles of law applicable to the General Bridge Act and, in the absence of
these, to rate making in general.
V.
27

We begin by noting that the problem with which we are here faced could have
been eliminated or at least greatly reduced in scope if the Secretary of
Transportation had complied with Congress' direction in 133(b) of the
Federal-Aid Highway Act of 1973, 87 Stat. 250, 267 that he "shall promulgate
regulations establishing guidelines governing any increase in tolls for use of
any bridge constructed pursuant to either the General Bridge Act of 1906 or the
General Bridge Act of 1946."11 Such guidelines might have ruled out or wholly
or partially sanctioned what the Administrator did here; in the latter event we
would have had the benefit of the record in an extensive rulemaking
proceeding.12

28

The judicial precedents under federal bridge legislation can be neatly packaged.
Setting aside the DRPA litigation cited above, which is not directly relevant
because it arose under the General Bridge Act of 1946 as modified by 3 of
the Act of July 17, 1952, the relevant cases under the 1906 Act are precisely
two. Clarksburg-Columbus Short Route Bridge Co. v. Woodring, 67 App.D.C.
44, 89 F.2d 788, remanded for dismissal as moot, 302 U.S. 658, 58 S.Ct. 365,
82 L.Ed. 509 (1937), disapproved the Secretary of the Army's lowering a toll
solely because of considerations of reasonable return on investment. The court
held that the owner of a competing bridge, who would be ruined by having to
lower his tolls correspondingly, had a right to be heard on the issue, and that
competitive factors must be considered, as they are in ICC ratemaking. The
importance of this is the recognition that, under appropriate circumstances, a

toll producing more than a fair rate of return may be just and reasonable.
29

The other case is City of Burlington v. Turner, 336 F.Supp. 594 (S.D.Iowa
1972), modified and affirmed, 471 F.2d 120 (8 Cir. 1973). The City had long
charged tolls on the MacArthur Bridge over the Mississippi, originally
privately owned. These tolls produced a significant surplus over bridge
expenses and debt service, which was used to finance unrelated municipal
activities. Severe protests were triggered when the City abolished a free return
receipt, avowedly to produce an additional sum to finance salary raises for
policemen and firemen. Rejecting the reasoning of Clarksburg-Columbus as
"dubious" and "dicta", the Administrator not only disapproved the increase but
rendered a far-reaching opinion to the effect that bridge tolls must be limited to
bridge costs including provision for debt repayment but without profit,
substantially the standard under the 1946 General Bridge Act, 33 U.S.C. 529.
The court reversed the Administrator, holding the standards set in the 1906 and
1946 General Bridge Acts to be distinct and finding Clarksburg-Columbus and
the ICC cases to be useful precedent. It said that "Congress intended the term
(reasonable and just) to have a certain flexibility so that it might, in the
discretion of the Administrator, be tailored to varying multi-factoral
circumstances." Id. at 604, many of which were noted at 607 n. 46. The court of
appeals modified the district court's decision, which had simply enjoined
enforcement of the Administrator's orders, so as to provide for a remand to the
Administrator with a direction that his definition of "reasonable and just" must
include a reasonable return on invested capital.13

30

Before further discussing the law, it will be well to show in more detail what
the real dispute here is about. The following figures, which we have extracted
from plaintiffs' exhibit 5-b, consisting of material furnished by PA, show the
estimated results for 1976 with the toll increase in effect:

Unamortized
Investment
in Use *
(Excluding
assets
acquired
with
Gross
government
Operating Operating
Facility
contributions) Revenues
Expenses
In Millions of Dollars
--------------------------------------------------------Bridges
George Washington ........... 141.7
60.5
22.5
Bayonne ...................... 12.3
2.9
2.4
Goethals ..................... 17.9
15.5
5.7
Outerbridge .................. 21.1
5.2
2.7

31

-------------All Bridges ................. 193.0

Tunnels
Holland ...................... 39.5
Lincoln ..................... 136.7
-------------Two Tunnels ................. 176.2
Bus Terminals ................ 32.4
-------------Sub-total ................ 401.6
PATH ........................ 175.7
-------------Total ....................... 577.3
TABLE CONTINUED

--------84.1

--------33.3

17.1
26.5
--------43.6
15.0
--------142.7
14.0
--------156.7

14.2
16.4
--------30.6
13.2
--------77.1
43.7
--------120.8

Rate of
Return on
Net
Income
Unamortized
Operating
from
Investment
Revenues
Depr.
Operations
in Use *
--------------------------------------------------------------------------38.0
2.6
35.4
24.98
0.5
0.2
0.3
2.43
9.8
0.5
9.3
51.95
2.5
0.4
2.1
9.95
--------------- -------- ---------- ----------50.8
3.7
47.1
24.40
2.9
1.0
1.9
4.81
10.1
2.6
7.5
5.48
--------------- -------- ---------- ----------13.0
3.6
9.4
5.33
1.8
0.8
1.0
3.08
--------------- -------- ---------- ----------65.6
8.1
7.5
14.32
-29.7
4.4
-34.1
-19.40
--------------- -------- ---------- ----------35.9
12.5
23.4
4.05
*In using this figure rather than total unamortized investment, we do not
mean to express a judgment which of the two or, indeed, whether either is
appropriiate base for the calculation of a fair return.1/5

32

Quite evidently the serious problem is the inclusion of PATH. It stands alone
among the operations in running at a deficit, a staggering one of over three
dollars in operating expenses for each dollar of revenue.14

33

The concept of a fair return on an appropriate base is most often encountered in

utility rate making when a utility is protesting a decrease or a refusal to grant an
increase. Even in such cases the concept no longer possesses the rigidity that it
once did. As was said in F. P. C. v. Hope Natural Gas Co., 320 U.S. 591, 602,
64 S.Ct. 281, 288, 88 L.Ed. 333 (1944):

34is not theory but the impact of the rate order which counts. If the total effect of the
It
rate order cannot be said to be unjust and unreasonable, judicial inquiry under the
(Federal Power) Act is at an end. The fact that the method employed to reach that
result may contain infirmities is not then important.
35

When the attack is by users, the ratemaker may, if he rationally chooses, give
the concept a still smaller role. He may be required, as in ClarksburgColumbus, supra, to consider whether the user may not be required to pay more
than a fair return on one facility in order to maintain in business another
furnishing a similar competing service. The court there quoted with approval,
67 App.D.C. at 49, 89 F.2d at 793, an early statement of the Interstate
Commerce Commission in Commercial Club of Salt Lake v. Atchison, T. & S.
F. Ry. Co., 19 I.C.C. 218, 222 (1910):

36 determining a freight rate which must of necessity be charged by competing lines,

In
(the Commission) would not look exclusively to that line which could handle the
business the cheapest or which was the strongest financially, but would consider as
well the weaker rival.
37

The same principle was affirmed in the Supreme Court's decision sustaining the
validity of the "recapture clause" in Transportation Act, 1920, Dayton-Goose
Creek Ry. v. United States, 263 U.S. 456, 480, 44 S.Ct. 169, 172, 68 L.Ed. 388
(1924), where Chief Justice Taft said:

38 which as a body enable all the railroads necessary to do the business of a rate
Rates
territory or section, to enjoy not more than a fair net operating income on the
aggregate value of their properties therein economically and efficiently operated, are
reasonable from the standpoint of the individual shipper in that section. He with
every other shipper similarly situated in the same section is vitally interested in
having a system which can do all the business offered. If there is congestion, he
suffers with the rest. He may, therefore, properly be required in the rates he pays to
share with all other shippers of the same section the burden of maintaining an
adequate railway capacity to do their business.
39

This same principle must apply A fortiori to charges for similar service on
different facilities that are commonly owned.

40

It is possible, although we do not so decide, that the Administrator could have

rested on his findings that in times of high inflation a 50% Increase following
40 years of unchanged tolls was reasonable almost as a matter of law and that
the increased tolls on the PA bridges were identical with those on similar
facilities in the New York area. However, as shown in the remarks quoted

above, 663, the Administrator did not consider it proper to do this. Under SEC
v. Chenery Corporation, 318 U.S. 80, 63 S.Ct. 454, 87 L.Ed. 626 (1943), we
must therefore examine whether it was arbitrary or capricious for him to decide
that all the facilities which he included "act to relieve congestion that would
otherwise overburden the bridges" and that consequently "their investment
should be considered along with that in the bridges themselves. . . . "
41

We have no difficulty in sustaining the Administrator's decision to combine the

operations of the George Washington Bridge with those of the Holland and
Lincoln tunnels. All three facilities serve the same purpose providing vehicular
access between New Jersey and Manhattan. Users of one facility are not entitled
to a preference over users of another because the first was constructed at the
lower costs of earlier days or because the investment has been reduced by
depreciation. If all three facilities were bridges, presumably no one would
seriously contend that they must be treated separately; we see no reason for a
different view because two of them pass under rather than over the Hudson
River. Moreover, if tolls were raised for the tunnels but not for the George
Washington Bridge, there would be some diversion of traffic from the former
to the latter, although it is easy to exaggerate the extent to which a 50 cent
difference in round trip toll would cause such diversion in an era of high fuel
prices.

42

These same considerations justify considering the three New Jersey-Staten

Island bridges together despite the disparity in financial results which the table
reveals.15 The case for consolidating these crossings with the Hudson crossings
is much less cogent. The only common transportation element seems to be that
the Staten Island crossings in conjunction with the Verrazano Narrows Bridge
afford an alternative means of access between New Jersey and Brooklyn and
other parts of Long Island for vehicles that would otherwise have used the
Holland (or perhaps even the Lincoln) Tunnel and New York City bridges or
tunnels between Manhattan and Long Island. In any event the Auto Clubs do
not here oppose treating all four bridges together and if, as we hold, it was
permissible to treat the tunnels and the George Washington Bridge together, the
Clubs are on weak ground in opposing the combination of all six. Indeed, given
their locations, the tunnels, especially the Holland Tunnel, are more closely
related to the three Staten Island crossings than is the George Washington
Bridge.

43

In addition to this functional relationship, great weight can be given, so far as

the bridges and tunnels are concerned, to the 1931 bridge and tunnel unification
legislation passed by New York and New Jersey, which we have quoted above.
According to studies conducted by PA in 1972 and 1973, more than 93% Of the

bridge and tunnel crossings were made by residents of New York and New
Jersey. While the joint judgment of the two states that all PA bridges and
tunnels should be considered as a group is not binding on the Federal
Government, it is entitled to substantial deference.
44

With slightly less conviction we think the Administrator was justified in

including the bus terminals. To the extent that the W. 40th Street terminal
promotes use of the tunnels, it reduces congestion on the George Washington
Bridge; to the extent that the bus terminals induce passengers to use buses
rather than private cars, they reduce congestion both on the Bridge and in the
tunnels.16

45

The serious question, as noted above, is the inclusion of PATH. As shown by

the foregoing table, if PATH were excluded, the projected 1976 rate of return
would be 14.32% As against the 6.50% Recommended by the ALJ and
approved by the Administrator as a fair return and the range of 7-10% Asserted
by PA.

46

We reproduce in the margin what the Administrator gave as reasons for

including PATH.17 Two of these must be dismissed. The reference cited for the
interdependence of PATH and the Staten Island bridges proved the opposite, as
the Administrator conceded in his opinion on the exceptions and petitions for
reconsideration, and the new references cited by him simply showed the rather
minor degree of relationship between the Staten Island bridges and the tunnels
which we have mentioned. The first three sentences of the third extract are
largely circular; we find more significance in the point, mentioned above, that
the 1961 legislation with respect to the acquisition of the Hudson & Manhattan
Railroad did not contain provisions with respect to unification similar to the
1931 bridge and tunnel legislation. 18 What is left is that if PATH did not exist,
the trans-Hudson tunnels and, to a lesser degree, the George Washington
Bridge, would become overcrowded.

47

PA's Assistant Executive Director submitted the following figures concerning

the number of people traveling eastbound across the Hudson between 7 and 10
A.M.

Port
48 Authority
Vehicular Crossings:
Auto ..........................
Bus ...........................
Port Authority Trans-Hudson
Railroad ......................
Pennsylvania Railroad Division

Number of
People
63,400
64,600
46,800

of Conrail ....................

13,500
-------------Total ............... 188,300 19
--------------

49 witness estimated that if PATH were abandoned, 85% Of its passengers would
The
transfer to autos or buses,20 which would mean a peak hour load of 4,500 additional
vehicles. This, he thought, would require a new four-lane tunnel and a lower
Manhattan bus terminal, costing a minimum of $925 million in 1976 dollars. Debt
service and operating expenses would amount to $107 million as against revenues of
only $5 million.21 The witness concluded that, even apart from savings provided by
PATH in the use of energy and environmental benefits, bridge users are thus better
off paying the deficits and a fair return on the investment in PATH.
50

Granted the force of this, the inclusion of PATH is still a giant leap from
anything previously taken into account in determining appropriate rates under
the "reasonable and just" provision of the General Bridge Act of 1906. The PA
witness stated that, because of its location, the George Washington Bridge
traffic is "predominately peripheral" (Ex. PA 7, p. 25); shutting down PATH
thus would affect it in the first instance less than the tunnels; it is the
overcrowding of the latter that might congest the Bridge. The question was not
whether PATH requires subsidization but whether, in the absence of
Congressional action such as the 1952 legislation concerning DRPA, the huge
deficits of PATH can properly be loaded onto users of the PA bridges three of
which have almost no functional relationship and the fourth, the George
Washington Bridge, only a small one. There was no showing that it was the
level of the previous tolls rather than the convenience of the bridges and
tunnels that was drawing traffic away from PATH or that the higher ones would
increase PATH ridership. The higher bridge tolls are paid not simply by
commuters who opt to use the George Washington Bridge when they could as
readily have used PATH but by commuters for whom PATH was not a feasible
alternative, by non-commuter passengers including many who were not
destined to or did not originate in Manhattan or nearby New Jersey, and even by
trucks. Another fair question, unanswered by the Administrator, is why, as a
matter of policy, if users of all the PA bridges are to be tapped to sustain the
other facilities here in question, particularly PATH, the proceeds should not be
used to support all New York-New Jersey commuter services, including those
using the ConRail Tunnel; this, of course, would require legislation. Also the
Administrator seems to have taken as a given that there should be no increase in
PATH's 30 cent fare. We see no basis for this. Despite the failure of one such
attempt a few years ago because of political opposition,22 the inflation since
then, the mounting PATH deficits, and the history of fares on similar facilities
including the New York subways, make such a fare Prima facie unreasonably

low.
51

In substance, what the Administrator did here was to implement the preferred
legislative recommendation of the Secretary of Transportation, Bridge Toll
Study, Supra, note 12, Option (3), pp. 67, 70-71, whereby bridge tolls in major
urban areas may be used not only to recover bridge construction, operating and
maintenance costs, but to "provide complementary capital improvements to
highways or transit systems and/or transit operating assistance within the urban
area." Apart from any question whether Congress would have enacted such
legislation if the Secretary had submitted it, as he undertook to do in his report
of July 1, 1974, such legislation would very likely have contained safeguards
absent from the Administrator's approval here.23 Indeed, such would very likely
have been provided if the rulemaking directed by 133(b) of the Federal-Aid
Highway Act of 1973, Supra, 87 Stat. 267, had ever occurred.

52

Still we cannot quite bring ourselves to say that the action of the Administrator
in approving the increased tolls was arbitrary or capricious on the record that
was before him. Perhaps this is a case where it does matter that this rather than
substantial evidence is the applicable standard, see Abbott Laboratories v.
Gardner, 387 U.S. 136, 143, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967); Associated
Industries of New York State, Inc. v. United States Department of Labor, 487
F.2d 342, 347-50 (2 Cir. 1973). Many of the serious questions we have posed
seem not to have been fully developed before the agency if they were
propounded at all. The Auto Clubs chose to proceed on an all or nothing basis,
resisting inclusion of anything but the four bridges. If the Administrator's
choice was simply between the narrow concept urged by the Auto Clubs and
the broader one that he adopted, his action was not so wrong as to demand our
remanding the case to him, particularly since, especially in the light of
increased costs since his decision, we would leave the existing tolls in effect
pending such a remand. We therefore affirm, but with the caveat that this shall
not be deemed to constitute an approval or rejection of the Administrator's
action or to preclude a new protest, taking account of points raised in this
opinion and others, unless new legislation or the regulations required by
133(b) of the Federal-Aid Highway Act of 1973, which would remove or alter
the points in controversy, is forthcoming within a reasonable time.

53

The order of the district court is affirmed. No costs.

The reported opinion dismissed the complaint only against the Federal
Highway Administrator and the Secretary of Transportation, 444 F.Supp. at

178. Subsequently, on the basis of a stipulation that the Port Authority had not
used a rate base other than that approved by the Administrator, the court also
dismissed the complaint against PA
2

The George Washington Bridge spans the Hudson River from Fort Lee, N. J. to
178th St. in New York City. The Bayonne Bridge, the Goethals Bridge and the
Outerbridge Crossing connect various points in New Jersey with Staten Island,
N. Y

This applies to all bridges over navigable waters, not merely to interstate
bridges

In all cases New Jersey adopted identical provisions. We shall refer only to the
New York legislation

The district is quite large. It reaches as far north as 2.1 miles northwest of
Piermont, N. Y., as far west as 1 mile west of New Brunswick, N. J., and as far
east as 5 miles east of Jamaica, L. I. The southern tip is in the Atlantic Ocean

In 1974, under the previous tolls, the four bridges had earned 16.2% On
invested capital; it was estimated that they would earn 27.3% In 1976 under the
increased tolls

We find this portion of the Administrator's reasoning wholly unpersuasive and

shall not discuss it further

The Administrator excluded PA's motor terminal facilities "because of the lack
of evidence connecting these with across-harbor, as distinct from other
movements." For the same reason he excluded the World Trade Center, the
airports "and other facilities not involved in trans-water crossings."

Notwithstanding any limitation on the collection of tolls as prescribed by

Section 506 (33 U.S.C. 529) of the General Bridge Act of 1946, as amended,
or as prescribed by any Act heretofore enacted by the Congress authorizing or
consenting to the construction or acquisition of any bridge constructed or
acquired by the commission, the commission is hereby authorized to fix,
charge, and collect tolls or other charges for the use of any bridge or tunnel
heretofore or hereafter established, controlled, constructed, or acquired by the
commission, and to combine any two or more of such bridges or tunnels, or
combine any one or more of such bridges or tunnels, with any railroad, rapidtransit system, or other properties or facilities for transportation, terminal or
port improvement purposes (each such bridge, tunnel, railroad, system, or other
property or facility being hereinafter referred to as 'facility') heretofore or
hereafter established, controlled, constructed, or acquired by the commission,

and combine the tolls or revenues therefrom, and to fix, charge, and collect
tolls or other charges for the use of such facilities so combined, and to use or
pledge any such tolls or other charges for purposes of financing, acquiring,
constructing, operating or maintaining any facility or facilities, all to the extent
provided by and in accordance with the provisions of the aforesaid compact or
agreement as amended and supplemented, as consented to by the Congress, and
the laws of the State of New Jersey and Commonwealth of Pennsylvania with
respect thereto or to said commission: Provided, That as a specific exemption
from the provisions of section 506 of the General Bridge Act of 1946, as
amended, the collection of tolls for the use of any bridge hereafter constructed
or acquired by the commission, in excess of amounts reasonably required for
the operation and maintenance thereof under economical management, shall
cease at the expiration of fifty years from the date of the opening to traffic by
the commission of the bridge latest constructed or acquired by said commission
after the effective date of this Act, and the rate of such tolls shall be subject to
the provisions of section 503 (33 U.S.C. 526) of the General Bridge Act of
1946, as amended
10

The purpose, functions, and scope of authority of the proposed Delaware River
Port Authority would be similar to those of the existing Port of New York
Authority in that it would be empowered to establish, operate, and finance on a
unified and integrated basis multiple types of facilities to promote the
development of a densely populated and industrialized metropolitan and port
area as a center of foreign and domestic commerce. Because of the great cost
involved in the construction, maintenance, and operation of facilities for the
development of such an area it has been urged that all such facilities, including
highway bridges and highway tunnels, serve one common purpose and are so
interrelated that they should be combined for financing purposes, with tolls or
other charges to be collected on all facilities so combined without any
limitation as to time
The financial and toll aspects of this problem were the subject of extensive
correspondence during the mid-thirties between the Bureau of Public Roads,
which then was in the Department of Agriculture, and the Port of New York
Authority, the only such authority then in existence. At about that time various
legislative proposals were under consideration for a general bridge act to
eliminate the necessity of enacting a special bill for each individual bridge,
which practice had become burdensome to the President and to the Congress. It
was in this connection that the Bureau of Public Roads received from the Port
of New York Authority a letter of May 16, 1938, and it is believed desirable to
quote the following pertinent excerpts from that letter:
" * * * Permission to include a bridge in the Port Authority group operation

would be valueless, unless tolls can be adjusted from the standpoint of the
group as a whole and not from the standpoint of the particular bridge.
The port authority financing of bridges, tunnels, and related terminal projects
rests upon the proposition that the present facilities and facilities which may be
needed in the future all serve a common pool of traffic and as a group depend
upon this pool for their economic justification. No single existing or future
interstate bridge in this district stands wholly on its own either from a financing
or a toll standpoint. Therefore it is essential that no rigid formula be embodied
in the act which tends to freeze the tolls on any new bridge so that it cannot be
incorporated into the group financing and operation.
"Obviously the adjustment of tolls on bridges included in the port authority
group operation is a matter which is extraordinarily difficult to reduce to a
formula which can be embodied in a congressional act, and we believe that the
soundest policy is to exempt this situation from any such formula and leave the
reasonableness to the determination of the Secretary of War (or whatever
Federal officer may be designated)."
The Port of New York Authority was created in 1921 and was the only agency
of its kind in existence for about 30 years. In view of this fact and the special
circumstances involved no objection to the plan of toll financing by that
authority was interposed during that time by the Bureau of Public Roads, either
in connection with the administration of its Federal-aid road activities or
otherwise.
11

The Secretary did comply with the direction of 133(a) that he undertake a
study of Federal statutes and regulations governing toll bridges over navigable
waters of the United States "for the purpose of determining what action can and
should be taken to assure just and reasonable tolls nationwide" and to submit a
report of the findings of such study and recommendations for legislation by
July 1, 1974. The transmittal letter accompanying the report stated that
proposed legislation would be submitted in the near future. Apparently none
has been

12

The public input in such rulemaking would doubtless be much more extensive
than in these proceedings where the only parties were the PA, the Auto Clubs,
Citizens for Clean Air, Inc., the Environmental Defense Fund, and Public
Counsel

13

The court added, 471 F.2d at 123:

The method Burlington used in setting tolls was based primarily on its financial
needs, unrelated to the bridge, and is no more reasonable or just than the

determination made by the Administrator pursuant to his order of April 30,

1971. The added factor of reasonable return on invested capital should result in
tolls less than those set by Burlington, but may result in tolls greater than those
prescribed by the Administrator.
As a result of the remand the tolls were reduced, see Secretary of
Transportation, A Study of Federal Statutes and Regulations Governing Toll
Bridges 51-53 (1974).
14

The forecasts for the future were no better. The PATH figures for 1979 were:
$15.5 million in operating expenses, a net operating deficit of $36.5 million,
$5.3 million of depreciation, a deficit of $41.8 million in income from
operations and a negative return of 23.24% On unamortized investment in use

15

The forecasts reflect significant improvement in net operating revenues for the
Outerbridge Crossing but not for the Bayonne Bridge

16

The foregoing text is subject to two Caveats. One is that we do not understand
why the bus terminals should operate at such low rates of return on
unamortized investment in use. These start with an estimated return of only
3.08% In 1976 and then rise somewhat in 1977 and 1978, but thereafter decline
to -2.86% In 1979, -16.18% In 1980 and, apparently as a result of the
completion of the addition to the W. 40th St. terminal, -3.42% In 1981. We
have been directed to nothing in the record that would show why these
commercial terminals should not be self-sustaining. The other is that some
portion of these facilities apparently is devoted to bus transportation not
crossing between New York and New Jersey. Whether bridge users might be
entitled to a segregation of revenues, expenses and investment excluding traffic
not using the trans-Hudson crossings and, if so, on what basis, might be an
appropriate subject for consideration. However, so far as we can determine,
neither of these points was raised before the Administrator

17

"PATH and the Lincoln and Holland tunnels all have terminals in the
Manhattan central business district and all provide nearly interchangeable
transportation options for persons residing in New Jersey and working in the
central business district. Thus, discontinuance of any facility would
significantly increase use and congestion of any other
In addition, the relationship between PATH and the Staten Island bridges is
sufficient to justify including them within a single rate base (Tr. 1 1/4 at 111)."
"The avoidance of congestion is of unquestionable advantage for bridge users.
Congestion not only produces lost time and increases aggravation but
contributes to the degradation of the environment of the congested facility by

increased noise and engine emissions. Although it is virtually impossible to

measure these costs in dollars, avoidance of them has an economic benefit to
the user which should be charged to him. Because this economic benefit is as
equally unquantifiable as the penalties of the costs avoided, a proxy for its
value can be substituted. This proxy consists of the cost of providing other
transportation facilities that divert traffic that would otherwise use and congest
the bridges. The Administrator therefore concludes that, since each of the
facilities does contribute towards avoiding congestion on the bridges, inclusion
of the capital invested in them in the rate base for the tolls is a reasonable proxy
cost for the benefit conferred upon the bridge users."
"Another independent reason exists for including the investment of all these
facilities in a single rate base. This is because these facilities were planned and
have been operated by the Port Authority as an integrated, interdependent
transportation system used to facilitate cross-water movements (PA-7, passim).
The Administrator must pay some deference to the Port Authority's fiscal
policy of pooling revenues and costs in all these facilities and making its
investment decisions on the basis of net operating revenues considered as a
whole. Moreover, the record shows that each transportation instrumentality
serves to facilitate this cross-water movement in its own fashion, thereby
benefiting not only its own users but also the users of other such
instrumentalities. As previously mentioned, the existence of masstransportation facilities serves to avoid congestion on all bridges. The bridges in
turn benefit the users of these other facilities by contributing towards their
financial support. It is therefore appropriate for the Administrator to include the
capital invested in each in forming the investment base to measure the rate of
return." (footnote omitted).
18

The relevant legislative findings were simply:

(1) that the transportation of persons to, from and within the port of New York,
and the flow of foreign and domestic cargoes to, from and through the port of
New York are vital and essential to the preservation of the economic well-being
of the northern New Jersey-New York metropolitan area;
(2) that in order to preserve the northern New Jersey-New York metropolitan
area from economic deterioration, adequate facilities for the transportation of
persons must be provided, preserved and maintained and that rail services are
and will remain of extreme importance to such transportation of persons;
(3) that the interurban electric railway now or heretofore operated by the
Hudson & Manhattan railroad company is an essential railroad facility serving
the northern New Jersey-New York metropolitan area, that its physical plant is

in a severely deteriorated condition, and that it is in extreme financial condition;

(4) that the immediate need for the maintenance and development of adequate
railroad facilities for the transportation of persons between northern New Jersey
and New York would be met by the acquisition, rehabilitation and operation of
the said Hudson & Manhattan interurban electric railway by a public agency,
and improvement and extensions of the rail transit lines of said railway to
permit transfer of its passengers to and from other transportation facilities and
in the provision of transfer facilities at the points of such transfers;
The legislation also contained the statutory covenant, Unconsolidated Laws
6606, dealt with in the United States Trust Company case, Supra, 431 U.S. 1,
97 S.Ct. 1505, 52 L.Ed.2d 92. While this allowed bridge tolls to be applied for
"permitted" railroad purposes as therein defined, nothing in it suggests that
these would be increased solely to provide added income for PATH.
20

The remaining 15% Would use ConRail's service to Pennsylvania Station

21

Apparently these low revenue estimates took account only of the PATH traffic.
In fact a new tunnel would lead to a redistribution of all tunnel traffic, with
consequent better utilization of the new tunnel in off-peak hours, and might
generate new traffic

22

A proposal in 1973-1974 to raise the fare to 50 cents was withdrawn because of

the opposition of Governor Byrne of New Jersey. See New York Times (N.J.
ed.), Feb. 15, 1974, p. 1:1, where PA Commissioner Hofman explained the
withdrawal:
"Fundamentally, Governor Byrne doesn't want the fare increases, and he's the
boss. It took us about a tenth of a second to decide."
One of the Governor's reasons was that PATH should be assisted by an increase
in the motor vehicle tolls. See New York Times (N.J. ed.), Feb. 12, 1974, p.
1:1.

23

Under N.Y.Pub.Auth.L. 569-c and 1219-a, the Triborough Bridge and

Tunnel Authority can transfer its surplus funds to the New York City Transit
Authority for capital expenses and, if the City provides sufficient capital funds,
for operating expenses